I

103D CONGRESS

2D SESSION H. R. 4202

To increase access to high quality, affordable health insurance.

IN THE HOUSE OF REPRESENTATIVES

APRIL 13, 1994

Mr. MCCRERY (for himself, Mr. TAUZIN, Mr. BAKER of Louisiana, Mr.

DELAY, Mr. DOOLITTLE, Mr. HOUGHTON, Mr. INHOFE, Mr. SAM JOHNSON of Texas, Mr. LIVINGSTON, Mr. HAYES, Mr. INGLIS of South Carolina, and Mr. HOKE) introduced the following bill; which was referred

jointly to the Committees on Energy and Commerce, Ways and Means,

the Judiciary, and Education and Labor

A BILL

To increase access to high quality, affordable health

insurance.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

5 ‘‘Health Savings and Security Act of 1994’’.

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

7 this Act is as follows:

TITLE I—INSURANCE REFORM

Subtitle A—Insurance Provisions
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PART 1—REQUIREMENTS FOR TAX-FAVORED HEALTH PLANS

Sec. 101. Requirements for high deductible umbrella insurance plans

and managed health care plans .................................... 6

Sec. 102. Benefits ................................................................................... 9

Sec. 103. Rating practices ....................................................................... 13

Sec. 104. Guaranteed issue ..................................................................... 14

Sec. 105. Guaranteed renewability .......................................................... 16

Sec. 106. Restrictions on agent compensation and broker activities ...... 17

PART 2—CERTIFICATION OF HIGH DEDUCTIBLE UMBRELLA INSURANCE

PLANS AND MANAGED CARE HEALTH PLANS

Sec. 111. Establishment of regulatory program for certification of

plans .............................................................................. 18

Sec. 112. Standards for regulatory programs ......................................... 20

Subtitle B—Promoting Development of Voluntary Health Plan

Purchasing Cooperatives

Sec. 121. Establishment of standards; application in States .................. 28

Sec. 122. Specification of HPPC areas ................................................... 32

Sec. 123. Standards for health plan purchasing cooperatives ................ 32

Sec. 124. Functions of health plan purchasing cooperatives .................. 36

Sec. 125. Qualified health carriers .......................................................... 44

Sec. 126. Marketing HPPC plans ........................................................... 50

Sec. 127. Collection and submission of data ........................................... 51

Sec. 128. Role of State; oversight; evaluation ......................................... 53

Sec. 129. Definitions ............................................................................... 55

Subtitle C—Federal Preemption

Sec. 141. Prohibition of State benefit mandates for group health plans 58

Sec. 142. Prohibition of provisions prohibiting employer groups from

purchasing health insurance ......................................... 59

Sec. 143. Restrictions on managed care ................................................. 59

Sec. 144. Exemption of state laws preventing denial of lifesaving medical treatment pending transfer to another health care

provider ......................................................................... 61

Sec. 145. Definitions ............................................................................... 62

Subtitle D—Rules of Construction Regarding Abortion

Services; Inseverability

Sec. 151. Rules of construction regarding abortion services .................. 64

Sec. 152. Inseverability ........................................................................... 65

TITLE II—AMENDMENTS OF INTERNAL REVENUE CODE

OF 1986

Subtitle A—Limitations on Employer Deduction for Health

Care Coverage for Employees and on Employee Exclusion

for Employer-Provided Health Care Coverage

Sec. 201. Employer deduction for health care coverage for employees

limited to coverage under high-deductible plans and

managed care plans and to contributions to medical

savings accounts for employees ..................................... 66
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Sec. 202. Limitation on exclusion for employer-provided coverage

under health plan .......................................................... 74

Sec. 203. Health benefits may not be provided under cafeteria plans ... 77

Sec. 204. Effective date .......................................................................... 78

Subtitle B—Credits for Contributions to Medical Savings Accounts, for Purchase of Coverage Under Tax-Qualified

Health Care Plans, and for Routine Preventive Care

Sec. 211. Credit for contributions to medical savings accounts ............. 79

Sec. 212. Refundable credit for purchase of coverage under tax-qualified health care plans .................................................... 97

Sec. 213. Credit for cost of routine preventive care ............................... 103

Sec. 214. Effective date .......................................................................... 105

Subtitle C—Repeal of Medical Expense Deduction

Sec. 221. Repeal of medical expense deduction ...................................... 105

Subtitle D—Veterans Medical Benefits and Services

Unaffected

Sec. 231. Veterans medical benefits and services unaffected ................. 106

TITLE III—SAVINGS IN MEDICARE AND MEDICAID

PROGRAMS

Subtitle A—Medicare Program

Sec. 301. Increase in Medicare part B premium for individuals with

high income ................................................................... 106

Sec. 302. Imposition of 20 percent coinsurance on clinical laboratory

services under Medicare ................................................ 110

Sec. 303. Annual indexing of part B deductible ..................................... 110

Subtitle B—Medicaid Program

PART 1—ACHIEVING SAVINGS IN PROGRAM

Sec. 311. Cap on Federal payments made for acute medical services

furnished under the Medicaid program ........................ 111

PART 2—OPTIONAL ENROLLMENT OF LOW-INCOME INDIVIDUALS UNDER

HIGH DEDUCTIBLE UMBRELLA INSURANCE PLANS AND MANAGED HEALTH

CARE PLANS

Sec. 321. Optional enrollment under plans ............................................. 119

PART 3—INCREASING STATE FLEXIBILITY TO USE MANAGED CARE UNDER

MEDICAID

Sec. 331. Modification of Federal requirements to allow States more

flexibility in contracting for coordinated care services

under Medicaid .............................................................. 128

PART 4—LIMITATIONS ON FUNDING OF ABORTION SERVICES UNDER

MEDICAID

Sec. 341. Limitations on funding of abortion services under Medicaid 182
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TITLE IV—CONTAINING HEALTH CARE COSTS

Subtitle A—Medical Malpractice Liability Reform

PART 1—GENERAL PROVISIONS

Sec. 401. Federal reform of medical malpractice liability actions .......... 183

Sec. 402. Definitions ............................................................................... 185

Sec. 403. Effective date .......................................................................... 190

PART 2—MEDICAL MALPRACTICE AND PRODUCT LIABILITY REFORM

Sec. 411. Requirement for initial resolution of action through alternative dispute resolution ............................................... 191

Sec. 412. Calculation and payment of damages ...................................... 195

Sec. 413. Requiring party contesting ADR ruling to pay attorney’s fees

and other costs .............................................................. 198

Sec. 414. Joint and several liability for noneconomic damages .............. 201

Sec. 415. Statute of limitations .............................................................. 202

Sec. 416. Uniform standard for determining negligence ........................ 202

Sec. 417. Special provision for certain obstetric services ........................ 202

PART 3—REQUIREMENTS FOR STATE ALTERNATIVE DISPUTE RESOLUTION

SYSTEMS (ADR)

Sec. 421. Basic requirements .................................................................. 203

Sec. 422. Certification of State systems; applicability of alternative

Federal system .............................................................. 206

Sec. 423. Reports on implementation and effectiveness of alternative

dispute resolution systems ............................................ 208

PART 4—OTHER PROVISIONS RELATING TO MEDICAL MALPRACTICE

LIABILITY

Sec. 431. Permitting State professional societies to participate in disciplinary activities ......................................................... 209

Sec. 432. Study of incentives to encourage voluntary service by physicians .............................................................................. 211

Sec. 433. Requirements for risk management programs ........................ 212

Sec. 434. Grants for medical safety promotion ....................................... 213

Subtitle B—Treatment of Certain Activities Under the

Antitrust Laws

Sec. 451. Exemption from antitrust laws for certain competitive and

collaborative activities ................................................... 216

Sec. 452. Safe harbors ............................................................................ 218

Sec. 453. Designation of additional safe harbors ................................... 222

Sec. 454. Certificates of review ............................................................... 225

Sec. 455. Notifications providing reduction in certain penalties under

antitrust law for health care cooperative ventures ....... 237

Sec. 456. Review and reports on safe harbors and certificates of review 246

Sec. 457. Rules, regulations, and guidelines ........................................... 247

Sec. 458. Establishment of HHS Office of Health Care Competition

Policy ............................................................................. 249

Sec. 459. Definitions ............................................................................... 249
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TITLE V—SPECIAL ASSISTANCE FOR FRONTIER, RURAL,

AND URBAN UNDERSERVED AREAS

Subtitle A—Frontier, Rural, and Urban Underserved Areas

Sec. 501. Establishment of program to make community-based primary health grants and health service access grants

for Federally-qualified health centers ........................... 252

Sec. 502. Tax incentives for practice in frontier, rural, and urban underserved areas .............................................................. 276

Sec. 503. Rural emergency access care hospitals .................................... 290

Sec. 504. Grants to States regarding aircraft for transporting rural

victims of medical emergencies ..................................... 295

Sec. 505. Demonstration projects to encourage the development and

operation of rural health networks ............................... 301

Subtitle B—Primary Care Provider Education

Sec. 511. Graduate medical education demonstration projects .............. 311

Sec. 512. Funding under Medicare for training in nonhospital-owned

facilities ......................................................................... 323

Sec. 513. Increase in National Health Service Corps funding ............... 326

Sec. 514. Increase in health professions funding for primary care physicians ............................................................................ 326

Sec. 515. Health professions funding for nurse practitioners and physician assistants programs ............................................... 327

Sec. 516. State grants to increase the number of primary care providers .................................................................................. 330

Subtitle C—Programs Relating to Primary and Preventive

Care Services

Sec. 521. Maternal and infant care coordination .................................... 331

Sec. 522. Frontier States ........................................................................ 335

Subtitle D—Limitation on Funding for Abortions

Sec. 531. Limitation on funding for abortions ....................................... 335

TITLE VI—ADMINISTRATIVE COST SAVINGS

Subtitle A—Standardization of Claims Processing

Sec. 601. Adoption of data elements, uniform claims, and uniform electronic transmission standards ....................................... 336

Sec. 602. Application of standards ......................................................... 338

Sec. 603. Periodic review and revision of standards ............................... 342

Sec. 604. Health insurance plan defined ................................................ 343

Subtitle B—Electronic Medical Data Standards

Sec. 611. Medical data standards for hospitals and other providers ...... 343

Sec. 612. Application of electronic data standards to certain hospitals 345

Sec. 613. Electronic transmission to Federal agencies ........................... 348

Sec. 614. Limitation on data requirements where standards in effect ... 348

Sec. 615. Advisory commission ............................................................... 350
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Subtitle C—Development and Distribution of Comparative

Value Information

Sec. 621. State comparative value information programs for health

care purchasing ............................................................. 351

Sec. 622. Federal implementation ........................................................... 354

Sec. 623. Comparative value information concerning Federal programs 354

Subtitle D—Preemption of State Quill Pen Laws

Sec. 631. Preemption of State quill pen laws ......................................... 355

TITLE VII—ANTI-FRAUD AND ANTI-RATIONING

Subtitle A—Criminal Prosecution of Health Care Fraud

Sec. 701. Penalties for health care fraud ................................................ 356

Sec. 702. Rewards for information leading to prosecution and conviction ................................................................................ 357

Subtitle B—Coordination of Health Care Anti-Fraud and

Abuse Activities

Sec. 711. Application of Federal health anti-fraud and abuse sanctions

to all fraud and abuse against any health insurance

plan ............................................................................... 359

Subtitle C—Protection Against Rationing of Treatment

Sec. 721. Prohibition on denial or treatment based on age, disability,

degree of medical need, or quality of life ...................... 363

Sec. 722. Enforcement ............................................................................ 364

1 TITLE I—INSURANCE REFORM

2 Subtitle A—Insurance Provisions

3 PART 1—REQUIREMENTS FOR TAX-FAVORED

4 HEALTH PLANS

5 SEC. 101. REQUIREMENTS FOR HIGH DEDUCTIBLE UM6 BRELLA INSURANCE PLANS AND MANAGED

7 HEALTH CARE PLANS.

8 (a) IN GENERAL.—For purposes of section 162(o) of

9 the Internal Revenue Code of 1986 and this Act:

10 (1) HIGH DEDUCTIBLE UMBRELLA INSURANCE

11 PLAN.—A ‘‘high deductible umbrella insurance plan’’
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1 is a health insurance plan offered, issued, or re2 newed on or after January 1, 1996, which is cer3 tified by the applicable regulatory authority as meet4 ing, at a minimum, the applicable requirements of

5 sections 102, 103, 104, 105, and 106 with respect

6 to such a plan and providing for the regulatory pro7 gram described in section 112.

8 (2) MANAGED HEALTH CARE PLAN.—A ‘‘man9 aged health care plan’’ is a health insurance plan of10 fered, issued, or renewed on or after January 1,

11 1996, which is certified by the applicable regulatory

12 authority as meeting, at a minimum, the applicable

13 requirements of sections 102, 103, 104, 105, and

14 106 with respect to such a plan and providing for

15 the regulatory program described in section 112.

16 (3) TAX-QUALIFIED HEALTH CARE PLAN.—The

17 term ‘‘tax-qualified health care plan’’ means a high

18 deductible umbrella insurance plan or managed

19 health care plan.

20 (b) GENERAL DEFINITIONS.—As used in this title:

21 (1) HEALTH INSURANCE PLAN.—The term

22 ‘‘health insurance plan’’ means any hospital or medi23 cal service policy or certificate, hospital or medical

24 service plan contract, or health maintenance organi25 zation group contract and, in States which have dis-
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1 tinct licensure requirements, a multiple employer

2 welfare arrangement, but does not include any (or

3 any combination) of the following offered by an

4 insurer:

5 (A) Accident only, dental only, disability

6 only, or long-term care only insurance.

7 (B) Coverage issued as a supplement to

8 liability insurance.

9 (C) Workers’ compensation or similar

10 insurance.

11 (D) Automobile medical-payment insur12 ance.

13 (2) APPLICABLE REGULATORY AUTHORITY.—

14 The term ‘‘applicable regulatory authority’’ means—

15 (A) in the case of a State with a program

16 described in section 111, the State commis17 sioner or superintendent of insurance or other

18 State authority responsible for regulation of

19 health insurance; or

20 (B) if the State has not established such a

21 program or such program has been decertified

22 under section 111(b), the Secretary.

23 (3) SECRETARY.—The term ‘‘Secretary’’ means

24 the Secretary of Health and Human Services.
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1 (4) STATE.—The term ‘‘State’’ means each of

2 the several States of the United States, the District

3 of Columbia, the Commonwealth of Puerto Rico, the

4 United States Virgin Islands, Guam, American

5 Samoa, and the Commonwealth of the Northern

6 Mariana Islands.

7 (c) ESTABLISHMENT OR OPERATION OF MANAGED

8 HEALTH CARE PLANS BY STATES.—A State may estab9 lish or operate a managed health care plan.

10 SEC. 102. BENEFITS.

11 (a) IN GENERAL.—The requirements of this section

12 are met, if the health insurance plan—

13 (1) provides coverage for all medically necessary

14 acute medical care described in subsection (b),

15 (2) does not exclude coverage for selected ill16 nesses or selected treatments if consistent with

17 medically accepted practices, and

18 (3) meets the applicable patient cost-sharing re19 quirements of subsection (c).

20 (b) ACUTE MEDICAL CARE.—Acute medical care de21 scribed in this subsection includes—

22 (1) physician services,

23 (2) inpatient, outpatient, and emergency hos24 pital services and appropriate alternatives to hos25 pitalization, and
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1 (3) inpatient and outpatient prescription drugs.

2 (c) COST SHARING REQUIREMENTS.—The require3 ments of this subsection are as follows:

4 (1) LIMITATION ON DEDUCTIBLES.—

5 (A) HIGH DEDUCTIBLE UMBRELLA

6 HEALTH INSURANCE PLAN.—

7 (i) IN GENERAL.—In the case of a

8 high deductible umbrella insurance plan,

9 the plan shall provide a deductible amount

10 for benefits provided in any plan year

11 which is at least $1,500 (but not to exceed

12 $3,000) for items and services furnished to

13 a family (composed of one or more individ14 uals) enrolled under the plan in a year.

15 (ii) INDEXING DOLLAR AMOUNTS.—

16 For any calendar year beginning with

17 1997, the dollar amount specified in clause

18 (i) (as previously increased under this

19 clause) shall be increased by the percent20 age increase in the consumer price index

21 for all urban consumers (United States

22 city average, as published by the Bureau of

23 Labor Statistics) for the 12-month period

24 ending with September of the preceding

25 calendar year. Any dollar amount in-
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1 creased under the previous sentence that is

2 not a multiple of $10, shall be rounded to

3 the next highest multiple of $10.

4 (B) MANAGED HEALTH CARE PLANS.—In

5 the case of a managed health care plan, the

6 plan may provide a deductible the amount of

7 which does not exceed the amount of the de8 ductible permitted under subparagraph (A).

9 (2) LIMITATION ON COPAYMENTS AND COIN10 SURANCE.—

11 (A) IN GENERAL.—A health insurance

12 plan may not require the payment of any

13 copayment or coinsurance for an item or service

14 for which coverage is required under this sec15 tion after an individual or a family covered

16 under the plan has incurred out-of-pocket ex17 penses under the plan that are equal to the out18 of-pocket limit for a plan year.

19 (B) LIMIT ON OUT-OF-POCKET EX20 PENSES.—As used in this paragraph—

21 (i) OUT-OF-POCKET EXPENSES DE22 FINED.—The term ‘‘out-of-pocket ex23 penses’’ means, with respect to an individ24 ual or a family in a plan year, amounts

25 payable under the plan as deductibles and
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1 coinsurance with respect to items and serv2 ices provided under the plan and furnished

3 in the plan year on behalf of the individual

4 or the family covered under the plan.

5 (ii) OUT-OF-POCKET LIMIT DE6 FINED.—The term ‘‘out-of-pocket limit’’

7 means for a plan year beginning in—

8 (I) a calendar year prior to 1998,

9 $5,000; or

10 (II) for a subsequent calendar

11 year, the limit specified in this clause

12 for the previous calendar year in13 creased by the percentage increase in

14 the consumer price index for all urban

15 consumers (United States city aver16 age, as published by the Bureau of

17 Labor Statistics) for the 12-month pe18 riod ending on September 30 of the

19 preceding calendar year.

20 If the limit computed under subclause (II)

21 is not a multiple of $10, it shall be round22 ed to the next highest multiple of $10.
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1 SEC. 103. RATING PRACTICES.

2 (a) IN GENERAL.—The requirements of this section

3 are met, if, except as provided in subsection (b), the health

4 insurance plan provides for—

5 (1) a variation in premium rates only—

6 (A) on the basis of age, sex, geography,

7 and family enrollment,

8 (B) on the basis of individual and group

9 coverage, and

10 (C) in the case of group coverage, on the

11 basis of the number of individuals covered with12 in the group;

13 (2) a charge of the same premium rates to new

14 applicants and existing policyholders with the same

15 age, sex, geographic characteristics, and family en16 rollment; and

17 (3) the highest premium for the plan for a par18 ticular class of family enrollment and geographic

19 characteristics may not exceed four times the lowest

20 premium for such plan for the same enrollment and

21 geographic characteristics.

22 (b) INCENTIVE DISCOUNTS.—A plan may discount

23 an individual’s premium rate by not more than 10 percent

24 as an incentive for participating in a program, approved

25 by the applicable regulatory authority to be offered in con-
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1 junction with the coverage, which has as its objective, 1

2 or more of the following:

3 (1) To promote healthy behavior.

4 (2) To prevent or delay the onset of illness.

5 (3) To provide for screening or early detection

6 of illness.

7 (c) CLASSES OF FAMILY ENROLLMENT DE8 SCRIBED.—In this section, each of the following shall be

9 considered a separate ‘‘class of family enrollment’’:

10 (1) Single individual without children.

11 (2) Married couple without children.

12 (3) Single individual with 1 or more children.

13 (4) Married couple with 1 or more children.

14 (d) TREATMENT OF HPPCS.—For purposes of sub15 section (a), any coverage obtained through a health plan

16 purchasing cooperative approved under subtitle B shall be

17 treated as a form of group coverage.

18 SEC. 104. GUARANTEED ISSUE.

19 (a) IN GENERAL.—The requirements of this section

20 are met, if the health insurance plan—

21 (1) provides guaranteed issue at standard rates

22 to all applicants, and

23 (2) does not exclude from coverage, or limit

24 coverage for, any preexisting condition except as

25 provided in subsection (b).
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1 (b) TREATMENT OF PREEXISTING CONDITIONS.—

2 (1) NO EXCLUSION FOR PREEXISTING CONDI3 TION FOR APPLICANTS CONTINUOUSLY COVERED.—

4 A health insurance plan may not exclude from cov5 erage, or limit coverage for, any preexisting condi6 tion for any applicant who, on the date the applica7 tion is made, has been continuously insured for a pe8 riod of at least 6 months prior to the date of the ap9 plication under 1 or more of the following health in10 surance plans or programs:

11 (A) A high deductible umbrella insurance

12 plan or a managed health care plan.

13 (B) An employer-sponsored group health

14 insurance plan in effect before the date of the

15 enactment of this Act.

16 (C) An individual health insurance plan in

17 effect before such date.

18 (D) A program described in—

19 (i) title XVIII or XIX of the Social

20 Security Act,

21 (ii) chapter 55 of title 10, United

22 States Code,

23 (iii) chapter 17 of title 38, United

24 States Code,
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1 (iv) chapter 89 of title 5, United

2 States Code, or

3 (v) the Indian Health Care

4 Improvement Act.

5 (2) LIMITATION ON PERIOD OF EXCLUSION FOR

6 OTHER APPLICANTS.—In the case of an applicant

7 not described in paragraph (1), the health insurance

8 plan may exclude from coverage, or limit coverage

9 for, any preexisting condition for a period no greater

10 than the lesser of—

11 (A) the number of months immediately

12 prior to the date of the application during

13 which the individual was not insured since the

14 illness or condition in question was first diag15 nosed, or

16 (B) 6 months.

17 (c) PREEXISTING CONDITION.—For purposes of this

18 section, the term ‘‘preexisting condition’’ means, with re19 spect to coverage under a health insurance plan, a condi20 tion which has been diagnosed or treated during the 6-

21 month period ending on the day before the first date of

22 such coverage (without regard to any waiting period).

23 SEC. 105. GUARANTEED RENEWABILITY.

24 The requirements of this section are met, if the

25 health insurance plan provides the policyholder with a con-
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1 tractual right to renew the coverage which stipulates that

2 the insurer cannot cancel or refuse to renew the coverage

3 except for cases of—

4 (1) nonpayment of premiums by the policy5 holder, or

6 (2) fraud or misrepresentation by the policy7 holder.

8 SEC. 106. RESTRICTIONS ON AGENT COMPENSATION AND

9 BROKER ACTIVITIES.

10 The requirements of this section are not met if—

11 (1) the health insurance plan varies compensa12 tion or commissions to an agent, broker, contractor,

13 or producer based, directly or indirectly, on the an14 ticipated or actual claims experience or health status

15 associated with particular small employers or eligible

16 individuals to which each plan is sold, or

17 (2) the health insurance plan (or agent, broker,

18 contractor, or producer for a health insurance plan)

19 engages, directly, or indirectly, in any activity or

20 marketing practice that would encourage small em21 ployers or eligible individuals to refrain from enroll22 ing in the plan, or seek coverage from another

23 health insurance plan, because of the health status

24 or claims experience of the employer or individual.
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1 PART 2—CERTIFICATION OF HIGH DEDUCTIBLE

2 UMBRELLA INSURANCE PLANS AND MAN3 AGED CARE HEALTH PLANS

4 SEC. 111. ESTABLISHMENT OF REGULATORY PROGRAM

5 FOR CERTIFICATION OF PLANS.

6 (a) ENFORCEMENT OF PROGRAM THROUGH

7 STATES.—

8 (1) IN GENERAL.—Each State shall submit to

9 the Secretary, by the deadline specified in paragraph

10 (2), a report on steps the State is taking to imple11 ment and enforce the regulatory program developed

12 under section 112 with respect to high deductible

13 umbrella insurance plans and managed care health

14 plans offered not later than such deadline.

15 (2) DEADLINE FOR REPORT.—

16 (A) 1 YEAR AFTER STANDARDS ESTAB17 LISHED.—Subject to subparagraph (B), the

18 deadline under this paragraph is 1 year after

19 the date the regulatory program is developed

20 under section 112.

21 (B) EXCEPTION FOR LEGISLATION.—In

22 the case of a State which the Secretary identi23 fies, in consultation with the NAIC, as—

24 (i) requiring State legislation (other

25 than legislation appropriating funds) in

26 order for high deductible umbrella insur-
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1 ance plans and managed care health plans

2 to meet the requirements of the program

3 developed under section 112, but

4 (ii) having a legislature which is not

5 scheduled to meet in 1996 in a legislative

6 session in which such legislation may be

7 considered,

8 the date specified in this paragraph is the first

9 day of the first calendar quarter beginning after

10 the close of the first legislative session of the

11 State legislature that begins on or after Janu12 ary 1, 1996. For purposes of the previous sen13 tence, in the case of a State that has a 2-year

14 legislative session, each year of such session

15 shall be deemed to be a separate regular session

16 of the State legislature.

17 (b) FEDERAL ROLE.—

18 (1) FAILURE OF STATE TO ENFORCE PRO19 GRAM.—If the Secretary determines that a State has

20 failed to submit a report by the deadline specified

21 under subsection (a) or finds that the State has not

22 implemented and provided adequate enforcement of

23 the regulatory program developed under section 112,

24 the Secretary shall notify the State and provide the
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1 State a period of 60 days in which to submit such

2 report or to implement and enforce such program.

3 (2) PROCEDURES FOR FEDERAL ENFORCE4 MENT.—If, after the 60-day period referred to in

5 paragraph (1), the Secretary finds that such a fail6 ure has not been corrected, the Secretary shall pro7 vide for such mechanism for the implementation and

8 enforcement of such program in the State as the

9 Secretary determines to be appropriate. Such imple10 mentation and enforcement shall take effect with re11 spect to high deductible umbrella insurance plans

12 and managed care health plans offered or renewed,

13 on or after 3 months after the date of the Sec14 retary’s finding under the previous sentence, and

15 until the date the Secretary finds that such a failure

16 has been corrected.

17 SEC. 112. STANDARDS FOR REGULATORY PROGRAMS.

18 (a) IN GENERAL.—The Secretary, in consultation

19 with the National Association of Insurance Commissioners

20 (in this section referred to as ‘‘NAIC’’) shall develop by

21 not later than 1 year after the date of the enactment of

22 this Act, in the form of model Acts and model regulations,

23 State regulatory program standards which include—

24 (1) procedures for certifying that the require25 ments of part 1 of this subtitle have been met by a
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1 health insurance plan applying for certification as a

2 high deductible umbrella insurance plan or a man3 aged care health plan,

4 (2) the requirements described in subsections

5 (b) and (c) with respect to such a plan,

6 (3) requirements with respect to solvency stand7 ards and guaranty funds for carriers of such plans,

8 and

9 (4) reporting requirements under which carriers

10 report to the Internal Revenue Service regarding the

11 acquisition and termination by individuals of cov12 erage under such plans.

13 (b) MARKETING PRACTICES.—The requirements of

14 this subsection are met, if the carrier offering the plan

15 retains the right to select agents with whom such plan

16 contracts and to determine the amount and form of com17 pensation to such agents, except that—

18 (1) if the carrier chooses to contract with an

19 agent, the carrier may not terminate or refuse to

20 renew the agency contract for any reason related to

21 the age, sex, health status, claims experience, occu22 pation, or geographic location of the insureds placed

23 by the agent with such plan, and

24 (2) the carrier may not, directly or indirectly,

25 enter into any contract, agreement, or arrangement
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1 with an agent that provides for, or results in, any

2 consideration provided to such agent for the issu3 ance or renewal of such a plan to vary on account

4 of the age, sex, health status, claims experience, oc5 cupation, or geographic location of the insureds

6 placed by the agent with such plan.

7 (c) REINSURANCE OR ALLOCATION OF RISK MECHA8 NISMS.—

9 (1) ESTABLISHMENT OF STANDARDS.—

10 (A) ROLE OF NAIC.—The Secretary shall

11 request the NAIC to develop, within 9 months

12 after the date of the enactment of this Act,

13 models for reinsurance or allocation of risk

14 mechanisms (each in this section referred to as

15 a ‘‘reinsurance or allocation of risk mecha16 nism’’) for high deductible umbrella insurance

17 plans and managed care health plans made

18 available to individuals for whom an insurer is

19 at risk of incurring high costs under the plan.

20 If the NAIC develops such models within such

21 period, the Secretary shall review such models

22 to determine if they provide for an effective re23 insurance or allocation of risk mechanism. Such

24 review shall be completed within 30 days after

25 the date the models are developed. Unless the
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1 Secretary determines within such period that

2 such a model is not an effective reinsurance or

3 allocation of risk mechanism, such remaining

4 models shall serve as the models under this sub5 section, with such amendments as the Secretary

6 deems necessary.

7 (B) CONTINGENCY.—If the NAIC does not

8 develop such models within such period or the

9 Secretary determines that all such models do

10 not provide for an effective reinsurance or allo11 cation of risk mechanism, the Secretary shall

12 specify, within 15 months after the date of the

13 enactment of this Act, models to carry out this

14 subsection.

15 (2) IMPLEMENTATION OF REINSURANCE OR AL16 LOCATION OF RISK MECHANISMS.—

17 (A) BY STATES.—Each State shall estab18 lish and maintain one or more reinsurance or

19 allocation of risk mechanisms that are consist20 ent with a model established under paragraph

21 (1) by not later than the deadline specified in

22 section 111(a)(2). A State may establish and

23 maintain such a mechanism jointly with one or

24 more other States.

25 (B) FEDERAL ROLE.—
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1 (i) IN GENERAL.—If the Secretary de2 termines that a State has failed to estab3 lish or maintain a reinsurance or allocation

4 of risk mechanism in accordance with sub5 paragraph (A), the Secretary shall estab6 lish and maintain such a reinsurance or al7 location of risk mechanism meeting the re8 quirements of this subparagraph.

9 (ii) REINSURANCE MECHANISM.—Un10 less the Secretary determines under clause

11 (iii) that an allocation of risk mechanism is

12 the appropriate mechanism to use in a

13 State under this subparagraph, the Sec14 retary shall establish and maintain for use

15 under this subsection for each State an ap16 propriate reinsurance mechanism.

17 (iii) ALLOCATION OF RISK MECHA18 NISM.—If the Secretary determines that,

19 due to the nature of the health coverage

20 market in the State (including a relatively

21 small number of high deductible umbrella

22 insurance plans or managed care health

23 plans offered or a relatively small number

24 of uninsurable individuals), an allocation of

25 risk mechanism would be a better mecha-
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1 nism than a reinsurance mechanism, the

2 Secretary shall establish and maintain for

3 use under this section for a State an allo4 cation of risk mechanism under which un5 insurable individuals would be equitably as6 signed among insurers offering high de7 ductible umbrella insurance plans or man8 aged care health plans.

9 (iv) FINANCING DEFICIT FOR REIN10 SURANCE MECHANISMS.—

11 (I) IN GENERAL.—Chapter 43 of

12 the Internal Revenue Code of 1986

13 (relating to qualified pension plans,

14 etc.) is amended by adding at the end

15 thereof the following new section:

16 ‘‘SEC. 4980D. ADDITIONAL TAX TO FUND REINSURANCE IN

17 STATES UNDER FEDERAL REINSURANCE.

18 ‘‘(a) IMPOSITION OF TAX.—There is hereby imposed

19 a tax on the providing of any high deductible umbrella

20 insurance plan or managed care health plan which covers

21 any individual in a Federal reinsurance State.

22 ‘‘(b) AMOUNT OF TAX.—

23 ‘‘(1) IN GENERAL.—The tax imposed by sub24 section (a) shall be equal to the applicable percent-
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1 age of the amount received by the insurer for provid2 ing such plan in such Federal reinsurance State.

3 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes

4 of paragraph (1), the term ‘applicable percentage’

5 means, with respect to any State for any period, the

6 lowest percentage estimated by the Secretary as gen7 erating sufficient revenues to carry out section

8 112(c)(2)(B) of the Health Savings and Security

9 Act of 1994 in such State for such period.

10 ‘‘(c) LIABILITY FOR TAX.—The tax imposed by this

11 section shall be paid by the insurer.

12 ‘‘(d) DEFINITIONS.—For purposes of this section—

13 ‘‘(1) HIGH DEDUCTIBLE INSURANCE PLAN;

14 MANAGED CARE HEALTH PLAN.—The terms ‘high

15 deductible insurance plan’ and ‘managed care health

16 plan’ have the meaning given such terms in section

17 101(a) of the Health Savings and Security Act of

18 1994.

19 ‘‘(2) FEDERAL REINSURANCE STATE.—The

20 term ‘Federal reinsurance State’ means any State

21 with respect to which a determination is in effect

22 under section 112(c)(2)(B) of the Health Savings

23 and Security Act of 1994 and for which the Sec24 retary of Health and Human Services has estab-
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1 lished and is maintaining a reinsurance mechanism

2 under clause (ii) of such section for the State.

3 ‘‘(3) INSURER.—The term ‘insurer’ means a li4 censed insurance company, a prepaid hospital or

5 medical service plan, and a health maintenance orga6 nization offering such a plan, and includes a similar

7 organization regulated under State law for sol8 vency.’’

9 (II) CLERICAL AMENDMENT.—

10 The table of sections for chapter 43 of

11 such Code is amended by adding at

12 the end thereof the following new

13 item:

‘‘Sec. 4980D. Additional tax to fund reinsurance in States under

Federal reinsurance.’’

14 (3) CONSTRUCTION.—Nothing in this section

15 shall be construed to prohibit reinsurance or alloca16 tion of risk arrangements relating to high deductible

17 umbrella insurance plans or managed care health

18 plans, whether on a State or multi-state basis, not

19 required under this subsection.
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1 Subtitle B—Promoting Develop2 ment of Voluntary Health Plan

3 Purchasing Cooperatives

4 SEC. 121. ESTABLISHMENT OF STANDARDS; APPLICATION

5 IN STATES.

6 (a) ESTABLISHMENT OF STANDARDS.—

7 (1) IN GENERAL.—The Secretary of Health and

8 Human Services, in consultation with the National

9 Association of Insurance Commissioners, shall estab10 lish standards under this subtitle to carry out the

11 requirements of this subtitle, including standards re12 lating to—

13 (A) the establishment of health plan pur14 chasing cooperatives (or HPPCs),

15 (B) qualifications for qualified health car16 riers, and

17 (C) the roles of States under this subtitle.

18 (2) DEADLINE.—The Secretary shall establish

19 and publish the standards by not later than 6

20 months after the date of the enactment of this Act.

21 (3) REVISION.—The Secretary from time to

22 time may revise standards established under this

23 subsection. The revisions shall only become effective

24 in a manner that permits States sufficient time to
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1 change laws and regulations in order to implement

2 the revisions.

3 (b) APPLICATION OF STANDARDS THROUGH

4 STATES.—

5 (1) APPLICATION OF STANDARDS.—

6 (A) IN GENERAL.—Subject to subsection

7 (c), each State shall submit to the Secretary, by

8 the deadline specified in subparagraph (B), a

9 report on steps the State is taking to implement

10 the standards established under subsection (a)

11 in order to permit HPPCs to be established and

12 operate in all parts of the State, and to con13 form its insurance laws to meet the require14 ments of this subtitle, not later than that dead15 line.

16 (B) DEADLINE FOR REPORT.—

17 (i) 1 YEAR AFTER STANDARDS ESTAB18 LISHED.—Subject to clause (ii), the dead19 line under this subparagraph is 1 year

20 after the date the standards are estab21 lished under subsection (a).

22 (ii) EXCEPTION FOR LEGISLATION.—

23 In the case of a State which the Secretary

24 identifies, in consultation with the National
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1 Association of Insurance Commissioners,

2 as—

3 (I) requiring State legislation

4 (other than legislation appropriating

5 funds) in order for carriers and health

6 plans offered to meet the standards

7 established under subsection (a), but

8 (II) having a legislature which is

9 not scheduled to meet in 1995 in a

10 legislative session in which such legis11 lation may be considered,

12 the date specified in this subparagraph is

13 the first day of the first calendar quarter

14 beginning after the close of the first legis15 lative session of the State legislature that

16 begins on or after January 1, 1996. For

17 purposes of the previous sentence, in the

18 case of a State that has a 2-year legislative

19 session, each year of the session shall be

20 deemed to be a separate regular session of

21 the State legislature.

22 (2) FEDERAL ROLE.—

23 (A) NOTICE TO STATES.—If the Secretary

24 determines that a State has failed to submit a

25 report by the deadline specified under para-
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1 graph (1) or finds that the State has not taken

2 sufficient steps to permit establishment and op3 eration of HPPCs in accordance with the stand4 ards established under subsection (a), the Sec5 retary shall notify the State and provide the

6 State a period of 60 days in which to submit

7 the report or to implement the standards under

8 paragraph (1).

9 (B) FEDERAL FALL-BACK PARTICIPA10 TION.—If, after the 60-day period, the Sec11 retary finds that the failure has not been cor12 rected, the Secretary shall provide for such

13 mechanism as will—

14 (i) permit the establishment and oper15 ation of HPPCs in accordance with the

16 standards established under subsection (a)

17 in the State as the Secretary determines to

18 be appropriate, and

19 (ii) provide for the Secretary assum20 ing the role of the State otherwise provided

21 under this subtitle.

22 (C) DURATION.—The Secretary’s exercise

23 of authority under subparagraph (B) shall take

24 effect with respect to carriers, and health plans

25 offered or renewed, on or after 3 months after
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1 the date of the Secretary’s finding under that

2 subparagraph and until the date the Secretary

3 finds that the failure of the State has been

4 corrected.

5 (c) IMPLEMENTATION.—The report under subsection

6 (b) shall specify the State official (or officials), or State

7 board, commission, or department, responsible for carry8 ing out the standards under subsection (a).

9 SEC. 122. SPECIFICATION OF HPPC AREAS.

10 (a) IN GENERAL.—Each State shall establish bound11 aries for HPPC areas in the State.

12 (b) STANDARDS.—Each part of the State shall be in

13 one, and only one, HPPC area. Each HPPC area shall

14 include a sufficient number of potential enrollees, health

15 care providers, and qualified health carriers to carry out

16 the purposes of this subtitle. A HPPC area may include

17 portions of more than one State.

18 (c) REVISIONS.—A State may revise the boundaries

19 of HPPC areas not more frequently than annually.

20 SEC. 123. STANDARDS FOR HEALTH PLAN PURCHASING CO21 OPERATIVES.

22 (a) ESTABLISHMENT.—

23 (1) IN GENERAL.—One or more State-char24 tered, nonprofit private corporations may be estab25 lished in accordance with this section to serve as a
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1 HPPC for each HPPC area specified under section

2 122 for the benefit of small employers and eligible

3 individuals in the area. A carrier may not form, un4 derwrite, or possess a majority vote of a HPPC, but

5 may administer a HPPC.

6 (2) RULES OF CONSTRUCTION.—

7 (A) ESTABLISHMENT NOT REQUIRED.—

8 Nothing in this section shall be construed as re9 quiring—

10 (i) that a HPPC be established in

11 each HPPC area; and

12 (ii) that there be only one HPPC es13 tablished with respect to any HPPC area.

14 (B) SINGLE ORGANIZATION SERVING MUL15 TIPLE AREAS.—Nothing in this section shall be

16 construed as preventing a single not-for-profit

17 corporation from being a HPPC for more than

18 one HPPC area.

19 (b) BYLAWS AND BOARD OF DIRECTORS.—

20 (1) BYLAWS.—Each HPPC shall establish by21 laws, consistent with this section, for its operation,

22 including the election of members of its board of di23 rectors.

24 (2) BOARD OF DIRECTORS.—
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1 (A) IN GENERAL.—Each HPPC shall oper2 ate under the supervision of a board of direc3 tors established under the bylaws of the HPPC.

4 A majority of the members of the board shall

5 be small employers or eligible individuals, or

6 representatives thereof, that participate in the

7 HPPC.

8 (B) APPOINTMENT AND ELECTION.—After

9 the initial appointment of members to the board

10 of directors of a HPPC (in accordance with the

11 articles of incorporation of the HPPC), the

12 board shall be elected by small employer mem13 bers and individual members of the HPPC in

14 accordance with bylaws of the HPPC. The elec15 tions shall occur not less frequently than once

16 every 2 years. The standards may provide, at

17 the option of a State, for different voting rights

18 for members that are small employers to reflect

19 the number of individuals receiving coverage

20 through those employers.

21 (3) LIMITATION ON LIABILITY.—There shall be

22 no liability on the part of, and no cause of action of

23 any nature shall arise against, any member of the

24 board of directors of a HPPC, or its employees or

25 agent, for any action taken in good faith by them in
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1 the performance of duties of HPPCs specified in this

2 subtitle.

3 (c) OFFICERS AND EMPLOYEES.—Each HPPC shall

4 provide, consistent with its bylaws, for—

5 (1) the appointment of officers from among its

6 members, and

7 (2) the appointment of an executive director to

8 serve as the chief operating officer of the HPPC.

9 (d) ADVISORY COMMITTEES.—Each HPPC shall es10 tablish such advisory committees as may be necessary to

11 assist in carrying out its duties under this subtitle. An

12 advisory committee may include representation from quali13 fied health carriers, agents, and health care providers.

14 (e) ANNUAL REPORT; RECORDS; AUDIT.—Each

15 HPPC shall—

16 (1) prepare, and submit to the State and the

17 Secretary, an annual report on its operations, in18 cluding its program and financial operations;

19 (2) conduct such annual internal and independ20 ent audits as it determines to be appropriate; and

21 (3) maintain records on its operations.

22 (f) GENERAL AUTHORITIES; LIMITATIONS ON AU23 THORITY.—

24 (1) IN GENERAL.—A HPPC may—

25 (A) sue (or be sued), and
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1 (B) subject to paragraph (2), accept and

2 expend grants or funds from any public or pri3 vate agency.

4 (2) LIMITATIONS.—A HPPC may not—

5 (A) purchase health care services or per6 form any activity (including review, approval, or

7 enforcement) relating to payment rates for

8 providers;

9 (B) assume financial risk for the cost or

10 provision of health care services;

11 (C) contract directly with health care pro12 viders (other than with qualified health carriers

13 under section 124) for the provision of health

14 care services for members; or

15 (D) accept any funds from any private

16 agency that is (or is affiliated with) a qualified

17 health carrier or other party that would pose a

18 conflict of interest (as specified by the Sec19 retary).

20 SEC. 124. FUNCTIONS OF HEALTH PLAN PURCHASING CO21 OPERATIVES.

22 (a) CONTRACTS WITH QUALIFIED HEALTH CAR23 RIERS; ENROLLMENT IN PLANS.—

24 (1) CONTRACTS WITH PLANS.—Each HPPC

25 shall enter into contracts and hold policies with
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1 qualified health carriers which elect to offer HPPC

2 plans to members, in accordance with subsection (d).

3 (2) ENROLLMENT.—

4 (A) IN GENERAL.—Each HPPC shall pro5 vide for the enrollment of eligible employees of

6 small employers and eligible individuals in

7 HPPC plans of qualified health carriers offered

8 by the HPPC.

9 (B) OPEN ENROLLMENT PERIODS.—Each

10 HPPC shall provide for an annual open enroll11 ment period of 30 days to be available within

12 60 days before the anniversary date of each

13 member’s coverage under a HPPC plan.

14 (3) PROVISION OF INFORMATION.—Each HPPC

15 shall provide to its members and eligible employees

16 of small employer members comparison sheets, in ac17 cordance with standards established by the Sec18 retary, which provide clear standardized information

19 on each qualified health carrier and each HPPC

20 plan offered by a qualified health carrier, including

21 information on price, consumer satisfaction, and (if

22 feasible) health outcomes and enrollment and en23 rollee responsibilities and obligations.

24 (b) MEMBERSHIP REQUIREMENTS.—
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1 (1) IN GENERAL.—Each HPPC shall establish

2 requirements for participation of small employers

3 and eligible individuals as members of the HPPC

4 consistent with any standards the Secretary estab5 lishes consistent with this subsection. Each HPPC

6 shall maintain eligibility records to carry out its

7 functions.

8 (2) SMALL EMPLOYER STANDARDS.—Under

9 those standards—

10 (A) each small employer in the area that

11 meets requirements for membership is per12 mitted to become a member;

13 (B) a small employer that is not a valid

14 small employer group and was formed for the

15 purpose of securing health benefits coverage

16 shall be denied membership;

17 (C) each small employer member shall

18 offer to eligible employees a choice of at least

19 2 different HPPC plans, of which—

20 (i) at least one is a high deductible

21 umbrella insurance plan, and

22 (ii) at least one is a managed care

23 health plan;

24 (D) no small employer is required, as a

25 condition of membership, to make any contribu-
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1 tion towards the premium for coverage of any

2 eligible employee; and

3 (E) if a small employer member terminates

4 coverage purchased through the HPPC, the

5 former member shall be ineligible to purchase a

6 HPPC plan through the HPPC for a period of

7 12 months.

8 (3) INDIVIDUAL MEMBERS.—Under those

9 standards, eligible individuals residing in a HPPC

10 area may become individual members of the HPPC

11 for the area. Nothing in this subtitle shall be con12 strued as requiring as a condition of membership for

13 a HPPC serving a HPPC area that individual be re14 siding in the area.

15 (4) PAYMENT OF PREMIUMS.—

16 (A) IN GENERAL.—A HPPC may condition

17 membership upon prepayment of a monthly pre18 mium (or compliance with other mechanisms)

19 to assure that payment will be made for cov20 erage of members on a timely basis.

21 (B) NOTIFICATION OF FAILURE TO RE22 CEIVE PREMIUM.—If a HPPC fails to receive

23 payment on a premium due with respect to an

24 individual covered under a qualified health car25 rier offered by the HPPC, the HPPC shall pro-
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1 vide notice of the failure to the individual with2 in the 20-day period after the date on which the

3 premium payment was due.

4 (C) DIRECT PAYMENT ALLOWED IN CASE

5 OF EMPLOYER NONPAYMENT.—In the case a

6 small employer member of a HPPC fails to

7 make payment of premiums due with respect to

8 an eligible employee covered under a qualified

9 health carrier offered through the HPPC, the

10 HPPC shall notify the employee of the

11 nonpayment and shall allow the employee to

12 make direct payments to the HPPC effective

13 with the next succeeding payment period.

14 (5) DISPUTE RESOLUTION PROCEDURES.—Each

15 HPPC shall establish, in accordance with standards

16 established under this subtitle dispute resolution

17 procedures to resolve disputes between the HPPC

18 and its members and disputes between the HPPC

19 and qualified health carriers. Under those proce20 dures, a member or HPPC may appeal the proposed

21 resolution of a dispute to the State.

22 (c) CONTRACTS WITH MEMBERS.—

23 (1) PREMIUM PAYMENTS.—

24 (A) IN GENERAL.—Each contract between

25 a member and a HPPC shall provide that pay-
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1 ment of all premiums shall be transmitted by

2 the member (which in the case of a small em3 ployer member shall be on behalf of eligible em4 ployees) to (or on behalf of) the HPPC for the

5 benefit of the qualified health carrier in which

6 the eligible employee or individual is enrolled.

7 The HPPC shall provide for procedures for the

8 collection of premiums from members (includ9 ing, in the case of a small employer member,

10 eligible employees).

11 (B) AT LEAST BIMONTHLY.—The pre12 miums are payable not less often than bi13 monthly.

14 (C) LATE CHARGES.—A HPPC may pro15 vide for penalties for late payment.

16 (D) NONPAYMENT.—Nonpayment of pre17 miums by a member shall constitute a breach of

18 the contract, a breach of the health care policy,

19 and a default on the member’s obligation.

20 (2) CONTRACT HOLDER.—The contract shall

21 provide that—

22 (A) the HPPC may be the contract holder

23 of the health benefit policy on behalf of the

24 member (including eligible employees), and
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1 (B) all eligible employees who obtain cov2 erage under the HPPC plan offered by a small

3 employer must obtain the coverage through any

4 HPPC plan offered by a qualified health carrier

5 through the HPPC.

6 (3) PREMIUM AMOUNTS.—The amount of pre7 miums imposed shall include an amount that in8 cludes the fixed overhead allowance percentage es9 tablished by the HPPC under subsection (e).

10 (d) CONTRACTS WITH PLANS.—

11 (1) IN GENERAL.—Each contract between a

12 qualified health carrier and a HPPC shall provide—

13 (A) that premiums of members shall be

14 forwarded to the plan in which they are en15 rolled, subject to any adjustment under section

16 128, on the effective date of coverage (if that

17 occurs more than once a month), on a monthly

18 basis, or as agreed in the contract (but in no

19 event less frequently than monthly); and

20 (B) that the HPPC shall transmit enroll21 ment and eligibility information to the plan on

22 a timely basis.

23 (2) TERMINATION.—A qualified health carrier

24 may not terminate the contract unless the plan—
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1 (A) provides advance notice to the HPPC,

2 and

3 (B) provides notice at least 180 days be4 fore the nonrenewal of any HPPC plan to en5 rollees.

6 In the case of a contract termination, the qualified

7 health carrier shall not write new business with the

8 HPPC for a period of 3 years from the date of the

9 notice of termination.

10 (e) OVERHEAD ALLOWANCE.—Each HPPC shall es11 tablish a fixed overhead allowance percentage that shall

12 be—

13 (1) applied as addition to the premiums

14 charged for enrollment in a qualified health carrier

15 offered through the HPPC to its members, and

16 (2) used to cover administrative costs of the

17 HPPC, as well as defaults by members of premium

18 payments.

19 (f) UNIFORM ADMINISTRATIVE AND ACCOUNTING

20 PROCEDURES.—Each HPPC shall establish such uniform

21 administrative and accounting procedures as are needed

22 to conform with applicable national standards identified

23 by the Secretary.

24 (g) CONTRACTS FOR ADMINISTRATIVE SERVICES.—
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1 (1) IN GENERAL.—Each HPPC shall contract

2 with a qualified, independent third party for any

3 service necessary to carry out its duties under this

4 subtitle. The contracts shall include—

5 (A) contracts with agents to assist in con6 tracting with qualified health carriers and small

7 employer members, and

8 (B) contracts to market and publicize the

9 availability of HPPC plans through the HPPC.

10 (2) INFORMATION.—Unless permission is spe11 cifically granted by the HPPC, a third party may

12 not release, publish, or otherwise use any informa13 tion to which the party has access under its con14 tract.

15 (g) CONSTRUCTION.—Nothing in this subtitle shall

16 be construed as requiring a small employer or eligible indi17 vidual to obtain coverage from or through a HPPC.

18 SEC. 125. QUALIFIED HEALTH CARRIERS.

19 (a) DESIGNATION.—Each State shall establish a

20 process whereby a carrier that demonstrates to the satis21 faction of the State insurance commissioner that it has

22 the capability to fulfill the following requirements (directly

23 or through subcontracts) is designated as a qualified

24 health carrier for purposes of this subtitle:
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1 (1) LICENSURE.—The carrier is licensed and in

2 good standing with the State insurance commis3 sioner (or other comparable official for a State).

4 (2) ADMINISTRATIVE CAPACITY.—The carrier

5 has the capacity to administer HPPC plans.

6 (3) ACCESS.—In the case of a carrier with a

7 contractual obligation to provide or arrange for

8 health services included in a HPPC plan, the ability

9 to provide enrollees with adequate access to these

10 covered services within the carrier’s service area.

11 (4) GRIEVANCE PROCEDURES.—The carrier has

12 grievance procedures, including the ability to re13 spond to enrollees’ calls, questions, and complaints.

14 (5) UTILIZATION MANAGEMENT PROCE15 DURES.—The carrier has established utilization

16 management procedures.

17 (6) QUALITY.—The carrier has the ability to

18 monitor and evaluate the quality and cost-effective19 ness of care.

20 (7) INFORMATION.—The carrier has the ability

21 to provide information on enrollee satisfaction

22 (based on standard surveys described in section

23 127(b)(4)).
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1 (8) DATA.—The carrier has the ability to pro2 vide standard data elements (identified under section

3 127(b)).

4 (b) FUNCTIONS OF QUALIFIED HEALTH CAR5 RIERS.—

6 (1) IN GENERAL.—In every HPPC with which

7 it has a contract under section 124(d), each quali8 fied health carrier shall provide for activities de9 scribed in this subsection.

10 (2) OFFERING PLAN.—Each qualified health

11 carrier shall offer HPPC plans. If a qualified health

12 carrier offers a high deductible umbrella insurance

13 plan or a managed health care plan in a State (or

14 geographic area) to employers that are not small

15 employers, the carrier shall offer, as a HPPC plan,

16 a similar high deductible umbrella insurance plan or

17 managed health care plan in that State or geo18 graphic area.

19 (3) PERFORMANCE INFORMATION.—Each quali20 fied health carrier shall provide for the collection

21 and reporting to the State and to the appropriate

22 HPPC of information on the performance of the

23 plan regarding the effectiveness in providing serv24 ices, consistent with section 127(b).
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1 (4) COMPLIANCE WITH REQUIREMENTS.—Each

2 qualified health carrier shall—

3 (A) meet the requirements of part 1 of

4 subtitle A (relating to benefits, rating practices,

5 guaranteed issue, guaranteed renewability, and

6 restrictions on agent compensation and broker

7 activities) with respect to HPPC plans it offers;

8 and

9 (B) file on a quarterly basis with the

10 HPPC in which it is participating the premium

11 rates for HPPC plans offered by the carrier.

12 (5) NOTICE OF TERMINATION OF HPPC CON13 TRACT.—Each qualified health carrier may only ter14 minate its contract with the HPPC in accordance

15 with section 124(d)(2).

16 (6) GRIEVANCE PROCEDURES.—Each qualified

17 health carrier shall provide a procedure for address18 ing grievances that arise between the carrier and the

19 HPPC or members of the HPPC (and, in the case

20 of small employer members, their eligible employees)

21 that requires both parties to fully exhaust the rem22 edies provided under the procedure to resolve griev23 ance before seeking any relief other than as provided

24 in the procedure.
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1 (7) USE OF UNIFORM CLAIMS FORMS.—Each

2 qualified health carrier shall use standardized forms,

3 including uniform claims forms, identified by the

4 Secretary with respect to HPPC plans.

5 (c) COVERAGE.—

6 (1) IN GENERAL.—Coverage under a HPPC

7 plan offered by a qualified health carrier shall be

8 available to any member of the HPPC at the anni9 versary date of each member’s coverage under a

10 HPPC plan (or in the case of an employer or indi11 vidual who has applied to become a member of a

12 HPPC when the member first joins the HPPC).

13 (2) EXCEPTION.—A qualified health carrier is

14 not required to offer coverage or accept enrollment

15 if—

16 (A) the eligible individual or employee does

17 not reside within the plan’s service area (as ap18 proved by the State insurance commissioner);

19 (B) the plan provides 90 days prior notice

20 that it will not have the capacity to deliver serv21 ices adequately in the HPPC area to additional

22 enrollees because of its obligations to existing

23 groups and enrollees; or

24 (C) the State insurance commissioner de25 termines that the acceptance of an application
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1 or applications would place the plan in a finan2 cially impaired condition.

3 (3) CONDITIONS.—

4 (A) INSUFFICIENT CAPACITY.—A qualified

5 health carrier that cannot offer coverage under

6 paragraph (2)(B) may not offer coverage to the

7 employees of a new employer group until the

8 later of 90 days following that refusal or the

9 date on which the plan notifies the HPPC and

10 the State insurance commissioner that it has

11 regained capacity to deliver services to eligible

12 individuals in the service area.

13 (B) FINANCIAL IMPAIRMENT.—A qualified

14 health carrier that cannot offer coverage under

15 paragraph (2)(C) may not offer coverage or ac16 cept applications for any individual or employer

17 group until a determination by the State insur18 ance commissioner that acceptance of an appli19 cation will not put the plan in a financially im20 paired condition.

21 (d) DEEMED COMPLIANCE.—Carriers which comply

22 with any of the requirements of a paragraph of subsection

23 (a) through a requirement of State law shall be deemed

24 to be in compliance with the corresponding paragraph of

25 that subsection. Carriers receiving accreditation by nation-
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1 ally recognized, health related accreditation organizations

2 (including the National Committee on Quality Assurance,

3 the Utilization Review Accreditation Commission, the

4 Joint Commission on Accreditation of Health Care Orga5 nizations), or qualification by Federal agencies, shall be

6 deemed in compliance with the requirements of subsection

7 (a) as they pertain to the relevant accreditation activities

8 of the organizations.

9 (e) DETERMINATIONS.—Each State shall provide for

10 a determination of whether a carrier is a qualified health

11 carrier within 30 days of a completed application being

12 submitted to the State.

13 (f) TERMINATION.—After notice and hearing, a State

14 may suspend or revoke the designation as a qualified

15 health carrier of a carrier that fails to maintain compli16 ance with the requirements in subsections (a), (b), and

17 (c).

18 SEC. 126. MARKETING HPPC PLANS.

19 (a) IN GENERAL.—Each HPPC shall use efficient

20 and standardized means to notify small employers of the

21 availability of HPPC plans through the HPPC.

22 (b) MARKETING MATERIALS.—Each HPPC shall

23 make available to small employer and individual members

24 marketing materials that accurately summarize the HPPC
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1 plans, cost, and other relevant information concerning

2 qualified health carriers offered by the HPPC.

3 (c) USE OF BROKERS.—Nothing in this subtitle shall

4 be construed to prohibit a HPPC or qualified health car5 rier from using the services of an agent, broker, contrac6 tor, or producer in order to assist in marketing.

7 (d) MONITORING.—Each HPPC shall notify the

8 State insurance commissioner (or other official identified

9 by the State) of any marketing practices or materials that

10 it finds contrary to the fair and affirmative marketing of

11 qualified health carriers and HPPC plans under this sub12 title.

13 (e) STATE ROLE.—Each State insurance commis14 sioner shall monitor compliance with the marketing re15 quirements of this subtitle and subtitle A, including the

16 conduct of agents, brokers, contractors, and producers and

17 investigate complaints of violations of those requirements.

18 SEC. 127. COLLECTION AND SUBMISSION OF DATA.

19 (a) FROM HPPCS TO STATES.—Each HPPC shall

20 submit such data to the State, on a quarterly basis, as

21 the Secretary may specify. The data shall include the

22 following:

23 (1) With respect to small employer members—

24 (A) employer enrollment by employer size,

25 industry sector, previous insurance status, and
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1 number of eligible employees within each small

2 employer, and

3 (B) number of total eligible employers in

4 the HPPC area.

5 (2) With respect to eligible individuals, the de6 mographic characteristics of those individuals, in7 cluding age, gender, employment status and employ8 ment sector, and previous insurance status.

9 (3) Premium ranges for each HPPC plan for

10 HPPC member categories.

11 (4) HPPC overhead charges.

12 (5) HPPC financial statements.

13 (b) COLLECTION OF DATA BY HPPCS.—

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

15 uniform standards for data that a HPPC collects

16 from qualified health carriers and providers and

17 disseminates.

18 (2) COLLECTION.—Under the standards, each

19 HPPC shall collect only such data as are necessary

20 for evaluation of the performance of qualified health

21 carriers (and any provider networks used by those

22 carriers) by consumers and providers. The Secretary

23 shall establish the standards consistent with the

24 method of operation of qualified health carriers, with

25 national health care data collection initiatives, and
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1 with not imposing an unreasonable cost of compli2 ance on qualified health carriers. The Secretary shall

3 establish the standards only after a study of the fea4 sibility and cost-effectiveness.

5 (3) DISSEMINATION.—Under the standards,

6 each HPPC shall release the data collected in a uni7 form and standardized format which compares all

8 qualified health carriers or providers (as the case

9 may be).

10 (4) ENROLLEE SATISFACTION SURVEYS.—All

11 enrollee satisfaction surveys used by qualified health

12 carriers in reporting to HPPCs shall be in a stand13 ardized format promulgated by the Secretary.

14 SEC. 128. ROLE OF STATE; OVERSIGHT; EVALUATION.

15 (a) OVERSIGHT.—Each State shall—

16 (1) assure compliance of HPPCs, small employ17 ers, and eligible employees and individuals with the

18 requirements of this subtitle; and

19 (2) conduct reviews, not less frequently than

20 annually, on the performance of each HPPC in as21 suring access to health coverage to small employers

22 and eligible individuals in the HPPC area in accord23 ance with this subtitle.

24 (b) DISPUTE RESOLUTION.—Each State shall re25 ceive, review, and act on appeals of disputes, between a
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1 HPPC and a member, not resolved by the HPPC under

2 section 124(b)(5).

3 (c) ANALYSIS OF INFORMATION.—Each State shall

4 analyze information collected from qualified health car5 riers and other sources and report findings that assist con6 sumers, HPPCs, qualified health carriers, or health care

7 providers in improving the delivery or purchase of cost8 effective health care.

9 (d) DISSEMINATION OF INFORMATION.—Each State

10 shall prepare and make available to HPPCs and employers

11 located in the State (and to eligible individuals upon re12 quest) information, in comparative form, concerning the

13 HPPC plans in the State and HPPCs operating in the

14 State. The information shall include a description of the

15 following:

16 (1) The HPPCs in the State and HPPC plans

17 of qualified health carriers available with respect to

18 each HPPC.

19 (2) The existence of HPPCs within each HPPC

20 area.

21 (3) Any other information determined appro22 priate by the State.

23 (e) ANNUAL REPORT.—Each State shall report to the

24 Secretary, at a frequency (not more often than annually)

25 specified by the Secretary, on the impact of the reforms
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1 under this subtitle in expanding the availability and af2 fordability of health coverage to eligible employees and eli3 gible individuals.

4 (f) ANTITRUST PROTECTION.—Each State shall ac5 tively supervise HPPCs to ensure that actions that affect

6 market competition accomplish the objectives of this sub7 title, so as to provide State and Federal protection to

8 HPPCs and the board of directors of HPPCs against Fed9 eral and State laws intended to protect commerce from

10 unlawful restraints, monopolies, and unfair business

11 practices.

12 (g) NON-PREEMPTION.—Nothing in this subtitle

13 shall be construed as preempting a State from taking any

14 actions that are in addition to, and not directly inconsist15 ent with, the provisions of this subtitle.

16 SEC. 129. DEFINITIONS.

17 In this subtitle:

18 (1) CARRIER.—The term ‘‘carrier’’ means a li19 censed insurance company, a prepaid hospital or

20 medical service plan, and a health maintenance orga21 nization offering a health benefit plan, and includes

22 a similar organization regulated under State law for

23 solvency.

24 (2) ELIGIBLE EMPLOYEE.—The term ‘‘eligible

25 employee’’ means, with respect to an employer, an
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1 employee who normally performs on a monthly basis

2 at least 30 hours of service per week for that

3 employer.

4 (3) ELIGIBLE INDIVIDUAL.—The term ‘‘eligible

5 individual’’ means an individual residing in the Unit6 ed States who is a citizen or national of the United

7 States or an alien lawfully residing permanently in

8 the United States.

9 (4) EMPLOYER.—The term ‘‘employer’’ has the

10 meaning given that term in section 3(5) of the Em11 ployee Retirement Income Security Act of 1974.

12 (5) HEALTH PLAN PURCHASING COOPERATIVE;

13 HPPC.—The terms ‘‘health plan purchasing coopera14 tive’’ and ‘‘HPPC’’ mean a State-chartered, non15 profit organization that—

16 (A) provides health coverage purchasing

17 services to members in a HPPC area regarding

18 HPPC plans offered by qualified health car19 riers, and

20 (B) is established in accordance with sec21 tion 123.

22 (6) HPPC AREA.—The term ‘‘HPPC area’’

23 means an area designated under section 123.

24 (7) HPPC PLAN.—The term ‘‘HPPC plan’’

25 means, with respect to a HPPC, a high deductible
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1 umbrella insurance plan or managed health care

2 plan, as defined in section 101, offered by the

3 HPPC that is marketed in accordance with section

4 126 and submits data in accordance with section

5 127.

6 (8) HEALTH MAINTENANCE ORGANIZATION.—

7 The term ‘‘health maintenance organization’’ in8 cludes, as determined under standards established

9 by the Secretary, a health insurance plan that meets

10 specified standards and that offers to provide health

11 services on a prepaid, at-risk basis primarily through

12 a defined set of providers.

13 (9) MEMBER.—The term ‘‘member’’ means,

14 with respect to a HPPC, a small employer or eligible

15 individual that meets membership requirements for

16 the HPPC under section 124(b).

17 (10) QUALIFIED HEALTH CARRIER.—The term

18 ‘‘qualified health carrier’’ means a carrier designated

19 under section 125(a) by a State insurance commis20 sioner.

21 (11) SERVICE AREA.—The term ‘‘service area’’

22 means a geographic region in which a carrier is li23 censed to operate.

24 (12) SMALL EMPLOYER.—The term ‘‘small em25 ployer’’ means, with respect to a calendar year, an
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1 employer that normally employs more than 1 but

2 less than 501 eligible employees on a typical busi3 ness day in any 3-consecutive-month-period in the

4 year. For the purposes of this paragraph, the term

5 ‘‘employee’’ includes a self-employed individual. For

6 purposes of determining if an employer is a small

7 employer, rules similar to the rules of subsection (b)

8 and (c) of section 414 of the Internal Revenue Code

9 of 1986 shall apply.

10 (13) SMALL EMPLOYER MEMBER.—The term

11 ‘‘small employer member’’ means, with respect to a

12 HPPC, a small employer that is a member of the

13 HPPC.

14 (14) STATE INSURANCE COMMISSIONER.—The

15 term ‘‘State insurance commissioner’’ includes a

16 State superintendent of insurance and includes, with

17 respect to a health maintenance organization or

18 other carrier not regulated by that official, the State

19 official who is responsible for regulation of the orga20 nization or carrier.

21 Subtitle C—Federal Preemption

22 SEC. 141. PROHIBITION OF STATE BENEFIT MANDATES FOR

23 GROUP HEALTH PLANS.

24 In the case of a group health plan, no provision of

25 State or local law shall apply that requires the coverage
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1 of one or more specific benefits, services, or categories of

2 health care, or services of any class or type of provider

3 of health care.

4 SEC. 142. PROHIBITION OF PROVISIONS PROHIBITING EM5 PLOYER GROUPS FROM PURCHASING

6 HEALTH INSURANCE.

7 No provision of State or local law shall apply that

8 prohibits 2 or more employers from obtaining coverage

9 under an insured multiple employer health plan.

10 SEC. 143. RESTRICTIONS ON MANAGED CARE.

11 (a) PREEMPTION OF STATE LAW PROVISIONS.—Sub12 ject to subsection (c), the following provisions of State law

13 are preempted and may not be enforced:

14 (1) RESTRICTIONS ON REIMBURSEMENT RATES

15 OR SELECTIVE CONTRACTING.—Any law that re16 stricts the ability of a group health plan to negotiate

17 reimbursement rates with providers or to contract

18 selectively with one provider or a limited number of

19 providers.

20 (2) RESTRICTIONS ON DIFFERENTIAL FINAN21 CIAL INCENTIVES.—Any law that limits the financial

22 incentives that a group health plan may require a

23 beneficiary to pay when a non-plan provider is used

24 on a non-emergency basis.
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1 (3) RESTRICTIONS ON UTILIZATION REVIEW

2 METHODS.—Any law that—

3 (A) prohibits utilization review of any or

4 all treatments and conditions,

5 (B) requires that such review be made (i)

6 by a resident of the State in which the treat7 ment is to be offered or by an individual li8 censed in such State, or (ii) by a physician in

9 any particular specialty or with any board cer10 tified specialty of the same medical specialty as

11 the provider whose services are being reviewed,

12 (C) requires the use of specified standards

13 of health care practice in such reviews or re14 quires the disclosure of the specific criteria used

15 in such reviews,

16 (D) requires payments to providers for the

17 expenses of responding to utilization review re18 quests, or

19 (E) imposes liability for delays in perform20 ing such review.

21 Nothing in subparagraph (B) shall be construed as

22 prohibiting a State from (i) requiring a licensed phy23 sician or other health care professional be available

24 at some time in the review or appeal process, or (ii)
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1 requiring that any decision in an appeal from such

2 a review be made by a licensed physician.

3 (b) GAO STUDY.—

4 (1) IN GENERAL.—The Comptroller General

5 shall conduct a study of the benefits and cost effec6 tiveness of the use of managed care in the delivery

7 of health services.

8 (2) REPORT.—By not later than 4 years after

9 the date of the enactment of this Act, the Comptrol10 ler General shall submit a report to Congress on the

11 study conducted under paragraph (1) and shall in12 clude in the report such recommendations (including

13 whether the provisions of subsection (a) should be

14 extended) as may be appropriate.

15 (c) SUNSET.—Unless otherwise provided, subsection

16 (a) shall not apply 5 years after the date of the enactment

17 of this Act.

18 SEC. 144. EXEMPTION OF STATE LAWS PREVENTING DE19 NIAL OF LIFESAVING MEDICAL TREATMENT

20 PENDING TRANSFER TO ANOTHER HEALTH

21 CARE PROVIDER.

22 Nothing in this subtitle shall be construed to invali23 date any State law that has the effect of preventing invol24 untary denial of lifesaving medical treatment when such

25 denial would cause the involuntary death of the patient
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1 pending transfer of the patient to a health care provider

2 willing to provide such treatment.

3 SEC. 145. DEFINITIONS.

4 In this subtitle, the following definitions shall apply:

5 (1) EMPLOYER.—The term ‘‘employer’’ shall

6 have the meaning applicable under section 3(5) of

7 the Employee Retirement Income Security Act of

8 1974.

9 (2) GROUP HEALTH PLAN; PLAN.—(A) The

10 term ‘‘group health plan’’ means an employee wel11 fare benefit plan providing medical care (as defined

12 in section 213(d) of the Internal Revenue Code of

13 1986) to participants or beneficiaries directly or

14 through insurance, reimbursement, or otherwise, but

15 does not include any type of coverage excluded from

16 the definition of a health insurance plan.

17 (B) The term ‘‘plan’’ means, unless used with

18 a modifying term or the context specifically indicates

19 otherwise, a group health plan (including any such

20 plan which is a multiemployer plan), an exempted

21 multiple employer health plan, or an insured mul22 tiple employer health plan.

23 (3) HEALTH INSURANCE PLAN.—

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

25 subparagraph (B), the term ‘‘health insurance
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1 plan’’ means any hospital or medical service

2 policy or certificate, hospital or medical service

3 plan contract, or health maintenance organiza4 tion group contract offered by an insurer.

5 (B) EXCEPTION.—Such term does not in6 clude any of the following—

7 (i) coverage only for accident, dental,

8 vision, disability income, or long-term care

9 insurance, or any combination thereof,

10 (ii) medicare supplemental health in11 surance,

12 (iii) coverage issued as a supplement

13 to liability insurance,

14 (iv) worker’s compensation or similar

15 insurance, or

16 (v) automobile medical-payment insur17 ance,

18 or any combination thereof.

19 (4) INSURED MULTIPLE EMPLOYER HEALTH

20 PLAN.—The term ‘‘insured multiple employer health

21 plan’’ means a fully insured multiple employer wel22 fare arrangement under which benefits consist solely

23 of medical care described in section 607(1) of the

24 Employee Retirement Income Security Act of 1974
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1 (disregarding such incidental benefits as the Sec2 retary shall specify by regulations).

3 (5) INSURER.—The term ‘‘insurer’’ means a li4 censed insurance company, a prepaid hospital or

5 medical service plan, and a health maintenance orga6 nization offering such a plan to an employer, and in7 cludes a similar organization regulated under State

8 law for solvency.

9 (6) SECRETARY.—The term ‘‘Secretary’’ means

10 the Secretary of Health and Human Services.

11 (7) STATE.—The term ‘‘State’’ means the 50

12 States, the District of Columbia, Puerto Rico, the

13 Virgin Islands, Guam, and American Samoa.

14 Subtitle D—Rules of Construction

15 Regarding Abortion Services;

16 Inseverability

17 SEC. 151. RULES OF CONSTRUCTION REGARDING ABOR18 TION SERVICES.

19 Nothing in this title or title II may be construed—

20 (1) to require any health plan to include any

21 abortion services, or

22 (2) to condition tax deductibility on the inclu23 sion of such services.
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1 SEC. 152. INSEVERABILITY.

2 If section 151 is judicially determined to be invalid

3 or any provision in this title or title II is judicially deter4 mined—

5 (1) to require any health plan to include any

6 abortion services, or

7 (2) to condition tax deductibility on the inclu8 sion of such services,

9 then all the provisions of this title and title II shall be

10 deemed to be invalid and shall not be given any effect.
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1 TITLE II—AMENDMENTS OF IN2 TERNAL REVENUE CODE OF

3 1986

4 Subtitle A—Limitations on Em5 ployer Deduction for Health

6 Care Coverage for Employees

7 and on Employee Exclusion for

8 Employer-Provided Health Care

9 Coverage

10 SEC. 201. EMPLOYER DEDUCTION FOR HEALTH CARE COV11 ERAGE FOR EMPLOYEES LIMITED TO COV12 ERAGE UNDER HIGH-DEDUCTIBLE PLANS

13 AND MANAGED CARE PLANS AND TO CON14 TRIBUTIONS TO MEDICAL SAVINGS AC15 COUNTS FOR EMPLOYEES.

16 (a) IN GENERAL.—Part IX of subchapter B of chap17 ter 1 of the Internal Revenue Code of 1986 (relating to

18 items not deductible) is amended by adding at the end

19 the following new section:

20 ‘‘SEC. 280I. CERTAIN HEALTH CARE COVERAGE FOR EM21 PLOYEES.

22 ‘‘(a) IN GENERAL.—Except as otherwise provided in

23 this section, no deduction shall be allowed under this chap24 ter to any employer for health care coverage for any em25 ployee.
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1 ‘‘(b) EXCEPTIONS.—

2 ‘‘(1) IN GENERAL.—Subsection (a) shall not

3 apply to coverage under—

4 ‘‘(A) a high deductible umbrella insurance

5 plan, or

6 ‘‘(B) a managed health care plan.

7 ‘‘(2) MEDICAL SAVINGS ACCOUNTS PERMITTED

8 WITH HIGH DEDUCTIBLE UMBRELLA INSURANCE

9 PLAN COVERAGE.—In the case of an employer who

10 provides coverage under a high deductible umbrella

11 insurance plan for an employee, subsection (a) also

12 shall not apply to employer contributions to a medi13 cal savings account (as defined in section 23(c)) for

14 the benefit of such employee.

15 ‘‘(3) PERMITTED COVERAGE.—Subsection (a)

16 shall not apply to permitted coverage (as defined in

17 subsection (e)).

18 ‘‘(c) MAXIMUM DEDUCTION FOR PROVISION OF TAX19 QUALIFIED HEALTH CARE PLANS AND MEDICAL SAV20 INGS ACCOUNTS.—The amount allowed as a deduction by

21 reason of paragraphs (1) and (2) of subsection (b) for any

22 taxable year with respect to an employee shall not exceed

23 the health care tax benefit limitation for such taxable year.

24 ‘‘(d) HEALTH CARE TAX BENEFIT LIMITATION.—
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1 ‘‘(1) IN GENERAL.—The health care tax benefit

2 limitation for any taxable year is the sum of—

3 ‘‘(A) $2,500 ($4,000 in the case of a joint

4 return filed by individuals both of whom are

5 covered under a tax-qualified health care plan

6 provided by the employer), plus

7 ‘‘(B) $1,000 if any individual (other than

8 the taxpayer and the spouse (if any) of the tax9 payer) is covered under such plan by reason of

10 their relationship to such taxpayer or spouse.

11 ‘‘(2) VARIATION OF MAXIMUM DEDUCTION BY

12 GEOGRAPHIC AREA.—

13 ‘‘(A) IN GENERAL.—In the case of any cal14 endar year after 1996, each of the dollar

15 amounts applicable under paragraph (1) (after

16 the adjustment under paragraph (3)) shall be

17 adjusted by the Secretary to reflect variations

18 in the cost of tax-qualified health care plans be19 tween statistical areas (as defined in section

20 143(k)(2)). The amounts prescribed by the Sec21 retary under this subparagraph for any cal22 endar year shall apply to taxable years begin23 ning in such calendar year.

24 ‘‘(B) METHOD.—
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1 ‘‘(i) IN GENERAL.—Amounts pre2 scribed under subparagraph (A) for any

3 area for any calendar year shall be deter4 mined by multiplying the dollar amounts

5 applicable under paragraph (1) (after the

6 adjustment under paragraph (3)) by the

7 cost-of-living multiplier for such area for

8 such calendar year. If any adjustment

9 under the preceding sentence is not a mul10 tiple of $50, such adjustment shall be

11 rounded to the nearest multiple of $50.

12 ‘‘(ii) MULTIPLIER.—The cost-of-living

13 multiplier for any area for any calendar

14 year is the fraction—

15 ‘‘(I) the numerator of which is

16 the cost-of-living for such area for

17 such calendar year; and

18 ‘‘(II) the denominator of which is

19 the average cost-of-living for the

20 United States for such calendar year.

21 The Secretary shall determine the cost-of22 living for an area using retail market

23 prices selected and used under the same

24 methodology as is used by the Bureau of

25 Labor Statistics in developing the
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1 Consumer Price Index for All Urban Con2 sumers. The cost-of-living for any calendar

3 year is the cost-of-living as of the close of

4 the 12-month period ending on August 31

5 of such calendar year.

6 ‘‘(3) INFLATION ADJUSTMENT.—

7 ‘‘(A) IN GENERAL.—In the case of any cal8 endar year after 1996, each dollar amount con9 tained in paragraph (1) shall be increased by

10 an amount equal to—

11 ‘‘(i) such dollar amount, multiplied by

12 ‘‘(ii) the inflation adjustment for such

13 calendar year.

14 If any increase under the preceding sentence is

15 not a multiple of $50, such increase shall be

16 rounded to the nearest multiple of $50.

17 ‘‘(B) METHOD OF ADJUSTMENT.—For

18 purposes of subparagraph (A), the inflation ad19 justment for any calendar year is the greater

20 of—

21 ‘‘(i) the CPI adjustment, or

22 ‘‘(ii) the MEI adjustment.

23 ‘‘(C) CPI ADJUSTMENT.—The CPI adjust24 ment for any calendar year is the percentage (if

25 any) by which the CPI–U for the preceding cal-
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1 endar year exceeds the CPI–U for the second

2 preceding calendar year.

3 ‘‘(D) MEI ADJUSTMENT.—The MEI ad4 justment for any calendar year is—

5 ‘‘(i) the percentage (if any) by which

6 MEI for the preceding calendar year ex7 ceeds the MEI for the second preceding

8 calendar year, reduced by

9 ‘‘(ii) 2 percentage points (1 percent10 age point in the case of adjustments for

11 calendar years 1997 and 1998).

12 ‘‘(E) INDEX FOR ANY CALENDAR YEAR.—

13 For purposes of this paragraph, the CPI–U and

14 MEI for any calendar year is the CPI–U and

15 MEI as of the close of the 12-month period

16 ending on August 31 of such calendar year.

17 ‘‘(F) CPI–U AND MEI.—For purposes of

18 this paragraph—

19 ‘‘(i) The term ‘CPI–U’ means the

20 Consumer Price Index for all-urban con21 sumers published by the Department of

22 Labor.

23 ‘‘(ii) The term ‘MEI’ means the Medi24 care Economic Index referred to in the 4th
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1 sentence of section 1842(b)(3) of the So2 cial Security Act.

3 ‘‘(e) PERMITTED COVERAGE.—For purposes of this

4 section, the term ‘permitted coverage’ means—

5 ‘‘(1) any coverage providing wages or payments

6 in lieu of wages for any period during which the em7 ployee is absent from work on account of sickness or

8 injury,

9 ‘‘(2) any coverage providing for payments re10 ferred to in section 105(c),

11 ‘‘(3) insurance that limits benefits with respect

12 to specific diseases (or conditions),

13 ‘‘(4) hospital or nursing home indemnity insur14 ance,

15 ‘‘(5) insurance with respect to accidents,

16 ‘‘(6) any coverage provided to an employee or

17 former employee after such employee has attained

18 age 65, unless such coverage is provided by reason

19 of the current employment of the individual (within

20 the meaning of section 1862(b)(1)(A)(i)(I) of the

21 Social Security Act) with the employer providing the

22 coverage,

23 ‘‘(7) any coverage provided under Federal law

24 to any individual (or spouse or dependent thereof)

25 by reason of such individual being—
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1 ‘‘(A) a member of the Armed Forces of the

2 United States, or

3 ‘‘(B) a veteran, and

4 ‘‘(8) any other coverage to the extent that the

5 Secretary determines that the continuation of an ex6 clusion for such coverage is not inconsistent with the

7 purposes of this section.

8 Insurance shall be treated as described in paragraph (3),

9 (4), or (5) only if the amount of the benefits under the

10 insurance do not vary based on the amount of expenses

11 incurred.

12 ‘‘(f) SPECIAL RULES FOR DETERMINING AMOUNT OF

13 DEDUCTION.—

14 ‘‘(1) IN GENERAL.—For purposes of this sec15 tion, the cost of any coverage for an employee, his

16 spouse, and dependents shall be determined on the

17 basis of the average cost of providing such coverage

18 to the beneficiaries receiving such coverage.

19 ‘‘(2) SPECIAL RULE.—To the extent provided

20 by the Secretary, cost determinations under para21 graph (1) may be made on the basis of reasonable

22 estimates.

23 ‘‘(g) DEFINITIONS.—For purposes of this section, the

24 terms ‘high deductible umbrella insurance plan’, ‘managed

25 health care plan’, and ‘tax-qualified health care plan’ have
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1 the respective meanings given such terms by section 101

2 of Health Savings and Security Act of 1994.’’

3 (b) CLERICAL AMENDMENT.—The table of sections

4 for such part IX is amended by adding at the end the

5 following new item:

‘‘Sec. 280I. Certain health care coverage for employees.’’

6 SEC. 202. LIMITATION ON EXCLUSION FOR EMPLOYER-PRO7 VIDED COVERAGE UNDER HEALTH PLAN.

8 (a) IN GENERAL.—The text of section 106 of the In9 ternal Revenue Code of 1986 (relating to contributions by

10 employer to accident and health plans) is amended to read

11 as follows:

12 ‘‘(a) IN GENERAL.—Except as provided in subsection

13 (b), gross income of an employee does not include em14 ployer-provided coverage under an accident or health plan.

15 ‘‘(b) LIMITATIONS.—

16 ‘‘(1) ONLY CERTAIN COVERAGE EXCLUD17 ABLE.—Gross income of an employee shall include

18 employer-provided coverage under any accident or

19 health plan except to the extent that—

20 ‘‘(A) such coverage consists of coverage

21 under a tax-qualified health care plan (as de22 fined in section 101 of the Health Savings and

23 Security Act of 1994),

24 ‘‘(B) such coverage consists of contribu25 tions to a medical savings account (as defined
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1 in section 23(c)) for the benefit of an employee,

2 or

3 ‘‘(C) such coverage consists of permitted

4 coverage (as defined in section 280I(e)).

5 ‘‘(2) MAXIMUM EXCLUSION FOR EMPLOYER6 PROVIDED TAX-QUALIFIED HEALTH CARE PLANS

7 AND MEDICAL SAVINGS ACCOUNTS.—

8 ‘‘(A) IN GENERAL.—The amount excluded

9 from gross income by reason of subparagraphs

10 (A) and (B) of paragraph (1) for any taxable

11 year shall not exceed the health care tax benefit

12 limitation for such taxable year determined

13 under section 280I(d).

14 ‘‘(B) SPOUSES WITH DUAL COVERAGE.—If

15 the taxpayer or the spouse of the taxpayer are

16 covered under more than 1 tax-qualified health

17 care plan, coverage under the least expensive

18 such plan shall not be subject to subparagraph

19 (A) and such coverage shall not be taken into

20 account in applying subparagraph (A) to the

21 other such plan.

22 ‘‘(c) SPECIAL RULES FOR DETERMINING AMOUNT OF

23 INCLUSION.—

24 ‘‘(1) IN GENERAL.—For purposes of this sec25 tion, the value of any coverage shall be determined
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1 on the basis of the average cost of providing such

2 coverage to the beneficiaries receiving such coverage.

3 ‘‘(2) SPECIAL RULE.—To the extent provided

4 by the Secretary, cost determinations under para5 graph (1) may be made on the basis of reasonable

6 estimates.’’

7 (b) EMPLOYMENT TAX TREATMENT.—

8 (1) SOCIAL SECURITY TAX.—

9 (A) Subsection (a) of section 3121 of such

10 Code is amended by inserting after paragraph

11 (21) the following new sentence:

12 ‘‘Nothing in paragraph (2) shall exclude from the term

13 ‘wages’ any amount which is required to be included in

14 gross income under section 106(b).’’

15 (B) Subsection (a) of section 209 of the

16 Social Security Act is amended by inserting

17 after paragraph (21) the following new sen18 tence:

19 ‘‘Nothing in paragraph (2) shall exclude from the term

20 ‘wages’ any amount which is required to be included in

21 gross income under section 106(b) of the Internal Revenue

22 Code of 1986.’’

23 (2) RAILROAD RETIREMENT TAX.—Paragraph

24 (1) of section 3231(e) of such Code is amended by

25 adding at the end thereof the following new sen-
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1 tence: ‘‘Nothing in clause (i) of the second sentence

2 of this paragraph shall exclude from the term ‘com3 pensation’ any amount which is required to be in4 cluded in gross income under section 106(b).’’

5 (3) UNEMPLOYMENT TAX.—Subsection (b) of

6 section 3306 of such Code is amended by inserting

7 after paragraph (16) the following new sentence:

8 ‘‘Nothing in paragraph (2) shall exclude from the term

9 ‘wages’ any amount which is required to be included in

10 gross income under section 106(b).’’

11 (4) WAGE WITHHOLDING.—Subsection (a) of

12 section 3401 of such Code is amended by adding at

13 the end thereof the following new sentence:

14 ‘‘Nothing in the preceding provisions of this subsection

15 shall exclude from the term ‘wages’ any amount which is

16 required to be included in gross income under section

17 106(b).’’

18 SEC. 203. HEALTH BENEFITS MAY NOT BE PROVIDED

19 UNDER CAFETERIA PLANS.

20 (a) GENERAL RULE.—Subsection (f) of section 125

21 (defining qualified benefits) is amended by adding at the

22 end thereof the following new sentence: ‘‘Such term shall

23 not include any benefits or coverage (other than benefits

24 or coverage described in paragraph (1), (2), (3), (4), or

25 (5) of section 280I(e)) under an accident or health plan.’’
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1 (b) CONFORMING AMENDMENT.—Subsection (g) of

2 section 125 is amended by striking paragraph (2) and re3 designating paragraphs (3) and (4) as paragraphs (2) and

4 (3), respectively.

5 SEC. 204. EFFECTIVE DATE.

6 (a) IN GENERAL.—The amendments made by this

7 subtitle shall take effect on January 1, 1996.

8 (b) COLLECTIVELY BARGAINED PLANS.—In the case

9 of a plan maintained pursuant to 1 or more collective bar10 gaining agreements between employee representatives and

11 1 or more employers ratified before March 15, 1994, the

12 amendments made by this subtitle shall not apply to

13 health coverage pursuant to such plan before the earlier

14 of—

15 (1) the later of—

16 (A) January 1, 1997, or

17 (B) the date on which the last of such col18 lective bargaining agreements terminates (de19 termined without regard to any extension there20 of after March 14, 1994), or

21 (2) January 1, 1999.
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1 Subtitle B—Credits for Contribu2 tions to Medical Savings Ac3 counts, for Purchase of High De4 ductible Umbrella Insurance,

5 and for Routine Preventive

6 Care

7 SEC. 211. CREDIT FOR CONTRIBUTIONS TO MEDICAL SAV8 INGS ACCOUNTS.

9 (a) IN GENERAL.—Subpart A of part IV of sub10 chapter A of chapter 1 of the Internal Revenue Code of

11 1986 (relating to nonrefundable credits) is amended by

12 inserting after section 22 the following new section:

13 ‘‘SEC. 23. MEDICAL SAVINGS ACCOUNT CONTRIBUTIONS.

14 ‘‘(a) EXCLUSION.—In the case of an eligible individ15 ual, there shall be allowed as a credit against the tax im16 posed by this chapter for the taxable year an amount equal

17 to 31 percent of the medical savings account contributions

18 of the individual for the taxable year.

19 ‘‘(b) LIMITATIONS.—

20 ‘‘(1) IN GENERAL.—The amount of medical

21 savings account contributions by an eligible individ22 ual which may be taken into account under sub23 section (a) for any taxable year shall not exceed the

24 excess of—

25 ‘‘(A) the lesser of—
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1 ‘‘(i) the account limitation, or

2 ‘‘(ii) the excess health care tax benefit

3 limitation for the taxable year, over

4 ‘‘(B) the amount (if any) allowable as a

5 credit under section 35 to the taxpayer for the

6 taxable year.

7 ‘‘(2) ACCOUNT LIMITATION.—

8 ‘‘(A) IN GENERAL.—For purposes of para9 graph (1), the account limitation is $2,000.

10 ‘‘(B) HIGHER ACCOUNT LIMITATION IF

11 TAXPAYER HAS DEPENDENTS.—The $2,000

12 amount in subparagraph (A) shall be increased

13 by the lesser of—

14 ‘‘(i) $500 for each other individual

15 who is covered under the high deductible

16 umbrella insurance plan (as defined in sec17 tion 101 of the Health Savings and Secu18 rity Act of 1994) by reason of such indi19 vidual’s relationship to the taxpayer, or

20 ‘‘(ii) $1,500.

21 In the case of a married individual (as defined

22 in section 7703) who does not file a joint return

23 with such individual’s spouse, the $1,500

24 amount in clause (ii) shall be divided equally
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1 between such individual and spouse unless they

2 agree on a different division of such amount.

3 ‘‘(C) PRORATION OF LIMITATION IF PART4 YEAR ELIGIBILITY.—In the case of an individ5 ual who is an eligible individual only for a por6 tion (but not all) of the calendar year ending

7 with or within the taxable year, the account

8 limitation under this paragraph for such tax9 able year shall be an amount which bears the

10 same ratio to such limitation (determined with11 out regard to this paragraph) as such portion

12 bears to the entire calendar year.

13 ‘‘(3) EXCESS HEALTH CARE TAX BENEFIT LIMI14 TATION.—For purposes of paragraph (1), the excess

15 health care tax benefit limitation for any taxable

16 year is the excess (if any) of—

17 ‘‘(A) the health care tax benefit limitation

18 under section 280I(d) for such taxable year,

19 over

20 ‘‘(B) the amount excluded from the tax21 payer’s gross income by reason of subpara22 graphs (A) and (B) of section 106(b)(1) for

23 such taxable year.

24 ‘‘(c) DEFINITIONS.—For purposes of this section:
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1 ‘‘(1) MEDICAL SAVINGS ACCOUNT.—The term

2 ‘medical savings account’ means a trust created or

3 organized in the United States exclusively for the

4 purpose of paying the medical expenses of the ac5 count beneficiary, but only if the written governing

6 instrument creating the trust meets the following

7 requirements:

8 ‘‘(A) No contribution will be accepted un9 less it is in cash, and contributions will not be

10 accepted during any calendar year in excess of

11 the limitation under subsection (b).

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

13 section 408(n)) or another person who dem14 onstrates to the satisfaction of the Secretary

15 that the manner in which such person will ad16 minister the trust will be consistent with the re17 quirements of this section.

18 ‘‘(C) No part of the trust assets will be in19 vested in life insurance contracts.

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

21 commingled with other property except in a

22 common trust fund or common investment

23 fund.

24 ‘‘(2) ELIGIBLE INDIVIDUAL.—The term ‘eligible

25 individual’ means any individual who is covered
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1 under a high deductible umbrella insurance plan (as

2 defined in section 101 of Health Savings and Secu3 rity Act of 1994) other than—

4 ‘‘(A) an individual who is covered by—

5 ‘‘(i) part A or part B of the medicare

6 program under title XVIII of the Social

7 Security Act,

8 ‘‘(ii) the medicaid program under title

9 XIX of the Social Security Act,

10 ‘‘(iii) the health care program for ac11 tive military personnel under title 10,

12 United States Code,

13 ‘‘(iv) the veterans health care program

14 under chapter 17 of title 38, United States

15 Code,

16 ‘‘(v) the Civilian Health and Medical

17 Program of the Uniformed Services

18 (CHAMPUS), as defined in section

19 1073(4) of title 10, United States Code, or

20 ‘‘(vi) the Indian health service pro21 gram under the Indian Health Care Im22 provement Act (25 U.S.C. 1601 et seq.),

23 ‘‘(B) an individual with respect to whom a

24 deduction under section 151 is allowable to an25 other taxpayer for a taxable year beginning in
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1 the calendar year in which the individual’s tax2 able year begins, and

3 ‘‘(C) an individual if the amendments

4 made by subtitle A of title II of the Health Sav5 ings and Security Act of 1994 do not apply to

6 such individual’s health coverage by reason of

7 section 204(b) of such Act.

8 ‘‘(3) MEDICAL EXPENSES.—

9 ‘‘(A) IN GENERAL.—The term ‘medical ex10 penses’ means, with respect to the account ben11 eficiary, the amount paid by such beneficiary

12 for medical care (as defined in section 213(d))

13 of such beneficiary and the spouse and depend14 ents (as defined in section 152) of such bene15 ficiary.

16 ‘‘(B) LIMITATION ON AMOUNTS PAID FOR

17 HEALTH INSURANCE.—Such term shall include

18 amounts paid for insurance only if—

19 ‘‘(i) the account beneficiary is not eli20 gible to participate in any subsidized

21 health plan maintained by any employer of

22 such beneficiary or of the spouse of such

23 beneficiary, and

24 ‘‘(ii) the insurance is a high deduct25 ible umbrella insurance plan (as defined in
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1 section 101 of the Health Savings and Se2 curity Act of 1994.

3 ‘‘(4) MEDICAL SAVINGS ACCOUNT CONTRIBU4 TIONS.—The term ‘medical savings account con5 tributions’ means any amount paid in cash for the

6 taxable year by or on behalf of an individual to a

7 medical savings account for such individual’s benefit.

8 ‘‘(5) ACCOUNT BENEFICIARY.—The term ‘ac9 count beneficiary’ means the individual for whose

10 benefit the medical savings account is established.

11 ‘‘(d) OTHER DEFINITIONS AND SPECIAL RULES.—

12 ‘‘(1) TIME WHEN CONTRIBUTIONS DEEMED

13 MADE.—A contribution shall be deemed to be made

14 on the last day of the preceding taxable year if the

15 contribution is made on account of such taxable year

16 and is made not later than the time prescribed by

17 law for filing the return for such taxable year (not

18 including extensions thereof).

19 ‘‘(2) MARRIED INDIVIDUALS.—The maximum

20 credit under subsection (b) shall be computed sepa21 rately for each individual.

22 ‘‘(3) EMPLOYER PAYMENTS.—For purposes of

23 this title, any amount paid by an employer to a med24 ical savings account shall be treated as a payment

25 of compensation to the employee (other than a self-
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1 employed individual who is an employee within the

2 meaning of section 401(c)(1)) includible in his gross

3 income for the taxable year for which the amount

4 was contributed, whether or not a credit for such

5 payment is allowable under this section to the

6 employee.

7 ‘‘(e) TAX TREATMENT OF DISTRIBUTIONS.—

8 ‘‘(1) IN GENERAL.—Any amount paid or dis9 tributed out of a medical savings account shall be in10 cluded in the gross income of the account beneficiary

11 unless such amount is used exclusively to pay—

12 ‘‘(A) the medical expenses of such bene13 ficiary or of the spouse and dependents (as de14 fined in section 152) of such beneficiary, or

15 ‘‘(B) the expenses for long-term care (in16 cluding long-term care insurance) for any of

17 such individuals who have attained age 65 as of

18 the date such expenses are paid.

19 ‘‘(2) EXCESS CONTRIBUTIONS RETURNED BE20 FORE DUE DATE OF RETURN.—Paragraph (1) shall

21 not apply to the distribution of any contribution paid

22 during a taxable year to a medical savings account

23 to the extent that such contribution exceeds the

24 amount excludable under subsection (a) if—
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1 ‘‘(A) such distribution is received by the

2 individual on or before the last day prescribed

3 by law (including extensions of time) for filing

4 such individual’s return for such taxable year,

5 and

6 ‘‘(B) such distribution is accompanied by

7 the amount of net income attributable to such

8 excess contribution.

9 Any net income described in subparagraph (B) shall

10 be included in the gross income of the individual for

11 the taxable year in which it is received.

12 ‘‘(3) ROLLOVERS TO INDIVIDUAL RETIREMENT

13 PLANS.—Paragraph (1) shall not apply to any pay14 ment or distribution to the account beneficiary if—

15 ‘‘(A) the payment or distribution is made

16 on or after the date such beneficiary attains age

17 65, and

18 ‘‘(B) the entire amount received (including

19 money and other property) is paid into an indi20 vidual retirement plan for the benefit of such

21 beneficiary not later than the 60th day after

22 the day on which the individual receives the

23 payment or distribution.
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1 The dollar limitation under section 408(a)(1) shall

2 not apply to amounts paid under the preceding sen3 tence.

4 ‘‘(4) PENALTY FOR DISTRIBUTIONS NOT USED

5 FOR MEDICAL EXPENSES, ETC.—

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

7 this chapter for any taxable year in which there

8 is a payment or distribution from a medical

9 savings account which is includible in gross in10 come under paragraph (1) shall be increased by

11 10 percent of the amount which is so includible.

12 ‘‘(B) EXCEPTION FOR DISTRIBUTIONS

13 AFTER AGE 65.—Subparagraph (A) shall not

14 apply to any distribution or payment after the

15 date on which the account beneficiary attains

16 age 65.

17 ‘‘(C) DISABILITY OR DEATH CASES.—Sub18 paragraph (A) shall not apply if the payment or

19 distribution is made after the account bene20 ficiary becomes disabled within the meaning of

21 section 72(m)(7) or dies.

22 ‘‘(f) TAX TREATMENT OF ACCOUNTS.—

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

24 is exempt from taxation under this subtitle, unless

25 such account has ceased to be a medical savings ac-
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1 count by reason of paragraph (2) or (3). Notwith2 standing the preceding sentence, any such account is

3 subject to the taxes imposed by section 511 (relating

4 to imposition of tax on unrelated business income of

5 charitable, etc., organizations).

6 ‘‘(2) ACCOUNT TERMINATES IF INDIVIDUAL EN7 GAGES IN PROHIBITED TRANSACTION.—

8 ‘‘(A) IN GENERAL.—If, during any taxable

9 year of the account beneficiary engages in any

10 transaction prohibited by section 4975 with re11 spect to the account, the account ceases to be

12 a medical savings account as of the first day of

13 that taxable year.

14 ‘‘(B) ACCOUNT TREATED AS DISTRIBUTING

15 ALL ITS ASSETS.—In any case in which any ac16 count ceases to be a medical savings account by

17 reason of subparagraph (A) on the first day of

18 any taxable year, paragraph (1) of subsection

19 (e) shall be applied as if there were a distribu20 tion on such first day in an amount equal to

21 the fair market value (on such first day) of all

22 assets in the account (on such first day) and no

23 portion of such distribution were used to pay

24 medical expenses.
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1 ‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU2 RITY.—If, during any taxable year, the account ben3 eficiary uses the account or any portion thereof as

4 security for a loan, the portion so used is treated as

5 distributed and not used to pay medical expenses.

6 ‘‘(g) INFLATION ADJUSTMENT.—In the case of any

7 calendar year after 1996, each dollar amount in subsection

8 (b) shall be increased by an amount equal to—

9 ‘‘(1) such dollar amount, multiplied by

10 ‘‘(2) the inflation adjustment (determined

11 under section 280I(d)(3)) for such calendar year.

12 If any increase under the preceding sentence is not a mul13 tiple of $50, such increase shall be rounded to the nearest

14 multiple of $50.

15 ‘‘(h) CUSTODIAL ACCOUNTS.—For purposes of this

16 section, a custodial account shall be treated as a trust if—

17 ‘‘(1) the assets of such account are held by a

18 bank (as defined in section 408(n)) or another per19 son who demonstrates to the satisfaction of the Sec20 retary that the manner in which he will administer

21 the account will be consistent with the requirements

22 of this section, and

23 ‘‘(2) the custodial account would, except for the

24 fact that it is not a trust, constitute a medical sav25 ings account described in subsection (c).
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1 For purposes of this title, in the case of a custodial ac2 count treated as a trust by reason of the preceding sen3 tence, the custodian of such account shall be treated as

4 the trustee thereof.

5 ‘‘(i) REPORTS.—The trustee of a medical savings ac6 count shall make such reports regarding such account to

7 the Secretary and to the account beneficiary with respect

8 to contributions, distributions, and such other matters as

9 the Secretary may require under regulations. The reports

10 required by this subsection shall be filed at such time and

11 in such manner and furnished to such individuals at such

12 time and in such manner as may be required by those reg13 ulations.

14 ‘‘(j) OTHER DEFINITIONS.—For purposes of this sec15 tion—

16 ‘‘(1) EMPLOYER.—The term ‘employer’ includes

17 persons treated as an employer under section

18 401(c)(4).

19 ‘‘(2) EMPLOYEE.—The term ‘employee’ includes

20 an individual who is an employee within the meaning

21 of section 401(c)(1).’’

22 (b) EMPLOYER PAYMENTS EXCLUDED FROM EM23 PLOYMENT TAX BASE.—

24 (1) SOCIAL SECURITY TAXES.—
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1 (A) Subsection (a) of section 3121 of such

2 Code is amended by striking ‘‘or’’ at the end of

3 paragraph (20), by striking the period at the

4 end of paragraph (21) and inserting ‘‘; or’’, and

5 by inserting after paragraph (21) the following

6 new paragraph:

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

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

9 reasonable to believe that the employee will be able

10 to take such payment into account in determining

11 the credit under section 23.’’

12 (B) Subsection (a) of section 209 of the

13 Social Security Act is amended by striking ‘‘or’’

14 at the end of paragraph (18), by striking the

15 period at the end of paragraph (19) and insert16 ing ‘‘; or’’, and by inserting after paragraph

17 (19) the following new paragraph:

18 ‘‘(20) any payment made to or for the benefit

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

20 reasonable to believe that the employee will be able

21 to take such payment into account in determining

22 the credit under section 23 of the Internal Revenue

23 Code of 1986.’’
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1 (2) RAILROAD RETIREMENT TAX.—Subsection

2 (e) of section 3231 of such Code is amended by add3 ing at the end the following new paragraph:

4 ‘‘(10) MEDICAL SAVINGS ACCOUNT CONTRIBU5 TIONS.—The term ‘compensation’ shall not include

6 any payment made to or for the benefit of an em7 ployee if at the time of such payment it is reason8 able to believe that the employee will be able to take

9 such payment into account in determining the credit

10 under section 23.’’

11 (3) UNEMPLOYMENT TAX.—Subsection (b) of

12 section 3306 of such Code is amended by striking

13 ‘‘or’’ at the end of paragraph (15), by striking the

14 period at the end of paragraph (16) and inserting ‘‘;

15 or’’, and by inserting after paragraph (16) the fol16 lowing new paragraph:

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

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

19 reasonable to believe that the employee will be able

20 to take such payment into account in determining

21 the credit under section 23.’’

22 (4) WITHHOLDING TAX.—Subsection (a) of sec23 tion 3401 of such Code is amended by striking ‘‘or’’

24 at the end of paragraph (19), by striking the period

25 at the end of paragraph (20) and inserting ‘‘; or’’,
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1 and by inserting after paragraph (20) the following

2 new paragraph:

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

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

5 reasonable to believe that the employee will be able

6 to take such payment into account in determining

7 the credit under section 23.’’

8 (c) TAX ON EXCESS CONTRIBUTIONS.—Section 4973

9 of such Code (relating to tax on excess contributions to

10 individual retirement accounts, certain section 403(b) con11 tracts, and certain individual retirement annuities) is

12 amended—

13 (1) by inserting ‘‘MEDICAL SAVINGS AC14 COUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading of

15 such section,

16 (2) by redesignating paragraph (2) of sub17 section (a) as paragraph (3) and by inserting after

18 paragraph (1) the following:

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

20 meaning of section 23(c)),’’,

21 (3) by striking ‘‘or’’ at the end of paragraph

22 (1) of subsection (a), and

23 (4) by adding at the end thereof the following

24 new subsection:
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1 ‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS

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

3 a medical savings account (within the meaning of section

4 23(c)), the term ‘excess contributions’ means the amount

5 by which the amount contributed for the taxable year to

6 the account exceeds the amount which may be taken into

7 account in determining the credit under section 23 for

8 such taxable year. For purposes of this subsection, any

9 contribution which is distributed out of the medical sav10 ings account in a distribution to which section 23(e)(2)

11 applies shall be treated as an amount not contributed.’’

12 (d) TAX ON PROHIBITED TRANSACTIONS.—Section

13 4975 of such Code (relating to prohibited transactions)

14 is amended—

15 (1) by adding at the end of subsection (c) the

16 following new paragraph:

17 ‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC18 COUNTS.—An individual for whose benefit a medical

19 savings account (within the meaning of section

20 23(c)) is established shall be exempt from the tax

21 imposed by this section with respect to any trans22 action concerning such account (which would other23 wise be taxable under this section) if, with respect

24 to such transaction, the account ceases to be a medi-
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1 cal savings account by reason of the application of

2 section 23(f)(2)(A) to such account.’’, and

3 (2) by inserting ‘‘or a medical savings account

4 described in section 23(c)’’ in subsection (e)(1) after

5 ‘‘described in section 408(a)’’.

6 (e) FAILURE TO PROVIDE REPORTS ON MEDICAL

7 SAVINGS ACCOUNTS.—Section 6693 of such Code (relat8 ing to failure to provide reports on individual retirement

9 account or annuities) is amended—

10 (1) by inserting ‘‘OR ON MEDICAL SAVINGS

11 ACCOUNTS’’ after ‘‘ANNUITIES’’ in the heading of

12 such section, and

13 (2) by adding at the end of subsection (a) the

14 following: ‘‘The person required by section 23(i) to

15 file a report regarding a medical savings account at

16 the time and in the manner required by such section

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

18 is shown that such failure is due to reasonable

19 cause.’’

20 (f) CLERICAL AMENDMENTS.—

21 (1) The table of sections for subpart A of part

22 IV of subchapter A of chapter 1 of such Code is

23 amended by inserting after the item relating to sec24 tion 22:

‘‘Sec. 23. Medical savings account contributions.’’
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1 (2) The table of sections for chapter 43 of such

2 Code is amended by striking the item relating to sec3 tion 4973 and inserting the following:

‘‘Sec. 4973. Tax on excess contributions to individual retirement

accounts, medical savings accounts, certain 403(b)

contracts, and certain individual retirement annuities.’’

4 (3) The table of sections for subchapter B of

5 chapter 68 of such Code is amended by inserting ‘‘or

6 on medical savings accounts’’ after ‘‘annuities’’ in

7 the item relating to section 6693.

8 SEC. 212. REFUNDABLE CREDIT FOR PURCHASE OF COV9 ERAGE UNDER TAX-QUALIFIED HEALTH

10 CARE PLANS.

11 (a) IN GENERAL.—Subpart C of part IV of sub12 chapter A of chapter 1 of the Internal Revenue Code of

13 1986 (relating to refundable credits) is amended by redes14 ignating section 35 as section 36 and by inserting after

15 section 34 the following new section:

16 ‘‘SEC. 35. PURCHASE OF COVERAGE UNDER TAX-QUALIFIED

17 HEALTH CARE PLANS.

18 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in19 dividual, there shall be allowed as a credit against the tax

20 imposed by this subtitle for the taxable year an amount

21 equal to 31 percent of the amount paid by the taxpayer

22 during the taxable year for coverage under a tax-qualified

23 health care plan (as defined in section 101 of the Health
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1 Savings and Security Act of 1994) for the taxpayer, the

2 spouse of the taxpayer, and any dependent (as defined in

3 section 152) of the taxpayer.

4 ‘‘(b) COVERAGE OF CERTAIN INDIVIDUALS NOT IN5 CLUDED.—There shall not be taken into account under

6 subsection (a) amounts paid for coverage for any individ7 ual if—

8 ‘‘(1) such individual is covered by—

9 ‘‘(A) part A or part B of the medicare pro10 gram under title XVIII of the Social Security

11 Act,

12 ‘‘(B) the medicaid program under title

13 XIX of the Social Security Act,

14 ‘‘(C) the health care program for active

15 military personnel under title 10, United States

16 Code,

17 ‘‘(D) the veterans health care program

18 under chapter 17 of title 38, United States

19 Code,

20 ‘‘(E) the Civilian Health and Medical Pro21 gram of the Uniformed Services (CHAMPUS),

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

23 States Code, or
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1 ‘‘(F) the Indian health service program

2 under the Indian Health Care Improvement Act

3 (25 U.S.C. 1601 et seq.), or

4 ‘‘(2) the amendments made by subtitle A of

5 title II of the Health Savings and Security Act of

6 1994 do not apply to such individual’s health cov7 erage by reason of section 204(b) of such Act.

8 ‘‘(c) COORDINATION WITH HEALTH INSURANCE

9 CREDIT CERTIFICATES.—

10 ‘‘(1) IN GENERAL.—If any health insurance

11 credit certificate is used pursuant to section 212(b)

12 of the Health Savings and Security Act of 1994 by

13 the taxpayer to pay for coverage under a tax-quali14 fied health care plan during any taxable year, then

15 the tax imposed by this chapter for such taxable

16 year shall be increased by the aggregate dollar

17 amount of the certificates so used during such tax18 able year.

19 ‘‘(2) RECONCILIATION OF CERTIFICATES AND

20 CREDIT ALLOWED.—Any increase in tax under para21 graph (1) shall not be treated as tax imposed by this

22 chapter for purposes of determining the amount of

23 any credit (other than the credit allowed by sub24 section (a)) allowable under this subpart.’’
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1 (b) HEALTH INSURANCE CERTIFICATES FOR LOW2 INCOME INDIVIDUALS ELIGIBLE FOR CREDIT.—

3 (1) IN GENERAL.—The Secretary of the Treas4 ury shall establish a program under which individ5 uals provide certificates to any provider of a tax6 qualified health care plan (as defined in section 101

7 of this Act) in full or partial payment of the provid8 er’s premium for the individual for the year. If an

9 individual presents the provider with such a certifi10 cate, the provider shall accept the certificate toward

11 payment of the provider’s premium for the individ12 ual for the year.

13 (2) INDIVIDUALS ELIGIBLE FOR CERTIFI14 CATES.—Under the program established pursuant to

15 paragraph (1), certificates shall be available only to

16 individuals—

17 (A) to whom a credit under section 35 of

18 the Internal Revenue Code of 1986 (as added

19 by subsection (a)) is allowable for the taxable

20 year, and

21 (B) whose liability for tax under subtitle A

22 of such Code (determined without regard to

23 such credit) is likely (as determined by the Sec24 retary) to be less than the amount of such cred25 it allowable for such taxable year.
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1 (3) AMOUNT OF CERTIFICATES.—The dollar

2 amount of the certificates provided under such pro3 gram to an individual for any taxable year shall not

4 exceed the amount of the credit under such section

5 35 that the Secretary estimates will be allowable to

6 such individual for such taxable year.

7 (4) PAYMENT TO PROVIDERS.—

8 (A) AMOUNT.—Except as otherwise pro9 vided in this paragraph, a provider of any tax10 qualified health care plan shall be entitled, upon

11 presentation to the Secretary (or his designee)

12 of an individual’s certificate and of information

13 used by the provider to determine the individ14 ual’s applicable premium, to payment equal to

15 the dollar amount of the certificate.

16 (B) PREMIUM LESS THAN CERTIFICATE

17 DOLLAR AMOUNT.—If the certificate dollar

18 amount is greater than the amount of the indi19 vidual’s applicable premium, the provider of the

20 tax-qualified health care plan to the individual

21 shall be entitled to payment under subpara22 graph (A) only in the amount of the individual’s

23 applicable premium.

24 (C) OFFSETTING PAYMENTS.—If a pro25 vider of a tax-qualified health care plan has re-
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1 ceived prepayment of an individual’s applicable

2 premium for any period for which the individ3 ual’s certificate is in effect, the amount of the

4 payment to which the provider is otherwise enti5 tled under subparagraph (A) shall be reduced

6 to the extent of such premium paid.

7 (D) ACCEPTANCE OF CERTAIN IMPROPER

8 CERTIFICATES.—The Secretary may not deny

9 payment under subparagraph (A) to a provider

10 of a tax-qualified health care plan because a

11 certificate presented for payment was invalid,

12 unless the entity had knowledge of such invalid13 ity at the time of its acceptance of the certifi14 cate.

15 (5) HEALTH PLANS PROVIDED BY STATES.—In

16 the case of a tax-qualified health care plan provided

17 pursuant to a program described in section 1932 of

18 the Social Security Act, the State shall be treated

19 for purposes of this subsection as the provider of

20 such plan.

21 (c) TECHNICAL AMENDMENTS.—

22 (1) Subsection (l) of section 162 of such Code

23 is hereby repealed.
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1 (2) The table of sections for such subpart C is

2 amended by striking the last item and inserting the

3 following new items:

‘‘Sec. 35. Purchase of coverage under tax-qualified health care

plans.

‘‘Sec. 36. Overpayments of tax.’’

4 (3) Paragraph (2) of section 1324(b) of title

5 31, United States Code, is amended by inserting be6 fore the period ‘‘or from section 35 of such Code’’.

7 SEC. 213. CREDIT FOR COST OF ROUTINE PREVENTIVE

8 CARE.

9 (a) IN GENERAL.—Subpart A of part IV of sub10 chapter A of chapter 1 of the Internal Revenue Code of

11 1986 (relating to nonrefundable credits) is amended by

12 inserting after section 23 the following new section:

13 ‘‘SEC. 24. COST OF ROUTINE PREVENTIVE CARE.

14 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in15 dividual, there shall be allowed as a credit against the tax

16 imposed by this chapter for the taxable year an amount

17 equal to 31 percent of the amount paid by the taxpayer

18 during the taxable year for routine preventive care for the

19 taxpayer, the spouse of the taxpayer, and any dependent

20 (as defined in section 152) of the taxpayer.

21 ‘‘(b) CARE OF CERTAIN INDIVIDUALS NOT IN22 CLUDED.—There shall not be taken into account under

23 subsection (a) amounts paid for routine preventive care

24 for—
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1 ‘‘(1) any individual who is the beneficiary of a

2 medical savings account (as defined in section 23(c))

3 or the spouse or a dependent of such a beneficiary,

4 ‘‘(2) any individual who is covered under a

5 managed health care plan (as defined in section 101

6 of Health Savings and Security Act of 1994),

7 ‘‘(3) any individual who is covered by—

8 ‘‘(A) part A or part B of the medicare pro9 gram under title XVIII of the Social Security

10 Act,

11 ‘‘(B) the medicaid program under title

12 XIX of the Social Security Act,

13 ‘‘(C) the health care program for active

14 military personnel under title 10, United States

15 Code,

16 ‘‘(D) the veterans health care program

17 under chapter 17 of title 38, United States

18 Code,

19 ‘‘(E) the Civilian Health and Medical Pro20 gram of the Uniformed Services (CHAMPUS),

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

22 States Code,

23 ‘‘(F) the Indian health service program

24 under the Indian Health Care Improvement Act

25 (25 U.S.C. 1601 et seq.), and
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1 ‘‘(4) any individual if the amendments made by

2 subtitle A of title II of the Health Savings and Secu3 rity Act of 1994 do not apply to such individual’s

4 health coverage by reason of section 204(b) of such

5 Act.

6 ‘‘(c) ROUTINE PREVENTIVE CARE.—For purposes of

7 this section, the term ‘routine preventive care’ means any

8 service provided in accordance with the recommended

9 schedule of clinical preventive services of the United States

10 Preventive Services Task Force.’’

11 (b) CLERICAL AMENDMENT.—The table of sections

12 for such subpart A is amended by inserting after the item

13 relating to section 23 the following new item:

‘‘Sec. 24. Cost of routine preventive care.’’

14 SEC. 214. EFFECTIVE DATE.

15 The amendments made by this subtitle shall apply to

16 taxable years beginning after December 31, 1995.

17 Subtitle C—Repeal of Medical

18 Expense Deduction

19 SEC. 221. REPEAL OF MEDICAL EXPENSE DEDUCTION.

20 Section 213 of the Internal Revenue Code of 1986

21 (relating to medical, dental, etc., expenses) is amended by

22 adding at the end thereof the following new subsection:

23 ‘‘(f) TERMINATION.—No deduction shall be allowed

24 under this section for any taxable year beginning after De25 cember 31, 1995.’’
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1 Subtitle D—Veterans Medical

2 Benefits and Services Unaffected

3 SEC. 231. VETERANS MEDICAL BENEFITS AND SERVICES

4 UNAFFECTED.

5 Nothing in this title or the amendments made by this

6 title shall affect the eligibility of any veteran (or spouse

7 or dependent thereof) for medical benefits and services

8 provided under title 38, United States Code.

9 TITLE III—SAVINGS IN MEDI10 CARE AND MEDICAID PRO11 GRAMS

12 Subtitle A—Medicare Program

13 SEC. 301. INCREASE IN MEDICARE PART B PREMIUM FOR

14 INDIVIDUALS WITH HIGH INCOME.

15 (a) IN GENERAL.—Subchapter A of chapter 1 of the

16 Internal Revenue Code of 1986 is amended by adding at

17 the end thereof the following new part:

18 ‘‘PART VIII—MEDICARE PART B PREMIUMS FOR

19 HIGH-INCOME INDIVIDUALS

‘‘Sec. 59B. Medicare part B premium tax.

20 ‘‘SEC. 59B. MEDICARE PART B PREMIUM TAX.

21 ‘‘(a) IMPOSITION OF TAX.—In the case of an individ22 ual to whom this section applies for the taxable year, there

23 is hereby imposed (in addition to any other tax imposed

24 by this subtitle) a tax for such taxable year equal to the
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1 aggregate of the Medicare part B premium taxes for each

2 of the months during such year that such individual is

3 covered by Medicare part B.

4 ‘‘(b) INDIVIDUALS TO WHOM SECTION APPLIES.—

5 This section shall apply to any individual for any taxable

6 year if—

7 ‘‘(1) such individual is covered under Medicare

8 part B for any month during such year, and

9 ‘‘(2) the modified adjusted gross income of the

10 taxpayer for such taxable year exceeds the threshold

11 amount.

12 ‘‘(c) MEDICARE PART B PREMIUM TAX FOR

13 MONTH.—

14 ‘‘(1) IN GENERAL.—The Medicare part B premium tax for any month is 2 15 ⁄3 the amount equal to

16 the excess of—

17 ‘‘(A) 150 percent of the monthly actuarial

18 rate for enrollees age 65 and over determined

19 for that calendar year under section 1839(b) of

20 the Social Security Act, over

21 ‘‘(B) the total monthly premium under sec22 tion 1839 of the Social Security Act (deter23 mined without regard to subsections (b) and (f)

24 of section 1839 of such Act).
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1 ‘‘(2) PHASEIN OF TAX.—If the modified ad2 justed gross income of the taxpayer for any taxable

3 years exceeds the threshold amount by less than

4 $50,000, the Medicare part B premium tax for any

5 month during such taxable year shall be an amount

6 which bears the same ratio to the amount deter7 mined under paragraph (1) (without regard to this

8 paragraph) as such excess bears to $50,000. The

9 preceding sentence shall not apply to any individual

10 whose threshold amount is zero.

11 ‘‘(d) OTHER DEFINITIONS AND SPECIAL RULES.—

12 For purposes of this section—

13 ‘‘(1) THRESHOLD AMOUNT.—The term ‘thresh14 old amount’ means—

15 ‘‘(A) except as otherwise provided in this

16 paragraph, $100,000,

17 ‘‘(B) $125,000 in the case of a joint re18 turn, and

19 ‘‘(C) zero in the case of a taxpayer who—

20 ‘‘(i) is married at the close of the tax21 able year but does not file a joint return

22 for such year, and

23 ‘‘(ii) does not live apart from his

24 spouse at all times during the taxable year.
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1 ‘‘(2) MODIFIED ADJUSTED GROSS INCOME.—

2 The term ‘modified adjusted gross income’ means

3 adjusted gross income—

4 ‘‘(A) determined without regard to sections

5 135, 911, 931, and 933, and

6 ‘‘(B) increased by the amount of interest

7 received or accrued by the taxpayer during the

8 taxable year which is exempt from tax.

9 ‘‘(3) MEDICARE PART B COVERAGE.—An indi10 vidual shall be treated as covered under Medicare

11 part B for any month if a premium is paid under

12 part B of title XVIII of the Social Security Act for

13 the coverage of the individual under such part for

14 the month.

15 ‘‘(4) MARRIED INDIVIDUAL.—The determina16 tion of whether an individual is married shall be

17 made in accordance with section 7703.’’

18 (b) CLERICAL AMENDMENT.—The table of parts for

19 subchapter A of chapter 1 of such Code is amended by

20 adding at the end thereof the following new item:

‘‘Part VIII. Medicare Part B Premiums For High-Income Individuals.’’

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

22 this section shall apply to months after December 1993

23 in taxable years ending after December 31, 1995.
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1 SEC. 302. IMPOSITION OF 20 PERCENT COINSURANCE ON

2 CLINICAL LABORATORY SERVICES UNDER

3 MEDICARE.

4 (a) IN GENERAL.—Paragraphs (1)(D) and (2)(D) of

5 section 1833(a) of the Social Security Act (42 U.S.C.

6 1395l(a)) are each amended—

7 (1) by striking ‘‘(or 100 percent’’ and all that

8 follows through ‘‘the first opinion))’’; and

9 (2) by striking ‘‘100 percent of such negotiated

10 rate’’ and inserting ‘‘80 percent of such negotiated

11 rate’’.

12 (b) REPEAL OF MANDATORY ASSIGNMENT.—Section

13 1833(h)(5) of such Act (42 U.S.C. 1395l(h)(5)) is amend14 ed by striking subparagraphs (C) and (D).

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

16 subsections (a) and (b) shall apply to tests furnished on

17 or after January 1, 1996.

18 SEC. 303. ANNUAL INDEXING OF PART B DEDUCTIBLE.

19 Section 1833(b) of the Social Security Act (42 U.S.C.

20 1395l(b)) is amended by striking ‘‘1991 and subsequent

21 years’’ and inserting the following: ‘‘calendar years 1991

22 through 1995, and, for calendar year 1996 and each sub23 sequent year, by a deductible equal to the deductible under

24 this subsection for the previous year increased by the per25 centage increase in the consumer price index for all urban
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1 consumers (U.S. city average) for the 12-month period

2 ending with June of the previous year’’.

3 Subtitle B—Medicaid Program

4 PART 1—ACHIEVING SAVINGS IN PROGRAM

5 SEC. 311. CAP ON FEDERAL PAYMENTS MADE FOR ACUTE

6 MEDICAL SERVICES FURNISHED UNDER THE

7 MEDICAID PROGRAM.

8 (a) IN GENERAL.—Title XIX of the Social Security

9 Act (42 U.S.C. 1396 et seq.) is amended by redesignating

10 section 1931 as section 1932 and by inserting after section

11 1930 the following new section:

12 ‘‘CAP ON FEDERAL PAYMENT MADE FOR ACUTE MEDICAL

13 SERVICES

14 ‘‘SEC. 1931. (a) ANNUAL FEDERAL CAP.—Federal

15 financial participation is not available under section

16 1903(a)(1) for expenditures for acute medical services (as

17 defined in subsection (c)) for a class of medicaid categor18 ical individuals (as defined in subsection (c)(2)) for a

19 State for a quarter in a fiscal year, to the extent such

expenditures exceed 1 20 ⁄4 of the product of—

21 ‘‘(1) the per-capita limit determined under sub22 section (b) for the State for such fiscal year for such

23 class, multiplied by

24 ‘‘(2) the average number of medicaid categor25 ical individuals in such class entitled to receive medi-
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1 cal assistance under the State plan in any month in

2 the quarter.

3 ‘‘(b) PER-CAPITA LIMIT.—

4 ‘‘(1) IN GENERAL.—For purposes of subsection

5 (a), the per-capita limit for a class of medicaid cat6 egorical individuals for a State for—

7 ‘‘(A) fiscal year 1996, is an amount equal

8 to the base per-capita funding amount (as de9 termined under paragraph (2)) for such class

10 for such State, increased by 20 percent; and

11 ‘‘(B) fiscal year 1997 and each succeeding

12 fiscal year, is an amount equal to the amount

13 determined under this paragraph for the pre14 vious fiscal year for the class updated by the

15 applicable percentage for such fiscal year (de16 scribed in paragraph (3)).

17 ‘‘(2) BASE PER-CAPITA FUNDING AMOUNT.—

18 ‘‘(A) IN GENERAL.—The base per-capita

19 funding amount for a State for a class is an

20 amount equal to the quotient of—

21 ‘‘(i) the gross amount of payments

22 under the State plan under this title with

23 respect to medical assistance furnished for

24 acute medical services for individuals with25 in such class for calendar quarters in fiscal
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1 year 1994, but does not include such ex2 penditures for which no Federal financial

3 participation is provided under such plan;

4 divided by

5 ‘‘(ii) the average total number of med6 icaid categorical individuals in such class

7 in the State in any month during fiscal

8 year 1994.

9 ‘‘(B) DISPROPORTIONATE SHARE PAY10 MENTS NOT INCLUDED.—In applying subpara11 graph (A), payments made under section 1923

12 shall not be counted in the gross amount of

13 payments.

14 ‘‘(C) TREATMENT OF DISALLOWANCES.—

15 The amount determined under this paragraph

16 shall take into account amounts (or an estimate

17 of amounts) disallowed.

18 ‘‘(3) APPLICABLE PERCENTAGE.—In paragraph

19 (1), the applicable percentage for a fiscal year is

20 equal to—

21 ‘‘(A) for fiscal year 1997, the greater of—

22 ‘‘(i) the estimated percentage change

23 in the Consumer Price Index through the

24 midpoint of fiscal year 1996, plus 3 per25 centage points, or
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1 ‘‘(ii) the medicare economic index re2 ferred to in the fourth sentence of section

3 1842(b)(3) applicable to services provided

4 as of January 1 of the fiscal year, minus

5 1 percentage point;

6 ‘‘(B) for fiscal year 1998, the greater of—

7 ‘‘(i) the estimated percentage change

8 in the Consumer Price Index through the

9 midpoint of fiscal year 1997, plus 2 per10 centage points, or

11 ‘‘(ii) the medicare economic index re12 ferred to in the fourth sentence of section

13 1842(b)(3) applicable to services provided

14 as of January 1 of the fiscal year, minus

15 1 percentage point;

16 ‘‘(C) for fiscal year 1999, the greater of—

17 ‘‘(i) the estimated percentage change

18 in the Consumer Price Index through the

19 midpoint of fiscal year 1998, plus 1 per20 centage point, or

21 ‘‘(ii) the medicare economic index re22 ferred to in the fourth sentence of section

23 1842(b)(3) applicable to services provided

24 as of January 1 of the fiscal year, minus

25 2 percentage points; and
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1 ‘‘(D) for fiscal year 2000 and each suc2 ceeding fiscal year, the greater of—

3 ‘‘(i) the estimated percentage change

4 in the Consumer Price Index through the

5 midpoint of the previous fiscal year, or

6 ‘‘(ii) the medicare economic index re7 ferred to in the fourth sentence of section

8 1842(b)(3) applicable to services provided

9 as of January 1 of the fiscal year, minus

10 2 percentage points.

11 ‘‘(4) ESTIMATIONS OF AND ADJUSTMENTS TO

12 STATE TOTAL FUNDING AMOUNT.—The Secretary

13 shall—

14 ‘‘(A) establish a process for estimating the

15 limit on expenditures for acute medical services

16 applicable under subsection (a) at the beginning

17 of each fiscal year and adjusting such amount

18 during such fiscal year; and

19 ‘‘(B) notifying each State of the esti20 mations and adjustments referred to in sub21 paragraph (A).

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

23 section 1931:
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1 ‘‘(1) ACUTE MEDICAL SERVICES.—The term

2 ‘acute medical services’ means items and services de3 scribed in section 1905(a) other than the following:

4 ‘‘(A) Nursing facility services (as defined

5 in section 1905(f)).

6 ‘‘(B) Intermediate care facility for the

7 mentally retarded services (as defined in section

8 1905(d)).

9 ‘‘(C) Personal care services (as described

10 in section 1905(a)(24)).

11 ‘‘(D) Private duty nursing services (as re12 ferred to in section 1905(a)(8)).

13 ‘‘(E) Home or community-based services

14 furnished under a waiver granted under sub15 section (c), (d), or (e) of section 1915.

16 ‘‘(F) Home and community care furnished

17 to functionally disabled elderly individuals

18 under section 1929.

19 ‘‘(G) Community supported living arrange20 ments services under section 1930.

21 ‘‘(H) Case-management services (as de22 scribed in section 1915(g)(2)).

23 ‘‘(I) Home health care services (as referred

24 to in section 1905(a)(7)), clinic services, and re25 habilitation services that are furnished to an in-
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1 dividual who has a condition or disability that

2 qualifies the individual to receive any of the

3 services described in a previous subparagraph.

4 ‘‘(J) Hospice care.

5 ‘‘(2) MEDICAID CATEGORICAL INDIVIDUAL.—

6 The term ‘medicaid categorical individual’ means an

7 individual described in section 1902(a)(10)(A).

8 ‘‘(3) CLASS OF MEDICAID CATEGORICAL INDI9 VIDUALS.—The term ‘class’ means individuals within

10 each of the following classes:

11 ‘‘(A) SSI-RELATED INDIVIDUALS.—Medic12 aid categorical individuals—

13 ‘‘(i) with respect to whom supple14 mental security income benefits are being

15 paid under title XVI of the Social Security

16 Act,

17 ‘‘(ii) who receiving a supplementary

18 payment under section 1616 of such Act or

19 under section 212 of Public Law 93–66, or

20 ‘‘(iii) who receiving monthly benefits

21 under section 1619(a) of such Act (wheth22 er or not pursuant to section 1616(c)(3) of

23 such Act).
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1 ‘‘(B) OTHER INDIVIDUALS.—Medicaid cat2 egorical individuals not described in subpara3 graph (A).’’.

4 (b) REQUIRING STATE MAINTENANCE OF EFFORT.—

5 Section 1902(a) of such Act (42 U.S.C. 1396a(a)) is

6 amended—

7 (1) by striking ‘‘and’’ at the end of paragraph

8 (61);

9 (2) by striking the period at the end of para10 graph (62) and inserting ‘‘; and’’; and

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

12 paragraph:

13 ‘‘(63) provide that the State will continue to

14 make eligible for medical assistance under section

15 1902(a)(10)(A) any class or category of individuals

16 eligible for medical assistance under such section

17 during fiscal year 1994.’’.

18 (c) DISCONTINUATION OF REIMBURSEMENT STAND19 ARDS FOR INPATIENT HOSPITAL SERVICES.—Section

20 1902(a)(13)(A) of such Act (42 U.S.C. 1396a(a)(13)(A))

21 is amended—

22 (1) by striking ‘‘hospital services, nursing facil23 ity services, and’’ and inserting ‘‘nursing facilities

24 services and’’;
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1 (2) by striking ‘‘, in the case of hospitals,’’ and

2 all that follows through ‘‘(v)(1)(G))) which’’;

3 (3) by striking ‘‘and to assure’’ and all that fol4 lows through ‘‘adequate quality’’; and

5 (4) by striking ‘‘each hospital, nursing facility,

6 and’’ and inserting ‘‘each nursing facility and’’.

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

8 this section shall become effective on October 1, 1995.

9 PART 2—OPTIONAL ENROLLMENT OF LOW-IN10 COME INDIVIDUALS UNDER HIGH DEDUCT11 IBLE UMBRELLA INSURANCE PLANS AND

12 MANAGED HEALTH CARE PLANS

13 SEC. 321. OPTIONAL ENROLLMENT UNDER PLANS.

14 (a) STATE OPTION.—Section 1902(a) of the Social

15 Security Act (42 U.S.C. 1396a(a)) is amended—

16 (1) by striking ‘‘and’’ at the end of paragraph

17 (61);

18 (2) by striking the period at the end of para19 graph (62) and inserting ‘‘; and’’; and

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

21 paragraph:

22 ‘‘(63) at the option of the State, provide that

23 an individual eligible for medical assistance under

24 the State plan has the option to receive medical as25 sistance consisting of acute medical services (as de-
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1 fined in section 1931(c)(1)) through enrollment with

2 a high deductible umbrella insurance plan or a man3 aged health care plan (as defined in section

4 1932(f)(2)) under the program described in section

5 1932, in accordance with the requirements of section

6 1932.’’.

7 (b) REQUIREMENTS DESCRIBED.—Title XIX of such

8 Act (42 U.S.C. 1396 et seq.), as amended by section

9 311(a)(1), is further amended by redesignating section

10 1932 as section 1933 and by inserting after section 1931

11 the following new section:

12 ‘‘OPTIONAL STATE PROGRAM TO ENROLL INDIVIDUALS IN

13 HIGH DEDUCTIBLE UMBRELLA INSURANCE PLANS

14 OR MANAGED HEALTH CARE PLANS

15 ‘‘SEC. 1932. (a) IN GENERAL.—For purposes of sec16 tion 1902(a)(63), a program under this section is a pro17 gram under which the State makes payments to high de18 ductible umbrella insurance plans and managed health

19 care plans for enrolling eligible individuals (as described

20 in subsection (c)) for coverage of acute medical services

21 under such plans, including all necessary payments of pre22 miums, copayments, and deductibles applicable under such

23 a plan on behalf of such an individual.

24 ‘‘(b) TREATMENT OF PAYMENTS AS MEDICAL AS25 SISTANCE.—
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1 ‘‘(1) IN GENERAL.—Subject to paragraph (3),

2 for purposes of determining the amount of Federal

3 financial participation for a State under section

4 1903 in a quarter, any payments made by a State

5 under the program under this section shall be treat6 ed as expenditures for medical assistance under the

7 State plan for such quarter, without regard to

8 whether or not such payments are on behalf of indi9 viduals who (but for this section) would not other10 wise be eligible for medical assistance under the

11 State plan under this title.

12 ‘‘(2) FEDERAL PAYMENT RESTRICTED TO

13 ACUTE MEDICAL SERVICES.—No amounts expended

14 under a qualified health plan on behalf of an individ15 ual enrolled under such a plan pursuant to this sec16 tion that are attributable to medical assistance for

17 other than acute medical services shall be included

18 in the total amount expended as medical assistance

19 under the State plan under paragraph (1). No

20 amounts expended for abortions or services directly

21 related to the performance of abortions, except when

22 necessary to prevent the death of the mother, shall

23 be included in the total amount expended as medical

24 assistance under the State plan under paragraph

25 (1).
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1 ‘‘(3) LIMITATION.—In no case shall this sub2 section result in (A) the total Federal payments to

3 the State for the quarter under this title (including

4 payments attributable to this section and section

5 1923), exceeding (B) the total Federal payments

6 that the Secretary estimates would have been paid

7 under this title to the State for the quarter if the

8 State did not have a program under this section.

9 ‘‘(c) ELIGIBILITY OF INDIVIDUALS TO PARTICIPATE

10 IN PROGRAM.—

11 ‘‘(1) AUTOMATIC ELIGIBILITY OF MEDICAID

12 CATEGORICALLY ELIGIBLE INDIVIDUALS.—Subject

13 to subsection (d), any individual to whom the State

14 makes medical assistance available under the State

15 plan under this title pursuant to clause (i) of section

16 1902(a)(10)(A) shall be eligible to participate in the

17 program under this section.

18 ‘‘(2) MANDATORY ELIGIBILITY OF INDIVIDUALS

19 WITH INCOME UNDER THE POVERTY LEVEL.—

20 ‘‘(A) IN GENERAL.—Subject to subsection

21 (e) and subparagraph (B), an individual law22 fully residing in the State shall be eligible to

23 participate in the program if the income of the

24 individual’s family is equal to or less than 100

25 percent of the official poverty line (as defined
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1 by the Office of Management and Budget, and

2 revised annually in accordance with section

3 673(2) of the Omnibus Budget Reconciliation

4 Act of 1991) applicable to a family of the size

5 involved.

6 ‘‘(B) EXCEPTION.—If the application of

7 subparagraph (A) would result in—

8 ‘‘(i) the total State expenditures for a

9 quarter under this title (including expendi10 tures attributable to this section and sec11 tion 1923), exceeding

12 ‘‘(ii) the total State expenditures that

13 the Secretary estimates would have been

14 made under this title for the quarter if the

15 State did not have a program under this

16 section,

17 then there shall be substituted for 100 percent

18 in subparagraph (A) such percent as would re19 sult in the amount described in clause (i) equal20 ing the amount described in clause (ii).

21 ‘‘(3) OPTIONAL ELIGIBILITY OF INDIVIDUALS

22 WITH INCOME UP TO 160 PERCENT OF POVERTY

23 LEVEL.—

24 ‘‘(A) IN GENERAL.—Subject to subsection

25 (e), a State operating a program under this sec-
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1 tion may make an individual lawfully residing

2 in the State eligible to participate in the pro3 gram if the income of the individual’s family is

4 greater than 100 percent (but less than such

5 percentage, not to exceed 160 percent, as the

6 State may specify) of such official poverty line.

7 ‘‘(B) CONTRIBUTION MAY BE REQUIRED.—

8 In the case of an individual who is participating

9 in the program pursuant to this paragraph, the

10 program may require such an individual to con11 tribute all (or a portion) of the premiums and

12 cost-sharing of such a high deductible umbrella

13 insurance plan or managed care health plan if

14 the amount of such contribution is determined

15 in accordance with a sliding scale based on the

16 individual’s family income.

17 ‘‘(4) OPTIONAL ENROLLMENT OF OTHER INDI18 VIDUALS.—

19 ‘‘(A) IN GENERAL.—Subject to subsection

20 (e), a State operating a program under this sec21 tion may make any individual (or class of indi22 viduals) who is not described in paragraph (1),

23 (2), or (3) and who is not otherwise offered cov24 erage under a high deductible umbrella insur-
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1 ance plan or managed care health plan eligible

2 to participate in the program.

3 ‘‘(B) SPECIAL RULES.—

4 ‘‘(i) CONTRIBUTION MAY BE RE5 QUIRED.—In the case of an individual who

6 is participating in the program pursuant to

7 this paragraph, the program may require

8 such an individual to contribute all (or a

9 portion) of the premiums and cost-sharing

10 of such a high deductible umbrella insur11 ance plan or managed health care plan.

12 ‘‘(ii) NO FEDERAL MATCHING PAY13 MENTS.—For purposes of payment to

14 States under section 1903(a), no amounts

15 expended by the State under the program

16 during a fiscal year on behalf of an indi17 vidual enrolled pursuant to subparagraph

18 (A) may be included in the total amount

19 expended during the fiscal year as medical

20 assistance under the State plan.

21 ‘‘(5) OFFERING OF COVERAGE THROUGH

22 OTHER PROGRAMS.—Nothing in this section shall be

23 construed as preventing a State which—

24 ‘‘(A) does not operate a State program

25 under this section from assuring that individ-
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1 uals in the State who are not offered coverage

2 under a high deductible umbrella insurance

3 plan or managed health care plan are offered

4 coverage under a health plan, or

5 ‘‘(B) does operate such a program from as6 suring that individuals in the State who are not

7 described in paragraph (1), (2), or (3) and who

8 are not offered coverage under a high deduct9 ible umbrella insurance plan or managed health

10 care plan are offered coverage under a health

11 plan other than through such program.’’.

12 ‘‘(d) EXCLUSION AND USE OF RESOURCE STAND13 ARD.—

14 ‘‘(1) EXCLUSION OF ELDERLY MEDICARE-ELIGI15 BLE INDIVIDUALS.—No individual shall be eligible to

16 participate in the program under this section if the

17 individual is entitled to benefits under title XVIII of

18 the Social Security Act pursuant to section 226 of

19 such Act.

20 ‘‘(2) USE OF RESOURCE STANDARD.—A State

21 may require an individual to meet a resource stand22 ard as a condition of eligibility to participate in the

23 program only if the Secretary approves the State’s

24 use of such a standard.
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1 ‘‘(e) CONSTRUCTION.—No provision of any Federal

2 law shall prevent a State from enrolling any employee or

3 other individual in accordance with this section. The pre4 vious sentence shall not be construed as permitting a State

5 to require the employer of an individual participating in

6 the program to contribute toward the individual’s pre7 mium required for such participation.

8 ‘‘(f) DEFINITIONS.—For purposes of this section:

9 ‘‘(1) ACUTE MEDICAL SERVICES.—The term

10 ‘acute medical services’ means the care and services

11 described in section 1932(c)(1).

12 ‘‘(2) HIGH DEDUCTIBLE UMBRELLA INSURANCE

13 PLAN; MANAGED HEALTH CARE PLAN.—The terms

14 ‘high deductible umbrella insurance plan’ and ‘man15 aged health care plan’ have the meaning given such

16 terms in section 101(a) of the Health Savings and

17 Security Act of 1994.’’.

18 (c) REDUCTION IN DISPROPORTIONATE SHARE HOS19 PITAL PAYMENTS FOR PARTICIPATING STATES.—Section

20 1923 of the Social Security Act (42 U.S.C. 1396r–4), as

21 amended by section 13621(b)(1) of the Omnibus Budget

22 Reconciliation Act of 1993, is amended by adding at the

23 end the following new subsection:

24 ‘‘(h) REDUCTION IN PAYMENT ADJUSTMENTS FOR

25 STATES ENROLLING INDIVIDUALS IN CERTAIN PRIVATE
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1 HEALTH PLANS.—In the case of a State operating a pro2 gram under section 1932 to make payments to enroll indi3 viduals in high deductible umbrella insurance plans or

4 managed health care plans in a fiscal year, the Secretary

5 shall reduce the total payment adjustments made under

6 this section for hospitals in the State for quarters in the

7 year by such amount as the Secretary determines to be

8 necessary to ensure that the total amount paid to the

9 State under section 1903(a)(1) for the year does not ex10 ceed the amount that would have been paid to the State

11 under such section for the year if the State did not operate

12 such a program.’’.

13 PART 3—INCREASING STATE FLEXIBILITY TO

14 USE MANAGED CARE UNDER MEDICAID

15 SEC. 331. MODIFICATION OF FEDERAL REQUIREMENTS TO

16 ALLOW STATES MORE FLEXIBILITY IN CON17 TRACTING FOR COORDINATED CARE SERV18 ICES UNDER MEDICAID.

19 (a) IN GENERAL.—

20 (1) PAYMENT PROVISIONS.—Section 1903(m)

21 of the Social Security Act (42 U.S.C. 1396b(m)) is

22 amended to read as follows:

23 ‘‘(m)(1) No payment shall be made under this title

24 to a State with respect to expenditures incurred by such

25 State for payment to an entity which is at risk (as defined
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1 in section 1933(a)(4)) for services provided by such entity

2 to individuals eligible for medical assistance under the

3 State plan under this title, unless the entity is a risk con4 tracting entity (as defined in section 1933(a)(3)) and the

5 State and such entity comply with the applicable provi6 sions of section 1933.

7 ‘‘(2) No payment shall be made under this title to

8 a State with respect to expenditures incurred by such

9 State for payment for services provided to an individual

10 eligible for medical assistance under the State plan under

11 this title if such payment by the State is contingent upon

12 the individual receiving such services from a specified

13 health care provider or subject to the approval of a speci14 fied health care provider, unless the entity receiving pay15 ment is a primary care case management entity (as de16 fined in section 1933(a)(2)) and the State and such entity

17 comply with the applicable provisions of section 1933.’’.

18 (2) REQUIREMENTS FOR COORDINATED CARE

19 SERVICES.—Title XIX of the Social Security Act (42

20 U.S.C. 1396 et seq.), as amended by sections

21 311(a)(1) and 321(b), is further amended by redes22 ignating section 1933 as section 1934 and by insert23 ing after section 1932 the following new section:

24 ‘‘REQUIREMENTS FOR COORDINATED CARE SERVICES

25 ‘‘SEC. 1933. (a) DEFINITIONS.—For purposes of this

26 title:
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1 ‘‘(1) PRIMARY CARE CASE MANAGEMENT PRO2 GRAM.—The term ‘primary care case management

3 program’ means a program operated by a State

4 agency under which such State agency enters into

5 contracts with primary care case management enti6 ties for the provision of health care items and serv7 ices which are specified in such contracts and the

8 provision of case management services to individuals

9 who are—

10 ‘‘(A) eligible for medical assistance under

11 the State plan,

12 ‘‘(B) enrolled with such primary care case

13 management entities, and

14 ‘‘(C) entitled to receive such specified

15 health care items and services and case man16 agement services only as approved and ar17 ranged for, or provided, by such entities.

18 ‘‘(2) PRIMARY CARE CASE MANAGEMENT EN19 TITY.—The term ‘primary care case management

20 entity’ means a health care provider which—

21 ‘‘(A) must be a physician, group of physi22 cians, a Federally qualified health center, a

23 rural health clinic, or an entity employing or

24 having other arrangements with physicians op25 erating under a contract with a State to provide
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1 services under a primary care case management

2 program,

3 ‘‘(B) receives payment on a fee for service

4 basis (or, in the case of a Federally qualified

5 health center or a rural health clinic, on a rea6 sonable cost per encounter basis) for the provi7 sion of health care items and services specified

8 in such contract to enrolled individuals,

9 ‘‘(C) receives an additional fixed fee per

10 enrollee for a period specified in such contract

11 for providing case management services (includ12 ing approving and arranging for the provision

13 of health care items and services specified in

14 such contract on a referral basis) to enrolled in15 dividuals, and

16 ‘‘(D) is not an entity that is at risk (as de17 fined in paragraph (4)) for such case manage18 ment services.

19 ‘‘(3) RISK CONTRACTING ENTITY.—The term

20 ‘risk contracting entity’ means an entity which has

21 a contract with the State agency (or a health insur22 ing organization described in subsection (n)(2))

23 under which the entity—

24 ‘‘(A) provides or arranges for the provision

25 of health care items or services which are speci-
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1 fied in such contract to individuals eligible for

2 medical assistance under the State plan, and

3 ‘‘(B) is at risk (as defined in paragraph

4 (4)) for part or all of the cost of such items or

5 services furnished to individuals eligible for

6 medical assistance under such plan.

7 ‘‘(4) AT RISK.—The term ‘at risk’ means an

8 entity which—

9 ‘‘(A) has a contract with the State agency

10 under which such entity is paid a fixed amount

11 for providing or arranging for the provision of

12 health care items or services specified in such

13 contract to an individual eligible for medical as14 sistance under the State plan and enrolled with

15 such entity, regardless of whether such items or

16 services are furnished to such individual, and

17 ‘‘(B) is liable for all or part of the cost of

18 furnishing such items or services, regardless of

19 whether such cost exceeds such fixed payment.

20 ‘‘(5) FEDERALLY QUALIFIED HEALTH CEN21 TER.—The term ‘Federally qualified health center’

22 means a Federally qualified health center as defined

23 in section 1905(l)(2)(B).
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1 ‘‘(6) RURAL HEALTH CLINIC.—The term ‘rural

2 health clinic’ means a rural health clinic as defined

3 in section 1905(l)(1).

4 ‘‘(b) GENERAL REQUIREMENTS FOR RISK CON5 TRACTING ENTITIES.—

6 ‘‘(1) ORGANIZATION.—A risk contracting entity

7 meets the requirements of this section only if such

8 entity—

9 ‘‘(A)(i) is a qualified health maintenance

10 organization as defined in section 1310(d) of

11 the Public Health Service Act, as determined by

12 the Secretary pursuant to section 1312 of such

13 Act; or

14 ‘‘(ii) is described in subparagraph (C), (D),

15 (E), (F), or (G) of subsection (e)(4);

16 ‘‘(B) is a Federally qualified health center

17 or a rural health clinic which has made ade18 quate provision against the risk of insolvency

19 (pursuant to the guidelines and regulations is20 sued by the Secretary under this section), and

21 ensures that individuals eligible for medical as22 sistance under the State plan are not held liable

23 for such entity’s debts in case of such entity’s

24 insolvency; or
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1 ‘‘(C) is an entity which meets all applicable

2 State licensing requirements and has made ade3 quate provision against the risk of insolvency

4 (pursuant to the guidelines and regulations is5 sued by the Secretary under this section), and

6 ensures that individuals eligible for medical as7 sistance under the State plan are not held liable

8 for such entity’s debts in case of such entity’s

9 insolvency.

10 ‘‘(2) GUARANTEES OF ENROLLEE ACCESS.—A

11 risk contracting entity meets the requirements of

12 this section only if—

13 ‘‘(A) the geographic locations, hours of op14 eration, patient to staff ratios, and other rel15 evant characteristics of such entity are suffi16 cient to afford individuals eligible for medical

17 assistance under the State plan access to such

18 entities that is at least equivalent to the access

19 to health care providers that would be available

20 to such individuals if such individuals were not

21 enrolled with such entity;

22 ‘‘(B) such entity has reasonable and ade23 quate hours of operation, including 24-hour

24 availability of—
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1 ‘‘(i)(I) treatment for an unforeseen ill2 ness, injury, or condition of an individual

3 eligible for medical assistance under the

4 State plan and enrolled with such entity;

5 or

6 ‘‘(II) referral to other health care pro7 viders for such treatment; and

8 ‘‘(ii) other information, as determined

9 by the Secretary or the State; and

10 ‘‘(C) such entity complies with such other

11 requirements relating to access to care as the

12 Secretary or the State may impose.

13 ‘‘(3) CONTRACT WITH STATE AGENCY.—A risk

14 contracting entity meets the requirements of this

15 section only if such entity has a written contract

16 with the State agency which provides—

17 ‘‘(A) that the entity will comply with all

18 applicable provisions of this section, that the

19 State has the right to penalize the entity for

20 failure to comply with such requirements and to

21 terminate the contract in accordance with sub22 section (j), and that the entity will be subject

23 to penalties imposed by the Secretary under

24 subsection (i) for failure to comply with such

25 requirements;
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1 ‘‘(B) for a payment methodology based on

2 experience rating or another actuarially sound

3 methodology approved by the Secretary, which

4 guarantees (as demonstrated by such models or

5 formulas as the Secretary may approve) that—

6 ‘‘(i) payments to the entity under the

7 contract shall not exceed an amount equal

8 to 100 percent of the costs (which shall in9 clude administrative costs and which may

10 include costs for inpatient hospital services

11 that would have been incurred in the ab12 sence of such contract) that would have

13 been incurred by the State agency in the

14 absence of the contract; and

15 ‘‘(ii) the financial risk for inpatient

16 hospital services is limited to an extent es17 tablished by the State;

18 ‘‘(C) that the Secretary and the State (or

19 any person or organization designated by ei20 ther) shall have the right to audit and inspect

21 any books and records of the entity (and of any

22 subcontractor) that pertain—

23 ‘‘(i) to the ability of the entity (or a

24 subcontractor) to bear the risk of potential

25 financial losses; or
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1 ‘‘(ii) to services performed or deter2 minations of amounts payable under the

3 contract;

4 ‘‘(D) that in the entity’s enrollment,

5 reenrollment, or disenrollment of individuals eli6 gible for medical assistance under the State

7 plan and eligible to enroll, reenroll, or disenroll

8 with the entity pursuant to the contract, the en9 tity will not discriminate among such individ10 uals on the basis of such individuals’ health sta11 tus or requirements for health care services;

12 ‘‘(E)(i) individuals eligible for medical as13 sistance under the State plan who have enrolled

14 with the entity are permitted to terminate such

15 enrollment without cause as of the beginning of

16 the first calendar month (or in the case of an

17 entity described in subsection (e)(4), as of the

18 beginning of the first enrollment period) follow19 ing a full calendar month after a request is

20 made for such termination;

21 ‘‘(ii) that when an individual has relocated

22 outside the entity’s service area, and the entity

23 has been notified of the relocation, services

24 (within reasonable limits) furnished by a health

25 care provider outside the service area will be re-
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1 imbursed either by the entity or by the State

2 agency; and

3 ‘‘(iii) for written notification of each such

4 individual’s right to terminate enrollment,

5 which shall be provided at the time of such indi6 vidual’s enrollment, and, in the case of a child

7 with special health care needs as defined in sub8 section (e)(1)(B)(ii), at the time the entity iden9 tifies such a child;

10 ‘‘(F) in the case of services immediately re11 quired to treat an unforeseen illness, injury, or

12 condition, of an individual eligible for medical

13 assistance under the State plan and enrolled

14 with the entity—

15 ‘‘(i) that such services shall not be

16 subject to a preapproval requirement; and

17 ‘‘(ii) where such services are furnished

18 by a health care provider other than the

19 entity, for reimbursement of such provider

20 either by the entity or by the State agency;

21 ‘‘(G) for disclosure of information in ac22 cordance with subsection (h) and section 1124;

23 ‘‘(H) that any physician incentive plan op24 erated by the entity meets the requirements of

25 section 1876(i)(8);
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1 ‘‘(I) for maintenance of sufficient patient

2 encounter data to identify the physician who de3 livers services to patients;

4 ‘‘(J) that the entity will comply with the

5 requirement of section 1902(w) with respect to

6 each enrollee;

7 ‘‘(K) that the entity will implement a

8 grievance system, inform enrollees in writing

9 about how to use such grievance system, ensure

10 that grievances are addressed in a timely man11 ner, and report grievances to the State at inter12 vals to be determined by the State;

13 ‘‘(L) that contracts between the entity and

14 each subcontractor of such entity will require

15 each subcontractor—

16 ‘‘(i) to cooperate with the entity in the

17 implementation of its internal quality as18 surance program under paragraph (4) and

19 adhere to the standards set forth in the

20 quality assurance program, including

21 standards with respect to access to care,

22 facilities in which patients receive care,

23 and availability, maintenance, and review

24 of medical records;
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1 ‘‘(ii) to cooperate with the Secretary,

2 the State agency and any contractor to the

3 State in monitoring and evaluating the

4 quality and appropriateness of care pro5 vided to enrollees as required by Federal or

6 State laws and regulations; and

7 ‘‘(iii) where applicable, to adhere to

8 regulations and program guidance with re9 spect to reporting requirements under sec10 tion 1905(r);

11 ‘‘(M) that, where the State deems it nec12 essary to ensure the timely provision to enroll13 ees of the services listed in subsection

14 (f)(2)(C)(ii), the State may arrange for the pro15 vision of such services by health care providers

16 other than the entity and may adjust its pay17 ments to the entity accordingly;

18 ‘‘(N) that the entity and the State will

19 comply with guidelines and regulations issued

20 by the Secretary with respect to procedures for

21 marketing and information that must be pro22 vided to individuals eligible for medical assist23 ance under the State plan;

24 ‘‘(O) that the entity must provide pay25 ments to hospitals for inpatient hospital serv-
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1 ices furnished to infants who have not attained

2 the age of 1 year, and to children who have not

3 attained the age of 6 years and who receive

4 such services in a disproportionate share hos5 pital, in accordance with paragraphs (2) and

6 (3) of section 1902(s);

7 ‘‘(P) that the entity shall report to the

8 State, at such time and in such manner as the

9 State shall require, on the rates paid for hos10 pital services (by type of hospital and type of

11 service) furnished to individuals enrolled with

12 the entity;

13 ‘‘(Q) detailed information regarding the

14 relative responsibilities of the entity and the

15 State, for providing (or arranging for the provi16 sion of), and making payment for, the following

17 items and services:

18 ‘‘(i) immunizations;

19 ‘‘(ii) the purchase of vaccines;

20 ‘‘(iii) lead screening and treatment

21 services;

22 ‘‘(iv) screening and treatment for tu23 berculosis;

24 ‘‘(v) screening and treatment for, and

25 preventive services related to, sexually
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1 transmitted diseases, including HIV infec2 tion;

3 ‘‘(vi) screening, diagnostic, and treat4 ment services required under section

5 1905(r);

6 ‘‘(vii) family planning services;

7 ‘‘(viii) services prescribed under—

8 ‘‘(I) an Individual Education

9 Plan or Individualized Family Service

10 Plan under part B or part H of the

11 Individuals with Disabilities Edu12 cation Act; and

13 ‘‘(II) any other individual plan of

14 care or treatment developed under

15 this title or title V;

16 ‘‘(ix) transportation needed to obtain

17 services to which the enrollee is entitled

18 under the State plan or pursuant to an in19 dividual plan of care or treatment de20 scribed in subclauses (I) and (II) of clause

21 (viii); and

22 ‘‘(x) such other services as the Sec23 retary may specify;

24 ‘‘(R) detailed information regarding the

25 procedures for coordinating the relative respon-
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1 sibilities of the entity and the State to ensure

2 prompt delivery of, compliance with any appli3 cable reporting requirements related to, and ap4 propriate record keeping with respect to, the

5 items and services described in subparagraph

6 (Q); and

7 ‘‘(S) such other provisions as the Secretary

8 may require.

9 ‘‘(4) INTERNAL QUALITY ASSURANCE.—A risk

10 contracting entity meets the requirements of this

11 section only if such entity has in effect a written in12 ternal quality assurance program which includes a

13 systematic process to achieve specified and measur14 able goals and objectives for access to, and quality

15 of, care, which—

16 ‘‘(A) identifies the organizational units re17 sponsible for performing specific quality assur18 ance functions, and ensures that such units are

19 accountable to the governing body of the entity

20 and that such units have adequate supervision,

21 staff, and other necessary resources to perform

22 these functions effectively,

23 ‘‘(B) if any quality assurance functions are

24 delegated to other entities, ensures that the risk

25 contracting entity remains accountable for all
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1 quality assurance functions and has mecha2 nisms to ensure that all quality assurance ac3 tivities are carried out,

4 ‘‘(C) includes methods to ensure that phy5 sicians and other health care professionals

6 under contract with the entity are licensed or

7 certified as required by State law, or are other8 wise qualified to perform the services such phy9 sicians and other professionals provide, and

10 that these qualifications are ensured through

11 appropriate credentialing and recredentialing

12 procedures,

13 ‘‘(D) provides for continuous monitoring of

14 the delivery of health care, through—

15 ‘‘(i) identification of clinical areas to

16 be monitored, including immunizations,

17 prenatal care, services required under sec18 tion 1905(r), and other appropriate clinical

19 areas, to reflect care provided to enrollees

20 eligible for medical assistance under the

21 State plan,

22 ‘‘(ii) use of quality indicators and

23 standards for assessing the quality and ap24 propriateness of care delivered, and the

25 availability and accessibility of all services
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1 for which the entity is responsible under

2 such entity’s contract with the State,

3 ‘‘(iii) use of epidemiological data or

4 chart review, as appropriate, and patterns

5 of care overall,

6 ‘‘(iv) patient surveys, spot checks, or

7 other appropriate methods to determine

8 whether—

9 ‘‘(I) enrollees are able to obtain

10 timely appointments with primary

11 care providers and specialists, and

12 ‘‘(II) enrollees are otherwise

13 guaranteed access and care as pro14 vided under paragraph (2),

15 ‘‘(v) provision of written information

16 to health care providers and other person17 nel on the outcomes, quality, availability,

18 accessibility, and appropriateness of care,

19 and

20 ‘‘(vi) implementation of corrective ac21 tions,

22 ‘‘(E) includes standards for timely enrollee

23 access to information and care which at a mini24 mum shall incorporate standards used by the

25 State or professional or accreditation bodies for
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1 facilities furnishing perinatal and neonatology

2 care and other forms of specialized medical and

3 surgical care,

4 ‘‘(F) includes standards for the facilities in

5 which patients receive care,

6 ‘‘(G) includes standards for managing and

7 treating medical conditions prevalent among

8 such entity’s enrollees eligible for medical as9 sistance under the State plan,

10 ‘‘(H) includes mechanisms to ensure that

11 enrollees eligible for medical assistance under

12 the State plan receive services for which the en13 tity is responsible under the contract which are

14 consistent with standards established by the ap15 plicable professional societies or government

16 agencies,

17 ‘‘(I) includes standards for the availability,

18 maintenance, and review of medical records

19 consistent with generally accepted medical prac20 tice,

21 ‘‘(J) provides for dissemination of quality

22 assurance procedures to health care providers

23 under contract with the entity, and

24 ‘‘(K) meets any other requirements pre25 scribed by the Secretary or the State.
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1 ‘‘(c) GENERAL REQUIREMENTS FOR PRIMARY CARE

2 CASE MANAGEMENT PROGRAMS.—A primary care case

3 management program implemented by a State under this

4 section shall—

5 ‘‘(1) provide that each primary care case man6 agement entity participating in such program has a

7 written contract with the State agency,

8 ‘‘(2) include methods for selection and monitor9 ing of participating primary care case management

10 entities to ensure—

11 ‘‘(A) that the geographic locations, hours

12 of operation, patient to staff ratio, and other

13 relevant characteristics of such entities are suf14 ficient to afford individuals eligible for medical

15 assistance under the State plan access to such

16 entities that is at least equivalent to the access

17 to health care providers that would be available

18 to such individuals if such individuals were not

19 enrolled with such entity,

20 ‘‘(B) that such entities and their profes21 sional personnel are licensed as required by

22 State law and qualified to provide case manage23 ment services, through methods such as ongo24 ing monitoring of compliance with applicable re-
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1 quirements and providing information and tech2 nical assistance, and

3 ‘‘(C) that such entities—

4 ‘‘(i) provide timely and appropriate

5 primary care to such enrollees consistent

6 with standards established by applicable

7 professional societies or governmental

8 agencies, or such other standards pre9 scribed by the Secretary or the State, and

10 ‘‘(ii) where other items and services

11 are determined to be medically necessary,

12 give timely approval of such items and

13 services and referral to appropriate health

14 care providers,

15 ‘‘(3) provide that no preapproval shall be re16 quired for emergency health care items or services,

17 and

18 ‘‘(4) permit individuals eligible for medical as19 sistance under the State plan who have enrolled with

20 a primary care case management entity to terminate

21 such enrollment without cause not later than the be22 ginning of the first calendar month following a full

23 calendar month after the request is made for such

24 termination.
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1 ‘‘(d) EXEMPTIONS FROM STATE PLAN REQUIRE2 MENTS.—A State plan may permit or require an individ3 ual eligible for medical assistance under such plan to en4 roll with a risk contracting entity or a primary care case

5 management entity without regard to the requirements set

6 forth in the following paragraphs of section 1902(a):

7 ‘‘(1) Paragraph (1) (concerning statewideness).

8 ‘‘(2) Paragraph (10)(B) (concerning com9 parability of benefits), to the extent benefits not in10 cluded in the State plan are provided.

11 ‘‘(3) Paragraph (23) (concerning freedom of

12 choice of provider), except with respect to services

13 described in section 1905(a)(4)(C) and except as re14 quired under subsection (e).

15 ‘‘(e) STATE OPTIONS WITH RESPECT TO ENROLL16 MENT AND DISENROLLMENT.—

17 ‘‘(1) MANDATORY ENROLLMENT.—

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

19 subparagraph (B), a State plan may require an

20 individual eligible for medical assistance under

21 such plan to enroll with a risk contracting en22 tity or a primary care case management entity

23 only if the individual is permitted a choice with24 in a reasonable service area (as defined by the

25 State)—
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1 ‘‘(i) between or among 2 or more risk

2 contracting entities,

3 ‘‘(ii) among a risk contracting entity

4 and a primary care case management pro5 gram, or

6 ‘‘(iii) among primary care case man7 agement entities.

8 ‘‘(B) SPECIAL NEEDS CHILDREN.—

9 ‘‘(i) IN GENERAL.—A State may not

10 require a child with special health care

11 needs (as defined in clause (ii)) to enroll

12 with a risk contracting entity or a primary

13 care case management entity.

14 ‘‘(ii) DEFINITION.—For purposes of

15 this subparagraph, the term ‘child with

16 special health care needs’ refers to an indi17 vidual eligible for supplemental security in18 come under title XVI, a child described

19 under section 501(a)(1)(D), or a child de20 scribed in section 1902(e)(3).

21 ‘‘(2) REENROLLMENT OF INDIVIDUALS WHO

22 REGAIN ELIGIBILITY.—In the case of an individual

23 who—

24 ‘‘(A) in a month is eligible for medical as25 sistance under the State plan and enrolled with
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1 a risk contracting entity with a contract under

2 this section,

3 ‘‘(B) in the next month (or next 2 months)

4 is not eligible for such medical assistance, but

5 ‘‘(C) in the succeeding month is again eli6 gible for such benefits,

7 the State agency (subject to subsection (b)(3)(E))

8 may enroll the individual for that succeeding month

9 with such entity, if the entity continues to have a

10 contract with the State agency under this sub11 section.

12 ‘‘(3) DISENROLLMENT.—

13 ‘‘(A) RESTRICTIONS ON DISENROLLMENT

14 WITHOUT CAUSE.—Except as provided in sub15 paragraph (C), a State plan may restrict the

16 period in which individuals enrolled with risk

17 contracting entities described in paragraph (4)

18 may terminate such enrollment without cause to

19 the first month of each period of enrollment (as

20 defined in subparagraph (B)), but only if the

21 State provides notification, at least once during

22 each such enrollment period, to individuals en23 rolled with such entity of the right to terminate

24 such enrollment and the restriction on the exer25 cise of this right. Such restriction shall not
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1 apply to requests for termination of enrollment

2 for cause.

3 ‘‘(B) PERIOD OF ENROLLMENT.—For pur4 poses of this paragraph, the term ‘period of en5 rollment’ means—

6 ‘‘(i) a period not to exceed 6 months

7 in duration, or

8 ‘‘(ii) a period not to exceed 1 year in

9 duration, in the case of a State that, on

10 the effective date of this paragraph, had in

11 effect a waiver under section 1115 of re12 quirements under this title under which

13 the State could establish a 1-year mini14 mum period of enrollment with risk con15 tracting entities.

16 ‘‘(C) SPECIAL NEEDS CHILDREN.—A State

17 may not restrict disenrollment of a child with

18 special health care needs (as defined in para19 graph (1)(B)(ii)).

20 ‘‘(4) ENTITIES ELIGIBLE FOR DISENROLLMENT

21 RESTRICTIONS.—A risk contracting entity described

22 in this paragraph is—

23 ‘‘(A) a qualified health maintenance orga24 nization as defined in section 1310(d) of the

25 Public Health Service Act,
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1 ‘‘(B) an eligible organization with a con2 tract under section 1876,

3 ‘‘(C) an entity that is receiving (and has

4 received during the previous 2 years) a grant of

5 at least $100,000 under section 329(d)(1)(A)

6 or 330(d)(1) of the Public Health Service Act,

7 ‘‘(D) an entity that—

8 ‘‘(i) received a grant of at least

9 $100,000 under section 329(d)(1)(A) or

10 section 330(d)(1) of the Public Health

11 Service Act in the fiscal year ending June

12 30, 1976, and has been a grantee under ei13 ther such section for all periods after that

14 date, and

15 ‘‘(ii) provides to its enrollees, on a

16 prepaid capitation or other risk basis, all

17 of the services described in paragraphs (1),

18 (2), (3), (4)(C), and (5) of section 1905(a)

19 (and the services described in section

20 1905(a)(7), to the extent required by sec21 tion 1902(a)(10)(D)),

22 ‘‘(E) an entity that is receiving (and has

23 received during the previous 2 years) at least

24 $100,000 (by grant, subgrant, or subcontract)
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1 under the Appalachian Regional Development

2 Act of 1965,

3 ‘‘(F) a nonprofit primary health care en4 tity located in a rural area (as defined by the

5 Appalachian Regional Commission)—

6 ‘‘(i) which received in the fiscal year

7 ending June 30, 1976, at least $100,000

8 (by grant, subgrant, or subcontract) under

9 the Appalachian Regional Development Act

10 of 1965, and

11 ‘‘(ii) which, for all periods after such

12 date, either has been the recipient of a

13 grant, subgrant, or subcontract under such

14 Act or has provided services on a prepaid

15 capitation or other risk basis under a con16 tract with the State agency initially en17 tered into during a year in which the entity

18 was the recipient of such a grant,

19 subgrant, or subcontract,

20 ‘‘(G) an entity that had contracted with

21 the State agency prior to 1970 for the provi22 sion, on a prepaid risk basis, of services (which

23 did not include inpatient hospital services) to

24 individuals eligible for medical assistance under

25 the State plan,
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1 ‘‘(H) a program pursuant to an undertak2 ing described in subsection (n)(3) in which at

3 least 25 percent of the membership enrolled on

4 a prepaid basis are individuals who—

5 ‘‘(i) are not insured for benefits under

6 part B of title XVIII or eligible for medical

7 assistance under the State plan, and

8 ‘‘(ii) (in the case of such individuals

9 whose prepayments are made in whole or

10 in part by any government entity) had the

11 opportunity at the time of enrollment in

12 the program to elect other coverage of

13 health care costs that would have been

14 paid in whole or in part by any govern15 mental entity,

16 ‘‘(I) an entity that, on the date of enact17 ment of this provision, had a contract with the

18 State agency under a waiver under section 1115

19 or 1915(b) and was not subject to a require20 ment under this title to permit disenrollment

21 without cause, or

22 ‘‘(J) an entity that has a contract with the

23 State agency under a waiver under section

24 1915(b)(5).

25 ‘‘(f) STATE MONITORING AND EXTERNAL REVIEW.—
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1 ‘‘(1) STATE GRIEVANCE PROCEDURE.—A State

2 contracting with a risk contracting entity or a pri3 mary care case management entity under this sec4 tion shall provide for a grievance procedure for

5 enrollees of such entity with at least the following

6 elements:

7 ‘‘(A) A toll-free telephone number for en8 rollee questions and grievances.

9 ‘‘(B) Periodic notification of enrollees of

10 their rights with respect to such entity or

11 program.

12 ‘‘(C) Periodic sample reviews of grievances

13 registered with such entity or program or with

14 the State.

15 ‘‘(D) Periodic survey and analysis of en16 rollee satisfaction with such entity or program,

17 including interviews with individuals who

18 disenroll from the entity or program.

19 ‘‘(2) STATE MONITORING OF QUALITY AND AC20 CESS.—

21 ‘‘(A) RISK CONTRACTING ENTITIES.—A

22 State contracting with a risk contracting entity

23 under this section shall provide for ongoing

24 monitoring of such entity’s compliance with the

25 requirements of subsection (b), including com-
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1 pliance with the requirements of such entity’s

2 contract under subsection (b)(3), and shall un3 dertake appropriate followup activities to ensure

4 that any problems identified are rectified and

5 that compliance with the requirements of sub6 section (b) and the requirements of the contract

7 under subsection (b)(3) is maintained.

8 ‘‘(B) PRIMARY CARE CASE MANAGEMENT

9 ENTITIES.—A State electing to implement a

10 primary care case management program shall

11 provide for ongoing monitoring of the pro12 gram’s compliance with the requirements of

13 subsection (c) and shall undertake appropriate

14 followup activities to ensure that any problems

15 identified are rectified and that compliance with

16 subsection (c) is maintained.

17 ‘‘(C) SERVICES.—

18 ‘‘(i) IN GENERAL.—The State shall

19 establish procedures (in addition to those

20 required under subparagraphs (A) and

21 (B)) to ensure that the services listed in

22 clause (ii) are available in a timely manner

23 to an individual enrolled with a risk con24 tracting entity or a primary care case man25 agement entity. Where necessary to ensure
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1 the timely provision of such services, the

2 State shall arrange for the provision of

3 such services by health care providers

4 other than the risk contracting entity or

5 the primary care case management entity

6 in which an individual is enrolled.

7 ‘‘(ii) SERVICES LISTED.—The services

8 listed in this clause are—

9 ‘‘(I) prenatal care;

10 ‘‘(II) immunizations;

11 ‘‘(III) lead screening and treat12 ment;

13 ‘‘(IV) prevention, diagnosis and

14 treatment of tuberculosis, sexually

15 transmitted diseases (including HIV

16 infection), and other communicable

17 diseases; and

18 ‘‘(V) such other services as the

19 Secretary may specify.

20 ‘‘(iii) REPORT.—The procedures re21 ferred to in clause (i) shall be described in

22 an annual report to the Secretary provided

23 by the State.

24 ‘‘(3) EXTERNAL INDEPENDENT REVIEW.—
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1 ‘‘(A) IN GENERAL.—Except as provided in

2 paragraph (4), a State contracting with a risk

3 contracting entity under this section shall pro4 vide for an annual external independent review

5 of the quality and timeliness of, and access to,

6 the items and services specified in such entity’s

7 contract with the State agency. Such review

8 shall be conducted by a utilization control and

9 peer review organization with a contract under

10 section 1153 or another organization unaffili11 ated with the State government or with any

12 risk contracting entity and approved by the

13 Secretary.

14 ‘‘(B) CONTENTS OF REVIEW.—An external

15 independent review conducted under this para16 graph shall include the following:

17 ‘‘(i) A review of the entity’s medical

18 care, through sampling of medical records

19 or other appropriate methods, for indica20 tions of quality of care and inappropriate

21 utilization (including overutilization) and

22 treatment.

23 ‘‘(ii) A review of enrollee inpatient

24 and ambulatory data, through sampling of

25 medical records or other appropriate meth-
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1 ods, to determine trends in quality and ap2 propriateness of care.

3 ‘‘(iii) Notification of the entity and

4 the State when the review under this para5 graph indicates inappropriate care, treat6 ment, or utilization of services (including

7 overutilization).

8 ‘‘(iv) Other activities as prescribed by

9 the Secretary or the State.

10 ‘‘(C) AVAILABILITY.—The results of each

11 external independent review conducted under

12 this paragraph shall be available to the public

13 consistent with the requirements for disclosure

14 of information contained in section 1160.

15 ‘‘(4) DEEMED COMPLIANCE WITH EXTERNAL

16 INDEPENDENT QUALITY OF CARE REVIEW REQUIRE17 MENTS.—

18 ‘‘(A) IN GENERAL.—The Secretary may

19 deem the State to have fulfilled the requirement

20 for independent external review of quality of

21 care with respect to an entity which has been

22 accredited by an organization described in sub23 paragraph (B) and approved by the Secretary.
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1 ‘‘(B) ACCREDITING ORGANIZATION.—An

2 accrediting organization described in this sub3 paragraph must—

4 ‘‘(i) exist for the primary purpose of

5 accrediting coordinated care organizations;

6 ‘‘(ii) be governed by a group of indi7 viduals representing health care providers,

8 purchasers, regulators, and consumers (a

9 minority of which shall be representatives

10 of health care providers);

11 ‘‘(iii) have substantial experience in

12 accrediting coordinated care organizations,

13 including an organization’s internal quality

14 assurance program;

15 ‘‘(iv) be independent of health care

16 providers or associations of health care

17 providers;

18 ‘‘(v) be a nonprofit organization; and

19 ‘‘(vi) have an accreditation process

20 which meets requirements specified by the

21 Secretary.

22 ‘‘(5) FEDERAL MONITORING RESPONSIBIL23 ITIES.—The Secretary shall review the external inde24 pendent reviews conducted pursuant to paragraph

25 (3) and shall monitor the effectiveness of the State’s
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1 monitoring and followup activities required under

2 subparagraph (A) of paragraph (2). If the Secretary

3 determines that a State’s monitoring and followup

4 activities are not adequate to ensure that the re5 quirements of paragraph (2) are met, the Secretary

6 shall undertake appropriate followup activities to en7 sure that the State improves its monitoring and fol8 lowup activities.

9 ‘‘(g) PARTICIPATION OF FEDERALLY QUALIFIED

10 HEALTH CENTERS AND RURAL HEALTH CLINICS.—

11 ‘‘(1) IN GENERAL.—Each risk contracting en12 tity shall, with respect to each electing essential

13 community provider (as defined in paragraph (5))

14 located within the plan’s service area, either—

15 ‘‘(A) enter into a written provider partici16 pation agreement (described in paragraph (2))

17 with the provider, or

18 ‘‘(B) enter into a written agreement under

19 which the plan shall make payment to the pro20 vider in accordance with paragraph (3).

21 ‘‘(2) PARTICIPATION AGREEMENT.—A partici22 pation agreement between a risk contracting entity

23 and an electing essential community provider under

24 this subsection shall provide that the entity agrees to

25 treat the provider in accordance with terms and con-
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1 ditions at least as favorable as those that are appli2 cable to other participating providers with the risk

3 contracting entity with respect to each of the follow4 ing:

5 ‘‘(A) The scope of services for which pay6 ment is made by the entity to the provider.

7 ‘‘(B) The rate of payment for covered care

8 and services.

9 ‘‘(C) The availability of financial incentives

10 to participating providers.

11 ‘‘(D) Limitations on financial risk provided

12 to other participating providers.

13 ‘‘(E) Assignment of enrollees to participat14 ing providers.

15 ‘‘(F) Access by the provider’s patients to

16 providers in medical specialties or subspecialties

17 participating in the plan.

18 ‘‘(3) PAYMENTS FOR PROVIDERS WITHOUT PAR19 TICIPATION AGREEMENTS.—Payment in accordance

20 with this paragraph is payment based on payment

21 methodologies and rates used under the applicable

22 Medicare payment methodology and rates (or the

23 most closely applicable methodology under such pro24 gram as the Secretary of Health and Human Serv25 ices specifies in regulations).
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1 ‘‘(4) ELECTION.—

2 ‘‘(A) IN GENERAL.—In this subsection, the

3 term ‘electing essential community provider’

4 means, with respect to a risk contracting entity,

5 an essential community provider that elects this

6 subpart to apply to the entity.

7 ‘‘(B) FORM OF ELECTION.—An election

8 under this paragraph shall be made in a form

9 and manner specified by the Secretary, and

10 shall include notice to the risk contracting en11 tity involved. Such an election may be made an12 nually with respect to an entity, except that the

13 entity and provider may agree to make such an

14 election on a more frequent basis.

15 ‘‘(5) PROVIDERS DESCRIBED.—The categories

16 of providers and organizations described in this sub17 section are as follows:

18 ‘‘(A) MIGRANT HEALTH CENTERS.—A re19 cipient or subrecipient of a grant under section

20 329 of the Public Health Service Act.

21 ‘‘(B) COMMUNITY HEALTH CENTERS.—A

22 recipient or subrecipient of a grant under sec23 tion 330 of the Public Health Service Act.
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1 ‘‘(C) HOMELESS PROGRAM PROVIDERS.—A

2 recipient or subrecipient of a grant under sec3 tion 340 of the Public Health Service Act.

4 ‘‘(D) PUBLIC HOUSING PROVIDERS.—A re5 cipient or subrecipient of a grant under section

6 340A of the Public Health Service Act.

7 ‘‘(E) FAMILY PLANNING CLINICS.—A re8 cipient or subrecipient of a grant under title X

9 of the Public Health Service Act.

10 ‘‘(F) INDIAN HEALTH PROGRAMS.—A serv11 ice unit of the Indian Health Service, a tribal

12 organization, or an urban Indian program, as

13 defined in the Indian Health Care Improvement

14 Act.

15 ‘‘(G) AIDS PROVIDERS UNDER RYAN

16 WHITE ACT.—A public or private nonprofit

17 health care provider that is a recipient or sub18 recipient of a grant under title XXIII of the

19 Public Health Service Act.

20 ‘‘(H) MATERNAL AND CHILD HEALTH PRO21 VIDERS.—A public or private nonprofit entity

22 that provides prenatal care, pediatric care, or

23 ambulatory services to children, including chil24 dren with special health care needs, and that
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1 receives funding for such care or services under

2 title V of the Social Security Act.

3 ‘‘(I) FEDERALLY QUALIFIED HEALTH CEN4 TER; RURAL HEALTH CLINIC.—A Federally5 qualified health center or a rural health clinic

6 (as such terms are defined in section 1861(aa)).

7 ‘‘(6) SUBRECIPIENT DEFINED.—In this sub8 section, the term ‘subrecipient’ means, with respect

9 to a recipient of a grant under a particular author10 ity, an entity that—

11 ‘‘(A) is receiving funding from such a

12 grant under a contract with the principal recipi13 ent of such a grant, and

14 ‘‘(B) meets the requirements established to

15 be a recipient of such a grant.

16 ‘‘(7) SUNSET OF REQUIREMENT.—The require17 ments of this subsection shall only apply to risk con18 tracting entities during calendar years 1995 through

19 2000.

20 ‘‘(h) TRANSACTIONS WITH PARTIES IN INTEREST.—

21 ‘‘(1) IN GENERAL.—Each risk contracting en22 tity which is not a qualified health maintenance or23 ganization (as defined in section 1310(d) of the

24 Public Health Service Act) must report to the State

25 and, upon request, to the Secretary, the Inspector
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1 General of the Department of Health and Human

2 Services, and the Comptroller General of the United

3 States a description of transactions between the en4 tity and a party in interest (as defined in section

5 1318(b) of such Act), including the following trans6 actions:

7 ‘‘(A) Any sale or exchange, or leasing of

8 any property between the entity and such a

9 party.

10 ‘‘(B) Any furnishing for consideration of

11 goods, services (including management serv12 ices), or facilities between the entity and such

13 a party, but not including salaries paid to em14 ployees for services provided in the normal

15 course of their employment.

16 ‘‘(C) Any lending of money or other exten17 sion of credit between the entity and such a

18 party.

19 The State or the Secretary may require that infor20 mation reported with respect to a risk contracting

21 entity which controls, or is controlled by, or is under

22 common control with, another entity be in the form

23 of a consolidated financial statement for the risk

24 contracting entity and such entity.
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1 ‘‘(2) AVAILABILITY OF INFORMATION.—Each

2 risk contracting entity shall make the information

3 reported pursuant to paragraph (1) available to its

4 enrollees upon reasonable request.

5 ‘‘(i) REMEDIES FOR FAILURE TO COMPLY.—

6 ‘‘(1) IN GENERAL.—If the Secretary determines

7 that a risk contracting entity or a primary care case

8 management entity—

9 ‘‘(A) fails substantially to provide services

10 required under section 1905(r), when such an

11 entity is required to do so, or provide medically

12 necessary items and services that are required

13 to be provided to an individual enrolled with

14 such an entity, if the failure has adversely af15 fected (or has substantial likelihood of adversely

16 affecting) the individual;

17 ‘‘(B) imposes premiums on individuals en18 rolled with such an entity in excess of the pre19 miums permitted under this title;

20 ‘‘(C) acts to discriminate among individ21 uals in violation of the provision of subsection

22 (b)(3)(D), including expulsion or refusal to

23 reenroll an individual or engaging in any prac24 tice that would reasonably be expected to have

25 the effect of denying or discouraging enrollment
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1 (except as permitted by this section) by eligible

2 individuals with the entity whose medical condi3 tion or history indicates a need for substantial

4 future medical services;

5 ‘‘(D) misrepresents or falsifies information

6 that is furnished—

7 ‘‘(i) to the Secretary or the State

8 under this section; or

9 ‘‘(ii) to an individual or to any other

10 entity under this section; or

11 ‘‘(E) fails to comply with the requirements

12 of section 1876(i)(8),

13 the Secretary may provide, in addition to any other

14 remedies available under law, for any of the rem15 edies described in paragraph (2).

16 ‘‘(2) ADDITIONAL REMEDIES.—The remedies

17 described in this paragraph are—

18 ‘‘(A) civil money penalties of not more

19 than $25,000 for each determination under

20 paragraph (1), or, with respect to a determina21 tion under subparagraph (C) or (D)(i) of such

22 paragraph, of not more than $100,000 for each

23 such determination, plus, with respect to a de24 termination under paragraph (1)(B), double the

25 excess amount charged in violation of such
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1 paragraph (and the excess amount charged

2 shall be deducted from the penalty and returned

3 to the individual concerned), and plus, with re4 spect to a determination under paragraph

5 (1)(C), $15,000 for each individual not enrolled

6 as a result of a practice described in such para7 graph, or

8 ‘‘(B) denial of payment to the State for

9 medical assistance furnished by a risk contract10 ing entity or a primary care case management

11 entity under this section for individuals enrolled

12 after the date the Secretary notifies the entity

13 of a determination under paragraph (1) and

14 until the Secretary is satisfied that the basis for

15 such determination has been corrected and is

16 not likely to recur.

17 The provisions of section 1128A (other than sub18 sections (a) and(b)) shall apply to a civil money pen19 alty under subparagraph (A) in the same manner as

20 such provisions apply to a penalty or proceeding

21 under section 1128A(a).

22 ‘‘(j) TERMINATION OF CONTRACT BY STATE.—Any

23 State which has a contract with a risk contracting entity

24 or a primary care case management entity may terminate
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1 such contract if such entity fails to comply with the terms

2 of such contract or any applicable provision of this section.

3 ‘‘(k) FAIR HEARING.—Nothing in this section shall

4 affect the rights of an individual eligible to receive medical

5 assistance under the State plan to obtain a fair hearing

6 under section 1902(a)(3) or under applicable State law.

7 ‘‘(l) DISPROPORTIONATE SHARE HOSPITALS.—Noth8 ing in this section shall affect any requirement on a State

9 to comply with section 1923.

10 ‘‘(m) REFERRAL PAYMENTS.—For 1 year following

11 the date on which individuals eligible for medical assist12 ance under the State plan in a service area are required

13 to enroll with a risk contracting entity or a primary care

14 case management entity, Federally qualified health cen15 ters and rural health centers located in such service area

16 or providing care to such enrollees, shall receive a fee for

17 educating such enrollees about the availability of services

18 from the risk contracting entity or primary care case man19 agement entity with which such enrollees are enrolled.

20 ‘‘(n) SPECIAL RULES.—

21 ‘‘(1) NONAPPLICABILITY OF CERTAIN PROVI22 SIONS TO CERTAIN RISK CONTRACTING ENTITIES.—

23 In the case of any risk contracting entity which—
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1 ‘‘(A)(i) is an individual physician or a phy2 sician group practice of less than 50 physicians,

3 and

4 ‘‘(ii) is not described in paragraphs (A)

5 and (B) of subsection (b)(1), and

6 ‘‘(B) is at risk only for the health care

7 items and services directly provided by such en8 tity,

9 paragraphs (3)(K), (3)(L), (3)(O), (3)(P), and (4)

10 of subsection (b), and paragraph (3) of subsection

11 (f), shall not apply to such entity.

12 ‘‘(2) EXCEPTION FROM DEFINITION OF RISK

13 CONTRACTING ENTITY.—For purposes of this sec14 tion, the term ‘risk contracting entity’ shall not in15 clude a health insuring organization which was used

16 by a State before April 1, 1986, to administer a por17 tion of the State plan of such State on a statewide

18 basis.

19 ‘‘(3) NEW JERSEY.—The rules under section

20 1903(m)(6) as in effect on the day before the effec21 tive date of this section shall apply in the case of an

22 undertaking by the State of New Jersey (as de23 scribed in such section 1903(m)(6)).

24 ‘‘(o) CONTINUATION OF CERTAIN COORDINATED

25 CARE PROGRAMS.—The Secretary may provide for the
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1 continuation of any coordinated care program operating

2 under section 1115 or 1915 without requiring compliance

3 with any provision of this section which conflicts with the

4 continuation of such program and without requiring any

5 additional waivers under such sections 1115 and 1915 if

6 the program has been successful in assuring quality and

7 containing costs (as determining by the Secretary) and is

8 likely to continue to be successful in the future.

9 ‘‘(p) GUIDELINES, REGULATIONS, AND MODEL CON10 TRACT.—

11 ‘‘(1) GUIDELINES AND REGULATIONS ON SOL12 VENCY.—At the earliest practicable time after the

13 date of enactment of this section, the Secretary shall

14 issue guidelines and regulations concerning solvency

15 standards for risk contracting entities and sub16 contractors of such risk contracting entities. Such

17 guidelines and regulations shall take into account

18 characteristics that may differ among risk contract19 ing entities including whether such an entity is at

20 risk for inpatient hospital services.

21 ‘‘(2) GUIDELINES AND REGULATIONS ON MAR22 KETING.—At the earliest practicable time after the

23 date of enactment of this section, the Secretary shall

24 issue guidelines and regulations concerning—
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1 ‘‘(A) marketing undertaken by any risk

2 contracting entity or any primary care case

3 management program to individuals eligible for

4 medical assistance under the State plan, and

5 ‘‘(B) information that must be provided by

6 States or any such entity to individuals eligible

7 for medical assistance under the State plan

8 with respect to—

9 ‘‘(i) the options and rights of such in10 dividuals to enroll with, and disenroll from,

11 any such entity, as provided in this section,

12 and

13 ‘‘(ii) the availability of services from

14 any such entity (including a list of services

15 for which such entity is responsible or

16 must approve and information on how to

17 obtain services for which such entity is not

18 responsible).

19 In developing the guidelines and regulations under

20 this paragraph, the Secretary shall address the spe21 cial circumstances of children with special health

22 care needs (as defined in subsection (e)(1)(B)(ii))

23 and other individuals with special health care needs.

24 ‘‘(3) MODEL CONTRACT.—The Secretary shall

25 develop a model contract to reflect the requirements
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1 of subsection (b)(3) and such other requirements as

2 the Secretary determines appropriate.’’.

3 (b) WAIVERS FROM REQUIREMENTS ON COORDI4 NATED CARE PROGRAMS.—Section 1915(b) of the Social

5 Security Act (42 U.S.C. 1396n) is amended—

6 (1) in the matter preceding paragraph (1), by

7 striking ‘‘as may be necessary’’ and inserting ‘‘, and

8 section 1933 as may be necessary’’;

9 (2) in paragraph (1), by striking ‘‘a primary

10 care case management system or’’;

11 (3) by striking ‘‘and’’ at the end of paragraph

12 (3);

13 (4) by striking the period at the end of para14 graph (4) and inserting ‘‘, and’’; and

15 (5) by inserting after paragraph (4) the follow16 ing new paragraph:

17 ‘‘(5) to permit a risk contracting entity (as de18 fined in section 1933(a)(3)) to restrict the period in

19 which individuals enrolled with such entity may ter20 minate such enrollment without cause in accordance

21 with section 1933(e)(3)(A).’’.

22 (c) STATE OPTION TO GUARANTEE MEDICAID ELIGI23 BILITY.—Section 1902(e)(2) of such Act (42 U.S.C.

24 1396a(e)(2)) is amended—
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1 (1) in subparagraph (A), by striking all that

2 precedes ‘‘(but for this paragraph)’’ and inserting

3 ‘‘In the case of an individual who is enrolled—

4 ‘‘(i) with a qualified health maintenance

5 organization (as defined in title XIII of the

6 Public Health Service Act) or with a risk con7 tracting entity (as defined in section

8 1933(a)(3)), or

9 ‘‘(ii) with any risk contracting entity (as

10 defined in section 1933(a)(3)) in a State that,

11 on the effective date of this provision, had in ef12 fect a waiver under section 1115 of require13 ments under this title under which the State

14 could extend eligibility for medical assistance

15 for enrollees of such entity, or

16 ‘‘(iii) with an eligible organization with a

17 contract under section 1876,

18 and who would’’,

19 (2) in subparagraph (B), by striking ‘‘organiza20 tion or’’ each place it appears, and

21 (3) by adding at the end the following new sub22 paragraph:

23 ‘‘(C) The State plan may provide, notwith24 standing any other provision of this title, that

25 an individual shall be deemed to continue to be
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1 eligible for benefits under this title until the end

2 of the month following the month in which such

3 individual would (but for this paragraph) lose

4 such eligibility because of excess income and re5 sources, if the individual is enrolled with a risk

6 contracting entity or primary care case manage7 ment entity (as those terms are defined in sec8 tion 1933(a)).’’.

9 (d) ENHANCED MATCH RELATED TO QUALITY RE10 VIEW.—Section 1903(a)(3)(C) of such Act (42 U.S.C.

11 1396b(a)(3)(C)) is amended—

12 (1) by striking ‘‘organization or by’’ and insert13 ing ‘‘organization, by’’; and

14 (2) by striking ‘‘section 1152, as determined by

15 the Secretary,’’ and inserting ‘‘section 1152, as de16 termined by the Secretary, or by another organiza17 tion approved by the Secretary which is unaffiliated

18 with the State government or with any risk contract19 ing entity (as defined in section 1933(a)(3)),’’.

20 (e) ACCUMULATION OF RESERVES BY CERTAIN EN21 TITIES.—Any organization referred to in section 329, 330,

22 or 340, of the Public Health Service Act which has con23 tracted with a State agency as a risk contracting entity

24 under section 1933(g)(3)(A) of the Social Security Act

25 may accumulate reserves with respect to payments made
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1 to such organization under section 1933(g)(3)(C) of such

2 Act.

3 (f) CONFORMING AMENDMENTS.—

4 (1) Section 1128(b)(6)(C)(i) of such Act (42

5 U.S.C. 1320a–7(b)(6)(C)(i)) is amended by striking

6 ‘‘health maintenance organization’’ and inserting

7 ‘‘risk contracting entity’’.

8 (2) Section 1902(a)(23) of such Act (42 U.S.C.

9 1396a(a)(23)) is amended by striking ‘‘primary

10 care-case management system (described in section

11 1915(b)(1)), a health maintenance organization,’’

12 and inserting ‘‘primary care case management pro13 gram (as defined in section 1933(a)(1)), a risk con14 tracting entity (as defined in section 1933(a)(3)),’’.

15 (3) Section 1902(a)(30)(C) of such Act (42

16 U.S.C. 1396a(a)(30)(C)) is amended by striking

17 ‘‘use a utilization’’ and all that follows through

18 ‘‘with the results’’ and inserting ‘‘provide for inde19 pendent review and quality assurance of entities with

20 contracts under section 1933, in accordance with

21 subsection (f) of such section 1933, with the

22 results’’.

23 (4) Section 1902(a)(57) of such Act (42 U.S.C.

24 1396a(a)(57)) is amended by striking ‘‘or health

25 maintenance organization (as defined in section
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1 1903(m)(1)(A))’’ and inserting ‘‘risk contracting en2 tity, or primary care case management entity (as de3 fined in section 1933(a))’’.

4 (5) Section 1902(a) of such Act (42 U.S.C.

5 1396a), as amended by section 321(a), is amend6 ed—

7 (A) by striking ‘‘and’’ at the end of para8 graph (62);

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

10 paragraph (63) and inserting ‘‘; and’’; and

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

12 paragraphs:

13 ‘‘(64) at State option, provide for a primary

14 care case management program in accordance with

15 section 1933; and

16 ‘‘(65) at State option, provide for a program

17 under which the State contracts with risk contract18 ing entities in accordance with section 1933.’’.

19 (6) Section 1902(p)(2) of such Act (42 U.S.C.

20 1396a(p)(2)) is amended by striking ‘‘health mainte21 nance organization (as defined in section 1903(m))’’

22 and inserting ‘‘risk contracting entity (as defined in

23 section 1933(a)(3))’’.

24 (7) Section 1902(w) of such Act (42 U.S.C.

25 1396a(w)) is amended—
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1 (A) in paragraph (1), by striking ‘‘section

2 1903(m)(1)(A)’’ and inserting ‘‘section

3 1933(a)(3)’’, and

4 (B) in paragraph (2)(E)—

5 (i) by striking ‘‘health maintenance

6 organization’’ and inserting ‘‘risk contract7 ing entity’’, and

8 (ii) by striking ‘‘organization’’ and in9 serting ‘‘entity’’.

10 (8) Section 1903(k) of such Act (42 U.S.C.

11 1396b(k)) is amended by striking ‘‘health mainte12 nance organization which meets the requirements of

13 subsection (m) of this section’’ and inserting ‘‘risk

14 contracting entity which meets the requirements of

15 section 1933’’.

16 (9) Section 1903(w)(7)(A)(viii) of such Act (42

17 U.S.C. 1396b(w)(7)(A)(viii)) is amended by striking

18 ‘‘health maintenance organizations (and other orga19 nizations with contracts under section 1903(m))’’

20 and inserting ‘‘risk contracting entities with con21 tracts under section 1933’’.

22 (10) Section 1905(a) of such Act (42 U.S.C.

23 1396d(a)) is amended, in the matter preceding

24 clause (i), by inserting ‘‘(which may be on a prepaid

25 capitation or other risk basis)’’ after ‘‘payment’’.
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1 (11) Section 1916(b)(2)(D) of such Act (42

2 U.S.C. 1396o(b)(2)(D)) is amended by striking

3 ‘‘health maintenance organization (as defined in sec4 tion 1903(m))’’ and inserting ‘‘risk contracting en5 tity (as defined in section 1933(a)(3))’’.

6 (12) Section 1925(b)(4)(D)(iv) of such Act (42

7 U.S.C. 1396r–6(b)(4)(D)(iv)) is amended—

8 (A) in the heading, by striking ‘‘HMO’’

9 and inserting ‘‘RISK CONTRACTING ENTITY’’,

10 (B) by striking ‘‘health maintenance orga11 nization (as defined in section 1903(m)(1)(A))’’

12 and inserting ‘‘risk contracting entity (as de13 fined in section 1933(a)(3)’’, and

14 (C) by striking ‘‘health maintenance orga15 nization in accordance with section 1903(m)’’

16 and inserting ‘‘risk contracting entity in accord17 ance with section 1933’’.

18 (13) Paragraphs (1) and (2) of section 1926(a)

19 of such Act (42 U.S.C. 1396r–7(a)) are each amend20 ed by striking ‘‘health maintenance organizations

21 under section 1903(m)’’ and inserting ‘‘risk con22 tracting entities under section 1933’’.

23 (14) Section 1927(j)(1) of such Act (42 U.S.C.

24 1396r–8(j)(1)) is amended by striking ‘‘ * * *

25 Health Maintenance Organizations, including those
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1 organizations that contract under section 1903(m)’’

2 and inserting ‘‘risk contracting entities (as defined

3 in section 1933(a)(3))’’.

4 (g) EFFECTIVE DATE.—The amendments made by

5 this section shall become effective with respect to calendar

6 quarters beginning on or after January 1, 1995.

7 PART 4—LIMITATIONS ON FUNDING OF

8 ABORTION SERVICES UNDER MEDICAID

9 SEC. 341. LIMITATIONS ON FUNDING OF ABORTION SERV10 ICES UNDER MEDICAID.

11 Title XIX of the Social Security Act (42 U.S.C. 1396

12 et seq.), as amended by sections 311(a)(1), 321(b), and

13 331(a)(2), is further amended by redesignating section

14 1934 as section 1935 and by inserting after section 1933

15 the following new section:

16 ‘‘LIMITATIONS ON FUNDING OF ABORTION SERVICES

17 ‘‘SEC. 1934. (a) None of the funds authorized by this

18 title may be used to provide abortions, except to prevent

19 the death of the mother.

20 ‘‘(b) Nothing in this title shall be construed—

21 ‘‘(1) to require any State to pay for abortions,

22 except those necessary to prevent the death of the

23 mother, or

24 ‘‘(2) to require any health plan or other entity

25 to provide abortions in order to participate in any

26 program authorized by this title, or
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1 ‘‘(3) to authorize any State to impose such a

2 requirement for participation in any program au3 thorized by this title.’’.

4 TITLE IV—CONTAINING HEALTH

5 CARE COSTS

6 Subtitle A—Medical Malpractice

7 Liability Reform

8 PART 1—GENERAL PROVISIONS

9 SEC. 401. FEDERAL REFORM OF MEDICAL MALPRACTICE

10 LIABILITY ACTIONS.

11 (a) APPLICABILITY.—This subtitle shall apply with

12 respect to any medical malpractice liability claim and to

13 any medical malpractice liability action brought in any

14 State or Federal court, except that this subtitle—

15 (1) shall not apply to a claim or action for dam16 ages arising from a vaccine-related injury or death

17 to the extent that title XXI of the Public Health

18 Service Act applies to the claim or action, and

19 (2) it shall not apply to a claim or action for

20 damages brought pursuant to subtitle C of title VII.

21 (b) PREEMPTION.—The provisions of this subtitle

22 shall preempt any State law to the extent such law is in23 consistent with the limitations contained in such provi24 sions. The provisions of this subtitle shall not preempt any

25 State law that provides for defenses or places limitations
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1 on a person’s liability in addition to those contained in

2 this subtitle or otherwise imposes greater restrictions than

3 those provided in this subtitle.

4 (c) EFFECT ON SOVEREIGN IMMUNITY AND CHOICE

5 OF LAW OR VENUE.—Nothing in subsection (b) shall be

6 construed to—

7 (1) waive or affect any defense of sovereign im8 munity asserted by any State under any provision of

9 law;

10 (2) waive or affect any defense of sovereign im11 munity asserted by the United States;

12 (3) affect the applicability of any provision of

13 the Foreign Sovereign Immunities Act of 1976;

14 (4) preempt State choice-of-law rules with re15 spect to claims brought by a foreign nation or a citi16 zen of a foreign nation; or

17 (5) affect the right of any court to transfer

18 venue or to apply the law of a foreign nation or to

19 dismiss a claim of a foreign nation or of a citizen

20 of a foreign nation on the ground of inconvenient

21 forum.

22 (d) FEDERAL COURT JURISDICTION NOT ESTAB23 LISHED ON FEDERAL QUESTION GROUNDS.—Nothing in

24 this subtitle shall be construed to establish any jurisdiction

25 in the district courts of the United States over medical
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1 malpractice liability actions on the basis of section 1331

2 or 1337 of title 28, United States Code.

3 SEC. 402. DEFINITIONS.

4 As used in this subtitle:

5 (1) ALTERNATIVE DISPUTE RESOLUTION SYS6 TEM; ADR.—The term ‘‘alternative dispute resolution

7 system’’ or ‘‘ADR’’ means a system established

8 under this subtitle that provides for the resolution of

9 medical malpractice liability claims in a manner

10 other than through medical malpractice liability ac11 tions.

12 (2) CLAIMANT.—The term ‘‘claimant’’ means

13 any person who alleges a medical malpractice liabil14 ity claim, and any person on whose behalf such a

15 claim is alleged, including the decedent in the case

16 of an action brought through or on behalf of an

17 estate.

18 (3) CLEAR AND CONVINCING EVIDENCE.—The

19 term ‘‘clear and convincing evidence’’ is that meas20 ure or degree of proof that will produce in the mind

21 of the trier of fact a firm belief or conviction as to

22 the truth of the allegations sought to be established,

23 except that such measure or degree of proof is more

24 than that required under preponderance of the evi-
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1 dence, but less than that required for proof beyond

2 a reasonable doubt.

3 (4) ECONOMIC DAMAGES.—The term ‘‘economic

4 damages’’ means damages paid to compensate an in5 dividual for hospital and other medical expenses, lost

6 wages, lost employment, and other pecuniary losses.

7 (5) HEALTH CARE PROFESSIONAL.—The term

8 ‘‘health care professional’’ means any individual who

9 provides health care services in a State and who is

10 required by the laws or regulations of the State to

11 be licensed or certified by the State to provide such

12 services in the State.

13 (6) HEALTH CARE PROVIDER.—The term

14 ‘‘health care provider’’ means any organization or

15 institution that is engaged in the delivery of health

16 care services in a State and that is required by the

17 laws or regulations of the State to be licensed or cer18 tified by the State to engage in the delivery of such

19 services in the State.

20 (7) INJURY.—The term ‘‘injury’’ means any ill21 ness, disease, or other harm that is the subject of

22 a medical malpractice liability action or a medical

23 malpractice liability claim.

24 (8) MEDICAL MALPRACTICE LIABILITY AC25 TION.—The term ‘‘medical malpractice liability ac-
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1 tion’’ means a civil action brought in a State or Fed2 eral court against a health care provider or health

3 care professional in which the plaintiff alleges a

4 medical malpractice liability claim, but does not in5 clude any action in which the plaintiff’s sole allega6 tion is an allegation of an intentional tort.

7 (9) MEDICAL MALPRACTICE LIABILITY

8 CLAIM.—The term ‘‘medical malpractice liability

9 claim’’ means a claim in which the claimant alleges

10 that injury was caused by the provision of (or the

11 failure to provide) health care services or the use of

12 a medical product.

13 (10) MEDICAL PRODUCT.—

14 (A) IN GENERAL.—The term ‘‘medical

15 product’’ means, with respect to the allegation

16 of a claimant, a drug (as defined in section

17 201(g)(1) of the Federal Food, Drug, and Cos18 metic Act (21 U.S.C. 321(g)(1)) or a medical

19 device (as defined in section 201(h) of the Fed20 eral Food, Drug, and Cosmetic Act (21 U.S.C.

21 321(h)) if—

22 (i) such drug or device was subject to

23 premarket approval under section 505,

24 507, or 515 of the Federal Food, Drug,

25 and Cosmetic Act (21 U.S.C. 355, 357, or
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1 360e) or section 351 of the Public Health

2 Service Act (42 U.S.C. 262) with respect

3 to the safety of the formulation or per4 formance of the aspect of such drug or de5 vice which is the subject of the claimant’s

6 allegation or the adequacy of the packag7 ing or labeling of such drug or device, and

8 such drug or device is approved by the

9 Food and Drug Administration; or

10 (ii) the drug or device is generally rec11 ognized as safe and effective under regula12 tions issued by the Secretary of Health

13 and Human Services under section 201(p)

14 of the Federal Food, Drug, and Cosmetic

15 Act (21 U.S.C. 321(p)).

16 (B) EXCEPTION IN CASE OF MISREPRE17 SENTATION OR FRAUD.—Notwithstanding sub18 paragraph (A), the term ‘‘medical product’’

19 shall not include any product described in such

20 subparagraph if the claimant shows that the

21 product is approved by the Food and Drug Ad22 ministration for marketing as a result of with23 held information, misrepresentation, or an ille24 gal payment by manufacturer of the product.
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1 (C) EXCEPTION IN THE CASE OF ABOR2 TION-INDUCING DRUGS AND DEVICES.—Not3 withstanding subparagraph (A), the term ‘‘med4 ical product’’ shall not include any drug or de5 vice which is used as a contraceptive or abor6 tifacient and which has as one of its known ef7 fects the interference with implantation of a

8 fertilized human ovum or embryo or the termi9 nation of pregnancy after implantation with in10 tent other than to produce a live birth.

11 (11) NONECONOMIC DAMAGES.—The term

12 ‘‘noneconomic damages’’ means damages paid to

13 compensate an individual for physical and emotional

14 pain, suffering, inconvenience, physical impairment,

15 mental anguish, disfigurement, loss of enjoyment of

16 life, loss of consortium, and other nonpecuniary

17 losses, but does not include punitive damages.

18 (12) PUNITIVE DAMAGES; EXEMPLARY DAM19 AGES.—The terms ‘‘punitive damages’’ and ‘‘exem20 plary damages’’ mean compensation, in addition to

21 compensation for actual harm suffered, that is

22 awarded for the purpose of punishing a person for

23 conduct deemed to be malicious, wanton, willful, or

24 excessively reckless.
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1 (13) SECRETARY.—The term ‘‘Secretary’’

2 means the Secretary of Health and Human Services.

3 (14) STATE.—The term ‘‘State’’ means each of

4 the several States, the District of Columbia, the

5 Commonwealth of Puerto Rico, the Virgin Islands,

6 Guam, and American Samoa.

7 SEC. 403. EFFECTIVE DATE.

8 (a) IN GENERAL.—Except as provided in subsection

9 (b) and section 417(c), this subtitle shall apply with re10 spect to claims accruing or actions brought on or after

11 the expiration of the 3-year period that begins on the date

12 of the enactment of this Act.

13 (b) EXCEPTION FOR STATES REQUESTING EARLIER

14 IMPLEMENTATION OF REFORMS.—

15 (1) APPLICATION.—A State may submit an ap16 plication to the Secretary requesting the early imple17 mentation of this subtitle with respect to claims or

18 actions brought in the State.

19 (2) DECISION BY SECRETARY.—The Secretary

20 shall issue a response to a State’s application under

21 paragraph (1) not later than 90 days after receiving

22 the application. If the Secretary determines that the

23 State meets the requirements of this subtitle at the

24 time of submitting its application, the Secretary

25 shall approve the State’s application, and this sub-
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1 title shall apply with respect to actions brought in

2 the State on or after the expiration of the 90-day

3 period that begins on the date the Secretary issues

4 the response. If the Secretary denies the State’s ap5 plication, the Secretary shall provide the State with

6 a written explanation of the grounds for the deci7 sion.

8 PART 2—MEDICAL MALPRACTICE AND PRODUCT

9 LIABILITY REFORM

10 SEC. 411. REQUIREMENT FOR INITIAL RESOLUTION OF AC11 TION THROUGH ALTERNATIVE DISPUTE RES12 OLUTION.

13 (a) IN GENERAL.—

14 (1) STATE CASES.—A medical malpractice li15 ability action may not be brought in any State court

16 during a calendar year unless the medical mal17 practice liability claim that is the subject of the ac18 tion has been initially resolved under an alternative

19 dispute resolution system certified for the year by

20 the Secretary under section 422(a), or, in the case

21 of a State in which such a system is not in effect

22 for the year, under the alternative Federal system

23 established under section 422(b).

24 (2) FEDERAL DIVERSITY ACTIONS.—A medical

25 malpractice liability action may not be brought in
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1 any Federal court under section 1332 of title 28,

2 United States Code, during a calendar year unless

3 the medical malpractice liability claim that is the

4 subject of the action has been initially resolved

5 under the alternative dispute resolution system re6 ferred to in paragraph (1) that applied in the State

7 whose law applies in such action.

8 (3) CLAIMS AGAINST UNITED STATES.—

9 (A) ESTABLISHMENT OF PROCESS FOR

10 CLAIMS.—The Attorney General shall establish

11 an alternative dispute resolution process for the

12 resolution of tort claims consisting of medical

13 malpractice liability claims brought against the

14 United States under chapter 171 of title 28,

15 United States Code. Under such process, the

16 resolution of a claim shall occur after the com17 pletion of the administrative claim process ap18 plicable to the claim under section 2675 of such

19 title.

20 (B) REQUIREMENT FOR INITIAL RESOLU21 TION UNDER PROCESS.—A medical malpractice

22 liability action based on a medical malpractice

23 liability claim described in subparagraph (A)

24 may not be brought in any Federal court unless

25 the claim has been initially resolved under the
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1 alternative dispute resolution process estab2 lished by the Attorney General under such sub3 paragraph.

4 (b) INITIAL RESOLUTION OF CLAIMS UNDER

5 ADR.—For purposes of subsection (a), an action is ‘‘ini6 tially resolved’’ under an alternative dispute resolution

7 system if—

8 (A) the ADR reaches a decision on wheth9 er the defendant is liable to the plaintiff for

10 damages; and

11 (B) if the ADR determines that the de12 fendant is liable, the ADR reaches a decision on

13 the amount of damages assessed against the de14 fendant.

15 (c) PROCEDURES FOR FILING ACTIONS.—

16 (1) NOTICE OF INTENT TO CONTEST DECI17 SION.—Not later than 60 days after a decision is is18 sued with respect to a medical malpractice liability

19 claim under an alternative dispute resolution system,

20 each party affected by the decision shall submit a

21 sealed statement to a court of competent jurisdiction

22 indicating whether or not the party intends to con23 test the decision.
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1 (2) DEADLINE FOR FILING ACTION.—A medical

2 malpractice liability action may not be brought by a

3 party unless—

4 (A) the party has filed the notice of intent

5 required by paragraph (1); and

6 (B) the party files the action in a court of

7 competent jurisdiction not later than 90 days

8 after the decision resolving the medical mal9 practice liability claim that is the subject of the

10 action is issued under the applicable alternative

11 dispute resolution system.

12 (3) COURT OF COMPETENT JURISDICTION.—

13 For purposes of this subsection, the term ‘‘court of

14 competent jurisdiction’’ means—

15 (A) with respect to actions filed in a State

16 court, the appropriate State trial court; and

17 (B) with respect to actions filed in a Fed18 eral court, the appropriate United States dis19 trict court.

20 (d) LEGAL EFFECT OF UNCONTESTED ADR DECI21 SION.—The decision reached under an alternative dispute

22 resolution system shall, for purposes of enforcement by a

23 court of competent jurisdiction, have the same status in

24 the court as the verdict of a medical malpractice liability

25 action adjudicated in a State or Federal trial court. The
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1 previous sentence shall not apply to a decision that is con2 tested by a party affected by the decision pursuant to sub3 section (c)(1).

4 SEC. 412. CALCULATION AND PAYMENT OF DAMAGES.

5 (a) LIMITATION ON NONECONOMIC DAMAGES.—The

6 total amount of noneconomic damages that may be award7 ed to a claimant and the members of the claimant’s family

8 for losses resulting from the injury which is the subject

9 of a medical malpractice liability action may not exceed

10 $250,000, regardless of the number of parties against

11 whom the action is brought or the number of actions

12 brought with respect to the injury.

13 (b) TREATMENT OF PUNITIVE DAMAGES.—

14 (1) BASIS FOR RECOVERY.—Punitive or exem15 plary damages shall not be awarded in a medical

16 malpractice liability action unless the claimant es17 tablishes by clear and convincing evidence that the

18 injury suffered was the direct result of conduct

19 manifesting a malicious, wanton, willful, or exces20 sively reckless disregard of the safety of others.

21 (2) NO AWARD AGAINST MANUFACTURER OF

22 MEDICAL PRODUCT.—In the case of a medical mal23 practice liability action in which the plaintiff alleges

24 a claim against the manufacturer of a medical prod-
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1 uct, no punitive or exemplary damages may be

2 awarded against such manufacturer.

3 (3) PAYMENTS TO STATE FOR MEDICAL QUAL4 ITY ASSURANCE ACTIVITIES.—

5 (A) IN GENERAL.—Any punitive or exem6 plary damages awarded in a medical mal7 practice liability action shall be paid to the

8 State in which the action is brought or, in a

9 case brought in Federal court, in the State in

10 which the health care services that caused the

11 injury that is the subject of the action were

12 provided.

13 (B) ACTIVITIES DESCRIBED.—A State

14 shall use amounts paid pursuant to subpara15 graph (A) to carry out activities to assure the

16 safety and quality of health care services pro17 vided in the State, including (but not limited

18 to)—

19 (i) licensing or certifying health care

20 professionals and health care providers in

21 the State;

22 (ii) operating alternative dispute reso23 lution systems;

24 (iii) carrying out public education pro25 grams relating to medical malpractice and
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1 the availability of alternative dispute reso2 lution systems in the State; and

3 (iv) carrying out programs to reduce

4 malpractice-related costs for retired provid5 ers or other providers volunteering to pro6 vide services in medically underserved

7 areas.

8 (C) MAINTENANCE OF EFFORT.—A State

9 shall use any amounts paid pursuant to sub10 paragraph (A) to supplement and not to replace

11 amounts spent by the State for the activities

12 described in subparagraph (B).

13 (c) PERIODIC PAYMENTS FOR FUTURE LOSSES.—

14 (1) GENERAL RULE.—In any medical mal15 practice liability action in which the damages award16 ed for future economic loss exceeds $100,000, a de17 fendant may not be required to pay such damages

18 in a single, lump-sum payment, but shall be per19 mitted to make such payments periodically based on

20 when the damages are found likely to occur, as such

21 payments are determined by the court.

22 (2) WAIVER.—A court may waive the applica23 tion of paragraph (1) with respect to a defendant if

24 the court determines that it is not in the best inter-
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1 ests of the plaintiff to receive payments for damages

2 on such a periodic basis.

3 SEC. 413. REQUIRING PARTY CONTESTING ADR RULING TO

4 PAY ATTORNEY’S FEES AND OTHER COSTS.

5 (a) IN GENERAL.—The court in a medical mal6 practice liability action shall require the party that (pursu7 ant to section 411(c)(1)) contested the ruling of the alter8 native dispute resolution system with respect to the medi9 cal malpractice liability claim that is the subject of the

10 action to pay to the opposing party the costs incurred by

11 the opposing party under the action, including attorney’s

12 fees, fees paid to expert witnesses, and other litigation ex13 penses (but not including court costs, filing fees, or other

14 expenses paid directly by the party to the court, or any

15 fees or costs associated with the resolution of the claim

16 under the alternative dispute resolution system), but only

17 if—

18 (1) in the case of an action in which the party

19 that contested the ruling is the claimant, the amount

20 of damages awarded to the party under the action

21 does not exceed the amount of damages awarded to

22 the party under the ADR system by at least 10 per23 cent; and

24 (2) in the case of an action in which the party

25 that contested the ruling is the defendant, the
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1 amount of damages assessed against the party under

2 the action is not at least 10 percent less than the

3 amount of damages assessed under the ADR system.

4 (b) EXCEPTIONS.—Subsection (a) shall not apply

5 if—

6 (1) the party contesting the ruling made under

7 the previous alternative dispute resolution system

8 shows that—

9 (A) the ruling was procured by corruption,

10 fraud, or undue means,

11 (B) there was partiality or corruption

12 under the system,

13 (C) there was other misconduct under the

14 system that materially prejudiced the party’s

15 rights, or

16 (D) the ruling was based on an error of

17 law;

18 (2) the party contesting the ruling made under

19 the alternative dispute resolution system presents

20 new evidence before the trier of fact that was not

21 available for presentation under the ADR system;

22 (3) the medical malpractice liability action

23 raised a novel issue of law; or

24 (4) the court finds that the application of such

25 paragraph to a party would constitute an undue
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1 hardship, and issues an order waiving or modifying

2 the application of such paragraph that specifies the

3 grounds for the court’s decision.

4 (c) REQUIREMENT FOR PERFORMANCE BOND.—The

5 court in a medical malpractice liability action shall require

6 the party that (pursuant to section 411(c)(1)) contested

7 the ruling of the alternative dispute resolution system with

8 respect to the medical malpractice liability claim that is

9 the subject of the action to post a performance bond (in

10 such amount and consisting of such funds and assets as

11 the court determines to be appropriate), except that the

12 court may waive the application of such requirement to

13 a party if the court determines that the posting of such

14 a bond is not necessary to ensure that the party shall meet

15 the requirements of this subsection to pay the opposing

16 party the costs incurred by the opposing party under the

17 action.

18 (d) LIMIT ON ATTORNEY’S FEES PAID.—Attorneys’

19 fees that are required to be paid under subsection (a) by

20 the contesting party shall not exceed the amount of the

21 attorneys’ fees incurred by the contesting party in the ac22 tion. If the attorneys’ fees of the contesting party are

23 based on a contingency fee agreement, the amount of at24 torneys’ fees for purposes of the preceding sentence shall

25 not exceed the reasonable value of those services.
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1 (e) RECORDS.—In order to receive attorneys’ fees

2 under subsection (a), counsel of record in the medical mal3 practice liability action involved shall maintain accurate,

4 complete records of hours worked on the action, regardless

5 of the fee arrangement with the client involved.

6 (f) CONTINGENCY FEE DEFINED.—As used in this

7 section, the term ‘‘contingency fee’’ means any fee for pro8 fessional legal services which is, in whole or in part, con9 tingent upon the recovery of any amount of damages,

10 whether through judgment or settlement.

11 SEC. 414. JOINT AND SEVERAL LIABILITY FOR NON12 ECONOMIC DAMAGES.

13 A defendant may be held severally but not jointly lia14 ble in a medical malpractice action for noneconomic dam15 ages. A person found liable for such damages in any such

16 action may be found liable, if at all, only for those dam17 ages directly attributable to the person’s proportionate

18 share of fault or responsibility for the injury, and may

19 not be found liable for damages attributable to the propor20 tionate share of fault or responsibility of any other person

21 (without regard to whether that person is a party to the

22 action) for the injury, including any person bringing the

23 action.
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1 SEC. 415. STATUTE OF LIMITATIONS.

2 A medical malpractice liability claim may not be

3 brought after the expiration of the 7-year period that be4 gins on the date the alleged injury that is the subject of

5 the claim occurred. If the commencement of such an ac6 tion is stayed or enjoined, the running of the statute of

7 limitations under this section shall be suspended for the

8 period of the stay or injunction.

9 SEC. 416. UNIFORM STANDARD FOR DETERMINING NEG10 LIGENCE.

11 A defendant in a medical malpractice liability action

12 may not be found to have acted negligently unless the de13 fendant’s conduct at the time of providing the health care

14 services that are the subject of the action was not reason15 able.

16 SEC. 417. SPECIAL PROVISION FOR CERTAIN OBSTETRIC

17 SERVICES.

18 (a) IMPOSITION OF HIGHER STANDARD OF PROOF.—

19 In the case of a medical malpractice liability claim relating

20 to services provided during labor or the delivery of a baby,

21 if the health care professional against whom the claim is

22 brought did not previously treat the individual alleged to

23 have been injured for the pregnancy, the trier of fact may

24 not find that the defendant committed malpractice and

25 may not assess damages against the health care profes-
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1 sional unless the malpractice is proven by clear and con2 vincing evidence.

3 (b) APPLICABILITY TO GROUP PRACTICES OR

4 AGREEMENTS AMONG PROVIDERS.—For purposes of sub5 section (a), a health care professional shall be considered

6 to have previously treated an individual for a pregnancy

7 if the professional is a member of a group practice whose

8 members previously treated the individual for the preg9 nancy or is providing services to the individual during

10 labor or the delivery of a baby pursuant to an agreement

11 with another health care professional.

12 (c) EFFECTIVE DATE.—This section shall apply with

13 respect to claims accruing or actions brought on or after

14 the expiration of the 2-year period that begins on the date

15 of the enactment of this Act.

16 PART 3—REQUIREMENTS FOR STATE ALTER17 NATIVE DISPUTE RESOLUTION SYSTEMS

18 (ADR)

19 SEC. 421. BASIC REQUIREMENTS.

20 (a) IN GENERAL.—A State’s alternative dispute reso21 lution system meets the requirements of this section if the

22 system—

23 (1) applies to all medical malpractice liability

24 claims under the jurisdiction of the courts of that

25 State;
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1 (2) requires that a written opinion resolving the

2 dispute be issued not later than 6 months after the

3 date by which each party against whom the claim is

4 filed has received notice of the claim (other than in

5 exceptional cases for which a longer period is re6 quired for the issuance of such an opinion), and that

7 the opinion contain—

8 (A) findings of fact relating to the dispute,

9 and

10 (B) a description of the costs incurred in

11 resolving the dispute under the system (includ12 ing any fees paid to the individuals hearing and

13 resolving the claim), together with an appro14 priate assessment of the costs against any of

15 the parties;

16 (3) requires individuals who hear and resolve

17 claims under the system to meet such qualifications

18 as the State may require (in accordance with regula19 tions of the Secretary);

20 (4) is approved by the State or by local govern21 ments in the State;

22 (5) with respect to a State system that consists

23 of multiple dispute resolution procedures—
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1 (A) permits the parties to a dispute to se2 lect the procedure to be used for the resolution

3 of the dispute under the system, and

4 (B) if the parties do not agree on the pro5 cedure to be used for the resolution of the dis6 pute, assigns a particular procedure to the par7 ties;

8 (6) provides for the transmittal to the State

9 agency responsible for monitoring or disciplining

10 health care professionals and health care providers

11 of any findings made under the system that such a

12 professional or provider committed malpractice, un13 less, during the 90-day period beginning on the date

14 the system resolves the claim against the profes15 sional or provider, the professional or provider

16 brings an action contesting the decision made under

17 the system; and

18 (7) provides for the regular transmittal to the

19 Administrator for Health Care Policy and Research

20 of information on disputes resolved under the sys21 tem, in a manner that assures that the identity of

22 the parties to a dispute shall not be revealed.

23 (b) APPLICATION OF MALPRACTICE LIABILITY

24 STANDARDS TO ALTERNATIVE DISPUTE RESOLUTION.—

25 The provisions of part 2 shall apply with respect to claims
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1 brought under a State alternative dispute resolution sys2 tem or the alternative Federal system in the same manner

3 as such provisions apply with respect to medical mal4 practice liability actions brought in the State.

5 SEC. 422. CERTIFICATION OF STATE SYSTEMS; APPLICABIL6 ITY OF ALTERNATIVE FEDERAL SYSTEM.

7 (a) CERTIFICATION.—

8 (1) IN GENERAL.—Not later than October 1 of

9 each year (beginning with 1995), the Secretary, in

10 consultation with the Attorney General, shall deter11 mine whether a State’s alternative dispute resolution

12 system meets the requirements of this part for the

13 following calendar year.

14 (2) BASIS FOR CERTIFICATION.—The Secretary

15 shall certify a State’s alternative dispute resolution

16 system under this subsection for a calendar year if

17 the Secretary determines under paragraph (1) that

18 the system meets the requirements of section 421.

19 (b) APPLICABILITY OF ALTERNATIVE FEDERAL SYS20 TEM.—

21 (1) ESTABLISHMENT AND APPLICABILITY.—

22 Not later than October 1, 1995, the Secretary, in

23 consultation with the Attorney General, shall estab24 lish by rule an alternative Federal ADR system for

25 the resolution of medical malpractice liability claims
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1 during a calendar year in States that do not have

2 in effect an alternative dispute resolution system

3 certified under subsection (a) for the year.

4 (2) REQUIREMENTS FOR SYSTEM.—Under the

5 alternative Federal ADR system established under

6 paragraph (1)—

7 (A) paragraphs (1), (2), (6), and (7) of

8 section 421(a) shall apply to claims brought

9 under the system;

10 (B) if the system provides for the resolu11 tion of claims through arbitration, the claims

12 brought under the system shall be heard and

13 resolved by arbitrators appointed by the Sec14 retary in consultation with the Attorney Gen15 eral; and

16 (C) with respect to a State in which the

17 system is in effect, the Secretary may (at the

18 State’s request) modify the system to take into

19 account the existence of dispute resolution pro20 cedures in the State that affect the resolution

21 of medical malpractice liability claims.

22 (3) TREATMENT OF STATES WITH ALTER23 NATIVE SYSTEM IN EFFECT.—If the alternative Fed24 eral ADR system established under this subsection is

25 applied with respect to a State for a calendar year—
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1 (A) the State shall reimburse the United

2 States (at such time and in such manner as the

3 Secretary may require) for the costs incurred

4 by the United States during the year as a result

5 of the application of the system with respect to

6 the State; and

7 (B) notwithstanding any other provision of

8 law, no funds may be paid to the State (or to

9 any unit of local government in the State) or to

10 any entity in the State pursuant to the Public

11 Health Service Act.

12 SEC. 423. REPORTS ON IMPLEMENTATION AND EFFECTIVE13 NESS OF ALTERNATIVE DISPUTE RESOLU14 TION SYSTEMS.

15 (a) IN GENERAL.—Not later than 5 years after the

16 date of the enactment of this Act, the Secretary shall pre17 pare and submit to the Congress a report describing and

18 evaluating State alternative dispute resolution systems op19 erated pursuant to this part and the alternative Federal

20 system established under section 422(b).

21 (b) CONTENTS OF REPORT.—The Secretary shall in22 clude in the report prepared and submitted under sub23 section (a)—

24 (1) information on—
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1 (A) the effect of the alternative dispute

2 resolution systems on the cost of health care

3 within each State,

4 (B) the impact of such systems on the ac5 cess of individuals to health care within the

6 State, and

7 (C) the effect of such systems on the qual8 ity of health care provided within the State; and

9 (2) to the extent that such report does not pro10 vide information on no-fault systems operated by

11 States as alternative dispute resolution systems pur12 suant to this part, an analysis of the feasibility and

13 desirability of establishing a system under which

14 medical malpractice liability claims shall be resolved

15 on a no-fault basis.

16 PART 4—OTHER PROVISIONS RELATING TO

17 MEDICAL MALPRACTICE LIABILITY

18 SEC. 431. PERMITTING STATE PROFESSIONAL SOCIETIES

19 TO PARTICIPATE IN DISCIPLINARY ACTIVI20 TIES.

21 (a) ROLE OF PROFESSIONAL SOCIETIES.—Notwith22 standing any other provision of State or Federal law, a

23 State agency responsible for the conduct of disciplinary

24 actions for a type of health care practitioner may enter

25 into agreements with State or county professional societies
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1 of such type of health care practitioner to permit such so2 cieties to participate in the licensing of such health care

3 practitioner, and to review any health care malpractice ac4 tion, health care malpractice claim or allegation, or other

5 information concerning the practice patterns of any such

6 health care practitioner. Any such agreement shall comply

7 with subsection (b).

8 (b) REQUIREMENTS OF AGREEMENTS.—Any agree9 ment entered into under subsection (a) for licensing activi10 ties or the review of any health care malpractice action,

11 health care malpractice claim or allegation, or other infor12 mation concerning the practice patterns of a health care

13 practitioner shall provide that—

14 (1) the health care professional society conducts

15 such activities or review as expeditiously as possible;

16 (2) after the completion of such review, such so17 ciety shall report its findings to the State agency

18 with which it entered into such agreement;

19 (3) the conduct of such activities or review and

20 the reporting of such findings be conducted in a

21 manner which assures the preservation of confiden22 tiality of health care information and of the review

23 process; and

24 (4) no individual affiliated with such society is

25 liable for any damages or injury directly caused by
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1 the individual’s actions in conducting such activities

2 or review.

3 (c) AGREEMENTS NOT MANDATORY.—Nothing in

4 this section may be construed to require a State to enter

5 into agreements with societies described in subsection (a)

6 to conduct the activities described in such subsection.

7 (d) EFFECTIVE DATE.—This section shall take effect

8 2 years after the date of the enactment of this Act.

9 SEC. 432. STUDY OF INCENTIVES TO ENCOURAGE VOL10 UNTARY SERVICE BY PHYSICIANS.

11 (a) STUDY.—The Secretary shall conduct a study

12 analyzing the existence and effectiveness of incentives

13 adopted by State and local governments, insurers, medical

14 societies, and other entities to encourage physicians

15 (whether practicing or retired) to volunteer to provide

16 health care services in medically underserved areas.

17 (b) REPORTS.—(1) Not later than 1 year after the

18 date of the enactment of this Act, the Secretary shall sub19 mit an interim report to Congress on the study conducted

20 under subsection (a), together with the Secretary’s rec21 ommendations for actions to increase the number of physi22 cians volunteering to provide health care services in medi23 cally underserved areas.

24 (2) Not later than 5 years after the date of the enact25 ment of this Act, the Secretary shall submit a final report
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1 to the Congress on the study conducted under subsection

2 (a) (taking into account the effects of this subtitle on the

3 incidence and costs of medical malpractice), together with

4 the Secretary’s recommendations for actions to increase

5 the number of physicians volunteering to provide health

6 care services in medically underserved areas.

7 SEC. 433. REQUIREMENTS FOR RISK MANAGEMENT PRO8 GRAMS.

9 (a) REQUIREMENTS FOR PROVIDERS.—Each State

10 shall require each health care professional and health care

11 provider providing services in the State to participate in

12 a risk management program to prevent and provide early

13 warning of practices which may result in injuries to pa14 tients or which otherwise may endanger patient safety.

15 (b) REQUIREMENTS FOR INSURERS.—Each State

16 shall require each entity which provides health care profes17 sional or provider liability insurance to health care profes18 sionals and health care providers in the State to—

19 (1) establish risk management programs based

20 on data available to such entity or sanction pro21 grams of risk management for health care profes22 sionals and health care providers provided by other

23 entities; and

24 (2) require each such professional or provider,

25 as a condition of maintaining insurance, to partici-
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1 pate in one program described in paragraph (1) at

2 least once in each 3-year period.

3 (c) EFFECTIVE DATE.—This section shall take effect

4 2 years after the date of the enactment of this Act.

5 SEC. 434. GRANTS FOR MEDICAL SAFETY PROMOTION.

6 (a) RESEARCH ON MEDICAL INJURY PREVENTION

7 AND COMPENSATION.

8 (1) IN GENERAL.—The Secretary shall make

9 grants for the conduct of basic research in the pre10 vention of and compensation for injuries resulting

11 from health care professional or health care provider

12 malpractice, and research of the outcomes of health

13 care procedures.

14 (2) PREFERENCE FOR RESEARCH ON CERTAIN

15 ACTIVITIES.—In making grants under paragraph

16 (1), the Secretary shall give preference to applica17 tions for grants to conduct research on the behavior

18 of health care providers and health care profes19 sionals in carrying out their professional duties and

20 of other participants in systems for compensating in21 dividuals injured by medical malpractice, the effects

22 of financial and other incentives on such behavior,

23 the determinants of compensation system outcomes,

24 and the costs and benefits of alternative compensa25 tion policy options.
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1 (3) APPLICATION.—The Secretary may not

2 make a grant under paragraph (1) unless an appli3 cant submits an application to the Secretary at such

4 time, in such form, in such manner, and containing

5 such information as the Secretary may require.

6 (b) GRANTS FOR LICENSING AND DISCIPLINARY AC7 TIVITIES.—

8 (1) IN GENERAL.—The Secretary shall make

9 grants to States to assist States in improving the

10 State’s ability to license and discipline health care

11 professionals.

12 (2) USES FOR GRANTS.—A State may use a

13 grant awarded under subsection (a) to develop and

14 implement improved mechanisms for monitoring the

15 practices of health care professionals or for conduct16 ing disciplinary activities.

17 (3) TECHNICAL ASSISTANCE.—The Secretary

18 shall provide technical assistance to States receiving

19 grants under paragraph (1) to assist them in evalu20 ating their medical practice acts and procedures and

21 to encourage the use of efficient and effective early

22 warning systems and other mechanisms for detecting

23 practices which endanger patient safety and for dis24 ciplining health care professionals.
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1 (4) APPLICATIONS.—The Secretary may not

2 make a grant under paragraph (1) unless the appli3 cant submits an application to the Secretary at such

4 time, in such form, in such manner, and containing

5 such information as the Secretary shall require.

6 (c) GRANTS FOR PUBLIC EDUCATION PROGRAMS.—

7 (1) IN GENERAL.—The Secretary shall make

8 grants to States and to local governments, private

9 nonprofit organizations, and health professional

10 schools (as defined in paragraph (3)) for—

11 (A) educating the general public about the

12 appropriate use of health care and realistic ex13 pectations of medical intervention;

14 (B) educating the public about the re15 sources and role of health care professional li16 censing and disciplinary boards in investigating

17 claims of incompetence or health care mal18 practice; and

19 (C) developing programs of faculty train20 ing and curricula for educating health care pro21 fessionals in quality assurance, risk manage22 ment, and medical injury prevention.

23 (2) APPLICATIONS.—The Secretary may not

24 make a grant under paragraph (1) unless the appli25 cant submits an application to the Secretary at such
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1 time, in such form, in such manner, and containing

2 such information as the Secretary shall require.

3 (3) HEALTH PROFESSIONAL SCHOOL DE4 FINED.—In paragraph (1), the term ‘‘health profes5 sional school’’ means a school of nursing (as defined

6 in section 853(2) of the Public Health Service Act)

7 or a school or program under section 799(1) of such

8 Act.

9 (d) AUTHORIZATION OF APPROPRIATIONS.—There

10 are authorized to be appropriated not more than

11 $15,000,000 for each of the first 5 fiscal years beginning

12 on or after the date of the enactment of this Act for grants

13 under this section.

14 Subtitle B—Treatment of Certain

15 Activities Under the Antitrust

16 Laws

17 SEC. 451. EXEMPTION FROM ANTITRUST LAWS FOR CER18 TAIN COMPETITIVE AND COLLABORATIVE

19 ACTIVITIES.

20 (a) EXEMPTION DESCRIBED.—An activity relating to

21 the provision of health care services shall be exempt from

22 the antitrust laws if—

23 (1) the activity is within one of the categories

24 of safe harbors described in section 452;
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1 (2) the activity is within an additional safe har2 bor designated by the Attorney General under sec3 tion 453; or

4 (3) the activity is specified in and in compliance

5 with the terms of a certificate of review issued by

6 the Attorney General under section 454 and the ac7 tivity occurs—

8 (A) while the certificate is in effect, or

9 (B) in the case of a certificate issued dur10 ing the 2-year period beginning on the date of

11 the enactment of this Act, at any time on or

12 after the first day of the 2-year period that

13 ends on the date the certificate takes effect.

14 (b) AWARD OF ATTORNEY’S FEES AND COSTS OF

15 SUIT.—

16 (1) IN GENERAL.—If any person brings an ac17 tion alleging a claim under the antitrust laws and

18 the activity on which the claim is based is found by

19 the court to be exempt from such laws under sub20 section (a), the court shall, at the conclusion of the

21 action—

22 (A) award to a substantially prevailing

23 claimant the cost of suit attributable to such

24 claim, including a reasonable attorney’s fee, or
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1 (B) award to a substantially prevailing

2 party defending against such claim the cost of

3 such suit attributable to such claim, including

4 reasonable attorney’s fee, if the claim, or the

5 claimant’s conduct during litigation of the

6 claim, was frivolous, unreasonable, without

7 foundation, or in bad faith.

8 (2) OFFSET IN CASES OF BAD FAITH.—The

9 court may reduce an award made pursuant to para10 graph (1) in whole or in part by an award in favor

11 of another party for any part of the cost of suit (in12 cluding a reasonable attorney’s fee) attributable to

13 conduct during the litigation by any prevailing party

14 that the court finds to be frivolous, unreasonable,

15 without foundation, or in bad faith.

16 SEC. 452. SAFE HARBORS.

17 The following activities are safe harbors for purposes

18 of section 451(a)(1):

19 (1) COMBINATIONS WITH MARKET SHARE

20 BELOW THRESHOLD.—Activities relating to health

21 care services of any combination of health care pro22 viders if the number of each type or specialty of pro23 vider in question does not exceed 20 percent of the

24 total number of such type or specialty of provider in

25 the relevant market area.
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1 (2) ACTIVITIES OF MEDICAL SELF-REGULATORY

2 ENTITIES.—

3 (A) IN GENERAL.—Subject to subpara4 graph (B), any activity of a medical self-regu5 latory entity relating to standard setting or

6 standard enforcement activities that are de7 signed to promote the quality of health care

8 provided to patients.

9 (B) EXCEPTION.—No activity of a medical

10 self-regulatory entity may be deemed to fall

11 under the safe harbor established under this

12 paragraph if the activity is conducted for pur13 poses of financial gain.

14 (3) PARTICIPATION IN SURVEYS.—The partici15 pation of a provider of health care services in a writ16 ten survey of the prices of services, reimbursement

17 levels, or the compensation and benefits of employ18 ees and personnel, but only if—

19 (A) the survey is conducted by a third

20 party, such as a purchaser of health care serv21 ices, governmental entity, institution of higher

22 education, or trade association;

23 (B) the information provided by partici24 pants in the survey is based on prices charged,

25 reimbursements received, or compensation and
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1 benefits paid prior to the third month preceding

2 the month in which the information is provided;

3 and

4 (C) if the results of the survey are dissemi5 nated, the results are aggregated in a manner

6 that ensures that no recipient of the results

7 may identify the prices charged, reimbursement

8 received, or compensation and benefits paid by

9 any particular provider.

10 (4) JOINT VENTURES FOR HIGH TECHNOLOGY

11 AND COSTLY EQUIPMENT AND SERVICES.—Any ac12 tivity of a health care cooperative venture relating to

13 the purchase, operation, or marketing of high tech14 nology or other expensive medical equipment, or the

15 provision of high cost or complex services, but only

16 if the number of participants in the venture does not

17 exceed the lowest number needed to support the ven18 ture. Other providers may be included in the ven19 ture, but only if such other providers could not pur20 chase, operate, or market such equipment or provide

21 a competing service either alone or through the for22 mation of a competing venture.

23 (5) HOSPITAL MERGERS.—Activities relating to

24 a merger of 2 hospitals if, during the 3-year period

25 preceding the merger, one of the hospitals had an
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1 average of 150 or fewer operational beds and an av2 erage daily inpatient census of less than 50 percent

3 of such beds.

4 (6) JOINT PURCHASING ARRANGEMENTS.—Any

5 joint purchasing arrangement among health care

6 providers if—

7 (A) the purchases under the arrangement

8 represent less than 35 percent of the total sales

9 of the product or service purchased in the rel10 evant market; and

11 (B) the cost of the products and services

12 purchased jointly accounts for less than 20 per13 cent of the total revenues from all products or

14 services sold by each participant in the joint

15 purchasing arrangement.

16 (7) NEGOTIATIONS.—Activities consisting of

17 good faith negotiations to carry out any activity—

18 (A) described in this section,

19 (B) within an additional safe harbor des20 ignated by the Attorney General under section

21 453,

22 (C) that is the subject of an application for

23 a certificate of review under section 454, or

24 (D) that is deemed a submission of a noti25 fication under section 455(a)(2)(B),
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1 without regard to whether such an activity is carried

2 out.

3 SEC. 453. DESIGNATION OF ADDITIONAL SAFE HARBORS.

4 (a) IN GENERAL.—

5 (1) SOLICITATION OF PROPOSALS.—Not later

6 than 30 days after the date of the enactment of this

7 Act, the Attorney General shall publish a notice in

8 the Federal Register soliciting proposals for addi9 tional safe harbors.

10 (2) REVIEW AND REPORT ON PROPOSED SAFE

11 HARBORS.—Not later than 180 days after the date

12 of the enactment of this Act, the Attorney General

13 (in consultation with the Secretary of Health and

14 Human Services and the Chair of the Federal Trade

15 Commission) shall—

16 (A) review the proposed safe harbors sub17 mitted under paragraph (1); and

18 (B) submit a report to Congress describing

19 the proposals to be included in the publication

20 of additional safe harbors described in para21 graph (3) and the proposals that are not to be

22 so included, together with explanations there23 fore.

24 (3) PUBLICATION OF ADDITIONAL SAFE HAR25 BORS.—Not later than 180 days after the date of
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1 the enactment of this Act, the Attorney General (in

2 consultation with the Secretary of Health and

3 Human Services and the Chair of the Federal Trade

4 Commission) shall publish in the Federal Register

5 proposed additional safe harbors for purposes of sec6 tion 451(a)(2) for providers of health care services.

7 Not later than 180 days after publishing such pro8 posed safe harbors in the Federal Register, the At9 torney General shall issue final rules establishing

10 such safe harbors.

11 (b) CRITERIA FOR SAFE HARBORS.—In establishing

12 safe harbors under subsection (a), the Attorney General

13 shall take into account the following:

14 (1) The extent to which a competitive or col15 laborative activity will accomplish any of the follow16 ing:

17 (A) An increase in access to health care

18 services.

19 (B) The enhancement of the quality of

20 health care services.

21 (C) The establishment of cost efficiencies

22 that will be passed on to consumers, including

23 economies of scale and reduced transaction and

24 administrative costs.
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1 (D) An increase in the ability of health

2 care facilities to provide services in medically

3 underserved areas or to medically underserved

4 populations.

5 (E) An improvement in the utilization of

6 health care resources or the reduction in the in7 efficient duplication of the use of such re8 sources.

9 (2) Whether the designation of an activity as a

10 safe harbor under subsection (a) will result in the

11 following outcomes:

12 (A) Health plans and other health care in13 surers, consumers of health care services, and

14 health care providers will be better able to ne15 gotiate payment and service arrangements

16 which will reduce costs to consumers.

17 (B) Taking into consideration the charac18 teristics of the particular purchasers and pro19 viders involved, competition will not be unduly

20 restricted.

21 (C) Equally efficient and less restrictive al22 ternatives do not exist to meet the criteria de23 scribed in paragraph (1).
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1 (D) The activity will not unreasonably

2 foreclose competition by denying competitors a

3 necessary element of competition.

4 SEC. 454. CERTIFICATES OF REVIEW.

5 (a) ESTABLISHMENT OF PROGRAM.—In consultation

6 with the Secretary and the Chair, the Attorney General

7 shall (not later than 180 days after the date of the enact8 ment of this Act) issue certificates of review in accordance

9 with this section for providers of health care services and

10 advise and assist any person with respect to applying for

11 such a certificate of review.

12 (b) PROCEDURES FOR APPLICATION FOR CERTIFI13 CATE.—

14 (1) FORM; CONTENT.—To apply for a certifi15 cate of review, a person shall submit to the Attorney

16 General a written application which—

17 (A) specifies the activities relating to the

18 provision of health care services which satisfy

19 the criteria described in section 453(b) and

20 which will be included in the certificate; and

21 (B) is in a form and contains any informa22 tion, including information pertaining to the

23 overall market in which the applicant operates,

24 required by rule or regulation promulgated

25 under section 457.
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1 (2) PUBLICATION OF NOTICE IN FEDERAL REG2 ISTER.—Within 10 days after an application submit3 ted under paragraph (1) is received by the Attorney

4 General, the Attorney General shall publish in the

5 Federal Register a notice that announces that an

6 application for a certificate of review has been sub7 mitted, identifies each person submitting the appli8 cation, and describes the conduct for which the ap9 plication is submitted.

10 (3) ESTABLISHMENT OF PROCEDURES FOR IS11 SUANCE OF CERTIFICATE.—In consultation with the

12 Chair and the Secretary, the Attorney General shall

13 establish procedures to be used in applying for and

14 in determining whether to approve an application for

15 a certificate of review under this subtitle. Under

16 such procedures the Attorney General shall approve

17 an application if the Attorney General determines

18 that the activities to be covered under the certificate

19 will satisfy the criteria described in section 453(b)

20 for additional safe harbors designated under such

21 section and that the benefits of the issuance of the

22 certificate will outweigh any disadvantages that may

23 result from reduced competition.

24 (4) TIMING FOR DECISION ON APPLICATION.—
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1 (A) IN GENERAL.—Within 90 days after

2 the Attorney General receives an application for

3 a certificate of review, the Attorney General

4 shall determine whether the applicant’s health

5 care market activities are in accordance with

6 the procedures described in paragraph (3). If

7 the Attorney General, with the concurrence of

8 the Secretary, determines that such procedures

9 are met, the Attorney General shall issue to the

10 applicant a certificate of review. The certificate

11 of review shall specify—

12 (i) the health care market activities to

13 which the certificate applies,

14 (ii) the person to whom the certificate

15 of review is issued, and

16 (iii) any terms and conditions the At17 torney General or the Secretary deems nec18 essary to assure compliance with the appli19 cable procedures described in paragraph

20 (3).

21 (B) APPLICATIONS DEEMED APPROVED.—

22 If the Attorney General does not reject an ap23 plication before the expiration of the 90-period

24 beginning on the date the Attorney General re25 ceives the application, the Attorney General
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1 shall be deemed to have approved the applica2 tion and to have issued a certificate of review

3 relating to the applicant’s health care market

4 activities covered under the application.

5 (5) EXPEDITED ACTION.—If the applicant indi6 cates a special need for prompt disposition, the At7 torney General and the Secretary may expedite ac8 tion on the application, except that no certificate of

9 review may be issued within 30 days of publication

10 of notice in the Federal Register under subsection

11 (b)(2).

12 (6) ACTIONS UPON DENIAL.—

13 (A) NOTIFICATION.—If the Attorney Gen14 eral denies in whole or in part an application

15 for a certificate, the Attorney General shall no16 tify the applicant of the Attorney General’s de17 termination and the reasons for it.

18 (B) REQUEST FOR RECONSIDERATION.—

19 An applicant may, within 30 days of receipt of

20 notification that the application has been denied

21 in whole or in part, request the Attorney Gen22 eral to reconsider the determination. The Attor23 ney General, with the concurrence of the Sec24 retary, shall notify the applicant of the deter-
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1 mination upon reconsideration within 30 days

2 of receipt of the request.

3 (C) RETURN OF DOCUMENTS.—If the At4 torney General denies an application for the is5 suance of a certificate of review and thereafter

6 receives from the applicant a request for the re7 turn of documents submitted by the applicant

8 in connection with the application for the cer9 tificate, the Attorney General and the Secretary

10 shall return to the applicant, not later than 30

11 days after receipt of the request, the documents

12 and all copies of the documents available to the

13 Attorney General and the Secretary, except to

14 the extent that the information has been made

15 public under an exception to the rule against

16 public disclosure described in subsection

17 (g)(2)(B).

18 (7) FRAUDULENT PROCUREMENT.—A certifi19 cate of review shall be void ab initio with respect to

20 any health care market activities for which the cer21 tificate was procured by fraud.

22 (c) AMENDMENT AND REVOCATION OF CERTIFI23 CATES.—

24 (1) NOTIFICATION OF CHANGES.—Any appli25 cant who receives a certificate of review—
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1 (A) shall promptly report to the Attorney

2 General any change relevant to the matters

3 specified in the certificate; and

4 (B) may submit to the Attorney General

5 an application to amend the certificate to re6 flect the effect of the change on the conduct

7 specified in the certificate.

8 (2) AMENDMENT TO CERTIFICATE.—An appli9 cation for an amendment to a certificate of review

10 shall be treated as an application for the issuance of

11 a certificate. The effective date of an amendment

12 shall be the date on which the application for the

13 amendment is submitted to the Attorney General.

14 (3) REVOCATION.—

15 (A) GROUNDS FOR REVOCATION.—In ac16 cordance with this paragraph, the Attorney

17 General may revoke in whole or in part a cer18 tificate of review issued under this section. The

19 following shall be considered grounds for the

20 revocation of a certificate:

21 (i) After the expiration of the 2-year

22 period beginning on the date a person’s

23 certificate is issued, the activities of the

24 person have not substantially accomplished
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1 the purposes for the issuance of the certifi2 cate.

3 (ii) The person has failed to comply

4 with any of the terms or conditions im5 posed under the certificate by the Attorney

6 General or the Secretary under subsection

7 (b)(4).

8 (iii) The activities covered under the

9 certificate no longer satisfy the criteria set

10 forth in section 453(b).

11 (B) REQUEST FOR COMPLIANCE INFORMA12 TION.—If the Attorney General or Secretary

13 has reason to believe that any of the grounds

14 for revocation of a certificate of review de15 scribed in subparagraph (A) may apply to a

16 person holding the certificate, the Attorney

17 General shall request such information from

18 such person as the Attorney General or the Sec19 retary deems necessary to resolve the matter of

20 compliance. Failure to comply with such request

21 shall be grounds for revocation of the certificate

22 under this paragraph.

23 (C) PROCEDURES FOR REVOCATION.—If

24 the Attorney General or the Secretary deter25 mines that any of the grounds for revocation of
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1 a certificate of review described in subpara2 graph (A) apply to a person holding the certifi3 cate, or that such person has failed to comply

4 with a request made under subparagraph (B),

5 the Attorney General shall give written notice of

6 the determination to such person. The notice

7 shall include a statement of the circumstances

8 underlying, and the reasons in support of, the

9 determination. In the 60-day period beginning

10 30 days after the notice is given, the Attorney

11 General shall revoke the certificate or modify it

12 as the Attorney General or the Secretary deems

13 necessary to cause the certificate to apply only

14 to activities that meet the procedures for the is15 suance of certificates described in subsection

16 (b)(2).

17 (D) INVESTIGATION AUTHORITY.—For

18 purposes of carrying out this paragraph, the

19 Attorney General may conduct investigations in

20 the same manner as the Attorney General con21 ducts investigations under section 3 of the Anti22 trust Civil Process Act, except that no civil in23 vestigative demand may be issued to a person

24 to whom a certificate of review is issued if such

25 person is the target of such investigation.
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1 (d) REVIEW OF DETERMINATIONS.—

2 (1) AVAILABILITY OF REVIEW FOR CERTAIN AC3 TIONS.—If the Attorney General denies, in whole or

4 in part, an application for a certificate of review or

5 for an amendment to a certificate, or revokes or

6 modifies a certificate pursuant to paragraph (3), the

7 applicant or certificate holder (as the case may be)

8 may, within 30 days of the denial or revocation,

9 bring an action in any appropriate district court of

10 the United States to set aside the determination on

11 the ground that such determination is erroneous

12 based on the preponderance of the evidence.

13 (2) NO OTHER REVIEW PERMITTED.—Except

14 as provided in paragraph (1), no action by the At15 torney General or the Secretary pursuant to this

16 subtitle shall be subject to judicial review.

17 (3) EFFECT OF REJECTED APPLICATION.—If

18 the Attorney General denies, in whole or in part, an

19 application for a certificate of review or for an

20 amendment to a certificate, or revokes or amends a

21 certificate, neither the negative determination nor

22 the statement of reasons therefore shall be admissi23 ble in evidence, in any administrative or judicial pro24 ceeding, concerning any claim under the antitrust

25 laws.
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1 (e) PUBLICATION OF DECISIONS.—The Attorney

2 General shall publish a notice in the Federal Register on

3 a timely basis of each decision made with respect to an

4 application for a certificate of review under this section

5 or the amendment or revocation of such a certificate, in

6 a manner that protects the confidentiality of any propri7 etary information relating to the application.

8 (f) ANNUAL REPORTS.—Every person to whom a cer9 tificate of review is issued shall submit to the Attorney

10 General an annual report, in such form and at such time

11 as the Attorney General may require, that contains any

12 necessary updates to the information required under sub13 section (b) and a description of the activities of the holder

14 under the certificate during the preceding year.

15 (g) RESTRICTIONS ON DISCLOSURE OF INFORMA16 TION.—

17 (1) WAIVER OF DISCLOSURE REQUIREMENTS

18 UNDER ADMINISTRATIVE PROCEDURE ACT.—Infor19 mation submitted by any person in connection with

20 the issuance, amendment, or revocation of a certifi21 cate of review shall be exempt from disclosure under

22 section 552 of title 5, United States Code.

23 (2) RESTRICTIONS ON DISCLOSURE OF COM24 MERCIAL OR FINANCIAL INFORMATION.—
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1 (A) IN GENERAL.—Except as provided in

2 subparagraph (B), no officer or employee of the

3 United States shall disclose commercial or fi4 nancial information submitted in connection

5 with the issuance, amendment, or revocation of

6 a certificate of review if the information is priv7 ileged or confidential and if disclosure of the in8 formation would cause harm to the person who

9 submitted the information.

10 (B) EXCEPTIONS.—Subparagraph (A)

11 shall not apply with respect to information dis12 closed—

13 (i) upon a request made by the Con14 gress or any committee of the Congress,

15 (ii) in a judicial or administrative pro16 ceeding, subject to appropriate protective

17 orders,

18 (iii) with the consent of the person

19 who submitted the information,

20 (iv) in the course of making a deter21 mination with respect to the issuance,

22 amendment, or revocation of a certificate

23 of review, if the Attorney General deems

24 disclosure of the information to be nec-
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1 essary in connection with making the de2 termination,

3 (v) in accordance with any require4 ment imposed by a statute of the United

5 States, or

6 (vi) in accordance with any rule or

7 regulation promulgated under subsection

8 (i) permitting the disclosure of the infor9 mation to an agency of the United States

10 or of a State on the condition that the

11 agency will disclose the information only

12 under the circumstances specified in

13 clauses (i) through (v).

14 (3) PROHIBITION AGAINST USE OF INFORMA15 TION TO SUPPORT OR ANSWER CLAIMS UNDER ANTI16 TRUST LAWS.—Any information disclosed in an ap17 plication for a certificate of review under this section

18 shall only be admissible into evidence in a judicial or

19 administrative proceeding for the sole purpose of es20 tablishing that a person is entitled to the protections

21 provided by such a certificate.
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1 SEC. 455. NOTIFICATIONS PROVIDING REDUCTION IN CER2 TAIN PENALTIES UNDER ANTITRUST LAW

3 FOR HEALTH CARE COOPERATIVE VEN4 TURES.

5 (a) NOTIFICATIONS DESCRIBED.—

6 (1) SUBMISSION OF NOTIFICATION BY VEN7 TURE.—Any party to a health care cooperative ven8 ture, acting on such venture’s behalf, may, not later

9 than 90 days after entering into a written agreement

10 to form such venture or not later than 90 days after

11 the date of the enactment of this Act, whichever is

12 later, file with the Attorney General a written notifi13 cation disclosing—

14 (A) the identities of the parties to such

15 venture,

16 (B) the nature and objectives of such ven17 ture, and

18 (C) such additional information as the At19 torney General may require by regulation.

20 (2) ACTIVITIES DEEMED SUBMISSION OF NOTI21 FICATION.—The following health care cooperative

22 ventures shall be deemed to have filed a written noti23 fication with respect to the venture under paragraph

24 (1):

25 (A) SUBMISSION OF APPLICATION FOR

26 CERTIFICATE OF REVIEW.—Any health care co-
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1 operative venture for which an application for a

2 certificate of review is filed with the Attorney

3 General under section 453.

4 (B) CERTAIN VENTURES.—Any health care

5 cooperative venture meeting the following re6 quirements:

7 (i) The venture consists of a network

8 of non-institutional providers not greater

9 than—

10 (I) in the case of a nonexclusive

11 network in which the participating

12 members are permitted to create or

13 join other competing networks, 50

14 percent of the providers of health care

15 services in the relevant geographic

16 area and 50 percent of the members

17 of the provider specialty group in the

18 relevant market; or

19 (II) in the case of an exclusive

20 network in which the participating

21 members are not permitted to create

22 or join other competing networks, 35

23 percent of the providers of health care

24 services in the relevant geographic

25 area and 35 percent of the members
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1 of the provider specialty group in the

2 relevant market.

3 (ii) Each member of the venture as4 sumes substantial financial risk for the op5 eration of the venture through risk-sharing

6 arrangements, including (but not limited

7 to)—

8 (I) the acceptance of capitation

9 contracts;

10 (II) the acceptance of contracts

11 with fee withholding mechanisms re12 lating to the ability to meet estab13 lished goals for utilization review and

14 management; and

15 (III) the holding by members of

16 significant ownership or equity inter17 ests in the venture, where the capital

18 contributed by the members is used to

19 fund the operational costs of the ven20 ture such as administration, market21 ing, and computer-operated medical

22 information, if the venture develops

23 and operates comprehensive programs

24 for utilization management and qual25 ity assurance that include controls
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1 over the use of institutional, special2 ized, and ancillary medical services.

3 (3) SUBMISSION OF ADDITIONAL INFORMA4 TION.—

5 (A) REQUEST OF ATTORNEY GENERAL.—

6 At any time after receiving a notification filed

7 under paragraph (1), the Attorney General may

8 require the submission of additional information

9 or documentary material relevant to the pro10 posed health care cooperative venture.

11 (B) PARTIES TO VENTURE.—Any party to

12 a health care cooperative venture may submit

13 such additional information on the venture’s be14 half as may be appropriate to ensure that the

15 venture will receive the protections provided

16 under subsection (b).

17 (C) REQUIRED SUBMISSION OF INFORMA18 TION ON CHANGES TO VENTURE.—A health

19 care cooperative venture for which a notification

20 is in effect under this section shall submit infor21 mation on any change in the membership of the

22 venture not later than 90 days after such

23 change occurs.

24 (4) PUBLICATION OF NOTIFICATION.—
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1 (A) INFORMATION MADE PUBLICLY AVAIL2 ABLE.—Not later than 30 days after receiving

3 a notification with respect to a venture under

4 paragraph (1), the Attorney General shall pub5 lish in the Federal Register a notice with re6 spect to the venture that identifies the parties

7 to the venture and generally describes the pur8 pose and planned activity of the venture. Prior

9 to its publication, the contents of the notice

10 shall be made available to the parties to the

11 venture.

12 (B) RESTRICTION ON DISCLOSURE OF

13 OTHER INFORMATION.—All information and

14 documentary material submitted pursuant to

15 this section and all information obtained by the

16 Attorney General in the course of any investiga17 tion or case with respect to a potential violation

18 of the antitrust laws by the health care coopera19 tive venture (other than information and mate20 rial described in subparagraph (A)) shall be ex21 empt from disclosure under section 552 of title

22 5, United States Code, and shall not be made

23 publicly available by any agency of the United

24 States to which such section applies except in
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1 a judicial proceeding in which such information

2 and material is subject to any protective order.

3 (5) WITHDRAWAL OF NOTIFICATION.—Any per4 son who files a notification pursuant to this section

5 may withdraw such notification before a publication

6 by the Attorney General pursuant to paragraph (4).

7 Any person who is deemed to have filed a notifica8 tion under paragraph (2)(A) shall be deemed to have

9 withdrawn the notification if the certificate of review

10 in question is revoked or withdrawn under section

11 454.

12 (6) NO JUDICIAL REVIEW PERMITTED.—Any

13 action taken or not taken by the Attorney General

14 with respect to notifications filed pursuant to this

15 subsection shall not be subject to judicial review.

16 (b) PROTECTIONS FOR VENTURES SUBJECT TO NO17 TIFICATION.—

18 (1) IN GENERAL.—

19 (A) PROTECTIONS DESCRIBED.—The pro20 visions of paragraphs (2), (3), (4), and (5) shall

21 apply with respect to any action under the anti22 trust laws challenging conduct within the scope

23 of a notification which is in effect pursuant to

24 subsection (a)(1).
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1 (B) TIMING OF PROTECTIONS.—The pro2 tections described in this subsection shall apply

3 to the venture that is the subject of a notifica4 tion under subsection (a)(1) as of the earlier

5 of—

6 (i) the date of the publication in the

7 Federal Register of the notice published

8 with respect to the notification; or

9 (ii) if such notice is not published dur10 ing the period required under subsection

11 (a)(4), the expiration of the 30-day period

12 that begins on the date the Attorney Gen13 eral receives any necessary information re14 quired to be submitted under subsection

15 (a)(1) or any additional information re16 quired by the Attorney General under sub17 section (a)(3)(A).

18 (2) APPLICABILITY OF RULE OF REASON

19 STANDARD.—In any action under the antitrust laws,

20 the conduct of any person which is within the scope

21 of a notification filed under subsection (a) shall not

22 be deemed illegal per se, but shall be judged on the

23 basis of its reasonableness, taking into account all

24 relevant factors affecting competition, including, but
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1 not limited to, effects on competition in relevant

2 markets.

3 (3) LIMITATION ON RECOVERY TO ACTUAL

4 DAMAGES AND INTEREST.—Notwithstanding section

5 4 of the Clayton Act, any person who is entitled to

6 recovery under the antitrust laws for conduct that is

7 within the scope of a notification filed under sub8 section (a) shall recover the actual damages sus9 tained by such person and interest calculated at the

10 rate specified in section 1961 of title 28, United

11 States Code, for the period beginning on the earliest

12 date for which injury can be established and ending

13 on the date of judgment, unless the court finds that

14 the award of all or part of such interest is unjust

15 under the circumstances.

16 (4) AWARD OF ATTORNEY’S FEES AND COSTS

17 OF SUIT.—

18 (A) IN GENERAL.—In any action under the

19 antitrust laws brought against a health care co20 operative venture for conduct that is within the

21 scope of a notification filed under subsection

22 (a), the court shall, at the conclusion of the ac23 tion—

24 (i) award to a substantially prevailing

25 claimant the cost of suit attributable to
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1 such claim, including a reasonable attor2 ney’s fee, or

3 (ii) award to a substantially prevailing

4 party defending against such claim the

5 cost of such suit attributable to such claim,

6 including reasonable attorney’s fee, if the

7 claim, or the claimant’s conduct during

8 litigation of the claim, was frivolous, un9 reasonable, without foundation, or in bad

10 faith.

11 (B) OFFSET IN CASES OF BAD FAITH.—

12 The court may reduce an award made pursuant

13 to subparagraph (A) in whole or in part by an

14 award in favor of another party for any part of

15 the cost of suit (including a reasonable attor16 ney’s fee) attributable to conduct during the

17 litigation by any prevailing party that the court

18 finds to be frivolous, unreasonable, without

19 foundation, or in bad faith.

20 (5) RESTRICTIONS ON ADMISSIBILITY OF IN21 FORMATION.—

22 (A) IN GENERAL.—Any information dis23 closed in a notification submitted under sub24 section (a)(1) and the fact of the publication of

25 a notification by the Attorney General under
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1 subsection (a)(4) shall only be admissible into

2 evidence in a judicial or administrative proceed3 ing for the sole purpose of establishing that a

4 party to a health care cooperative venture is en5 titled to the protections described in this sub6 section.

7 (B) ACTIONS OF ATTORNEY GENERAL.—

8 No action taken by the Attorney General pursu9 ant to this section shall be admissible into evi10 dence in any judicial or administrative proceed11 ing for the purpose of supporting or answering

12 any claim under the antitrust laws.

13 SEC. 456. REVIEW AND REPORTS ON SAFE HARBORS AND

14 CERTIFICATES OF REVIEW.

15 (a) IN GENERAL.—The Attorney General (in con16 sultation with the Secretary and the Chair) shall periodi17 cally review the safe harbors described in section 452, the

18 additional safe harbors designated under section 453, and

19 the certificates of review issued under section 454, and—

20 (1) with respect to the safe harbors described in

21 section 452, submit such recommendations to Con22 gress as the Attorney General considers appropriate

23 for modifications of such safe harbors;

24 (2) with respect to the additional safe harbors

25 under designated under section 453, issue proposed
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1 revisions to such activities and publish the revisions

2 in the Federal Register; and

3 (3) with respect to the certificates of review,

4 submit a report to Congress on the issuance of such

5 certificates, and shall include in the report a descrip6 tion of the effect of such certificates on increasing

7 access to high quality health care services at reduced

8 costs.

9 (b) RECOMMENDATIONS FOR LEGISLATION.—The

10 Attorney General shall include in the reports submitted

11 under subsection (a)(3) any recommendations of the At12 torney General for legislation to improve the program for

13 the issuance of certificates of review established under this

14 subtitle.

15 SEC. 457. RULES, REGULATIONS, AND GUIDELINES.

16 (a) SAFE HARBORS, CERTIFICATES, AND NOTIFICA17 TIONS.—The Attorney General, with the concurrence of

18 the Secretary, shall promulgate such rules, regulations,

19 and guidelines as are necessary to carry out sections 452,

20 453, 454, and 455, including guidelines defining or relat21 ing to relevant geographic and product markets for health

22 care services and providers of health care services.

23 (b) GUIDANCE FOR PROVIDERS.—

24 (1) IN GENERAL.—To promote greater cer25 tainty regarding the application of the antitrust laws
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1 to activities in the health care market, the Attorney

2 General, in consultation with the Secretary and the

3 Chair, shall (not later than 1 year after the date of

4 the enactment of this Act), taking into account the

5 criteria used to designate additional safe harbors

6 under section 453 and grant certificates of review

7 under section 454, publish guidelines—

8 (A) to assist providers of health care serv9 ices in analyzing whether the activities of such

10 providers may be subject to a safe harbor under

11 sections 452 or 453; and

12 (B) describing specific types of activities

13 which would meet the requirements for a cer14 tificate of review under section 454, and sum15 marizing the factual and legal bases on which

16 the activities would meet the requirements.

17 (2) PERIODIC UPDATE.—The Attorney General

18 shall periodically update the guidelines published

19 under paragraph (1) as the Attorney General consid20 ers appropriate.

21 (3) WAIVER OF ADMINISTRATIVE PROCEDURE

22 ACT.—Section 553 of title 5, United States Code,

23 shall not apply to the issuance of guidelines under

24 paragraph (1).
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1 SEC. 458. ESTABLISHMENT OF HHS OFFICE OF HEALTH

2 CARE COMPETITION POLICY.

3 (a) IN GENERAL.—There is established within the

4 Department of Health and Human Services an Office to

5 be known as the Office of Health Care Competition Policy

6 (hereafter in this section referred to as the ‘‘Office’’). The

7 Office shall be headed by a director, who shall be ap8 pointed by the Secretary.

9 (b) DUTIES.—The Office shall coordinate the respon10 sibilities of the Secretary under this subtitle and otherwise

11 assist the Secretary in developing policies relating to the

12 competitive and collaborative activities of providers of

13 health care services.

14 SEC. 459. DEFINITIONS.

15 In this subtitle, the following definitions shall apply:

16 (1) The term ‘‘antitrust laws’’—

17 (A) has the meaning given it in subsection

18 (a) of the first section of the Clayton Act (15

19 U.S.C. 12(a)), except that such term includes

20 section 5 of the Federal Trade Commission Act

21 (15 U.S.C. 45) to the extent such section ap22 plies to unfair methods of competition; and

23 (B) includes any State law similar to the

24 laws referred to in subparagraph (A).

25 (2) The term ‘‘Chair’’ means the Chair of the

26 Federal Trade Commission.
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1 (3) The term ‘‘health care cooperative venture’’

2 means any activities, including attempts to enter

3 into or perform a contract or agreement, carried out

4 by 2 or more persons for the purpose of providing

5 health care services.

6 (4) The term ‘‘health care services’’ means any

7 services for which payment may be made under a

8 health plan, including services related to the delivery

9 or administration of such services.

10 (5) The term ‘‘medical self-regulatory entity’’

11 means a medical society or association, a specialty

12 board, a recognized accrediting agency, or a hospital

13 medical staff, and includes the members, officers,

14 employees, consultants, and volunteers or commit15 tees of such an entity.

16 (6) The term ‘‘person’’ includes a State or unit

17 of local government.

18 (7) The term ‘‘provider of health care services’’

19 means any individual or entity that is engaged in the

20 delivery of health care services in a State and that

21 is required by State law or regulation to be licensed

22 or certified by the State to engage in the delivery of

23 such services in the State.

24 (8) The term ‘‘specialty group’’ means a medi25 cal specialty or subspecialty in which a provider of
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1 health care services may be licensed to practice by

2 a State (as determined by the Secretary in consulta3 tion with the certification boards for such specialties

4 and subspecialties).

5 (9) The term ‘‘standard setting and enforce6 ment activities’’ means—

7 (A) accreditation of health care practition8 ers, health care providers, medical education in9 stitutions, or medical education programs,

10 (B) technology assessment and risk man11 agement activities,

12 (C) the development and implementation of

13 practice guidelines or practice parameters, or

14 (D) official peer review proceedings under15 taken by a hospital medical staff (or committee

16 thereof) or a medical society or association for

17 purposes of evaluating the professional conduct

18 or quality of health care provided by a medical

19 professional.
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1 TITLE V—SPECIAL ASSISTANCE

2 FOR FRONTIER, RURAL, AND

3 URBAN UNDERSERVED AREAS

4 Subtitle A—Frontier, Rural, and

5 Urban Underserved Areas

6 SEC. 501. ESTABLISHMENT OF PROGRAM TO MAKE COMMU7 NITY-BASED PRIMARY HEALTH GRANTS AND

8 HEALTH SERVICE ACCESS GRANTS FOR FED9 ERALLY-QUALIFIED HEALTH CENTERS.

10 (a) IN GENERAL.—Subpart I of part D of title III

11 of the Public Health Service Act (42 U.S.C. 254b et seq.)

12 is amended by adding at the end the following new section:

13 ‘‘SEC. 330A. GRANTS FOR EXPANDED ACCESS TO PRIMARY

14 HEALTH SERVICES.

15 ‘‘(a) COMMUNITY-BASED PRIMARY HEALTH CARE

16 GRANT PROGRAM.—

17 ‘‘(1) ESTABLISHMENT.—The Secretary shall es18 tablish and administer a program to provide allot19 ments to states to enable such states to provide

20 grants for the creation or enhancement of commu21 nity-based primary health care entities that provide

22 services to low-income or medically underserved

23 populations.

24 ‘‘(2) ALLOTMENTS TO STATES.—
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1 ‘‘(A) IN GENERAL.—From the amount

2 available for allotment under subsection (c) for

3 a fiscal year, the Secretary shall allot to each

4 State an amount equal to the product of the

5 grant share of the State (as determined under

6 subparagraph (B)) multiplied by such amount

7 available.

8 ‘‘(B) GRANT SHARE.—

9 ‘‘(i) IN GENERAL.—For purposes of

10 subparagraph (A), the grant share of a

11 State shall be the product of the need-ad12 justed population of the State (as deter13 mined under clause (ii)) multiplied by the

14 Federal matching percentage of the State

15 (as determined under clause (iii)), ex16 pressed as a percentage of the sum of the

17 products of such factors for all States.

18 ‘‘(ii) NEED-ADJUSTED POPULATION.—

19 ‘‘(I) IN GENERAL.—For purposes

20 of clause (i), the need-adjusted popu21 lation of a State shall be the product

22 of the total population of the State

23 (as estimated by the Secretary of

24 Commerce) multiplied by the need
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1 index of the State (as determined

2 under subclause (B)).

3 ‘‘(II) NEED INDEX.—For pur4 poses of subclause (I), the need index

5 of a State shall be the ratio of—

6 ‘‘(aa) the weighted sum of

7 the geographic percentage of the

8 State (as determined under

9 subclause (III)), the poverty per10 centage of the State (as deter11 mined under subclause (IV)), and

12 the multiple grant percentage of

13 the State (as determined under

14 subclause (V)); to

15 ‘‘(bb) the general population

16 percentage of the State (as deter17 mined under subclause (VI)).

18 ‘‘(III) GEOGRAPHIC PERCENT19 AGE.—For purposes of subclause

20 (II)(a), the geographic percentage of

21 the State shall be the estimated popu22 lation of the State that is residing in

23 nonurbanized areas expressed as a

24 percentage of the total nonurbanized

25 population of all States. For purposes
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1 of the preceding sentence, the esti2 mated population of the State that is

3 residing in nonurbanized areas shall

4 be one minus the urbanized popu5 lation of the State (as determined

6 using the most recent decennial cen7 sus), expressed as a percentage of the

8 total population of the State (as de9 termined using the most recent decen10 nial census), multiplied by the current

11 estimated population of the State.

12 ‘‘(IV) POVERTY PERCENTAGE.—

13 For purposes of subclause (II)(aa),

14 the poverty percentage of the State

15 shall be the estimated number of peo16 ple residing in the State with incomes

17 below 160 percent of the income offi18 cial poverty line (as adjusted for ac19 tual costs and incomes in each State

20 and as determined by the Office of

21 Management and Budget) expressed

22 as a percentage of the total number of

23 such people residing in all States.

24 ‘‘(V) MULTIPLE GRANT PER25 CENTAGE.—For purposes of subclause
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1 (II)(aa), the multiple grant percentage

2 of the State shall be the amount of

3 Federal funding received by the State

4 under grants awarded under sections

5 329, 330, and 340, expressed as a

6 percentage of the total amounts re7 ceived under such grants by all

8 States. With respect to a State, such

9 percentage shall not exceed twice the

10 general population percentage of the

11 State under subclause (VI) or be less

12 than one-half of the States general

13 population percentage.

14 ‘‘(VI) GENERAL POPULATION

15 PERCENTAGE.—For purposes of

16 subclause (II)(bb), the general popu17 lation percentage of the State shall be

18 the total population of the State (as

19 determined by the Secretary of Com20 merce) expressed as a percentage of

21 the total population of all States.

22 ‘‘(iii) FEDERAL MATCHING PERCENT23 AGE.—

24 ‘‘(I) IN GENERAL.—For purposes

25 of clause (i), the Federal matching
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1 percentage of the State shall be equal

2 to one, less the State matching per3 centage (as determined under

4 subclause (B)).

5 ‘‘(II) STATE MATCHING PER6 CENTAGE.—For purposes of clause

7 (i), the State matching percentage of

8 the State shall be 0.50 multiplied by

9 the ratio of the total taxable resource

10 percentage (as determined under

11 subclause (III)) to the need-adjusted

12 population of the State (as determined

13 under clause (ii)).

14 ‘‘(III) TOTAL TAXABLE RE15 SOURCE PERCENTAGE.—For purposes

16 of subclause (II), the total taxable re17 sources percentage of the State shall

18 be the total taxable resources of a

19 State (as determined by the Secretary

20 of the Treasury) expressed as a per21 centage of the sum of the total tax22 able resources of all States.

23 ‘‘(C) ANNUAL ESTIMATES.—

24 ‘‘(i) IN GENERAL.—If the Secretary of

25 Commerce does not produce the annual es-
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1 timates required under subparagraph

2 (B)(ii)(IV), such estimates shall be deter3 mined by multiplying the percentage of the

4 population of the State that is below 160

5 percent of the income official poverty line

6 as determined using the most recent decen7 nial census by the most recent estimate of

8 the total population of the State. Except as

9 provided in clause (ii), the calculations re10 quired under this clause shall be made

11 based on the most recent 3-year average of

12 the total taxable resources of individuals

13 within the State.

14 ‘‘(ii) DISTRICT OF COLUMBIA.—Not15 withstanding clause (i), the calculations re16 quired under such clause with respect to

17 the District of Columbia shall be based on

18 the most recent 3-year average of the per19 sonal income of individuals residing within

20 the District as a percentage of the personal

21 income for all individuals residing within

22 the District, as determined by the Sec23 retary of Commerce.

24 ‘‘(iii) STATE OF ALASKA.—Notwith25 standing clause (i), the calculations re-
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1 quired under such clause with respect to

2 the State of Alaska shall be based on the

3 quotient of—

4 ‘‘(I) the most recent 3-year aver5 age of the per capita income of indi6 viduals residing in the State; divided

7 by

8 ‘‘(II) 1.25.

9 ‘‘(D) MATCHING REQUIREMENT.—A State

10 that receives an allotment under this subsection

11 shall make available State resources (either di12 rectly or indirectly) to carry out this subsection

13 in an amount that shall equal the State match14 ing percentage for the State (as determined

15 under subparagraph (B)(iii)(II)) divided by the

16 Federal matching percentage (as determined

17 under subparagraph (B)(iii)).

18 ‘‘(3) APPLICATION.—

19 ‘‘(A) IN GENERAL.—To be eligible to re20 ceive an allotment under this subsection, a

21 State shall prepare and submit an application

22 to the Secretary at such time, in such manner,

23 and containing such information as the Sec24 retary may by regulation require.
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1 ‘‘(B) ASSURANCES.—A State application

2 submitted under subparagraph (A) shall contain

3 an assurance that—

4 ‘‘(i) the State will use amounts re5 ceived under its allotment consistent with

6 the requirements of this subsection; and

7 ‘‘(ii) the State will provide, from non8 Federal sources, the amounts required

9 under paragraph (2)(D).

10 ‘‘(4) USE OF FUNDS.—

11 ‘‘(A) IN GENERAL.—The State shall use

12 amounts received under this subsection to

13 award grants to eligible public and nonprofit

14 private entities, or consortia of such entities,

15 within the State to enable such entities or con16 sortia to provide services of the type described

17 in paragraph (2) of section 329(h) to low-in18 come or medically underserved populations.

19 ‘‘(B) ELIGIBILITY.—To be eligible to re20 ceive a grant under subparagraph (A), an entity

21 or consortium shall—

22 ‘‘(i) prepare and submit to the admin23 istering entity of the State, an application

24 at such time, in such manner, and contain25 ing such information as such administering
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1 entity may require, including a plan for the

2 provision of services of the type described

3 in subparagraph (C);

4 ‘‘(ii) provide assurances that services

5 will be provided under the grant at fee

6 rates established or determined in accord7 ance with section 330(e)(3)(F); and

8 ‘‘(iii) provide assurances that in the

9 case of services provided to individuals

10 with health insurance, such insurance shall

11 be used as the primary source of payment

12 for such services.

13 ‘‘(C) SERVICES.—The services to be pro14 vided under a grant awarded under subpara15 graph (A) shall include—

16 ‘‘(i) one or more of the types of pri17 mary health services described in section

18 330(b)(1);

19 ‘‘(ii) one or more of the types of sup20 plemental health services described in sec21 tion 330(b)(2); and

22 ‘‘(iii) any other services determined

23 appropriate by the administering entity of

24 the State.
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1 ‘‘(D) TARGET POPULATIONS.—Entities or

2 consortia receiving grants under subparagraph

3 (A) shall, in providing the services described in

4 subparagraph (C), substantially target popu5 lations of low-income or medically underserved

6 populations within the State who reside in

7 medically underserved or health professional

8 shortage areas, areas certified as underserved

9 under the rural health clinic program, or other

10 areas determined appropriate by the admin11 istering entity of the State, within the State.

12 ‘‘(E) PRIORITY.—In awarding grants

13 under subparagraph (A), the State shall—

14 ‘‘(i) give priority to entities or consor15 tia that can demonstrate through the plan

16 submitted under subparagraph (B) that—

17 ‘‘(I) the services provided under

18 the grant will expand the availability

19 of primary care services to the maxi20 mum number of low-income or medi21 cally underserved populations who

22 have no access to such care on the

23 date of the grant award; and
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1 ‘‘(II) the delivery of services

2 under the grant will be cost-effective;

3 and

4 ‘‘(ii) ensure that an equitable distribu5 tion of funds is achieved among urban and

6 rural entities or consortia.

7 ‘‘(5) REPORTS AND AUDITS.—Each State shall

8 prepare and submit to the Secretary annual reports

9 concerning the State’s activities under this sub10 section which shall be in such form and contain such

11 information as the Secretary determines appropriate.

12 Each such State shall establish fiscal control and

13 fund accounting procedures as may be necessary to

14 assure that amounts received under this subsection

15 are being disbursed properly and are accounted for,

16 and include the results of audits conducted under

17 such procedures in the reports submitted under this

18 paragraph.

19 ‘‘(6) PAYMENTS.—

20 ‘‘(A) ELIGIBILITY.—Each State for which

21 an application has been approved by the Sec22 retary under this subsection shall be eligible to

23 receive payments under this subsection for each

24 fiscal year in an amount not to exceed the

25 State’s allotment under paragraph (2) to be ex-
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1 pended by the State in accordance with the

2 terms of the application for the fiscal year for

3 which the allotment is to be made.

4 ‘‘(B) METHOD OF PAYMENTS.—The Sec5 retary may make payments to a State in install6 ments, and in advance or by way of reimburse7 ment, with necessary adjustments on account of

8 overpayments or underpayments, as the Sec9 retary may determine.

10 ‘‘(C) STATE SPENDING OF PAYMENTS.—

11 Payments to a State from the allotment under

12 paragraph (2) for any fiscal year must be ex13 pended by the State in that fiscal year or in the

14 succeeding fiscal year.

15 ‘‘(7) DEFINITION.—As used in this subsection,

16 the term ‘administering entity of the State’ means

17 the agency or official designated by the chief execu18 tive officer of the State to administer the amounts

19 provided to the State under this section.

20 ‘‘(b) HEALTH SERVICES ACCESS GRANTS.—

21 ‘‘(1) ESTABLISHMENT OF PROGRAM.—From

22 amounts appropriated under this subsection, the

23 Secretary shall, acting through the Bureau of

24 Health Care Delivery Assistance, award grants

25 under this subsection to Federally Qualified Health
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1 Centers (hereinafter referred to in this subsection as

2 ‘FQHC’s’) and other entities and organizations sub3 mitting applications under this subsection (as de4 scribed in paragraph (3)) for the purpose of provid5 ing access to services for medically underserved pop6 ulations (as defined in section 330(b)(3)) or in high

7 impact areas (as defined in section 329(a)(5)) not

8 currently being served by a FQHC.

9 ‘‘(2) ELIGIBILITY FOR GRANTS.—

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

11 award grants under this subsection to entities

12 or organizations described in this subparagraph

13 and subparagraph (B) which have submitted a

14 proposal to the Secretary to expand such enti15 ties or organizations operations (including ex16 pansions to new sites (as determined necessary

17 by the Secretary)) to serve medically under18 served populations or high impact areas not

19 currently served by a FQHC and which—

20 ‘‘(i) have as of January 1, 1991, been

21 certified by the Secretary as a FQHC

22 under section 1905(l)(2)(B) of the Social

23 Security Act; or
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1 ‘‘(ii) have submitted applications to

2 the Secretary to qualify as FQHC’s under

3 such section 1905(l)(2)(B); or

4 ‘‘(iii) have submitted a plan to the

5 Secretary which provides that the entity

6 will meet the requirements to qualify as a

7 FQHC when operational.

8 ‘‘(B) NON FQHC ENTITIES.—

9 ‘‘(i) ELIGIBILITY.—The Secretary

10 shall also make grants under this sub11 section to public or private nonprofit agen12 cies, health care entities or organizations

13 which meet the requirements necessary to

14 qualify as a FQHC except, the requirement

15 that such entity have a consumer majority

16 governing board and which have submitted

17 a proposal to the Secretary to provide

18 those services provided by a FQHC as de19 fined in section 1905(l)(2)(B) of the Social

20 Security Act and which are designed to

21 promote access to primary care services or

22 to reduce reliance on hospital emergency

23 rooms or other high cost providers of pri24 mary health care services, provided such

25 proposal is developed by the entity or orga-
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1 nizations (or such entities or organizations

2 acting in a consortium in a community)

3 with the review and approval of the Gov4 ernor of the State in which such entity or

5 organization is located.

6 ‘‘(ii) LIMITATION.—The Secretary

7 shall provide in making grants to entities

8 or organizations described in this subpara9 graph that no more than 10 percent of the

10 funds provided for grants under this sub11 section shall be made available for grants

12 to such entities or organizations.

13 ‘‘(3) APPLICATION REQUIREMENTS.—

14 ‘‘(A) IN GENERAL.—In order to be eligible

15 to receive a grant under this subsection, a

16 FQHC or other entity or organization must

17 submit an application in such form and at such

18 time as the Secretary shall prescribe and which

19 meets the requirements of this paragraph.

20 ‘‘(B) REQUIREMENTS.—An application

21 submitted under this subsection must provide—

22 ‘‘(i)(I) for a schedule of fees or pay23 ments for the provision of the services pro24 vided by the entity designed to cover its

25 reasonable costs of operations; and
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1 ‘‘(II) for a corresponding schedule of

2 discounts to be applied to such fees or pay3 ments, based upon the patient’s ability to

4 pay (determined by using a sliding scale

5 formula based on the income of the

6 patient);

7 ‘‘(ii) assurances that the entity or or8 ganization provides services to persons who

9 are eligible for benefits under title XVIII

10 of the Social Security Act, for medical as11 sistance under title XIX of such Act or for

12 assistance for medical expenses under any

13 other public assistance program or private

14 health insurance program; and

15 ‘‘(iii) assurances that the entity or or16 ganization has made and will continue to

17 make every reasonable effort to collect re18 imbursement for services—

19 ‘‘(I) from persons eligible for as20 sistance under any of the programs

21 described in clause (ii); and

22 ‘‘(II) from patients not entitled

23 to benefits under any such programs.

24 ‘‘(4) LIMITATIONS ON USE OF FUNDS.—
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1 ‘‘(A) IN GENERAL.—From the amounts

2 awarded to an entity or organization under this

3 subsection, funds may be used for purposes of

4 planning but may only be expended for the

5 costs of—

6 ‘‘(i) assessing the needs of the popu7 lations or proposed areas to be served;

8 ‘‘(ii) preparing a description of how

9 the needs identified will be met; and

10 ‘‘(iii) development of an implementa11 tion plan that addresses—

12 ‘‘(I) recruitment and training of

13 personnel; and

14 ‘‘(II) activities necessary to

15 achieve operational status in order to

16 meet FQHC requirements under

17 1905(l)(2)(B) of the Social Security

18 Act.

19 ‘‘(B) RECRUITING, TRAINING AND COM20 PENSATION OF STAFF.—From the amounts

21 awarded to an entity or organization under this

22 subsection, funds may be used for the purposes

23 of paying for the costs of recruiting, training

24 and compensating staff (clinical and associated

25 administrative personnel (to the extent such
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1 costs are not already reimbursed under title

2 XIX of the Social Security Act or any other

3 State or Federal program)) to the extent nec4 essary to allow the entity to operate at new or

5 expended existing sites.

6 ‘‘(C) FACILITIES AND EQUIPMENT.—From

7 the amounts awarded to an entity or organiza8 tion under this subsection, funds may be ex9 pended for the purposes of acquiring facilities

10 and equipment but only for the cost of—

11 ‘‘(i) construction of new buildings (to

12 the extent that new construction is found

13 to be the most cost-efficient approach by

14 the Secretary);

15 ‘‘(ii) acquiring, expanding, and mod16 ernizing of existing facilities;

17 ‘‘(iii) purchasing essential (as deter18 mined by the Secretary) equipment; and

19 ‘‘(iv) amortization of principal and

20 payment of interest on loans obtained for

21 purposes of site construction, acquisition,

22 modernization, or expansion, as well as

23 necessary equipment.

24 ‘‘(D) SERVICES.—From the amounts

25 awarded to an entity or organization under this
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1 subsection, funds may be expanded for the pay2 ment of services but only for the costs of—

3 ‘‘(i) providing or arranging for the

4 provision of all services through the entity

5 necessary to qualify such entity as a

6 FQHC under section 1905(l)(2)(B) of the

7 Social Security Act;

8 ‘‘(ii) providing or arranging for any

9 other service that a FQHC may provide

10 and be reimbursed for under title XIX of

11 such Act; and

12 ‘‘(iii) providing any unreimbursed

13 costs of providing services as described in

14 section 330(a) to patients.

15 ‘‘(5) PRIORITIES IN THE AWARDING OF

16 GRANTS.—

17 ‘‘(A) CERTIFIED FQHC’s.—The Secretary

18 shall give priority in awarding grants under this

19 subsection to entities which have, as of January

20 1, 1991, been certified as a FQHC under sec21 tion 1905(l)(2)(B) of the Social Security Act

22 and which have submitted a proposal to the

23 Secretary to expand their operations (including

24 expansion to new sites) to serve medically un25 derserved populations for high impact areas not
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1 currently served by a FQHC. The Secretary

2 shall give first priority in awarding grants

3 under this subsection to those FQHCs or other

4 entities which propose to serve populations with

5 the highest degree of unmet need, and which

6 can demonstrate the ability to expand their op7 erations in the most efficient manner.

8 ‘‘(B) QUALIFIED FQHC’s.—The Secretary

9 shall give second priority in awarding grants to

10 entities which have submitted applications to

11 the Secretary which demonstrate that the entity

12 will qualify as a FQHC under section

13 1905(l)(2)(B) of the Social Security Act before

14 it provides or arranges for the provision of serv15 ices supported by funds awarded under this

16 subsection, and which are serving or proposing

17 to serve medically underserved populations or

18 high impact areas which are not currently

19 served (or proposed to be served) by a FQHC.

20 ‘‘(C) EXPANDED SERVICES AND

21 PROJECTS.—The Secretary shall give third pri22 ority in awarding grants in subsequent years to

23 those FQHCs or other entities which have pro24 vided for expanded services and project and are

25 able to demonstrate that such entity will incur
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1 significant unreimbursed costs in providing

2 such expanded services.

3 ‘‘(6) RETURN OF FUNDS TO SECRETARY FOR

4 COSTS REIMBURSED FROM OTHER SOURCES.—To

5 the extent that an entity or organization receiving

6 funds under this subsection is reimbursed from an7 other source for the provision of services to an indi8 vidual, and does not use such increased reimburse9 ment to expand services furnished, areas served, to

10 compensate for costs of unreimbursed services pro11 vided to patients, or to promote recruitment, train12 ing, or retention of personnel, such excess revenues

13 shall be returned to the Secretary.

14 ‘‘(7) TERMINATION OF GRANTS.—

15 ‘‘(A) FAILURE TO MEET FQHC REQUIRE16 MENTS.—

17 ‘‘(A) IN GENERAL.—With respect to

18 any entity that is receiving funds awarded

19 under this subsection and which subse20 quently fails to meet the requirements to

21 qualify as a FQHC under section

22 1905(l)(2)(B) or is an entity that is not

23 required to meet the requirements to qual24 ify as a FQHC under section

25 1905(l)(2)(B) of the Social Security Act
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1 but fails to meet the requirements of this

2 subsection, the Secretary shall terminate

3 the award of funds under this subsection

4 to such entity.

5 ‘‘(ii) NOTICE.—Prior to any termi6 nation of funds under this subsection to an

7 entity, the entities shall be entitled to 60

8 days prior notice of termination and, as

9 provided by the Secretary in regulations,

10 an opportunity to correct any deficiencies

11 in order to allow the entity to continue to

12 receive funds under this subsection.

13 ‘‘(B) REQUIREMENTS.—Upon any termi14 nation of funding under this subsection, the

15 Secretary may (to the extent practicable)—

16 ‘‘(i) sell any property (including

17 equipment) acquired or constructed by the

18 entity using funds made available under

19 this subsection or transfer such property to

20 another FQHC, provided, that the Sec21 retary shall reimburse any costs which

22 were incurred by the entity in acquiring or

23 constructing such property (including

24 equipment) which were not supported by

25 grants under this subsection; and
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1 ‘‘(ii) recoup any funds provided to an

2 entity terminated under this subsection.

3 ‘‘(c) AUTHORIZATION OF APPROPRIATIONS; ALLOCA4 TION AMONG PROGRAMS.—

5 ‘‘(1) AUTHORIZATION.—There are authorized to

6 be appropriated to carry out this section,

7 $400,000,000 for fiscal year 1995, $800,000,000 for

8 fiscal year 1996, $1,200,000,000 for fiscal year

9 1997, $1,600,000,000 for fiscal year 1998, and

10 $1,600,000,000 for fiscal year 1999.

11 ‘‘(2) ALLOCATION.—Of the amounts appro12 priated pursuant to the authorization described in

13 paragraph (1) to carry out this section in a fiscal

14 year, 50 percent shall be allocated for grants under

15 subsection (a) and 50 percent shall be allocated for

16 grants under subsection (b).’’.

17 (b) STUDY AND REPORT ON SERVICES PROVIDED BY

18 COMMUNITY HEALTH CENTERS AND HOSPITALS.—

19 (1) IN GENERAL.—The Secretary of Health and

20 Human Services (hereinafter referred to in this sub21 section as the ‘‘Secretary’’) shall provide for a study

22 to examine the relationship and interaction between

23 community health centers and hospitals in providing

24 services to individuals residing in medically under25 served areas. The Secretary shall ensure that the
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1 National Rural Research Centers participate in such

2 study.

3 (2) REPORT.—The Secretary shall provide to

4 the appropriate committees of Congress a report

5 summarizing the findings of the study within 90

6 days of the end of each project year and shall in7 clude in such report recommendations on methods to

8 improve the coordination of and provision of services

9 in medically underserved areas by community health

10 centers and hospitals.

11 (3) AUTHORIZATION.—There are authorized to

12 be appropriated to carry out the study provided for

13 in this subsection $150,000 for each of fiscal years

14 1995 and 1996.

15 SEC. 502. TAX INCENTIVES FOR PRACTICE IN FRONTIER,

16 RURAL, AND URBAN UNDERSERVED AREAS.

17 (a) NONREFUNDABLE CREDIT FOR CERTAIN PRI18 MARY HEALTH SERVICES PROVIDERS.—

19 (1) IN GENERAL.—Subpart A of part IV of sub20 chapter A of chapter 1 of the Internal Revenue Code

21 of 1986 (relating to nonrefundable personal credits)

22 is amended by inserting after section 25 the follow23 ing new section:
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1 ‘‘SEC. 25A. PRIMARY HEALTH SERVICES PROVIDERS.

2 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of a

3 qualified primary health services provider, there is allowed

4 as a credit against the tax imposed by this chapter for

5 any taxable year in a mandatory service period an amount

6 equal to the product of—

7 ‘‘(1) the lesser of—

8 ‘‘(A) the number of months of such period

9 occurring in such taxable year, or

10 ‘‘(B) 36 months, reduced by the number of

11 months taken into account under this para12 graph with respect to such provider for all pre13 ceding taxable years (whether or not in the

14 same mandatory service period), multiplied by

15 ‘‘(2) $1,000 ($500 in the case of a qualified

16 primary health services provider who is a physician

17 assistant or a nurse practitioner).

18 ‘‘(b) QUALIFIED PRIMARY HEALTH SERVICES PRO19 VIDER.—For purposes of this section, the term ‘qualified

20 primary health services provider’ means any physician,

21 physician assistant, or nurse practitioner who for any

22 month during a mandatory service period is certified by

23 the Bureau to be a primary health services provider who—

24 ‘‘(1) is providing primary health services—

25 ‘‘(A) full time, and
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1 ‘‘(B) to individuals at least 80 percent of

2 whom reside in a health professional shortage

3 area (as defined in subsection (d)(2)),

4 ‘‘(2) is not receiving during such year a scholar5 ship under the National Health Service Corps Schol6 arship Program or a loan repayment under the

7 National Health Service Corps Loan Repayment

8 Program,

9 ‘‘(3) is not fulfilling service obligations under

10 such Programs, and

11 ‘‘(4) has not defaulted on such obligations.

12 ‘‘(c) MANDATORY SERVICE PERIOD.—For purposes

13 of this section, the term ‘mandatory service period’ means

14 the period of 60 consecutive calendar months beginning

15 with the first month the taxpayer is a qualified primary

16 health services provider.

17 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur18 poses of this section—

19 ‘‘(1) BUREAU.—The term ‘Bureau’ means the

20 Bureau of Health Care Delivery and Assistance,

21 Health Resources and Services Administration of the

22 United States Public Health Service.

23 ‘‘(2) HEALTH PROFESSIONAL SHORTAGE

24 AREA.—The term ‘health professional shortage area’

25 means—
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1 ‘‘(A) a geographic area in which there are

2 6 or fewer individuals residing per square mile,

3 ‘‘(B) a health professional shortage area

4 (as defined in section 332(a)(1)(A) of the Pub5 lic Health Service Act),

6 ‘‘(C) an area which is determined by the

7 Secretary of Health and Human Services as

8 equivalent to an area described in subparagraph

9 (A) and which is designated by the Bureau of

10 the Census as not urbanized, or

11 ‘‘(D) a community that is certified as un12 derserved by the Secretary for purposes of par13 ticipation in the rural health clinic program

14 under title XVIII of the Social Security Act.

15 ‘‘(3) PHYSICIAN.—The term ‘physician’ has the

16 meaning given to such term by section 1861(r) or

17 the Social Security Act.

18 ‘‘(4) PHYSICIAN ASSISTANT; NURSE PRACTI19 TIONER.—The terms ‘physician assistant’ and ‘nurse

20 practitioner’ have the meanings given to such terms

21 by section 1861(aa)(5) of the Social Security Act.

22 ‘‘(5) PRIMARY HEALTH SERVICES PROVIDER.—

23 The term ‘primary health services provider’ means a

24 provider of primary health services (as defined in

25 section 330(b)(1) of the Public Health Service Act).
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1 ‘‘(e) RECAPTURE OF CREDIT.—

2 ‘‘(1) IN GENERAL.—If, during any taxable year,

3 there is a recapture event, then the tax of the tax4 payer under this chapter for such taxable year shall

5 be increased by an amount equal to the product of—

6 ‘‘(A) the applicable percentage, and

7 ‘‘(B) the aggregate unrecaptured credits

8 allowed to such taxpayer under this section for

9 all prior taxable years.

10 ‘‘(2) APPLICABLE RECAPTURE PERCENTAGE.—

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

12 subsection, the applicable recapture percentage

13 shall be determined from the following table:

The applicable

‘‘If the recapture recapture

event occurs during: percentage is:

Months 1–24 .............................................. 100

Months 25–36 ............................................ 75

Months 37–48 ............................................ 50

Months 49–60 ............................................ 25

Months 61 and thereafter .......................... 0.

14 ‘‘(B) TIMING.—For purposes of subpara15 graph (A), month 1 shall begin on the first day

16 of the mandatory service period.

17 ‘‘(3) RECAPTURE EVENT DEFINED.—

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

19 subsection, the term ‘recapture event’ means

20 the failure of the taxpayer to be a qualified pri-
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1 mary health services provider for any month

2 during any mandatory service period.

3 ‘‘(B) CESSATION OF DESIGNATION.—The

4 cessation of the designation of any area as a

5 rural health professional shortage area after the

6 beginning of the mandatory service period for

7 any taxpayer shall not constitute a recapture

8 event.

9 ‘‘(C) SECRETARIAL WAIVER.—The Sec10 retary may waive any recapture event caused by

11 extraordinary circumstances.

12 ‘‘(4) NO CREDITS AGAINST TAX.—Any increase

13 in tax under this subsection shall not be treated as

14 a tax imposed by this chapter for purposes of deter15 mining the amount of any credit under subpart A,

16 B, or D of this part.’’.

17 (2) CLERICAL AMENDMENT.—The table of sec18 tions for subpart A of part IV of subchapter A of

19 chapter 1 of such Code is amended by inserting

20 after the item relating to section 25 the following

21 new item:

‘‘Sec. 25A. Primary health services providers.’’.

22 (3) EFFECTIVE DATE.—The amendments made

23 by this subsection shall apply to taxable years begin24 ning after the date of the enactment of this Act.
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1 (b) NATIONAL HEALTH SERVICE CORPS LOAN RE2 PAYMENTS EXCLUDED FROM GROSS INCOME.—

3 (1) IN GENERAL.—Part III of subchapter B of

4 chapter 1 of the Internal Revenue Code of 1986 (re5 lating to items specifically excluded from gross in6 come) is amended by redesignating section 137 as

7 section 138 and by inserting after section 136 the

8 following new section:

9 ‘‘SEC. 137. NATIONAL HEALTH SERVICE CORPS LOAN RE10 PAYMENTS.

11 ‘‘(a) GENERAL RULE.—Gross income shall not in12 clude any qualified loan repayment.

13 ‘‘(b) QUALIFIED LOAN REPAYMENT.—For purposes

14 of this section, the term ‘qualified loan repayment’ means

15 any payment made on behalf of the taxpayer by the Na16 tional Health Service Corps Loan Repayment Program

17 under section 338B(g) of the Public Health Service Act.’’.

18 (2) CONFORMING AMENDMENT.—Paragraph (3)

19 of section 338B(g) of the Public Health Service Act

20 is amended by striking ‘‘Federal, State, or local’’

21 and inserting ‘‘State or local’’.

22 (3) CLERICAL AMENDMENT.—The table of sec23 tions for part III of subchapter B of chapter 1 of

24 the Internal Revenue Code of 1986 is amended by
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1 striking the item relating to section 136 and insert2 ing the following:

‘‘Sec. 137. National Health Service Corps loan repayments.

‘‘Sec. 138. Cross references to other Acts.’’.

3 (4) EFFECTIVE DATE.—The amendments made

4 by this subsection shall apply to payments made

5 under section 338B(g) of the Public Health Service

6 Act after the date of the enactment of this Act.

7 (c) EXPENSING OF MEDICAL EQUIPMENT.—

8 (1) IN GENERAL.—Section 179 of the Internal

9 Revenue Code of 1986 (relating to election to ex10 pense certain depreciable business assets) is amend11 ed—

12 (A) by striking paragraph (1) of subsection

13 (b) and inserting the following:

14 ‘‘(1) DOLLAR LIMITATION.—

15 ‘‘(A) GENERAL RULE.—The aggregate cost

16 which may be taken into account under sub17 section (a) for any taxable year shall not exceed

18 $17,500.

19 ‘‘(B) RURAL HEALTH CARE PROPERTY.—

20 In the case of rural health care property, the

21 aggregate cost which may be taken into account

22 under subsection (a) for any taxable year shall

23 not exceed $32,500, reduced by the amount
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1 otherwise taken into account under subsection

2 (a) for such year.’’; and

3 (B) by adding at the end of subsection (d)

4 the following new paragraph:

5 ‘‘(11) RURAL HEALTH CARE PROPERTY.—For

6 purposes of this section, the term ‘rural health care

7 property’ means section 179 property—

8 ‘‘(A) which is medical equipment used in

9 the screening, monitoring, observation, diag10 nosis, or treatment of patients in a laboratory,

11 medical, or hospital environment,

12 ‘‘(B) which is owned (directly or indirectly)

13 and used by a physician (as defined in section

14 1861(r) of the Social Security Act) in the active

15 conduct of such physician’s full-time trade or

16 business of providing primary health services

17 (as defined in section 330(b)(1) of the Public

18 Health Service Act) in a rural health profes19 sional shortage area (as defined in section

20 25A(d)(5)), and

21 ‘‘(C) substantially all the use of which is in

22 such area.’’.

23 (2) EFFECTIVE DATE.—The amendments made

24 by this subsection shall apply to property placed in
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1 service in taxable years beginning after the date of

2 enactment of this Act.

3 (d) DEDUCTION FOR STUDENT LOAN PAYMENTS BY

4 MEDICAL PROFESSIONALS PRACTICING IN RURAL

5 AREAS.—

6 (1) INTEREST ON STUDENT LOANS NOT TREAT7 ED AS PERSONAL INTEREST.—Section 163(h)(2) of

8 the Internal Revenue Code of 1986 (defining per9 sonal interest) is amended by striking ‘‘and’’ at the

10 end of subparagraph (D), by striking the period at

11 the end of subparagraph (E) and inserting ‘‘, and’’,

12 and by adding at the end thereof the following new

13 subparagraph:

14 ‘‘(F) any qualified medical education interest

15 (within the meaning of subsection (k)).’’.

16 (2) QUALIFIED MEDICAL EDUCATION INTEREST

17 DEFINED.—Section 163 of such Code (relating to in18 terest expenses) is amended by redesignating sub19 section (k) as subsection (l) and by inserting after

20 subsection (j) the following new subsection:

21 ‘‘(k) QUALIFIED MEDICAL EDUCATION INTEREST OF

22 MEDICAL PROFESSIONALS PRACTICING IN RURAL

23 AREAS.—

24 ‘‘(1) IN GENERAL.—For purposes of subsection

25 (h)(2)(F), the term ‘qualified medical education in-
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1 terest’ means an amount which bears the same ratio

2 to the interest paid on qualified educational loans

3 during the taxable year by an individual performing

4 services under a qualified rural medical practice

5 agreement as—

6 ‘‘(A) the number of months during the tax7 able year during which such services were per8 formed, bears to

9 ‘‘(B) the number of months in the taxable

10 year.

11 ‘‘(2) DOLLAR LIMITATION.—The aggregate

12 amount which may be treated as qualified medical

13 education interest for any taxable year with respect

14 to an individual shall not exceed $5,000.

15 ‘‘(3) QUALIFIED RURAL MEDICAL PRACTICE

16 AGREEMENT.—For purposes of this subsection—

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

18 rural medical practice agreement’ means a writ19 ten agreement between an individual and an ap20 plicable rural community under which the indi21 vidual agrees—

22 ‘‘(i) in the case of a medical doctor,

23 upon completion of the individual’s resi24 dency (or internship if no residency is re25 quired), or
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1 ‘‘(ii) in the case of a registered nurse,

2 nurse practitioner, or physician’s assistant,

3 upon completion of the education to which

4 the qualified education loan relates, to per5 form full-time services as such a medical

6 professional in the applicable rural commu7 nity for a period of 24 consecutive months.

8 An individual and an applicable rural com9 munity may elect to have the agreement

10 apply for 36 consecutive months rather

11 than 24 months.

12 ‘‘(B) SPECIAL RULE FOR COMPUTING PE13 RIODS.—An individual shall be treated as meet14 ing the 24- or 36-consecutive month require15 ment under subparagraph (A) if, during each

16 12-consecutive month period within either such

17 period, the individual performs full-time services

18 as a medical doctor, registered nurse, nurse

19 practitioner, or physician’s assistant, whichever

20 applies, in the applicable rural community dur21 ing 9 of the months in such 12-consecutive

22 month period. For purposes of this subsection,

23 an individual meeting the requirements of the

24 preceding sentence shall be treated as perform25 ing services during the entire 12-month period.
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1 ‘‘(C) APPLICABLE RURAL COMMUNITY.—

2 The term ‘applicable rural community’ means—

3 ‘‘(i) any political subdivision of a

4 State which—

5 ‘‘(I) has a population of 5,000 or

6 less, and

7 ‘‘(II) has a per capita income of

8 $15,000 or less, or

9 ‘‘(ii) an Indian reservation which has

10 a per capita income of $15,000 or less.

11 ‘‘(4) QUALIFIED EDUCATIONAL LOAN.—The

12 term ‘qualified educational loan’ means any indebt13 edness to pay qualified higher education expenses

14 (within the meaning of section 135(c)(2)) and rea15 sonable living expenses—

16 ‘‘(A) which are paid or incurred—

17 ‘‘(i) as a candidate for a degree as a

18 medical doctor at an educational institu19 tion described in section 170(b)(1)(A)(ii),

20 or

21 ‘‘(ii) in connection with courses of in22 struction at such an institution necessary

23 for certification as a registered nurse,

24 nurse practitioner, or physician’s assistant,

25 and
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1 ‘‘(B) which are paid or incurred within a

2 reasonable time before or after such indebted3 ness is incurred.

4 ‘‘(5) RECAPTURE.—If an individual fails to

5 carry out a qualified rural medical practice agree6 ment during any taxable year, then—

7 ‘‘(A) no deduction with respect to such

8 agreement shall be allowable by reason of sub9 section (h)(2)(F) for such taxable year and any

10 subsequent taxable year, and

11 ‘‘(B) there shall be included in gross in12 come for such taxable year the aggregate

13 amount of the deductions allowable under this

14 section (by reason of subsection (h)(2)(F)) for

15 all preceding taxable years.

16 ‘‘(6) DEFINITIONS.—For purposes of this sub17 section, the terms ‘registered nurse’, ‘nurse practi18 tioner’, and ‘physician’s assistant’ have the meaning

19 given such terms by section 1861 of the Social Secu20 rity Act.’’.

21 (3) DEDUCTION ALLOWED IN COMPUTING AD22 JUSTED GROSS INCOME.—Section 62(a) of such

23 Code, as amended by sections 2002(c)(3) and

24 2003(b), is amended by inserting after paragraph

25 (17) the following new paragraph:
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1 ‘‘(18) INTEREST ON STUDENT LOANS OF RURAL

2 HEALTH PROFESSIONALS.—The deduction allowable

3 by reason of section 163(h)(2)(F) (relating to stu4 dent loan payments of medical professionals practic5 ing in rural areas).’’.

6 (4) EFFECTIVE DATE.—The amendments made

7 by this subsection shall apply to taxable years begin8 ning after the date of the enactment of this Act.

9 SEC. 503. RURAL EMERGENCY ACCESS CARE HOSPITALS.

10 (a) RURAL EMERGENCY ACCESS CARE HOSPITALS

11 DESCRIBED.—Section 1861 of the Social Security Act (42

12 U.S.C. 1395x) is amended by adding at the end the follow13 ing new subsection:

14 ‘‘Rural Emergency Access Care Hospital; Rural

15 Emergency Access Care Hospital Services

16 ‘‘(oo)(1) The term ‘rural emergency access care hos17 pital’ means, for a fiscal year, a facility with respect to

18 which the Secretary finds the following:

19 ‘‘(A) The facility is located in a rural area (as

20 defined in section 1886(d)(2)(D)).

21 ‘‘(B) The facility was a hospital under this title

22 at any time during the 5-year period that ends on

23 the date of the enactment of this subsection.

24 ‘‘(C) The facility is in danger of closing due to

25 low inpatient utilization rates and negative operating
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1 losses, and the closure of the facility would limit the

2 access of individuals residing in the facility’s service

3 area to emergency services.

4 ‘‘(D) The facility has entered into (or plans to

5 enter into) an agreement with a hospital with a par6 ticipation agreement in effect under section 1866(a),

7 and under such agreement the hospital shall accept

8 patients transferred to the hospital from the facility

9 and receive data from and transmit data to the

10 facility.

11 ‘‘(E) There is a practitioner who is qualified to

12 provide advanced cardiac life support services (as de13 termined by the State in which the facility is lo14 cated) on-site at the facility on a 24-hour basis.

15 ‘‘(F) A physician is available on-call to provide

16 emergency medical services on a 24-hour basis.

17 ‘‘(G) The facility meets such staffing require18 ments as would apply under section 1861(e) to a

19 hospital located in a rural area, except that—

20 ‘‘(i) the facility need not meet hospital

21 standards relating to the number of hours dur22 ing a day, or days during a week, in which the

23 facility must be open, except insofar as the fa24 cility is required to provide emergency care on
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1 a 24-hour basis under subparagraphs (E) and

2 (F); and

3 ‘‘(ii) the facility may provide any services

4 otherwise required to be provided by a full-time,

5 on-site dietician, pharmacist, laboratory techni6 cian, medical technologist, or radiological tech7 nologist on a part-time, off-site basis.

8 ‘‘(H) The facility meets the requirements appli9 cable to clinics and facilities under subparagraphs

10 (C) through (J) of paragraph (2) of section

11 1861(aa) and of clauses (ii) and (iv) of the second

12 sentence of such paragraph (or, in the case of the

13 requirements of subparagraph (E), (F), or (J) of

14 such paragraph, would meet the requirements if any

15 reference in such subparagraph to a ‘nurse practi16 tioner’ or to ‘nurse practitioners’ was deemed to be

17 a reference to a ‘nurse practitioner or nurse’ or to

18 ‘nurse practitioners or nurses’), except that in deter19 mining whether a facility meets the requirements of

20 this subparagraph, subparagraphs (E) and (F) of

21 that paragraph shall be applied as if any reference

22 to a ‘physician’ is a reference to a physician as de23 fined in section 1861(r)(1).
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1 ‘‘(2) The term ‘rural emergency access care hospital

2 services’ means medical and other health services fur3 nished by a rural emergency access care hospital.’’.

4 (b) COVERAGE OF AND PAYMENT FOR SERVICES.—

5 Section 1832(a)(2) of the Social Security Act (42 U.S.C.

6 1395k(a)(2)) is amended—

7 (1) by striking ‘‘and’’ at the end of subpara8 graph (I);

9 (2) by striking the period at the end of sub10 paragraph (J) and inserting ‘‘; and’’; and

11 (3) by adding at the end the following new sub12 paragraph:

13 ‘‘(K) rural emergency access care hospital

14 services (as defined in section 1861(oo)(2)).’’.

15 (c) PAYMENT BASED ON PAYMENT FOR OUTPATIENT

16 RURAL PRIMARY CARE HOSPITAL SERVICES.—

17 (1) IN GENERAL.—Section 1833(a)(6) of the

18 Social Security Act (42 U.S.C. 1395l(a)(6)) is

19 amended by striking ‘‘services,’’ and inserting ‘‘serv20 ices and rural emergency access care hospital serv21 ices,’’.

22 (2) PAYMENT METHODOLOGY DESCRIBED.—

23 Section 1834(g) of such Act (42 U.S.C. 1395m(g))

24 is amended—
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1 (A) in the heading, by striking ‘‘SERV2 ICES’’ and inserting ‘‘SERVICES AND RURAL

3 EMERGENCY ACCESS CARE HOSPITAL SERV4 ICES’’;

5 (B) in paragraph (1), by striking ‘‘during

6 a year before 1993’’ and inserting ‘‘during a

7 year before the prospective payment system de8 scribed in paragraph (2) is in effect’’;

9 (C) in paragraph (1), by adding at the end

10 the following: ‘‘The amount of payment shall be

11 determined under either method without regard

12 to the amount of the customary or other

13 charge.’’;

14 (D) in paragraph (2), by striking ‘‘Janu15 ary 1, 1993,’’ and inserting ‘‘January 1,

16 1996,’’; and

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

18 paragraph:

19 ‘‘(3) APPLICATION OF METHODS TO PAYMENT

20 FOR RURAL EMERGENCY ACCESS CARE HOSPITAL

21 SERVICES.—The amount of payment for rural emer22 gency access care hospital services provided during

23 a year shall be determined using the applicable

24 method provided under this subsection for determin-
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1 ing payment for outpatient rural primary care hos2 pital services during the year.’’.

3 (d) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to fiscal years beginning on or

5 after October 1, 1994.

6 SEC. 504. GRANTS TO STATES REGARDING AIRCRAFT FOR

7 TRANSPORTING RURAL VICTIMS OF MEDICAL

8 EMERGENCIES.

9 Part E of title XII of the Public Health Service Act

10 (42 U.S.C. 300d–51 et seq.) is amended by adding at the

11 end thereof the following new section:

12 ‘‘SEC. 1252. GRANTS FOR SYSTEMS TO TRANSPORT RURAL

13 VICTIMS OF MEDICAL EMERGENCIES.

14 ‘‘(a) IN GENERAL.—The Secretary shall make grants

15 to States to assist such States in the creation or enhance16 ment of air medical transport systems that provide victims

17 of medical emergencies in rural areas with access to treat18 ments for the injuries or other conditions resulting from

19 such emergencies.

20 ‘‘(b) APPLICATION AND PLAN.—

21 ‘‘(1) APPLICATION.—To be eligible to receive a

22 grant under subsection (a), a State shall prepare

23 and submit to the Secretary an application in such

24 form, made in such manner, and containing such

25 agreements, assurances, and information, including
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1 a State plan as required in paragraph (2), as the

2 Secretary determines to be necessary to carry out

3 this section.

4 ‘‘(2) STATE PLAN.—An application submitted

5 under paragraph (1) shall contain a State plan that

6 shall—

7 ‘‘(A) describe the intended uses of the

8 grant proceeds and the geographic areas to be

9 served;

10 ‘‘(B) demonstrate that the geographic

11 areas to be served, as described under subpara12 graph (A), are rural in nature;

13 ‘‘(C) demonstrate that there is a lack of

14 facilities available and equipped to deliver ad15 vanced levels of medical care in the geographic

16 areas to be served;

17 ‘‘(D) demonstrate that in utilizing the

18 grant proceeds for the establishment or en19 hancement of air medical services the State

20 would be making a cost-effective improvement

21 to existing ground-based or air emergency medi22 cal service systems;

23 ‘‘(E) demonstrate that the State will not

24 utilize the grant proceeds to duplicate the capa25 bilities of existing air medical systems that are
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1 effectively meeting the emergency medical needs

2 of the populations they serve;

3 ‘‘(F) demonstrate that in utilizing the

4 grant proceeds the State is likely to achieve a

5 reduction in the morbidity and mortality rates

6 of the areas to be served, as determined by the

7 Secretary;

8 ‘‘(G) demonstrate that the State, in utiliz9 ing the grant proceeds, will—

10 ‘‘(i) maintain the expenditures of the

11 State for air and ground medical transport

12 systems at a level equal to not less than

13 the level of such expenditures maintained

14 by the State for the fiscal year preceding

15 the fiscal year for which the grant is re16 ceived; and

17 ‘‘(ii) ensure that recipients of direct

18 financial assistance from the State under

19 such grant will maintain expenditures of

20 such recipients for such systems at a level

21 at least equal to the level of such expendi22 tures maintained by such recipients for the

23 fiscal year preceding the fiscal year for

24 which the financial assistance is received;
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1 ‘‘(H) demonstrate that persons experienced

2 in the field of air medical service delivery were

3 consulted in the preparation of the State plan;

4 and

5 ‘‘(I) contain such other information as the

6 Secretary may determine appropriate.

7 ‘‘(c) CONSIDERATIONS IN AWARDING GRANTS.—In

8 determining whether to award a grant to a State under

9 this section, the Secretary shall—

10 ‘‘(1) consider the rural nature of the areas to

11 be served with the grant proceeds and the services

12 to be provided with such proceeds, as identified in

13 the State plan submitted under subsection (b); and

14 ‘‘(2) give preference to States with State plans

15 that demonstrate an effective integration of the pro16 posed air medical transport systems into a com17 prehensive network or plan for regional or statewide

18 emergency medical service delivery.

19 ‘‘(d) STATE ADMINISTRATION AND USE OF

20 GRANT.—

21 ‘‘(1) IN GENERAL.—The Secretary may not

22 make a grant to a State under subsection (a) unless

23 the State agrees that such grant will be adminis24 tered by the State agency with principal responsibil25 ity for carrying out programs regarding the provi-
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1 sion of medical services to victims of medical emer2 gencies or trauma.

3 ‘‘(2) PERMITTED USES.—A State may use

4 amounts received under a grant awarded under this

5 section to award subgrants to public and private en6 tities operating within the State.

7 ‘‘(3) OPPORTUNITY FOR PUBLIC COMMENT.—

8 The Secretary may not make a grant to a State

9 under subsection (a) unless that State agrees that,

10 in developing and carrying out the State plan under

11 subsection (b)(2), the State will provide public notice

12 with respect to the plan (including any revisions

13 thereto) and facilitate comments from interested

14 persons.

15 ‘‘(e) NUMBER OF GRANTS.—The Secretary shall

16 award grants under this section to not less than 7 States.

17 ‘‘(f) REPORTS.—

18 ‘‘(1) REQUIREMENT.—A State that receives a

19 grant under this section shall annually (during each

20 year in which the grant proceeds are used) prepare

21 and submit to the Secretary a report that shall con22 tain—

23 ‘‘(A) a description of the manner in which

24 the grant proceeds were utilized;
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1 ‘‘(B) a description of the effectiveness of

2 the air medical transport programs assisted

3 with grant proceeds; and

4 ‘‘(C) such other information as the Sec5 retary may require.

6 ‘‘(2) TERMINATION OF FUNDINGS.—In review7 ing reports submitted under paragraph (1), if the

8 Secretary determines that a State is not using

9 amounts provided under a grant awarded under this

10 section in accordance with the State plan submitted

11 by the State under subsection (b), the Secretary may

12 terminate the payment of amounts under such grant

13 to the State until such time as the Secretary deter14 mines that the State comes into compliance with

15 such plan.

16 ‘‘(g) DEFINITION.—As used in this section, the term

17 ‘rural areas’ means geographic areas that are located out18 side of standard metropolitan statistical areas, as identi19 fied by the Secretary.

20 ‘‘(h) AUTHORIZATION OF APPROPRIATIONS.—There

21 are authorized to be appropriated to make grants under

22 this section, $15,000,000 for fiscal year 1995, and such

23 sums as may be necessary for each for fiscal years 1996

24 and 1997.’’.
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1 SEC. 505. DEMONSTRATION PROJECTS TO ENCOURAGE THE

2 DEVELOPMENT AND OPERATION OF RURAL

3 HEALTH NETWORKS.

4 (a) IN GENERAL.—

5 (1) ESTABLISHMENT.—

6 (A) IN GENERAL.—The Secretary may

7 conduct a demonstration project under which

8 public and private entities may apply for waiv9 ers of any of the provisions of title XVIII and

10 XIX of the Social Security Act in order to oper11 ate rural health networks (as defined in sub12 section (d)(1)) which—

13 (i) improve the access of medicare

14 beneficiaries (as defined in subsection

15 (d)(2)) and medicaid beneficiaries (as de16 fined in subsection (d)(3)) to health care

17 services;

18 (ii) improve the quality of health care

19 services furnished to such beneficiaries;

20 and

21 (iii) improve the outcomes of health

22 care services furnished to such bene23 ficiaries.

24 (B) NUMBER OF WAIVERS.—The Secretary

25 may grant waivers to operate rural health net26 works under the demonstration project con-
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1 ducted under this section to a number of public

2 and private entities determined appropriate by

3 the Secretary.

4 (2) APPLICATIONS.—

5 (A) IN GENERAL.—In order to participate

6 in the demonstration project conducted under

7 this subsection, a public or private entity desir8 ing to operate a rural health network shall sub9 mit an application to the Secretary which meets

10 the requirements of subparagraph (B). Such

11 application shall be submitted in such manner

12 and at such time as the Secretary shall require.

13 (B) REQUIREMENTS.—An application sub14 mitted by a public or private entity under this

15 subsection must provide—

16 (i) a description of the health care

17 providers participating in the rural health

18 network;

19 (ii) a description of the geographic

20 area served by the rural health networks;

21 (iii) information demonstrating that

22 the public or private entity has consulted

23 with interested parties with respect to the

24 operation of the rural health network, in-
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1 cluding local government entities and com2 munity groups;

3 (iv) a description of the operational

4 structure of the rural health network, in5 cluding whether the network is a managed

6 care entity or a fee-for-service provider;

7 (v) a proposal for how payments

8 should be made to the rural health network

9 under titles XVIII and XIX of the Social

10 Security Act, including a statement as to

11 whether such payments should be made

12 pursuant to the provisions of such titles or

13 pursuant to an alternative payment meth14 odology described in the application;

15 (vi) assurances that medicare bene16 ficiaries served by the rural health network

17 will receive care and services of the same

18 quality as the care and services received by

19 other beneficiaries under title XVIII of the

20 Social Security Act;

21 (vii) assurances that medicaid bene22 ficiaries served by the rural health network

23 will receive care and services of the same

24 quality as the care and services received by
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1 other beneficiaries under title XIX of the

2 Social Security Act;

3 (viii) a description of how the rural

4 health network plans to handle any situa5 tion in which a medicare beneficiary or

6 medicaid beneficiary served by the network

7 receives health care services from providers

8 outside the network;

9 (ix) assurances that the rural health

10 network is furnishing health care services

11 to a significant number of individuals who

12 are not receiving benefits under titles

13 XVIII and XIX of the Social Security Act;

14 (x) assurances that through sharing

15 of facilities, land, and equipment, the rural

16 health network will result in a reduction of

17 total capital costs for the area served by

18 the network;

19 (xi) a plan for cooperation in service

20 delivery by health care providers partici21 pating in the rural health network that

22 demonstrates the elimination of unneces23 sary duplication and, when appropriate,

24 the consolidation of specialized services

25 within the area served by the network;
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1 (xii) evidence that the rural health

2 network furnishes services which address

3 the special access needs of the medicare

4 beneficiaries and medicaid beneficiaries

5 served by the network;

6 (xiii) evidence of capability and exper7 tise in network planning and management;

8 and

9 (xiv) such additional information as

10 the Secretary determines appropriate.

11 (C) APPROVAL OF APPLICATION.—

12 (i) INITIAL REVIEW.—Within 60 days

13 after an application is submitted by a pub14 lic or private entity under this subsection,

15 the Secretary shall review and approve

16 such application or provide the entity with

17 a list of the modifications that are nec18 essary for such application to be approved.

19 (ii) ADDITIONAL REVIEW.—Within 60

20 days after a public or private entity resub21 mits any application under this subsection,

22 the Secretary shall review and approve

23 such application or provide the entity with

24 a summary of which items included on the

25 list provided to the State under clause (i)
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1 remain unsatisfied. An entity may resub2 mit an application under this subpara3 graph as many times as necessary to gain

4 approval.

5 (3) COORDINATION WITH OTHER PROGRAMS.—

6 The Secretary shall coordinate the demonstration

7 project conducted under this subsection with any

8 other relevant Federal or State programs in order to

9 prevent duplication and improve the quality and de10 livery of health care services to medicare bene11 ficiaries and medicaid beneficiaries.

12 (4) PAYMENTS TO NETWORKS.—

13 (A) IN GENERAL.—The Secretary shall de14 termine the amount of payments to be made

15 under titles XVIII and XIX to a rural health

16 network participating in a demonstration

17 project under this subsection based on historic

18 costs adjusted based on population and geo19 graphic area as the Secretary determines appro20 priate to take into account the costs of furnish21 ing health care services in the area served by

22 the network.

23 (B) BUDGET NEUTRALITY.—The Secretary

24 shall provide that in carrying out the dem25 onstration project under this section, the aggre-
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1 gate payments under titles XVIII and XIX of

2 the Social Security Act to providers participat3 ing in a rural health network shall be no great4 er or lesser than what such payments would

5 have been if such providers were not participat6 ing in such network.

7 (5) DURATION OF WAIVERS.—Any waiver

8 granted under the demonstration project conducted

9 under this subsection shall be granted for a period

10 determined appropriate by the Secretary. The Sec11 retary may terminate such a waiver at any time if

12 the Secretary determines that the rural health net13 work has failed to furnish health care services in ac14 cordance with the terms of the waiver.

15 (6) REPORTS.—

16 (A) IN GENERAL.—Each public or private

17 entity receiving a waiver to operate a rural

18 health network under the demonstration project

19 conducted under this subsection shall, through

20 an independent entity, evaluate the network and

21 submit interim and final reports to the Sec22 retary at such times and containing such infor23 mation as the Secretary shall require.

24 (B) REPORT TO CONGRESS.—Not later

25 than 60 days after the receipt of a final report
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1 by a rural health network under subparagraph

2 (A) the Secretary shall submit a report to

3 Congress.

4 (b) GRANTS FOR THE DEVELOPMENT OF RURAL

5 HEALTH NETWORKS.—

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

7 grants to public and private entities which have re8 ceived a waiver under the demonstration project con9 ducted under subsection (a) for the purpose of plan10 ning and developing rural health networks.

11 (2) APPLICATION PROCESS.—

12 (A) SUBMISSION OF APPLICATION.—Each

13 public or private entity desiring to receive a

14 grant under this subsection shall submit an ap15 plication to the Secretary at such time and con16 taining such information as the Secretary deter17 mines appropriate.

18 (B) CONSIDERATION OF APPLICATIONS.—

19 The Secretary shall develop a system for deter20 mining the priority for distributing grants

21 under this subsection and such grants shall be

22 distributed in accordance with such system.

23 (3) USE OF GRANT FUNDS.—A State that is

24 awarded grant funds under this subsection may use

25 such funds for all costs associated with assisting
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1 public or private entities in planning and developing

2 rural health networks.

3 (4) AUTHORIZATION OF APPROPRIATIONS.—

4 There are authorized to be appropriated such sums

5 as may be necessary for the purposes of awarding

6 grants under this subsection.

7 (c) GRANTS FOR THE OPERATION OF RURAL

8 HEALTH NETWORKS.—

9 (1) IN GENERAL.—The Secretary shall award

10 grants to public and private entities which have re11 ceived a waiver under the demonstration project con12 ducted under subsection (a) for the operation of

13 rural health networks.

14 (2) APPLICATION PROCESS.—

15 (A) SUBMISSION OF APPLICATION.—Any

16 public or private entity which desires to receive

17 a grant under this subsection shall submit an

18 application to the Secretary at such time and

19 containing such information as the Secretary

20 determines appropriate.

21 (B) CONSIDERATION OF APPLICATIONS.—

22 The Secretary shall develop a system for deter23 mining the priority for distributing grants

24 under this subsection and such grants shall be

25 distributed in accordance with such priority.
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1 (3) USE OF GRANT FUNDS.—A public or pri2 vate entity that is awarded grant funds under this

3 subsection may use such funds for all costs associ4 ated with operating a rural health network.

5 (4) AUTHORIZATION OF APPROPRIATIONS.—

6 There are authorized to be appropriated such sums

7 as may be necessary for the purposes of awarding

8 grants under this subsection.

9 (d) DEFINITIONS.—For purposes of this section:

10 (1) RURAL HEALTH NETWORK.—The term

11 ‘‘rural health network’’ means a formal cooperative

12 arrangement between participating hospitals, physi13 cians, and other health care providers which—

14 (A) furnishes health care services to medi15 care beneficiaries and medicaid beneficiaries;

16 (B) is located in a rural area; and

17 (C) is governed by a board of directors se18 lected by participating health care providers.

19 (2) MEDICAID BENEFICIARY.—The term ‘‘med20 icaid beneficiary’’ means an individual receiving ben21 efits under title XIX of the Social Security Act who

22 resides in a rural area or who receives health care

23 services from a health care provider located in a

24 rural area.
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1 (3) MEDICARE BENEFICIARY.—The term ‘‘med2 icare beneficiary’’ means an individual receiving ben3 efits under title XVIII of the Social Security Act

4 who resides in a rural area or who receives health

5 care services from a health care provider located in

6 a rural area.

7 (4) RURAL AREA.—The term ‘‘rural area’’

8 means a rural area as described in section

9 1886(d)(2)(D).

10 Subtitle B—Primary Care Provider

11 Education

12 SEC. 511. GRADUATE MEDICAL EDUCATION DEMONSTRA13 TION PROJECTS.

14 Part C of title VII of the Public Health Service Act

15 (42 U.S.C. 293j et seq.) is amended by adding at the end

16 the following new section:

17 ‘‘SEC. 753. GRADUATE MEDICAL EDUCATION DEMONSTRA18 TION PROJECTS.

19 ‘‘(a) STATE DEMONSTRATION PROGRAM.—

20 ‘‘(1) IN GENERAL.—The Secretary of Health

21 and Human Services (hereafter referred to in this

22 section as the ‘Secretary’) acting through the Ad23 ministrator of the Health Resources and Services

24 Administration shall provide for the establishment of

25 demonstration projects in no more than 7 States for
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1 the purpose of testing and evaluating mechanisms to

2 increase the number and percentage of medical stu3 dents entering primary care practice relative to those

4 entering nonprimary care practice through the use

5 of funds otherwise available for direct graduate med6 ical education costs under section 1886(h) of the So7 cial Security Act.

8 ‘‘(2) APPLICATIONS.—

9 ‘‘(A) IN GENERAL.—Each State desiring to

10 conduct a demonstration project under this sub11 section shall prepare and submit to the Sec12 retary an application, at such time, in such

13 manner, and containing such information as the

14 Secretary may require, including—

15 ‘‘(i) information demonstrating that

16 the State has consulted with interested

17 parties with respect to conducting a dem18 onstration project under this subsection,

19 including State medical associations, State

20 hospital associations, and medical schools

21 located in the State;

22 ‘‘(ii) an assurance that in conducting

23 a demonstration project under this sub24 section no single teaching hospital located

25 in the State will lose more than 10 percent
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1 of such hospital’s approved medical resi2 dency positions in any year; and

3 ‘‘(iii) an explanation of a plan for

4 evaluating the project.

5 ‘‘(B) APPROVAL OF APPLICATIONS.—A

6 State that submits an application under sub7 paragraph (A) may begin a demonstration

8 project under this subsection—

9 ‘‘(i) upon approval of such application

10 by the Secretary; or

11 ‘‘(ii) at the end of the 60-day period

12 beginning on the date such application is

13 submitted, unless the Secretary denies the

14 application during such period.

15 ‘‘(C) NOTICE AND COMMENT.—A State

16 shall issue a public notice on the date it sub17 mits an application under subparagraph (A)

18 which contains a general description of the pro19 posed demonstration project. Any interested

20 party may comment on the proposed dem21 onstration project to the State or the Secretary

22 during the 30-day period beginning on the date

23 the public notice is issued.

24 ‘‘(3) FUNDING FOR DEMONSTRATION

25 PROJECTS.—
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1 ‘‘(A) ALLOCATION OF GME FUNDS.—

2 ‘‘(i) IN GENERAL.—For each year a

3 State conducts a demonstration project

4 under this subsection the Secretary shall

5 pay to such State an amount equal to the

6 total amount available to hospitals located

7 in the State under section 1886(h) of the

8 Social Security Act. In the case of a State

9 which establishes any health care training

10 consortium under clause (ii)(II), the State

11 shall designate a teaching hospital for each

12 resident assigned to such a consortium

13 which the Secretary shall use to calculate

14 the State’s payment amount under such

15 section. Such teaching hospital shall be the

16 hospital where the resident receives the

17 majority of the resident’s hospital-based,

18 nonambulatory training experience.

19 ‘‘(ii) USE OF FUNDS.—Each State

20 that receives a payment under clause (i)

21 shall use such funds to conduct activities

22 which test and evaluate mechanisms to in23 crease the number and percentage of medi24 cal students entering primary care practice
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1 relative to those entering nonprimary care

2 practice as follows:

3 ‘‘(I) The State may apply

4 weighting factors that are different

5 than the weighting factors set forth in

6 section 1886(h)(4)(C) of the Social

7 Security Act for the purpose of mak8 ing direct graduate medical education

9 payments. In applying different

10 weighting factors, the State may re11 quire entities receiving payments to

12 use a portion of such payments to in13 crease stipends paid to primary care

14 residents relative to nonprimary care

15 residents.

16 ‘‘(II) The State may use funds to

17 provide for the establishment and op18 eration of any health care training

19 consortium. The State shall make

20 payments to any such consortium

21 through an entity identified by the

22 consortium as appropriate for receiv23 ing payment on behalf of the consor24 tium. The consortium shall have dis25 cretion in determining the purposes
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1 for which such payments may be used

2 and may direct such payments to con3 sortium medical schools for primary

4 care medical student education pro5 grams.

6 ‘‘(B) GRANTS FOR PLANNING AND EVAL7 UATIONS.—

8 ‘‘(i) IN GENERAL.—The Secretary

9 may award grants to States conducting

10 demonstration projects under this sub11 section for the purpose of developing and

12 evaluating such projects. A State may con13 duct such an evaluation or contract with a

14 private entity to conduct the evaluation.

15 Each State desiring to receive a grant

16 under this subparagraph shall prepare and

17 submit to the Secretary an application, at

18 such time, in such manner, and containing

19 such information as the Secretary may

20 require.

21 ‘‘(ii) AUTHORIZATION OF APPROPRIA22 TIONS.—There are authorized to be appro23 priated such sums as may be necessary to

24 carry out the purposes of this subpara25 graph for fiscal years 1995 through 2003.
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1 ‘‘(4) MAINTENANCE OF EFFORT.—Any funds

2 available for the activities covered by a demonstra3 tion project conducted under this subsection shall

4 supplement, and shall not supplant, funds that are

5 expended for similar purposes under any State, re6 gional, or local program.

7 ‘‘(b) CONSORTIUM DEMONSTRATION PROGRAM.—

8 ‘‘(1) IN GENERAL.—The Secretary, acting

9 through the Administrator of the Health Resources

10 and Services Administration, shall provide for the

11 establishment of demonstration projects for no more

12 than 7 health care training consortia which are lo13 cated in States that are not conducting a demonstra14 tion project under subsection (a) for the purpose of

15 testing and evaluating mechanisms to increase the

16 number and percentage of medical students entering

17 primary care practice relative to those entering

18 nonprimary care practice through the use of funds

19 otherwise available for direct graduate medical edu20 cation costs under section 1886(h) of the Social

21 Security Act.

22 ‘‘(2) APPLICATIONS.—

23 ‘‘(A) IN GENERAL.—Each health care

24 training consortium desiring to conduct a dem25 onstration project under this subsection shall
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1 prepare and submit to the Secretary an applica2 tion, at such time, in such manner, and con3 taining such information as the Secretary may

4 require, including an explanation of a plan for

5 evaluating the project.

6 ‘‘(B) APPROVAL OF APPLICATIONS.—A

7 consortium that submits an application under

8 subparagraph (A) may begin a demonstration

9 project under this subsection—

10 ‘‘(i) upon approval of such application

11 by the Secretary; or

12 ‘‘(ii) at the end of the 60-day period

13 beginnning on the date such application is

14 submitted, unless the Secretary denies the

15 application during such period.

16 ‘‘(3) FUNDING FOR DEMONSTRATION

17 PROJECTS.—

18 ‘‘(A) ALLOCATION OF GME FUNDS.—

19 ‘‘(i) IN GENERAL.—For each year a

20 consortium conducts a demonstration

21 project under this subsection the Secretary

22 shall pay to such consortium an amount

23 equal to the total amount available to hos24 pitals that are members of the consortium

25 under section 1886(h) of the Social Secu-
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1 rity Act. The consortium shall designate a

2 teaching hospital for each resident as3 signed to the consortium which the Sec4 retary shall use to calculate the consor5 tium’s payment amount under such sec6 tion. Such teaching hospital shall be the

7 hospital where the resident receives the

8 majority of the resident’s hospital-based,

9 nonambulatory training experience.

10 ‘‘(ii) USE OF FUNDS.—

11 ‘‘(I) TESTING AND EVALUA12 TION.—Each consortium that receives

13 a payment under clause (i) shall use

14 such funds to conduct activities which

15 test and evaluate mechanisms to in16 crease the number and percentage of

17 medical students entering primary

18 care practice relative to those entering

19 nonprimary care practice.

20 ‘‘(II) ESTABLISHMENT AND OP21 ERATION.—Each consortium that re22 ceives a payment under clause (i) may

23 also use such funds for the establish24 ment and operation of the consortium.

25 The Secretary shall make payments to
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1 the consortium through an entity

2 identified by the consortium as appro3 priate for receiving payment on behalf

4 of the consortium. The consortium

5 shall have discretion in determining

6 the purposes for which such payments

7 may be used and may direct such pay8 ments to consortium medical schools

9 for primary care medical student edu10 cation programs.

11 ‘‘(B) GRANTS FOR PLANNING AND EVAL12 UATIONS.—

13 ‘‘(i) IN GENERAL.—The Secretary

14 may award grants to consortia conducting

15 demonstration projects under this sub16 section for the purpose of developing and

17 evaluating such projects. Each consortium

18 desiring to receive a grant under this sub19 paragraph shall prepare and submit to the

20 Secretary an application, at such time, in

21 such manner, and containing such infor22 mation as the Secretary may require.

23 ‘‘(ii) AUTHORIZATION OF APPROPRIA24 TIONS.—There are authorized to be appro25 priated such sums as may be necessary to
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1 carry out the purposes of this subpara2 graph for fiscal years 1995 through 2003.

3 ‘‘(4) MAINTENANCE OF EFFORT.—Any funds

4 available for the activities covered by a demonstra5 tion project conducted under this subsection shall

6 supplement, and shall not supplant, funds that are

7 expended for similar purposes under any State, re8 gional, or local program.

9 ‘‘(c) DURATION.—A demonstration project under this

10 section shall be conducted for a period not to exceed 8

11 years. The Secretary may terminate a project if the Sec12 retary determines that the State or consortium conducting

13 the project is not in substantial compliance with the terms

14 of the application approved by the Secretary under this

15 section.

16 ‘‘(d) EVALUATIONS AND REPORTS.—

17 ‘‘(1) EVALUATIONS.—Each State or consortium

18 that conducts a demonstration project under this

19 section shall submit to the Secretary a final evalua20 tion of such project within 360 days of the termi21 nation of such project and such interim evaluations

22 as the Secretary may require.

23 ‘‘(2) REPORTS TO CONGRESS.—Not later than

24 360 days after the first demonstration project under

25 this section begins, and annually thereafter for each
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1 year in which a project is conducted under this sec2 tion, the Secretary shall submit a report to the ap3 propriate committees of the Congress which evalu4 ates the effectiveness of the demonstration projects

5 conducted under this section and includes any legis6 lative recommendations determined appropriate by

7 the Secretary.

8 ‘‘(e) DEFINITIONS.—For purposes of this section:

9 ‘‘(1) AMBULATORY TRAINING SITES.—The term

10 ‘ambulatory training sites’ includes, but is not lim11 ited to, health maintenance organizations, federally

12 qualified health centers, community health centers,

13 migrant health centers, rural health clinics, nursing

14 homes, hospice, and other community-based provid15 ers, including private practices.

16 ‘‘(2) HEALTH CARE TRAINING CONSORTIUM.—

17 The term ‘health care training consortium’ means a

18 State, regional, or local entity which—

19 ‘‘(A) includes teaching hospitals, ambula20 tory training sites, and one or more schools of

21 medicine located in the same geographic region;

22 and

23 ‘‘(B) is operated in a manner intended to

24 ensure that by the end of the 8-year demonstra25 tion project at least 50 percent of the graduates
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1 of the schools included in the entity will become

2 primary care providers during the 1-year period

3 immediately following the date such graduates

4 complete their residency training.

5 ‘‘(3) PRIMARY CARE.—The term ‘primary care’

6 means family practice, general internal medicine,

7 and general pediatrics, and may also include obstet8 rics and gynecology if such care is person-centered,

9 comprehensive care that is not organ or problem

10 specific.’’.

11 SEC. 512. FUNDING UNDER MEDICARE FOR TRAINING IN

12 NONHOSPITAL-OWNED FACILITIES.

13 (a) RESIDENCY TRAINING TIME IN NONHOSPITAL14 OWNED FACILITIES COUNTED IN DETERMINING FULL15 TIME-EQUIVALENT RESIDENTS FOR DIRECT GRADUATE

16 MEDICAL EDUCATION PAYMENTS.—Section

17 1886(h)(4)(E) of the Social Security Act (42 U.S.C.

18 1395ww(h)(4)(E)) is amended by striking ‘‘, if the hos19 pital incurs all, or substantially all, of the costs for the

20 training program in that setting’’.

21 (b) RESIDENCY TRAINING TIME IN NONHOSPITAL22 OWNED FACILITIES COUNTED IN DETERMINING FULL23 TIME-EQUIVALENT RESIDENTS FOR INDIRECT MEDICAL

24 EDUCATION PAYMENTS.—
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1 (1) IN GENERAL.—Section 1886(d)(5)(B)(iv) of

2 the Social Security Act (42 U.S.C.

3 1395ww(d)(5)(B)(iv)) is amended to read as follows:

4 ‘‘(iv) In determining such adjustment,

5 the Secretary shall count interns and resi6 dents—

7 ‘‘(I) assigned to any patient serv8 ice environment which is part of the

9 hospital’s approved medical residency

10 training program (as defined in sec11 tion 1886(h)(5)(A)), or

12 ‘‘(II) providing services at any

13 entity receiving a grant under section

14 330 of the Public Health Service Act

15 that is under the ownership or control

16 of the hospital (if the hospital incurs

17 all, or substantially all, of the costs of

18 the services furnished by such interns

19 and residents),

20 as part of the calculation of the full-time21 equivalent number of interns and resi22 dents.’’.

23 (2) ADJUSTMENT OF INDIRECT TEACHING AD24 JUSTMENT FACTOR TO ACHIEVE BUDGET NEUTRAL25 ITY.—Section 1886(d)(5)(B)(ii) of the Social Secu-
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1 rity Act (42 U.S.C. 1395ww(d)(5)(B)(ii)) is amend2 ed to read as follows:

3 ‘‘(ii)(I) For purposes of clause (i)(II),

4 the indirect teaching adjustment factor is

5 equal to 1.89 × (((1+r × t) to the nth

6 power)¥1).

7 ‘‘(II) For purposes of subclause (i)—

8 ‘‘(aa) ‘r’ is the ratio of the hos9 pital’s full-time-equivalent interns and

10 residents to beds;

11 ‘‘(bb) ‘t’ is the ratio of the num12 ber of full-time-equivalent interns and

13 residents of all hospitals paid under

14 this paragraph and used in the cal15 culation of ‘r’ on June 1, 1993, to the

16 number of full-time-equivalent interns

17 and residents of all hospitals paid

18 under this paragraph and used in the

19 calculation of ‘r’ on June 1, 1994;

20 and

21 ‘‘(cc) ‘n’ equals .405.’’.
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1 SEC. 513. INCREASE IN NATIONAL HEALTH SERVICE CORPS

2 FUNDING.

3 (a) GENERAL AUTHORIZATION.—Section 338H(b)(1)

4 of the Public Health Service Act (42 U.S.C. 254q(b)(1))

5 is amended—

6 (1) by striking ‘‘1991, and’’ and inserting

7 ‘‘1991,’’; and

8 (2) by striking ‘‘through 2000’’ and inserting ‘‘,

9 1993, and 1994, $120,000,000 for fiscal year 1995,

10 and such sums as may be necessary for each of the

11 fiscal years 1996 through 1998’’.

12 (b) GRANTS FOR STATE LOAN REPAYMENT PRO13 GRAMS.—Section 338I(i)(1) of such Act (42 U.S.C. 254q–

14 1(i)(1)) is amended to read as follows:

15 ‘‘(1) IN GENERAL.—The Secretary shall ensure

16 that not less than one-third of the amounts appro17 priated under section 338H(b)(1) for each fiscal

18 year shall be made available for grants under this

19 section.’’.

20 SEC. 514. INCREASE IN HEALTH PROFESSIONS FUNDING

21 FOR PRIMARY CARE PHYSICIANS.

22 (a) FAMILY MEDICINE.—Section 747(d)(1) of the

23 Public Health Service Act (42 U.S.C. 293k(d)(1)) is

24 amended by striking ‘‘for each of’’ and all that follows

25 through ‘‘1995’’ and inserting ‘‘for each of the fiscal years

26 1993 and 1994, $67,500,000 for fiscal year 1995, and
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1 such sums as may be necessary for each of the fiscal years

2 1996 and 1997’’.

3 (b) GENERAL INTERNAL MEDICINE AND PEDIAT4 RICS.—Section 748(c) of the Public Health Service Act

5 (42 U.S.C. 293l(c)) is amended by striking ‘‘for each of’’

6 and all that follows through ‘‘1995’’ and inserting ‘‘for

7 each of the fiscal years 1993 and 1994, $31,250,000 for

8 fiscal year 1995, and such sums as may be necessary for

9 each of the fiscal years 1996 and 1997’’.

10 SEC. 515. HEALTH PROFESSIONS FUNDING FOR NURSE

11 PRACTITIONERS AND PHYSICIAN ASSISTANTS

12 PROGRAMS.

13 (a) PHYSICIAN ASSISTANTS.—Section 750(d)(1) of

14 the Public Health Service Act (42 U.S.C. 293n(d)(1)) is

15 amended by striking ‘‘for each of the fiscal years 1993

16 through 1995’’ and inserting ‘‘for each of the fiscal years

17 1993 and 1994, $11,250,000 for fiscal year 1995, and

18 such sums as may be necessary for each of the fiscal years

19 1996 and 1997.’’.

20 (b) NURSE PRACTITIONERS.—Section 822(d) of such

21 Act (42 U.S.C. 296m(d)) is amended by striking ‘‘1994.’’

22 and inserting ‘‘1994, $25,000,000 for fiscal year 1995,

23 and such sums as may be necessary for each of the fiscal

24 years 1996 and 1997’’.
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1 (c) ADVANCED EDUCATION OR PROFESSIONAL

2 NURSES.—Section 830(f)(1) of the Public Health Service

3 Act (42 U.S.C. 297(f)(1)) is amended by striking ‘‘for

4 each of’’ and all that follows through ‘‘1995’’ and insert5 ing ‘‘for each of the fiscal years 1993 and 1994,

6 $25,000,000 for fiscal year 1995, and such sums as may

7 be necessary for each of the fiscal years 1996 and 1997’’.

8 (d) SCHOLARSHIP PROGRAM FOR PHYSICIAN ASSIST9 ANTS.—Part C of title VII of the Public Health Service

10 Act (42 U.S.C. 293j et seq.), as amended by section 511,

11 is further amended by adding at the end thereof the fol12 lowing new section:

13 ‘‘SEC. 754. PHYSICIAN ASSISTANT SCHOLARSHIP PROGRAM.

14 ‘‘(a) IN GENERAL.—The Secretary may award grants

15 to public and nonprofit private entities to enable such enti16 ties to meet the cost of providing traineeships for individ17 uals in baccalaureate and advanced-degree programs in

18 order to educate such individuals to serve in and prepare

19 for practice as physician assistants.

20 ‘‘(b) SPECIAL CONSIDERATION IN MAKING

21 GRANTS.—In awarding grants for traineeships under sub22 section (a), the Secretary shall give special consideration

23 to entities submitting applications for the conduct of

24 traineeship programs that conform to the guidelines estab25 lished by the Secretary under section 750(b)(2).
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1 ‘‘(c) PREFERENCES IN AWARDING GRANTS.—The

2 Secretary may award a grant under subsection (a) only

3 if the grant applicant involved agrees that, in providing

4 traineeships under such grant, the applicant will give pref5 erence to individuals who are residents of health profes6 sional shortage areas designated under section 332.

7 ‘‘(d) USE OF GRANT.—The Secretary may award a

8 grant under subsection (a) only if the grant applicant in9 volved agrees that traineeships provided with amounts re10 ceived under the grant will pay all or part of the costs

11 of—

12 ‘‘(1) the tuition, books, and fees of the physi13 cian assistants’ program with respect to which the

14 traineeship is provided; and

15 ‘‘(2) amounts necessary to pay the reasonable

16 living expenses of the individual involved during the

17 period for which the traineeship is provided.

18 ‘‘(e) AUTHORIZATION OF APPROPRIATIONS.—For the

19 purpose of carrying out this section, there are authorized

20 to be appropriated $25,000,000 for fiscal year 1995, and

21 such sums as may be necessary for each of the fiscal years

22 1996 and 1997.’’.
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1 SEC. 516. STATE GRANTS TO INCREASE THE NUMBER OF

2 PRIMARY CARE PROVIDERS.

3 Part B of title III of the Public Health Service Act

4 (42 U.S.C. 243 et seq.) is amended by adding at the end

5 thereof the following new section:

6 ‘‘SEC. 320A. PRIMARY CARE DEMONSTRATION GRANTS.

7 ‘‘(a) AUTHORIZATION.—The Secretary, acting

8 through the Health Resources and Services Administra9 tion, shall award grants to States or nonprofit entities to

10 fund not less than 10 demonstration projects to enable

11 such States or entities to evaluate one or more of the

12 following:

13 ‘‘(1) State mechanisms, including changes in

14 the scope of practice laws, to enhance the delivery of

15 primary care by nurse practitioners or physician

16 assistants.

17 ‘‘(2) The feasibility of, and the most effective

18 means to train subspecialists to deliver primary care

19 as primary care providers.

20 ‘‘(3) State mechanisms to increase the supply

21 or improve the distribution of primary care provid22 ers.

23 ‘‘(b) APPLICATION.—To be eligible to receive a grant

24 under this section a State or nonprofit entity shall prepare

25 and submit to the Secretary an application at such time,

26 in such manner, and containing such information as the
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1 Secretary may require. In reviewing such applications, the

2 Secretary may not consider whether or not a State permits

3 persons other than licensed physicians to perform legal

4 abortions, and nothing in this Act or any other Act may

5 be construed to conflict with any State law or regulation

6 or program guideline pertaining to the professional quali7 fications required to perform or assist in abortions.

8 ‘‘(c) AUTHORIZATION OF APPROPRIATIONS.—There

9 are authorized to be appropriated to carry out this section,

10 $9,000,000 for fiscal year 1995, and such sums as may

11 be necessary for each of the fiscal years 1996 through

12 1998.’’.

13 Subtitle C—Programs Relating to

14 Primary and Preventive Care

15 Services

16 SEC. 521. MATERNAL AND INFANT CARE COORDINATION.

17 (a) PURPOSE.—It is the purpose of this section to

18 assist States in the development and implementation of

19 coordinated, multidisciplinary, and comprehensive primary

20 health care and social services, and health and nutrition

21 education programs, designed to improve maternal and

22 child health.

23 (b) GRANTS FOR IMPLEMENTATION OF PROGRAMS.—

24 (1) AUTHORITY.—The Secretary of Health and

25 Human Services (hereafter referred to in this section
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1 as the ‘‘Secretary’’) is authorized to award grants to

2 States to enable such States to plan and implement

3 coordinated, multidisciplinary, and comprehensive

4 primary health care and social service programs tar5 geted to pregnant women and infants.

6 (2) ELIGIBILITY.—To be eligible to receive a

7 grant under this section, a State shall—

8 (A) prepare and submit to the Secretary

9 an application at such time, in such manner,

10 and containing such information as the Sec11 retary may require;

12 (B) as part of the State application, pro13 vide assurances that under the program estab14 lished with amounts received under a grant, in15 dividuals will have access to a broad range of

16 primary health care services, social services,

17 and health and nutrition programs designed to

18 improve maternal and child health and a de19 scription of how coordination of such services

20 will improve maternal and child health based

21 upon the goals of ‘‘Healthy People 2000: Na22 tional Health Promotion and Disease Preven23 tion Objectives’’;

24 (C) as part of the State application, sub25 mit a plan for the coordination of existing and
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1 proposed Federal and State resources, as ap2 propriate, including amounts provided under

3 the medicaid program under title XIX of the

4 Social Security Act, the special supplemental

5 food program under section 17 of the Child Nu6 trition Act of 1966, family planning programs,

7 substance abuse programs, State maternal and

8 child health programs funded under title V of

9 the Social Security Act, community and mi10 grant health center programs under the Public

11 Health Service Act, and other publicly, or where

12 practicable, privately supported programs;

13 (D) demonstrate that the major service

14 providers to be involved, including private non15 profit entities committed to improving maternal

16 and infant health, are committed to and in17 volved in the program to be funded with

18 amounts received under the grant;

19 (E) with respect to States with high infant

20 mortality rates among minority populations,

21 demonstrate the involvement of major health,

22 multiservice, professional, or civic group rep23 resentatives of such minority groups in the

24 planning and implementation of the State pro25 gram; and
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1 (F) demonstrate that activities under the

2 State program are targeted to women of child3 bearing age, particularly those at risk for hav4 ing low birth weight babies.

5 (3) TERM OF GRANT.—A grant awarded under

6 this subsection shall be for a period of 5 years.

7 (4) USE OF AMOUNTS.—Amounts received by a

8 State under a grant awarded under this subsection

9 shall be used to establish a State program to provide

10 coordinated, multidisciplinary, and comprehensive

11 primary health care and social services, and health

12 and nutrition education program services, that are

13 designed to improve maternal and child health. Such

14 amounts shall not be used for the construction of

15 buildings or the purchase of medical equipment.

16 (5) MAINTENANCE OF EFFORT.—Any funds re17 ceived by a State under this subsection shall supple18 ment, and shall not supplant, funds that are ex19 pended for similar purposes by the State.

20 (6) AUTHORIZATION OF APPROPRIATIONS.—

21 There are authorized to be appropriated such sums

22 as may be necessary to carry out the purposes of

23 this subsection for fiscal years 1995 through 1998.
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1 SEC. 522. FRONTIER STATES.

2 (a) IN GENERAL.—Frontier States (including Alaska,

3 Wyoming and Montana) may implement proposals to offer

4 preventive services, including mobile preventive health cen5 ters which may include centers equipped with various pre6 ventive health services, such as mammography, eye care,

7 X-ray, and other advanced equipment, and which may be

8 located on aircraft, watercraft, or other forms of transpor9 tation.

10 (b) DEMONSTRATION PROJECTS.—Frontier States

11 may participate in demonstration projects under this or

12 any other Act to improve recruitment, retention, and

13 training of rural providers, including nurse practitioners

14 and physician assistants. Such demonstration projects

15 shall give special consideration to the diverse needs of

16 Frontier States, and shall involve cooperative agreements

17 with a range of service delivery systems and teaching

18 hospitals.

19 Subtitle D—Limitation on Funding

20 for Abortions

21 SEC. 531. LIMITATION ON FUNDING FOR ABORTIONS.

22 (a) IN GENERAL.—Nothing in this title shall be con23 strued to authorize funding for any abortion, except to

24 prevent the death of the mother.

25 (b) NO REQUIREMENT ON STATE AS A CONDITION

26 OF FUNDING.—The provision of abortion services by a
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1 State or any other entity shall not be regarded as a condi2 tion for participation in any grant or benefit authorized

3 in this title.

4 TITLE VI—ADMINISTRATIVE

5 COST SAVINGS

6 Subtitle A—Standardization of

7 Claims Processing

8 SEC. 601. ADOPTION OF DATA ELEMENTS, UNIFORM

9 CLAIMS, AND UNIFORM ELECTRONIC TRANS10 MISSION STANDARDS.

11 (a) IN GENERAL.—The Secretary shall adopt stand12 ards relating to each of the following:

13 (1) Data elements for use in paper and elec14 tronic claims processing under health insurance

15 plans, as well as for use in utilization review and

16 management of care (including data fields, formats,

17 and medical nomenclature, and including plan bene18 fit and insurance information).

19 (2) Uniform claims forms (including uniform

20 procedure and billing codes for uses with such forms

21 and including information on other health insurance

22 plans that may be liable for benefits).

23 (3) Uniform electronic transmission of the data

24 elements (for purposes of billing and utilization

25 review).
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1 Standards under paragraph (3) relating to electronic

2 transmission of data elements for claims for services shall

3 supersede (to the extent specified in such standards) the

4 standards adopted under paragraph (2) relating to the

5 submission of paper claims for such services. Standards

6 under paragraph (3) shall include protections to assure

7 the confidentiality of patient-specific information and to

8 protect against the unauthorized use and disclosure of in9 formation.

10 (b) USE OF TASK FORCES.—In adopting standards

11 under this section—

12 (1) the Secretary shall take into account the

13 recommendations of current task forces, including at

14 least the Workgroup on Electronic Data Inter15 change, National Uniform Billing Committee, the

16 Uniform Claim Task Force, and the Computer-based

17 Patient Record Institute;

18 (2) the Secretary shall consult with the Na19 tional Association of Insurance Commissioners (and,

20 with respect to standards under subsection (a)(3),

21 the American National Standards Institute); and

22 (3) the Secretary shall, to the maximum extent

23 practicable, seek to make the standards consistent

24 with any uniform clinical data sets which have been

25 adopted and are widely recognized.
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1 (c) DEADLINES FOR PROMULGATION.—The Sec2 retary shall promulgate the standards under—

3 (1) subsection (a)(1) relating to claims process4 ing data, by not later than 12 months after the date

5 of the enactment of this Act;

6 (2) subsection (a)(2) (relating to uniform

7 claims forms) by not later than 12 months after the

8 date of the enactment of this Act; and

9 (3)(A) subsection (a)(3) relating to trans10 mission of information concerning hospital and phy11 sicians services, by not later than 24 months after

12 the date of the enactment of this Act, and

13 (B) subsection (a)(3) relating to transmission

14 of information on other services, by such later date

15 as the Secretary may determine it to be feasible.

16 (d) REPORT TO CONGRESS.—Not later than 3 years

17 after the date of the enactment of this Act, the Secretary

18 shall report to Congress recommendations regarding re19 structuring the medicare peer review quality assurance

20 program given the availability of hospital data in elec21 tronic form.

22 SEC. 602. APPLICATION OF STANDARDS.

23 (a) IN GENERAL.—If the Secretary determines, at

24 the end of the 2-year period beginning on the date that

25 standards are adopted under section 601 with respect to
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1 classes of services, that a significant number of claims for

2 benefits for such services under health insurance plans are

3 not being submitted in accordance with such standards,

4 the Secretary may require, after notice in the Federal

5 Register of not less than 6 months, that all providers of

6 such services must submit claims to health insurance plans

7 in accordance with such standards. The Secretary may

8 waive the application of such a requirement in such cases

9 as the Secretary finds that the imposition of the require10 ment would not be economically practicable.

11 (b) SIGNIFICANT NUMBER.—The Secretary shall

12 make an affirmative determination described in subsection

13 (a) for a class of services only if the Secretary finds that

14 there would be a significant, measurable additional gain

15 in efficiencies in the health care system that would be ob16 tained by imposing the requirement described in such

17 paragraph with respect to such services.

18 (c) APPLICATION OF REQUIREMENT.—

19 (1) IN GENERAL.—If the Secretary imposes the

20 requirement under subsection (a)—

21 (A) in the case of a requirement that im22 poses the standards relating to electronic trans23 mission of claims for a class of services, each

24 health care provider that furnishes such services

25 for which benefits are payable under a health
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1 insurance plan shall transmit electronically and

2 directly to the plan on behalf of the beneficiary

3 involved a claim for such services in accordance

4 with such standards;

5 (B) any health insurance plan may reject

6 any claim subject to the standards adopted

7 under section 601 but which is not submitted in

8 accordance with such standards;

9 (C) it is unlawful for a health insurance

10 plan (i) to reject any such claim on the basis

11 of the form in which it is submitted if it is sub12 mitted in accordance with such standards or (ii)

13 to require, for the purpose of utilization review

14 or as a condition of providing benefits under

15 the plan, a provider to transmit medical data

16 elements that are inconsistent with the stand17 ards established under section 601(a)(1); and

18 (D) the Secretary may impose a civil

19 money penalty on any provider that knowingly

20 and repeatedly submits claims in violation of

21 such standards or on any health insurance plan

22 (other than a health insurance plan described in

23 paragraph (2)) that knowingly and repeatedly

24 rejects claims in violation of subparagraph (B),
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1 in an amount not to exceed $100 for each such

2 claim.

3 The provisions of section 1128A of the Social Secu4 rity Act (other than the first sentence of subsection

5 (a) and other than subsection (b)) shall apply to a

6 civil money penalty under subparagraph (D) in the

7 same manner as such provisions apply to a penalty

8 or proceeding under section 1128A(a) of such Act.

9 (2) PLANS SUBJECT TO EFFECTIVE STATE REG10 ULATION.—A plan described in this paragraph is a

11 health insurance plan—

12 (A) that is subject to regulation by a

13 State, and

14 (B) with respect to which the Secretary

15 finds that—

16 (i) the State provides for application

17 of the standards established under section

18 601, and

19 (ii) the State regulatory program pro20 vides for the appropriate and effective en21 forcement of such standards.

22 (d) TREATMENT OF REJECTIONS.—If a plan rejects

23 a claim pursuant to subsection (c)(1), the plan shall per24 mit the person submitting the claim a reasonable oppor25 tunity to resubmit the claim on a form or in an electronic
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1 manner that meets the requirements for acceptance of the

2 claim under such subsection.

3 SEC. 603. PERIODIC REVIEW AND REVISION OF STAND4 ARDS.

5 (a) IN GENERAL.—The Secretary shall—

6 (1) provide for the ongoing receipt and review

7 of comments and suggestions for changes in the

8 standards adopted and promulgated under section

9 601;

10 (2) establish a schedule for the periodic review

11 of such standards; and

12 (3) based upon such comments, suggestions,

13 and review, revise such standards and promulgate

14 such revisions.

15 (b) APPLICATION OF REVISED STANDARDS.—If the

16 Secretary under subsection (a) revises the standards de17 scribed in 601, then, in the case of any claim for benefits

18 submitted under a health insurance plan more than the

19 minimum period (of not less than 6 months specified by

20 the Secretary) after the date the revision is promulgated

21 under subsection (a)(3), such standards shall apply under

22 section 602 instead of the standards previously promul23 gated.
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1 SEC. 604. HEALTH INSURANCE PLAN DEFINED.

2 In this title, the term ‘‘health insurance plan’’ has

3 the meaning given such term in section 101(b)(1) and in4 cludes—

5 (1) the medicare program (under title XVIII of

6 the Social Security Act) and medicare supplemental

7 health insurance, and

8 (2) a State medicaid plan (approved under title

9 XIX of such Act).

10 Subtitle B—Electronic Medical

11 Data Standards

12 SEC. 611. MEDICAL DATA STANDARDS FOR HOSPITALS AND

13 OTHER PROVIDERS.

14 (a) PROMULGATION OF HOSPITAL DATA STAND15 ARDS.—

16 (1) IN GENERAL.—Between July 1, 1995, and

17 January 1, 1996, the Secretary shall promulgate

18 standards described in subsection (b) for hospitals

19 concerning electronic medical data.

20 (2) REVISION.—The Secretary may from time

21 to time revise the standards promulgated under this

22 subsection.

23 (b) CONTENTS OF DATA STANDARDS.—The stand24 ards promulgated under subsection (a) shall include at

25 least the following:
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1 (1) A definition of a standard set of data ele2 ments for use by utilization and quality control peer

3 review organizations.

4 (2) A definition of the set of comprehensive

5 data elements, which set shall include for hospitals

6 the standard set of data elements defined under

7 paragraph (1).

8 (3) Standards for an electronic patient care in9 formation system with data obtained at the point of

10 care, including standards to protect against the un11 authorized use and disclosure of information.

12 (4) A specification of, and manner of presen13 tation of, the individual data elements of the sets

14 and system under this subsection.

15 (5) Standards concerning the transmission of

16 electronic medical data.

17 (6) Standards relating to confidentiality of pa18 tient-specific information.

19 The standards under this section shall be consistent with

20 standards for data elements established under section 601.

21 (c) OPTIONAL DATA STANDARDS FOR OTHER PRO22 VIDERS.—

23 (1) IN GENERAL.—The Secretary may promul24 gate standards described in paragraph (2) concern25 ing electronic medical data for providers that are not
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1 hospitals. The Secretary may from time to time re2 vise the standards promulgated under this sub3 section.

4 (2) CONTENTS OF DATA STANDARDS.—The

5 standards promulgated under paragraph (1) for non6 hospital providers may include standards comparable

7 to the standards described in paragraphs (2), (4),

8 and (5) of subsection (b) for hospitals.

9 (d) CONSULTATION.—In promulgating and revising

10 standards under this section, the Secretary shall—

11 (1) consult with the American National Stand12 ards Institute, hospitals, with the advisory commis13 sion established under section 615, and with other

14 affected providers, health insurance plans, and other

15 interested parties, and

16 (2) take into consideration, in developing stand17 ards under subsection (b)(1), the data set used by

18 the utilization and quality control peer review pro19 gram under part B of title XI of the Social Security

20 Act.

21 SEC. 612. APPLICATION OF ELECTRONIC DATA STANDARDS

22 TO CERTAIN HOSPITALS.

23 (a) MEDICARE REQUIREMENT FOR SHARING OF

24 HOSPITAL INFORMATION.—As of January 1, 1996, sub25 ject to paragraph (2), each hospital, as a requirement of
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1 each participation agreement under section 1866 of the

2 Social Security Act, shall—

3 (1) maintain clinical data included in the set of

4 comprehensive data elements under section

5 611(b)(2) in electronic form on all inpatients,

6 (2) upon request of the Secretary or of a utili7 zation and quality control peer review organization

8 (with which the Secretary has entered into a con9 tract under part B of title XI of such Act), transmit

10 electronically the data set, and

11 (3) upon request of the Secretary, or of a fiscal

12 intermediary or carrier, transmit electronically any

13 data (with respect to a claim) from such data set,

14 in accordance with the standards promulgated under sec15 tion 611(a).

16 (b) WAIVER AUTHORITY.—Until January 1, 2000:

17 (1) The Secretary may waive the application of

18 the requirements of subsection (a) for a hospital

19 that is a small rural hospital, for such period as the

20 hospital demonstrates compliance with such require21 ments would constitute an undue financial hardship.

22 (2) The Secretary may waive the application of

23 the requirements of subsection (a) for a hospital

24 that is in the process of developing a system to pro25 vide the required data set and executes agreements
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1 with its fiscal intermediary and its utilization and

2 quality control peer review organization that the hos3 pital will meet the requirements of subsection (a) by

4 a specified date (not later than January 1, 2000).

5 (3) The Secretary may waive the application of

6 the requirement of subsection (a)(1) for a hospital

7 that agrees to obtain from its records the data ele8 ments that are needed to meet the requirements of

9 paragraphs (2) and (3) of subsection (a) and agrees

10 to subject its data transfer process to a quality as11 surance program specified by the Secretary.

12 (c) APPLICATION TO HOSPITALS OF THE DEPART13 MENT OF VETERANS AFFAIRS.—

14 (1) IN GENERAL.—The Secretary of Veterans

15 Affairs shall provide that each hospital of the De16 partment of Veterans Affairs shall comply with the

17 requirements of subsection (a) in the same manner

18 as such requirements would apply to the hospital if

19 it were participating in the Medicare program.

20 (2) WAIVER.—The Secretary of Veterans Af21 fairs may waive the application of such requirements

22 to a hospital in the same manner as the Secretary

23 of Health and Human Services may waive under

24 subsection (b) the application of the requirements of

25 subsection (a).
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1 SEC. 613. ELECTRONIC TRANSMISSION TO FEDERAL AGEN2 CIES.

3 (a) IN GENERAL.—Effective January 1, 2000, if a

4 provider is required under a Federal program to transmit

5 a data element that is subject to a presentation or trans6 mission standard (as defined in subsection (b)), the head

7 of the Federal agency responsible for such program (if not

8 otherwise authorized) is authorized to require the provider

9 to present and transmit the data element electronically in

10 accordance with such a standard.

11 (b) PRESENTATION OR TRANSMISSION STANDARD

12 DEFINED.—In subsection (a), the term ‘‘presentation or

13 transmission standard’’ means a standard, promulgated

14 under subsection (b) or (c) of section 611, described in

15 paragraph (4) or (5) of section 611(b).

16 SEC. 614. LIMITATION ON DATA REQUIREMENTS WHERE

17 STANDARDS IN EFFECT.

18 (a) IN GENERAL.—If standards with respect to data

19 elements are promulgated under section 611 with respect

20 to a class of provider, a health insurance plan may not

21 require, for the purpose of utilization review or as a condi22 tion of providing benefits under the plan, that a provider

23 in the class—

24 (1) provide any data element not in the set of

25 comprehensive data elements specified under such

26 standards, or
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1 (2) transmit or present any such data element

2 in a manner inconsistent with the applicable stand3 ards for such transmission or presentation.

4 (b) COMPLIANCE.—

5 (1) IN GENERAL.—The Secretary may impose a

6 civil money penalty on any health insurance plan

7 (other than a health insurance plan described in

8 paragraph (2)) that fails to comply with subsection

9 (a) in an amount not to exceed $100 for each such

10 failure. The provisions of section 1128A of the So11 cial Security Act (other than the first sentence of

12 subsection (a) and other than subsection (b)) shall

13 apply to a civil money penalty under this paragraph

14 in the same manner as such provisions apply to a

15 penalty or proceeding under section 1128A(a) of

16 such Act.

17 (2) PLANS SUBJECT TO EFFECTIVE STATE REG18 ULATION.—A plan described in this paragraph is a

19 health insurance plan that is subject to regulation by

20 a State, if the Secretary finds that—

21 (A) the State provides for application of

22 the requirement of subsection (a), and

23 (B) the State regulatory program provides

24 for the appropriate and effective enforcement of

25 such requirement with respect to such plans.
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1 SEC. 615. ADVISORY COMMISSION.

2 (a) IN GENERAL.—The Secretary shall establish an

3 advisory commission including hospital executives, hospital

4 data base managers, physicians, health services research5 ers, and technical experts in collection and use of data

6 and operation of data systems. Such commission shall in7 clude, as ex officio members, a representative of the Direc8 tor of the National Institutes of Health, the Administrator

9 for Health Care Policy and Research, the Secretary of

10 Veterans Affairs, and the Director of the Centers for Dis11 ease Control.

12 (b) FUNCTIONS.—The advisory commission shall

13 monitor and advise the Secretary concerning—

14 (1) the standards established under this sub15 title, and

16 (2) operational concerns about the implementa17 tion of such standards under this subtitle.

18 (c) STAFF.—From the amounts appropriated under

19 subsection (d), the Secretary shall provide sufficient staff

20 to assist the advisory commission in its activities under

21 this section.

22 (d) AUTHORIZATION OF APPROPRIATIONS.—There

23 are authorized to be appropriated $2,000,000 for each of

24 fiscal years 1995 through 2000 to carry out this section.
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1 Subtitle C—Development and Dis2 tribution of Comparative Value

3 Information

4 SEC. 621. STATE COMPARATIVE VALUE INFORMATION PRO5 GRAMS FOR HEALTH CARE PURCHASING.

6 (a) PURPOSE.—In order to assure the availability of

7 comparative value information to purchasers of health

8 care in each State, the Secretary shall determine whether

9 each State is developing and implementing a health care

10 value information program that meets the criteria and

11 schedule set forth in subsection (b).

12 (b) CRITERIA AND SCHEDULE FOR STATE PRO13 GRAMS.—The criteria and schedule for a State health care

14 value information program in this subsection shall be spec15 ified by the Secretary as follows:

16 (1) The State begins promptly after enactment

17 of this Act to develop (directly or through contrac18 tual or other arrangements with 1 or more States,

19 coalitions of health insurance purchasers, other enti20 ties, or any combination of such arrangements)

21 information systems regarding comparative health

22 values.

23 (2) The information contained in such systems

24 covers at least the average prices of common health

25 care services (as defined in subsection (d)) and
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1 health insurance plans, and, where available, meas2 ures of the variability of these prices within a State

3 or other market areas.

4 (3) The information described in paragraph (2)

5 is made available within the State beginning not

6 later than 1 year after the date of the enactment of

7 this Act, and is revised as frequently as reasonably

8 necessary, but at intervals of no greater than 1 year.

9 (4) Not later than 6 years after the date of the

10 enactment of this Act the State has developed infor11 mation systems that provide comparative costs, qual12 ity, and outcomes data with respect to health insur13 ance plans and hospitals and made the information

14 broadly available within the relevant market areas.

15 Nothing in this section shall preclude a State from provid16 ing additional information, such as information on prices

17 and benefits of different health insurance plans, available.

18 (c) GRANTS TO STATES FOR THE DEVELOPMENT OF

19 STATE PROGRAMS.—

20 (1) GRANT AUTHORITY.—The Secretary may

21 make grants to each State to enable such State to

22 plan the development of its health care value infor23 mation program and, if necessary, to initiate the im24 plementation of such program. Each State seeking

25 such a grant shall submit an application therefor,
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1 containing such information as the Secretary finds

2 necessary to assure that the State is likely to de3 velop and implement a program in accordance with

4 the criteria and schedule in subsection (b).

5 (2) OFFSET AUTHORITY.—If, at any time with6 in the 3-year period following the receipt by a State

7 of a grant under this subsection, the Secretary is re8 quired by section 622 to implement a health care in9 formation program in the State, the Secretary may

10 recover the amount of the grant under this sub11 section by offset against any other amount payable

12 to the State under the Social Security Act. The

13 amount of the offset shall be made available (from

14 the appropriation account with respect to which the

15 offset was taken) to the Secretary to carry out such

16 section.

17 (3) AUTHORIZATION OF APPROPRIATIONS.—

18 There are authorized to be appropriated such sums

19 as are necessary to make grants under this sub20 section, to remain available until expended.

21 (d) COMMON HEALTH CARE SERVICES DEFINED.—

22 In this section, the term ‘‘common health care services’’

23 includes such procedures as the Secretary may specify and

24 any additional health care services which a State may wish

25 to include in its comparative value information program.
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1 (e) STATE DEFINED.—In this title, the term ‘‘State’’

2 includes the District of Columbia, Puerto Rico, the Virgin

3 Islands, Guam, and American Samoa.

4 SEC. 622. FEDERAL IMPLEMENTATION.

5 (a) IN GENERAL.—If the Secretary finds, at any

6 time, that a State has failed to develop or to continue to

7 implement a health care value information program in ac8 cordance with the criteria and schedule in section 621(b),

9 the Secretary shall take the actions necessary, directly or

10 through grants or contract, to implement a comparable

11 program in the State.

12 (b) FEES.—Fees may be charged by the Secretary

13 for the information materials provided pursuant to a pro14 gram under this section. Any amounts so collected shall

15 be deposited in the appropriation account from which the

16 Secretary’s costs of providing such materials were met,

17 and shall remain available for such purposes until

18 expended.

19 SEC. 623. COMPARATIVE VALUE INFORMATION CONCERN20 ING FEDERAL PROGRAMS.

21 (a) DEVELOPMENT.—The head of each Federal agen22 cy with responsibility for the provision of health insurance

23 or of health care services to individuals shall promptly de24 velop health care value information relating to each pro25 gram that such head administers and covering the same
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1 types of data that a State program meeting the criteria

2 of section 621(b) would provide.

3 (b) DISSEMINATION OF INFORMATION.—Such infor4 mation shall be made generally available to States and to

5 providers and consumers of health care services.

6 Subtitle D—Preemption of State

7 Quill Pen Laws

8 SEC. 631. PREEMPTION OF STATE QUILL PEN LAWS.

9 (a) IN GENERAL.—Effective January 1, 1996, no ef10 fect shall be given to any provision of State law that re11 quires medical or health insurance records (including bill12 ing information) to be maintained in written, rather than

13 electronic form.

14 (b) SECRETARIAL AUTHORITY.—The Secretary may

15 issue regulations to carry out subsection (a). Such regula16 tions may provide for such exceptions to subsection (a)

17 as the Secretary determines to be necessary to prevent

18 fraud and abuse, with respect to controlled substances,

19 and in such other cases as the Secretary deems appro20 priate.
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1 TITLE VIII—ANTI-FRAUD AND

2 ANTI-RATIONING

3 Subtitle A—Criminal Prosecution

4 of Health Care Fraud

5 SEC. 701. PENALTIES FOR HEALTH CARE FRAUD.

6 (a) IN GENERAL.—Chapter 63 of title 18, United

7 States Code, is amended by adding at the end the

8 following:

9 ‘‘§ 1347. Health care fraud

10 ‘‘(a) OFFENSE.—Whoever, being a health care pro11 vider, knowingly engages in any scheme or artifice to de12 fraud any person in connection with the provision of

13 health care shall be fined under this title or imprisoned

14 not more than 5 years, or both.

15 ‘‘(b) DEFINITION.—In this section, the term ‘health

16 care provider’ means—

17 ‘‘(1) a physician, nurse, dentist, therapist, phar18 macist, or other professional provider of health care;

19 and

20 ‘‘(2) a hospital, health maintenance organiza21 tion, pharmacy, laboratory, clinic, or other health

22 care facility or a provider of medical services, medi23 cal devices, medical equipment, or other medical

24 supplies.
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1 (b) CLERICAL AMENDMENT.—The table of sections

2 at the beginning of chapter 63 of title 18, United States

3 Code, is amended by adding at the end the following new

4 item:

‘‘1347. Health care fraud.’’.

5 SEC. 702. REWARDS FOR INFORMATION LEADING TO PROS6 ECUTION AND CONVICTION.

7 Section 3059 of title 18, United States Code, is

8 amended by adding at the end the following new sub9 section:

10 ‘‘(c)(1) In special circumstances and in the Attorney

11 General’s sole discretion, the Attorney General may make

12 a payment of up to $10,000 to a person who furnishes

13 information unknown to the Government relating to a pos14 sible prosecution under section 1101.

15 ‘‘(2) A person is not eligible for a payment under

16 paragraph (1) if—

17 ‘‘(A) the person is a current or former officer

18 or employee of a Federal or State government agen19 cy or instrumentality who furnishes information dis20 covered or gathered in the course of government em21 ployment;

22 ‘‘(B) the person knowingly participated in the

23 offense;
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1 ‘‘(C) the information furnished by the person

2 consists of allegations or transactions that have been

3 disclosed to the public—

4 ‘‘(i) in a criminal, civil, or administrative

5 proceeding;

6 ‘‘(ii) in a congressional, administrative or

7 General Accounting Office report, hearing,

8 audit, or investigation; or

9 ‘‘(iii) by the news media, unless the person

10 is the original source of the information; or

11 ‘‘(D) when, in the judgment of the Attorney

12 General, it appears that a person whose illegal ac13 tivities are being prosecuted or investigated could

14 benefit from the award.

15 ‘‘(3) For the purposes of paragraph (2)(C)(iii), the

16 term ‘original source’ means a person who has direct and

17 independent knowledge of the information that is fur18 nished and has voluntarily provided the information to the

19 Government prior to disclosure by the news media.

20 ‘‘(4) Neither the failure of the Attorney General to

21 authorize a payment under paragraph (1) nor the amount

22 authorized shall be subject to judicial review.’’.
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1 Subtitle B—Coordination of Health

2 Care Anti-Fraud and Abuse Ac3 tivities

4 SEC. 711. APPLICATION OF FEDERAL HEALTH ANTI-FRAUD

5 AND ABUSE SANCTIONS TO ALL FRAUD AND

6 ABUSE AGAINST ANY HEALTH INSURANCE

7 PLAN.

8 (a) CIVIL MONETARY PENALTIES.—Section 1128A

9 of the Social Security Act (42 U.S.C. 1320a–7a) is amend10 ed as follows:

11 (1) In subsection (a)(1), in the matter before

12 subparagraph (A), by inserting ‘‘or of any health in13 surance plan,’’ after ‘‘subsection (i)(1)),’’.

14 (2) In subsection (b)(1)(A), by inserting ‘‘or

15 under a health insurance plan’’ after ‘‘title XIX’’.

16 (3) In subsection (f)—

17 (A) by redesignating paragraph (3) as

18 paragraph (4); and

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

20 following new paragraph:

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

22 out of a claim under a health insurance plan, the

23 portion of such amounts as is determined to have

24 been paid by the plan shall be repaid to the plan.’’.

25 (4) In subsection (i)—
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1 (A) in paragraph (2), by inserting ‘‘or

2 under a health insurance plan’’ before the pe3 riod at the end, and

4 (B) in paragraph (5), by inserting ‘‘or

5 under a health insurance plan’’ after ‘‘or XX’’.

6 (b) CRIMES.—

7 (1) SOCIAL SECURITY ACT.—Section 1128B of

8 such Act (42 U.S.C. 1320a–7b) is amended as

9 follows:

10 (A) In the heading, by adding at the end

11 the following: ‘‘OR HEALTH INSURANCE PLANS’’.

12 (B) In subsection (a)(1)—

13 (i) by striking ‘‘title XVIII or’’ and

14 inserting ‘‘title XVIII,’’, and

15 (ii) by adding at the end the follow16 ing: ‘‘or a health insurance plan (as de17 fined in section 1128(i)),’’.

18 (C) In subsection (a)(5), by striking ‘‘title

19 XVIII or a State health care program’’ and in20 serting ‘‘title XVIII, a State health care pro21 gram, or a health insurance plan’’.

22 (D) In the second sentence of subsection

23 (a)—
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1 (i) by inserting after ‘‘title XIX’’ the

2 following: ‘‘or a health insurance plan’’,

3 and

4 (ii) by inserting after ‘‘the State’’ the

5 following: ‘‘or the plan’’.

6 (E) In subsection (b)(1), by striking ‘‘title

7 XVIII or a State health care program’’ each

8 place it appears and inserting ‘‘title XVIII, a

9 State health care program, or a health insur10 ance plan’’.

11 (F) In subsection (b)(2), by striking ‘‘title

12 XVIII or a State health care program’’ each

13 place it appears and inserting ‘‘title XVIII, a

14 State health care program, or a health insur15 ance plan’’.

16 (G) In subsection (b)(3), by striking ‘‘title

17 XVIII or a State health care program’’ each

18 place it appears in subparagraphs (A) and (C)

19 and inserting ‘‘title XVIII, a State health care

20 program, or a health insurance plan’’.

21 (H) In subsection (d)(2)—

22 (i) by striking ‘‘title XIX,’’ and insert23 ing ‘‘title XIX or under a health insurance

24 plan,’’, and
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1 (ii) by striking ‘‘State plan,’’ and in2 serting ‘‘State plan or the health insurance

3 plan,’’.

4 (2) TREBLE DAMAGES FOR CRIMINAL SANC5 TIONS.—Section 1128B of such Act (42 U.S.C.

6 1320a–7b) is amended by adding at the end the fol7 lowing new subsection:

8 ‘‘(f) In addition to the fines that may be imposed

9 under subsection (a), (b), or (c), any individual found to

10 have violated the provisions of any of such subsections

11 may be subject to treble damages.’’.

12 (3) IDENTIFICATION OF COMMUNITY SERVICE

13 OPPORTUNITIES.—Section 1128B of such Act (42

14 U.S.C. 1320a–7b) is further amended by adding at

15 the end the following new subsection:

16 ‘‘(g) The Secretary shall—

17 ‘‘(1) in consultation with State and local health

18 care officials, identify opportunities for the satisfac19 tion of community service obligations that a court

20 may impose upon the conviction of an offense under

21 this section, and

22 ‘‘(2) make information concerning such oppor23 tunities available to Federal and State law enforce24 ment officers and State and local health care offi25 cials.’’.
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1 (c) HEALTH INSURANCE PLAN DEFINED.—Section

2 1128 of such Act (42 U.S.C. 1320a–7) is amended by re3 designating subsection (i) as subsection (j) and by insert4 ing after subsection (h) the following new subsection:

5 ‘‘(i) HEALTH INSURANCE PLAN DEFINED.—For pur6 poses of sections 1128A and 1128B, the term ‘health in7 surance plan’ means a health insurance program other

8 than the medicare program, the medicaid program, or a

9 State health care program.’’.

10 (d) CONFORMING AMENDMENT.—Section

11 1128(b)(8)(B)(ii) of such Act (42 U.S.C. 1320a–

12 7(b)(8)(B)(ii)) is amended by striking ‘‘1128A’’ and in13 serting ‘‘1128A (other than a penalty arising from a

14 health insurance plan, as defined in subsection (i))’’.

15 (e) EFFECTIVE DATE.—The amendments made by

16 this section shall take effect January 1, 1995.

17 Subtitle C—Protection Against

18 Rationing of Treatment

19 SEC. 721. PROHIBITION ON DENIAL OR TREATMENT BASED

20 ON AGE, DISABILITY, DEGREE OF MEDICAL

21 NEED, OR QUALITY OF LIFE.

22 No health care provider or health insurance plan may

23 deny medical treatment, or insurance coverage of medical

24 treatment, that a patient is otherwise qualified to receive,

25 against the wishes of a patient, or if the patient is incom-
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1 petent, against the wishes of the patient’s guardian, on

2 the basis of the patient’s present or predicted age, disabil3 ity, degree of medical need, or quality of life.

4 SEC. 722. ENFORCEMENT.

5 The remedies and procedures set forth in subsections

6 (a) and (b) of Civil Rights Act of 1964 (42 U.S.C. 2000a–

7 3) are the remedies and procedures available under this

8 subtitle to nay person who is being subjected to denial of

9 medical treatment or denial of insurance coverage for

10 medical treatment, or who has reasonable grounds for be11 lieving that such person is about to be subjected to such

12 denial, in violation of this subtitle. A person who has been

13 subjected to such denial in violation of this subtitle, or

14 if that person has died, a person who would be entitled

15 to bring a cause of action for the dead person’s wrongful

16 death under the laws of the State in which the denial of

17 treatment occurred, may also obtain damages, including

18 reasonable and appropriate punitive damages.

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