25–160 

109TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 109–362 

DEFICIT REDUCTION ACT OF 2005 

DECEMBER 19 (legislative day, DECEMBER 18), 2005.—Ordered to be printed 

Mr. NUSSLE, from the committee of conference, 

submitted the following 

CONFERENCE REPORT 

[To accompany S. 1932] 

The committee of conference on the disagreeing votes of the 

two Houses on the amendment of the House to the bill (S. 1932), 

to provide for reconciliation pursuant to section 202(a) of the concurrent resolution on the budget for fiscal year 2006 (H. Con. Res. 

95), having met, after full and free conference, have agreed to recommend and do recommend to their respective Houses as follows: 

That the Senate recede from its disagreement to the amendment of the House and agree to the same with an amendment as 

follows: 

In lieu of the matter proposed to be inserted by the House 

amendment, insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘Deficit Reduction Act of 2005’’. 

SEC. 2. TABLE OF TITLES. 

The table of titles is as follows: 


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TITLE I—AGRICULTURE PROVISIONS 

TITLE II—HOUSING AND DEPOSIT INSURANCE PROVISIONS 

TITLE III—DIGITAL TELEVISION TRANSITION AND PUBLIC SAFETY 

TITLE IV—TRANSPORTATION PROVISIONS 

TITLE V—MEDICARE 

TITLE VI—MEDICAID AND SCHIP 

TITLE VII—HUMAN RESOURCES AND OTHER PROVISIONS 

TITLE VIII—EDUCATION AND PENSION BENEFIT PROVISIONS 

TITLE IX—LIHEAP PROVISIONS 

TITLE X—JUDICIARY RELATED PROVISIONS 

TITLE I—AGRICULTURE PROVISIONS 

SECTION 1001. SHORT TITLE. 

This title may be cited as the ‘‘Agricultural Reconciliation Act 

of 2005’’. 

Subtitle A—Commodity Programs 

SEC. 1101. NATIONAL DAIRY MARKET LOSS PAYMENTS. 

(a) AMOUNT.—Section 1502(c) of the Farm Security and Rural 

Investment Act of 2002 (7 U.S.C. 7982(c)) is amended by striking 

paragraph (3) and inserting the following new paragraph: 

‘‘(3)(A) during the period beginning on the first day of the 

month the producers on a dairy farm enter into a contract 

under this section and ending on September 30, 2005, 45 percent; 

‘‘(B) during the period beginning on October 1, 2005, and 

ending on August 31, 2007, 34 percent; and 

‘‘(C) during the period beginning on September 1, 2007, 0 

percent.’’. 

(b) DURATION.—Section 1502 of the Farm Security and Rural 

Investment Act of 2002 (7 U.S.C. 7982) is amended by striking 

‘‘2005’’ each place it appears in subsections (f) and (g)(1) and inserting ‘‘2007’’. 

(c) CONFORMING AMENDMENTS.—Section 1502 of the Farm Security and Rural Investment Act of 2002 (7 U.S.C. 7982) is amended— 

(1) in subsection (g)(1), by striking ‘‘and subsection (h)’’; 

and 

(2) by striking subsection (h). 

SEC. 1102. ADVANCE DIRECT PAYMENTS. 

(a) COVERED COMMODITIES.—Section 1103(d)(2) of the Farm 

Security and Rural Investment Act of 2002 (7 U.S.C. 7913(d)(2)) is 

amended in the first sentence by striking ‘‘2007 crop years’’ and inserting ‘‘2005 crop years, up to 40 percent of the direct payment for 

a covered commodity for the 2006 crop year, and up to 22 percent 

of the direct payment for a covered commodity for the 2007 crop 

year,’’. 


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(b) PEANUTS.—Section 1303(e)(2) of the Farm Security and 

Rural Investment Act of 2002 (7 U.S.C. 7953(e)(2)) is amended in 

the first sentence by striking ‘‘2007 crop years’’ and inserting ‘‘2005 

crop years, up to 40 percent of the direct payment for the 2006 crop 

year, and up to 22 percent of the direct payment for the 2007 crop 

year,’’. 

SEC. 1103. COTTON COMPETITIVENESS PROVISIONS. 

(a) REPEAL OF AUTHORITY TO ISSUE COTTON USER MARKETING

CERTIFICATES.—Section 1207 of the Farm Security and Rural Investment Act of 2002 (7 U.S.C. 7937) is amended— 

(1) by striking subsection (a); and 

(2) in subsection (b)(1)— 

(A) in subparagraph (B), by striking ‘‘, adjusted for the 

value of any certificate issued under subsection (a),’’; and 

(B) in subparagraph (C), by striking ‘‘, for the value of 

any certificates issued under subsection (a)’’. 

(b) EFFECTIVE DATE.—The amendments made by this section 

take effect on August 1, 2006. 

Subtitle B—Conservation 

SEC. 1201. WATERSHED REHABILITATION PROGRAM. 

The authority to obligate funds previously made available 

under section 14(h)(1) of the Watershed Protection and Flood Prevention Act (16 U.S.C. 1012(h)(1)) for a fiscal year and unobligated 

as of October 1, 2006, is hereby cancelled effective on that date. 

SEC. 1202. CONSERVATION SECURITY PROGRAM. 

(a) EXTENSION.—Section 1238A(a) of the Food Security Act of 

1985 (16 U.S.C. 3838a(a)) is amended by striking ‘‘2007’’ and inserting ‘‘2011’’. 

(b) FUNDING.—Section 1241(a)(3) of the Food Security Act of 

1985 (16 U.S.C. 3841(a)(3)) is amended by striking ‘‘not more than 

$6,037,000,000’’ and all that follows through ‘‘2014.’’ and inserting 

the following: ‘‘not more than— 

‘‘(A) $1,954,000,000 for the period of fiscal years 2006 

through 2010; and 

‘‘(B) $5,650,000,000 for the period of fiscal years 2006 

through 2015.’’. 

SEC. 1203. ENVIRONMENTAL QUALITY INCENTIVES PROGRAM. 

(a) EXTENSION.—Section 1240B(a)(1) of the Food Security Act of 

1985 (16 U.S.C. 3839aa–2(a)(1)) is amended by striking ‘‘2007’’ and 

inserting ‘‘2010’’. 

(b) LIMITATION ON PAYMENTS.—Section 1240G of the Food Security Act of 1985 (16 U.S.C. 3839aa–7) is amended by striking ‘‘the 

period of fiscal years 2002 through 2007’’ and inserting ‘‘any sixyear period’’. 

(c) FUNDING.—Section 1241(a)(6) of the Food Security Act of 

1985 (16 U.S.C. 3841(a)(6)) is amended— 

(1) by striking ‘‘and’’ at the end of subparagraph (D); and 

(2) by striking subparagraph (E) and inserting the following new subparagraphs: 

‘‘(E) $1,270,000,000 in each of fiscal years 2007 

through 2009; and 


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‘‘(F) $1,300,000,000 in fiscal year 2010.’’. 

Subtitle C—Energy 

SEC. 1301. RENEWABLE ENERGY SYSTEMS AND ENERGY EFFICIENCY 

IMPROVEMENTS PROGRAM. 

Section 9006(f) of the Farm Security and Rural Investment Act 

of 2002 (7 U.S.C. 8106(f)) is amended by striking ‘‘2007’’ and inserting ‘‘2006 and $3,000,000 for fiscal year 2007’’. 

Subtitle D—Rural Development 

SEC. 1401. ENHANCED ACCESS TO BROADBAND TELECOMMUNICATIONS SERVICES IN RURAL AREAS. 

The authority to obligate funds previously made available 

under section 601(j)(1) of the Rural Electrification Act of 1936 for 

a fiscal year and unobligated as of October 1, 2006, is hereby cancelled effective on that date. 

SEC. 1402. VALUE-ADDED AGRICULTURAL PRODUCT MARKET DEVELOPMENT GRANTS. 

The authority to obligate funds previously made available 

under section 231(b)(4) of the Agricultural Risk Protection Act of 

2000 (Public Law 106–224; 7 U.S.C. 1621 note) for a fiscal year and 

unobligated as of October 1, 2006, is hereby cancelled effective on 

that date. 

SEC. 1403. RURAL BUSINESS INVESTMENT PROGRAM. 

(a) TERMINATION OF FISCAL YEAR 2007 AND SUBSEQUENT

FUNDING.—Subsection (a)(1) of section 384S of the Consolidated 

Farm and Rural Development Act (7 U.S.C. 2009cc–18) is amended 

by inserting after ‘‘necessary’’ the following: ‘‘through fiscal year 

2006’’. 

(b) CANCELLATION OF UNOBLIGATED PRIOR-YEAR FUNDS.—The 

authority to obligate funds previously made available under such 

section and unobligated as of October 1, 2006, is hereby cancelled 

effective on that date. 

SEC. 1404. RURAL BUSINESS STRATEGIC INVESTMENT GRANTS. 

The authority to obligate funds previously made available 

under section 385E of the Consolidated Farm and Rural Development Act and unobligated as of October 1, 2006, is hereby cancelled 

effective on that date. 

SEC. 1405. RURAL FIREFIGHTERS AND EMERGENCY PERSONNEL 

GRANTS. 

(a) TERMINATION OF FISCAL YEAR 2007 FUNDING.—Subsection 

(c) of section 6405 of the Farm Security and Rural Investment Act 

of 2002 (7 U.S.C. 2655) is amended by striking ‘‘2007’’ and inserting 

‘‘2006’’. 

(b) CANCELLATION OF UNOBLIGATED PRIOR-YEAR FUNDS.—The 

authority to obligate funds previously made available under such 

section for a fiscal year and unobligated as of October 1, 2006, is 

hereby cancelled effective on that date. 


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Subtitle E—Research 

SEC. 1501. INITIATIVE FOR FUTURE FOOD AND AGRICULTURE SYSTEMS. 

(a) TERMINATION OF FISCAL YEAR 2007, 2008, AND 2009 TRANSFERS.—Subsection (b)(3)(D) of section 401 of the Agricultural Research, Extension, and Education Reform Act of 1998 (7 U.S.C. 

7621) is amended by striking ‘‘2006’’ and inserting ‘‘2009’’. 

(b) TERMINATION OF MULTI-YEAR AVAILABILITY OF FISCAL YEAR

2006 FUNDS.—Paragraph (6) of subsection (f) of such section is 

amended to read as follows: 

‘‘(6) AVAILABILITY OF FUNDS.— 

‘‘(A) TWO-YEAR AVAILABILITY.—Except as provided in 

subparagraph (B), funds for grants under this section shall 

be available to the Secretary for obligation for a 2-year period beginning on the date of the transfer of the funds 

under subsection (b). 

‘‘(B) EXCEPTION FOR FISCAL YEAR 2006 TRANSFER.—In 

the case of the funds required to be transferred by subsection (b)(3)(C), the funds shall be available to the Secretary for obligation for the 1-year period beginning on October 1, 2005.’’. 

TITLE II—HOUSING AND DEPOSIT 

INSURANCE PROVISIONS 

Subtitle A—FHA Asset Disposition 

SEC. 2002. DEFINITIONS. 

For purposes of this subtitle, the following definitions shall 

apply: 

(1) The term ‘‘affordability requirements’’ means any requirements or restrictions imposed by the Secretary, at the time 

of sale, on a multifamily real property or a multifamily loan, 

such as use restrictions, rent restrictions, and rehabilitation requirements. 

(2) The term ‘‘discount sale’’ means the sale of a multifamily real property in a transaction, such as a negotiated sale, 

in which the sale price is lower than the property market value 

and is set outside of a competitive bidding process that has no 

affordability requirements. 

(3) The term ‘‘discount loan sale’’ means the sale of a multifamily loan in a transaction, such as a negotiated sale, in 

which the sale price is lower than the loan market value and 

is set outside of a competitive bidding process that has no affordability requirements. 

(4) The term ‘‘loan market value’’ means the value of a multifamily loan, without taking into account any affordability requirements. 

(5) The term ‘‘multifamily real property’’ means any rental 

or cooperative housing project of 5 or more units owned by the 

Secretary that prior to acquisition by the Secretary was security 


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for a loan or loans insured under title II of the National Housing Act. 

(6) The term ‘‘multifamily loan’’ means a loan held by the 

Secretary and secured by a multifamily rental or cooperative 

housing project of 5 or more units that was formerly insured 

under title II of the National Housing Act. 

(7) The term ‘‘property market value’’ means the value of a 

multifamily real property for its current use, without taking 

into account any affordability requirements. 

(8) The term ‘‘Secretary’’ means the Secretary of Housing 

and Urban Development. 

SEC. 2003. APPROPRIATED FUNDS REQUIREMENT FOR BELOW-MARKET 

SALES. 

(a) DISCOUNT SALES.—Notwithstanding any other provision of 

law, except for affordability requirements for the elderly and disabled required by statute, disposition by the Secretary of a multifamily real property during fiscal years 2006 through 2010 through 

a discount sale under sections 207(l) or 246 of the National Housing 

Act (12 U.S.C. 1713(l), 1715z–11), section 203 of the Housing and 

Community Development Amendments of 1978 (12 U.S.C. 1701z– 

11), or section 204 of the Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act, 1997 (12 U.S.C. 1715z–11a), shall be subject to the availability of appropriations to the extent that the property market value 

exceeds the sale proceeds. If the multifamily real property is sold, 

during such fiscal years, for an amount equal to or greater than the 

property market value then the transaction is not subject to the 

availability of appropriations. 

(b) DISCOUNT LOAN SALES.—Notwithstanding any other provision of law and in accordance with the Federal Credit Reform Act 

of 1990 (2 U.S.C. 661 et seq.), a discount loan sale during fiscal 

years 2006 through 2010 under section 207(k) of the National Housing Act (12 U.S.C. 1713(k)), section 203(k) of the Housing and Community Development Amendments of 1978 (12 U.S.C. 1701z–11(k)), 

or section 204(a) of the Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act, 1997 (12 U.S.C. 1715z–11a(a)), shall be subject to the 

availability of appropriations to the extent that the loan market 

value exceeds the sale proceeds. If the multifamily loan is sold, during such fiscal years, for an amount equal to or greater than the 

loan market value then the transaction is not subject to the availability of appropriations. 

(c) APPLICABILITY.—This section shall not apply to any transaction that formally commences within one year prior to the enactment of this section. 

SEC. 2004. UP-FRONT GRANTS. 

(a) 1997 ACT.—Section 204(a) of the Departments of Veterans 

Affairs and Housing And Urban Development, and Independent 

Agencies Appropriations Act, 1997 (12 U.S.C. 1715z–11a(a)) is 

amended by adding at the end the following new sentence: ‘‘A grant 

provided under this subsection during fiscal years 2006 through 

2010 shall be available only to the extent that appropriations are 

made in advance for such purposes and shall not be derived from 

the General Insurance Fund.’’. 


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(b) 1978 ACT.—Section 203(f)(4) of the Housing and Community 

Development Amendments of 1978 (12 USC 1701z–11(f)(4)) is 

amended by adding at the end the following new sentence: ‘‘This 

paragraph shall be effective during fiscal years 2006 through 2010 

only to the extent that such budget authority is made available for 

use under this paragraph in advance in appropriation Acts.’’. 

(c) APPLICABILITY.—The amendments made by this section shall 

not apply to any transaction that formally commences within one 

year prior to the enactment of this section. 

Subtitle B—Deposit Insurance 

SEC. 2101. SHORT TITLE. 

This subtitle may be cited as the ‘‘Federal Deposit Insurance 

Reform Act of 2005’’. 

SEC. 2102. MERGING THE BIF AND SAIF. 

(a) IN GENERAL.— (1) MERGER.—The Bank Insurance Fund and the Savings 

Association Insurance Fund shall be merged into the Deposit 

Insurance Fund. 

(2) DISPOSITION OF ASSETS AND LIABILITIES.—All assets 

and liabilities of the Bank Insurance Fund and the Savings Association Insurance Fund shall be transferred to the Deposit Insurance Fund. 

(3) NO SEPARATE EXISTENCE.—The separate existence of the 

Bank Insurance Fund and the Savings Association Insurance 

Fund shall cease on the effective date of the merger thereof 

under this section. 

(b) REPEAL OF OUTDATED MERGER PROVISION.—Section 2704 of 

the Deposit Insurance Funds Act of 1996 (12 U.S.C. 1821 note) is 

repealed. 

(c) EFFECTIVE DATE.—This section shall take effect no later 

than the first day of the first calendar quarter that begins after the 

end of the 90-day period beginning on the date of the enactment of 

this Act. 

SEC. 2103. INCREASE IN DEPOSIT INSURANCE COVERAGE. 

(a) IN GENERAL.—Section 11(a)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1821(a)(1)) is amended— 

(1) by striking subparagraph (B) and inserting the following new subparagraph: 

‘‘(B) NET AMOUNT OF INSURED DEPOSIT.—The net 

amount due to any depositor at an insured depository institution shall not exceed the standard maximum deposit insurance amount as determined in accordance with subparagraphs (C), (D), (E) and (F) and paragraph (3).’’; and 

(2) by adding at the end the following new subparagraphs: 

‘‘(E) STANDARD MAXIMUM DEPOSIT INSURANCE AMOUNT

DEFINED.—For purposes of this Act, the term ‘standard maximum deposit insurance amount’ means $100,000, adjusted as provided under subparagraph (F) after March 31, 

2010. 

‘‘(F) INFLATION ADJUSTMENT.— ‘‘(i) IN GENERAL.—By April 1 of 2010, and the 1st 

day of each subsequent 5-year period, the Board of DiVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00007 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

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rectors and the National Credit Union Administration 

Board shall jointly consider the factors set forth under 

clause (v), and, upon determining that an inflation adjustment is appropriate, shall jointly prescribe the 

amount by which the standard maximum deposit insurance amount and the standard maximum share insurance amount (as defined in section 207(k) of the 

Federal Credit Union Act) applicable to any depositor 

at an insured depository institution shall be increased 

by calculating the product of— ‘‘(I) $100,000; and 

‘‘(II) the ratio of the published annual value of 

the Personal Consumption Expenditures ChainType Price Index (or any successor index thereto), 

published by the Department of Commerce, for the 

calendar year preceding the year in which the adjustment is calculated under this clause, to the 

published annual value of such index for the calendar year preceding the date this subparagraph 

takes effect under the Federal Deposit Insurance 

Reform Act of 2005. 

The values used in the calculation under subclause (II) 

shall be, as of the date of the calculation, the values 

most recently published by the Department of Commerce. 

‘‘(ii) ROUNDING.—If the amount determined under clause (ii) for any period is not a multiple of $10,000, 

the amount so determined shall be rounded down to 

the nearest $10,000. 

‘‘(iii) PUBLICATION AND REPORT TO THE CON- GRESS.—Not later than April 5 of any calendar year in 

which an adjustment is required to be calculated under 

clause (i) to the standard maximum deposit insurance 

amount and the standard maximum share insurance 

amount under such clause, the Board of Directors and 

the National Credit Union Administration Board 

shall— 

‘‘(I) publish in the Federal Register the standard maximum deposit insurance amount, the 

standard maximum share insurance amount, and 

the amount of coverage under paragraph (3)(A) 

and section 207(k)(3) of the Federal Credit Union 

Act, as so calculated; and 

‘‘(II) jointly submit a report to the Congress 

containing the amounts described in subclause (I). 

‘‘(iv) 6-MONTH IMPLEMENTATION PERIOD.—Unless 

an Act of Congress enacted before July 1 of the calendar year in which an adjustment is required to be 

calculated under clause (i) provides otherwise, the increase in the standard maximum deposit insurance 

amount and the standard maximum share insurance 

amount shall take effect on January 1 of the year immediately succeeding such calendar year. 

‘‘(v) INFLATION ADJUSTMENT CONSIDERATION.—In 

making any determination under clause (i) to increase 


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the standard maximum deposit insurance amount and 

the standard maximum share insurance amount, the 

Board of Directors and the National Credit Union Administration Board shall jointly consider— 

‘‘(I) the overall state of the Deposit Insurance 

Fund and the economic conditions affecting insured depository institutions; 

‘‘(II) potential problems affecting insured depository institutions; or 

‘‘(III) whether the increase will cause the reserve ratio of the fund to fall below 1.15 percent of 

estimated insured deposits.’’. 

(b) COVERAGE FOR CERTAIN EMPLOYEE BENEFIT PLAN DEPOSITS.—Section 11(a)(1)(D) of the Federal Deposit Insurance Act (12 

U.S.C. 1821(a)(1)(D)) is amended to read as follows: 

‘‘(D) COVERAGE FOR CERTAIN EMPLOYEE BENEFIT PLAN

DEPOSITS.— 

‘‘(i) PASS-THROUGH INSURANCE.—The Corporation 

shall provide pass-through deposit insurance for the 

deposits of any employee benefit plan. 

‘‘(ii) PROHIBITION ON ACCEPTANCE OF BENEFIT

PLAN DEPOSITS.—An insured depository institution that 

is not well capitalized or adequately capitalized may 

not accept employee benefit plan deposits. 

‘‘(iii) DEFINITIONS.—For purposes of this subparagraph, the following definitions shall apply: 

‘‘(I) CAPITAL STANDARDS.—The terms ‘well capitalized’ and ‘adequately capitalized’ have the same 

meanings as in section 38. 

‘‘(II) EMPLOYEE BENEFIT PLAN.—The term ‘employee benefit plan’ has the same meaning as in 

paragraph (5)(B)(ii), and includes any eligible deferred compensation plan described in section 457 

of the Internal Revenue Code of 1986. 

‘‘(III) PASS-THROUGH DEPOSIT INSURANCE.— The term ‘pass-through deposit insurance’ means, 

with respect to an employee benefit plan, deposit 

insurance coverage based on the interest of each 

participant, in accordance with regulations issued 

by the Corporation.’’. 

(c) INCREASED AMOUNT OF DEPOSIT INSURANCE FOR CERTAIN

RETIREMENT ACCOUNTS.—Section 11(a)(3)(A) of the Federal Deposit 

Insurance Act (12 U.S.C. 1821(a)(3)(A)) is amended by striking 

‘‘$100,000’’ and inserting ‘‘$250,000 (which amount shall be subject 

to inflation adjustments as provided in paragraph (1)(F), except 

that $250,000 shall be substituted for $100,000 wherever such term 

appears in such paragraph)’’. 

(h) EFFECTIVE DATE.—This section and the amendments made 

by this section shall take effect on the date the final regulations required under section 9(a)(2) take effect. 

SEC. 2104. SETTING ASSESSMENTS AND REPEAL OF SPECIAL RULES 

RELATING TO MINIMUM ASSESSMENTS AND FREE DEPOSIT INSURANCE. 

(a) SETTING ASSESSMENTS.—Section 7(b)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1817(b)(2)) is amended— 


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(1) by striking subparagraphs (A) and (B) and inserting the 

following new subparagraphs: 

‘‘(A) IN GENERAL.—The Board of Directors shall set assessments for insured depository institutions in such 

amounts as the Board of Directors may determine to be necessary or appropriate, subject to subparagraph (D). 

‘‘(B) FACTORS TO BE CONSIDERED.—In setting assessments under subparagraph (A), the Board of Directors 

shall consider the following factors: 

‘‘(i) The estimated operating expenses of the Deposit Insurance Fund. 

‘‘(ii) The estimated case resolution expenses and income of the Deposit Insurance Fund. 

‘‘(iii) The projected effects of the payment of assessments on the capital and earnings of insured depository institutions. 

‘‘(iv) The risk factors and other factors taken into 

account pursuant to paragraph (1) under the riskbased assessment system, including the requirement 

under such paragraph to maintain a risk-based system. 

‘‘(v) Any other factors the Board of Directors may 

determine to be appropriate.’’; and 

(2) by inserting after subparagraph (C) the following new 

subparagraph: 

‘‘(D) NO DISCRIMINATION BASED ON SIZE.—No insured 

depository institution shall be barred from the lowest-risk 

category solely because of size.’’. 

(b) ASSESSMENT RECORDKEEPING PERIOD SHORTENED.—Paragraph (5) of section 7(b) of the Federal Deposit Insurance Act (12 

U.S.C. 1817(b)) is amended to read as follows: 

‘‘(5) DEPOSITORY INSTITUTION REQUIRED TO MAINTAIN ASSESSMENT-RELATED RECORDS.—Each insured depository institution shall maintain all records that the Corporation may require for verifying the correctness of any assessment on the insured depository institution under this subsection until the later 

of— 

‘‘(A) the end of the 3-year period beginning on the due 

date of the assessment; or 

‘‘(B) in the case of a dispute between the insured depository institution and the Corporation with respect to such 

assessment, the date of a final determination of any such 

dispute.’’. 

(c) INCREASE IN FEES FOR LATE ASSESSMENT PAYMENTS.—Subsection (h) of section 18 of the Federal Deposit Insurance Act (12 

U.S.C. 1828(h)) is amended to read as follows: 

‘‘(h) PENALTY FOR FAILURE TO TIMELY PAY ASSESSMENTS.— 

‘‘(1) IN GENERAL.—Subject to paragraph (3), any insured 

depository institution which fails or refuses to pay any assessment shall be subject to a penalty in an amount of not more 

than 1 percent of the amount of the assessment due for each day 

that such violation continues. 

‘‘(2) EXCEPTION IN CASE OF DISPUTE.—Paragraph (1) shall 

not apply if— 


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‘‘(A) the failure to pay an assessment is due to a dispute between the insured depository institution and the 

Corporation over the amount of such assessment; and 

‘‘(B) the insured depository institution deposits security 

satisfactory to the Corporation for payment upon final determination of the issue. 

‘‘(3) SPECIAL RULE FOR SMALL ASSESSMENT AMOUNTS.—If 

the amount of the assessment which an insured depository institution fails or refuses to pay is less than $10,000 at the time 

of such failure or refusal, the amount of any penalty to which 

such institution is subject under paragraph (1) shall not exceed 

$100 for each day that such violation continues. 

‘‘(4) AUTHORITY TO MODIFY OR REMIT PENALTY.—The Corporation, in the sole discretion of the Corporation, may compromise, modify or remit any penalty which the Corporation 

may assess or has already assessed under paragraph (1) upon 

a finding that good cause prevented the timely payment of an 

assessment.’’. 

(e) STATUTE OF LIMITATIONS FOR ASSESSMENT ACTIONS.—Subsection (g) of section 7 of the Federal Deposit Insurance Act (12 

U.S.C. 1817(g)) is amended to read as follows: 

‘‘(g) ASSESSMENT ACTIONS.— ‘‘(1) IN GENERAL.—The Corporation, in any court of competent jurisdiction, shall be entitled to recover from any insured 

depository institution the amount of any unpaid assessment 

lawfully payable by such insured depository institution. 

‘‘(2) STATUTE OF LIMITATIONS.—The following provisions 

shall apply to actions relating to assessments, notwithstanding 

any other provision in Federal law, or the law of any State: 

‘‘(A) Any action by an insured depository institution to 

recover from the Corporation the overpaid amount of any 

assessment shall be brought within 3 years after the date 

the assessment payment was due, subject to the exception in 

subparagraph (E). 

‘‘(B) Any action by the Corporation to recover from an 

insured depository institution the underpaid amount of any 

assessment shall be brought within 3 years after the date 

the assessment payment was due, subject to the exceptions 

in subparagraphs (C) and (E). 

‘‘(C) If an insured depository institution has made a 

false or fraudulent statement with intent to evade any or 

all of its assessment, the Corporation shall have until 3 

years after the date of discovery of the false or fraudulent 

statement in which to bring an action to recover the underpaid amount. 

‘‘(D) Except as provided in subparagraph (C), assessment deposit information contained in records no longer required to be maintained pursuant to subsection (b)(4) shall 

be considered conclusive and not subject to change. 

‘‘(E) Any action for the underpaid or overpaid amount 

of any assessment that became due before the amendment 

to this subsection under the Federal Deposit Insurance Reform Act of 2005 took effect shall be subject to the statute 

of limitations for assessments in effect at the time the assessment became due.’’. 


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(f) EFFECTIVE DATE.—This section and the amendments made 

by this section shall take effect on the date that the final regulations 

required under section 9(a)(5) take effect. 

SEC. 2105. REPLACEMENT OF FIXED DESIGNATED RESERVE RATIO 

WITH RESERVE RANGE. 

(a) IN GENERAL.—Section 7(b)(3) of the Federal Deposit Insurance Act (12 U.S.C. 1817(b)(3)) is amended to read as follows: 

‘‘(3) DESIGNATED RESERVE RATIO.— 

‘‘(A) ESTABLISHMENT.— 

‘‘(i) IN GENERAL.—Before the beginning of each calendar year, the Board of Directors shall designate the 

reserve ratio applicable with respect to the Deposit Insurance Fund and publish the reserve ratio so designated. 

‘‘(ii) RULEMAKING REQUIREMENT.—Any change to 

the designated reserve ratio shall be made by the 

Board of Directors by regulation after notice and opportunity for comment. 

‘‘(B) RANGE.—The reserve ratio designated by the 

Board of Directors for any year— 

‘‘(i) may not exceed 1.5 percent of estimated insured deposits; and 

‘‘(ii) may not be less than 1.15 percent of estimated 

insured deposits. 

‘‘(C) FACTORS.—In designating a reserve ratio for any 

year, the Board of Directors shall— 

‘‘(i) take into account the risk of losses to the Deposit Insurance Fund in such year and future years, 

including historic experience and potential and estimated losses from insured depository institutions; 

‘‘(ii) take into account economic conditions generally affecting insured depository institutions so as to 

allow the designated reserve ratio to increase during 

more favorable economic conditions and to decrease 

during less favorable economic conditions, notwithstanding the increased risks of loss that may exist during such less favorable conditions, as determined to be 

appropriate by the Board of Directors; 

‘‘(iii) seek to prevent sharp swings in the assessment rates for insured depository institutions; and 

‘‘(iv) take into account such other factors as the 

Board of Directors may determine to be appropriate, 

consistent with the requirements of this subparagraph. 

‘‘(D) PUBLICATION OF PROPOSED CHANGE IN RATIO.—In 

soliciting comment on any proposed change in the designated reserve ratio in accordance with subparagraph (A), 

the Board of Directors shall include in the published proposal a thorough analysis of the data and projections on 

which the proposal is based.’’. 

(c) EFFECTIVE DATE.—This section and the amendments made 

by this section shall take effect on the date that the final regulations 

required under section 9(a)(1) take effect. 


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SEC. 2106. REQUIREMENTS APPLICABLE TO THE RISK-BASED ASSESSMENT SYSTEM. 

Section 7(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. 

1817(b)(1)) is amended by adding at the end the following new subparagraphs: 

‘‘(E) INFORMATION CONCERNING RISK OF LOSS AND ECONOMIC CONDITIONS.— 

‘‘(i) SOURCES OF INFORMATION.—For purposes of 

determining risk of losses at insured depository institutions and economic conditions generally affecting depository institutions, the Corporation shall collect information, as appropriate, from all sources the Board 

of Directors considers appropriate, such as reports of 

condition, inspection reports, and other information 

from all Federal banking agencies, any information 

available from State bank supervisors, State insurance 

and securities regulators, the Securities and Exchange 

Commission (including information described in section 35), the Secretary of the Treasury, the Commodity 

Futures Trading Commission, the Farm Credit Administration, the Federal Trade Commission, any Federal 

reserve bank or Federal home loan bank, and other 

regulators of financial institutions, and any information available from credit rating entities, and other private economic or business analysts. 

‘‘(ii) CONSULTATION WITH FEDERAL BANKING AGENCIES.— 

‘‘(I) IN GENERAL.—Except as provided in subclause (II), in assessing the risk of loss to the Deposit Insurance Fund with respect to any insured 

depository institution, the Corporation shall consult with the appropriate Federal banking agency 

of such institution. 

‘‘(II) TREATMENT ON AGGREGATE BASIS.—In 

the case of insured depository institutions that are 

well capitalized (as defined in section 38) and, in 

the most recent examination, were found to be well 

managed, the consultation under subclause (I) concerning the assessment of the risk of loss posed by 

such institutions may be made on an aggregate 

basis. 

‘‘(iii) RULE OF CONSTRUCTION.—No provision of 

this paragraph shall be construed as providing any 

new authority for the Corporation to require submission of information by insured depository institutions 

to the Corporation. 

‘‘(F) MODIFICATIONS TO THE RISK-BASED ASSESSMENT

SYSTEM ALLOWED ONLY AFTER NOTICE AND COMMENT.—In 

revising or modifying the risk-based assessment system at 

any time after the date of the enactment of the Federal Deposit Insurance Reform Act of 2005, the Board of Directors 

may implement such revisions or modification in final form 

only after notice and opportunity for comment.’’. 


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SEC. 2107. REFUNDS, DIVIDENDS, AND CREDITS FROM DEPOSIT INSURANCE FUND. 

(a) IN GENERAL.—Subsection (e) of section 7 of the Federal Deposit Insurance Act (12 U.S.C. 1817(e)) is amended to read as follows: 

‘‘(e) REFUNDS, DIVIDENDS, AND CREDITS.— 

‘‘(1) REFUNDS OF OVERPAYMENTS.—In the case of any payment of an assessment by an insured depository institution in 

excess of the amount due to the Corporation, the Corporation 

may— 

‘‘(A) refund the amount of the excess payment to the insured depository institution; or 

‘‘(B) credit such excess amount toward the payment of 

subsequent assessments until such credit is exhausted. 

‘‘(2) DIVIDENDS FROM EXCESS AMOUNTS IN DEPOSIT INSURANCE FUND.— 

‘‘(A) RESERVE RATIO IN EXCESS OF 1.5 PERCENT OF ESTIMATED INSURED DEPOSITS.—If, at the end of a calendar 

year, the reserve ratio of the Deposit Insurance Fund exceeds 1.5 percent of estimated insured deposits, the Corporation shall declare the amount in the Fund in excess of 

the amount required to maintain the reserve ratio at 1.5 

percent of estimated insured deposits, as dividends to be 

paid to insured depository institutions. 

‘‘(B) RESERVE RATIO EQUAL TO OR IN EXCESS OF 1.35

PERCENT OF ESTIMATED INSURED DEPOSITS AND NOT MORE

THAN 1.5 PERCENT.—If, at the end of a calendar year, the 

reserve ratio of the Deposit Insurance Fund equals or exceeds 1.35 percent of estimated insured deposits and is not 

more than 1.5 percent of such deposits, the Corporation 

shall declare the amount in the Fund that is equal to 50 

percent of the amount in excess of the amount required to 

maintain the reserve ratio at 1.35 percent of the estimated 

insured deposits as dividends to be paid to insured depository institutions. 

‘‘(C) BASIS FOR DISTRIBUTION OF DIVIDENDS.— 

‘‘(i) IN GENERAL.—Solely for the purposes of dividend distribution under this paragraph, the Corporation shall determine each insured depository institution’s relative contribution to the Deposit Insurance 

Fund (or any predecessor deposit insurance fund) for 

calculating such institution’s share of any dividend declared under this paragraph, taking into account the 

factors described in clause (ii). 

‘‘(ii) FACTORS FOR DISTRIBUTION.—In implementing this paragraph in accordance with regulations, the Corporation shall take into account the following factors: 

‘‘(I) The ratio of the assessment base of an insured depository institution (including any predecessor) on December 31, 1996, to the assessment 

base of all eligible insured depository institutions 

on that date. 

‘‘(II) The total amount of assessments paid on 

or after January 1, 1997, by an insured depository 


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institution (including any predecessor) to the Deposit Insurance Fund (and any predecessor deposit 

insurance fund). 

‘‘(III) That portion of assessments paid by an 

insured depository institution (including any predecessor) that reflects higher levels of risk assumed 

by such institution. 

‘‘(IV) Such other factors as the Corporation 

may determine to be appropriate. 

‘‘(D) NOTICE AND OPPORTUNITY FOR COMMENT.—The 

Corporation shall prescribe by regulation, after notice and 

opportunity for comment, the method for the calculation, 

declaration, and payment of dividends under this paragraph. 

‘‘(E) LIMITATION.—The Board of Directors may suspend 

or limit dividends paid under subparagraph (B), if the 

Board determines in writing that— 

‘‘(i) a significant risk of losses to the Deposit Insurance Fund exists over the next 1-year period; and 

‘‘(ii) it is likely that such losses will be sufficiently 

high as to justify a finding by the Board that the reserve ratio should temporarily be allowed— 

‘‘(I) to grow without requiring dividends under 

subparagraph (B); or 

‘‘(II) to exceed the maximum amount established under subsection (b)(3)(B)(i). 

‘‘(F) CONSIDERATIONS.—In making a determination 

under subparagraph (E), the Board shall consider— 

‘‘(i) national and regional conditions and their impact on insured depository institutions; 

‘‘(ii) potential problems affecting insured depository institutions or a specific group or type of depository institution; 

‘‘(iii) the degree to which the contingent liability of 

the Corporation for anticipated failures of insured institutions adequately addresses concerns over funding 

levels in the Deposit Insurance Fund; and 

‘‘(iv) any other factors that the Board determines 

are appropriate. 

‘‘(H) REVIEW OF DETERMINATION.— 

‘‘(i) ANNUAL REVIEW.—A determination to suspend 

or limit dividends under subparagraph (E) shall be reviewed by the Board of Directors annually. 

‘‘(ii) ACTION BY BOARD.—Based on each annual review under clause (i), the Board of Directors shall either renew or remove a determination to suspend or 

limit dividends under subparagraph (E), or shall make 

a new determination in accordance with this paragraph. Unless justified under the terms of the renewal 

or new determination, the Corporation shall be required to provide cash dividends under subparagraph 

(A) or (B), as appropriate. 

‘‘(3) ONE-TIME CREDIT BASED ON TOTAL ASSESSMENT BASE

AT YEAR-END 1996.— 


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‘‘(A) IN GENERAL.—Before the end of the 270-day period 

beginning on the date of the enactment of the Federal Deposit Insurance Reform Act of 2005, the Board of Directors 

shall, by regulation after notice and opportunity for comment, provide for a credit to each eligible insured depository institution (or a successor insured depository institution), based on the assessment base of the institution on December 31, 1996, as compared to the combined aggregate 

assessment base of all eligible insured depository institutions, taking into account such factors as the Board of Directors may determine to be appropriate. 

‘‘(B) CREDIT LIMIT.—The aggregate amount of credits 

available under subparagraph (A) to all eligible insured depository institutions shall equal the amount that the Corporation could collect if the Corporation imposed an assessment of 10.5 basis points on the combined assessment base 

of the Bank Insurance Fund and the Savings Association 

Insurance Fund as of December 31, 2001. 

‘‘(C) ELIGIBLE INSURED DEPOSITORY INSTITUTION DEFINED.—For purposes of this paragraph, the term ‘eligible 

insured depository institution’ means any insured depository institution that— 

‘‘(i) was in existence on December 31, 1996, and 

paid a deposit insurance assessment prior to that date; 

or 

‘‘(ii) is a successor to any insured depository institution described in clause (i). 

‘‘(D) APPLICATION OF CREDITS.— ‘‘(i) IN GENERAL.—Subject to clause (ii), the 

amount of a credit to any eligible insured depository 

institution under this paragraph shall be applied by 

the Corporation, subject to subsection (b)(3)(E), to the 

assessments imposed on such institution under subsection (b) that become due for assessment periods beginning after the effective date of regulations prescribed under subparagraph (A). 

‘‘(ii) TEMPORARY RESTRICTION ON USE OF CRED- ITS.—The amount of a credit to any eligible insured depository institution under this paragraph may not be 

applied to more than 90 percent of the assessments imposed on such institution under subsection (b) that become due for assessment periods beginning in fiscal 

years 2008, 2009, and 2010. 

‘‘(iii) REGULATIONS.—The regulations prescribed 

under subparagraph (A) shall establish the qualifications and procedures governing the application of assessment credits pursuant to clause (i). 

‘‘(E) LIMITATION ON AMOUNT OF CREDIT FOR CERTAIN

DEPOSITORY INSTITUTIONS.—In the case of an insured depository institution that exhibits financial, operational, or 

compliance weaknesses ranging from moderately severe to 

unsatisfactory, or is not adequately capitalized (as defined 

in section 38) at the beginning of an assessment period, the 

amount of any credit allowed under this paragraph against 

the assessment on that depository institution for such peVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00016 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

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riod may not exceed the amount calculated by applying to 

that depository institution the average assessment rate on 

all insured depository institutions for such assessment period. 

‘‘(F) SUCCESSOR DEFINED.—The Corporation shall define the term ‘successor’ for purposes of this paragraph, by 

regulation, and may consider any factors as the Board may 

deem appropriate. 

‘‘(4) ADMINISTRATIVE REVIEW.— ‘‘(A) IN GENERAL.—The regulations prescribed under 

paragraphs (2)(D) and (3) shall include provisions allowing 

an insured depository institution a reasonable opportunity 

to challenge administratively the amount of the credit or 

dividend determined under paragraph (2) or (3) for such 

institution. 

‘‘(B) ADMINISTRATIVE REVIEW.—Any review under subparagraph (A) of any determination of the Corporation 

under paragraph (2) or (3) shall be final and not subject 

to judicial review.’’. 

(b) DEFINITION OF RESERVE RATIO.—Section 3(y) of the Federal 

Deposit Insurance Act (12 U.S.C. 1813(y)) (as amended by section 

2105(b) of this subtitle) is amended by adding at the end the following new paragraph: 

‘‘(3) RESERVE RATIO.—The term ‘reserve ratio’, when used 

with regard to the Deposit Insurance Fund other than in connection with a reference to the designated reserve ratio, means 

the ratio of the net worth of the Deposit Insurance Fund to the 

value of the aggregate estimated insured deposits.’’. 

SEC. 2108. DEPOSIT INSURANCE FUND RESTORATION PLANS. 

Section 7(b)(3) of the Federal Deposit Insurance Act (12 U.S.C. 

1817(b)(3)) (as amended by section 2105(a) of this subtitle) is 

amended by adding at the end the following new subparagraph: 

‘‘(E) DIF RESTORATION PLANS.— ‘‘(i) IN GENERAL.—Whenever— 

‘‘(I) the Corporation projects that the reserve 

ratio of the Deposit Insurance Fund will, within 6 

months of such determination, fall below the minimum amount specified in subparagraph (B)(ii) for 

the designated reserve ratio; or 

‘‘(II) the reserve ratio of the Deposit Insurance 

Fund actually falls below the minimum amount 

specified in subparagraph (B)(ii) for the designated 

reserve ratio without any determination under subclause (I) having been made, 

the Corporation shall establish and implement a Deposit Insurance Fund restoration plan within 90 days 

that meets the requirements of clause (ii) and such 

other conditions as the Corporation determines to be 

appropriate. 

‘‘(ii) REQUIREMENTS OF RESTORATION PLAN.—A Deposit Insurance Fund restoration plan meets the requirements of this clause if the plan provides that the 

reserve ratio of the Fund will meet or exceed the minimum amount specified in subparagraph (B)(ii) for the 

designated reserve ratio before the end of the 5-year peVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00017 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

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riod beginning upon the implementation of the plan (or 

such longer period as the Corporation may determine 

to be necessary due to extraordinary circumstances). 

‘‘(iii) RESTRICTION ON ASSESSMENT CREDITS.—As 

part of any restoration plan under this subparagraph, 

the Corporation may elect to restrict the application of 

assessment credits provided under subsection (e)(3) for 

any period that the plan is in effect. 

‘‘(iv) LIMITATION ON RESTRICTION.—Notwithstanding clause (iii), while any restoration plan under 

this subparagraph is in effect, the Corporation shall 

apply credits provided to an insured depository institution under subsection (e)(3) against any assessment imposed on the institution for any assessment period in 

an amount equal to the lesser of— 

‘‘(I) the amount of the assessment; or 

‘‘(II) the amount equal to 3 basis points of the 

institution’s assessment base. 

‘‘(v) TRANSPARENCY.—Not more than 30 days after 

the Corporation establishes and implements a restoration plan under clause (i), the Corporation shall publish in the Federal Register a detailed analysis of the 

factors considered and the basis for the actions taken 

with regard to the plan.’’. 

SEC. 2109. REGULATIONS REQUIRED. 

(a) IN GENERAL.—Not later than 270 days after the date of the 

enactment of this Act, the Board of Directors of the Federal Deposit 

Insurance Corporation shall prescribe final regulations, after notice 

and opportunity for comment— 

(1) designating the reserve ratio for the Deposit Insurance 

Fund in accordance with section 7(b)(3) of the Federal Deposit 

Insurance Act (as amended by section 2105 of this subtitle); 

(2) implementing increases in deposit insurance coverage in 

accordance with the amendments made by section 2103 of this 

subtitle; 

(3) implementing the dividend requirement under section 

7(e)(2) of the Federal Deposit Insurance Act (as amended by section 2107 of this subtitle); 

(4) implementing the 1-time assessment credit to certain insured depository institutions in accordance with section 7(e)(3) 

of the Federal Deposit Insurance Act, as amended by section 

2107 of this subtitle, including the qualifications and procedures under which the Corporation would apply assessment 

credits; and 

(5) providing for assessments under section 7(b) of the Federal Deposit Insurance Act, as amended by this subtitle. 

(b) TRANSITION PROVISIONS.— 

(1) CONTINUATION OF EXISTING ASSESSMENT REGULATIONS.—No provision of this subtitle or any amendment made 

by this subtitle shall be construed as affecting the authority of 

the Corporation to set or collect deposit insurance assessments 

pursuant to any regulations in effect before the effective date of 

the final regulations prescribed under subsection (a). 

(2) TREATMENT OF DIF MEMBERS UNDER EXISTING REGULATIONS.—As of the date of the merger of the Bank Insurance 


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Fund and the Savings Association Insurance Fund pursuant to 

section 2102, the assessment regulations in effect immediately 

before the date of the enactment of this Act shall continue to 

apply to all members of the Deposit Insurance Fund, until such 

regulations are modified by the Corporation, notwithstanding 

that such regulations may refer to ‘‘Bank Insurance Fund members’’ or ‘‘Savings Association Insurance Fund members’’. 

TITLE III—DIGITAL TELEVISION 

TRANSITION AND PUBLIC SAFETY 

SEC. 3001. SHORT TITLE; DEFINITION. 

(a) SHORT TITLE.—This title may be cited as the ‘‘Digital Television Transition and Public Safety Act of 2005’’. 

(b) DEFINITION.—As used in this Act, the term ‘‘Assistant Secretary’’ means the Assistant Secretary for Communications and Information of the Department of Commerce. 

SEC. 3002. ANALOG SPECTRUM RECOVERY: FIRM DEADLINE. 

(a) AMENDMENTS.—Section 309(j)(14) of the Communications 

Act of 1934 (47 U.S.C. 309(j)(14)) is amended— 

(1) in subparagraph (A)— 

(A) by inserting ‘‘full-power’’ before ‘‘television broadcast license’’; and 

(B) by striking ‘‘December 31, 2006’’ and inserting 

‘‘February 17, 2009’’; 

(2) by striking subparagraph (B); 

(3) in subparagraph (C)(i)(I), by striking ‘‘or (B)’’; 

(4) in subparagraph (D), by striking ‘‘subparagraph (C)(i)’’ 

and inserting ‘‘subparagraph (B)(i)’’; and 

(5) by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively. 

(b) TERMINATIONS OF ANALOG LICENSES AND BROADCASTING.— The Federal Communications Commission shall take such actions 

as are necessary— 

(1) to terminate all licenses for full-power television stations 

in the analog television service, and to require the cessation of 

broadcasting by full-power stations in the analog television 

service, by February 18, 2009; and 

(2) to require by February 18, 2009, that all broadcasting 

by Class A stations, whether in the analog television service or 

digital television service, and all broadcasting by full-power 

stations in the digital television service, occur only on channels 

between channels 2 and 36, inclusive, or 38 and 51, inclusive 

(between frequencies 54 and 698 megahertz, inclusive). 

(c) CONFORMING AMENDMENTS.— (1) Section 337(e) of the Communications Act of 1934 (47 

U.S.C. 337(e)) is amended— 

(A) in paragraph (1)— 

(i) by striking ‘‘CHANNELS 60 TO 69’’ and inserting ‘‘CHANNELS 52 TO 69’’; 

(ii) by striking ‘‘person who’’ and inserting ‘‘fullpower television station licensee that’’; 

(iii) by striking ‘‘746 and 806 megahertz’’ and inserting ‘‘698 and 806 megahertz’’; and 


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(iv) by striking ‘‘the date on which the digital television service transition period terminates, as determined by the Commission’’ and inserting ‘‘February 17, 

2009’’; 

(B) in paragraph (2), by striking ‘‘746 megahertz’’ and 

inserting ‘‘698 megahertz’’; and 

SEC. 3003. AUCTION OF RECOVERED SPECTRUM. 

(a) DEADLINE FOR AUCTION.—Section 309(j) of the Communications Act of 1934 (47 U.S.C. 309(j)) is amended— 

(1) by redesignating the second paragraph (15) of such section (as added by section 203(b) of the Commercial Spectrum 

Enhancement Act (P.L. 108–494; 118 Stat. 3993)), as paragraph 

(16) of such section; and 

(2) in the first paragraph (15) of such section (as added by 

section 3(a) of the Auction Reform Act of 2002 (P.L. 107–195; 

116 Stat. 716)), by adding at the end of subparagraph (C) the 

following new clauses: 

‘‘(v) ADDITIONAL DEADLINES FOR RECOVERED ANALOG SPECTRUM.—Notwithstanding subparagraph (B), 

the Commission shall conduct the auction of the licenses for recovered analog spectrum by commencing 

the bidding not later than January 28, 2008, and shall 

deposit the proceeds of such auction in accordance with 

paragraph (8)(E)(ii) not later than June 30, 2008. 

‘‘(vi) RECOVERED ANALOG SPECTRUM.—For purposes of clause (v), the term ‘recovered analog spectrum’ 

means the spectrum between channels 52 and 69, inclusive (between frequencies 698 and 806 megahertz, 

inclusive) reclaimed from analog television service 

broadcasting under paragraph (14), other than— 

‘‘(I) the spectrum required by section 337 to be 

made available for public safety services; and 

‘‘(II) the spectrum auctioned prior to the date 

of enactment of the Digital Television Transition 

and Public Safety Act of 2005.’’. 

(b) EXTENSION OF AUCTION AUTHORITY.—Section 309(j)(11) of 

such Act (47 U.S.C. 309(j)(11)) is amended by striking ‘‘2007’’ and 

inserting ‘‘2011’’. 

SEC. 3004. RESERVATION OF AUCTION PROCEEDS. 

Section 309(j)(8) of the Communications Act of 1934 (47 U.S.C. 

309(j)(8)) is amended— 

(1) in subparagraph (A), by striking ‘‘subparagraph (B) or 

subparagraph (D)’’ and inserting ‘‘subparagraphs (B), (D), and 

(E)’’; 

(2) in subparagraph (C)(i), by inserting before the semicolon 

at the end the following: ‘‘, except as otherwise provided in subparagraph (E)(ii)’’; and 

(3) by adding at the end the following new subparagraph: 

‘‘(E) TRANSFER OF RECEIPTS.— 

‘‘(i) ESTABLISHMENT OF FUND.—There is established in the Treasury of the United States a fund to 

be known as the Digital Television Transition and 

Public Safety Fund. 


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‘‘(ii) PROCEEDS FOR FUNDS.—Notwithstanding subparagraph (A), the proceeds (including deposits and 

upfront payments from successful bidders) from the use 

of a competitive bidding system under this subsection 

with respect to recovered analog spectrum shall be deposited in the Digital Television Transition and Public 

Safety Fund. 

‘‘(iii) TRANSFER OF AMOUNT TO TREASURY.—On 

September 30, 2009, the Secretary shall transfer 

$7,363,000,000 from the Digital Television Transition 

and Public Safety Fund to the general fund of the 

Treasury. 

‘‘(iv) RECOVERED ANALOG SPECTRUM.—For purposes of clause (i), the term ‘recovered analog spectrum’ 

has the meaning provided in paragraph (15)(C)(vi).’’. 

SEC. 3005. DIGITAL-TO-ANALOG CONVERTER BOX PROGRAM. 

(a) CREATION OF PROGRAM.—The Assistant Secretary shall— 

(1) implement and administer a program through which 

households in the United States may obtain coupons that can 

be applied toward the purchase of digital-to-analog converter 

boxes; and 

(2) make payments of not to exceed $990,000,000, in the aggregate, through fiscal year 2009 to carry out that program 

from the Digital Television Transition and Public Safety Fund 

established under section 309(j)(8)(E) of the Communications 

Act of 1934 (47 U.S.C. 309(j)(8)(E). 

(b) CREDIT.—The Assistant Secretary may borrow from the 

Treasury beginning on October 1, 2006 such sums as may be necessary, but not to exceed $1,500,000,000, to implement this section. 

The Assistant Secretary shall reimburse the Treasury, without interest, as funds are deposited into the Digital Television Transition 

and Public Safety Fund. 

(c) PROGRAM SPECIFICATIONS.— (1) LIMITATIONS.— (A) TWO-PER-HOUSEHOLD MAXIMUM.—A household may 

obtain coupons by making a request as required by the regulations under this section between January 1, 2008, and 

March 31, 2009, inclusive. The Assistant Secretary shall 

ensure that each requesting household receives, via the 

United States Postal Service, no more than two coupons. 

(B) NO COMBINATIONS OF COUPONS.—Two coupons may 

not be used in combination toward the purchase of a single 

digital-to-analog converter box. 

(C) DURATION.—All coupons shall expire 3 months 

after issuance. 

(2) DISTRIBUTION OF COUPONS.—The Assistant Secretary 

shall expend not more than $100,000,000 on administrative expenses and shall ensure that the sum of— 

(A) all administrative expenses for the program, including not more than $5,000,000 for consumer education 

concerning the digital television transition and the availability of the digital-to-analog converter box program; and 

(B) the total maximum value of all the coupons redeemed, and issued but not expired, does not exceed 

$990,000,000. 


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(3) USE OF ADDITIONAL AMOUNT.—If the Assistant Secretary 

transmits to the Committee on Energy and Commerce of the 

House of Representatives and Committee on Commerce, Science, 

and Transportation of the Senate a statement certifying that the 

sum permitted to be expended under paragraph (2) will be insufficient to fulfill the requests for coupons from eligible households— 

(A) paragraph (2) shall be applied— 

(i) by substituting ‘‘$160,000,000’’ for 

‘‘$100,000,000’’; and 

(ii) by substituting ‘‘$1,500,000,000’’ for 

‘‘$990,000,000’’; 

(B) subsection (a)(2) shall be applied by substituting 

‘‘$1,500,000,000’’ for ‘‘$990,000,000’’; and 

(C) the additional amount permitted to be expended 

shall be available 60 days after the Assistant Secretary 

sends such statement. 

(4) COUPON VALUE.—The value of each coupon shall be $40. 

(e) DEFINITION OF DIGITAL-TO-ANALOG CONVERTER BOX.—For 

purposes of this section, the term ‘‘digital-to-analog converter box’’ 

means a stand-alone device that does not contain features or functions except those necessary to enable a consumer to convert any 

channel broadcast in the digital television service into a format that 

the consumer can display on television receivers designed to receive 

and display signals only in the analog television service, but may 

also include a remote control device. 

SEC. 3006. PUBLIC SAFETY INTEROPERABLE COMMUNICATIONS. 

(a) CREATION OF PROGRAM.—The Assistant Secretary, in consultation with the Secretary of the Department of Homeland Security— 

(1) may take such administrative action as is necessary to 

establish and implement a grant program to assist public safety 

agencies in the acquisition of, deployment of, or training for the 

use of interoperable communications systems that utilize, or enable interoperability with communications systems that can utilize, reallocated public safety spectrum for radio communication; and 

(2) shall make payments of not to exceed $1,000,000,000, in 

the aggregate, through fiscal year 2010 to carry out that program from the Digital Television Transition and Public Safety 

Fund established under section 309(j)(8)(E) of the Communications Act of 1934 (47 U.S.C. 309(j)(8)(E). 

(b) CREDIT.—The Assistant Secretary may borrow from the 

Treasury beginning on October 1, 2006 such sums as may be necessary, but not to exceed $1,000,000,000, to implement this section. 

The Assistant Secretary shall reimburse the Treasury, without interest, as funds are deposited into the Digital Television Transition 

and Public Safety Fund. 

(c) CONDITION OF GRANTS.—In order to obtain a grant under 

the grant program, a public safety agency shall agree to provide, 

from non-Federal sources, not less than 20 percent of the costs of acquiring and deploying the interoperable communications systems 

funded under the grant program. 

(d) DEFINITIONS.—For purposes of this section: 


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(1) PUBLIC SAFETY AGENCY.—The term ‘‘public safety agency’’ means any State, local, or tribal government entity, or nongovernmental organization authorized by such entity, whose 

sole or principal purpose is to protect the safety of life, health, 

or property. 

(2) INTEROPERABLE COMMUNICATIONS SYSTEMS.—The term 

‘‘interoperable communications systems’’ means communications 

systems which enable public safety agencies to share information amongst local, State, Federal, and tribal public safety 

agencies in the same area via voice or data signals. 

(3) REALLOCATED PUBLIC SAFETY SPECTRUM.—The term ‘‘reallocated public safety spectrum’’ means the bands of spectrum 

located at 764–776 megahertz and 794–806 megahertz, inclusive. 

SEC. 3007. NYC 9/11 DIGITAL TRANSITION. 

(a) FUNDS AVAILABLE.—From the Digital Television Transition 

and Public Safety Fund established under section 309(j)(8)(E) of the 

Communications Act of 1934 (47 U.S.C. 309(j)(8)(E)) the Assistant 

Secretary shall make payments of not to exceed $30,000,000, in the 

aggregate, which shall be available to carry out this section for fiscal years 2007 through 2008. The Assistant Secretary may borrow 

from the Treasury beginning October 1, 2006 such sums as may be 

necessary not to exceed $30,000,000 to implement and administer 

the program in accordance with this section. The Assistant Secretary shall reimburse the Treasury, without interest, as funds are 

deposited into the Digital Television Transition and Public Safety 

Fund. 

(b) USE OF FUNDS.—The sums available under subsection (a) 

shall be made available by the Assistant Secretary by grant to be 

used to reimburse the Metropolitan Television Alliance for costs incurred in the design and deployment of a temporary digital television broadcast system to ensure that, until a permanent facility 

atop the Freedom Tower is constructed, the members of the Metropolitan Television Alliance can provide the New York City area with 

an adequate digital television signal as determined by the Federal 

Communications Commission. 

(d) DEFINITIONS.—For purposes of this section: 

(1) METROPOLITAN TELEVISION ALLIANCE.—The term ‘‘Metropolitan Television Alliance’’ means the organization formed 

by New York City television broadcast station licensees to locate 

new shared facilities as a result of the attacks on September 11, 

2001 and the loss of use of shared facilities that housed broadcast equipment. 

(2) NEW YORK CITY AREA.—The term ‘‘New York City area’’ 

means the five counties comprising New York City and counties 

of northern New Jersey in immediate proximity to New York 

City (Bergen, Essex, Union, and Hudson Counties). 

SEC. 3008. LOW-POWER TELEVISION AND TRANSLATOR DIGITAL-TOANALOG CONVERSION. 

(a) CREATION OF PROGRAM.—The Assistant Secretary shall make payments of not to exceed $10,000,000, in the aggregate, during the fiscal year 2008 and 2009 period from the Digital Television 

Transition and Public Safety Fund established under section 

309(j)(8)(E) of the Communications Act of 1934 (47 U.S.C. 


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24 

309(j)(8)(E)) to implement and administer a program through which 

each eligible low-power television station may receive compensation 

toward the cost of the purchase of a digital-to-analog conversion device that enables it to convert the incoming digital signal of its corresponding full-power television station to analog format for transmission on the low-power television station’s analog channel. An eligible low-power television station may receive such compensation 

only if it submits a request for such compensation on or before February 17, 2009. Priority compensation shall be given to eligible lowpower television stations in which the license is held by a non-profit 

corporation and eligible low-power television stations that serve 

rural areas of fewer than 10,000 viewers. 

(b) CREDIT.—The Assistant Secretary may borrow from the 

Treasury beginning October 1, 2006 such sums as may be necessary, 

but not to exceed $10,000,000, to implement this section. The Assistant Secretary shall reimburse the Treasury, without interest, as 

funds are deposited into the Digital Television Transition and Public Safety Fund. 

(c) ELIGIBLE STATIONS.—For purposes of this section, the term 

‘‘eligible low-power television station’’ means a low-power television 

broadcast station, Class A television station, television translator 

station, or television booster station— 

(1) that is itself broadcasting exclusively in analog format; 

and 

(2) that has not purchased a digital-to-analog conversion 

device prior to the date of enactment of the Digital Television 

Transition and Public Safety Act of 2005. 

SEC. 3009. LOW-POWER TELEVISION AND TRANSLATOR UPGRADE PROGRAM. 

(a) ESTABLISHMENT.—The Assistant Secretary shall make payments of not to exceed $65,000,000, in the aggregate, during fiscal 

year 2009 from the Digital Television Transition and Public Safety 

Fund established under section 309(j)(8)(E) of the Communications 

Act of 1934 (47 U.S.C. 309(j)(8)(E)) to implement and administer a 

program through which each licensee of an eligible low-power television station may receive reimbursement for equipment to upgrade 

low-power television stations from analog to digital in eligible rural 

communities, as that term is defined in section 610(b)(2) of the 

Rural Electrification Act of 1937 (7 U.S.C. 950bb(b)(2)). Such reimbursements shall be issued to eligible stations no earlier than October 1, 2010. Priority reimbursements shall be given to eligible lowpower television stations in which the license is held by a non-profit 

corporation and eligible low-power television stations that serve 

rural areas of fewer than 10,000 viewers. 

(b) ELIGIBLE STATIONS.—For purposes of this section, the term 

‘‘eligible low-power television station’’ means a low-power television 

broadcast station, Class A television station, television translator 

station, or television booster station— 

(1) that is itself broadcasting exclusively in analog format; 

and 

(2) that has not converted from analog to digital operations 

prior to the date of enactment of the Digital Television Transition and Public Safety Act of 2005. 


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SEC. 3010. NATIONAL ALERT AND TSUNAMI WARNING PROGRAM. 

The Assistant Secretary shall make payments of not to exceed 

$156,000,000, in the aggregate, during the fiscal year 2007 through 

2012 period from the Digital Television Transition and Public Safety Fund established under section 309(j)(8)(E) of the Communications Act of 1934 (47 U.S.C. 309(j)(8)(E)) to implement a unified national alert system capable of alerting the public, on a national, regional, or local basis to emergency situations by using a variety of 

communications technologies. The Assistant Secretary shall use 

$50,000,000 of such amounts to implement a tsunami warning and 

coastal vulnerability program. 

SEC. 3011. ENHANCE 911. 

The Assistant Secretary shall make payments of not to exceed 

$43,500,000, in the aggregate, from the Digital Television Transition and Public Safety Fund established under section 309(j)(8)(E) 

of the Communications Act of 1934 (47 U.S.C. 309(j)(8)(E)) to implement the ENHANCE 911 Act of 2004. 

SEC. 3012. ESSENTIAL AIR SERVICE PROGRAM. 

(a) IN GENERAL.—If the amount appropriated to carry out the 

essential air service program under subchapter II of chapter 417 of 

title 49, United States Code, equals or exceeds $110,000,000 for fiscal year 2007 or 2008, then the Secretary of Commerce shall make 

$15,000,000 available, from the Digital Television Transition and 

Public Safety Fund established by section 309(j)(8)(E) of the Communications Act of 1934 (47 U.S.C. 309(j)(8)(E)), to the Secretary of 

Transportation for use in carrying out the essential air service program for that fiscal year. 

(b) APPLICATION WITH OTHER FUNDS.—Amounts made available under subsection (a) for any fiscal year shall be in addition to 

any amounts— 

(1) appropriated for that fiscal year; or 

(2) derived from fees collected pursuant to section 

45301(a)(1) of title 49, United States Code, that are made available for obligation and expenditure to carry out the essential air 

service program for that fiscal year. 

(c) ADVANCES.—The Secretary of Transportation may borrow 

from the Treasury such sums as may be necessary, but not to exceed 

$30,000,000 on a temporary and reimbursable basis to implement 

subsection (a). The Secretary of Transportation shall reimburse the 

Treasury, without interest, as funds are deposited into the Digital 

Television Transition and Public Safety Fund under section 

309(j)(8)(E) of the Communications Act of 1934 (47 U.S.C. 

309(j)(8)(E)) and made available to the Secretary under subsection 

(a). 

SEC. 3014. SUPPLEMENTAL LICENSE FEES. 

In addition to any fees assessed under the Communications Act 

of 1934 (47 U.S.C. 151 et seq.), the Federal Communications Commission shall assess extraordinary fees for licenses in the aggregate 

amount of $10,000,000, which shall be deposited in the Treasury 

during fiscal year 2006 as offsetting receipts. 


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TITLE IV—TRANSPORTATION 

PROVISIONS 

SEC. 4001. EXTENSION OF VESSEL TONNAGE DUTIES. 

(a) EXTENSION OF DUTIES.—Section 36 of the Act entitled ‘‘An 

Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes’’, approved August 

5, 1909 (36 Stat. 111; 46 U.S.C. App. 121), is amended— 

(1) by striking ‘‘9 cents per ton’’ and all that follows 

through ‘‘2002,’’ the first place it appears and inserting ‘‘4.5 

cents per ton, not to exceed in the aggregate 22.5 cents per ton 

in any one year, for fiscal years 2006 through 2010,’’; and 

(2) by striking ‘‘27 cents per ton’’ and all that follows 

through ‘‘2002,’’ and inserting ‘‘13.5 cents per ton, not to exceed 

67.5 cents per ton per annum, for fiscal years 2006 through 

2010,’’. 

(b) CONFORMING AMENDMENT.—The Act entitled ‘‘An Act concerning tonnage duties on vessels entering otherwise than by sea’’, 

approved March 8, 1910 (36 Stat. 234; 46 U.S.C. App. 132), is 

amended by striking ‘‘9 cents per ton’’ and all that follows through 

‘‘and 2 cents’’ and inserting ‘‘4.5 cents per ton, not to exceed in the 

aggregate 22.5 cents per ton in any one year, for fiscal years 2006 

through 2010, and 2 cents’’. 

TITLE V—MEDICARE 

Subtitle A—Provisions Relating to Part A 

SEC. 5001. HOSPITAL QUALITY IMPROVEMENT. 

(a) SUBMISSION OF HOSPITAL DATA.—Section 1886(b)(3)(B) of 

the Social Security Act (42 U.S.C. 1395ww(b)(3)(B)) is amended— 

(1) in clause (i)— 

(A) in subclause (XIX), by striking ‘‘2007’’ and inserting 

‘‘2006’’; and 

(B) in subclause (XX), by striking ‘‘for fiscal year 2008 

and each subsequent fiscal year,’’ and inserting ‘‘for each 

subsequent fiscal year, subject to clause (viii),’’; 

(2) in clause (vii)— 

(A) in subclause (I), by striking ‘‘for each of fiscal years 

2005 through 2007’’ and inserting ‘‘for fiscal years 2005 

and 2006’’; and 

(B) in subclause (II), by striking ‘‘Each’’ and inserting 

‘‘For fiscal years 2005 and 2006, each’’; and 

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

‘‘(viii)(I) For purposes of clause (i) for fiscal year 

2007 and each subsequent fiscal year, in the case of a 

subsection (d) hospital that does not submit, to the Secretary in accordance with this clause, data required to 

be submitted on measures selected under this clause 

with respect to such a fiscal year, the applicable percentage increase under clause (i) for such fiscal year 

shall be reduced by 2.0 percentage points. Such reduction shall apply only with respect to the fiscal year inVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00026 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

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volved and the Secretary shall not take into account 

such reduction in computing the applicable percentage 

increase under clause (i) for a subsequent fiscal year, 

and the Secretary and the Medicare Payment Advisory 

Commission shall carry out the requirements under 

section 5001(b) of the Deficit Reduction Act of 2005. 

‘‘(II) Each subsection (d) hospital shall submit 

data on measures selected under this clause to the Secretary in a form and manner, and at a time, specified 

by the Secretary for purposes of this clause. 

‘‘(III) The Secretary shall expand, beyond the 

measures specified under clause (vii)(II) and consistent 

with the succeeding subclauses, the set of measures 

that the Secretary determines to be appropriate for the 

measurement of the quality of care furnished by hospitals in inpatient settings. 

‘‘(IV) Effective for payments beginning with fiscal 

year 2007, in expanding the number of measures under 

subclause (III), the Secretary shall begin to adopt the 

baseline set of performance measures as set forth in the 

November 2005 report by the Institute of Medicine of 

the National Academy of Sciences under section 238(b) 

of the Medicare Prescription Drug, Improvement, and 

Modernization Act of 2003. 

‘‘(V) Effective for payments beginning with fiscal 

year 2008, the Secretary shall add other measures that 

reflect consensus among affected parties and, to the extent feasible and practicable, shall include measures 

set forth by one or more national consensus building 

entities. 

‘‘(VI) For purposes of this clause and clause (vii), 

the Secretary may replace any measures or indicators 

in appropriate cases, such as where all hospitals are effectively in compliance or the measures or indicators 

have been subsequently shown not to represent the best 

clinical practice. 

‘‘(VII) The Secretary shall establish procedures for 

making data submitted under this clause available to 

the public. Such procedures shall ensure that a hospital has the opportunity to review the data that are to 

be made public with respect to the hospital prior to 

such data being made public. The Secretary shall report quality measures of process, structure, outcome, 

patients’ perspectives on care, efficiency, and costs of 

care that relate to services furnished in inpatient settings in hospitals on the Internet website of the Centers 

for Medicare & Medicaid Services.’’. 

(b) PLAN FOR HOSPITAL VALUE BASED PURCHASING PROGRAM.— 

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

Services shall develop a plan to implement a value based purchasing program for payments under the Medicare program for 

subsection (d) hospitals beginning with fiscal year 2009. 

(2) DETAILS.—Such a plan shall include consideration of 

the following issues: 


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(A) The on-going development, selection, and modification process for measures of quality and efficiency in hospital inpatient settings. 

(B) The reporting, collection, and validation of quality 

data. 

(C) The structure of value based payment adjustments, 

including the determination of thresholds or improvements 

in quality that would substantiate a payment adjustment, 

the size of such payments, and the sources of funding for 

the value based payments. 

(D) The disclosure of information on hospital performance. 

In developing such a plan, the Secretary shall consult with relevant affected parties and shall consider experience with such 

demonstrations that are relevant to the value based purchasing 

program under this subsection. 

(3) CONGRESSIONAL REPORT.—By not later than August 1, 

2007, the Secretary of Health and Human Services shall submit 

a report to Congress on the plan for the value based purchasing 

program developed under this subsection. 

(4) MEDPAC REPORT ON HOSPITAL VALUE BASED PURCHASING PROGRAM.— 

(A) IN GENERAL.—By not later than June 1, 2007, the 

Medicare Payment Advisory Commission shall submit to 

Congress a report that includes detailed recommendations 

on a structure of value based payment adjustments for hospital services under the Medicare program under title 

XVIII of the Social Security Act. 

(B) CONTENTS.—Such report shall include the following: 

(i) Determinations of the thresholds, the size of 

payments, the sources of funds, and the relationship of 

payments to improvement and attainment of quality. 

(ii) An analysis of hospital efficiency measures 

such as costs per discharge, related services within an 

episode of care including payments for physicians’ services associated with the discharge or episode of care. 

(iii) An identification of other changes that are 

needed within the payment structure under section 

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

1395ww(d)) to assure consistency between such structure and the value based payment program. 

(c) QUALITY ADJUSTMENT IN DRG PAYMENTS FOR CERTAIN

HOSPITAL ACQUIRED INFECTIONS.— 

(1) IN GENERAL.—Section 1886(d)(4) of the Social Security 

Act (42 U.S.C. 1395ww(d)(4)) is amended by adding at the end 

the following new subparagraph: 

‘‘(D)(i) For discharges occurring on or after October 1, 2008, the 

diagnosis-related group to be assigned under this paragraph for a 

discharge described in clause (ii) shall be a diagnosis-related group 

that does not result in higher payment based on the presence of a 

secondary diagnosis code described in clause (iv). 

‘‘(ii) A discharge described in this clause is a discharge which 

meets the following requirements: 


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‘‘(I) The discharge includes a condition identified by a diagnosis code selected under clause (iv) as a secondary diagnosis. 

‘‘(II) But for clause (i), the discharge would have been classified to a diagnosis-related group that results in a higher payment based on the presence of a secondary diagnosis code selected under clause (iv). 

‘‘(III) At the time of admission, no code selected under 

clause (iv) was present. 

‘‘(iii) As part of the information required to be reported by a 

hospital with respect to a discharge of an individual in order for 

payment to be made under this subsection, for discharges occurring 

on or after October 1, 2007, the information shall include the secondary diagnosis of the individual at admission. 

‘‘(iv) By not later than October 1, 2007, the Secretary shall select diagnosis codes associated with at least two conditions, each of 

which codes meets all of the following requirements (as determined 

by the Secretary): 

‘‘(I) Cases described by such code have a high cost or high 

volume, or both, under this title. 

‘‘(II) The code results in the assignment of a case to a diagnosis-related group that has a higher payment when the code 

is present as a secondary diagnosis. 

‘‘(III) The code describes such conditions that could reasonably have been prevented through the application of evidencebased guidelines. 

The Secretary may from time to time revise (through addition or deletion of codes) the diagnosis codes selected under this clause so long 

as there are diagnosis codes associated with at least two conditions 

selected for discharges occurring during any fiscal year. 

‘‘(v) In selecting and revising diagnosis codes under clause (iv), 

the Secretary shall consult with the Centers for Disease Control and 

Prevention and other appropriate entities. 

‘‘(vi) Any change resulting from the application of this subparagraph shall not be taken into account in adjusting the weighting 

factors under subparagraph (C)(i) or in applying budget neutrality 

under subparagraph (C)(iii).’’. 

(2) NO JUDICIAL REVIEW.—Section 1886(d)(7)(B) of such Act 

(42 U.S.C. 1395ww(d)(7)(B)) is amended by inserting before the 

period the following: ‘‘, including the selection and revision of 

codes under paragraph (4)(D)’’. 

SEC. 5002. CLARIFICATION OF DETERMINATION OF MEDICAID PATIENT 

DAYS FOR DSH COMPUTATION. 

(a) IN GENERAL.—Section 1886(d)(5)(F)(vi) of the Social Security Act (42 U.S.C. 1395ww(d)(5)(F)(vi)) is amended by adding after 

and below subclause (II) the following: 

‘‘In determining under subclause (II) the number of the hospital’s 

patient days for such period which consist of patients who (for such 

days) were eligible for medical assistance under a State plan approved under title XIX, the Secretary may, to the extent and for the 

period the Secretary determines appropriate, include patient days of 

patients not so eligible but who are regarded as such because they 

receive benefits under a demonstration project approved under title 

XI.’’. 


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(b) RATIFICATION AND PROSPECTIVE APPLICATION OF PREVIOUS

REGULATIONS.— (1) IN GENERAL.—Subject to paragraph (2), regulations described in paragraph (3), insofar as such regulations provide 

for the treatment of individuals eligible for medical assistance 

under a demonstration project approved under title XI of the 

Social Security Act under section 1886(d)(5)(F)(vi) of such Act, 

are hereby ratified, effective as of the date of their respective 

promulgations. 

(2) NO APPLICATION TO CLOSED COST REPORTS.—Paragraph 

(1) shall not be applied in a manner that requires the reopening 

of any cost reports which are closed as of the date of the enactment of this Act. 

(3) REGULATIONS DESCRIBED.—For purposes of paragraph 

(1), the regulations described in this paragraph are as follows: 

(A) 2000 REGULATION.—Regulations promulgated on 

January 20, 2000, at 65 Federal Register 3136 et seq., including the policy in such regulations regarding discharges 

occurring prior to January 20, 2000. 

(B) 2003 REGULATION.—Regulations promulgated on 

August 1, 2003, at 68 Federal Register 45345 et seq. 

SEC. 5003. IMPROVEMENTS TO THE MEDICARE-DEPENDENT HOSPITAL 

(MDH) PROGRAM. 

(a) 5-YEAR EXTENSION.— (1) EXTENSION OF PAYMENT METHODOLOGY.—Section 

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

1395ww(d)(5)(G)) is amended— 

(A) in clause (i), by striking ‘‘October 1, 2006’’ and inserting ‘‘October 1, 2011’’; and 

(B) in clause (ii)(II)— 

(i) by striking ‘‘October 1, 2006’’ and inserting ‘‘October 1, 2011’’; and 

(ii) by inserting ‘‘or for discharges in the fiscal 

year’’ after ‘‘for the cost reporting period’’. 

(2) CONFORMING AMENDMENTS.— 

(A) EXTENSION OF TARGET AMOUNT.—Section 

1886(b)(3)(D) of such Act (42 U.S.C. 1395ww(b)(3)(D)) is 

amended— 

(i) in the matter preceding clause (i)— 

(I) by striking ‘‘beginning’’ and inserting ‘‘occurring’’; and 

(II) by striking ‘‘October 1, 2006’’ and inserting 

‘‘October 1, 2011’’; and 

(ii) in clause (iv), by striking ‘‘through fiscal year 

2005’’ and inserting ‘‘through fiscal year 2011’’. 

(B) PERMITTING HOSPITALS TO DECLINE RECLASSIFICATION.—Section 13501(e)(2) of the Omnibus Budget Reconciliation Act of 1993 (42 U.S.C. 1395ww note) is amended by striking ‘‘through fiscal year 2005’’ and inserting 

‘‘through fiscal year 2011’’. 

(b) OPTION TO USE 2002 AS BASE YEAR.—Section 1886(b)(3) of 

such Act (42 U.S.C. 1395ww(b)(3)) is amended— 

(1) in subparagraph (D), by inserting ‘‘subject to subparagraph (K),’’ after ‘‘(d)(5)(G)),’’; and 

(2) by adding at the end the following new subparagraph: 


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‘‘(K)(i) With respect to discharges occurring on or after October 

1, 2006, in the case of a medicare-dependent, small rural hospital, 

for purposes of applying subparagraph (D)— 

‘‘(I) there shall be substituted for the base cost reporting period described in subparagraph (D)(i) the 12-month cost reporting period beginning during fiscal year 2002; and 

‘‘(II) any reference in such subparagraph to the ‘first cost 

reporting period’ described in such subparagraph is deemed a 

reference to the first cost reporting period beginning on or after 

October 1, 2006. 

‘‘(ii) This subparagraph shall only apply to a hospital if the 

substitution described in clause (i)(I) results in an increase in the 

target amount under subparagraph (D) for the hospital.’’. 

(c) ENHANCED PAYMENT FOR AMOUNT BY WHICH THE TARGET

EXCEEDS THE PPS RATE.—Section 1886(d)(5)(G)(ii)(II) of such Act 

(42 U.S.C. 1395ww(d)(5)(G)(iv)(II)) is amended by inserting ‘‘(or 75 

percent in the case of discharges occurring on or after October 1, 

2006)’’ after ‘‘50 percent’’. 

(d) ENHANCED DISPROPORTIONATE SHARE HOSPITAL (DSH) 

TREATMENT FOR MEDICARE DEPENDENT HOSPITALS.—Section 

1886(d)(5)(F)(xiv)(II) of such Act (42 U.S.C. 

1395ww(d)(5)(F)(xiv)(II)) is amended by inserting ‘‘or, in the case of 

discharges occurring on or after October 1, 2006, as a medicare-dependent, small rural hospital under subparagraph (G)(iv)’’ before 

the period at the end. 

SEC. 5004. REDUCTION IN PAYMENTS TO SKILLED NURSING FACILITIES FOR BAD DEBT. 

(a) IN GENERAL.—Section 1861(v)(1) of the Social Security Act 

(42 U.S.C. 1395x(v)(1)) is amended by adding at the end the following new subparagraph: 

‘‘(V) In determining such reasonable costs for skilled nursing facilities with respect to cost reporting periods beginning on or after 

October 1, 2005, the amount of bad debts otherwise treated as allowed costs which are attributable to the coinsurance amounts 

under this title for individuals who are entitled to benefits under 

part A and— 

‘‘(i) are not described in section 1935(c)(6)(A)(ii) shall be reduced by 30 percent of such amount otherwise allowable; and 

‘‘(ii) are described in such section shall not be reduced.’’. 

(b) TECHNICAL AMENDMENT.—Section 1861(v)(1)(T) of such Act 

(42 U.S.C. 1395x(v)(1)(T)) is amended by striking ‘‘section 

1833(t)(5)(B)’’ and inserting ‘‘section 1833(t)(8)(B)’’. 

SEC. 5005. EXTENDED PHASE-IN OF THE INPATIENT REHABILITATION 

FACILITY CLASSIFICATION CRITERIA. 

(a) IN GENERAL.—Notwithstanding section 412.23(b)(2) of title 

42, Code of Federal Regulations, the Secretary of Health and 

Human Services shall apply the applicable percent specified in subsection (b) in the classification criterion used under the IRF regulation (as defined in subsection (c)) to determine whether a hospital 

or unit of a hospital is an inpatient rehabilitation facility under the 

Medicare program under title XVIII of the Social Security Act. 

(b) APPLICABLE PERCENT.—For purposes of subsection (a), the 

applicable percent specified in this subsection for cost reporting periods— 


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(1) beginning during the 12-month period beginning on 

July 1, 2006, is 60 percent; 

(2) beginning during the 12-month period beginning on 

July 1, 2007, is 65 percent; and 

(3) beginning on or after July 1, 2008, is 75 percent. 

(c) IRF REGULATION.—For purposes of subsection (a), the term 

‘‘IRF regulation’’ means the rule published in the Federal Register 

on May 7, 2004, entitled ‘‘Medicare Program; Final Rule; Changes 

to the Criteria for Being Classified as an Inpatient Rehabilitation 

Facility’’ (69 Fed. Reg. 25752). 

SEC. 5006. DEVELOPMENT OF A STRATEGIC PLAN REGARDING PHYSICIAN INVESTMENT IN SPECIALTY HOSPITALS. 

(a) DEVELOPMENT.— 

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

Services (in this section referred to as the ‘‘Secretary’’) shall develop a strategic and implementing plan to address issues described in paragraph (2) regarding physician investment in specialty hospitals (as defined in section 1877(h)(7)(A) of the Social 

Security Act (42 U.S.C. 1395nn(h)(7)(A)). 

(2) ISSUES DESCRIBED.—The issues described in this paragraph are the following: 

(A) Proportionality of investment return. 

(B) Bona fide investment. 

(C) Annual disclosure of investment information. 

(D) The provision by specialty hospitals of— 

(i) care to patients who are eligible for medical assistance under a State plan approved under title XIX 

of the Social Security Act, including patients not so eligible but who are regarded as such because they receive 

benefits under a demonstration project approved under 

title XI of such Act; and 

(ii) charity care. 

(E) Appropriate enforcement. 

(b) REPORTS.— 

(1) INTERIM REPORT.—Not later than 3 months after the 

date of the enactment of this Act, the Secretary shall submit an 

interim report to the appropriate committees of jurisdiction of 

Congress on the status of the development of the plan under 

subsection (a). 

(2) FINAL REPORT.—Not later than six months after the 

date of the enactment of this Act, the Secretary shall submit a 

final report to the appropriate committees of jurisdiction of 

Congress on the plan developed under subsection (a) together 

with recommendations for such legislation and administrative 

actions as the Secretary considers appropriate. 

(c) CONTINUATION OF SUSPENSION ON ENROLLMENT.— 

(1) IN GENERAL.—Subject to paragraph (2), the Secretary 

shall continue the suspension on enrollment of new specialty 

hospitals (as so defined) under title XVIII of the Social Security 

Act until the earlier of— 

(A) the date that the Secretary submits the final report 

under subsection (b)(2); or 

(B) the date that is six months after the date of the enactment of this Act. 


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(2) EXTENSION OF SUSPENSION.—If the Secretary fails to 

submit the final report described in subsection (b)(2) by the date 

required under such subsection, the Secretary shall— 

(A) extend the suspension on enrollment under paragraph (1) for an additional two months; and 

(B) provide a certification to the appropriate committees of jurisdiction of Congress of such failure. 

(d) WAIVER.—In developing the plan and report required under 

this section, the Secretary may waive such requirements of section 

553 of title 5, United States Code, as the Secretary determines necessary. 

(e) FUNDING.—Out of any funds in the Treasury not otherwise 

appropriated, there are appropriated to the Secretary for fiscal year 

2006, $2,000,000 to carry out this section. 

SEC. 5007. MEDICARE DEMONSTRATION PROJECTS TO PERMIT 

GAINSHARING ARRANGEMENTS. 

(a) ESTABLISHMENT.—The Secretary shall establish under this 

section a qualified gainsharing demonstration program under 

which the Secretary shall approve demonstration projects by not 

later than November 1, 2006, to test and evaluate methodologies 

and arrangements between hospitals and physicians designed to 

govern the utilization of inpatient hospital resources and physician 

work to improve the quality and efficiency of care provided to Medicare beneficiaries and to develop improved operational and financial hospital performance with sharing of remuneration as specified 

in the project. Such projects shall be operational by not later than 

January 1, 2007. 

(b) REQUIREMENTS DESCRIBED.—A demonstration project under 

this section shall meet the following requirements for purposes of 

maintaining or improving quality while achieving cost savings: 

(1) ARRANGEMENT FOR REMUNERATION AS SHARE OF SAV- INGS.—The demonstration project shall involve an arrangement 

between a hospital and a physician under which the hospital 

provides remuneration to the physician that represents solely a 

share of the savings incurred directly as a result of collaborative efforts between the hospital and the physician. 

(2) WRITTEN PLAN AGREEMENT.—The demonstration project 

shall be conducted pursuant to a written agreement that— 

(A) is submitted to the Secretary prior to implementation of the project; and 

(B) includes a plan outlining how the project will 

achieve improvements in quality and efficiency. 

(3) PATIENT NOTIFICATION.—The demonstration project 

shall include a notification process to inform patients who are 

treated in a hospital participating in the project of the participation of the hospital in such project. 

(4) MONITORING QUALITY AND EFFICIENCY OF CARE.—The 

demonstration project shall provide measures to ensure that the 

quality and efficiency of care provided to patients who are treated in a hospital participating in the demonstration project is 

continuously monitored to ensure that such quality and efficiency is maintained or improved. 

(5) INDEPENDENT REVIEW.—The demonstration project shall 

certify, prior to implementation, that the elements of the demonstration project are reviewed by an organization that is not 


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affiliated with the hospital or the physician participating in the 

project. 

(6) REFERRAL LIMITATIONS.—The demonstration project 

shall not be structured in such a manner as to reward any physician participating in the project on the basis of the volume or 

value of referrals to the hospital by the physician. 

(c) WAIVER OF CERTAIN RESTRICTIONS.— 

(1) IN GENERAL.—An incentive payment made by a hospital 

to a physician under and in accordance with a demonstration 

project shall not constitute— 

(A) remuneration for purposes of section 1128B of the 

Social Security Act (42 U.S.C. 1320a–7b); 

(B) a payment intended to induce a physician to reduce 

or limit services to a patient entitled to benefits under 

Medicare or a State plan approved under title XIX of such 

Act in violation of section 1128A of such Act (42 U.S.C. 

1320a–7a); or 

(C) a financial relationship for purposes of section 1877 

of such Act (42 U.S.C. 1395nn). 

(2) PROTECTION FOR EXISTING ARRANGEMENTS.—In no case 

shall the failure to comply with the requirements described in 

paragraph (1) affect a finding made by the Inspector General 

of the Department of Health and Human Services prior to the 

date of the enactment of this Act that an arrangement between 

a hospital and a physician does not violate paragraph (1) or (2) 

of section 1128A(a) of the Social Security Act (42 U.S.C. 1320a– 

7(a)). 

(d) PROGRAM ADMINISTRATION.— 

(1) SOLICITATION OF APPLICATIONS.—By not later than 90 

days after the date of the enactment of this Act, the Secretary 

shall solicit applications for approval of a demonstration 

project, in such form and manner, and at such time specified 

by the Secretary. 

(2) NUMBER OF PROJECTS APPROVED.—The Secretary shall 

approve not more than 6 demonstration projects, at least 2 of 

which shall be located in a rural area. 

(3) DURATION.—The qualified gainsharing demonstration 

program under this section shall be conducted for the period beginning on January 1, 2007, and ending on December 31, 2009. 

(e) REPORTS.— 

(1) INITIAL REPORT.—By not later than December 1, 2006, 

the Secretary shall submit to Congress a report on the number 

of demonstration projects that will be conducted under this section. 

(2) PROJECT UPDATE.—By not later than December 1, 2007, 

the Secretary shall submit to Congress a report on the details 

of such projects (including the project improvements towards 

quality and efficiency described in subsection (b)(2)(B)). 

(3) QUALITY IMPROVEMENT AND SAVINGS.—By not later 

than December 1, 2008, the Secretary shall submit to Congress 

a report on quality improvement and savings achieved as a result of the qualified gainsharing demonstration program established under subsection (a). 


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35 

(4) FINAL REPORT.—By not later than May 1, 2010, the Secretary shall submit to Congress a final report on the information described in paragraph (3). 

(f) FUNDING.— (1) IN GENERAL.—Out of any funds in the Treasury not otherwise appropriated, there are appropriated to the Secretary for 

fiscal year 2006 $6,000,000, to carry out this section. 

(2) AVAILABILITY.—Funds appropriated under paragraph 

(1) shall remain available for expenditure through fiscal year 

2010. 

(g) DEFINITIONS.—For purposes of this section: 

(1) DEMONSTRATION PROJECT.—The term ‘‘demonstration 

project’’ means a project implemented under the qualified 

gainsharing demonstration program established under subsection (a). 

(2) HOSPITAL.—The term ‘‘hospital’’ means a hospital that 

receives payment under section 1886(d) of the Social Security 

Act (42 U.S.C. 1395ww(d)), and does not include a critical access hospital (as defined in section 1861(mm) of such Act (42 

U.S.C. 1395x(mm))). 

(3) MEDICARE.—The term ‘‘Medicare’’ means the programs 

under title XVIII of the Social Security Act. 

(4) PHYSICIAN.—The term ‘‘physician’’ means, with respect 

to a demonstration project, a physician described in paragraph 

(1) or (3) of section 1861(r) of the Social Security Act (42 U.S.C. 

1395x(r)) who is licensed as such a physician in the area in 

which the project is located and meets requirements to provide 

services for which benefits are provided under Medicare. Such 

term shall be deemed to include a practitioner described in section 1842(e)(18)(C) of such Act (42 U.S.C. 1395u(e)(18)(C)). 

(5) SECRETARY.—The term ‘‘Secretary’’ means the Secretary 

of Health and Human Services. 

SEC. 5008. POST-ACUTE CARE PAYMENT REFORM DEMONSTRATION 

PROGRAM. 

(a) ESTABLISHMENT.— 

(1) IN GENERAL.—By not later than January 1, 2008, the 

Secretary of Health and Human Services (in this section referred to as the ‘‘Secretary’’) shall establish a demonstration 

program for purposes of understanding costs and outcomes 

across different post-acute care sites. Under such program, with 

respect to diagnoses specified by the Secretary, an individual 

who receives treatment from a provider for such a diagnosis 

shall receive a single comprehensive assessment on the date of 

discharge from a subsection (d) hospital (as defined in section 

1886(d)(1)(B) of the Social Security Act (42 U.S.C. 

1395ww(d)(1)(B))) of the needs of the patient and the clinical 

characteristics of the diagnosis to determine the appropriate 

placement of such patient in a post-acute care site. The Secretary shall use a standardized patient assessment instrument 

across all post-acute care sites to measure functional status and 

other factors during the treatment and at discharge from each 

provider. Participants in the program shall provide information 

on the fixed and variable costs for each individual. An additional comprehensive assessment shall be provided at the end of 

the episode of care. 


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36 

(2) NUMBER OF SITES.—The Secretary shall conduct the 

demonstration program under this section with sufficient numbers to determine statistically reliable results. 

(3) DURATION.—The Secretary shall conduct the demonstration program under this section for a 3-year period. 

(b) WAIVER AUTHORITY.—The Secretary may waive such requirements of titles XI and XVIII of the Social Security Act (42 

U.S.C. 1301 et seq.; 42 U.S.C. 1395 et seq.) as may be necessary for 

the purpose of carrying out the demonstration program under this 

section. 

(c) REPORT.—Not later than 6 months after the completion of 

the demonstration program under this section, the Secretary shall 

submit to Congress a report on such program, that includes the results of the program and recommendations for such legislation and 

administrative action as the Secretary determines to be appropriate. 

(d) FUNDING.—The Secretary shall provide for the transfer from 

the Federal Hospital Insurance Trust Fund established under section 1817 of the Social Security Act (42 U.S.C. 1395i), $6,000,000 

for the costs of carrying out the demonstration program under this 

section. 

Subtitle B—Provisions Relating to Part B 

CHAPTER 1—PAYMENT PROVISIONS 

SEC. 5101. BENEFICIARY OWNERSHIP OF CERTAIN DURABLE MEDICAL 

EQUIPMENT (DME). 

(a) DME.— 

(1) IN GENERAL.—Section 1834(a)(7)(A) of the Social Security Act (42 U.S.C. 1395m(a)(7)(A)) is amended to read as follows: 

‘‘(A) PAYMENT.—In the case of an item of durable medical equipment not described in paragraphs (2) through (6), 

the following rules shall apply: 

‘‘(i) RENTAL.— 

‘‘(I) IN GENERAL.—Except as provided in clause 

(iii), payment for the item shall be made on a 

monthly basis for the rental of the item during the 

period of medical need (but payments under this 

clause may not extend over a period of continuous 

use (as determined by the Secretary) of longer than 

13 months). 

‘‘(II) PAYMENT AMOUNT.—Subject to subparagraph (B), the amount recognized for the item, for 

each of the first 3 months of such period, is 10 percent of the purchase price recognized under paragraph (8) with respect to the item, and, for each of 

the remaining months of such period, is 7.5 percent of such purchase price. 

‘‘(ii) OWNERSHIP AFTER RENTAL.—On the first day 

that begins after the 13th continuous month during 

which payment is made for the rental of an item under 

clause (i), the supplier of the item shall transfer title to 

the item to the individual. 


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37 

‘‘(iii) PURCHASE AGREEMENT OPTION FOR POWER- DRIVEN WHEELCHAIRS.—In the case of a power-driven 

wheelchair, at the time the supplier furnishes the item, 

the supplier shall offer the individual the option to 

purchase the item, and payment for such item shall be 

made on a lump-sum basis if the individual exercises 

such option. 

‘‘(iv) MAINTENANCE AND SERVICING.—After the supplier transfers title to the item under clause (ii) or in 

the case of a power-driven wheelchair for which a purchase agreement has been entered into under clause 

(iii), maintenance and servicing payments shall, if the 

Secretary determines such payments are reasonable 

and necessary, be made (for parts and labor not covered by the supplier’s or manufacturer’s warranty, as 

determined by the Secretary to be appropriate for the 

particular type of durable medical equipment), and 

such payments shall be in an amount determined to be 

appropriate by the Secretary.’’. 

(2) EFFECTIVE DATE.—The amendment made by paragraph 

(1) shall apply to items furnished for which the first rental 

month occurs on or after January 1, 2006. 

(b) OXYGEN EQUIPMENT.— (1) IN GENERAL.—Section 1834(a)(5) of such Act (42 U.S.C. 

1395m(a)(5)) is amended— 

(A) in subparagraph (A), by striking ‘‘and (E)’’ and inserting ‘‘(E), and (F)’’; and 

(B) by adding at the end the following new subparagraph: 

‘‘(F) OWNERSHIP OF EQUIPMENT.— 

‘‘(i) IN GENERAL.—Payment for oxygen equipment 

(including portable oxygen equipment) under this paragraph may not extend over a period of continuous use 

(as determined by the Secretary) of longer than 36 

months. 

‘‘(ii) OWNERSHIP.— ‘‘(I) TRANSFER OF TITLE.—On the first day that 

begins after the 36th continuous month during 

which payment is made for the equipment under 

this paragraph, the supplier of the equipment shall 

transfer title to the equipment to the individual. 

‘‘(II) PAYMENTS FOR OXYGEN AND MAINTENANCE AND SERVICING.—After the supplier transfers title to the equipment under subclause (I)— 

‘‘(aa) payments for oxygen shall continue 

to be made in the amount recognized for oxygen under paragraph (9) for the period of medical need; and 

‘‘(bb) maintenance and servicing payments 

shall, if the Secretary determines such payments are reasonable and necessary, be made 

(for parts and labor not covered by the supplier’s or manufacturer’s warranty, as determined by the Secretary to be appropriate for 

the equipment), and such payments shall be in 


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38 

an amount determined to be appropriate by 

the Secretary.’’. 

(2) EFFECTIVE DATE.— 

(A) IN GENERAL.—The amendments made by paragraph (1) shall take effect on January 1, 2006. 

(B) APPLICATION TO CERTAIN INDIVIDUALS.—In the case 

of an individual receiving oxygen equipment on December 

31, 2005, for which payment is made under section 1834(a) 

of the Social Security Act (42 U.S.C. 1395m(a)), the 36- 

month period described in paragraph (5)(F)(i) of such section, as added by paragraph (1), shall begin on January 1, 

2006. 

SEC. 5102. ADJUSTMENTS IN PAYMENT FOR IMAGING SERVICES. 

(a) MULTIPLE PROCEDURE PAYMENT REDUCTION FOR IMAGING

EXEMPTED FROM BUDGET NEUTRALITY.—Section 1848(c)(2)(B) of the 

Social Security Act (42 U.S.C. 1395w–4(c)(2)(B)) is amended— 

(1) in clause (ii)(II), by striking ‘‘clause (iv)’’ and inserting 

‘‘clauses (iv) and (v)’’; 

(2) in clause (iv) in the heading, by inserting ‘‘OF CERTAIN

ADDITIONAL EXPENDITURES’’ after ‘‘EXEMPTION’’; and 

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

‘‘(v) EXEMPTION OF CERTAIN REDUCED EXPENDITURES FROM BUDGET-NEUTRALITY CALCULATION.—The 

following reduced expenditures, as estimated by the 

Secretary, shall not be taken into account in applying 

clause (ii)(II): 

‘‘(I) REDUCED PAYMENT FOR MULTIPLE IMAGING

PROCEDURES.—Effective for fee schedules established beginning with 2007, reduced expenditures 

attributable to the multiple procedure payment reduction for imaging under the final rule published 

by the Secretary in the Federal Register on November 21, 2005 (42 CFR 405, et al.) insofar as it relates to the physician fee schedules for 2006 and 

2007.’’. 

(b) REDUCTION IN PHYSICIAN FEE SCHEDULE TO OPD PAYMENT

AMOUNT FOR IMAGING SERVICES.—Section 1848 of such Act (42 

U.S.C. 1395w–4) is amended— 

(1) in subsection (b), by adding at the end the following 

new paragraph: 

‘‘(4) SPECIAL RULE FOR IMAGING SERVICES.— 

‘‘(A) IN GENERAL.—In the case of imaging services described in subparagraph (B) furnished on or after January 

1, 2007, if— 

‘‘(i) the technical component (including the technical component portion of a global fee) of the service 

established for a year under the fee schedule described 

in paragraph (1) without application of the geographic 

adjustment factor described in paragraph (1)(C), exceeds 

‘‘(ii) the medicare OPD fee schedule amount established under the prospective payment system for hospital outpatient department services under paragraph 

(3)(D) of section 1833(t) for such service for such year, 


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39 

determined without regard to geographic adjustment 

under paragraph (2)(D) of such section, 

the Secretary shall substitute the amount described in 

clause (ii), adjusted by the geographic adjustment factor described in paragraph (1)(C), for the fee schedule amount for 

such technical component for such year. 

‘‘(B) IMAGING SERVICES DESCRIBED.—For purposes of 

subparagraph (A), imaging services described in this subparagraph are imaging and computer-assisted imaging 

services, including X-ray, ultrasound (including echocardiography), nuclear medicine (including positron emission tomography), magnetic resonance imaging, computed 

tomography, and fluoroscopy, but excluding diagnostic and 

screening mammography.’’; and 

(2) in subsection (c)(2)(B)(v), as added by subsection (a)(3), 

by adding at the end the following new subclause: 

‘‘(II) OPD PAYMENT CAP FOR IMAGING SERVICES.—Effective for fee schedules established beginning with 2007, reduced expenditures attributable 

to subsection (b)(4).’’. 

SEC. 5103. LIMITATION ON PAYMENTS FOR PROCEDURES IN AMBULATORY SURGICAL CENTERS. 

Section 1833(i)(2) of the Social Security Act (42 U.S.C. 

1395l(i)(2)) is amended— 

(1) in subparagraph (A), by inserting ‘‘subject to subparagraph (E),’’ after ‘‘subparagraph (D),’’; 

(2) in subparagraph (D)(ii), by inserting before the period 

at the end the following: ‘‘and taking into account reduced expenditures that would apply if subparagraph (E) were to continue to apply, as estimated by the Secretary’’; and 

(3) by adding at the end the following new subparagraph: 

‘‘(E) With respect to surgical procedures furnished on or after 

January 1, 2007, and before the effective date of the implementation 

of a revised payment system under subparagraph (D), if— 

‘‘(i) the standard overhead amount under subparagraph (A) 

for a facility service for such procedure, without the application 

of any geographic adjustment, exceeds 

‘‘(ii) the medicare OPD fee schedule amount established 

under the prospective payment system for hospital outpatient 

department services under paragraph (3)(D) of section 1833(t) 

for such service for such year, determined without regard to geographic adjustment under paragraph (2)(D) of such section, 

the Secretary shall substitute under subparagraph (A) the amount 

described in clause (ii) for the standard overhead amount for such 

service referred to in clause (i).’’. 

SEC. 5104. UPDATE FOR PHYSICIANS’ SERVICES FOR 2006. 

(a) UPDATE FOR 2006.—Section 1848(d) of the Social Security 

Act (42 U.S.C. 1395w–4(d)) is amended— 

(1) in paragraph (4)(B), in the matter preceding clause (i), 

by striking ‘‘paragraph (5)’’ and inserting ‘‘paragraphs (5) and 

(6)’’; and 

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


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‘‘(6) UPDATE FOR 2006.—The update to the single conversion 

factor established in paragraph (1)(C) for 2006 shall be 0 percent.’’. 

(b) NOT TREATED AS CHANGE IN LAW AND REGULATION IN SUSTAINABLE GROWTH RATE DETERMINATION.—The amendments made 

by subsection (a) shall not be treated as a change in law for purposes of applying section 1848(f)(2)(D) of the Social Security Act (42 

U.S.C. 1395w–4(f)(2)(D)). 

(c) MEDPAC REPORT.— 

(1) IN GENERAL.—By not later than March 1, 2007, the 

Medicare Payment Advisory Commission shall submit a report 

to Congress on mechanisms that could be used to replace the 

sustainable growth rate system under section 1848(f) of the Social Security Act (42 U.S.C. 1395w–4(f)). 

(2) REQUIREMENTS.—The report required under paragraph 

(1) shall— 

(A) identify and examine alternative methods for assessing volume growth; 

(B) review options to control the volume of physicians’ 

services under the Medicare program while maintaining access to such services by Medicare beneficiaries; 

(C) examine the application of volume controls under 

the Medicare physician fee schedule under section 1848 of 

the Social Security Act (42 U.S.C. 1395w–4); 

(D) identify levels of application of volume controls, 

such as group practice, hospital medical staff, type of service, geographic area, and outliers; 

(E) examine the administrative feasibility of implementing the options reviewed under subparagraph (B), including the availability of data and time lags; 

(F) examine the extent to which the alternative methods 

identified and examined under subparagraph (A) should be 

specified in such section 1848; and 

(G) identify the appropriate level of discretion for the 

Secretary of Health and Human Services to change payment rates under the Medicare physician fee schedule or 

otherwise take steps that affect physician behavior. 

Such report shall include such recommendations on alternative 

mechanisms to replace the sustainable growth rate system as 

the Medicare Payment Advisory Commission determines appropriate. 

(3) FUNDING.—Out of any funds in the Treasury not otherwise appropriated, there are appropriated to the Medicare Payment Advisory Commission $550,000, to carry out this subsection. 

SEC. 5105. THREE-YEAR TRANSITION OF HOLD HARMLESS PAYMENTS 

FOR SMALL RURAL HOSPITALS UNDER THE PROSPECTIVE 

PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT DEPARTMENT SERVICES. 

Section 1833(t)(7)(D)(i) of the Social Security Act (42 U.S.C. 

1395l(t)(7)(D)(i)) is amended— 

(1) by inserting ‘‘(I)’’ before ‘‘In the case’’; and 

(2) by adding at the end the following new subclause: 

‘‘(II) In the case of a hospital located in a rural 

area and that has not more than 100 beds and that is 


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41 

not a sole community hospital (as defined in section 

1886(d)(5)(D)(iii)), for covered OPD services furnished 

on or after January 1, 2006, and before January 1, 

2009, for which the PPS amount is less than the preBBA amount, the amount of payment under this subsection shall be increased by the applicable percentage 

of the amount of such difference. For purposes of the 

previous sentence, with respect to covered OPD services 

furnished during 2006, 2007, or 2008, the applicable 

percentage shall be 95 percent, 90 percent, and 85 percent, respectively.’’. 

SEC. 5106. UPDATE TO THE COMPOSITE RATE COMPONENT OF THE 

BASIC CASE-MIX ADJUSTED PROSPECTIVE PAYMENT SYSTEM FOR DIALYSIS SERVICES. 

Section 1881(b)(12) of the Social Security Act (42 U.S.C. 

1395rr(b)(12)) is amended— 

(1) in subparagraph (F), in the flush matter at the end, by 

striking ‘‘Nothing’’ and inserting ‘‘Except as provided in subparagraph (G), nothing’’; 

(2) by redesignating subparagraph (G) as subparagraph 

(H); and 

(3) by inserting after subparagraph (F) the following new 

subparagraph: 

‘‘(G) The Secretary shall increase the amount of the composite 

rate component of the basic case-mix adjusted system under subparagraph (B) for dialysis services furnished on or after January 1, 

2006, by 1.6 percent above the amount of such composite rate component for such services furnished on December 31, 2005.’’. 

SEC. 5107. REVISIONS TO PAYMENTS FOR THERAPY SERVICES. 

(a) EXCEPTION TO CAPS FOR 2006.— 

(1) IN GENERAL.—Section 1833(g) of the Social Security Act 

(42 U.S.C. 1395l(g)) is amended— 

(A) in each of paragraphs (1) and (3), by striking 

‘‘paragraph (4)’’ and inserting ‘‘paragraphs (4) and (5)’’; 

and 

(B) by adding at the end the following new paragraph: 

‘‘(5) With respect to expenses incurred during 2006 for services, 

the Secretary shall implement a process under which an individual 

enrolled under this part may, upon request of the individual or a 

person on behalf of the individual, obtain an exception from the uniform dollar limitation specified in paragraph (2), for services described in paragraphs (1) and (3) if the provision of such services 

is determined to be medically necessary. Under such process, if the 

Secretary does not make a decision on such a request for an exception within 10 business days of the date of the Secretary’s receipt 

of the request, the Secretary shall be deemed to have found the services to be medically necessary.’’. 

(2) TIMELY IMPLEMENTATION.—The Secretary of Health and 

Human Services shall waive such provisions of law and regulation (including those described in section 110(c) of Public Law 

108–173) as are necessary to implement the amendments made 

by paragraph (1) on a timely basis and, notwithstanding any 

other provision of law, may implement such amendments by 

program instruction or otherwise. There shall be no administrative or judicial review under section 1869 or section 1878 of the 


hmoore on PROD1PC68 with HMRPT
42 

Social Security Act (42 U.S.C. 1395ff and 1395oo), or otherwise 

of the process (including the establishment of the process) under 

section 1833(g)(5) of such Act, as added by paragraph (1). 

(b) IMPLEMENTATION OF CLINICALLY APPROPRIATE CODE EDITS

IN ORDER TO IDENTIFY AND ELIMINATE IMPROPER PAYMENTS FOR

THERAPY SERVICES.—By not later than July 1, 2006, the Secretary 

of Health and Human Services shall implement clinically appropriate code edits with respect to payments under part B of title 

XVIII of the Social Security Act for physical therapy services, occupational therapy services, and speech-language pathology services in 

order to identify and eliminate improper payments for such services, 

including edits of clinically illogical combinations of procedure 

codes and other edits to control inappropriate billings. 

CHAPTER 2—MISCELLANEOUS 

SEC. 5111. ACCELERATED IMPLEMENTATION OF INCOME-RELATED REDUCTION IN PART B PREMIUM SUBSIDY. 

Section 1839(i)(3)(B) of the Social Security Act (42 U.S.C. 

1395r(i)(3)(B)) is amended— 

(1) in the heading, by striking ‘‘5-YEAR’’ and inserting ‘‘3- 

YEAR’’; 

(2) in the matter preceding clause (i), by striking ‘‘2011’’ 

and inserting ‘‘2009’’; 

(3) in clause (i), by striking ‘‘20 percent’’ and inserting ‘‘33 

percent’’; 

(4) in clause (ii), by striking ‘‘40 percent’’ and inserting ‘‘67 

percent’’; and 

(5) by striking clauses (iii) and (iv). 

SEC. 5112. MEDICARE COVERAGE OF ULTRASOUND SCREENING FOR 

ABDOMINAL AORTIC ANEURYSMS. 

(a) IN GENERAL.—Section 1861 of the Social Security Act (42 

U.S.C. 1395x) is amended— 

(1) in subsection (s)(2)— 

(A) by striking ‘‘and’’ at the end of subparagraph (Y); 

(B) by adding ‘‘and’’ at the end of subparagraph (Z) 

and moving such subparagraph 2 ems to the left; and 

(C) by adding at the end the following new subparagraph: 

‘‘(AA) ultrasound screening for abdominal aortic aneurysm 

(as defined in subsection (bbb)) for an individual— 

‘‘(i) who receives a referral for such an ultrasound 

screening as a result of an initial preventive physical examination (as defined in section 1861(ww)(1)); 

‘‘(ii) who has not been previously furnished such an 

ultrasound screening under this title; and 

‘‘(iii) who— 

‘‘(I) has a family history of abdominal aortic aneurysm; or 

‘‘(II) manifests risk factors included in a beneficiary category recommended for screening by the 

United States Preventive Services Task Force regarding 

abdominal aortic aneurysms;’’; and 

(2) by adding at the end the following new subsection: 


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‘‘Ultrasound Screening for Abdominal Aortic Aneurysm 

‘‘(bbb) The term ‘ultrasound screening for abdominal aortic aneurysm’ means— 

‘‘(1) a procedure using sound waves (or such other procedures using alternative technologies, of commensurate accuracy 

and cost, that the Secretary may specify) provided for the early 

detection of abdominal aortic aneurysm; and 

‘‘(2) includes a physician’s interpretation of the results of 

the procedure.’’. 

(b) INCLUSION OF ULTRASOUND SCREENING FOR ABDOMINAL

AORTIC ANEURYSM IN INITIAL PREVENTIVE PHYSICAL EXAMINATION.—Section 1861(ww)(2) of such Act (42 U.S.C. 1395x(ww)(2)) is 

amended by adding at the end the following new subparagraph: 

‘‘(L) Ultrasound screening for abdominal aortic aneurysm 

as defined in section 1861(bbb).’’. 

(c) PAYMENT FOR ULTRASOUND SCREENING FOR ABDOMINAL

AORTIC ANEURYSM.—Section 1848(j)(3) of such Act (42 U.S.C. 

1395w–4(j)(3)) is amended by inserting ‘‘(2)(AA),’’ after ‘‘(2)(W),’’. 

(d) FREQUENCY.—Section 1862(a)(1) of such Act (42 U.S.C. 

1395y(a)(1)) is amended— 

(1) by striking ‘‘and’’ at the end of subparagraph (L); 

(2) by striking the semicolon at the end of subparagraph 

(M) and inserting ‘‘, and’’; and 

(3) by adding at the end the following new subparagraph: 

‘‘(N) in the case of ultrasound screening for abdominal aortic aneurysm which is performed more frequently than is provided for under section 1861(s)(2)(AA);’’. 

(e) NON-APPLICATION OF PART B DEDUCTIBLE.—Section 1833(b) 

of such Act (42 U.S.C. 1395l(b)) is amended in the first sentence— 

(1) by striking ‘‘and’’ before ‘‘(6)’’; and 

(2) by inserting ‘‘, and (7) such deductible shall not apply 

with respect to ultrasound screening for abdominal aortic aneurysm (as defined in section 1861(bbb))’’ before the period at the 

end. 

(f) EFFECTIVE DATE.—The amendments made by this section 

shall apply to services furnished on or after January 1, 2007. 

SEC. 5113. IMPROVING PATIENT ACCESS TO, AND UTILIZATION OF, 

COLORECTAL CANCER SCREENING. 

(a) NON-APPLICATION OF DEDUCTIBLE FOR COLORECTAL CANCER SCREENING TESTS.—Section 1833(b) of the Social Security Act 

(42 U.S.C. 1395l(b)), as amended by section 5112(e), is amended in 

the first sentence— 

(1) by striking ‘‘and’’ before ‘‘(7)’’; and 

(2) by inserting ‘‘, and (8) such deductible shall not apply 

with respect to colorectal cancer screening tests (as described in 

section 1861(pp)(1))’’ before the period at the end. 

(b) CONFORMING AMENDMENTS.—Paragraphs (2)(C)(ii) and 

(3)(C)(ii) of section 1834(d) of such Act (42 U.S.C. 1395m(d)) are 

each amended— 

(1) by striking ‘‘DEDUCTIBLE AND’’ in the heading; and 

(2) in subclause (I), by striking ‘‘deductible or’’ each place 

it appears. 

(c) EFFECTIVE DATE.—The amendments made by this section 

shall apply to services furnished on or after January 1, 2007. 


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SEC. 5114. DELIVERY OF SERVICES AT FEDERALLY QUALIFIED HEALTH 

CENTERS. 

(a) COVERAGE.— 

(1) IN GENERAL.—Section 1861(aa)(3) of the Social Security 

Act (42 U.S.C. 1395x(aa)(3)) is amended— 

(A) in subparagraph (A), by striking ‘‘, and’’ and inserting ‘‘and services described in subsections (qq) and (vv); 

and’’; 

(B) in subparagraph (B), by striking ‘‘sections 329, 330, 

and 340’’ and inserting ‘‘section 330’’; and 

(C) in the flush matter at the end, by inserting ‘‘by the 

center or by a health care professional under contract with 

the center’’ after ‘‘outpatient of a Federally qualified health 

center’’. 

(2) CONSOLIDATED BILLING.—The first sentence of section 

1842(b)(6)(F) of such Act (42 U.S.C. 1395u(b)(6)(F)) is amended— 

(A) by striking ‘‘and (G)’’ and inserting ‘‘(G)’’; and 

(B) by inserting before the period at the end the following: ‘‘, and (H) in the case of services described in section 1861(aa)(3) that are furnished by a health care professional under contract with a Federally qualified health center, payment shall be made to the center’’. 

(b) TECHNICAL CORRECTIONS.—Clauses (i) and (ii)(II) of section 

1861(aa)(4)(A) of such Act (42 U.S.C. 1395x(aa)(4)(A)) are each 

amended by striking ‘‘(other than subsection (h))’’. 

(c) EFFECTIVE DATES.—The amendments made by this section 

shall apply to services furnished on or after January 1, 2006. 

SEC. 5115. WAIVER OF PART B LATE ENROLLMENT PENALTY FOR CERTAIN INTERNATIONAL VOLUNTEERS. 

(a) IN GENERAL.— 

(1) WAIVER OF PENALTY.—Section 1839(b) of the Social Security Act (42 U.S.C. 1395r(b)) is amended in the second sentence by inserting the following before the period at the end: ‘‘or 

months for which the individual can demonstrate that the individual was an individual described in section 1837(k)(3)’’. 

(2) SPECIAL ENROLLMENT PERIOD.— 

(A) IN GENERAL.—Section 1837 of such Act (42 U.S.C. 

1395p) is amended by adding at the end the following new 

subsection: 

‘‘(k)(1) In the case of an individual who— 

‘‘(A) at the time the individual first satisfies paragraph (1) 

or (2) of section 1836, is described in paragraph (3), and has 

elected not to enroll (or to be deemed enrolled) under this section during the individual’s initial enrollment period; or 

‘‘(B) has terminated enrollment under this section during a 

month in which the individual is described in paragraph (3), 

there shall be a special enrollment period described in paragraph 

(2). 

‘‘(2) The special enrollment period described in this paragraph 

is the 6-month period beginning on the first day of the month which 

includes the date that the individual is no longer described in paragraph (3). 

‘‘(3) For purposes of paragraph (1), an individual described in 

this paragraph is an individual who— 


hmoore on PROD1PC68 with HMRPT
45 

‘‘(A) is serving as a volunteer outside of the United States 

through a program— 

‘‘(i) that covers at least a 12-month period; and 

‘‘(ii) that is sponsored by an organization described in 

section 501(c)(3) of the Internal Revenue Code of 1986 and 

exempt from taxation under section 501(a) of such Code; 

and 

‘‘(B) demonstrates health insurance coverage while serving 

in the program.’’. 

(B) COVERAGE PERIOD.—Section 1838 of such Act (42 

U.S.C. 1395q) is amended by adding at the end the following new subsection: 

‘‘(f) Notwithstanding subsection (a), in the case of an individual 

who enrolls during a special enrollment period pursuant to section 

1837(k), the coverage period shall begin on the first day of the 

month following the month in which the individual so enrolls.’’. 

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

(a)(1) shall apply to months beginning with January 2007 and the 

amendments made by subsection (a)(2) shall take effect on January 

1, 2007. 

Subtitle C—Provisions Relating to Parts A 

and B 

SEC. 5201. HOME HEALTH PAYMENTS. 

(a) 2006 UPDATE.—Section 1895(b)(3)(B)(ii) of the Social Security Act (42 U.S.C. 1395fff(b)(3)(B)(ii)) is amended— 

(1) in subclause (III), by striking ‘‘each of 2005 and 2006’’ 

and inserting ‘‘all of 2005’’; 

(2) by striking ‘‘or’’ at the end of subclause (III); 

(3) in subclause (IV), by striking ‘‘2007 and’’ and by redesignating such subclause as subclause (V); and 

(4) by inserting after subclause (III) the following new subclause: 

‘‘(IV) 2006, 0 percent; and’’. 

(b) APPLYING RURAL ADD-ON POLICY FOR 2006.—Section 421(a) 

of Medicare Prescription Drug, Improvement, and Modernization 

Act of 2003 (Public Law 108–173; 117 Stat. 2283) is amended by 

inserting ‘‘and episodes and visits beginning on or after January 1, 

2006, and before January 1, 2007,’’ after ‘‘April 1, 2005,’’. 

(c) HOME HEALTH CARE QUALITY IMPROVEMENT.—Section 

1895(b)(3)(B) of the Social Security Act (42 U.S.C. 1395fff(b)(3)(B)) 

is amended— 

(1) in clause (ii)(V), as redesignated by subsection (a)(3), by 

inserting ‘‘subject to clause (v),’’ after ‘‘subsequent year,’’; and 

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

‘‘(v) ADJUSTMENT IF QUALITY DATA NOT SUBMITTED.— 

‘‘(I) ADJUSTMENT.—For purposes of clause 

(ii)(V), for 2007 and each subsequent year, in the 

case of a home health agency that does not submit 

data to the Secretary in accordance with subclause 

(II) with respect to such a year, the home health 

market basket percentage increase applicable 


hmoore on PROD1PC68 with HMRPT
46 

under such clause for such year shall be reduced 

by 2 percentage points. Such reduction shall apply 

only with respect to the year involved, and the Secretary shall not take into account such reduction 

in computing the prospective payment amount 

under this section for a subsequent year, and the 

Medicare Payment Advisory Commission shall 

carry out the requirements under section 5201(d) of 

the Deficit Reduction Act of 2005. 

‘‘(II) SUBMISSION OF QUALITY DATA.—For 2007 

and each subsequent year, each home health agency shall submit to the Secretary such data that the 

Secretary determines are appropriate for the measurement of health care quality. Such data shall be 

submitted in a form and manner, and at a time, 

specified by the Secretary for purposes of this 

clause. 

‘‘(III) PUBLIC AVAILABILITY OF DATA SUBMITTED.—The Secretary shall establish procedures 

for making data submitted under subclause (II) 

available to the public. Such procedures shall ensure that a home health agency has the opportunity to review the data that is to be made public 

with respect to the agency prior to such data being 

made public.’’. 

(d) MEDPAC REPORT ON VALUE BASED PURCHASING.— 

(1) IN GENERAL.—Not later than June 1, 2007, the Medicare Payment Advisory Commission shall submit to Congress a 

report that includes recommendations on a detailed structure of 

value based payment adjustments for home health services 

under the Medicare program under title XVIII of the Social Security Act. Such report shall include recommendations concerning the determination of thresholds, the size of such payments, sources of funds, and the relationship of payments for 

improvement and attainment of quality. 

(2) FUNDING.—Out of any funds in the Treasury not otherwise appropriated, there are appropriated to the Medicare Payment Advisory Commission $550,000, to carry out this subsection. 

SEC. 5202. REVISION OF PERIOD FOR PROVIDING PAYMENT FOR 

CLAIMS THAT ARE NOT SUBMITTED ELECTRONICALLY. 

(a) REVISION.— 

(1) PART A.—Section 1816(c)(3)(B)(ii) of the Social Security 

Act (42 U.S.C. 1395h(c)(3)(B)(ii)) is amended by striking ‘‘26 

days’’ and inserting ‘‘28 days’’. 

(2) PART B.—Section 1842(c)(3)(B)(ii) of such Act (42 U.S.C. 

1395u(c)(3)(B)(ii)) is amended by striking ‘‘26 days’’ and inserting ‘‘28 days’’. 

(b) EFFECTIVE DATE.—The amendments made by this section 

shall apply to claims submitted on or after January 1, 2006. 

SEC. 5203. TIMEFRAME FOR PART A AND B PAYMENTS. 

Notwithstanding sections 1816(c) and 1842(c)(2) of the Social 

Security Act or any other provision of law— 


hmoore on PROD1PC68 with HMRPT
47 

(1) any payment from the Federal Hospital Insurance Trust 

Fund under section 1817 of the Social Security Act (42 U.S.C. 

1395i) or from the Federal Supplementary Medical Insurance 

Trust Fund under section 1841 of such Act (42 U.S.C. 1395t) 

for claims submitted under part A or B of title XVIII of such 

Act for items and services furnished under such part A or B, 

respectively, that would otherwise be payable during the period 

beginning on September 22, 2006, and ending on September 30, 

2006, shall be paid on the first business day of October 2006; 

and 

(2) no interest or late penalty shall be paid to an entity or 

individual for any delay in a payment by reason of the application of paragraph (1). 

SEC. 5204. MEDICARE INTEGRITY PROGRAM FUNDING. 

Section 1817(k)(4) of the Social Security Act (42 U.S.C. 

1395i(k)(4)) is amended— 

(1) in subparagraph (B), by striking ‘‘The amount’’ and inserting ‘‘Subject to subparagraph (C), the amount’’; and 

(2) by adding at the end the following new subparagraph: 

‘‘(C) ADJUSTMENTS.—The amount appropriated under 

subparagraph (A) for a fiscal year is increased as follows: 

‘‘(i) For fiscal year 2006, $100,000,000.’’. 

Subtitle D—Provisions Relating to Part C 

SEC. 5301. PHASE-OUT OF RISK ADJUSTMENT BUDGET NEUTRALITY IN 

DETERMINING THE AMOUNT OF PAYMENTS TO MEDICARE 

ADVANTAGE ORGANIZATIONS. 

(a) IN GENERAL.—Section 1853 of the Social Security Act (42 

U.S.C. 1395w–23) is amended— 

(1) in subsection (j)(1)— 

(A) in subparagraph (A)— 

(i) by inserting ‘‘(or, beginning with 2007, 1⁄12 of 

the applicable amount determined under subsection 

(k)(1))’’ after ‘‘1853(c)(1)’’; and 

(ii) by inserting ‘‘(for years before 2007)’’ after ‘‘adjusted as appropriate’’; 

(B) in subparagraph (B), by inserting ‘‘(for years before 

2007)’’ after ‘‘adjusted as appropriate’’; and 

(2) by adding at the end the following new subsection: 

‘‘(k) DETERMINATION OF APPLICABLE AMOUNT FOR PURPOSES OF

CALCULATING THE BENCHMARK AMOUNTS.— ‘‘(1) APPLICABLE AMOUNT DEFINED.—For purposes of subsection (j), subject to paragraph (2), the term ‘applicable 

amount’ means for an area— 

‘‘(A) for 2007— 

‘‘(i) if such year is not specified under subsection 

(c)(1)(D)(ii), an amount equal to the amount specified 

in subsection (c)(1)(C) for the area for 2006— 

‘‘(I) first adjusted by the rescaling factor for 

2006 for the area (as made available by the Secretary in the announcement of the rates on April 4, 

2005, under subsection (b)(1), but excluding any 

national adjustment factors for coding intensity 


hmoore on PROD1PC68 with HMRPT
48 

and risk adjustment budget neutrality that were 

included in such factor); and 

‘‘(II) then increased by the national per capita 

MA growth percentage, described in subsection 

(c)(6) for 2007, but not taking into account any adjustment under subparagraph (C) of such subsection for a year before 2004; 

‘‘(ii) if such year is specified under subsection 

(c)(1)(D)(ii), an amount equal to the greater of— 

‘‘(I) the amount determined under clause (i) for 

the area for the year; or 

‘‘(II) the amount specified in subsection 

(c)(1)(D) for the area for the year; and 

‘‘(B) for a subsequent year— 

‘‘(i) if such year is not specified under subsection 

(c)(1)(D)(ii), an amount equal to the amount determined under this paragraph for the area for the previous year (determined without regard to paragraph 

(2)), increased by the national per capita MA growth 

percentage, described in subsection (c)(6) for that succeeding year, but not taking into account any adjustment under subparagraph (C) of such subsection for a 

year before 2004; and 

‘‘(ii) if such year is specified under subsection 

(c)(1)(D)(ii), an amount equal to the greater of— 

‘‘(I) the amount determined under clause (i) for 

the area for the year; or 

‘‘(II) the amount specified in subsection 

(c)(1)(D) for the area for the year. 

‘‘(2) PHASE-OUT OF BUDGET NEUTRALITY FACTOR.— 

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

(D), in the case of 2007 through 2010, the applicable 

amount determined under paragraph (1) shall be multiplied by a factor equal to 1 plus the product of— 

‘‘(i) the percent determined under subparagraph 

(B) for the year; and 

‘‘(ii) the applicable phase-out factor for the year 

under subparagraph (C). 

‘‘(B) PERCENT DETERMINED.— ‘‘(i) IN GENERAL.—For purposes of subparagraph 

(A)(i), subject to clause (iv), the percent determined 

under this subparagraph for a year is a percent equal 

to a fraction the numerator of which is described in 

clause (ii) and the denominator of which is described 

in clause (iii). 

‘‘(ii) NUMERATOR BASED ON DIFFERENCE BETWEEN

DEMOGRAPHIC RATE AND RISK RATE.— 

‘‘(I) IN GENERAL.—The numerator described in 

this clause is an amount equal to the amount by 

which the demographic rate described in subclause 

(II) exceeds the risk rate described in subclause 

(III). 

‘‘(II) DEMOGRAPHIC RATE.—The demographic 

rate described in this subclause is the Secretary’s 

estimate of the total payments that would have 


hmoore on PROD1PC68 with HMRPT
49 

been made under this part in the year if all the 

monthly payment amounts for all MA plans were 

equal to 1⁄12 of the annual MA capitation rate 

under subsection (c)(1) for the area and year, adjusted pursuant to subsection (a)(1)(C). 

‘‘(III) RISK RATE.—The risk rate described in 

this subclause is the Secretary’s estimate of the 

total payments that would have been made under 

this part in the year if all the monthly payment 

amounts for all MA plans were equal to the 

amount described in subsection (j)(1)(A) (determined as if this paragraph had not applied) under 

subsection (j) for the area and year, adjusted pursuant to subsection (a)(1)(C). 

‘‘(iii) DENOMINATOR BASED ON RISK RATE.—The denominator described in this clause is equal to the total 

amount estimated for the year under clause (ii)(III). 

‘‘(iv) REQUIREMENTS.—In estimating the amounts 

under the previous clauses, the Secretary shall— 

‘‘(I) use a complete set of the most recent and 

representative Medicare Advantage risk scores 

under subsection (a)(3) that are available from the 

risk adjustment model announced for the year; 

‘‘(II) adjust the risk scores to reflect changes in 

treatment and coding practices in the fee-for-service sector; 

‘‘(III) adjust the risk scores for differences in 

coding patterns between Medicare Advantage 

plans and providers under the original medicare 

fee-for-service program under parts A and B to the 

extent that the Secretary has identified such differences, as required in subsection (a)(1)(C); 

‘‘(IV) as necessary, adjust the risk scores for 

late data submitted by Medicare Advantage organizations; 

‘‘(V) as necessary, adjust the risk scores for 

lagged cohorts; and 

‘‘(VI) as necessary, adjust the risk scores for 

changes in enrollment in Medicare Advantage 

plans during the year. 

‘‘(v) AUTHORITY.—In computing such amounts the 

Secretary may take into account the estimated health 

risk of enrollees in preferred provider organization 

plans (including MA regional plans) for the year. 

‘‘(C) APPLICABLE PHASE-OUT FACTOR.—For purposes of 

subparagraph (A)(ii), the term ‘applicable phase-out factor’ 

means— 

‘‘(i) for 2007, 0.55; 

‘‘(ii) for 2008, 0.40; 

‘‘(iii) for 2009, 0.25; and 

‘‘(iv) for 2010, 0.05. 

‘‘(D) TERMINATION OF APPLICATION.—Subparagraph (A) 

shall not apply in a year if the amount estimated under 

subparagraph (B)(ii)(III) for the year is equal to or greater 


hmoore on PROD1PC68 with HMRPT
50 

than the amount estimated under subparagraph (B)(ii)(II) 

for the year. 

‘‘(3) NO REVISION IN PERCENT.— 

‘‘(A) IN GENERAL.—The Secretary may not make any 

adjustment to the percent determined under paragraph 

(2)(B) for any year. 

‘‘(B) RULE OF CONSTRUCTION.—Nothing in this subsection shall be construed to limit the authority of the Secretary to make adjustments to the applicable amounts determined under paragraph (1) as appropriate for purposes 

of updating data or for purposes of adopting an improved 

risk adjustment methodology.’’. 

(b) REFINEMENTS TO HEALTH STATUS ADJUSTMENT.—Section 

1853(a)(1)(C) of such Act (42 U.S.C. 1395w–23) is amended— 

(1) by designating the matter after the heading as a clause 

(i) with the following heading: ‘‘IN GENERAL.—’’ and indenting 

appropriately; and 

(2) by adding at the end the following: 

‘‘(ii) APPLICATION DURING PHASE-OUT OF BUDGET

NEUTRALITY FACTOR.—For 2006 through 2010: 

‘‘(I) In applying the adjustment under clause 

(i) for health status to payment amounts, the Secretary shall ensure that such adjustment reflects 

changes in treatment and coding practices in the 

fee-for-service sector and reflects differences in coding patterns between Medicare Advantage plans 

and providers under part A and B to the extent 

that the Secretary has identified such differences. 

‘‘(II) In order to ensure payment accuracy, the 

Secretary shall conduct an analysis of the differences described in subclause (I). The Secretary 

shall complete such analysis by a date necessary to 

ensure that the results of such analysis are incorporated into the risk scores only for 2008, 2009, 

and 2010. In conducting such analysis, the Secretary shall use data submitted with respect to 

2004 and subsequent years, as available.’’. 

SEC. 5302. RURAL PACE PROVIDER GRANT PROGRAM. 

(a) DEFINITIONS.—In this section: 

(1) CMS.—The term ‘‘CMS’’ means the Centers for Medicare & Medicaid Services. 

(2) PACE PROGRAM.—The term ‘‘PACE program’’ has the 

meaning given that term in sections 1894(a)(2) and 1934(a)(2) 

of the Social Security Act (42 U.S.C. 1395eee(a)(2); 1396u– 

4(a)(2)). 

(3) PACE PROVIDER.—The term ‘‘PACE provider’’ has the 

meaning given that term in section 1894(a)(3) or 1934(a)(3) of 

the Social Security Act (42 U.S.C. 1395eee(a)(3); 1396u–4(a)(3)). 

(4) RURAL AREA.—The term ‘‘rural area’’ has the meaning 

given that term in section 1886(d)(2)(D) of the Social Security 

Act (42 U.S.C. 1395ww(d)(2)(D)). 

(5) RURAL PACE PILOT SITE.—The term ‘‘rural PACE pilot 

site’’ means a PACE provider that has been approved to provide 

services in a geographic service area that is, in whole or in part, 


hmoore on PROD1PC68 with HMRPT
51 

a rural area, and that has received a site development grant 

under this section. 

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

of Health and Human Services. 

(b) SITE DEVELOPMENT GRANTS AND TECHNICAL ASSISTANCE

PROGRAM.— 

(1) SITE DEVELOPMENT GRANTS.— (A) IN GENERAL.—The Secretary shall establish a process and criteria to award site development grants to qualified PACE providers that have been approved to serve a 

rural area. 

(B) AMOUNT PER AWARD.—A site development grant 

awarded under subparagraph (A) to any individual rural 

PACE pilot site shall not exceed $750,000. 

(C) NUMBER OF AWARDS.—Not more than 15 rural 

PACE pilot sites shall be awarded a site development grant 

under subparagraph (A). 

(D) USE OF FUNDS.—Funds made available under a 

site development grant awarded under subparagraph (A) 

may be used for the following expenses only to the extent 

such expenses are incurred in relation to establishing or delivering PACE program services in a rural area: 

(i) Feasibility analysis and planning. 

(ii) Interdisciplinary team development. 

(iii) Development of a provider network, including 

contract development. 

(iv) Development or adaptation of claims processing systems. 

(v) Preparation of special education and outreach 

efforts required for the PACE program. 

(vi) Development of expense reporting required for 

calculation of outlier payments or reconciliation processes. 

(vii) Development of any special quality of care or 

patient satisfaction data collection efforts. 

(viii) Establishment of a working capital fund to 

sustain fixed administrative, facility, or other fixed 

costs until the provider reaches sufficient enrollment 

size. 

(ix) Startup and development costs incurred prior 

to the approval of the rural PACE pilot site’s PACE 

provider application by CMS. 

(x) Any other efforts determined by the rural PACE 

pilot site to be critical to its successful startup, as approved by the Secretary. 

(E) APPROPRIATION.— 

(i) IN GENERAL.—Out of funds in the Treasury not 

otherwise appropriated, there are appropriated to the 

Secretary to carry out this subsection for fiscal year 

2006, $7,500,000. 

(ii) AVAILABILITY.—Funds appropriated under 

clause (i) shall remain available for expenditure 

through fiscal year 2008. 

(2) TECHNICAL ASSISTANCE PROGRAM.—The Secretary shall 

establish a technical assistance program to provide— 


hmoore on PROD1PC68 with HMRPT
52 

(A) outreach and education to State agencies and provider organizations interested in establishing PACE programs in rural areas; and 

(B) technical assistance necessary to support rural 

PACE pilot sites. 

(c) COST OUTLIER PROTECTION FOR RURAL PACE PILOT SITES.— 

(1) ESTABLISHMENT OF FUND FOR REIMBURSEMENT OF

OUTLIER COSTS.—Notwithstanding any other provision of law, 

the Secretary shall establish an outlier fund to reimburse rural 

PACE pilot sites for recognized outlier costs (as defined in paragraph (3)) incurred for eligible outlier participants (as defined 

in paragraph (2)) in an amount, subject to paragraph (4), equal 

to 80 percent of the amount by which the recognized outlier 

costs exceeds $50,000. 

(2) ELIGIBLE OUTLIER PARTICIPANT.—For purposes of this 

subsection, the term ‘‘eligible outlier participant’’ means a 

PACE program eligible individual (as defined in sections 

1894(a)(5) and 1934(a)(5) of the Social Security Act (42 U.S.C. 

1395eee(a)(5); 1396u–4(a)(5) who resides in a rural area and 

with respect to whom the rural PACE pilot site incurs more 

than $50,000 in recognized costs in a 12-month period. 

(3) RECOGNIZED OUTLIER COSTS DEFINED.— 

(A) IN GENERAL.—For purposes of this subsection, the 

term ‘‘recognized outlier costs’’ means, with respect to services furnished to an eligible outlier participant by a rural 

PACE pilot site, the least of the following (as documented 

by the site to the satisfaction of the Secretary) for the provision of inpatient and related physician and ancillary services for the eligible outlier participant in a given 12-month 

period: 

(i) If the services are provided under a contract between the pilot site and the provider, the payment rate 

specified under the contract. 

(ii) The payment rate established under the original medicare fee-for-service program for such service. 

(iii) The amount actually paid for the services by 

the pilot site. 

(B) INCLUSION IN ONLY ONE PERIOD.—Recognized 

outlier costs may not be included in more than one 12- 

month period. 

(3) OUTLIER EXPENSE PAYMENT.— 

(A) PAYMENT FOR OUTLIER COSTS.—Subject to subparagraph (B), in the case of a rural PACE pilot site that has 

incurred outlier costs for an eligible outlier participant, the 

rural PACE pilot site shall receive an outlier expense payment equal to 80 percent of such costs that exceed $50,000. 

(4) LIMITATIONS.— 

(A) COSTS INCURRED PER ELIGIBLE OUTLIER PARTICIPANT.—The total amount of outlier expense payments made 

under this subsection to a rural PACE pilot site with respect to an eligible outlier participant for any 12-month period shall not exceed $100,000 for the 12-month period used 

to calculate the payment. 


hmoore on PROD1PC68 with HMRPT
53 

(B) COSTS INCURRED PER PROVIDER.—No rural PACE 

pilot site may receive more than $500,000 in total outlier 

expense payments in a 12-month period. 

(C) LIMITATION OF OUTLIER COST REIMBURSEMENT PE- RIOD.—A rural PACE pilot site shall only receive outlier expense payments under this subsection with respect to costs 

incurred during the first 3 years of the site’s operation. 

(5) REQUIREMENT TO ACCESS RISK RESERVES PRIOR TO PAY- MENT.—A rural PACE pilot site shall access and exhaust any 

risk reserves held or arranged for the provider (other than revenue or reserves maintained to satisfy the requirements of section 460.80(c) of title 42, Code of Federal Regulations) and any 

working capital established through a site development grant 

awarded under subsection (b)(1), prior to receiving any payment 

from the outlier fund. 

(6) APPLICATION.—In order to receive an outlier expense 

payment under this subsection with respect to an eligible outlier 

participant, a rural PACE pilot site shall submit an application 

containing— 

(A) documentation of the costs incurred with respect to 

the participant; 

(B) a certification that the site has complied with the 

requirements under paragraph (4); and 

(C) such additional information as the Secretary may 

require. 

(7) APPROPRIATION.— (A) IN GENERAL.—Out of funds in the Treasury not otherwise appropriated, there are appropriated to the Secretary 

to carry out this subsection for fiscal year 2006, 

$10,000,000. 

(B) AVAILABILITY.—Funds appropriated under subparagraph (A) shall remain available for expenditure 

through fiscal year 2010. 

(d) EVALUATION OF PACE PROVIDERS SERVING RURAL SERVICE

AREAS.—Not later than 60 months after the date of enactment of 

this Act, the Secretary shall submit a report to Congress containing 

an evaluation of the experience of rural PACE pilot sites. 

(e) AMOUNTS IN ADDITION TO PAYMENTS UNDER SOCIAL SECU- RITY ACT.—Any amounts paid under the authority of this section to 

a PACE provider shall be in addition to payments made to the provider under section 1894 or 1934 of the Social Security Act (42 

U.S.C. 1395eee; 1396u–4). 

TITLE VI—MEDICAID AND SCHIP 

Subtitle A—Medicaid 

CHAPTER 1—PAYMENT FOR PRESCRIPTION DRUGS 

SEC. 6001. FEDERAL UPPER PAYMENT LIMIT FOR MULTIPLE SOURCE 

DRUGS AND OTHER DRUG PAYMENT PROVISIONS. 

(a) MODIFICATION OF FEDERAL UPPER PAYMENT LIMIT FOR

MULTIPLE SOURCE DRUGS; DEFINITION OF MULTIPLE SOURCE

DRUGS.—Section 1927 of the Social Security Act (42 U.S.C. 1396r– 

8) is amended— 


hmoore on PROD1PC68 with HMRPT
54 

(1) in subsection (e)(4)— 

(A) by striking ‘‘The Secretary’’ and inserting ‘‘Subject 

to paragraph (5), the Secretary’’; and 

(B) by inserting ‘‘(or, effective January 1, 2007, two or 

more)’’ after ‘‘three or more’’; 

(2) by adding at the end of subsection (e) the following new 

paragraph: 

‘‘(5) USE OF AMP IN UPPER PAYMENT LIMITS.—Effective January 1, 2007, in applying the Federal upper reimbursement 

limit under paragraph (4) and section 447.332(b) of title 42 of 

the Code of Federal Regulations, the Secretary shall substitute 

250 percent of the average manufacturer price (as computed 

without regard to customary prompt pay discounts extended to 

wholesalers) for 150 percent of the published price.’’; 

(3) in subsection (k)(7)(A)(i), in the matter preceding subclause (I), by striking ‘‘are 2 or more drug products’’ and inserting ‘‘at least 1 other drug product’’; and 

(4) in subclauses (I), (II), and (III) of subsection (k)(7)(A)(i), 

by striking ‘‘are’’ and inserting ‘‘is’’ each place it appears. 

(b) DISCLOSURE OF PRICE INFORMATION TO STATES AND THE

PUBLIC.—Subsection (b)(3) of such section is amended— 

(1) in subparagraph (A)— 

(A) in clause (i), by inserting ‘‘month of a’’ after ‘‘last 

day of each’’; and 

(B) by adding at the end the following: ‘‘Beginning 

July 1, 2006, the Secretary shall provide on a monthly 

basis to States under subparagraph (D)(iv) the most recently reported average manufacturer prices for single 

source drugs and for multiple source drugs and shall, on 

at least a quarterly basis, update the information posted on 

the website under subparagraph (D)(v).’’; and 

(2) in subparagraph (D)— 

(A) by striking ‘‘and’’ at the end of clause (ii); 

(B) by striking the period at the end of clause (iii) and 

inserting a comma; and 

(C) by inserting after clause (iii) the following new 

clauses: 

‘‘(iv) to States to carry out this title, and 

‘‘(v) to the Secretary to disclose (through a website 

accessible to the public) average manufacturer prices.’’. 

(c) DEFINITION OF AVERAGE MANUFACTURER PRICE.— 

(1) EXCLUSION OF CUSTOMARY PROMPT PAY DISCOUNTS EXTENDED TO WHOLESALERS.—Subsection (k)(1) of such section is 

amended— 

(A) by striking ‘‘The term’’ and inserting the following: 

‘‘(A) IN GENERAL.—Subject to subparagraph (B), the 

term’’; 

(B) by striking ‘‘, after deducting customary prompt 

pay discounts’’; and 

(C) by adding at the end the following: 

‘‘(B) EXCLUSION OF CUSTOMARY PROMPT PAY DIS- COUNTS EXTENDED TO WHOLESALERS.—The average manufacturer price for a covered outpatient drug shall be determined without regard to customary prompt pay discounts 

extended to wholesalers.’’. 


hmoore on PROD1PC68 with HMRPT
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(2) MANUFACTURER REPORTING OF PROMPT PAY DIS- COUNTS.—Subsection (b)(3)(A)(i) of such section is amended by 

inserting ‘‘, customary prompt pay discounts extended to wholesalers,’’ after ‘‘(k)(1))’’. 

(3) REQUIREMENT TO PROMULGATE REGULATION.— (A) INSPECTOR GENERAL RECOMMENDATIONS.—Not 

later than June 1, 2006, the Inspector General of the Department of Health and Human Services shall— 

(i) review the requirements for, and manner in 

which, average manufacturer prices are determined 

under section 1927 of the Social Security Act, as 

amended by this section; and 

(ii) shall submit to the Secretary of Health and 

Human Services and Congress such recommendations 

for changes in such requirements or manner as the Inspector General determines to be appropriate. 

(B) DEADLINE FOR PROMULGATION.—Not later than 

July 1, 2007, the Secretary of Health and Human Services 

shall promulgate a regulation that clarifies the requirements for, and manner in which, average manufacturer 

prices are determined under section 1927 of the Social Security Act, taking into consideration the recommendations 

submitted to the Secretary in accordance with subparagraph (A)(ii). 

(d) EXCLUSION OF SALES AT A NOMINAL PRICE FROM DETER- MINATION OF BEST PRICE.— (1) MANUFACTURER REPORTING OF SALES.—Subsection 

(b)(3)(A)(iii) of such section is amended by inserting before the 

period at the end the following: ‘‘, and, for calendar quarters beginning on or after January 1, 2007 and only with respect to 

the information described in subclause (III), for covered outpatient drugs’’. 

(2) LIMITATION ON SALES AT A NOMINAL PRICE.—Subsection 

(c)(1) of such section is amended by adding at the end the following new subparagraph: 

‘‘(D) LIMITATION ON SALES AT A NOMINAL PRICE.— ‘‘(i) IN GENERAL.—For purposes of subparagraph 

(C)(ii)(III) and subsection (b)(3)(A)(iii)(III), only sales 

by a manufacturer of covered outpatient drugs at nominal prices to the following shall be considered to be 

sales at a nominal price or merely nominal in amount: 

‘‘(I) A covered entity described in section 

340B(a)(4) of the Public Health Service Act. 

‘‘(II) An intermediate care facility for the mentally retarded. 

‘‘(III) A State-owned or operated nursing facility. 

‘‘(IV) Any other facility or entity that the Secretary determines is a safety net provider to which 

sales of such drugs at a nominal price would be 

appropriate based on the factors described in 

clause (ii). 

‘‘(ii) FACTORS.—The factors described in this clause 

with respect to a facility or entity are the following: 

‘‘(I) The type of facility or entity. 


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‘‘(II) The services provided by the facility or 

entity. 

‘‘(III) The patient population served by the facility or entity. 

‘‘(IV) The number of other facilities or entities 

eligible to purchase at nominal prices in the same 

service area. 

‘‘(iii) NONAPPLICATION.—Clause (i) shall not apply 

with respect to sales by a manufacturer at a nominal 

price of covered outpatient drugs pursuant to a master 

agreement under section 8126 of title 38, United States 

Code.’’. 

(e) RETAIL SURVEY PRICES; STATE PAYMENT AND UTILIZATION

RATES; AND PERFORMANCE RANKINGS.—Such section is further 

amended by inserting after subsection (e) the following new subsection: 

‘‘(f) SURVEY OF RETAIL PRICES; STATE PAYMENT AND UTILIZA- TION RATES; AND PERFORMANCE RANKINGS.— ‘‘(1) SURVEY OF RETAIL PRICES.— 

‘‘(A) USE OF VENDOR.—The Secretary may contract 

services for— 

‘‘(i) the determination on a monthly basis of retail 

survey prices for covered outpatient drugs that represent a nationwide average of consumer purchase 

prices for such drugs, net of all discounts and rebates 

(to the extent any information with respect to such discounts and rebates is available); and 

‘‘(ii) the notification of the Secretary when a drug 

product that is therapeutically and pharmaceutically 

equivalent and bioequivalent becomes generally available. 

‘‘(B) SECRETARY RESPONSE TO NOTIFICATION OF AVAILABILITY OF MULTIPLE SOURCE PRODUCTS.—If contractor notifies the Secretary under subparagraph (A)(ii) that a drug 

product described in such subparagraph has become generally available, the Secretary shall make a determination, 

within 7 days after receiving such notification, as to whether the product is now described in subsection (e)(4). 

‘‘(C) USE OF COMPETITIVE BIDDING.—In contracting for 

such services, the Secretary shall competitively bid for an 

outside vendor that has a demonstrated history in— 

‘‘(i) surveying and determining, on a representative 

nationwide basis, retail prices for ingredient costs of 

prescription drugs; 

‘‘(ii) working with retail pharmacies, commercial 

payers, and States in obtaining and disseminating 

such price information; and 

‘‘(iii) collecting and reporting such price information on at least a monthly basis. 

In contracting for such services, the Secretary may waive 

such provisions of the Federal Acquisition Regulation as 

are necessary for the efficient implementation of this subsection, other than provisions relating to confidentiality of 

information and such other provisions as the Secretary determines appropriate. 


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‘‘(D) ADDITIONAL PROVISIONS.—A contract with a vendor under this paragraph shall include such terms and 

conditions as the Secretary shall specify, including the following: 

‘‘(i) The vendor must monitor the marketplace and 

report to the Secretary each time there is a new covered 

outpatient drug generally available. 

‘‘(ii) The vendor must update the Secretary no less 

often than monthly on the retail survey prices for covered outpatient drugs. 

‘‘(iii) The contract shall be effective for a term of 2 

years. 

‘‘(E) AVAILABILITY OF INFORMATION TO STATES.—Information on retail survey prices obtained under this paragraph, including applicable information on single source 

drugs, shall be provided to States on at least a monthly 

basis. The Secretary shall devise and implement a means 

for providing access to each State agency designated under 

section 1902(a)(5) with responsibility for the administration 

or supervision of the administration of the State plan 

under this title of the retail survey price determined under 

this paragraph. 

‘‘(2) ANNUAL STATE REPORT.—Each State shall annually report to the Secretary information on— 

‘‘(A) the payment rates under the State plan under this 

title for covered outpatient drugs; 

‘‘(B) the dispensing fees paid under such plan for such 

drugs; and 

‘‘(C) utilization rates for noninnovator multiple source 

drugs under such plan. 

‘‘(3) ANNUAL STATE PERFORMANCE RANKINGS.— ‘‘(A) COMPARATIVE ANALYSIS.—The Secretary annually 

shall compare, for the 50 most widely prescribed drugs 

identified by the Secretary, the national retail sales price 

data (collected under paragraph (1)) for such drugs with 

data on prices under this title for each such drug for each 

State. 

‘‘(B) AVAILABILITY OF INFORMATION.—The Secretary 

shall submit to Congress and the States full information regarding the annual rankings made under subparagraph 

(A). 

‘‘(4) APPROPRIATION.—Out of any funds in the Treasury not 

otherwise appropriated, there is appropriated to the Secretary of 

Health and Human Services $5,000,000 for each of fiscal years 

2006 through 2010 to carry out this subsection.’’. 

(f) MISCELLANEOUS AMENDMENTS.— 

(1) IN GENERAL.—Sections 1927(g)(1)(B)(i)(II) and 

1861(t)(2)(B)(ii)(I) of such Act are each amended by inserting 

‘‘(or its successor publications)’’ after ‘‘United States Pharmacopoeia-Drug Information’’. 

(2) PAPERWORK REDUCTION.—The last sentence of section 

1927(g)(2)(A)(ii) of such Act (42 U.S.C. 1396r–8(g)(2)(A)(ii)) is 

amended by inserting before the period at the end the following: 

‘‘, or to require verification of the offer to provide consultation 

or a refusal of such offer’’. 


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(3) EFFECTIVE DATE.—The amendments made by this subsection shall take effect on the date of the enactment of this Act. 

(g) EFFECTIVE DATE.—Except as otherwise provided, the amendments made by this section shall take effect on January 1, 2007, 

without regard to whether or not final regulations to carry out such 

amendments have been promulgated by such date. 

SEC. 6002. COLLECTION AND SUBMISSION OF UTILIZATION DATA FOR 

CERTAIN PHYSICIAN ADMINISTERED DRUGS. 

(a) IN GENERAL.—Section 1927(a) of the Social Security Act (42 

U.S.C. 1396r–8(a)) is amended by adding at the end the following 

new paragraph: 

‘‘(7) REQUIREMENT FOR SUBMISSION OF UTILIZATION DATA

FOR CERTAIN PHYSICIAN ADMINISTERED DRUGS.— ‘‘(A) SINGLE SOURCE DRUGS.—In order for payment to 

be available under section 1903(a) for a covered outpatient 

drug that is a single source drug that is physician administered under this title (as determined by the Secretary), and 

that is administered on or after January 1, 2006, the State 

shall provide for the collection and submission of such utilization data and coding (such as J-codes and National 

Drug Code numbers) for each such drug as the Secretary 

may specify as necessary to identify the manufacturer of the 

drug in order to secure rebates under this section for drugs 

administered for which payment is made under this title. 

‘‘(B) MULTIPLE SOURCE DRUGS.— ‘‘(i) IDENTIFICATION OF MOST FREQUENTLY PHYSI- CIAN ADMINISTERED MULTIPLE SOURCE DRUGS.—Not 

later than January 1, 2007, the Secretary shall publish 

a list of the 20 physician administered multiple source 

drugs that the Secretary determines have the highest 

dollar volume of physician administered drugs dispensed under this title. The Secretary may modify such 

list from year to year to reflect changes in such volume. 

‘‘(ii) REQUIREMENT.—In order for payment to be 

available under section 1903(a) for a covered outpatient drug that is a multiple source drug that is physician administered (as determined by the Secretary), 

that is on the list published under clause (i), and that 

is administered on or after January 1, 2008, the State 

shall provide for the submission of such utilization 

data and coding (such as J-codes and National Drug 

Code numbers) for each such drug as the Secretary 

may specify as necessary to identify the manufacturer 

of the drug in order to secure rebates under this section. 

‘‘(C) USE OF NDC CODES.—Not later than January 1, 

2007, the information shall be submitted under subparagraphs (A) and (B)(ii) using National Drug Code codes unless the Secretary specifies that an alternative coding system should be used. 

‘‘(D) HARDSHIP WAIVER.—The Secretary may delay the application of subparagraph (A) or (B)(ii), or both, in the case of 

a State to prevent hardship to States which require additional 

time to implement the reporting system required under the respective subparagraph.’’. 


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(b) LIMITATION ON PAYMENT.—Section 1903(i)(10) of such Act 

(42 U.S.C. 1396b(i)(10)), is amended— 

(1) by striking ‘‘and’’ at the end of subparagraph (A); 

(2) by striking ‘‘or’’ at the end of subparagraph (B) and inserting ‘‘and’’; and 

(3) by adding at the end the following new subparagraph: 

‘‘(C) with respect to covered outpatient drugs described in 

section 1927(a)(7), unless information respecting utilization 

data and coding on such drugs that is required to be submitted 

under such section is submitted in accordance with such section; or’’. 

SEC. 6003. IMPROVED REGULATION OF DRUGS SOLD UNDER A NEW 

DRUG APPLICATION APPROVED UNDER SECTION 505(c) OF 

THE FEDERAL FOOD, DRUG, AND COSMETIC ACT. 

(a) INCLUSION WITH OTHER REPORTED AVERAGE MANUFACTURER AND BEST PRICES.—Section 1927(b)(3)(A) of the Social Security Act (42 U.S.C. 1396r–8(b)(3)(A)) is amended— 

(1) by striking clause (i) and inserting the following: 

‘‘(i) not later than 30 days after the last day of 

each rebate period under the agreement— 

‘‘(I) on the average manufacturer price (as defined in subsection (k)(1)) for covered outpatient 

drugs for the rebate period under the agreement 

(including for all such drugs that are sold under 

a new drug application approved under section 

505(c) of the Federal Food, Drug, and Cosmetic 

Act); and 

‘‘(II) for single source drugs and innovator 

multiple source drugs (including all such drugs 

that are sold under a new drug application approved under section 505(c) of the Federal Food, 

Drug, and Cosmetic Act), on the manufacturer’s 

best price (as defined in subsection (c)(1)(C)) for 

such drugs for the rebate period under the agreement;’’; and 

(2) in clause (ii), by inserting ‘‘(including for such drugs 

that are sold under a new drug application approved under section 505(c) of the Federal Food, Drug, and Cosmetic Act)’’ after 

‘‘drugs’’. 

(b) CONFORMING AMENDMENTS.—Section 1927 of such Act (42 

U.S.C. 1396r–8) is amended— 

(1) in subsection (c)(1)(C)— 

(A) in clause (i), in the matter preceding subclause (I), 

by inserting after ‘‘or innovator multiple source drug of a 

manufacturer’’ the following: ‘‘(including the lowest price 

available to any entity for any such drug of a manufacturer 

that is sold under a new drug application approved under 

section 505(c) of the Federal Food, Drug, and Cosmetic 

Act)’’; and 

(B) in clause (ii)— 

(i) in subclause (II), by striking ‘‘and’’ at the end; 

(ii) in subclause (III), by striking the period at the 

end and inserting ‘‘; and’’; and 

(iii) by adding at the end the following: 


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‘‘(IV) in the case of a manufacturer that approves, allows, or otherwise permits any other drug 

of the manufacturer to be sold under a new drug 

application approved under section 505(c) of the 

Federal Food, Drug, and Cosmetic Act, shall be inclusive of the lowest price for such authorized drug 

available from the manufacturer during the rebate 

period to any manufacturer, wholesaler, retailer, 

provider, health maintenance organization, nonprofit entity, or governmental entity within the 

United States, excluding those prices described in 

subclauses (I) through (IV) of clause (i).’’; and 

(2) in subsection (k), as amended by section 6001(c)(1), by 

adding at the end the following: 

‘‘(C) INCLUSION OF SECTION 505(c) DRUGS.—In the case 

of a manufacturer that approves, allows, or otherwise permits any drug of the manufacturer to be sold under a new 

drug application approved under section 505(c) of the Federal Food, Drug, and Cosmetic Act, such term shall be inclusive of the average price paid for such drug by wholesalers for drugs distributed to the retail pharmacy class of 

trade.’’. 

(c) EFFECTIVE DATE.—The amendments made by this section 

take effect on January 1, 2007. 

SEC. 6004. CHILDREN’S HOSPITAL PARTICIPATION IN SECTION 340B 

DRUG DISCOUNT PROGRAM. 

(a) IN GENERAL.—Section 1927(a)(5)(B) of the Social Security 

Act (42 U.S.C. 1396r–8(a)(5)(B)) is amended by inserting before the 

period at the end the following: ‘‘and a children’s hospital described 

in section 1886(d)(1)(B)(iii) which meets the requirements of clauses 

(i) and (iii) of section 340B(b)(4)(L) of the Public Health Service Act 

and which would meet the requirements of clause (ii) of such section 

if that clause were applied by taking into account the percentage of 

care provided by the hospital to patients eligible for medical assistance under a State plan under this title’’. 

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

shall apply to drugs purchased on or after the date of the enactment 

of this Act. 

CHAPTER 2—LONG-TERM CARE UNDER MEDICAID 

Subchapter A—Reform of Asset Transfer Rules 

SEC. 6011. LENGTHENING LOOK-BACK PERIOD; CHANGE IN BEGINNING 

DATE FOR PERIOD OF INELIGIBILITY. 

(a) LENGTHENING LOOK-BACK PERIOD FOR ALL DISPOSALS TO 5 

YEARS.—Section 1917(c)(1)(B)(i) of the Social Security Act (42 

U.S.C. 1396p(c)(1)(B)(i)) is amended by inserting ‘‘or in the case of 

any other disposal of assets made on or after the date of the enactment of the Deficit Reduction Act of 2005’’ before ‘‘, 60 months’’. 

(b) CHANGE IN BEGINNING DATE FOR PERIOD OF INELIGIBILITY.—Section 1917(c)(1)(D) of such Act (42 U.S.C. 1396p(c)(1)(D)) 

is amended— 

(1) by striking ‘‘(D) The date’’ and inserting ‘‘(D)(i) In the 

case of a transfer of asset made before the date of the enactment 

of the Deficit Reduction Act of 2005, the date’’; and 


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

‘‘(ii) In the case of a transfer of asset made on or after the date 

of the enactment of the Deficit Reduction Act of 2005, the date specified in this subparagraph is the first day of a month during or after 

which assets have been transferred for less than fair market value, 

or the date on which the individual is eligible for medical assistance 

under the State plan and would otherwise be receiving institutional 

level care described in subparagraph (C) based on an approved application for such care but for the application of the penalty period, 

whichever is later, and which does not occur during any other period of ineligibility under this subsection.’’. 

(c) EFFECTIVE DATE.—The amendments made by this section 

shall apply to transfers made on or after the date of the enactment 

of this Act. 

(d) AVAILABILITY OF HARDSHIP WAIVERS.—Each State shall provide for a hardship waiver process in accordance with section 

1917(c)(2)(D) of the Social Security Act (42 U.S.C. 1396p(c)(2)(D))— 

(1) under which an undue hardship exists when application 

of the transfer of assets provision would deprive the individual— 

(A) of medical care such that the individual’s health or 

life would be endangered; or 

(B) of food, clothing, shelter, or other necessities of life; 

and 

(2) which provides for— 

(A) notice to recipients that an undue hardship exception exists; 

(B) a timely process for determining whether an undue 

hardship waiver will be granted; and 

(C) a process under which an adverse determination 

can be appealed. 

(e) ADDITIONAL PROVISIONS ON HARDSHIP WAIVERS.— (1) APPLICATION BY FACILITY.—Section 1917(c)(2) of the Social Security Act (42 U.S.C. 1396p(c)(2)) is amended— 

(A) by striking the semicolon at the end of subparagraph (D) and inserting a period; and 

(B) by adding after and below such subparagraph the 

following: 

‘‘The procedures established under subparagraph (D) shall permit the facility in which the institutionalized individual is residing to file an undue hardship waiver application on behalf 

of the individual with the consent of the individual or the personal representative of the individual.’’. 

(2) AUTHORITY TO MAKE BED HOLD PAYMENTS FOR HARDSHIP APPLICANTS.—Such section is further amended by adding 

at the end the following: ‘‘While an application for an undue 

hardship waiver is pending under subparagraph (D) in the case 

of an individual who is a resident of a nursing facility, if the 

application meets such criteria as the Secretary specifies, the 

State may provide for payments for nursing facility services in 

order to hold the bed for the individual at the facility, but not 

in excess of payments for 30 days.’’. 

SEC. 6012. DISCLOSURE AND TREATMENT OF ANNUITIES. 

(a) IN GENERAL.—Section 1917 of the Social Security Act (42 

U.S.C. 1396p) is amended by redesignating subsection (e) as subVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00061 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

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section (f) and by inserting after subsection (d) the following new 

subsection: 

‘‘(e)(1) In order to meet the requirements of this section for purposes of section 1902(a)(18), a State shall require, as a condition for 

the provision of medical assistance for services described in subsection (c)(1)(C)(i) (relating to long-term care services) for an individual, the application of the individual for such assistance (including any recertification of eligibility for such assistance) shall disclose a description of any interest the individual or community 

spouse has in an annuity (or similar financial instrument, as may 

be specified by the Secretary), regardless of whether the annuity is 

irrevocable or is treated as an asset. Such application or recertification form shall include a statement that under paragraph (2) the 

State becomes a remainder beneficiary under such an annuity or 

similar financial instrument by virtue of the provision of such medical assistance. 

‘‘(2)(A) In the case of disclosure concerning an annuity under 

subsection (c)(1)(F), the State shall notify the issuer of the annuity 

of the right of the State under such subsection as a preferred remainder beneficiary in the annuity for medical assistance furnished 

to the individual. Nothing in this paragraph shall be construed as 

preventing such an issuer from notifying persons with any other remainder interest of the State’s remainder interest under such subsection. 

‘‘(B) In the case of such an issuer receiving notice under subparagraph (A), the State may require the issuer to notify the State 

when there is a change in the amount of income or principal being 

withdrawn from the amount that was being withdrawn at the time 

of the most recent disclosure described in paragraph (1). A State 

shall take such information into account in determining the amount 

of the State’s obligations for medical assistance or in the individual’s eligibility for such assistance. 

‘‘(3) The Secretary may provide guidance to States on categories 

of transactions that may be treated as a transfer of asset for less 

than fair market value. 

‘‘(4) Nothing in this subsection shall be construed as preventing 

a State from denying eligibility for medical assistance for an individual based on the income or resources derived from an annuity 

described in paragraph (1).’’. 

(b) REQUIREMENT FOR STATE TO BE NAMED AS A REMAINDER

BENEFICIARY.—Section 1917(c)(1) of such Act (42 U.S.C. 

1396p(c)(1)), is amended by adding at the end the following: 

‘‘(F) For purposes of this paragraph, the purchase of an annuity 

shall be treated as the disposal of an asset for less than fair market 

value unless— 

‘‘(i) the State is named as the remainder beneficiary in the 

first position for at least the total amount of medical assistance 

paid on behalf of the annuitant under this title; or 

‘‘(ii) the State is named as such a beneficiary in the second 

position after the community spouse or minor or disabled child 

and is named in the first position if such spouse or a representative of such child disposes of any such remainder for less than 

fair market value.’’. 

(c) INCLUSION OF TRANSFERS TO PURCHASE BALLOON ANNUITIES.—Section 1917(c)(1) of such Act (42 U.S.C. 1396p(c)(1)), as 


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amended by subsection (b), is amended by adding at the end the following: 

‘‘(G) For purposes of this paragraph with respect to a transfer 

of assets, the term ‘assets’ includes an annuity purchased by or on 

behalf of an annuitant who has applied for medical assistance with 

respect to nursing facility services or other long-term care services 

under this title unless— 

‘‘(i) the annuity is— 

‘‘(I) an annuity described in subsection (b) or (q) of section 408 of the Internal Revenue Code of 1986; or 

‘‘(II) purchased with proceeds from— 

‘‘(aa) an account or trust described in subsection 

(a), (c), (p) of section 408 of such Code; 

‘‘(bb) a simplified employee pension (within the 

meaning of section 408(k) of such Code); or 

‘‘(cc) a Roth IRA described in section 408A of such 

Code; or 

‘‘(ii) the annuity— 

‘‘(I) is irrevocable and nonassignable; 

‘‘(II) is actuarially sound (as determined in accordance 

with actuarial publications of the Office of the Chief Actuary of the Social Security Administration); and 

‘‘(III) provides for payments in equal amounts during 

the term of the annuity, with no deferral and no balloon 

payments made.’’. 

(d) EFFECTIVE DATE.—The amendments made by this section 

shall apply to transactions (including the purchase of an annuity) 

occurring on or after the date of the enactment of this Act. 

SEC. 6013. APPLICATION OF ‘‘INCOME-FIRST’’ RULE IN APPLYING COMMUNITY SPOUSE’S INCOME BEFORE ASSETS IN PROVIDING SUPPORT OF COMMUNITY SPOUSE. 

(a) IN GENERAL.—Section 1924(d) of the Social Security Act (42 

U.S.C. 1396r–5(d)) is amended by adding at the end the following 

new subparagraph: 

‘‘(6) APPLICATION OF ‘INCOME FIRST’ RULE TO REVISION OF

COMMUNITY SPOUSE RESOURCE ALLOWANCE.—For purposes of 

this subsection and subsections (c) and (e), a State must consider that all income of the institutionalized spouse that could 

be made available to a community spouse, in accordance with 

the calculation of the community spouse monthly income allowance under this subsection, has been made available before the 

State allocates to the community spouse an amount of resources 

adequate to provide the difference between the minimum 

monthly maintenance needs allowance and all income available 

to the community spouse.’’. 

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

shall apply to transfers and allocations made on or after the date 

of the enactment of this Act by individuals who become institutionalized spouses on or after such date. 

SEC. 6014. DISQUALIFICATION FOR LONG-TERM CARE ASSISTANCE 

FOR INDIVIDUALS WITH SUBSTANTIAL HOME EQUITY. 

(a) IN GENERAL.—Section 1917 of the Social Security Act, as 

amended by section 6012(a), is further amended by redesignating 

subsection (f) as subsection (g) and by inserting after subsection (e) 

the following new subsection: 


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‘‘(f)(1)(A) Notwithstanding any other provision of this title, subject to subparagraphs (B) and (C) of this paragraph and paragraph 

(2), in determining eligibility of an individual for medical assistance with respect to nursing facility services or other long-term care 

services, the individual shall not be eligible for such assistance if 

the individual’s equity interest in the individual’s home exceeds 

$500,000. 

‘‘(B) A State may elect, without regard to the requirements of 

section 1902(a)(1) (relating to statewideness) and section 

1902(a)(10)(B) (relating to comparability), to apply subparagraph 

(A) by substituting for ‘$500,000’, an amount that exceeds such 

amount, but does not exceed $750,000. 

‘‘(C) The dollar amounts specified in this paragraph shall be increased, beginning with 2011, from year to year based on the percentage increase in the consumer price index for all urban consumers (all items; United States city average), rounded to the nearest $1,000. 

‘‘(2) Paragraph (1) shall not apply with respect to an individual 

if— 

‘‘(A) the spouse of such individual, or 

‘‘(B) such individual’s child who is under age 21, or (with 

respect to States eligible to participate in the State program established under title XVI) is blind or permanently and totally 

disabled, or (with respect to States which are not eligible to participate in such program) is blind or disabled as defined in section 1614, 

is lawfully residing in the individual’s home. 

‘‘(3) Nothing in this subsection shall be construed as preventing 

an individual from using a reverse mortgage or home equity loan 

to reduce the individual’s total equity interest in the home. 

‘‘(4) The Secretary shall establish a process whereby paragraph 

(1) is waived in the case of a demonstrated hardship.’’. 

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

shall apply to individuals who are determined eligible for medical 

assistance with respect to nursing facility services or other long-term 

care services based on an application filed on or after January 1, 

2006. 

SEC. 6015. ENFORCEABILITY OF CONTINUING CARE RETIREMENT COMMUNITIES (CCRC) AND LIFE CARE COMMUNITY ADMISSION CONTRACTS. 

(a) ADMISSION POLICIES OF NURSING FACILITIES.—Section 

1919(c)(5) of the Social Security Act (42 U.S.C. 1396r(c)(5)) is 

amended— 

(1) in subparagraph (A)(i)(II), by inserting ‘‘subject to 

clause (v),’’ after ‘‘(II)’’; and 

(2) by adding at the end of subparagraph (B) the following 

new clause: 

‘‘(v) TREATMENT OF CONTINUING CARE RETIREMENT

COMMUNITIES ADMISSION CONTRACTS.—Notwithstanding subclause (II) of subparagraph (A)(i), subject 

to subsections (c) and (d) of section 1924, contracts for 

admission to a State licensed, registered, certified, or 

equivalent continuing care retirement community or 

life care community, including services in a nursing facility that is part of such community, may require resiVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00064 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

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dents to spend on their care resources declared for the 

purposes of admission before applying for medical assistance.’’. 

(b) TREATMENT OF ENTRANCE FEES.—Section 1917 of such Act 

(42 U.S.C. 1396p), as amended by sections 6012(a) and 6014(a), is 

amended by redesignating subsection (g) as subsection (h) and by 

inserting after subsection (f) the following new subsection: 

‘‘(g) TREATMENT OF ENTRANCE FEES OF INDIVIDUALS RESIDING

IN CONTINUING CARE RETIREMENT COMMUNITIES.— 

‘‘(1) IN GENERAL.—For purposes of determining an individual’s eligibility for, or amount of, benefits under a State plan 

under this title, the rules specified in paragraph (2) shall apply 

to individuals residing in continuing care retirement communities or life care communities that collect an entrance fee on 

admission from such individuals. 

‘‘(2) TREATMENT OF ENTRANCE FEE.—For purposes of this 

subsection, an individual’s entrance fee in a continuing care retirement community or life care community shall be considered 

a resource available to the individual to the extent that— 

‘‘(A) the individual has the ability to use the entrance 

fee, or the contract provides that the entrance fee may be 

used, to pay for care should other resources or income of the 

individual be insufficient to pay for such care; 

‘‘(B) the individual is eligible for a refund of any remaining entrance fee when the individual dies or terminates the continuing care retirement community or life care 

community contract and leaves the community; and 

‘‘(C) the entrance fee does not confer an ownership interest in the continuing care retirement community or life 

care community.’’. 

SEC. 6016. ADDITIONAL REFORMS OF MEDICAID ASSET TRANSFER 

RULES. 

(a) REQUIREMENT TO IMPOSE PARTIAL MONTHS OF INELIGIBILITY.—Section 1917(c)(1)(E) of the Social Security Act (42 U.S.C. 

1396p(c)(1)(E)) is amended by adding at the end the following: 

‘‘(iv) A State shall not round down, or otherwise disregard any 

fractional period of ineligibility determined under clause (i) or (ii) 

with respect to the disposal of assets.’’. 

(b) AUTHORITY FOR STATES TO ACCUMULATE MULTIPLE TRANSFERS INTO ONE PENALTY PERIOD.—Section 1917(c)(1) of such Act 

(42 U.S.C. 1396p(c)(1)), as amended by subsections (b) and (c) of 

section 6012, is amended by adding at the end the following: 

‘‘(H) Notwithstanding the preceding provisions of this paragraph, in the case of an individual (or individual’s spouse) who 

makes multiple fractional transfers of assets in more than 1 month 

for less than fair market value on or after the applicable look-back 

date specified in subparagraph (B), a State may determine the period of ineligibility applicable to such individual under this paragraph by— 

‘‘(i) treating the total, cumulative uncompensated value of 

all assets transferred by the individual (or individual’s spouse) 

during all months on or after the look-back date specified in 

subparagraph (B) as 1 transfer for purposes of clause (i) or (ii) 

(as the case may be) of subparagraph (E); and 


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‘‘(ii) beginning such period on the earliest date which would 

apply under subparagraph (D) to any of such transfers.’’. 

(c) INCLUSION OF TRANSFER OF CERTAIN NOTES AND LOANS AS- SETS.—Section 1917(c)(1) of such Act (42 U.S.C. 1396 p(c)(1)), as 

amended by subsection (b), is amended by adding at the end the following: 

‘‘(I) For purposes of this paragraph with respect to a transfer 

of assets, the term ‘assets’ includes funds used to purchase a promissory note, loan, or mortgage unless such note, loan, or mortgage— 

‘‘(i) has a repayment term that is actuarially sound (as determined in accordance with actuarial publications of the Office 

of the Chief Actuary of the Social Security Administration); 

‘‘(ii) provides for payments to be made in equal amounts 

during the term of the loan, with no deferral and no balloon 

payments made; and 

‘‘(iii) prohibits the cancellation of the balance upon the 

death of the lender. 

In the case of a promissory note, loan, or mortgage that does not 

satisfy the requirements of clauses (i) through (iii), the value of such 

note, loan, or mortgage shall be the outstanding balance due as of 

the date of the individual’s application for medical assistance for 

services described in subparagraph (C).’’. 

(d) INCLUSION OF TRANSFERS TO PURCHASE LIFE ESTATES.— Section 1917(c)(1) of such Act (42 U.S.C. 1396p(c)(1)), as amended 

by subsection (c), is amended by adding at the end the following: 

‘‘(J) For purposes of this paragraph with respect to a transfer 

of assets, the term ‘assets’ includes the purchase of a life estate interest in another individual’s home unless the purchaser resides in the 

home for a period of at least 1 year after the date of the purchase.’’. 

(e) EFFECTIVE DATES.— 

(1) IN GENERAL.—Except as provided in paragraphs (2) and 

(3), the amendments made by this section shall apply to payments under title XIX of the Social Security Act (42 U.S.C. 

1396 et seq.) for calendar quarters beginning on or after the 

date of enactment of this Act, without regard to whether or not 

final regulations to carry out such amendments have been promulgated by such date. 

(2) EXCEPTIONS.—The amendments made by this section 

shall not apply— 

(A) to medical assistance provided for services furnished before the date of enactment; 

(B) with respect to assets disposed of on or before the 

date of enactment of this Act; or 

(C) with respect to trusts established on or before the 

date of enactment of this Act. 

(3) EXTENSION OF EFFECTIVE DATE FOR STATE LAW AMENDMENT.—In the case of a State plan under title XIX of the Social 

Security Act (42 U.S.C. 1396 et seq.) which the Secretary of 

Health and Human Services determines requires State legislation in order for the plan to meet the additional requirements 

imposed by the amendments made by a provision of this section, the State plan shall not be regarded as failing to comply 

with the requirements of such title solely on the basis of its failure to meet these additional requirements before the first day of 

the first calendar quarter beginning after the close of the first 


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regular session of the State legislature that begins after the date 

of the enactment of this Act. For purposes of the previous sentence, in the case of a State that has a 2-year legislative session, 

each year of the session is considered to be a separate regular 

session of the State legislature. 

Subchapter B—Expanded Access to Certain Benefits 

SEC. 6021. EXPANSION OF STATE LONG-TERM CARE PARTNERSHIP 

PROGRAM. 

(a) EXPANSION AUTHORITY.— (1) IN GENERAL.—Section 1917(b) of the Social Security Act 

(42 U.S.C. 1396p(b)) is amended— 

(A) in paragraph (1)(C)— 

(i) in clause (ii), by inserting ‘‘and which satisfies 

clause (iv), or which has a State plan amendment that 

provides for a qualified State long-term care insurance 

partnership (as defined in clause (iii))’’ after ‘‘1993,’’; 

and 

(ii) by adding at the end the following new clauses: 

‘‘(iii) For purposes of this paragraph, the term ‘qualified 

State long-term care insurance partnership’ means an approved 

State plan amendment under this title that provides for the disregard of any assets or resources in an amount equal to the insurance benefit payments that are made to or on behalf of an 

individual who is a beneficiary under a long-term care insurance policy if the following requirements are met: 

‘‘(I) The policy covers an insured who was a resident of 

such State when coverage first became effective under the 

policy. 

‘‘(II) The policy is a qualified long-term care insurance 

policy (as defined in section 7702B(b) of the Internal Revenue Code of 1986) issued not earlier than the effective date 

of the State plan amendment. 

‘‘(III) The policy meets the model regulations and the 

requirements of the model Act specified in paragraph (5). 

‘‘(IV) If the policy is sold to an individual who— 

‘‘(aa) has not attained age 61 as of the date of purchase, the policy provides compound annual inflation 

protection; 

‘‘(bb) has attained age 61 but has not attained age 

76 as of such date, the policy provides some level of inflation protection; and 

‘‘(cc) has attained age 76 as of such date, the policy 

may (but is not required to) provide some level of inflation protection. 

‘‘(V) The State Medicaid agency under section 

1902(a)(5) provides information and technical assistance to 

the State insurance department on the insurance department’s role of assuring that any individual who sells a 

long-term care insurance policy under the partnership receives training and demonstrates evidence of an understanding of such policies and how they relate to other public and private coverage of long-term care. 

‘‘(VI) The issuer of the policy provides regular reports 

to the Secretary, in accordance with regulations of the SecVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00067 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

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retary, that include notification regarding when benefits 

provided under the policy have been paid and the amount 

of such benefits paid, notification regarding when the policy otherwise terminates, and such other information as the 

Secretary determines may be appropriate to the administration of such partnerships. 

‘‘(VII) The State does not impose any requirement affecting the terms or benefits of such a policy unless the 

State imposes such requirement on long-term care insurance policies without regard to whether the policy is covered under the partnership or is offered in connection with 

such a partnership. 

In the case of a long-term care insurance policy which is exchanged for another such policy, subclause (I) shall be applied 

based on the coverage of the first such policy that was exchanged. For purposes of this clause and paragraph (5), the 

term ‘long-term care insurance policy’ includes a certificate 

issued under a group insurance contract 

‘‘(iv) With respect to a State which had a State plan 

amendment approved as of May 14, 1993, such a State satisfies 

this clause for purposes of clause (ii) if the Secretary determines 

that the State plan amendment provides for consumer protection standards which are no less stringent than the consumer 

protection standards which applied under such State plan 

amendment as of December 31, 2005. 

‘‘(v) The regulations of the Secretary required under clause 

(iii)(VI) shall be promulgated after consultation with the National Association of Insurance Commissioners, issuers of longterm care insurance policies, States with experience with longterm care insurance partnership plans, other States, and representatives of consumers of long-term care insurance policies, 

and shall specify the type and format of the data and information to be reported and the frequency with which such reports 

are to be made. The Secretary, as appropriate, shall provide 

copies of the reports provided in accordance with that clause to 

the State involved. 

‘‘(vi) The Secretary, in consultation with other appropriate 

Federal agencies, issuers of long-term care insurance, the National Association of Insurance Commissioners, State insurance 

commissioners, States with experience with long-term care insurance partnership plans, other States, and representatives of 

consumers of long-term care insurance policies, shall develop 

recommendations for Congress to authorize and fund a uniform 

minimum data set to be reported electronically by all issuers of 

long-term care insurance policies under qualified State longterm care insurance partnerships to a secure, centralized electronic query and report-generating mechanism that the State, 

the Secretary, and other Federal agencies can access.’’; and 

(B) by adding at the end the following: 

‘‘(5)(A) For purposes of clause (iii)(III), the model regulations 

and the requirements of the model Act specified in this paragraph 

are: 

‘‘(i) In the case of the model regulation, the following requirements: 


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‘‘(I) Section 6A (relating to guaranteed renewal or 

noncancellability), other than paragraph (5) thereof, and 

the requirements of section 6B of the model Act relating to 

such section 6A. 

‘‘(II) Section 6B (relating to prohibitions on limitations 

and exclusions) other than paragraph (7) thereof. 

‘‘(III) Section 6C (relating to extension of benefits). 

‘‘(IV) Section 6D (relating to continuation or conversion 

of coverage). 

‘‘(V) Section 6E (relating to discontinuance and replacement of policies). 

‘‘(VI) Section 7 (relating to unintentional lapse). 

‘‘(VII) Section 8 (relating to disclosure), other than sections 8F, 8G, 8H, and 8I thereof. 

‘‘(VIII) Section 9 (relating to required disclosure of rating practices to consumer). 

‘‘(IX) Section 11 (relating to prohibitions against postclaims underwriting). 

‘‘(X) Section 12 (relating to minimum standards). 

‘‘(XI) Section 14 (relating to application forms and replacement coverage). 

‘‘(XII) Section 15 (relating to reporting requirements). 

‘‘(XIII) Section 22 (relating to filing requirements for 

marketing). 

‘‘(XIV) Section 23 (relating to standards for marketing), 

including inaccurate completion of medical histories, other 

than paragraphs (1), (6), and (9) of section 23C. 

‘‘(XV) Section 24 (relating to suitability). 

‘‘(XVI) Section 25 (relating to prohibition against preexisting conditions and probationary periods in replacement policies or certificates). 

‘‘(XVII) The provisions of section 26 relating to contingent nonforfeiture benefits, if the policyholder declines the 

offer of a nonforfeiture provision described in paragraph 

(4). 

‘‘(XVIII) Section 29 (relating to standard format outline 

of coverage). 

‘‘(XIX) Section 30 (relating to requirement to deliver 

shopper’s guide). 

‘‘(ii) In the case of the model Act, the following: 

‘‘(I) Section 6C (relating to preexisting conditions). 

‘‘(II) Section 6D (relating to prior hospitalization). 

‘‘(III) The provisions of section 8 relating to contingent 

nonforfeiture benefits. 

‘‘(IV) Section 6F (relating to right to return). 

‘‘(V) Section 6G (relating to outline of coverage). 

‘‘(VI) Section 6H (relating to requirements for certificates under group plans). 

‘‘(VII) Section 6J (relating to policy summary). 

‘‘(VIII) Section 6K (relating to monthly reports on accelerated death benefits). 

‘‘(IX) Section 7 (relating to incontestability period). 

‘‘(B) For purposes of this paragraph and paragraph (1)(C)— 

‘‘(i) the terms ‘model regulation’ and ‘model Act’ mean the 

long-term care insurance model regulation, and the long-term 


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care insurance model Act, respectively, promulgated by the National Association of Insurance Commissioners (as adopted as 

of October 2000); 

‘‘(ii) any provision of the model regulation or model Act listed under subparagraph (A) shall be treated as including any 

other provision of such regulation or Act necessary to implement 

the provision; and 

‘‘(iii) with respect to a long-term care insurance policy 

issued in a State, the policy shall be deemed to meet applicable 

requirements of the model regulation or the model Act if the 

State plan amendment under paragraph (1)(C)(iii) provides 

that the State insurance commissioner for the State certifies (in 

a manner satisfactory to the Secretary) that the policy meets 

such requirements. 

‘‘(C) Not later than 12 months after the National Association of 

Insurance Commissioners issues a revision, update, or other modification of a model regulation or model Act provision specified in 

subparagraph (A), or of any provision of such regulation or Act that 

is substantively related to a provision specified in such subparagraph, the Secretary shall review the changes made to the provision, 

determine whether incorporating such changes into the corresponding provision specified in such subparagraph would improve 

qualified State long-term care insurance partnerships, and if so, 

shall incorporate the changes into such provision.’’. 

(2) STATE REPORTING REQUIREMENTS.—Nothing in clauses 

(iii)(VI) and (v) of section 1917(b)(1)(C) of the Social Security 

Act (as added by paragraph (1)) shall be construed as prohibiting a State from requiring an issuer of a long-term care insurance policy sold in the State (regardless of whether the policy 

is issued under a qualified State long-term care insurance partnership under section 1917(b)(1)(C)(iii) of such Act) to require 

the issuer to report information or data to the State that is in 

addition to the information or data required under such 

clauses. 

(3) EFFECTIVE DATE.—A State plan amendment that provides for a qualified State long-term care insurance partnership 

under the amendments made by paragraph (1) may provide 

that such amendment is effective for long-term care insurance 

policies issued on or after a date, specified in the amendment, 

that is not earlier than the first day of the first calendar quarter in which the plan amendment was submitted to the Secretary of Health and Human Services. 

(b) STANDARDS FOR RECIPROCAL RECOGNITION AMONG PARTNERSHIP STATES.—In order to permit portability in long-term care 

insurance policies purchased under State long-term care insurance 

partnerships, the Secretary of Health and Human Services shall develop, not later than January 1, 2007, and in consultation with the 

National Association of Insurance Commissioners, issuers of longterm care insurance policies, States with experience with long-term 

care insurance partnership plans, other States, and representatives 

of consumers of long-term care insurance policies, standards for 

uniform reciprocal recognition of such policies among States with 

qualified State long-term care insurance partnerships under 

which— 


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(1) benefits paid under such policies will be treated the 

same by all such States; and 

(2) States with such partnerships shall be subject to such 

standards unless the State notifies the Secretary in writing of 

the State’s election to be exempt from such standards. 

(c) ANNUAL REPORTS TO CONGRESS.— (1) IN GENERAL.—The Secretary of Health and Human 

Services shall annually report to Congress on the long-term care 

insurance partnerships established in accordance with section 

1917(b)(1)(C)(ii) of the Social Security Act (42 U.S.C. 

1396p(b)(1)(C)(ii)) (as amended by subsection (a)(1)). Such reports shall include analyses of the extent to which such partnerships expand or limit access of individuals to long-term care 

and the impact of such partnerships on Federal and State expenditures under the Medicare and Medicaid programs. Nothing in this section shall be construed as requiring the Secretary 

to conduct an independent review of each long-term care insurance policy offered under or in connection with such a partnership. 

(2) APPROPRIATION.—Out of any funds in the Treasury not 

otherwise appropriated, there is appropriated to the Secretary of 

Health and Human Services, $1,000,000 for the period of fiscal 

years 2006 through 2010 to carry out paragraph (1). 

(d) NATIONAL CLEARINGHOUSE FOR LONG-TERM CARE INFORMA- TION.— (1) ESTABLISHMENT.—The Secretary of Health and Human 

Services shall establish a National Clearinghouse for LongTerm Care Information. The Clearinghouse may be established 

through a contract or interagency agreement. 

(2) DUTIES.— 

(A) IN GENERAL.—The National Clearinghouse for 

Long-Term Care Information shall— 

(i) educate consumers with respect to the availability and limitations of coverage for long-term care 

under the Medicaid program and provide contact information for obtaining State-specific information on 

long-term care coverage, including eligibility and estate 

recovery requirements under State Medicaid programs; 

(ii) provide objective information to assist consumers with the decisionmaking process for determining whether to purchase long-term care insurance 

or to pursue other private market alternatives for purchasing long-term care and provide contact information for additional objective resources on planning for 

long-term care needs; and 

(iii) maintain a list of States with State long-term 

care insurance partnerships under the Medicaid program that provide reciprocal recognition of long-term 

care insurance policies issued under such partnerships. 

(B) REQUIREMENT.—In providing information to consumers on long-term care in accordance with this subsection, the National Clearinghouse for Long-Term Care Information shall not advocate in favor of a specific long-term 

care insurance provider or a specific long-term care insurance policy. 


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(3) APPROPRIATION.—Out of any funds in the Treasury not 

otherwise appropriated, there is appropriated to carry out this 

subsection, $3,000,000 for each of fiscal years 2006 through 

2010. 

CHAPTER 3—ELIMINATING FRAUD, WASTE, AND ABUSE 

IN MEDICAID 

SEC. 6032. ENCOURAGING THE ENACTMENT OF STATE FALSE CLAIMS 

ACTS. 

(a) IN GENERAL.—Title XIX of the Social Security Act (42 

U.S.C. 1396 et seq.) is amended by inserting after section 1908A the 

following: 

‘‘STATE FALSE CLAIMS ACT REQUIREMENTS FOR INCREASED STATE

SHARE OF RECOVERIES

‘‘SEC. 1909. (a) IN GENERAL.—Notwithstanding section 1905(b), 

if a State has in effect a law relating to false or fraudulent claims 

that meets the requirements of subsection (b), the Federal medical 

assistance percentage with respect to any amounts recovered under 

a State action brought under such law, shall be decreased by 10 

percentage points. 

‘‘(b) REQUIREMENTS.—For purposes of subsection (a), the requirements of this subsection are that the Inspector General of the 

Department of Health and Human Services, in consultation with 

the Attorney General, determines that the State has in effect a law 

that meets the following requirements: 

‘‘(1) The law establishes liability to the State for false or 

fraudulent claims described in section 3729 of title 31, United 

States Code, with respect to any expenditure described in section 1903(a). 

‘‘(2) The law contains provisions that are at least as effective in rewarding and facilitating qui tam actions for false or 

fraudulent claims as those described in sections 3730 through 

3732 of title 31, United States Code. 

‘‘(3) The law contains a requirement for filing an action 

under seal for 60 days with review by the State Attorney General. 

‘‘(4) The law contains a civil penalty that is not less than 

the amount of the civil penalty authorized under section 3729 

of title 31, United States Code. 

‘‘(c) DEEMED COMPLIANCE.—A State that, as of January 1, 

2007, has a law in effect that meets the requirements of subsection 

(b) shall be deemed to be in compliance with such requirements for 

so long as the law continues to meet such requirements. 

‘‘(d) NO PRECLUSION OF BROADER LAWS.—Nothing in this section shall be construed as prohibiting a State that has in effect a 

law that establishes liability to the State for false or fraudulent 

claims described in section 3729 of title 31, United States Code, 

with respect to programs in addition to the State program under 

this title, or with respect to expenditures in addition to expenditures 

described in section 1903(a), from being considered to be in compliance with the requirements of subsection (a) so long as the law 

meets such requirements.’’. 

(b) EFFECTIVE DATE.—Except as provided in section 6035(e), the 

amendments made by this section take effect on January 1, 2007. 


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SEC. 6033. EMPLOYEE EDUCATION ABOUT FALSE CLAIMS RECOVERY. 

(a) IN GENERAL.—Section 1902(a) of the Social Security Act (42 

U.S.C. 1396a(a)) is amended— 

(1) in paragraph (66), by striking ‘‘and’’ at the end; 

(2) in paragraph (67) by striking the period at the end and 

inserting ‘‘; and’’; and 

(3) by inserting after paragraph (67) the following: 

‘‘(68) provide that any entity that receives or makes annual 

payments under the State plan of at least $5,000,000, as a condition of receiving such payments, shall— 

‘‘(A) establish written policies for all employees of the 

entity (including management), and of any contractor or 

agent of the entity, that provide detailed information about 

the False Claims Act established under sections 3729 

through 3733 of title 31, United States Code, administrative remedies for false claims and statements established 

under chapter 38 of title 31, United States Code, any State 

laws pertaining to civil or criminal penalties for false 

claims and statements, and whistleblower protections 

under such laws, with respect to the role of such laws in 

preventing and detecting fraud, waste, and abuse in Federal health care programs (as defined in section 1128B(f)); 

‘‘(B) include as part of such written policies, detailed 

provisions regarding the entity’s policies and procedures for 

detecting and preventing fraud, waste, and abuse; and 

‘‘(C) include in any employee handbook for the entity, 

a specific discussion of the laws described in subparagraph 

(A), the rights of employees to be protected as whistleblowers, and the entity’s policies and procedures for detecting and preventing fraud, waste, and abuse.’’. 

(b) EFFECTIVE DATE.—Except as provided in section 6035(e), the 

amendments made by subsection (a) take effect on January 1, 2007. 

SEC. 6034. PROHIBITION ON RESTOCKING AND DOUBLE BILLING OF 

PRESCRIPTION DRUGS. 

(a) IN GENERAL.—Section 1903(i)(10) of the Social Security Act 

(42 U.S.C. 1396b(i)), as amended by section 6002(b), is amended— 

(1) in subparagraph (B), by striking ‘‘and’’ at the end; 

(2) in subparagraph (C), by striking ‘‘; or’’ at the end and 

inserting ‘‘, and’’; and 

(3) by adding at the end the following: 

‘‘(D) with respect to any amount expended for reimbursement to a pharmacy under this title for the ingredient cost of 

a covered outpatient drug for which the pharmacy has already 

received payment under this title (other than with respect to a 

reasonable restocking fee for such drug); or’’. 

(b) EFFECTIVE DATE.—The amendments made by subsection (a) 

take effect on the first day of the first fiscal year quarter that begins 

after the date of enactment of this Act. 

SEC. 6035. MEDICAID INTEGRITY PROGRAM. 

(a) ESTABLISHMENT OF MEDICAID INTEGRITY PROGRAM.—Title 

XIX of the Social Security Act (42 U.S.C. 1396 et seq.) is amended— 

(1) by redesignating section 1936 as section 1937; and 

(2) by inserting after section 1935 the following: 


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‘‘MEDICAID INTEGRITY PROGRAM

‘‘SEC. 1936. (a) IN GENERAL.—There is hereby established the 

Medicaid Integrity Program (in this section referred to as the ‘Program’) under which the Secretary shall promote the integrity of the 

program under this title by entering into contracts in accordance 

with this section with eligible entities to carry out the activities described in subsection (b). 

‘‘(b) ACTIVITIES DESCRIBED—Activities described in this subsection are as follows: 

‘‘(1) Review of the actions of individuals or entities furnishing items or services (whether on a fee-for-service, risk, or 

other basis) for which payment may be made under a State 

plan approved under this title (or under any waiver of such 

plan approved under section 1115) to determine whether fraud, 

waste, or abuse has occurred, is likely to occur, or whether such 

actions have any potential for resulting in an expenditure of 

funds under this title in a manner which is not intended under 

the provisions of this title. 

‘‘(2) Audit of claims for payment for items or services furnished, or administrative services rendered, under a State plan 

under this title, including— 

‘‘(A) cost reports; 

‘‘(B) consulting contracts; and 

‘‘(C) risk contracts under section 1903(m). 

‘‘(3) Identification of overpayments to individuals or entities 

receiving Federal funds under this title. 

‘‘(4) Education of providers of services, managed care entities, beneficiaries, and other individuals with respect to payment integrity and quality of care. 

‘‘(c) ELIGIBLE ENTITY AND CONTRACTING REQUIREMENTS.— 

‘‘(1) IN GENERAL.—An entity is eligible to enter into a contract under the Program to carry out any of the activities described in subsection (b) if the entity satisfies the requirements 

of paragraphs (2) and (3). 

‘‘(2) ELIGIBILITY REQUIREMENTS.—The requirements of this 

paragraph are the following: 

‘‘(A) The entity has demonstrated capability to carry 

out the activities described in subsection (b). 

‘‘(B) In carrying out such activities, the entity agrees to 

cooperate with the Inspector General of the Department of 

Health and Human Services, the Attorney General, and 

other law enforcement agencies, as appropriate, in the investigation and deterrence of fraud and abuse in relation to 

this title and in other cases arising out of such activities. 

‘‘(C) The entity complies with such conflict of interest 

standards as are generally applicable to Federal acquisition and procurement. 

‘‘(D) The entity meets such other requirements as the 

Secretary may impose. 

‘‘(3) CONTRACTING REQUIREMENTS.—The entity has contracted with the Secretary in accordance with such procedures 

as the Secretary shall by regulation establish, except that such 

procedures shall include the following: 


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‘‘(A) Procedures for identifying, evaluating, and resolving organizational conflicts of interest that are generally 

applicable to Federal acquisition and procurement. 

‘‘(B) Competitive procedures to be used— 

‘‘(i) when entering into new contracts under this 

section; 

‘‘(ii) when entering into contracts that may result 

in the elimination of responsibilities under section 

202(b) of the Health Insurance Portability and Accountability Act of 1996; and 

‘‘(iii) at any other time considered appropriate by 

the Secretary. 

‘‘(C) Procedures under which a contract under this section may be renewed without regard to any provision of law 

requiring competition if the contractor has met or exceeded 

the performance requirements established in the current 

contract. 

The Secretary may enter into such contracts without regard to 

final rules having been promulgated. 

‘‘(4) LIMITATION ON CONTRACTOR LIABILITY.—The Secretary 

shall by regulation provide for the limitation of a contractor’s 

liability for actions taken to carry out a contract under the Program, and such regulation shall, to the extent the Secretary 

finds appropriate, employ the same or comparable standards 

and other substantive and procedural provisions as are contained in section 1157. 

‘‘(d) COMPREHENSIVE PLAN FOR PROGRAM INTEGRITY.— ‘‘(1) 5-YEAR PLAN.—With respect to the 5 fiscal year period 

beginning with fiscal year 2006, and each such 5-fiscal year period that begins thereafter, the Secretary shall establish a comprehensive plan for ensuring the integrity of the program established under this title by combatting fraud, waste, and abuse. 

‘‘(2) CONSULTATION.—Each 5-fiscal year plan established 

under paragraph (1) shall be developed by the Secretary in consultation with the Attorney General, the Director of the Federal 

Bureau of Investigation, the Comptroller General of the United 

States, the Inspector General of the Department of Health and 

Human Services, and State officials with responsibility for controlling provider fraud and abuse under State plans under this 

title. 

‘‘(e) APPROPRIATION.— 

‘‘(1) IN GENERAL.—Out of any money in the Treasury of the 

United States not otherwise appropriated, there are appropriated to carry out the Medicaid Integrity Program under this 

section, without further appropriation— 

‘‘(A) for fiscal year 2006, $5,000,000; 

‘‘(B) for each of fiscal years 2007 and 2008, 

$50,000,000; and 

‘‘(C) for each fiscal year thereafter, $75,000,000. 

‘‘(2) AVAILABILITY.—Amounts appropriated pursuant to 

paragraph (1) shall remain available until expended. 

‘‘(3) INCREASE IN CMS STAFFING DEVOTED TO PROTECTING

MEDICAID PROGRAM INTEGRITY.—From the amounts appropriated under paragraph (1), the Secretary shall increase by 

100 the number of full-time equivalent employees whose duties 


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consist solely of protecting the integrity of the Medicaid program established under this section by providing effective support and assistance to States to combat provider fraud and 

abuse. 

‘‘(4) ANNUAL REPORT.—Not later than 180 days after the 

end of each fiscal year (beginning with fiscal year 2006), the 

Secretary shall submit a report to Congress which identifies— 

‘‘(A) the use of funds appropriated pursuant to paragraph (1); and 

‘‘(B) the effectiveness of the use of such funds.’’. 

(b) STATE REQUIREMENT TO COOPERATE WITH INTEGRITY PROGRAM EFFORTS.—Section 1902(a) of such Act (42 U.S.C. 1396a(a)), 

as amended by section 6033(a), is amended— 

(1) in paragraph (67), by striking ‘‘and’’ at the end; 

(2) in paragraph (68), by striking the period at the end and 

inserting ‘‘; and’’; and 

(3) by inserting after paragraph (68), the following: 

‘‘(69) provide that the State must comply with any requirements determined by the Secretary to be necessary for carrying 

out the Medicaid Integrity Program established under section 

1936.’’. 

(c) INCREASED FUNDING FOR MEDICAID FRAUD AND ABUSE CON- TROL ACTIVITIES.— (1) IN GENERAL.—Out of any money in the Treasury of the 

United States not otherwise appropriated, there are appropriated to the Office of the Inspector General of the Department 

of Health and Human Services, without further appropriation, 

$25,000,000 for each of fiscal years 2006 through 2010, for activities of such Office with respect to the Medicaid program 

under title XIX of the Social Security Act (42 U.S.C. 1396 et 

seq.). 

(2) AVAILABILITY; AMOUNTS IN ADDITION TO OTHER

AMOUNTS APPROPRIATED FOR SUCH ACTIVITIES.—Amounts appropriated pursuant to paragraph (1) shall— 

(A) remain available until expended; and 

(B) be in addition to any other amounts appropriated 

or made available to the Office of the Inspector General of 

the Department of Health and Human Services for activities of such Office with respect to the Medicaid program. 

(3) ANNUAL REPORT.—Not later than 180 days after the end 

of each fiscal year (beginning with fiscal year 2006), the Inspector General of the Department of Health and Human Services 

shall submit a report to Congress which identifies— 

(A) the use of funds appropriated pursuant to paragraph (1); and 

(B) the effectiveness of the use of such funds. 

(d) NATIONAL EXPANSION OF THE MEDICARE-MEDICAID (MEDIMEDI) DATA MATCH PILOT PROGRAM.— 

(1) REQUIREMENT OF THE MEDICARE INTEGRITY PROGRAM.— Section 1893 of the Social Security Act (42 U.S.C. 1395ddd) is 

amended— 

(A) in subsection (b), by adding at the end the following: 

‘‘(6) The Medicare-Medicaid Data Match Program in accordance with subsection (g).’’; and 


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(B) by adding at the end the following: 

‘‘(g) MEDICARE-MEDICAID DATA MATCH PROGRAM.— 

‘‘(1) EXPANSION OF PROGRAM.— 

‘‘(A) IN GENERAL.—The Secretary shall enter into contracts with eligible entities for the purpose of ensuring that, 

beginning with 2006, the Medicare-Medicaid Data Match 

Program (commonly referred to as the ‘Medi-Medi Program’) is conducted with respect to the program established 

under this title and State Medicaid programs under title 

XIX for the purpose of— 

‘‘(i) identifying program vulnerabilities in the program established under this title and the Medicaid 

program established under title XIX through the use of 

computer algorithms to look for payment anomalies 

(including billing or billing patterns identified with respect to service, time, or patient that appear to be suspect or otherwise implausible); 

‘‘(ii) working with States, the Attorney General, 

and the Inspector General of the Department of Health 

and Human Services to coordinate appropriate actions 

to protect the Federal and State share of expenditures 

under the Medicaid program under title XIX, as well 

as the program established under this title; and 

‘‘(iii) increasing the effectiveness and efficiency of 

both such programs through cost avoidance, savings, 

and recoupments of fraudulent, wasteful, or abusive expenditures. 

‘‘(B) REPORTING REQUIREMENTS.—The Secretary shall 

make available in a timely manner any data and statistical 

information collected by the Medi-Medi Program to the Attorney General, the Director of the Federal Bureau of Investigation, the Inspector General of the Department of Health 

and Human Services, and the States (including a medicaid 

fraud and abuse control unit described in section 1903(q)). 

Such information shall be disseminated no less frequently 

than quarterly. 

‘‘(2) LIMITED WAIVER AUTHORITY.—The Secretary shall 

waive only such requirements of this section and of titles XI 

and XIX as are necessary to carry out paragraph (1).’’. 

(2) FUNDING.—Section 1817(k)(4) of such Act (42 U.S.C. 

1395i(k)(4)), as amended by section 5204 of this Act, is amended— 

(A) in subparagraph (A), by striking ‘‘subparagraph 

(B)’’ and inserting ‘‘subparagraphs (B), (C), and (D)’’; and 

(B) by adding at the end the following: 

‘‘(D) EXPANSION OF THE MEDICARE-MEDICAID DATA

MATCH PROGRAM.—The amount appropriated under subparagraph (A) for a fiscal year is further increased as follows for purposes of carrying out section 1893(b)(6) for the 

respective fiscal year: 

‘‘(i) $12,000,000 for fiscal year 2006. 

‘‘(ii) $24,000,000 for fiscal year 2007. 

‘‘(iii) $36,000,000 for fiscal year 2008. 

‘‘(iv) $48,000,000 for fiscal year 2009. 


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‘‘(v) $60,000,000 for fiscal year 2010 and each fiscal year thereafter.’’. 

(e) DELAYED EFFECTIVE DATE FOR CHAPTER.—Except as otherwise provided in this chapter, in the case of a State plan under title 

XIX of the Social Security Act which the Secretary determines requires State legislation in order for the plan to meet the additional 

requirements imposed by the amendments made by a provision of 

this chapter, the State plan shall not be regarded as failing to comply with the requirements of such Act solely on the basis of its failure to meet these additional requirements before the first day of the 

first calendar quarter beginning after the close of the first regular 

session of the State legislature that begins after the date of enactment of this Act. For purposes of the previous sentence, in the case 

of a State that has a 2-year legislative session, each year of the session shall be considered to be a separate regular session of the State 

legislature. 

SEC. 6036. ENHANCING THIRD PARTY IDENTIFICATION AND PAYMENT. 

(a) CLARIFICATION OF THIRD PARTIES LEGALLY RESPONSIBLE

FOR PAYMENT OF A CLAIM FOR A HEALTH CARE ITEM OR SERVICE.— Section 1902(a)(25) of the Social Security Act (42 U.S.C. 

1396a(a)(25)) is amended— 

(1) in subparagraph (A), in the matter preceding clause 

(i)— 

(A) by inserting ‘‘, self-insured plans’’ after ‘‘health insurers’’; and 

(B) by striking ‘‘and health maintenance organizations’’ 

and inserting ‘‘managed care organizations, pharmacy benefit managers, or other parties that are, by statute, contract, 

or agreement, legally responsible for payment of a claim for 

a health care item or service’’; and 

(2) in subparagraph (G)— 

(A) by inserting ‘‘a self-insured plan,’’ after ‘‘1974,’’; 

and 

(B) by striking ‘‘and a health maintenance organization’’ and inserting ‘‘a managed care organization, a pharmacy benefit manager, or other party that is, by statute, 

contract, or agreement, legally responsible for payment of a 

claim for a health care item or service’’. 

(b) REQUIREMENT FOR THIRD PARTIES TO PROVIDE THE STATE

WITH COVERAGE ELIGIBILITY AND CLAIMS DATA.—Section 

1902(a)(25) of such Act (42 U.S.C. 1396a(a)(25)) is amended— 

(1) in subparagraph (G), by striking ‘‘and’’ at the end; 

(2) in subparagraph (H), by adding ‘‘and’’ after the semicolon at the end; and 

(3) by inserting after subparagraph (H), the following: 

‘‘(I) that the State shall provide assurances satisfactory 

to the Secretary that the State has in effect laws requiring 

health insurers, including self-insured plans, group health 

plans (as defined in section 607(1) of the Employee Retirement Income Security Act of 1974), service benefit plans, 

managed care organizations, pharmacy benefit managers, 

or other parties that are, by statute, contract, or agreement, 

legally responsible for payment of a claim for a health care 

item or service, as a condition of doing business in the 

State, to— 


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‘‘(i) provide, with respect to individuals who are eligible for, or are provided, medical assistance under 

the State plan, upon the request of the State, information to determine during what period the individual or 

their spouses or their dependents may be (or may have 

been) covered by a health insurer and the nature of the 

coverage that is or was provided by the health insurer 

(including the name, address, and identifying number 

of the plan) in a manner prescribed by the Secretary; 

‘‘(ii) accept the State’s right of recovery and the assignment to the State of any right of an individual or 

other entity to payment from the party for an item or 

service for which payment has been made under the 

State plan; 

‘‘(iii) respond to any inquiry by the State regarding 

a claim for payment for any health care item or service 

that is submitted not later than 3 years after the date 

of the provision of such health care item or service; and 

‘‘(iv) agree not to deny a claim submitted by the 

State solely on the basis of the date of submission of 

the claim, the type or format of the claim form, or a 

failure to present proper documentation at the point-ofsale that is the basis of the claim, if— 

‘‘(I) the claim is submitted by the State within 

the 3-year period beginning on the date on which 

the item or service was furnished; and 

‘‘(II) any action by the State to enforce its 

rights with respect to such claim is commenced 

within 6 years of the State’s submission of such 

claim;’’. 

(c) EFFECTIVE DATE.—Except as provided in section 6035(e), the 

amendments made by this section take effect on January 1, 2006. 

SEC. 6037. IMPROVED ENFORCEMENT OF DOCUMENTATION REQUIREMENTS. 

(a) IN GENERAL.—Section 1903 of the Social Security Act (42 

U.S.C. 1396b) is amended— 

(1) in subsection (i), as amended by section 104 of Public 

Law 109–91— 

(A) by striking ‘‘or’’ at the end of paragraph (20); 

(B) by striking the period at the end of paragraph (21) 

and inserting ‘‘; or’’; and 

(C) by inserting after paragraph (21) the following new 

paragraph: 

‘‘(22) with respect to amounts expended for medical assistance for an individual who declares under section 1137(d)(1)(A) 

to be a citizen or national of the United States for purposes of 

establishing eligibility for benefits under this title, unless the requirement of subsection (x) is met.’’; and 

(2) by adding at the end the following new subsection: 

‘‘(x)(1) For purposes of subsection (i)(23), the requirement of this 

subsection is, with respect to an individual declaring to be a citizen 

or national of the United States, that, subject to paragraph (2), 

there is presented satisfactory documentary evidence of citizenship 

or nationality (as defined in paragraph (3)) of the individual. 


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‘‘(2) The requirement of paragraph (1) shall not apply to an 

alien who is eligible for medical assistance under this title— 

‘‘(A) and is entitled to or enrolled for benefits under any 

part of title XVIII; 

‘‘(B) on the basis of receiving supplemental security income 

benefits under title XVI; or 

‘‘(C) on such other basis as the Secretary may specify under 

which satisfactory documentary evidence of citizenship or nationality had been previously presented. 

‘‘(3)(A) For purposes of this subsection, the term ‘satisfactory 

documentary evidence of citizenship or nationality’ means— 

‘‘(i) any document described in subparagraph (B); or 

‘‘(ii) a document described in subparagraph (C) and a document described in subparagraph (D). 

‘‘(B) The following are documents described in this subparagraph: 

‘‘(i) A United States passport. 

‘‘(ii) Form N–550 or N–570 (Certificate of Naturalization). 

‘‘(iii) Form N–560 or N–561 (Certificate of United States 

Citizenship). 

‘‘(iv) A valid State-issued driver’s license or other identity 

document described in section 274A(b)(1)(D) of the Immigration 

and Nationality Act, but only if the State issuing the license or 

such document requires proof of United States citizenship before 

issuance of such license or document or obtains a social security 

number from the applicant and verifies before certification that 

such number is valid and assigned to the applicant who is a 

citizen. 

‘‘(v) Such other document as the Secretary may specify, by 

regulation, that provides proof of United States citizenship or 

nationality and that provides a reliable means of documentation of personal identity. 

‘‘(C) The following are documents described in this subparagraph: 

‘‘(i) A certificate of birth in the United States. 

‘‘(ii) Form FS–545 or Form DS–1350 (Certification of Birth 

Abroad). 

‘‘(iii) Form I–97 (United States Citizen Identification Card). 

‘‘(iv) Form FS–240 (Report of Birth Abroad of a Citizen of 

the United States). 

‘‘(v) Such other document (not described in subparagraph 

(B)(iv)) as the Secretary may specify that provides proof of 

United States citizenship or nationality. 

‘‘(D) The following are documents described in this subparagraph: 

‘‘(i) Any identity document described in section 

274A(b)(1)(D) of the Immigration and Nationality Act. 

‘‘(ii) Any other documentation of personal identity of such 

other type as the Secretary finds, by regulation, provides a reliable means of identification. 

‘‘(E) A reference in this paragraph to a form includes a reference to any successor form.’’. 

(b) EFFECTIVE DATE.—The amendments made by subsection (a) 

shall apply to determinations of initial eligibility for medical assistance made on or after July 1, 2006, and to redeterminations of eligiVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00080 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

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bility made on or after such date in the case of individuals for 

whom the requirement of section 1903(z) of the Social Security Act, 

as added by such amendments, was not previously met. 

(c) IMPLEMENTATION REQUIREMENT.—As soon as practicable 

after the date of enactment of this Act, the Secretary of Health and 

Human Services shall establish an outreach program that is designed to educate individuals who are likely to be affected by the requirements of subsections (i)(23) and (x) of section 1903 of the Social 

Security Act (as added by subsection (a)) about such requirements 

and how they may be satisfied. 

CHAPTER 4—FLEXIBILITY IN COST SHARING AND 

BENEFITS 

SEC. 6041. STATE OPTION FOR ALTERNATIVE MEDICAID PREMIUMS 

AND COST SHARING. 

(a) IN GENERAL.—Title XIX of the Social Security Act is amended by inserting after section 1916 the following new section: 

‘‘STATE OPTION FOR ALTERNATIVE PREMIUMS AND COST SHARING

‘‘SEC. 1916A. (a) STATE FLEXIBILITY.— ‘‘(1) IN GENERAL.—Notwithstanding sections 1916 and 

1902(a)(10)(B), a State, at its option and through a State plan 

amendment, may impose premiums and cost sharing for any 

group of individuals (as specified by the State) and for any type 

of services (other than drugs for which cost sharing may be imposed under subsection (c)), and may vary such premiums and 

cost sharing among such groups or types, consistent with the 

limitations established under this section. Nothing in this section shall be construed as superseding (or preventing the application of) section 1916(g). 

‘‘(2) DEFINITIONS.—In this section: 

‘‘(A) PREMIUM.—The term ‘premium’ includes any enrollment fee or similar charge. 

‘‘(B) COST SHARING.—The term ‘cost sharing’ includes 

any deduction, copayment, or similar charge. 

‘‘(b) LIMITATIONS ON EXERCISE OF AUTHORITY.— ‘‘(1) INDIVIDUALS WITH FAMILY INCOME BETWEEN 100 AND

150 PERCENT OF THE POVERTY LINE.—In the case of an individual whose family income exceeds 100 percent, but does not 

exceed 150 percent, of the poverty line applicable to a family of 

the size involved, subject to subsections (c)(2) and (e)(2)(A)— 

‘‘(A) no premium may be imposed under the plan; and 

‘‘(B) with respect to cost sharing— 

‘‘(i) the cost sharing imposed under subsection (a) 

with respect to any item or service may not exceed 10 

percent of the cost of such item or service; and 

‘‘(ii) the total aggregate amount of cost sharing imposed under this section (including any cost sharing 

imposed under subsection (c) or (e)) for all individuals 

in the family may not exceed 5 percent of the family income of the family involved, as applied on a quarterly 

or monthly basis (as specified by the State). 

‘‘(2) INDIVIDUALS WITH FAMILY INCOME ABOVE 150 PERCENT

OF THE POVERTY LINE.—In the case of an individual whose family income exceeds 150 percent of the poverty line applicable to 


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a family of the size involved, subject to subsections (c)(2) and 

(e)(2)(A)— 

‘‘(A) the total aggregate amount of premiums and cost 

sharing imposed under this section (including any cost 

sharing imposed under subsection (c) or (e)) for all individuals in the family may not exceed 5 percent of the family 

income of the family involved, as applied on a quarterly or 

monthly basis (as specified by the State); and 

‘‘(B) with respect to cost sharing, the cost sharing imposed with respect to any item or service under subsection 

(a) may not exceed 20 percent of the cost of such item or 

service. 

‘‘(3) ADDITIONAL LIMITATIONS.— 

‘‘(A) PREMIUMS.—No premiums shall be imposed under 

this section with respect to the following: 

‘‘(i) Individuals under 18 years of age that are required to be provided medical assistance under section 

1902(a)(10)(A)(i), and including individuals with respect to whom aid or assistance is made available 

under part B of title IV to children in foster care and 

individuals with respect to whom adoption or foster 

care assistance is made available under part E of such 

title, without regard to age. 

‘‘(ii) Pregnant women. 

‘‘(iii) Any terminally ill individual who is receiving 

hospice care (as defined in section 1905(o)). 

‘‘(iv) Any individual who is an inpatient in a hospital, nursing facility, intermediate care facility for the 

mentally retarded, or other medical institution, if such 

individual is required, as a condition of receiving services in such institution under the State plan, to spend 

for costs of medical care all but a minimal amount of 

the individual’s income required for personal needs. 

‘‘(v) Women who are receiving medical assistance 

by virtue of the application of sections 

1902(a)(10)(A)(ii)(XVIII) and 1902(aa). 

‘‘(B) COST SHARING.—Subject to the succeeding provisions of this section, no cost sharing shall be imposed 

under subsection (a) with respect to the following: 

‘‘(i) Services furnished to individuals under 18 

years of age that are required to be provided medical 

assistance under section 1902(a)(10)(A)(i), and including services furnished to individuals with respect to 

whom aid or assistance is made available under part 

B of title IV to children in foster care and individuals 

with respect to whom adoption or foster care assistance 

is made available under part E of such title, without 

regard to age. 

‘‘(ii) Preventive services (such as well baby and 

well child care and immunizations) provided to children under 18 years of age regardless of family income. 

‘‘(iii) Services furnished to pregnant women, if 

such services relate to the pregnancy or to any other 

medical condition which may complicate the pregnancy. 


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‘‘(iv) Services furnished to a terminally ill individual who is receiving hospice care (as defined in section 1905(o)). 

‘‘(v) Services furnished to any individual who is an 

inpatient in a hospital, nursing facility, intermediate 

care facility for the mentally retarded, or other medical 

institution, if such individual is required, as a condition of receiving services in such institution under the 

State plan, to spend for costs of medical care all but 

a minimal amount of the individual’s income required 

for personal needs. 

‘‘(vi) Emergency services (as defined by the Secretary for purposes of section 1916(a)(2)(D)). 

‘‘(vii) Family planning services and supplies described in section 1905(a)(4)(C). 

‘‘(viii) Services furnished to women who are receiving medical assistance by virtue of the application of 

sections 1902(a)(10)(A)(ii)(XVIII) and 1902(aa). 

‘‘(C) CONSTRUCTION.—Nothing in this paragraph shall 

be construed as preventing a State from exempting additional classes of individuals from premiums under this section or from exempting additional individuals or services 

from cost sharing under subsection (a). 

‘‘(4) DETERMINATIONS OF FAMILY INCOME.—In applying this 

subsection, family income shall be determined in a manner 

specified by the State for purposes of this subsection, including 

the use of such disregards as the State may provide. Family income shall be determined for such period and at such periodicity as the State may provide under this title. 

‘‘(5) POVERTY LINE DEFINED.—For purposes of this section, 

the term ‘poverty line’ has the meaning given such term in section 673(2) of the Community Services Block Grant Act (42 

U.S.C. 9902(2)), including any revision required by such section. 

‘‘(6) CONSTRUCTION.—Nothing in this section shall be construed— 

‘‘(A) as preventing a State from further limiting the 

premiums and cost sharing imposed under this section beyond the limitations provided under this section; 

‘‘(B) as affecting the authority of the Secretary through 

waiver to modify limitations on premiums and cost sharing 

under this section; or 

‘‘(C) as affecting any such waiver of requirements in effect under this title before the date of the enactment of this 

section with regard to the imposition of premiums and cost 

sharing. 

‘‘(d) ENFORCEABILITY OF PREMIUMS AND OTHER COST SHAR- ING.— 

‘‘(1) PREMIUMS.—Notwithstanding section 1916(c)(3) and 

section 1902(a)(10)(B), a State may, at its option, condition the 

provision of medical assistance for an individual upon prepayment of a premium authorized to be imposed under this section, 

or may terminate eligibility for such medical assistance on the 

basis of failure to pay such a premium but shall not terminate 

eligibility of an individual for medical assistance under this 


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title on the basis of failure to pay any such premium until such 

failure continues for a period of not less than 60 days. A State 

may apply the previous sentence for some or all groups of beneficiaries as specified by the State and may waive payment of 

any such premium in any case where the State determines that 

requiring such payment would create an undue hardship. 

‘‘(2) COST SHARING.—Notwithstanding section 1916(e) or 

any other provision of law, a State may permit a provider participating under the State plan to require, as a condition for the 

provision of care, items, or services to an individual entitled to 

medical assistance under this title for such care, items, or services, the payment of any cost sharing authorized to be imposed 

under this section with respect to such care, items, or services. 

Nothing in this paragraph shall be construed as preventing a 

provider from reducing or waiving the application of such cost 

sharing on a case-by-case basis.’’. 

(b) INDEXING NOMINAL COST SHARING AND CONFORMING

AMENDMENT.—Section 1916 of such Act (42 U.S.C. 1396o) is 

amended— 

(1) in subsection (f), by inserting ‘‘and section 1916A’’ after 

‘‘(b)(3)’’; and 

(2) by adding at the end the following new subsection: 

‘‘(h) In applying this section and subsections (c) and (e) of section 1916A, with respect to cost sharing that is ‘nominal’ in amount, 

the Secretary shall increase such ‘nominal’ amounts for each year 

(beginning with 2006) by the annual percentage increase in the 

medical care component of the consumer price index for all urban 

consumers (U.S. city average) as rounded up in an appropriate 

manner.’’. 

(c) EFFECTIVE DATE.—The amendments made by this section 

shall apply to cost sharing imposed for items and services furnished 

on or after March 31, 2006. 

SEC. 6042. SPECIAL RULES FOR COST SHARING FOR PRESCRIPTION 

DRUGS. 

(a) IN GENERAL.—Section 1916A of the Social Security Act, as 

inserted by section 6041(a), is amended by inserting after subsection 

(b) the following new subsection: 

‘‘(c) SPECIAL RULES FOR COST SHARING FOR PRESCRIPTION

DRUGS.— 

‘‘(1) IN GENERAL.—In order to encourage beneficiaries to use 

drugs (in this subsection referred to as ‘preferred drugs’) identified by the State as the least (or less) costly effective prescription 

drugs within a class of drugs (as defined by the State), with respect to one or more groups of beneficiaries specified by the 

State, subject to paragraph (2), the State may— 

‘‘(A) provide cost sharing (instead of the level of cost 

sharing otherwise permitted under section 1916, but subject 

to paragraphs (2) and (3)) with respect to drugs that are 

not preferred drugs within a class; and 

‘‘(B) waive or reduce the cost sharing otherwise applicable for preferred drugs within such class and shall not 

apply any such cost sharing for such preferred drugs for individuals for whom cost sharing may not otherwise be imposed under subsection (b)(3)(B). 

‘‘(2) LIMITATIONS.— 


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‘‘(A) BY INCOME GROUP.—In no case may the cost sharing under paragraph (1)(A) with respect to a non-preferred 

drug exceed— 

‘‘(i) in the case of an individual whose family income does not exceed 150 percent of the poverty line applicable to a family of the size involved, the amount of 

nominal cost sharing (as otherwise determined under 

section 1916); or 

‘‘(ii) in the case of an individual whose family income exceeds 150 percent of the poverty line applicable 

to a family of the size involved, 20 percent of the cost 

of the drug. 

‘‘(B) LIMITATION TO NOMINAL FOR EXEMPT POPULATIONS.—In the case of an individual who is otherwise not 

subject to cost sharing due to the application of subsection 

(b)(3)(B), any cost sharing under paragraph (1)(A) with respect to a non-preferred drug may not exceed a nominal 

amount (as otherwise determined under section 1916). 

‘‘(C) CONTINUED APPLICATION OF AGGREGATE CAP.—In 

addition to the limitations imposed under subparagraphs 

(A) and (B), any cost sharing under paragraph (1)(A) continues to be subject to the aggregate cap on cost sharing applied under paragraph (1) or (2) of subsection (b), as the 

case may be. 

‘‘(3) WAIVER.—In carrying out paragraph (1), a State shall 

provide for the application of cost sharing levels applicable to 

a preferred drug in the case of a drug that is not a preferred 

drug if the prescribing physician determines that the preferred 

drug for treatment of the same condition either would not be as 

effective for the individual or would have adverse effects for the 

individual or both. 

‘‘(4) EXCLUSION AUTHORITY.—Nothing in this subsection 

shall be construed as preventing a State from excluding specified drugs or classes of drugs from the application of paragraph 

(1).’’. 

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

shall apply to cost sharing imposed for items and services furnished 

on or after March 31, 2006. 

SEC. 6043. EMERGENCY ROOM COPAYMENTS FOR NON-EMERGENCY 

CARE. 

(a) IN GENERAL.—Section 1916A of the Social Security Act, as 

inserted by section 6041 and as amended by section 6042, is further 

amended by adding at the end the following new subsection: 

‘‘(e) STATE OPTION FOR PERMITTING HOSPITALS TO IMPOSE

COST SHARING FOR NON-EMERGENCY CARE FURNISHED IN AN

EMERGENCY DEPARTMENT.— 

‘‘(1) IN GENERAL.—Notwithstanding section 1916 and section 1902(a)(1) or the previous provisions of this section, but 

subject to the limitations of paragraph (2), a State may, by 

amendment to its State plan under this title, permit a hospital 

to impose cost sharing for non-emergency services furnished to 

an individual (within one or more groups of individuals specified by the State) in the hospital emergency department under 

this subsection if the following conditions are met: 


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‘‘(A) ACCESS TO NON-EMERGENCY ROOM PROVIDER.— The individual has actually available and accessible (as 

such terms are applied by the Secretary under section 

1916(b)(3)) an alternate non-emergency services provider 

with respect to such services. 

‘‘(B) NOTICE.—The hospital must inform the beneficiary after receiving an appropriate medical screening examination under section 1867 and after a determination 

has been made that the individual does not have an emergency medical condition, but before providing the non-emergency services, of the following: 

‘‘(i) The hospital may require the payment of the 

State specified cost sharing before the service can be 

provided. 

‘‘(ii) The name and location of an alternate nonemergency services provider (described in subparagraph (A)) that is actually available and accessible (as 

described in such subparagraph). 

‘‘(iii) The fact that such alternate provider can provide the services without the imposition of cost sharing 

described in clause (i). 

‘‘(iv) The hospital provides a referral to coordinate 

scheduling of this treatment. 

Nothing in this subsection shall be construed as preventing 

a State from applying (or waiving) cost sharing otherwise 

permissible under this section to services described in 

clause (iii). 

‘‘(2) LIMITATIONS.— ‘‘(A) FOR POOREST BENEFICIARIES.—In the case of an 

individual described in subsection (b)(1), the cost sharing 

imposed under this subsection may not exceed twice the 

amount determined to be nominal under section 1916, subject to the percent of income limitation otherwise applicable 

under subsection (b)(1). 

‘‘(B) APPLICATION TO EXEMPT POPULATIONS.—In the 

case of an individual who is otherwise not subject to cost 

sharing under subsection (b)(3), a State may impose cost 

sharing under paragraph (1) for care in an amount that 

does not exceed a nominal amount (as otherwise determined under section 1916) so long as no cost sharing is imposed to receive such care through an outpatient department or other alternative health care provider in the geographic area of the hospital emergency department involved. 

‘‘(C) CONTINUED APPLICATION OF AGGREGATE CAP; RELATION TO OTHER COST SHARING.—In addition to the limitations imposed under subparagraphs (A) and (B), any cost 

sharing under paragraph (1) is subject to the aggregate cap 

on cost sharing applied under paragraph (1) or (2) of subsection (b), as the case may be. Cost sharing imposed for 

services under this subsection shall be instead of any cost 

sharing that may be imposed for such services under subsection (a). 

‘‘(3) CONSTRUCTION.—Nothing in this section shall be construed— 


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‘‘(A) to limit a hospital’s obligations with respect to 

screening and stabilizing treatment of an emergency medical condition under section 1867; or 

‘‘(B) to modify any obligations under either State or 

Federal standards relating to the application of a prudentlayperson standard with respect to payment or coverage of 

emergency services by any managed care organization. 

‘‘(4) STANDARD REGARDING IMPOSITION OF COST SHARING.— No hospital or physician shall be liable in any civil action or 

proceeding for the imposition of cost-sharing under this section, 

absent a finding by clear and convincing evidence of gross negligence by the hospital or physician. The previous sentence shall 

not affect any liability under section 1867 or otherwise applicable under State law based upon the provision of (or failure to 

provide) care. 

‘‘(5) DEFINITIONS.—For purposes of this subsection: 

‘‘(A) NON-EMERGENCY SERVICES.—The term ‘non-emergency services’ means any care or services furnished in an 

emergency department of a hospital that the physician determines do not constitute an appropriate medical screening 

examination or stabilizing examination and treatment required to be provided by the hospital under section 1867. 

‘‘(B) ALTERNATE NON-EMERGENCY SERVICES PRO- VIDER.—The term ‘alternative non-emergency services provider’ means, with respect to non-emergency services for the 

diagnosis or treatment of a condition, a health care provider, such as a physician’s office, health care clinic, community health center, hospital outpatient department, or 

similar health care provider, that can provide clinically appropriate services for the diagnosis or treatment of a condition contemporaneously with the provision of the non-emergency services that would be provided in an emergency department of a hospital for the diagnosis or treatment of a 

condition, and that is participating in the program under 

this title.’’. 

(b) GRANT FUNDS FOR ESTABLISHMENT OF ALTERNATE NON- EMERGENCY SERVICES PROVIDERS.—Section 1903 of the Social Security Act (42 U.S.C. 1396b), as amended by section 6037(a)(2), is 

amended by adding at the end the following new subsection: 

‘‘(y) PAYMENTS FOR ESTABLISHMENT OF ALTERNATE NON-EMERGENCY SERVICES PROVIDERS.— 

‘‘(1) PAYMENTS.—In addition to the payments otherwise 

provided under subsection (a), subject to paragraph (2), the Secretary shall provide for payments to States under such subsection for the establishment of alternate non-emergency service 

providers (as defined in section 1916A(e)(5)(B)), or networks of 

such providers. 

‘‘(2) LIMITATION.—The total amount of payments under this 

subsection shall not exceed $50,000,000 during the 4-year period beginning with 2006. This subsection constitutes budget 

authority in advance of appropriations Acts and represents the 

obligation of the Secretary to provide for the payment of 

amounts provided under this subsection. 

‘‘(3) PREFERENCE.—In providing for payments to States 

under this subsection, the Secretary shall provide preference to 


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States that establish, or provide for, alternate non-emergency 

services providers or networks of such providers that— 

‘‘(A) serve rural or underserved areas where beneficiaries under this title may not have regular access to providers of primary care services; or 

‘‘(B) are in partnership with local community hospitals. 

‘‘(4) FORM AND MANNER OF PAYMENT.—Payment to a State 

under this subsection shall be made only upon the filing of such 

application in such form and in such manner as the Secretary 

shall specify. Payment to a State under this subsection shall be 

made in the same manner as other payments under section 

1903(a).’’. 

(c) EFFECTIVE DATE.—The amendments made by this section 

shall apply to non-emergency services furnished on or after January 

1, 2007. 

SEC. 6044. USE OF BENCHMARK BENEFIT PACKAGES. 

(a) IN GENERAL.—Title XIX of the Social Security Act, as 

amended by section 6035, is amended by redesignating section 1937 

as section 1938 and by inserting after section 1936 the following 

new section: 

‘‘STATE FLEXIBILITY IN BENEFIT PACKAGES

‘‘SEC. 1937. (a) STATE OPTION OF PROVIDING BENCHMARK BENEFITS.— 

‘‘(1) AUTHORITY.— 

‘‘(A) IN GENERAL.—Notwithstanding any other provision of this title, a State, at its option as a State plan 

amendment, may provide for medical assistance under this 

title to individuals within one or more groups of individuals specified by the State through enrollment in coverage 

that provides— 

‘‘(i) benchmark coverage described in subsection 

(b)(1) or benchmark equivalent coverage described in 

subsection (b)(2); and 

‘‘(ii) for any child under 19 years of age who is covered under the State plan under section 1902(a)(10)(A), 

wrap-around benefits to the benchmark coverage or 

benchmark equivalent coverage consisting of early and 

periodic screening, diagnostic, and treatment services 

defined in section 1905(r). 

‘‘(B) LIMITATION.—The State may only exercise the option under subparagraph (A) for an individual eligible 

under an eligibility category that had been established 

under the State plan on or before the date of the enactment 

of this section. 

‘‘(C) OPTION OF WRAP-AROUND BENEFITS.—In the case 

of coverage described in subparagraph (A), a State, at its 

option, may provide such wrap-around or additional benefits as the State may specify. 

‘‘(D) TREATMENT AS MEDICAL ASSISTANCE.—Payment of 

premiums for such coverage under this subsection shall be 

treated as payment of other insurance premiums described 

in the third sentence of section 1905(a). 

‘‘(2) APPLICATION.— 


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

(B), a State may require that a full-benefit eligible individual (as defined in subparagraph (C)) within a group obtain benefits under this title through enrollment in coverage 

described in paragraph (1)(A). A State may apply the previous sentence to individuals within 1 or more groups of 

such individuals. 

‘‘(B) LIMITATION ON APPLICATION.—A State may not require under subparagraph (A) an individual to obtain benefits through enrollment described in paragraph (1)(A) if 

the individual is within one of the following categories of 

individuals: 

‘‘(i) MANDATORY PREGNANT WOMEN.—The individual is a pregnant woman who is required to be covered under the State plan under section 

1902(a)(10)(A)(i). 

‘‘(ii) BLIND OR DISABLED INDIVIDUALS.—The individual qualifies for medical assistance under the State 

plan on the basis of being blind or disabled (or being 

treated as being blind or disabled) without regard to 

whether the individual is eligible for supplemental security income benefits under title XVI on the basis of 

being blind or disabled and including an individual 

who is eligible for medical assistance on the basis of 

section 1902(e)(3). 

‘‘(iii) DUAL ELIGIBLES.—The individual is entitled 

to benefits under any part of title XVIII. 

‘‘(iv) TERMINALLY ILL HOSPICE PATIENTS.—The individual is terminally ill and is receiving benefits for 

hospice care under this title. 

‘‘(v) ELIGIBLE ON BASIS OF INSTITUTIONALIZATION.—The individual is an inpatient in a hospital, 

nursing facility, intermediate care facility for the mentally retarded, or other medical institution, and is required, as a condition of receiving services in such institution under the State plan, to spend for costs of 

medical care all but a minimal amount of the individual’s income required for personal needs. 

‘‘(vi) MEDICALLY FRAIL AND SPECIAL MEDICAL

NEEDS INDIVIDUALS.—The individual is medically frail 

or otherwise an individual with special medical needs 

(as identified in accordance with regulations of the 

Secretary). 

‘‘(vii) BENEFICIARIES QUALIFYING FOR LONG-TERM

CARE SERVICES.—The individual qualifies based on 

medical condition for medical assistance for long-term 

care services described in section 1917(c)(1)(C). 

‘‘(viii) CHILDREN IN FOSTER CARE RECEIVING CHILD

WELFARE SERVICES AND CHILDREN RECEIVING FOSTER

CARE OR ADOPTION ASSISTANCE.—The individual is an 

individual with respect to whom aid or assistance is 

made available under part B of title IV to children in 

foster care and individuals with respect to whom adoption or foster care assistance is made available under 

part E of such title, without regard to age. 


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‘‘(ix) TANF AND SECTION 1931 PARENTS.—The individual qualifies for medical assistance on the basis of 

eligibility to receive assistance under a State plan 

funded under part A of title IV (as in effect on or after 

the welfare reform effective date defined in section 

1931(i)). 

‘‘(x) WOMEN IN THE BREAST OR CERVICAL CANCER

PROGRAM.—The individual is a woman who is receiving medical assistance by virtue of the application of 

sections 1902(a)(10)(A)(ii)(XVIII) and 1902(aa). 

‘‘(xii) LIMITED SERVICES BENEFICIARIES.—The individual— 

‘‘(I) qualifies for medical assistance on the 

basis of section 1902(a)(10)(A)(ii)(XII); or 

‘‘(II) is not a qualified alien (as defined in section 431 of the Personal Responsibility and Work 

Opportunity Reconciliation Act of 1996) and receives care and services necessary for the treatment 

of an emergency medical condition in accordance 

with section 1903(v). 

‘‘(C) FULL-BENEFIT ELIGIBLE INDIVIDUALS.— 

‘‘(i) IN GENERAL.—For purposes of this paragraph, 

subject to clause (ii), the term ‘full-benefit eligible individual’ means for a State for a month an individual 

who is determined eligible by the State for medical assistance for all services defined in section 1905(a) 

which are covered under the State plan under this title 

for such month under section 1902(a)(10)(A) or under 

any other category of eligibility for medical assistance 

for all such services under this title, as determined by 

the Secretary. 

‘‘(ii) EXCLUSION OF MEDICALLY NEEDY AND SPENDDOWN POPULATIONS.—Such term shall not include an 

individual determined to be eligible by the State for 

medical assistance under section 1902(a)(10)(C) or by 

reason of section 1902(f) or otherwise eligible based on 

a reduction of income based on costs incurred for medical or other remedial care. 

‘‘(b) BENCHMARK BENEFIT PACKAGES.— 

‘‘(1) IN GENERAL.—For purposes of subsection (a)(1), each of 

the following coverage shall be considered to be benchmark coverage: 

‘‘(A) FEHBP-EQUIVALENT HEALTH INSURANCE COVERAGE.—The standard Blue Cross/Blue Shield preferred 

provider option service benefit plan, described in and offered under section 8903(1) of title 5, United States Code. 

‘‘(B) STATE EMPLOYEE COVERAGE.—A health benefits 

coverage plan that is offered and generally available to 

State employees in the State involved. 

‘‘(C) COVERAGE OFFERED THROUGH HMO.—The health 

insurance coverage plan that— 

‘‘(i) is offered by a health maintenance organization (as defined in section 2791(b)(3) of the Public 

Health Service Act), and 


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‘‘(ii) has the largest insured commercial, non-medicaid enrollment of covered lives of such coverage plans 

offered by such a health maintenance organization in 

the State involved. 

‘‘(D) SECRETARY-APPROVED COVERAGE.—Any other 

health benefits coverage that the Secretary determines, 

upon application by a State, provides appropriate coverage 

for the population proposed to be provided such coverage. 

‘‘(2) BENCHMARK-EQUIVALENT COVERAGE.—For purposes of 

subsection (a)(1), coverage that meets the following requirement 

shall be considered to be benchmark-equivalent coverage: 

‘‘(A) INCLUSION OF BASIC SERVICES.—The coverage includes benefits for items and services within each of the following categories of basic services: 

‘‘(i) Inpatient and outpatient hospital services. 

‘‘(ii) Physicians’ surgical and medical services. 

‘‘(iii) Laboratory and x-ray services. 

‘‘(iv) Well-baby and well-child care, including ageappropriate immunizations. 

‘‘(v) Other appropriate preventive services, as designated by the Secretary. 

‘‘(B) AGGREGATE ACTUARIAL VALUE EQUIVALENT TO

BENCHMARK PACKAGE.—The coverage has an aggregate actuarial value that is at least actuarially equivalent to one 

of the benchmark benefit packages described in paragraph 

(1). 

‘‘(C) SUBSTANTIAL ACTUARIAL VALUE FOR ADDITIONAL

SERVICES INCLUDED IN BENCHMARK PACKAGE.—With respect 

to each of the following categories of additional services for 

which coverage is provided under the benchmark benefit 

package used under subparagraph (B), the coverage has an 

actuarial value that is equal to at least 75 percent of the 

actuarial value of the coverage of that category of services 

in such package: 

‘‘(i) Coverage of prescription drugs. 

‘‘(ii) Mental health services. 

‘‘(iii) Vision services. 

‘‘(iv) Hearing services. 

‘‘(3) DETERMINATION OF ACTUARIAL VALUE.—The actuarial 

value of coverage of benchmark benefit packages shall be set 

forth in an actuarial opinion in an actuarial report that has 

been prepared— 

‘‘(A) by an individual who is a member of the American 

Academy of Actuaries; 

‘‘(B) using generally accepted actuarial principles and 

methodologies; 

‘‘(C) using a standardized set of utilization and price 

factors; 

‘‘(D) using a standardized population that is representative of the population involved; 

‘‘(E) applying the same principles and factors in comparing the value of different coverage (or categories of services); 


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‘‘(F) without taking into account any differences in coverage based on the method of delivery or means of cost control or utilization used; and 

‘‘(G) taking into account the ability of a State to reduce 

benefits by taking into account the increase in actuarial 

value of benefits coverage offered under this title that results from the limitations on cost sharing under such coverage. 

The actuary preparing the opinion shall select and specify in 

the memorandum the standardized set and population to be 

used under subparagraphs (C) and (D). 

‘‘(4) COVERAGE OF RURAL HEALTH CLINIC AND FQHC SERV- ICES.—Notwithstanding the previous provisions of this section, 

a State may not provide for medical assistance through enrollment of an individual with benchmark coverage or benchmark 

equivalent coverage under this section unless— 

‘‘(A) the individual has access, through such coverage 

or otherwise, to services described in subparagraphs (B) 

and (C) of section 1905(a)(2); and 

‘‘(B) payment for such services is made in accordance 

with the requirements of section 1902(bb).’’. 

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

takes effect on March 31, 2006. 

CHAPTER 5—STATE FINANCING UNDER MEDICAID 

SEC. 6051. MANAGED CARE ORGANIZATION PROVIDER TAX REFORM. 

(a) IN GENERAL.—Section 1903(w)(7)(A)(viii) of the Social Security Act (42 U.S.C. 1396b(w)(7)(A)(viii)) is amended to read as follows: 

‘‘(viii) Services of managed care organizations (including health maintenance organizations, preferred provider 

organizations, and such other similar organizations as the 

Secretary may specify by regulation).’’. 

(b) EFFECTIVE DATE.— (1) IN GENERAL.—Subject to paragraph (2), the amendment 

made by subsection (a) shall be effective as of the date of the 

enactment of this Act. 

(2) DELAY IN EFFECTIVE DATE.— (A) IN GENERAL.—Subject to subparagraph (B), in the 

case of a State specified in subparagraph (B), the amendment made by subsection (a) shall be effective as of October 

1, 2009. 

(B) SPECIFIED STATES.—For purposes of subparagraph 

(A), the States specified in this subparagraph are States 

that have enacted a law providing for a tax on the services 

of a medicaid managed care organization with a contract 

under section 1903(m) of the Social Security Act as of December 8, 2005. 

(c) CLARIFICATION REGARDING NON-REGULATION OF TRANS- FERS.— (1) IN GENERAL.—Nothing in section 1903(w) of the Social 

Security Act (42 U.S.C. 1396b(w)) shall be construed by the Secretary of Health and Human Services as prohibiting a State’s 

use of funds as the non-Federal share of expenditures under 

title XIX of such Act where such funds are transferred from or 


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certified by a publicly-owned regional medical center located in 

another State and described in paragraph (2), so long as the 

Secretary determines that such use of funds is proper and in the 

interest of the program under title XIX. 

(2) CENTER DESCRIBED.—A center described in this paragraph is a publicly-owned regional medical center that— 

(A) provides level 1 trauma and burn care services; 

(B) provides level 3 neonatal care services; 

(C) is obligated to serve all patients, regardless of State 

of origin; 

(D) is located within a Standard Metropolitan Statistical Area (SMSA) that includes at least 3 States, including 

the States described in paragraph (1); 

(E) serves as a tertiary care provider for patients residing within a 125 mile radius; and 

(F) meets the criteria for a disproportionate share hospital under section 1923 of such Act in at least one State 

other than the one in which the center is located. 

(3) EFFECTIVE PERIOD.—This subsection shall apply 

through December 31, 2006. 

SEC. 6052. REFORMS OF CASE MANAGEMENT AND TARGETED CASE 

MANAGEMENT. 

(a) IN GENERAL.—Section 1915(g) of the Social Security Act (42 

U.S.C. 1396n(g)(2)) is amended by striking paragraph (2) and inserting the following: 

‘‘(2) For purposes of this subsection: 

‘‘(A)(i) The term ‘case management services’ means services 

which will assist individuals eligible under the plan in gaining 

access to needed medical, social, educational, and other services. 

‘‘(ii) Such term includes the following: 

‘‘(I) Assessment of an eligible individual to determine 

service needs, including activities that focus on needs identification, to determine the need for any medical, educational, social, or other services. Such assessment activities include the following: 

‘‘(aa) Taking client history. 

‘‘(bb) Identifying the needs of the individual, and 

completing related documentation. 

‘‘(cc) Gathering information from other sources 

such as family members, medical providers, social 

workers, and educators, if necessary, to form a complete assessment of the eligible individual. 

‘‘(II) Development of a specific care plan based on the 

information collected through an assessment, that specifies 

the goals and actions to address the medical, social, educational, and other services needed by the eligible individual, including activities such as ensuring the active participation of the eligible individual and working with the 

individual (or the individual’s authorized health care decision maker) and others to develop such goals and identify 

a course of action to respond to the assessed needs of the 

eligible individual. 

‘‘(III) Referral and related activities to help an individual obtain needed services, including activities that help 


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link eligible individuals with medical, social, educational 

providers or other programs and services that are capable 

of providing needed services, such as making referrals to 

providers for needed services and scheduling appointments 

for the individual. 

‘‘(IV) Monitoring and followup activities, including activities and contacts that are necessary to ensure the care 

plan is effectively implemented and adequately addressing 

the needs of the eligible individual, and which may be with 

the individual, family members, providers, or other entities 

and conducted as frequently as necessary to help determine 

such matters as— 

‘‘(aa) whether services are being furnished in accordance with an individual’s care plan; 

‘‘(bb) whether the services in the care plan are adequate; and 

‘‘(cc) whether there are changes in the needs or status of the eligible individual, and if so, making necessary adjustments in the care plan and service arrangements with providers. 

‘‘(iii) Such term does not include the direct delivery of an 

underlying medical, educational, social, or other service to 

which an eligible individual has been referred, including, with 

respect to the direct delivery of foster care services, services such 

as (but not limited to) the following: 

‘‘(I) Research gathering and completion of documentation required by the foster care program. 

‘‘(II) Assessing adoption placements. 

‘‘(III) Recruiting or interviewing potential foster care 

parents. 

‘‘(IV) Serving legal papers. 

‘‘(V) Home investigations. 

‘‘(VI) Providing transportation. 

‘‘(VII) Administering foster care subsidies. 

‘‘(VIII) Making placement arrangements. 

‘‘(B) The term ‘targeted case management services’ are case 

management services that are furnished without regard to the 

requirements of section 1902(a)(1) and section 1902(a)(10)(B) to 

specific classes of individuals or to individuals who reside in 

specified areas. 

‘‘(3) With respect to contacts with individuals who are not eligible for medical assistance under the State plan or, in the case of 

targeted case management services, individuals who are eligible for 

such assistance but are not part of the target population specified 

in the State plan, such contacts— 

‘‘(A) are considered an allowable case management activity, 

when the purpose of the contact is directly related to the management of the eligible individual’s care; and 

‘‘(B) are not considered an allowable case management activity if such contacts relate directly to the identification and 

management of the noneligible or nontargeted individual’s 

needs and care. 

‘‘(4)(A) In accordance with section 1902(a)(25), Federal financial participation only is available under this title for case management services or targeted case management services if there are no 


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other third parties liable to pay for such services, including as reimbursement under a medical, social, educational, or other program. 

‘‘(B) A State shall allocate the costs of any part of such services 

which are reimbursable under another federally funded program in 

accordance with OMB Circular A–87 (or any related or successor 

guidance or regulations regarding allocation of costs among federally funded programs) under an approved cost allocation program. 

‘‘(5) Nothing in this subsection shall be construed as affecting 

the application of rules with respect to third party liability under 

programs, or activities carried out under title XXVI of the Public 

Health Service Act or by the Indian Health Service.’’. 

(b) REGULATIONS.—The Secretary shall promulgate regulations 

to carry out the amendment made by subsection (a) which may be 

effective and final immediately on an interim basis as of the date 

of publication of the interim final regulation. If the Secretary provides for an interim final regulation, the Secretary shall provide for 

a period of public comments on such regulation after the date of 

publication. The Secretary may change or revise such regulation 

after completion of the period of public comment. 

(c) EFFECTIVE DATE.—The amendment made by subsection (a) 

shall take effect on January 1, 2006. 

SEC. 6053. ADDITIONAL FMAP ADJUSTMENTS. 

(a) HOLD HARMLESS FOR CERTAIN DECREASE.—Notwithstanding the first sentence of section 1905(b) of the Social Security 

Act (42 U.S.C. 1396d(b)), if, for purposes of titles XIX and XXI of 

the Social Security Act (42 U.S.C. 1396 et seq., 1397aa et seq.), the 

Federal medical assistance percentage determined for the State 

specified in section 4725(a) of Public Law 105–33 for fiscal year 

2006 or fiscal year 2007 is less than the Federal medical assistance 

percentage determined for such State for fiscal year 2005, the Federal medical assistance percentage determined for such State for fiscal year 2005 shall be substituted for the Federal medical assistance 

percentage otherwise determined for such State for fiscal year 2006 

or fiscal year 2007, as the case may be. 

(b) HOLD HARMLESS FOR KATRINA IMPACT.—Notwithstanding 

any other provision of law, for purposes of titles XIX and XXI of the 

Social Security Act, the Secretary of Health and Human Services, 

in computing the Federal medical assistance percentage under section 1905(b) of such Act (42 U.S.C. 1396d(b)) for any year after 

2006 for a State that the Secretary determines has a significant 

number of evacuees who were evacuated to, and live in, the State 

as a result of Hurricane Katrina as of October 1, 2005, shall disregard such evacuees (and income attributable to such evacuees) 

from such computation. 

SEC. 6054. DSH ALLOTMENT FOR THE DISTRICT OF COLUMBIA. 

(a) IN GENERAL.—For purposes of determining the DSH allotment for the District of Columbia under section 1923 of the Social 

Security Act (42 U.S.C. 1396r–4) for fiscal year 2006 and each subsequent fiscal year, the table in subsection (f)(2) of such section is 

amended under each of the columns for FY 00, FY 01, and FY 02, 

in the entry for the District of Columbia by striking ‘‘32’’ and inserting ‘‘49’’. 

(b) EFFECTIVE DATE.—The amendments made by subsection (a) 

shall take effect as if enacted on October 1, 2005, and shall only 


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apply to disproportionate share hospital adjustment expenditures 

applicable to fiscal year 2006 and subsequent fiscal years made on 

or after that date. 

SEC. 6055. INCREASE IN MEDICAID PAYMENTS TO INSULAR AREAS. 

Section 1108(g) of the Social Security Act (42 U.S.C. 1308(g)) 

is amended— 

(1) in paragraph (2), by inserting ‘‘and subject to paragraph (3)’’ after ‘‘subsection (f)’’; and 

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

‘‘(3) FISCAL YEARS 2006 AND 2007 FOR CERTAIN INSULAR

AREAS.—The amounts otherwise determined under this subsection for Puerto Rico, the Virgin Islands, Guam, the Northern 

Mariana Islands, and American Samoa for fiscal year 2006 

and fiscal year 2007 shall be increased by the following 

amounts: 

‘‘(A) For Puerto Rico, $12,000,000 for fiscal year 2006 

and $12,000,000 for fiscal year 2007. 

‘‘(B) For the Virgin Islands, $2,500,000 for fiscal year 

2006 and $5,000,000 for fiscal year 2007. 

‘‘(C) For Guam, $2,500,000 for fiscal year 2006 and 

$5,000,000 for fiscal year 2007. 

‘‘(D) For the Northern Mariana Islands, $1,000,000 for 

fiscal year 2006 and $2,000,000 for fiscal year 2007. 

‘‘(E) For American Samoa, $2,000,000 for fiscal year 

2006 and $4,000,000 for fiscal year 2007. 

Such amounts shall not be taken into account in applying paragraph (2) for fiscal year 2007 but shall be taken into account 

in applying such paragraph for fiscal year 2008 and subsequent 

fiscal years.’’. 

CHAPTER 6—OTHER PROVISIONS 

Subchapter A—Family Opportunity Act 

SEC. 6061. SHORT TITLE OF SUBCHAPTER. 

This subchapter may be cited as the ‘‘Family Opportunity Act 

of 2005’’ or the ‘‘Dylan Lee James Act’’. 

SEC. 6062. OPPORTUNITY FOR FAMILIES OF DISABLED CHILDREN TO 

PURCHASE MEDICAID COVERAGE FOR SUCH CHILDREN. 

(a) STATE OPTION TO ALLOW FAMILIES OF DISABLED CHILDREN

TO PURCHASE MEDICAID COVERAGE FOR SUCH CHILDREN.— 

(1) IN GENERAL.—Section 1902 of the Social Security Act 

(42 U.S.C. 1396a) is amended— 

(A) in subsection (a)(10)(A)(ii)— 

(i) by striking ‘‘or’’ at the end of subclause (XVII); 

(ii) by adding ‘‘or’’ at the end of subclause (XVIII); 

and 

(iii) by adding at the end the following new subclause: 

‘‘(XIX) who are disabled children described in 

subsection (cc)(1);’’; and 

(B) by adding at the end the following new subsection: 

‘‘(cc)(1) Individuals described in this paragraph are individuals— 


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‘‘(A) who are children who have not attained 19 years of 

age and are born— 

‘‘(i) on or after January 1, 2001 (or, at the option of a 

State, on or after an earlier date), in the case of the second, 

third, and fourth quarters of fiscal year 2007; 

‘‘(ii) on or after October 1, 1995 (or, at the option of a 

State, on or after an earlier date), in the case of each quarter of fiscal year 2008; and 

‘‘(iii) after October 1, 1989, in the case of each quarter 

of fiscal year 2009 and each quarter of any fiscal year 

thereafter; 

‘‘(B) who would be considered disabled under section 

1614(a)(3)(C) (as determined under title XVI for children but 

without regard to any income or asset eligibility requirements 

that apply under such title with respect to children); and 

‘‘(C) whose family income does not exceed such income level 

as the State establishes and does not exceed— 

‘‘(i) 300 percent of the poverty line (as defined in section 

2110(c)(5)) applicable to a family of the size involved; or 

‘‘(ii) such higher percent of such poverty line as a State 

may establish, except that— 

‘‘(I) any medical assistance provided to an individual whose family income exceeds 300 percent of 

such poverty line may only be provided with State 

funds; and 

‘‘(II) no Federal financial participation shall be 

provided under section 1903(a) for any medical assistance provided to such an individual.’’. 

(2) INTERACTION WITH EMPLOYER-SPONSORED FAMILY COVERAGE.—Section 1902(cc) of such Act (42 U.S.C. 1396a(cc)), as 

added by paragraph (1)(B), is amended by adding at the end 

the following new paragraph: 

‘‘(2)(A) If an employer of a parent of an individual described in 

paragraph (1) offers family coverage under a group health plan (as 

defined in section 2791(a) of the Public Health Service Act), the 

State shall— 

‘‘(i) notwithstanding section 1906, require such parent to 

apply for, enroll in, and pay premiums for such coverage as a 

condition of such parent’s child being or remaining eligible for 

medical assistance under subsection (a)(10)(A)(ii)(XIX) if the 

parent is determined eligible for such coverage and the employer contributes at least 50 percent of the total cost of annual 

premiums for such coverage; and 

‘‘(ii) if such coverage is obtained— 

‘‘(I) subject to paragraph (2) of section 1916(h), reduce 

the premium imposed by the State under that section in an 

amount that reasonably reflects the premium contribution 

made by the parent for private coverage on behalf of a child 

with a disability; and 

‘‘(II) treat such coverage as a third party liability under 

subsection (a)(25). 

‘‘(B) In the case of a parent to which subparagraph (A) applies, 

a State, notwithstanding section 1906 but subject to paragraph 

(1)(C)(ii), may provide for payment of any portion of the annual premium for such family coverage that the parent is required to pay. 


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Any payments made by the State under this subparagraph shall be 

considered, for purposes of section 1903(a), to be payments for medical assistance.’’. 

(b) STATE OPTION TO IMPOSE INCOME-RELATED PREMIUMS.— 

Section 1916 of such Act (42 U.S.C. 1396o) is amended— 

(1) in subsection (a), by striking ‘‘subsection (g)’’ and inserting ‘‘subsections (g) and (i)’’; and 

(2) by adding at the end, as amended by section 6041(b)(2), 

the following new subsection: 

‘‘(i)(1) With respect to disabled children provided medical assistance under section 1902(a)(10)(A)(ii)(XIX), subject to paragraph 

(2), a State may (in a uniform manner for such children) require 

the families of such children to pay monthly premiums set on a sliding scale based on family income. 

‘‘(2) A premium requirement imposed under paragraph (1) may 

only apply to the extent that— 

‘‘(A) in the case of a disabled child described in that paragraph whose family income— 

‘‘(i) does not exceed 200 percent of the poverty line, the 

aggregate amount of such premium and any premium that 

the parent is required to pay for family coverage under section 1902(cc)(2)(A)(i) and other cost-sharing charges do not 

exceed 5 percent of the family’s income; and 

‘‘(ii) exceeds 200, but does not exceed 300, percent of the 

poverty line, the aggregate amount of such premium and 

any premium that the parent is required to pay for family 

coverage under section 1902(cc)(2)(A)(i) and other cost-sharing charges do not exceed 7.5 percent of the family’s income; 

and 

‘‘(B) the requirement is imposed consistent with section 

1902(cc)(2)(A)(ii)(I). 

‘‘(3) A State shall not require prepayment of a premium imposed pursuant to paragraph (1) and shall not terminate eligibility 

of a child under section 1902(a)(10)(A)(ii)(XIX) for medical assistance under this title on the basis of failure to pay any such premium until such failure continues for a period of at least 60 days 

from the date on which the premium became past due. The State 

may waive payment of any such premium in any case where the 

State determines that requiring such payment would create an 

undue hardship.’’. 

(c) CONFORMING AMENDMENTS.—(1) Section 1903(f)(4) of such 

Act (42 U.S.C. 1396b(f)(4)) is amended in the matter preceding subparagraph (A), by inserting ‘‘1902(a)(10)(A)(ii)(XIX),’’ after 

‘‘1902(a)(10)(A)(ii)(XVIII),’’. 

(2) Section 1905(u)(2)(B) of such Act (42 U.S.C. 1396d(u)(2)(B)) 

is amended by adding at the end the following sentence: ‘‘Such term 

excludes any child eligible for medical assistance only by reason of 

section 1902(a)(10)(A)(ii)(XIX).’’. 

(d) EFFECTIVE DATE.—The amendments made by this section 

shall apply to medical assistance for items and services furnished 

on or after January 1, 2007. 


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SEC. 6063. DEMONSTRATION PROJECTS REGARDING HOME AND COMMUNITY-BASED ALTERNATIVES TO PSYCHIATRIC RESIDENTIAL TREATMENT FACILITIES FOR CHILDREN. 

(a) IN GENERAL.—The Secretary is authorized to conduct, during each of fiscal years 2007 through 2011, demonstration projects 

(each in the section referred to as a ‘‘demonstration project’’) in accordance with this section under which up to 10 States (as defined 

for purposes of title XIX of the Social Security Act) are awarded 

grants, on a competitive basis, to test the effectiveness in improving 

or maintaining a child’s functional level and cost-effectiveness of 

providing coverage of home and community-based alternatives to 

psychiatric residential treatment for children enrolled in the Medicaid program under title XIX of such Act. 

(b) APPLICATION OF TERMS AND CONDITIONS.— 

(1) IN GENERAL.—Subject to the provisions of this section, 

for the purposes of the demonstration projects, and only with respect to children enrolled under such demonstration projects, a 

psychiatric residential treatment facility (as defined in section 

483.352 of title 42 of the Code of Federal Regulations) shall be 

deemed to be a facility specified in section 1915(c) of the Social 

Security Act (42 U.S.C. 1396n(c)), and to be included in each 

reference in such section 1915(c) to hospitals, nursing facilities, 

and intermediate care facilities for the mentally retarded. 

(2) STATE OPTION TO ASSURE CONTINUITY OF MEDICAID COVERAGE.—Upon the termination of a demonstration project under 

this section, the State that conducted the project may elect, only 

with respect to a child who is enrolled in such project on the 

termination date, to continue to provide medical assistance for 

coverage of home and community-based alternatives to psychiatric residential treatment for the child in accordance with 

section 1915(c) of the Social Security Act (42 U.S.C. 1396n(c)), 

as modified through the application of paragraph (1). Expenditures incurred for providing such medical assistance shall be 

treated as a home and community-based waiver program under 

section 1915(c) of the Social Security Act (42 U.S.C. 1396n(c)) 

for purposes of payment under section 1903 of such Act (42 

U.S.C. 1396b). 

(c) TERMS OF DEMONSTRATION PROJECTS.— 

(1) IN GENERAL.—Except as otherwise provided in this section, a demonstration project shall be subject to the same terms 

and conditions as apply to a waiver under section 1915(c) of the 

Social Security Act (42 U.S.C. 1396n(c)), including the waiver 

of certain requirements under the first sentence of paragraph 

(3) of such section but not applying the second sentence of such 

paragraph. 

(2) BUDGET NEUTRALITY.—In conducting the demonstration 

projects under this section, the Secretary shall ensure that the 

aggregate payments made by the Secretary under title XIX of 

the Social Security Act (42 U.S.C. 1396 et seq.) do not exceed 

the amount which the Secretary estimates would have been 

paid under that title if the demonstration projects under this 

section had not been implemented. 

(3) EVALUATION.—The application for a demonstration 

project shall include an assurance to provide for such interim 

and final evaluations of the demonstration project by indeVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00099 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

hmoore on PROD1PC68 with HMRPT
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pendent third parties, and for such interim and final reports to 

the Secretary, as the Secretary may require. 

(d) PAYMENTS TO STATES; LIMITATIONS TO SCOPE AND FUND- ING.— (1) IN GENERAL.—Subject to paragraph (2), a demonstration project approved by the Secretary under this section shall 

be treated as a home and community-based waiver program 

under section 1915(c) of the Social Security Act (42 U.S.C. 

1396n(c)) for purposes of payment under section 1903 of such 

Act (42 U.S.C. 1396b). 

(2) LIMITATION.—In no case may the amount of payments 

made by the Secretary under this section for State demonstration projects for a fiscal year exceed the amount available under 

subsection (f)(2)(A) for such fiscal year. 

(e) SECRETARY’S EVALUATION AND REPORT.—The Secretary 

shall conduct an interim and final evaluation of State demonstration projects under this section and shall report to the President and 

Congress the conclusions of such evaluations within 12 months of 

completing such evaluations. 

(f) FUNDING.— (1) IN GENERAL.—For the purpose of carrying out this section, there are appropriated, from amounts in the Treasury not 

otherwise appropriated, for fiscal years 2007 through 2011, a 

total of $218,000,000, of which— 

(A) the amount specified in paragraph (2) shall be 

available for each of fiscal years 2007 through 2011; and 

(B) a total of $1,000,000 shall be available to the Secretary for the evaluations and report under subsection (e). 

(2) FISCAL YEAR LIMIT.— 

(A) IN GENERAL.—For purposes of paragraph (1), the 

amount specified in this paragraph for a fiscal year is the 

amount specified in subparagraph (B) for the fiscal year 

plus the difference, if any, between the total amount available under this paragraph for prior fiscal years and the 

total amount previously expended under paragraph (1)(A) 

for such prior fiscal years. 

(B) FISCAL YEAR AMOUNTS.—The amount specified in 

this subparagraph for— (i) fiscal year 2007 is $21,000,000; 

(ii) fiscal year 2008 is $37,000,000; 

(iii) fiscal year 2009 is $49,000,000; 

(iv) fiscal year 2010 is $53,000,000; and 

(v) fiscal year 2011 is $57,000,000. 

SEC. 6064. DEVELOPMENT AND SUPPORT OF FAMILY-TO-FAMILY 

HEALTH INFORMATION CENTERS. 

Section 501 of the Social Security Act (42 U.S.C. 701) is amended by adding at the end the following new subsection: 

‘‘(c)(1)(A) For the purpose of enabling the Secretary (through 

grants, contracts, or otherwise) to provide for special projects of regional and national significance for the development and support of 

family-to-family health information centers described in paragraph 

(2), there is appropriated to the Secretary, out of any money in the 

Treasury not otherwise appropriated— 

‘‘(i) $3,000,000 for fiscal year 2007; 

‘‘(ii) $4,000,000 for fiscal year 2008; and 


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‘‘(iii) $5,000,000 for fiscal year 2009. 

‘‘(B) Funds appropriated or authorized to be appropriated 

under subparagraph (A) shall— 

‘‘(i) be in addition to amounts appropriated under subsection (a) and retained under section 502(a)(1) for the purpose 

of carrying out activities described in subsection (a)(2); and 

‘‘(ii) remain available until expended. 

‘‘(2) The family-to-family health information centers described 

in this paragraph are centers that— 

‘‘(A) assist families of children with disabilities or special 

health care needs to make informed choices about health care 

in order to promote good treatment decisions, cost-effectiveness, 

and improved health outcomes for such children; 

‘‘(B) provide information regarding the health care needs of, 

and resources available for, such children; 

‘‘(C) identify successful health delivery models for such children; 

‘‘(D) develop with representatives of health care providers, 

managed care organizations, health care purchasers, and appropriate State agencies, a model for collaboration between 

families of such children and health professionals; 

‘‘(E) provide training and guidance regarding caring for 

such children; 

‘‘(F) conduct outreach activities to the families of such children, health professionals, schools, and other appropriate entities and individuals; and 

‘‘(G) are staffed— 

‘‘(i) by such families who have expertise in Federal and 

State public and private health care systems; and 

‘‘(ii) by health professionals. 

‘‘(3) The Secretary shall develop family-to-family health information centers described in paragraph (2) in accordance with the 

following: 

‘‘(A) With respect to fiscal year 2007, such centers shall be 

developed in not less than 25 States. 

‘‘(B) With respect to fiscal year 2008, such centers shall be 

developed in not less than 40 States. 

‘‘(C) With respect to fiscal year 2009 and each fiscal year 

thereafter, such centers shall be developed in all States. 

‘‘(4) The provisions of this title that are applicable to the funds 

made available to the Secretary under section 502(a)(1) apply in the 

same manner to funds made available to the Secretary under paragraph (1)(A). 

‘‘(5) For purposes of this subsection, the term ‘State’ means each 

of the 50 States and the District of Columbia.’’. 

SEC. 6065. RESTORATION OF MEDICAID ELIGIBILITY FOR CERTAIN SSI 

BENEFICIARIES. 

(a) IN GENERAL.—Section 1902(a)(10)(A)(i)(II) of the Social Security Act (42 U.S.C. 1396a(a)(10)(A)(i)(II)) is amended— 

(1) by inserting ‘‘(aa)’’ after ‘‘(II)’’; 

(2) by striking ‘‘) and’’ and inserting ‘‘and’’; 

(3) by striking ‘‘section or who are’’ and inserting ‘‘section), 

(bb) who are’’; and 

(4) by inserting before the comma at the end the following: 

‘‘, or (cc) who are under 21 years of age and with respect to 


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whom supplemental security income benefits would be paid 

under title XVI if subparagraphs (A) and (B) of section 

1611(c)(7) were applied without regard to the phrase ‘the first 

day of the month following’ ’’. 

(b) EFFECTIVE DATE.—The amendments made by subsection (a) 

shall apply to medical assistance for items and services furnished 

on or after the date that is 1 year after the date of enactment of this 

Act. 

Subchapter B—Money Follows the Person Rebalancing 

Demonstration 

SEC. 6071. MONEY FOLLOWS THE PERSON REBALANCING DEMONSTRATION. 

(a) PROGRAM PURPOSE AND AUTHORITY.—The Secretary is authorized to award, on a competitive basis, grants to States in accordance with this section for demonstration projects (each in this 

section referred to as an ‘‘MFP demonstration project’’) designed to 

achieve the following objectives with respect to institutional and 

home and community-based long-term care services under State 

Medicaid programs: 

(1) REBALANCING.—Increase the use of home and community-based, rather than institutional, long-term care services. 

(2) MONEY FOLLOWS THE PERSON.—Eliminate barriers or 

mechanisms, whether in the State law, the State Medicaid plan, 

the State budget, or otherwise, that prevent or restrict the flexible use of Medicaid funds to enable Medicaid-eligible individuals to receive support for appropriate and necessary long-term 

services in the settings of their choice. 

(3) CONTINUITY OF SERVICE.—Increase the ability of the 

State Medicaid program to assure continued provision of home 

and community-based long-term care services to eligible individuals who choose to transition from an institutional to a community setting. 

(4) QUALITY ASSURANCE AND QUALITY IMPROVEMENT.—Ensure that procedures are in place (at least comparable to those 

required under the qualified HCB program) to provide quality 

assurance for eligible individuals receiving Medicaid home and 

community-based long-term care services and to provide for 

continuous quality improvement in such services. 

(b) DEFINITIONS.—For purposes of this section: 

(1) HOME AND COMMUNITY-BASED LONG-TERM CARE SERVICES.—The term ‘‘home and community-based long-term care 

services’’ means, with respect to a State Medicaid program, 

home and community-based services (including home health 

and personal care services) that are provided under the State’s 

qualified HCB program or that could be provided under such 

a program but are otherwise provided under the Medicaid program. 

(2) ELIGIBLE INDIVIDUAL.—The term ‘‘eligible individual’’ 

means, with respect to an MFP demonstration project of a 

State, an individual in the State— 

(A) who, immediately before beginning participation in 

the MFP demonstration project— 

(i) resides (and has resided, for a period of not less 

than 6 months or for such longer minimum period, not 


hmoore on PROD1PC68 with HMRPT
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to exceed 2 years, as may be specified by the State) in 

an inpatient facility; 

(ii) is receiving Medicaid benefits for inpatient 

services furnished by such inpatient facility; and 

(iii) with respect to whom a determination has 

been made that, but for the provision of home and community-based long-term care services, the individual 

would continue to require the level of care provided in 

an inpatient facility and, in any case in which the 

State applies a more stringent level of care standard as 

a result of implementing the State plan option permitted under section 1915(i) of the Social Security Act, 

the individual must continue to require at least the 

level of care which had resulted in admission to the institution; and 

(B) who resides in a qualified residence beginning on 

the initial date of participation in the demonstration 

project. 

(3) INPATIENT FACILITY.—The term ‘‘inpatient facility’’ 

means a hospital, nursing facility, or intermediate care facility 

for the mentally retarded. Such term includes an institution for 

mental diseases, but only, with respect to a State, to the extent 

medical assistance is available under the State Medicaid plan 

for services provided by such institution. 

(4) MEDICAID.—The term ‘‘Medicaid’’ means, with respect to 

a State, the State program under title XIX of the Social Security Act (including any waiver or demonstration under such 

title or under section 1115 of such Act relating to such title). 

(5) QUALIFIED HCB PROGRAM.—The term ‘‘qualified HCB 

program’’ means a program providing home and communitybased long-term care services operating under Medicaid, whether or not operating under waiver authority. 

(6) QUALIFIED RESIDENCE.—The term ‘‘qualified residence’’ 

means, with respect to an eligible individual— 

(A) a home owned or leased by the individual or the individual’s family member; 

(B) an apartment with an individual lease, with lockable access and egress, and which includes living, sleeping, 

bathing, and cooking areas over which the individual or 

the individual’s family has domain and control; and 

(C) a residence, in a community-based residential setting, in which no more than 4 unrelated individuals reside. 

(7) QUALIFIED EXPENDITURES.—The term ‘‘qualified expenditures’’ means expenditures by the State under its MFP demonstration project for home and community-based long-term 

care services for an eligible individual participating in the MFP 

demonstration project, but only with respect to services furnished during the 12-month period beginning on the date the 

individual is discharged from an inpatient facility referred to 

in paragraph (2)(A)(i). 

(8) SELF-DIRECTED SERVICES.—The term ‘‘self-directed’’ 

means, with respect to home and community-based long-term 

care services for an eligible individual, such services for the individual which are planned and purchased under the direction 

and control of such individual or the individual’s authorized 


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representative (as defined by the Secretary), including the 

amount, duration, scope, provider, and location of such services, 

under the State Medicaid program consistent with the following 

requirements: 

(A) ASSESSMENT.—There is an assessment of the needs, 

capabilities, and preferences of the individual with respect 

to such services. 

(B) SERVICE PLAN.—Based on such assessment, there is 

developed jointly with such individual or the individual’s 

authorized representative a plan for such services for such 

individual that is approved by the State and that— 

(i) specifies those services, if any, which the individual or the individual’s authorized representative 

would be responsible for directing; 

(ii) identifies the methods by which the individual 

or the individual’s authorized representative or an 

agency designated by an individual or representative 

will select, manage, and dismiss providers of such services; 

(iii) specifies the role of family members and others 

whose participation is sought by the individual or the 

individual’s authorized representative with respect to 

such services; 

(iv) is developed through a person-centered process 

that— 

(I) is directed by the individual or the individual’s authorized representative; 

(II) builds upon the individual’s capacity to 

engage in activities that promote community life 

and that respects the individual’s preferences, 

choices, and abilities; and 

(III) involves families, friends, and professionals as desired or required by the individual or 

the individual’s authorized representative; 

(v) includes appropriate risk management techniques that recognize the roles and sharing of responsibilities in obtaining services in a self-directed manner 

and assure the appropriateness of such plan based 

upon the resources and capabilities of the individual or 

the individual’s authorized representative; and 

(vi) may include an individualized budget which 

identifies the dollar value of the services and supports 

under the control and direction of the individual or the 

individual’s authorized representative. 

(C) BUDGET PROCESS.—With respect to individualized 

budgets described in subparagraph (B)(vi), the State application under subsection (c)— 

(i) describes the method for calculating the dollar 

values in such budgets based on reliable costs and 

service utilization; 

(ii) defines a process for making adjustments in 

such dollar values to reflect changes in individual assessments and service plans; and 

(iii) provides a procedure to evaluate expenditures 

under such budgets. 


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(9) STATE.—The term ‘‘State’’ has the meaning given such 

term for purposes of title XIX of the Social Security Act. 

(c) STATE APPLICATION.—A State seeking approval of an MFP 

demonstration project shall submit to the Secretary, at such time 

and in such format as the Secretary requires, an application meeting the following requirements and containing such additional information, provisions, and assurances, as the Secretary may require: 

(1) ASSURANCE OF A PUBLIC DEVELOPMENT PROCESS.—The 

application contains an assurance that the State has engaged, 

and will continue to engage, in a public process for the design, 

development, and evaluation of the MFP demonstration project 

that allows for input from eligible individuals, the families of 

such individuals, authorized representatives of such individuals, providers, and other interested parties. 

(2) OPERATION IN CONNECTION WITH QUALIFIED HCB PROGRAM TO ASSURE CONTINUITY OF SERVICES.—The State will conduct the MFP demonstration project for eligible individuals in 

conjunction with the operation of a qualified HCB program that 

is in operation (or approved) in the State for such individuals 

in a manner that assures continuity of Medicaid coverage for 

such individuals so long as such individuals continue to be eligible for medical assistance. 

(3) DEMONSTRATION PROJECT PERIOD.—The application 

shall specify the period of the MFP demonstration project, 

which shall include at least 2 consecutive fiscal years in the 5- 

fiscal-year period beginning with fiscal year 2007. 

(4) SERVICE AREA.—The application shall specify the service 

area or areas of the MFP demonstration project, which may be 

a statewide area or 1 or more geographic areas of the State. 

(5) TARGETED GROUPS AND NUMBERS OF INDIVIDUALS

SERVED.—The application shall specify— 

(A) the target groups of eligible individuals to be assisted to transition from an inpatient facility to a qualified 

residence during each fiscal year of the MFP demonstration 

project; 

(B) the projected numbers of eligible individuals in 

each targeted group of eligible individuals to be so assisted 

during each such year; and 

(C) the estimated total annual qualified expenditures 

for each fiscal year of the MFP demonstration project. 

(6) INDIVIDUAL CHOICE, CONTINUITY OF CARE.—The application shall contain assurances that— 

(A) each eligible individual or the individual’s authorized representative will be provided the opportunity to make 

an informed choice regarding whether to participate in the 

MFP demonstration project; 

(B) each eligible individual or the individual’s authorized representative will choose the qualified residence in 

which the individual will reside and the setting in which 

the individual will receive home and community-based 

long-term care services; 

(C) the State will continue to make available, so long 

as the State operates its qualified HCB program consistent 

with applicable requirements, home and community-based 

long-term care services to each individual who completes 


hmoore on PROD1PC68 with HMRPT
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participation in the MFP demonstration project for as long 

as the individual remains eligible for medical assistance 

for such services under such qualified HCB program (including meeting a requirement relating to requiring a level 

of care provided in an inpatient facility and continuing to 

require such services, and, if the State applies a more stringent level of care standard as a result of implementing the 

State plan option permitted under section 1915(i) of the Social Security Act, meeting the requirement for at least the 

level of care which had resulted in the individual’s admission to the institution). 

(7) REBALANCING.—The application shall— 

(A) provide such information as the Secretary may require concerning the dollar amounts of State Medicaid expenditures for the fiscal year, immediately preceding the 

first fiscal year of the State’s MFP demonstration project, 

for long-term care services and the percentage of such expenditures that were for institutional long-term care services or were for home and community-based long-term care 

services; 

(B)(i) specify the methods to be used by the State to increase, for each fiscal year during the MFP demonstration 

project, the dollar amount of such total expenditures for 

home and community-based long-term care services and the 

percentage of such total expenditures for long-term care 

services that are for home and community-based long-term 

care services; and 

(ii) describe the extent to which the MFP demonstration 

project will contribute to accomplishment of objectives described in subsection (a). 

(8) MONEY FOLLOWS THE PERSON.—The application shall 

describe the methods to be used by the State to eliminate any 

legal, budgetary, or other barriers to flexibility in the availability of Medicaid funds to pay for long-term care services for 

eligible individuals participating in the project in the appropriate settings of their choice, including costs to transition from 

an institutional setting to a qualified residence. 

(9) MAINTENANCE OF EFFORT AND COST-EFFECTIVENESS.— The application shall contain or be accompanied by such information and assurances as may be required to satisfy the Secretary that— 

(A) total expenditures under the State Medicaid program for home and community-based long-term care services will not be less for any fiscal year during the MFP 

demonstration project than for the greater of such expenditures for— 

(i) fiscal year 2005; or 

(ii) any succeeding fiscal year before the first year 

of the MFP demonstration project; and 

(B) in the case of a qualified HCB program operating 

under a waiver under subsection (c) or (d) of section 1915 

of the Social Security Act (42 U.S.C. 1396n), but for the 

amount awarded under a grant under this section, the 

State program would continue to meet the cost-effectiveness 

requirements of subsection (c)(2)(D) of such section or comVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00106 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

hmoore on PROD1PC68 with HMRPT
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parable requirements under subsection (d)(5) of such section, respectively. 

(10) WAIVER REQUESTS.—The application shall contain or 

be accompanied by requests for any modification or adjustment 

of waivers of Medicaid requirements described in subsection 

(d)(3), including adjustments to the maximum numbers of individuals included and package of benefits, including one-time 

transitional services, provided. 

(11) QUALITY ASSURANCE AND QUALITY IMPROVEMENT.—The 

application shall include— 

(A) a plan satisfactory to the Secretary for quality assurance and quality improvement for home and community-based long-term care services under the State Medicaid 

program, including a plan to assure the health and welfare 

of individuals participating in the MFP demonstration 

project; and 

(B) an assurance that the State will cooperate in carrying out activities under subsection (f) to develop and implement continuous quality assurance and quality improvement systems for home and community-based long-term 

care services. 

(12) OPTIONAL PROGRAM FOR SELF-DIRECTED SERVICES.—If 

the State elects to provide for any home and community-based 

long-term care services as self-directed services (as defined in 

subsection (b)(8)) under the MFP demonstration project, the application shall provide the following: 

(A) MEETING REQUIREMENTS.—A description of how 

the project will meet the applicable requirements of such 

subsection for the provision of self-directed services. 

(B) VOLUNTARY ELECTION.—A description of how eligible individuals will be provided with the opportunity to 

make an informed election to receive self-directed services 

under the project and after the end of the project. 

(C) STATE SUPPORT IN SERVICE PLAN DEVELOPMENT.— 

Satisfactory assurances that the State will provide support 

to eligible individuals who self-direct in developing and implementing their service plans. 

(D) OVERSIGHT OF RECEIPT OF SERVICES.—Satisfactory 

assurances that the State will provide oversight of eligible 

individual’s receipt of such self-directed services, including 

steps to assure the quality of services provided and that the 

provision of such services are consistent with the service 

plan under such subsection. 

Nothing in this section shall be construed as requiring a State 

to make an election under the project to provide for home and 

community-based long-term care services as self-directed services, or as requiring an individual to elect to receive self-directed services under the project. 

(13) REPORTS AND EVALUATION.—The application shall provide that— 

(A) the State will furnish to the Secretary such reports 

concerning the MFP demonstration project, on such timetable, in such uniform format, and containing such information as the Secretary may require, as will allow for reliVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00107 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

hmoore on PROD1PC68 with HMRPT
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able comparisons of MFP demonstration projects across 

States; and 

(B) the State will participate in and cooperate with the 

evaluation of the MFP demonstration project. 

(d) SECRETARY’S AWARD OF COMPETITIVE GRANTS.— (1) IN GENERAL.—The Secretary shall award grants under 

this section on a competitive basis to States selected from 

among those with applications meeting the requirements of subsection (c), in accordance with the provisions of this subsection. 

(2) SELECTION AND MODIFICATION OF STATE APPLICA- TIONS.—In selecting State applications for the awarding of such 

a grant, the Secretary— 

(A) shall take into consideration the manner in which, 

and extent to which, the State proposes to achieve the objectives specified in subsection (a); 

(B) shall seek to achieve an appropriate national balance in the numbers of eligible individuals, within different 

target groups of eligible individuals, who are assisted to 

transition to qualified residences under MFP demonstration projects, and in the geographic distribution of States 

operating MFP demonstration projects; 

(C) shall give preference to State applications proposing— 

(i) to provide transition assistance to eligible individuals within multiple target groups; and 

(ii) to provide eligible individuals with the opportunity to receive home and community-based long-term 

care services as self-directed services, as defined in subsection (b)(8); and 

(D) shall take such objectives into consideration in setting the annual amounts of State grant awards under this 

section. 

(3) WAIVER AUTHORITY.—The Secretary is authorized to 

waive the following provisions of title XIX of the Social Security 

Act, to the extent necessary to enable a State initiative to meet 

the requirements and accomplish the purposes of this section: 

(A) STATEWIDENESS.—Section 1902(a)(1), in order to 

permit implementation of a State initiative in a selected 

area or areas of the State. 

(B) COMPARABILITY.—Section 1902(a)(10)(B), in order 

to permit a State initiative to assist a selected category or 

categories of individuals described in subsection (b)(2)(A). 

(C) INCOME AND RESOURCES ELIGIBILITY.—Section 

1902(a)(10)(C)(i)(III), in order to permit a State to apply institutional eligibility rules to individuals transitioning to 

community-based care. 

(D) PROVIDER AGREEMENTS.—Section 1902(a)(27), in 

order to permit a State to implement self-directed services 

in a cost-effective manner. 

(4) CONDITIONAL APPROVAL OF OUTYEAR GRANT.—In awarding grants under this section, the Secretary shall condition the 

grant for the second and any subsequent fiscal years of the 

grant period on the following: 

(A) NUMERICAL BENCHMARKS.—The State must demonstrate to the satisfaction of the Secretary that it is meetVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00108 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

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ing numerical benchmarks specified in the grant agreement 

for— 

(i) increasing State Medicaid support for home and 

community-based long-term care services under subsection (c)(5); and 

(ii) numbers of eligible individuals assisted to 

transition to qualified residences. 

(B) QUALITY OF CARE.—The State must demonstrate to 

the satisfaction of the Secretary that it is meeting the requirements under subsection (c)(11) to assure the health 

and welfare of MFP demonstration project participants. 

(e) PAYMENTS TO STATES; CARRYOVER OF UNUSED GRANT

AMOUNTS.— 

(1) PAYMENTS.—For each calendar quarter in a fiscal year 

during the period a State is awarded a grant under subsection 

(d), the Secretary shall pay to the State from its grant award 

for such fiscal year an amount equal to the lesser of— 

(A) the MFP-enhanced FMAP (as defined in paragraph 

(5)) of the amount of qualified expenditures made during 

such quarter; or 

(B) the total amount remaining in such grant award 

for such fiscal year (taking into account the application of 

paragraph (2)). 

(2) CARRYOVER OF UNUSED AMOUNTS.—Any portion of a 

State grant award for a fiscal year under this section remaining at the end of such fiscal year shall remain available to the 

State for the next 4 fiscal years, subject to paragraph (3). 

(3) REAWARDING OF CERTAIN UNUSED AMOUNTS.—In the 

case of a State that the Secretary determines pursuant to subsection (d)(4) has failed to meet the conditions for continuation 

of a MFP demonstration project under this section in a succeeding year or years, the Secretary shall rescind the grant 

awards for such succeeding year or years, together with any 

unspent portion of an award for prior years, and shall add 

such amounts to the appropriation for the immediately succeeding fiscal year for grants under this section. 

(4) PREVENTING DUPLICATION OF PAYMENT.—The payment 

under a MFP demonstration project with respect to qualified expenditures shall be in lieu of any payment with respect to such 

expenditures that could otherwise be paid under Medicaid, including under section 1903(a) of the Social Security Act. Nothing in the previous sentence shall be construed as preventing 

the payment under Medicaid for such expenditures in a grant 

year after amounts available to pay for such expenditures under 

the MFP demonstration project have been exhausted. 

(5) MFP-ENHANCED FMAP.—For purposes of paragraph 

(1)(A), the ‘‘MFP-enhanced FMAP’’, for a State for a fiscal year, 

is equal to the Federal medical assistance percentage (as defined in the first sentence of section 1905(b)) for the State increased by a number of percentage points equal to 50 percent 

of the number of percentage points by which (A) such Federal 

medical assistance percentage for the State, is less than (B) 100 

percent; but in no case shall the MFP-enhanced FMAP for a 

State exceed 90 percent. 


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(f) QUALITY ASSURANCE AND IMPROVEMENT; TECHNICAL ASSISTANCE; OVERSIGHT.— 

(1) IN GENERAL.—The Secretary, either directly or by grant 

or contract, shall provide for technical assistance to, and oversight of, States for purposes of upgrading quality assurance 

and quality improvement systems under Medicaid home and 

community-based waivers, including— 

(A) dissemination of information on promising practices; 

(B) guidance on system design elements addressing the 

unique needs of participating beneficiaries; 

(C) ongoing consultation on quality, including assistance in developing necessary tools, resources, and monitoring systems; and 

(D) guidance on remedying programmatic and systemic 

problems. 

(2) FUNDING.—From the amounts appropriated under subsection (h)(1) for the portion of fiscal year 2007 that begins on 

January 1, 2007, and ends on September 30, 2007, and for fiscal year 2008, not more than $2,400,000 shall be available to 

the Secretary to carry out this subsection during the period that 

begins on January 1, 2007, and ends on September 30, 2011. 

(g) RESEARCH AND EVALUATION.— 

(1) IN GENERAL.—The Secretary, directly or through grant 

or contract, shall provide for research on, and a national evaluation of, the program under this section, including assistance 

to the Secretary in preparing the final report required under 

paragraph (2). The evaluation shall include an analysis of projected and actual savings related to the transition of individuals to qualified residences in each State conducting an MFP 

demonstration project. 

(2) FINAL REPORT.—The Secretary shall make a final report 

to the President and Congress, not later than September 30, 

2011, reflecting the evaluation described in paragraph (1) and 

providing findings and conclusions on the conduct and effectiveness of MFP demonstration projects. 

(3) FUNDING.—From the amounts appropriated under subsection (h)(1) for each of fiscal years 2008 through 2011, not 

more than $1,100,000 per year shall be available to the Secretary to carry out this subsection. 

(h) APPROPRIATIONS.— 

(1) IN GENERAL.—There are appropriated, from any funds 

in the Treasury not otherwise appropriated, for grants to carry 

out this section— 

(A) $250,000,000 for the portion of fiscal year 2007 beginning on January 1, 2007, and ending on September 30, 

2007; 

(B) $300,000,000 for fiscal year 2008; 

(C) $350,000,000 for fiscal year 2009; 

(D) $400,000,000 for fiscal year 2010; and 

(E) $450,000,000 for fiscal year 2011. 

(2) AVAILABILITY.—Amounts made available under paragraph (1) for a fiscal year shall remain available for the awarding of grants to States by not later than September 30, 2011. 


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Subchapter C—Miscellaneous 

SEC. 6081. MEDICAID TRANSFORMATION GRANTS. 

(a) IN GENERAL.—Section 1903 of the Social Security Act (42 

U.S.C. 1396b), as amended by sections 6037(a)(2) and 6043(b), is 

amended by adding at the end the following new subsection: 

‘‘(z) MEDICAID TRANSFORMATION PAYMENTS.— 

‘‘(1) IN GENERAL.—In addition to the payments provided 

under subsection (a), subject to paragraph (4), the Secretary 

shall provide for payments to States for the adoption of innovative methods to improve the effectiveness and efficiency in providing medical assistance under this title. 

‘‘(2) PERMISSIBLE USES OF FUNDS.—The following are examples of innovative methods for which funds provided under 

this subsection may be used: 

‘‘(A) Methods for reducing patient error rates through 

the implementation and use of electronic health records, 

electronic clinical decision support tools, or e-prescribing 

programs. 

‘‘(B) Methods for improving rates of collection from estates of amounts owed under this title. 

‘‘(C) Methods for reducing waste, fraud, and abuse 

under the program under this title, such as reducing improper payment rates as measured by annual payment 

error rate measurement (PERM) project rates. 

‘‘(D) Implementation of a medication risk management 

program as part of a drug use review program under section 1927(g). 

‘‘(E) Methods in reducing, in clinically appropriate 

ways, expenditures under this title for covered outpatient 

drugs, particularly in the categories of greatest drug utilization, by increasing the utilization of generic drugs 

through the use of education programs and other incentives 

to promote greater use of generic drugs. 

‘‘(F) Methods for improving access to primary and specialty physician care for the uninsured using integrated 

university-based hospital and clinic systems. 

‘‘(3) APPLICATION; TERMS AND CONDITIONS.— 

‘‘(A) IN GENERAL.—No payments shall be made to a 

State under this subsection unless the State applies to the 

Secretary for such payments in a form, manner, and time 

specified by the Secretary. 

‘‘(B) TERMS AND CONDITIONS.—Such payments are 

made under such terms and conditions consistent with this 

subsection as the Secretary prescribes. 

‘‘(C) ANNUAL REPORT.—Payment to a State under this 

subsection is conditioned on the State submitting to the 

Secretary an annual report on the programs supported by 

such payment. Such report shall include information on— 

‘‘(i) the specific uses of such payment; 

‘‘(ii) an assessment of quality improvements and 

clinical outcomes under such programs; and 

‘‘(iii) estimates of cost savings resulting from such 

programs. 

‘‘(4) FUNDING.— 


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‘‘(A) LIMITATION ON FUNDS.—The total amount of payments under this subsection shall be equal to, and shall not 

exceed— 

‘‘(i) $75,000,000 for fiscal year 2007; and 

‘‘(ii) $75,000,000 for fiscal year 2008. 

This subsection constitutes budget authority in advance of 

appropriations Acts and represents the obligation of the 

Secretary to provide for the payment of amounts provided 

under this subsection. 

‘‘(B) ALLOCATION OF FUNDS.—The Secretary shall 

specify a method for allocating the funds made available 

under this subsection among States. Such method shall 

provide preference for States that design programs that target health providers that treat significant numbers of Medicaid beneficiaries. Such method shall provide that not less 

than 25 percent of such funds shall be allocated among 

States the population of which (as determined according to 

data collected by the United States Census Bureau) as of 

July 1, 2004, was more than 105 percent of the population 

of the respective State (as so determined) as of April 1, 

2000. 

‘‘(C) FORM AND MANNER OF PAYMENT.—Payment to a 

State under this subsection shall be made in the same 

manner as other payments under section 1903(a). There is 

no requirement for State matching funds to receive payments under this subsection. 

‘‘(5) MEDICATION RISK MANAGEMENT PROGRAM.— ‘‘(A) IN GENERAL.—For purposes of this subsection, the 

term ‘medication risk management program’ means a program for targeted beneficiaries that ensures that covered 

outpatient drugs are appropriately used to optimize therapeutic outcomes through improved medication use and to 

reduce the risk of adverse events. 

‘‘(B) ELEMENTS.—Such program may include the following elements: 

‘‘(i) The use of established principles and standards for drug utilization review and best practices to 

analyze prescription drug claims of targeted beneficiaries and identify outlier physicians. 

‘‘(ii) On an ongoing basis provide outlier physicians— 

‘‘(I) a comprehensive pharmacy claims history 

for each targeted beneficiary under their care; 

‘‘(II) information regarding the frequency and 

cost of relapses and hospitalizations of targeted 

beneficiaries under the physician’s care; and 

‘‘(III) applicable best practice guidelines and 

empirical references. 

‘‘(iii) Monitor outlier physician’s prescribing, such 

as failure to refill, dosage strengths, and provide incentives and information to encourage the adoption of best 

clinical practices. 

‘‘(C) TARGETED BENEFICIARIES.—For purposes of this 

paragraph, the term ‘targeted beneficiaries’ means Medicaid eligible beneficiaries who are identified as having 


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high prescription drug costs and medical costs, such as individuals with behavioral disorders or multiple chronic 

diseases who are taking multiple medications.’’. 

SEC. 6082. HEALTH OPPORTUNITY ACCOUNTS. 

Title XIX of the Social Security Act, as amended by sections 

6035 and 6044, is amended— 

(1) by redesignating section 1938 as section 1939; and 

(2) by inserting after section 1937 the following new section: 

‘‘HEALTH OPPORTUNITY ACCOUNTS

‘‘SEC. 1938. (a) AUTHORITY.— 

‘‘(1) IN GENERAL.—Notwithstanding any other provision of 

this title, the Secretary shall establish a demonstration program 

under which States may provide under their State plans under 

this title (including such a plan operating under a statewide 

waiver under section 1115) in accordance with this section for 

the provision of alternative benefits consistent with subsection 

(c) for eligible population groups in one or more geographic 

areas of the State specified by the State. An amendment under 

the previous sentence is referred to in this section as a ‘State 

demonstration program’. 

‘‘(2) INITIAL DEMONSTRATION.— 

‘‘(A) IN GENERAL.—The demonstration program under 

this section shall begin on January 1, 2007. During the 

first 5 years of such program, the Secretary shall not approve more than 10 States to conduct demonstration programs under this section, with each State demonstration 

program covering 1 or more geographic areas specified by 

the State. After such 5-year period— 

‘‘(i) unless the Secretary finds, taking into account 

cost-effectiveness, quality of care, and other criteria 

that the Secretary specifies, that a State demonstration 

program previously implemented has been unsuccessful, such a demonstration program may be extended or 

made permanent in the State; and 

‘‘(ii) unless the Secretary finds, taking into account 

cost-effectiveness, quality of care, and other criteria 

that the Secretary specifies, that all State demonstration programs previously implemented were unsuccessful, other States may implement State demonstration 

programs. 

‘‘(B) GAO REPORT.— 

‘‘(i) IN GENERAL.—Not later than 3 months after 

the end of the 5-year period described in subparagraph 

(A), the Comptroller General of the United States shall 

submit a report to Congress evaluating the demonstration programs conducted under this section during 

such period. 

‘‘(ii) APPROPRIATION.—Out of any funds in the 

Treasury not otherwise appropriated, there is appropriated to the Comptroller General of the United 

States, $550,000 for the period of fiscal years 2007 

through 2010 to carry out clause (i). 


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‘‘(3) APPROVAL.—The Secretary shall not approve a State 

demonstration program under paragraph (1) unless the program includes the following: 

‘‘(A) Creating patient awareness of the high cost of 

medical care. 

‘‘(B) Providing incentives to patients to seek preventive 

care services. 

‘‘(C) Reducing inappropriate use of health care services. 

‘‘(D) Enabling patients to take responsibility for health 

outcomes. 

‘‘(E) Providing enrollment counselors and ongoing education activities. 

‘‘(F) Providing transactions involving health opportunity accounts to be conducted electronically and without 

cash. 

‘‘(G) Providing access to negotiated provider payment 

rates consistent with this section. 

Nothing in this section shall be construed as preventing a State 

demonstration program from providing incentives for patients 

obtaining appropriate preventive care (as defined for purposes 

of section 223(c)(2)(C) of the Internal Revenue Code of 1986), 

such as additional account contributions for an individual 

demonstrating healthy prevention practices. 

‘‘(4) NO REQUIREMENT FOR STATEWIDENESS.—Nothing in 

this section or any other provision of law shall be construed to 

require that a State must provide for the implementation of a 

State demonstration program on a Statewide basis. 

‘‘(b) ELIGIBLE POPULATION GROUPS.— ‘‘(1) IN GENERAL.—A State demonstration program under 

this section shall specify the eligible population groups consistent with paragraphs (2) and (3). 

‘‘(2) ELIGIBILITY LIMITATIONS DURING INITIAL DEMONSTRATION PERIOD.—During the initial 5 years of the demonstration 

program under this section, a State demonstration program 

shall not apply to any of the following individuals: 

‘‘(A) Individuals who are 65 years of age or older. 

‘‘(B) Individuals who are disabled, regardless of whether or not their eligibility for medical assistance under this 

title is based on such disability. 

‘‘(C) Individuals who are eligible for medical assistance 

under this title only because they are (or were within the 

previous 60 days) pregnant. 

‘‘(D) Individuals who have been eligible for medical assistance for a continuous period of less than 3 months. 

‘‘(3) ADDITIONAL LIMITATIONS.—A State demonstration program shall not apply to any individual within a category of individuals described in section 1937(a)(2)(B). 

‘‘(4) LIMITATIONS.— 

‘‘(A) STATE OPTION.—This subsection shall not be construed as preventing a State from further limiting eligibility. 

‘‘(B) ON ENROLLEES IN MEDICAID MANAGED CARE ORGA- NIZATIONS.—Insofar as the State provides for eligibility of 

individuals who are enrolled in medicaid managed care organizations, such individuals may participate in the State 


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demonstration program only if the State provides assurances satisfactory to the Secretary that the following conditions are met with respect to any such organization: 

‘‘(i) In no case may the number of such individuals 

enrolled in the organization who participate in the program exceed 5 percent of the total number of individuals enrolled in such organization. 

‘‘(ii) The proportion of enrollees in the organization 

who so participate is not significantly disproportionate 

to the proportion of such enrollees in other such organizations who participate. 

‘‘(iii) The State has provided for an appropriate 

adjustment in the per capita payments to the organization to account for such participation, taking into account differences in the likely use of health services between enrollees who so participate and enrollees who 

do not so participate. 

‘‘(5) VOLUNTARY PARTICIPATION.—An eligible individual 

shall be enrolled in a State demonstration program only if the 

individual voluntarily enrolls. Except in such hardship cases as 

the Secretary shall specify, such an enrollment shall be effective 

for a period of 12 months, but may be extended for additional 

periods of 12 months each with the consent of the individual. 

‘‘(6) 1-YEAR MORATORIUM FOR REENROLLMENT.—An eligible 

individual who, for any reason, is disenrolled from a State 

demonstration program conducted under this section shall not 

be permitted to reenroll in such program before the end of the 

1-year period that begins on the effective date of such 

disenrollment. 

‘‘(c) ALTERNATIVE BENEFITS.— 

‘‘(1) IN GENERAL.—The alternative benefits provided under 

this section shall consist, consistent with this subsection, of at 

least— 

‘‘(A) coverage for medical expenses in a year for items 

and services for which benefits are otherwise provided 

under this title after an annual deductible described in 

paragraph (2) has been met; and 

‘‘(B) contribution into a health opportunity account. 

Nothing in subparagraph (A) shall be construed as preventing 

a State from providing for coverage of preventive care (referred 

to in subsection (a)(3)) within the alternative benefits without 

regard to the annual deductible. 

‘‘(2) ANNUAL DEDUCTIBLE.—The amount of the annual deductible described in paragraph (1)(A) shall be at least 100 percent, but no more than 110 percent, of the annualized amount 

of contributions to the health opportunity account under subsection (d)(2)(A)(i), determined without regard to any limitation 

described in subsection (d)(2)(C)(i)(II). 

‘‘(3) ACCESS TO NEGOTIATED PROVIDER PAYMENT RATES.— ‘‘(A) FEE-FOR-SERVICE ENROLLEES.—In the case of an 

individual who is participating in a State demonstration 

program and who is not enrolled with a medicaid managed 

care organization, the State shall provide that the individual may obtain demonstration program medicaid services from— 


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‘‘(i) any participating provider under this title at 

the same payment rates that would be applicable to 

such services if the deductible described in paragraph 

(1)(A) was not applicable; or 

‘‘(ii) any other provider at payment rates that do 

not exceed 125 percent of the payment rate that would 

be applicable to such services furnished by a participating provider under this title if the deductible described in paragraph (1)(A) was not applicable. 

‘‘(B) TREATMENT UNDER MEDICAID MANAGED CARE

PLANS.—In the case of an individual who is participating 

in a State demonstration program and is enrolled with a 

medicaid managed care organization, the State shall enter 

into an arrangement with the organization under which the 

individual may obtain demonstration program medicaid 

services from any provider described in clause (ii) of subparagraph (A) at payment rates that do not exceed the payment rates that may be imposed under that clause. 

‘‘(C) COMPUTATION.—The payment rates described in 

subparagraphs (A) and (B) shall be computed without regard to any cost sharing that would be otherwise applicable 

under sections 1916 and 1916A. 

‘‘(D) DEFINITIONS.—For purposes of this paragraph: 

‘‘(i) The term ‘demonstration program medicaid 

services’ means, with respect to an individual participating in a State demonstration program, services for 

which the individual would be provided medical assistance under this title but for the application of the deductible described in paragraph (1)(A). 

‘‘(ii) The term ‘participating provider’ means— 

‘‘(I) with respect to an individual described in 

subparagraph (A), a health care provider that has 

entered into a participation agreement with the 

State for the provision of services to individuals 

entitled to benefits under the State plan; or 

‘‘(II) with respect to an individual described in 

subparagraph (B) who is enrolled in a medicaid 

managed care organization, a health care provider 

that has entered into an arrangement for the provision of services to enrollees of the organization 

under this title. 

‘‘(4) NO EFFECT ON SUBSEQUENT BENEFITS.—Except as provided under paragraphs (1) and (2), alternative benefits for an 

eligible individual shall consist of the benefits otherwise provided to the individual, including cost sharing relating to such 

benefits. 

‘‘(5) OVERRIDING COST SHARING AND COMPARABILITY REQUIREMENTS FOR ALTERNATIVE BENEFITS.—The provisions of 

this title relating to cost sharing for benefits (including sections 

1916 and 1916A) shall not apply with respect to benefits to 

which the annual deductible under paragraph (1)(A) applies. 

The provisions of section 1902(a)(10)(B) (relating to comparability) shall not apply with respect to the provision of alternative benefits (as described in this subsection). 


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‘‘(6) TREATMENT AS MEDICAL ASSISTANCE.—Subject to subparagraphs (D) and (E) of subsection (d)(2), payments for alternative benefits under this section (including contributions into 

a health opportunity account) shall be treated as medical assistance for purposes of section 1903(a). 

‘‘(7) USE OF TIERED DEDUCTIBLE AND COST SHARING.— ‘‘(A) IN GENERAL.—A State— 

‘‘(i) may vary the amount of the annual deductible 

applied under paragraph (1)(A) based on the income of 

the family involved so long as it does not favor families 

with higher income over those with lower income; and 

‘‘(ii) may vary the amount of the maximum out-ofpocket cost sharing (as defined in subparagraph (B)) 

based on the income of the family involved so long as 

it does not favor families with higher income over those 

with lower income. 

‘‘(B) MAXIMUM OUT-OF-POCKET COST SHARING.—For 

purposes of subparagraph (A)(ii), the term ‘maximum outof-pocket cost sharing’ means, for an individual or family, 

the amount by which the annual deductible level applied 

under paragraph (1)(A) to the individual or family exceeds 

the balance in the health opportunity account for the individual or family. 

‘‘(8) CONTRIBUTIONS BY EMPLOYERS.—Nothing in this section shall be construed as preventing an employer from providing health benefits coverage consisting of the coverage described in paragraph (1)(A) to individuals who are provided alternative benefits under this section. 

‘‘(d) HEALTH OPPORTUNITY ACCOUNT.— 

‘‘(1) IN GENERAL.—For purposes of this section, the term 

‘health opportunity account’ means an account that meets the 

requirements of this subsection. 

‘‘(2) CONTRIBUTIONS.— ‘‘(A) IN GENERAL.—No contribution may be made into 

a health opportunity account except— 

‘‘(i) contributions by the State under this title; and 

‘‘(ii) contributions by other persons and entities, 

such as charitable organizations, as permitted under 

section 1903(w). 

‘‘(B) STATE CONTRIBUTION.—A State shall specify the 

contribution amount that shall be deposited under subparagraph (A)(i) into a health opportunity account. 

‘‘(C) LIMITATION ON ANNUAL STATE CONTRIBUTION PROVIDED AND PERMITTING IMPOSITION OF MAXIMUM ACCOUNT

BALANCE.— 

‘‘(i) IN GENERAL.—A State— 

‘‘(I) may impose limitations on the maximum 

contributions that may be deposited under subparagraph (A)(i) into a health opportunity account 

in a year; 

‘‘(II) may limit contributions into such an account once the balance in the account reaches a 

level specified by the State; and 

‘‘(III) subject to clauses (ii) and (iii) and subparagraph (D)(i), may not provide contributions 


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described in subparagraph (A)(i) to a health opportunity account on behalf of an individual or family 

to the extent the amount of such contributions (including both State and Federal shares) exceeds, on 

an annual basis, $2,500 for each individual (or 

family member) who is an adult and $1,000 for 

each individual (or family member) who is a child. 

‘‘(ii) INDEXING OF DOLLAR LIMITATIONS.—For each 

year after 2006, the dollar amounts specified in clause 

(i)(III) shall be annually increased by the Secretary by 

a percentage that reflects the annual percentage increase in the medical care component of the consumer 

price index for all urban consumers. 

‘‘(iii) BUDGET NEUTRAL ADJUSTMENT.—A State 

may provide for dollar limitations in excess of those 

specified in clause (i)(III) (as increased under clause 

(ii)) for specified individuals if the State provides assurances satisfactory to the Secretary that contributions otherwise made to other individuals will be reduced in a manner so as to provide for aggregate contributions that do not exceed the aggregate contributions that would otherwise be permitted under this subparagraph. 

‘‘(D) LIMITATIONS ON FEDERAL MATCHING.— 

‘‘(i) STATE CONTRIBUTION.—A State may contribute 

under subparagraph (A)(i) amounts to a health opportunity account in excess of the limitations provided 

under subparagraph (C)(i)(III), but no Federal financial participation shall be provided under section 

1903(a) with respect to contributions in excess of such 

limitations. 

‘‘(ii) NO FFP FOR PRIVATE CONTRIBUTIONS.—No 

Federal financial participation shall be provided under 

section 1903(a) with respect to any contributions described in subparagraph (A)(ii) to a health opportunity 

account. 

‘‘(E) APPLICATION OF DIFFERENT MATCHING RATES.— 

The Secretary shall provide a method under which, for expenditures made from a health opportunity account for 

medical care for which the Federal matching rate under 

section 1903(a) exceeds the Federal medical assistance percentage, a State may obtain payment under such section at 

such higher matching rate for such expenditures. 

‘‘(3) USE.— 

‘‘(A) GENERAL USES.— 

‘‘(i) IN GENERAL.—Subject to the succeeding provisions of this paragraph, amounts in a health opportunity account may be used for payment of such health 

care expenditures as the State specifies. 

‘‘(ii) GENERAL LIMITATION.—Subject to subparagraph (B)(ii), in no case shall such account be used for 

payment for health care expenditures that are not payment of medical care (as defined by section 213(d) of 

the Internal Revenue Code of 1986). 


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‘‘(iii) STATE RESTRICTIONS.—In applying clause (i), 

a State may restrict payment for— 

‘‘(I) providers of items and services to providers that are licensed or otherwise authorized 

under State law to provide the item or service and 

may deny payment for such a provider on the basis 

that the provider has been found, whether with respect to this title or any other health benefit program, to have failed to meet quality standards or 

to have committed 1 or more acts of fraud or 

abuse; and 

‘‘(II) items and services insofar as the State 

finds they are not medically appropriate or necessary. 

‘‘(iv) ELECTRONIC WITHDRAWALS.—The State demonstration program shall provide for a method whereby 

withdrawals may be made from the account for such 

purposes using an electronic system and shall not permit withdrawals from the account in cash. 

‘‘(B) MAINTENANCE OF HEALTH OPPORTUNITY ACCOUNT

AFTER BECOMING INELIGIBLE FOR PUBLIC BENEFIT.— ‘‘(i) IN GENERAL.—Notwithstanding any other provision of law, if an account holder of a health opportunity account becomes ineligible for benefits under 

this title because of an increase in income or assets— 

‘‘(I) no additional contribution shall be made 

into the account under paragraph (2)(A)(i); 

‘‘(II) subject to clause (iii), the balance in the 

account shall be reduced by 25 percent; and 

‘‘(III) subject to the succeeding provisions of 

this subparagraph, the account shall remain available to the account holder for 3 years after the date 

on which the individual becomes ineligible for 

such benefits for withdrawals under the same 

terms and conditions as if the account holder remained eligible for such benefits, and such withdrawals shall be treated as medical assistance in 

accordance with subsection (c)(6). 

‘‘(ii) SPECIAL RULES.—Withdrawals under this subparagraph from an account— 

‘‘(I) shall be available for the purchase of 

health insurance coverage; and 

‘‘(II) may, subject to clause (iv), be made available (at the option of the State) for such additional 

expenditures (such as job training and tuition expenses) specified by the State (and approved by the 

Secretary) as the State may specify. 

‘‘(iii) EXCEPTION FROM 25 PERCENT SAVINGS TO

GOVERNMENT FOR PRIVATE CONTRIBUTIONS.—Clause 

(i)(II) shall not apply to the portion of the account that 

is attributable to contributions described in paragraph 

(2)(A)(ii). For purposes of accounting for such contributions, withdrawals from a health opportunity account 

shall first be attributed to contributions described in 

paragraph (2)(A)(i). 


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‘‘(iv) CONDITION FOR NON-HEALTH WITHDRAWALS.— No withdrawal may be made from an account under 

clause (ii)(II) unless the account holder has participated in the program under this section for at least 1 

year. 

‘‘(v) NO REQUIREMENT FOR CONTINUATION OF COV- ERAGE.—An account holder of a health opportunity account, after becoming ineligible for medical assistance 

under this title, is not required to purchase high-deductible or other insurance as a condition of maintaining or using the account. 

‘‘(4) ADMINISTRATION.—A State may coordinate administration of health opportunity accounts through the use of a third 

party administrator and reasonable expenditures for the use of 

such administrator shall be reimbursable to the State in the 

same manner as other administrative expenditures under section 1903(a)(7). 

‘‘(5) TREATMENT.—Amounts in, or contributed to, a health 

opportunity account shall not be counted as income or assets for 

purposes of determining eligibility for benefits under this title. 

‘‘(6) UNAUTHORIZED WITHDRAWALS.—A State may establish 

procedures— 

‘‘(A) to penalize or remove an individual from the 

health opportunity account based on nonqualified withdrawals by the individual from such an account; and 

‘‘(B) to recoup costs that derive from such nonqualified 

withdrawals.’’. 

SEC. 6083. STATE OPTION TO ESTABLISH NON-EMERGENCY MEDICAL 

TRANSPORTATION PROGRAM. 

(a) IN GENERAL.—Section 1902(a) of the Social Security Act (42 

U.S.C. 1396a(a)), as amended by sections 6033(a) and 6035(b), is 

amended— 

(1) in paragraph (68), by striking ‘‘and’’ at the end; 

(2) in paragraph (69) by striking the period at the end and 

inserting ‘‘; and’’; and 

(3) by inserting after paragraph (69) the following: 

‘‘(70) at the option of the State and notwithstanding paragraphs (1), (10)(B), and (23), provide for the establishment of a 

non-emergency medical transportation brokerage program in 

order to more cost-effectively provide transportation for individuals eligible for medical assistance under the State plan who 

need access to medical care or services and have no other means 

of transportation which— 

‘‘(A) may include a wheelchair van, taxi, stretcher car, 

bus passes and tickets, secured transportation, and such 

other transportation as the Secretary determines appropriate; and 

‘‘(B) may be conducted under contract with a broker 

who— 

‘‘(i) is selected through a competitive bidding process based on the State’s evaluation of the broker’s experience, performance, references, resources, qualifications, and costs; 

‘‘(ii) has oversight procedures to monitor beneficiary access and complaints and ensure that transVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00120 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

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port personnel are licensed, qualified, competent, and 

courteous; 

‘‘(iii) is subject to regular auditing and oversight 

by the State in order to ensure the quality of the transportation services provided and the adequacy of beneficiary access to medical care and services; and 

‘‘(iv) complies with such requirements related to 

prohibitions on referrals and conflict of interest as the 

Secretary shall establish (based on the prohibitions on 

physician referrals under section 1877 and such other 

prohibitions and requirements as the Secretary determines to be appropriate).’’. 

(b) EFFECTIVE DATE.—The amendments made by subsection (a) 

take effect on the date of the enactment of this Act. 

SEC. 6084. EXTENSION OF TRANSITIONAL MEDICAL ASSISTANCE (TMA) 

AND ABSTINENCE EDUCATION PROGRAM. 

Effective as if enacted on December 31, 2005, activities authorized by sections 510 and 1925 of the Social Security Act shall continue through December 31, 2006, in the manner authorized for fiscal year 2005, notwithstanding section 1902(e)(1)(A) of such Act, 

and out of any money in the Treasury of the United States not otherwise appropriated, there are hereby appropriated such sums as 

may be necessary for such purpose. Grants and payments may be 

made pursuant to this authority through the first quarter of fiscal 

year 2007 at the level provided for such activities through the first 

quarter of fiscal year 2006. 

SEC. 6085. EMERGENCY SERVICES FURNISHED BY NON-CONTRACT 

PROVIDERS FOR MEDICAID MANAGED CARE ENROLLEES. 

(a) IN GENERAL.—Section 1932(b)(2) of the Social Security Act 

(42 U.S.C. 1396u–2(b)(2)) is amended by adding at the end the following new subparagraph: 

‘‘(D) EMERGENCY SERVICES FURNISHED BY NON-CONTRACT PROVIDERS.—Any provider of emergency services that 

does not have in effect a contract with a medicaid managed 

care entity that establishes payment amounts for services 

furnished to a beneficiary enrolled in the entity’s Medicaid 

managed care plan must accept as payment in full no more 

than the amounts (less any payments for indirect costs of 

medical education and direct costs of graduate medical 

education) that it could collect if the beneficiary received 

medical assistance under this title other than through enrollment in such an entity. In a State where rates paid to 

hospitals under the State plan are negotiated by contract 

and not publicly released, the payment amount applicable 

under this subparagraph shall be the average contract rate 

that would apply under the State plan for general acute 

care hospitals or the average contract rate that would apply 

under such plan for tertiary hospitals.’’. 

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

shall take effect on January 1, 2007. 

SEC. 6086. EXPANDED ACCESS TO HOME AND COMMUNITY-BASED 

SERVICES FOR THE ELDERLY AND DISABLED. 

(a) HOME AND COMMUNITY-BASED SERVICES AS AN OPTIONAL

BENEFIT FOR ELDERLY AND DISABLED INDIVIDUALS.—Section 1915 


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of the Social Security Act (42 U.S.C. 1396n) is amended by adding 

at the end the following new subsection: 

‘‘(i) STATE PLAN AMENDMENT OPTION TO PROVIDE HOME AND

COMMUNITY-BASED SERVICES FOR ELDERLY AND DISABLED INDIVID- UALS.— ‘‘(1) IN GENERAL.—Subject to the succeeding provisions of 

this subsection, a State may provide through a State plan 

amendment for the provision of medical assistance for home 

and community-based services (within the scope of services described in paragraph (4)(B) of subsection (c) for which the Secretary has the authority to approve a waiver and not including 

room and board or such other services requested by the State 

as the Secretary may approve) for individuals eligible for medical assistance under the State plan whose income does not exceed 150 percent of the poverty line (as defined in section 

2110(c)(5)), without determining that but for the provision of 

such services the individuals would require the level of care 

provided in a hospital or a nursing facility or intermediate care 

facility for the mentally retarded, but only if the State meets the 

following requirements: 

‘‘(A) NEEDS-BASED CRITERIA FOR ELIGIBILITY FOR, AND

RECEIPT OF, HOME AND COMMUNITY-BASED SERVICES.—The 

State establishes needs-based criteria for determining an 

individual’s eligibility under the State plan for medical assistance for such home and community-based services, and 

if the individual is eligible for such services, the specific 

home and community-based services that the individual 

will receive. 

‘‘(B) ESTABLISHMENT OF MORE STRINGENT NEEDSBASED ELIGIBILITY CRITERIA FOR INSTITUTIONALIZED

CARE.—The State establishes needs-based criteria for determining whether an individual requires the level of care 

provided in a hospital, a nursing facility, or an intermediate care facility for the mentally retarded under the 

State plan or under any waiver of such plan that are more 

stringent than the needs-based criteria established under 

subparagraph (A) for determining eligibility for home and 

community-based services. 

‘‘(C) PROJECTION OF NUMBER OF INDIVIDUALS TO BE

PROVIDED HOME AND COMMUNITY-BASED SERVICES.— 

‘‘(i) IN GENERAL.—The State submits to the Secretary, in such form and manner, and upon such frequency as the Secretary shall specify, the projected 

number of individuals to be provided home and community-based services. 

‘‘(ii) AUTHORITY TO LIMIT NUMBER OF ELIGIBLE INDIVIDUALS.—A State may limit the number of individuals who are eligible for such services and may establish waiting lists for the receipt of such services. 

‘‘(D) CRITERIA BASED ON INDIVIDUAL ASSESSMENT.— ‘‘(i) IN GENERAL.—The criteria established by the 

State for purposes of subparagraphs (A) and (B) requires an assessment of an individual’s support needs 

and capabilities, and may take into account the inability of the individual to perform 2 or more activities of 


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daily living (as defined in section 7702B(c)(2)(B) of the 

Internal Revenue Code of 1986) or the need for significant assistance to perform such activities, and such 

other risk factors as the State determines to be appropriate. 

‘‘(ii) ADJUSTMENT AUTHORITY.—The State plan 

amendment provides the State with the option to modify the criteria established under subparagraph (A) 

(without having to obtain prior approval from the Secretary) in the event that the enrollment of individuals 

eligible for home and community-based services exceeds 

the projected enrollment submitted for purposes of subparagraph (C), but only if— 

‘‘(I) the State provides at least 60 days notice 

to the Secretary and the public of the proposed 

modification; 

‘‘(II) the State deems an individual receiving 

home and community-based services on the basis 

of the most recent version of the criteria in effect 

prior to the effective date of the modification to be 

eligible for such services for a period of at least 12 

months beginning on the date the individual first 

received medical assistance for such services; and 

‘‘(III) after the effective date of such modification, the State, at a minimum, applies the criteria 

for determining whether an individual requires the 

level of care provided in a hospital, a nursing facility, or an intermediate care facility for the mentally retarded under the State plan or under any 

waiver of such plan which applied prior to the application of the more stringent criteria developed 

under subparagraph (B). 

‘‘(E) INDEPENDENT EVALUATION AND ASSESSMENT.— 

‘‘(i) ELIGIBILITY DETERMINATION.—The State uses 

an independent evaluation for making the determinations described in subparagraphs (A) and (B). 

‘‘(ii) ASSESSMENT.—In the case of an individual 

who is determined to be eligible for home and community-based services, the State uses an independent assessment, based on the needs of the individual to— 

‘‘(I) determine a necessary level of services and 

supports to be provided, consistent with an individual’s physical and mental capacity; 

‘‘(II) prevent the provision of unnecessary or 

inappropriate care; and 

‘‘(III) establish an individualized care plan for 

the individual in accordance with subparagraph 

(G). 

‘‘(F) ASSESSMENT.—The independent assessment required under subparagraph (E)(ii) shall include the following: 

‘‘(i) An objective evaluation of an individual’s inability to perform 2 or more activities of daily living 

(as defined in section 7702B(c)(2)(B) of the Internal 


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Revenue Code of 1986) or the need for significant assistance to perform such activities. 

‘‘(ii) A face-to-face evaluation of the individual by 

an individual trained in the assessment and evaluation of individuals whose physical or mental conditions 

trigger a potential need for home and community-based 

services. 

‘‘(iii) Where appropriate, consultation with the individual’s family, spouse, guardian, or other responsible individual. 

‘‘(iv) Consultation with appropriate treating and 

consulting health and support professionals caring for 

the individual. 

‘‘(v) An examination of the individual’s relevant 

history, medical records, and care and support needs, 

guided by best practices and research on effective strategies that result in improved health and quality of life 

outcomes. 

‘‘(vi) If the State offers individuals the option to 

self-direct the purchase of, or control the receipt of, 

home and community-based service, an evaluation of 

the ability of the individual or the individual’s representative to self-direct the purchase of, or control the 

receipt of, such services if the individual so elects. 

‘‘(G) INDIVIDUALIZED CARE PLAN.— ‘‘(i) IN GENERAL.—In the case of an individual who 

is determined to be eligible for home and communitybased services, the State uses the independent assessment required under subparagraph (E)(ii) to establish 

a written individualized care plan for the individual. 

‘‘(ii) PLAN REQUIREMENTS.—The State ensures that 

the individualized care plan for an individual— 

‘‘(I) is developed— 

‘‘(aa) in consultation with the individual, 

the individual’s treating physician, health care 

or support professional, or other appropriate 

individuals, as defined by the State, and, 

where appropriate the individual’s family, 

caregiver, or representative; and 

‘‘(bb) taking into account the extent of, 

and need for, any family or other supports for 

the individual; 

‘‘(II) identifies the necessary home and community-based services to be furnished to the individual (or, if the individual elects to self-direct the 

purchase of, or control the receipt of, such services, 

funded for the individual); and 

‘‘(III) is reviewed at least annually and as 

needed when there is a significant change in the 

individual’s circumstances. 

‘‘(iii) STATE OPTION TO OFFER ELECTION FOR SELF- DIRECTED SERVICES.— ‘‘(I) INDIVIDUAL CHOICE.—At the option of the 

State, the State may allow an individual or the individual’s representative to elect to receive self-diVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00124 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

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rected home and community-based services in a 

manner which gives them the most control over 

such services consistent with the individual’s abilities and the requirements of subclauses (II) and 

(III). 

‘‘(II) SELF-DIRECTED SERVICES.—The term 

‘self-directed’ means, with respect to the home and 

community-based services offered under the State 

plan amendment, such services for the individual 

which are planned and purchased under the direction and control of such individual or the individual’s authorized representative, including the 

amount, duration, scope, provider, and location of 

such services, under the State plan consistent with 

the following requirements: 

‘‘(aa) ASSESSMENT.—There is an assessment of the needs, capabilities, and preferences 

of the individual with respect to such services. 

‘‘(bb) SERVICE PLAN.—Based on such assessment, there is developed jointly with such 

individual or the individual’s authorized representative a plan for such services for such 

individual that is approved by the State and 

that satisfies the requirements of subclause 

(III). 

‘‘(III) PLAN REQUIREMENTS.—For purposes of 

subclause (II)(bb), the requirements of this subclause are that the plan— 

‘‘(aa) specifies those services which the individual or the individual’s authorized representative would be responsible for directing; 

‘‘(bb) identifies the methods by which the 

individual or the individual’s authorized representative will select, manage, and dismiss 

providers of such services; 

‘‘(cc) specifies the role of family members 

and others whose participation is sought by 

the individual or the individual’s authorized 

representative with respect to such services; 

‘‘(dd) is developed through a person-centered process that is directed by the individual 

or the individual’s authorized representative, 

builds upon the individual’s capacity to engage in activities that promote community life 

and that respects the individual’s preferences, 

choices, and abilities, and involves families, 

friends, and professionals as desired or required by the individual or the individual’s 

authorized representative; 

‘‘(ee) includes appropriate risk management techniques that recognize the roles and 

sharing of responsibilities in obtaining services in a self-directed manner and assure the 

appropriateness of such plan based upon the 


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resources and capabilities of the individual or 

the individual’s authorized representative; and 

‘‘(ff) may include an individualized budget 

which identifies the dollar value of the services 

and supports under the control and direction 

of the individual or the individual’s authorized representative. 

‘‘(IV) BUDGET PROCESS.—With respect to individualized budgets described in subclause (III)(ff), 

the State plan amendment— 

‘‘(aa) describes the method for calculating 

the dollar values in such budgets based on reliable costs and service utilization; 

‘‘(bb) defines a process for making adjustments in such dollar values to reflect changes 

in individual assessments and service plans; 

and 

‘‘(cc) provides a procedure to evaluate expenditures under such budgets. 

‘‘(H) QUALITY ASSURANCE; CONFLICT OF INTEREST

STANDARDS.— ‘‘(i) QUALITY ASSURANCE.—The State ensures that 

the provision of home and community-based services 

meets Federal and State guidelines for quality assurance. 

‘‘(ii) CONFLICT OF INTEREST STANDARDS.—The 

State establishes standards for the conduct of the independent evaluation and the independent assessment to 

safeguard against conflicts of interest. 

‘‘(I) REDETERMINATIONS AND APPEALS.—The State allows for at least annual redeterminations of eligibility, and 

appeals in accordance with the frequency of, and manner 

in which, redeterminations and appeals of eligibility are 

made under the State plan. 

‘‘(J) PRESUMPTIVE ELIGIBILITY FOR ASSESSMENT.—The 

State, at its option, elects to provide for a period of presumptive eligibility (not to exceed a period of 60 days) only 

for those individuals that the State has reason to believe 

may be eligible for home and community-based services. 

Such presumptive eligibility shall be limited to medical assistance for carrying out the independent evaluation and 

assessment under subparagraph (E) to determine an individual’s eligibility for such services and if the individual is 

so eligible, the specific home and community-based services 

that the individual will receive. 

‘‘(2) DEFINITION OF INDIVIDUAL’S REPRESENTATIVE.—In this 

section, the term ‘individual’s representative’ means, with respect to an individual, a parent, a family member, or a guardian of the individual, an advocate for the individual, or any 

other individual who is authorized to represent the individual. 

‘‘(3) NONAPPLICATION.—A State may elect in the State plan 

amendment approved under this section to not comply with the 

requirements of section 1902(a)(1) (relating to statewideness) 

and section 1902(a)(10)(C)(i)(III) (relating to income and resource rules applicable in the community), but only for purposes 


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of provided home and community-based services in accordance 

with such amendment. Any such election shall not be construed 

to apply to the provision of services to an individual receiving 

medical assistance in an institutionalized setting as a result of 

a determination that the individual requires the level of care 

provided in a hospital or a nursing facility or intermediate care 

facility for the mentally retarded. 

‘‘(4) NO EFFECT ON OTHER WAIVER AUTHORITY.—Nothing in 

this subsection shall be construed as affecting the option of a 

State to offer home and community-based services under a 

waiver under subsections (c) or (d) of this section or under section 1115. 

‘‘(5) CONTINUATION OF FEDERAL FINANCIAL PARTICIPATION

FOR MEDICAL ASSISTANCE PROVIDED TO INDIVIDUALS AS OF EFFECTIVE DATE OF STATE PLAN AMENDMENT.—Notwithstanding 

paragraph (1)(B), Federal financial participation shall continue 

to be available for an individual who is receiving medical assistance in an institutionalized setting, or home and community-based services provided under a waiver under this section 

or section 1115 that is in effect as of the effective date of the 

State plan amendment submitted under this subsection, as a result of a determination that the individual requires the level of 

care provided in a hospital or a nursing facility or intermediate 

care facility for the mentally retarded, without regard to whether such individuals satisfy the more stringent eligibility criteria 

established under that paragraph, until such time as the individual is discharged from the institution or waiver program or 

no longer requires such level of care.’’. 

(b) QUALITY OF CARE MEASURES.— 

(1) IN GENERAL.—The Secretary, acting through the Director of the Agency for Healthcare Research and Quality, shall 

consult with consumers, health and social service providers and 

other professionals knowledgeable about long-term care services 

and supports to develop program performance indicators, client 

function indicators, and measures of client satisfaction with respect to home and community-based services offered under 

State Medicaid programs. 

(2) BEST PRACTICES.—The Secretary shall— 

(A) use the indicators and measures developed under 

paragraph (1) to assess such home and community-based 

services, the outcomes associated with the receipt of such 

services (particularly with respect to the health and welfare 

of the recipient of the services), and the overall system for 

providing home and community-based services under the 

Medicaid program under title XIX of the Social Security 

Act; and 

(B) make publicly available the best practices identified 

through such assessment and a comparative analyses of the 

system features of each State. 

(3) APPROPRIATION.—Out of any funds in the Treasury not 

otherwise appropriated, there is appropriated to the Secretary of 

Health and Human Services, $1,000,000 for the period of fiscal 

years 2006 through 2010 to carry out this subsection. 

(c) EFFECTIVE DATE.—The amendments made by subsections (a) 

and (b) take effect on January 1, 2007, and apply to expenditures 


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for medical assistance for home and community-based services provided in accordance with section 1915(i) of the Social Security Act 

(as added by subsections (a) and (b)) on or after that date. 

SEC. 6087. OPTIONAL CHOICE OF SELF-DIRECTED PERSONAL ASSISTANCE SERVICES (CASH AND COUNSELING). 

(a) EXEMPTION FROM CERTAIN REQUIREMENTS.—Section 1915 

of the Social Security Act (42 U.S.C. 1396n), as amended by section 

6086(a), is amended by adding at the end the following new subsection: 

‘‘(j)(1) A State may provide, as ‘medical assistance’, payment for 

part or all of the cost of self-directed personal assistance services 

(other than room and board) under the plan which are provided 

pursuant to a written plan of care to individuals with respect to 

whom there has been a determination that, but for the provision of 

such services, the individuals would require and receive personal 

care services under the plan, or home and community-based services 

provided pursuant to a waiver under subsection (c). Self-directed 

personal assistance services may not be provided under this subsection to individuals who reside in a home or property that is 

owned, operated, or controlled by a provider of services, not related 

by blood or marriage. 

‘‘(2) The Secretary shall not grant approval for a State self-directed personal assistance services program under this section unless the State provides assurances satisfactory to the Secretary of the 

following: 

‘‘(A) Necessary safeguards have been taken to protect the 

health and welfare of individuals provided services under the 

program, and to assure financial accountability for funds expended with respect to such services. 

‘‘(B) The State will provide, with respect to individuals 

who— 

‘‘(i) are entitled to medical assistance for personal care 

services under the plan, or receive home and communitybased services under a waiver granted under subsection (c); 

‘‘(ii) may require self-directed personal assistance services; and 

‘‘(iii) may be eligible for self-directed personal assistance services, 

an evaluation of the need for personal care under the plan, or 

personal services under a waiver granted under subsection (c). 

‘‘(C) Such individuals who are determined to be likely to require personal care under the plan, or home and communitybased services under a waiver granted under subsection (c) are 

informed of the feasible alternatives, if available under the 

State’s self-directed personal assistance services program, at the 

choice of such individuals, to the provision of personal care 

services under the plan, or personal assistance services under a 

waiver granted under subsection (c). 

‘‘(D) The State will provide for a support system that ensures participants in the self-directed personal assistance services program are appropriately assessed and counseled prior to 

enrollment and are able to manage their budgets. Additional 

counseling and management support may be provided at the request of the participant. 


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‘‘(E) The State will provide to the Secretary an annual report on the number of individuals served and total expenditures 

on their behalf in the aggregate. The State shall also provide 

an evaluation of overall impact on the health and welfare of 

participating individuals compared to non-participants every 

three years. 

‘‘(3) A State may provide self-directed personal assistance services under the State plan without regard to the requirements of section 1902(a)(1) and may limit the population eligible to receive these 

services and limit the number of persons served without regard to 

section 1902(a)(10)(B). 

‘‘(4)(A) For purposes of this subsection, the term ‘self-directed 

personal assistance services’ means personal care and related services, or home and community-based services otherwise available 

under the plan under this title or subsection (c), that are provided 

to an eligible participant under a self-directed personal assistance 

services program under this section, under which individuals, within an approved self-directed services plan and budget, purchase personal assistance and related services, and permits participants to 

hire, fire, supervise, and manage the individuals providing such 

services. 

‘‘(B) At the election of the State— 

‘‘(i) a participant may choose to use any individual capable 

of providing the assigned tasks including legally liable relatives 

as paid providers of the services; and 

‘‘(ii) the individual may use the individual’s budget to acquire items that increase independence or substitute (such as a 

microwave oven or an accessibility ramp) for human assistance, 

to the extent that expenditures would otherwise be made for the 

human assistance. 

‘‘(5) For purpose of this section, the term ‘approved self-directed 

services plan and budget’ means, with respect to a participant, the 

establishment of a plan and budget for the provision of self-directed 

personal assistance services, consistent with the following requirements: 

‘‘(A) SELF-DIRECTION.—The participant (or in the case of a 

participant who is a minor child, the participant’s parent or 

guardian, or in the case of an incapacitated adult, another individual recognized by State law to act on behalf of the participant) exercises choice and control over the budget, planning, 

and purchase of self-directed personal assistance services, including the amount, duration, scope, provider, and location of 

service provision. 

‘‘(B) ASSESSMENT OF NEEDS.—There is an assessment of the 

needs, strengths, and preferences of the participants for such 

services. 

‘‘(C) SERVICE PLAN.—A plan for such services (and supports 

for such services) for the participant has been developed and 

approved by the State based on such assessment through a person-centered process that— 

‘‘(i) builds upon the participant’s capacity to engage in 

activities that promote community life and that respects the 

participant’s preferences, choices, and abilities; and 


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‘‘(ii) involves families, friends, and professionals in the 

planning or delivery of services or supports as desired or 

required by the participant. 

‘‘(D) SERVICE BUDGET.—A budget for such services and supports for the participant has been developed and approved by 

the State based on such assessment and plan and on a methodology that uses valid, reliable cost data, is open to public inspection, and includes a calculation of the expected cost of such 

services if those services were not self-directed. The budget may 

not restrict access to other medically necessary care and services 

furnished under the plan and approved by the State but not included in the budget. 

‘‘(E) APPLICATION OF QUALITY ASSURANCE AND RISK MAN- AGEMENT.—There are appropriate quality assurance and risk 

management techniques used in establishing and implementing 

such plan and budget that recognize the roles and responsibilities in obtaining services in a self-directed manner and assure 

the appropriateness of such plan and budget based upon the 

participant’s resources and capabilities. 

‘‘(6) A State may employ a financial management entity to make 

payments to providers, track costs, and make reports under the program. Payment for the activities of the financial management entity 

shall be at the administrative rate established in section 1903(a).’’. 

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

shall apply to services furnished on or after January 1, 2007. 

Subtitle B—SCHIP 

SEC. 6101. ADDITIONAL ALLOTMENTS TO ELIMINATE FISCAL YEAR 2006 

FUNDING SHORTFALLS. 

(a) IN GENERAL.—Section 2104 of the Social Security Act (42 

U.S.C. 1397dd) is amended by inserting after subsection (c) the following: 

‘‘(d) ADDITIONAL ALLOTMENTS TO ELIMINATE FUNDING SHORT- FALLS.— ‘‘(1) APPROPRIATION; ALLOTMENT AUTHORITY.—For the purpose of providing additional allotments to shortfall States described in paragraph (2), there is appropriated, out of any 

money in the Treasury not otherwise appropriated, 

$283,000,000 for fiscal year 2006. 

‘‘(2) SHORTFALL STATES DESCRIBED.—For purposes of paragraph (1), a shortfall State described in this paragraph is a 

State with a State child health plan approved under this title 

for which the Secretary estimates, on the basis of the most recent data available to the Secretary as of December 16, 2005, 

that the projected expenditures under such plan for such State 

for fiscal year 2006 will exceed the sum of— 

‘‘(A) the amount of the State’s allotments for each of fiscal years 2004 and 2005 that will not be expended by the 

end of fiscal year 2005; 

‘‘(B) the amount, if any, that is to be redistributed to 

the State during fiscal year 2006 in accordance with subsection (f); and 

‘‘(C) the amount of the State’s allotment for fiscal year 

2006. 


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‘‘(3) ALLOTMENTS.—In addition to the allotments provided 

under subsections (b) and (c), subject to paragraph (4), of the 

amount available for the additional allotments under paragraph (1) for fiscal year 2006, the Secretary shall allot— 

‘‘(A) to each shortfall State described in paragraph (2) 

such amount as the Secretary determines will eliminate the 

estimated shortfall described in such paragraph for the 

State; and 

‘‘(B) to each commonwealth or territory described in 

subsection (c)(3), the same proportion as the proportion of 

the commonwealth’s or territory’s allotment under subsection (c) (determined without regard to subsection (f)) to 

1.05 percent of the amount appropriated under paragraph 

(1). 

‘‘(4) USE OF ADDITIONAL ALLOTMENT.—Additional allotments provided under this subsection are only available for 

amounts expended under a State plan approved under this title 

for child health assistance for targeted low-income children. 

‘‘(5) 1-YEAR AVAILABILITY; NO REDISTRIBUTION OF UNEX- PENDED ADDITIONAL ALLOTMENTS.—Notwithstanding subsections (e) and (f), amounts allotted to a State pursuant to this 

subsection for fiscal year 2006 shall only remain available for 

expenditure by the State through September 30, 2006. Any 

amounts of such allotments that remain unexpended as of such 

date shall not be subject to redistribution under subsection (f) 

and shall revert to the Treasury on October 1, 2006.’’. 

(b) CONFORMING AMENDMENTS.—Section 2104 of the Social Security Act (42 U.S.C. 1397dd) is amended— 

(1) in subsection (a), by inserting ‘‘subject to subsection (d),’’ 

after ‘‘under this section,’’; 

(2) in subsection (b)(1), by inserting ‘‘and subsection (d)’’ 

after ‘‘Subject to paragraph (4)’’; and 

(3) in subsection (c)(1), by inserting ‘‘subject to subsection 

(d),’’ after ‘‘for a fiscal year,’’. 

(c) EFFECTIVE DATE.—The amendments made by this section 

apply to items and services furnished on or after October 1, 2005, 

without regard to whether or not regulations implementing such 

amendments have been issued. 

SEC. 6102. PROHIBITION AGAINST COVERING NONPREGNANT CHILDLESS ADULTS WITH SCHIP FUNDS. 

(a) PROHIBITION ON USE OF SCHIP FUNDS.—Section 2107 of 

the Social Security Act (42 U.S.C. 1397gg) is amended by adding 

at the end the following: 

‘‘(f) LIMITATION OF WAIVER AUTHORITY.—Notwithstanding subsection (e)(2)(A) and section 1115(a), the Secretary may not approve 

a waiver, experimental, pilot, or demonstration project that would 

allow funds made available under this title to be used to provide 

child health assistance or other health benefits coverage to a nonpregnant childless adult. For purposes of the preceding sentence, a 

caretaker relative (as such term is defined for purposes of carrying 

out section 1931) shall not be considered a childless adult.’’. 

(b) CONFORMING AMENDMENTS.—Section 2105(c)(1) of such Act 

(42 U.S.C. 1397ee(c)(1)) is amended— 

(1) by inserting ‘‘and may not include coverage of a nonpregnant childless adult’’ after ‘‘section 2101)’’; and 


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(2) by adding at the end the following: ‘‘For purposes of the 

preceding sentence, a caretaker relative (as such term is defined 

for purposes of carrying out section 1931) shall not be considered a childless adult.’’. 

(c) RULE OF CONSTRUCTION.—Nothing in this section or the 

amendments made by this section shall be construed to— 

(1) authorize the waiver of any provision of title XIX or XXI 

of the Social Security Act (42 U.S.C. 1396 et seq., 1397aa et 

seq.) that is not otherwise authorized to be waived under such 

titles or under title XI of such Act (42 U.S.C. 1301 et seq.) as 

of the date of enactment of this Act; 

(2) imply congressional approval of any waiver, experimental, pilot, or demonstration project affecting funds made 

available under the State children’s health insurance program 

under title XXI of the Social Security Act (42 U.S.C. 1397aa et 

seq.) or any amendment to such a waiver or project that has 

been approved as of such date of enactment; or 

(3) apply to any waiver, experimental, pilot, or demonstration project that would allow funds made available under title 

XXI of the Social Security Act (42 U.S.C. 1397aa et seq.) to be 

used to provide child health assistance or other health benefits 

coverage to a nonpregnant childless adult that is approved before the date of enactment of this Act or to any extension, renewal, or amendment of such a waiver or project that is approved on or after such date of enactment. 

(d) EFFECTIVE DATE.—This section and the amendments made 

by this section shall take effect as if enacted on October 1, 2005, and 

shall apply to any waiver, experimental, pilot, or demonstration 

project that is approved on or after that date. 

SEC. 6103. CONTINUED AUTHORITY FOR QUALIFYING STATES TO USE 

CERTAIN FUNDS FOR MEDICAID EXPENDITURES. 

(a) IN GENERAL.—Section 2105(g)(1)(A) of the Social Security 

Act (42 U.S.C. 1397ee(g)(1)(A)) is amended by striking ‘‘or 2001’’ 

and inserting ‘‘2001, 2004, or 2005’’. 

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

shall apply to expenditures made under title XIX of the Social Security Act (42 U.S.C. 1396 et seq.) on or after October 1, 2005. 

Subtitle C—Katrina Relief 

SEC. 6201. ADDITIONAL FEDERAL PAYMENTS UNDER HURRICANE-RELATED MULTI-STATE SECTION 1115 DEMONSTRATIONS. 

(a) IN GENERAL.—The Secretary of Health and Human Services 

shall pay to each eligible State, from amounts appropriated pursuant to subsection (e), amounts for the following purposes: 

(1) Under the authority of an approved Multi-State Section 

1115 Demonstration Project (in this section referred to as an 

‘‘section 1115 project’’)— 

(A) with respect to evacuees receiving health care under 

such project, for the non-Federal share of expenditures: 

(i) for medical assistance furnished under title XIX 

of the Social Security Act, and 

(ii) for child health assistance furnished under 

title XXI of such Act; and 


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(B) with respect to evacuees who do not have other coverage for such assistance through insurance, including (but 

not limited to) private insurance, under title XIX or title 

XXI of the Social Security Act, or under State-funded 

health insurance programs, for the total uncompensated 

care costs incurred for medically necessary services and 

supplies or premium assistance for such persons, and for 

those evacees receiving medical assistance under the project 

for the total uncompensated care costs incurred for medically necessary services and supplies beyond those included 

as medical assistance or child health assistance under the 

State’s approved plan under title XIX or title XXI of the Social Security Act; 

(C) with respect to affected individuals receiving health 

care under such project for the non-Federal share of the following ependitures: 

(i) for medical assistance furnished under title XIX 

of the Social Security Act, and 

(ii) for child health assistance furnished under 

title XXI of such Act; and 

(D) with respect to affected individuals who do not 

have other coverage for such assistance through insurance, 

including (but not limited to) private insurance, under title 

XIX or title XXI of the Social Security Act, or under Statefunded health insurance programs, for the total uncompensated care costs incurred for medically necessary services 

and supplies or premium assistance for such persons, and 

for those affected individuals receiving medical assistance 

under the project for the total uncompensated care costs incurred for medically necessary services and supplies beyond 

those included as medical assistance or child health assistance under the State’s approved plan under title XIX or 

title XXI of the Social Security Act. 

(2) For reimbursement of the reasonable administrative 

costs related to subparagraphs (A) through (D) of paragraph (1) 

as determined by the Secretary. 

(3) Only with respect to affected counties or parishes, for reimbursement with respect to individuals receiving medical assistance under existing State plans approved by the Secretary 

of Health and Human Services for the following non-Federal 

share of expenditures: 

(A) For medical assistance furnished under title XIX of 

the Social Security Act. 

(B) For child health assistance furnished under title 

XXI of such Act. 

(4) For other purposes, if approved by the Secretary under 

the Secretary’s authority, to restore access to health care in impacted communities. 

(b) DEFINITIONS.—For purposes of this section: 

(1) The term ‘‘affected individual’’ means an individual 

who resided in an individual assistance designation county or 

parish pursuant to section 408 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, as declared by the 

President as a result of Hurricane Katrina and continues to reside in the same State that such county or parish is located in. 


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(2) The term ‘‘affected counties or parishes’’ means a county 

or parish described in paragraph (1). 

(3) The term ‘‘evacuee’’ means an affected individual who 

has been displaced to another State. 

(4) The term ‘‘eligible State’’ means a State that has provided care to affected individuals or evacuees under a section 

1115 project. 

(c) APPLICATION TO MATCHING REQUIREMENTS.—The non-Federal share paid under this section shall not be regarded as Federal 

funds for purposes of Medicaid matching requirements, the effect of 

which is to provide fiscal relief to the State in which the Medicaid 

eligible individual originally resided. 

(d) TIME LIMITS ON PAYMENTS.— (1) No payments shall be made by the Secretary under subsection (a)(1)(A) or (a)(1)(C), for costs of health care provided to 

an eligible evacuee or affected individual for services for such 

individual incurred after June 30, 2006. 

(2) No payments shall be made by the Secretary under subsection (a)(1)(B) or (a)(1)(D) for costs of health care incurred 

after January 31, 2006. 

(3) No payments may be made under subsection (a)(1)(B) or 

(a)(1)(D) for an item or service that an evacuee or an affected 

individual has received from an individual or organization as 

part of a public or private hurricane relief effort. 

(e) APPROPRIATIONS.—For the purpose of providing funds for 

payments under this section, in addition to any funds made available for the National Disaster Medical System under the Department of Homeland Security for health care costs related to Hurricane Katrina, including under a section 1115 project, there is appropriated out of any money in the Treasury not otherwise appropriated, $2,000,000,000, to remain available to the Secretary until 

expended. The total amount of payments made under subsection (a) 

may not exceed the total amount appropriated under this subsection. 

SEC. 6202. STATE HIGH RISK HEALTH INSURANCE POOL FUNDING. 

(a) IN GENERAL.—There are hereby authorized and appropriated for fiscal year 2006— (1) $75,000,000 for grants under subsection (b)(1) of section 

2745 of the Public Health Service Act (42 U.S.C. 300gg–45); 

and 

(2) $15,000,000 for grants under subsection (a) of such section. 

(b) TREATMENT.—The amount appropriated under— 

(1) paragraph (1) shall be treated as if it had been appropriated under subsection (c)(2) of such section; and 

(2) paragraph (2) shall be treated as if it had been appropriated under subsection (c)(1) of such section. 

(c) REFERENCES.—Effective upon the enactment of the State 

High Risk Pool Funding Extension Act of 2005— 

(1) subsection (a)(1) shall be applied by substituting ‘‘subsections (b)(2) and (c)(3)’’ for ‘‘subsection (b)(1)’’; 

(2) subsection (b)(1) shall be applied by substituting 

‘‘(d)(1)(B)’’ for ‘‘(c)(2)’’; and 

(3) subsection (b)(2) shall be applied by substituting 

‘‘(d)(1)(A)’’ for ‘‘(c)(1)’’. 


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SEC. 6203. IMPLEMENTATION FUNDING. 

For purposes of implementing the provisions of, and amendments made by, title V of this Act and this title— 

(1) the Secretary of Health and Human Services shall provide for the transfer, in appropriate part from the Federal Hospital Insurance Trust Fund established under section 1817 of 

the Social Security Act (42 U.S.C. 1395i) and the Federal Supplementary Medical Insurance Trust Fund established under 

section 1841 of such Act (42 U.S.C. 1395t), of $30,000,000 to the 

Centers for Medicare & Medicaid Services Program Management Account for fiscal year 2006; and 

(2) out of any funds in the Treasury not otherwise appropriated, there are appropriated to such Secretary for the Centers 

for Medicare & Medicaid Services Program Management Account, $30,000,000 for fiscal year 2006. 

TITLE VII—HUMAN RESOURCES AND 

OTHER PROVISIONS 

SEC. 7002. REFERENCES. 

Except as otherwise expressly provided, wherever in this title an 

amendment or repeal is expressed in terms of an amendment to, or 

repeal of, a section or other provision, the amendment or repeal 

shall be considered to be made to a section or other provision of the 

Social Security Act. 

Subtitle A—TANF 

SEC. 7101. TEMPORARY ASSISTANCE FOR NEEDY FAMILIES AND RELATED PROGRAMS FUNDING THROUGH SEPTEMBER 30, 

2010. 

(a) IN GENERAL.—Activities authorized by part A of title IV and 

section 1108(b) of the Social Security Act (adjusted, as applicable, 

by or under this subtitle, the amendments made by this subtitle, 

and the TANF Emergency Response and Recovery Act of 2005) shall 

continue through September 30, 2010, in the manner authorized for 

fiscal year 2004, and out of any money in the Treasury of the 

United States not otherwise appropriated, there are hereby appropriated such sums as may be necessary for such purpose. Grants 

and payments may be made pursuant to this authority on a quarterly basis through fiscal year 2010 at the level provided for such 

activities for the corresponding quarter of fiscal year 2004 (or, as 

applicable, at such greater level as may result from the application 

of this subtitle, the amendments made by this subtitle, and the 

TANF Emergency Response and Recovery Act of 2005), except that 

in the case of section 403(a)(3) of the Social Security Act, grants and 

payments may be made pursuant to this authority only through fiscal year 2008 and in the case of section 403(a)(4) of the Social Security Act, no grants shall be made for any fiscal year occurring after 

fiscal year 2005. 

(b) CONFORMING AMENDMENTS.—Part A of title IV (42 U.S.C. 

601 et seq.) is amended— 

(1) in section 403(a)(3)(H)(ii), by striking ‘‘December, 31, 

2005’’ and inserting ‘‘fiscal year 2008’’; 


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(2) in section 403(b)(3)(C)(ii), by striking ‘‘2006’’ and inserting ‘‘2010’’; and 

(3) in section 409(a)(7)— 

(A) in subparagraph (A), by striking ‘‘or 2007’’ and inserting ‘‘2007, 2008, 2009, 2010, or 2011’’; and 

(B) in subparagraph (B)(ii), by striking ‘‘2006’’ and inserting ‘‘2010’’. 

(c) EXTENSION OF THE NATIONAL RANDOM SAMPLE STUDY OF

CHILD WELFARE THROUGH SEPTEMBER 30, 2010.—Activities authorized by section 429A of the Social Security Act shall continue 

through September 30, 2010, in the manner authorized for fiscal 

year 2004, and out of any money in the Treasury of the United 

States not otherwise appropriated, there are hereby appropriated 

such sums as may be necessary for such purpose. Grants and payments may be made pursuant to this authority on a quarterly basis 

through fiscal year 2010 at the level provided for such activities for 

the corresponding quarter of fiscal year 2004. 

SEC. 7102. IMPROVED CALCULATION OF WORK PARTICIPATION RATES 

AND PROGRAM INTEGRITY. 

(a) RECALIBRATION OF CASELOAD REDUCTION CREDIT.— 

(1) IN GENERAL.—Section 407(b)(3)(A) (42 U.S.C. 

607(b)(3)(A)) is amended— 

(A) in clause (i), by inserting ‘‘or any other State program funded with qualified State expenditures (as defined 

in section 409(a)(7)(B)(i))’’ after ‘‘this part’’ ; and 

(B) by striking clause (ii) and inserting the following: 

‘‘(ii) the average monthly number of families that 

received assistance under any State program referred 

to in clause (i) during fiscal year 2005.’’. 

(2) CONFORMING AMENDMENT.—Section 407(b)(3)(B) (42 

U.S.C. 607(b)(3)(B)) is amended by striking ‘‘and eligibility criteria’’ and all that follows through the close parenthesis and inserting ‘‘and the eligibility criteria in effect during fiscal year 

2005’’. 

(b) INCLUSION OF FAMILIES RECEIVING ASSISTANCE UNDER

SEPARATE STATE PROGRAMS IN CALCULATION OF PARTICIPATION

RATES.— 

(1) Section 407 (42 U.S.C. 607) is amended in each of subsections (a)(1), (a)(2), (b)(1)(B)(i), (c)(2)(A)(i), (e)(1), and (e)(2), 

by inserting ‘‘or any other State program funded with qualified 

State expenditures (as defined in section 409(a)(7)(B)(i))’’ after 

‘‘this part’’. 

(2) Section 411(a)(1) (42 U.S.C. 611(a)(1)) is amended— 

(A) in subparagraph (A), by inserting ‘‘or any other 

State program funded with qualified State expenditures (as 

defined in section 409(a)(7)(B)(i))’’ before the colon; and 

(B) in subparagraph (B)(ii), by inserting ‘‘and any 

other State programs funded with qualified State expenditures (as defined in section 409(a)(7)(B)(i))’’ after ‘‘this 

part’’. 

(c) IMPROVED VERIFICATION AND OVERSIGHT OF WORK PARTICIPATION.— 

(1) IN GENERAL.—Section 407(i) (42 U.S.C. 607(i)) is 

amended to read as follows: 


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‘‘(i) VERIFICATION OF WORK AND WORK-ELIGIBLE INDIVIDUALS

IN ORDER TO IMPLEMENT REFORMS.— ‘‘(1) SECRETARIAL DIRECTION AND OVERSIGHT.— ‘‘(A) REGULATIONS FOR DETERMINING WHETHER ACTIVI- TIES MAY BE COUNTED AS ‘WORK ACTIVITIES’, HOW TO COUNT

AND VERIFY REPORTED HOURS OF WORK, AND DETERMINING

WHO IS A WORK-ELIGIBLE INDIVIDUAL.— ‘‘(i) IN GENERAL.—Not later than June 30, 2006, 

the Secretary shall promulgate regulations to ensure 

consistent measurement of work participation rates 

under State programs funded under this part and 

State programs funded with qualified State expenditures (as defined in section 409(a)(7)(B)(i)), which shall 

include information with respect to— 

‘‘(I) determining whether an activity of a recipient of assistance may be treated as a work activity under subsection (d); 

‘‘(II) uniform methods for reporting hours of 

work by a recipient of assistance; 

‘‘(III) the type of documentation needed to 

verify reported hours of work by a recipient of assistance; and 

‘‘(IV) the circumstances under which a parent 

who resides with a child who is a recipient of assistance should be included in the work participation rates. 

‘‘(ii) ISSUANCE OF REGULATIONS ON AN INTERIM

FINAL BASIS.—The regulations referred to in clause (i) 

may be effective and final immediately on an interim 

basis as of the date of publication of the regulations. If 

the Secretary provides for an interim final regulation, 

the Secretary shall provide for a period of public comment on the regulation after the date of publication. 

The Secretary may change or revise the regulation after 

the public comment period. 

‘‘(B) OVERSIGHT OF STATE PROCEDURES.—The Secretary 

shall review the State procedures established in accordance 

with paragraph (2) to ensure that such procedures are consistent with the regulations promulgated under subparagraph (A) and are adequate to ensure an accurate measurement of work participation under the State programs funded under this part and any other State programs funded 

with qualified State expenditures (as so defined). 

‘‘(2) REQUIREMENT FOR STATES TO ESTABLISH AND MAINTAIN WORK PARTICIPATION VERIFICATION PROCEDURES.—Not 

later than September 30, 2006, a State to which a grant is 

made under section 403 shall establish procedures for determining, with respect to recipients of assistance under the State 

program funded under this part or under any State programs 

funded with qualified State expenditures (as so defined), whether activities may be counted as work activities, how to count 

and verify reported hours of work, and who is a work-eligible 

individual, in accordance with the regulations promulgated 

pursuant to paragraph (1)(A)(i) and shall establish internal 

controls to ensure compliance with the procedures.’’. 


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(2) STATE PENALTY FOR FAILURE TO ESTABLISH OR COMPLY

WITH WORK PARTICIPATION VERIFICATION PROCEDURES.—Section 

409(a) (42 U.S.C. 609(a)) is amended by adding at the end the 

following: 

‘‘(15) PENALTY FOR FAILURE TO ESTABLISH OR COMPLY WITH

WORK PARTICIPATION VERIFICATION PROCEDURES.— 

‘‘(A) IN GENERAL.—If the Secretary determines that a 

State to which a grant is made under section 403 in a fiscal year has violated section 407(i)(2) during the fiscal 

year, the Secretary shall reduce the grant payable to the 

State under section 403(a)(1) for the immediately succeeding fiscal year by an amount equal to not less than 1 

percent and not more than 5 percent of the State family assistance grant. 

‘‘(B) PENALTY BASED ON SEVERITY OF FAILURE.—The 

Secretary shall impose reductions under subparagraph (A) 

with respect to a fiscal year based on the degree of noncompliance.’’. 

(d) EFFECTIVE DATE.—The amendments made by subsections 

(a) and (b) shall take effect on October 1, 2006. 

SEC. 7103. GRANTS FOR HEALTHY MARRIAGE PROMOTION AND RESPONSIBLE FATHERHOOD. 

(a) HEALTHY MARRIAGE AND FAMILY FUNDS.—Section 403(a)(2) 

(42 U.S.C. 603(a)(2)) is amended to read as follows: 

‘‘(2) HEALTHY MARRIAGE PROMOTION AND RESPONSIBLE FATHERHOOD GRANTS.— 

‘‘(A) IN GENERAL.— 

‘‘(i) USE OF FUNDS.—Subject to subparagraphs (B) 

and (C), the Secretary may use the funds made available under subparagraph (D) for the purpose of conducting and supporting research and demonstration 

projects by public or private entities, and providing 

technical assistance to States, Indian tribes and tribal 

organizations, and such other entities as the Secretary 

may specify that are receiving a grant under another 

provision of this part. 

‘‘(ii) LIMITATIONS.—The Secretary may not award 

funds made available under this paragraph on a noncompetitive basis, and may not provide any such funds 

to an entity for the purpose of carrying out healthy 

marriage promotion activities or for the purpose of carrying out activities promoting responsible fatherhood 

unless the entity has submitted to the Secretary an application which— 

‘‘(I) describes— 

‘‘(aa) how the programs or activities proposed in the application will address, as appropriate, issues of domestic violence; and 

‘‘(bb) what the applicant will do, to the extent relevant, to ensure that participation in 

the programs or activities is voluntary, and to 

inform potential participants that their participation is voluntary; and 

‘‘(II) contains a commitment by the entity— 


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‘‘(aa) to not use the funds for any other 

purpose; and 

‘‘(bb) to consult with experts in domestic 

violence or relevant community domestic violence coalitions in developing the programs 

and activities. 

‘‘(iii) HEALTHY MARRIAGE PROMOTION ACTIVITIES.— 

In clause (ii), the term ‘healthy marriage promotion activities’ means the following: 

‘‘(I) Public advertising campaigns on the value 

of marriage and the skills needed to increase marital stability and health. 

‘‘(II) Education in high schools on the value of 

marriage, relationship skills, and budgeting. 

‘‘(III) Marriage education, marriage skills, and 

relationship skills programs, that may include 

parenting skills, financial management, conflict 

resolution, and job and career advancement, for 

non-married pregnant women and non-married expectant fathers. 

‘‘(IV) Pre-marital education and marriage 

skills training for engaged couples and for couples 

or individuals interested in marriage. 

‘‘(V) Marriage enhancement and marriage 

skills training programs for married couples. 

‘‘(VI) Divorce reduction programs that teach 

relationship skills. 

‘‘(VII) Marriage mentoring programs which 

use married couples as role models and mentors in 

at-risk communities. 

‘‘(VIII) Programs to reduce the disincentives to 

marriage in means-tested aid programs, if offered 

in conjunction with any activity described in this 

subparagraph. 

‘‘(B) LIMITATION ON USE OF FUNDS FOR DEMONSTRATION PROJECTS FOR COORDINATION OF PROVISION OF CHILD

WELFARE AND TANF SERVICES TO TRIBAL FAMILIES AT RISK

OF CHILD ABUSE OR NEGLECT.— 

‘‘(i) IN GENERAL.—Of the amounts made available 

under subparagraph (D) for a fiscal year, the Secretary 

may not award more than $2,000,000 on a competitive 

basis to fund demonstration projects designed to test 

the effectiveness of tribal governments or tribal consortia in coordinating the provision to tribal families at 

risk of child abuse or neglect of child welfare services 

and services under tribal programs funded under this 

part. 

‘‘(ii) LIMITATION ON USE OF FUNDS.—A grant made 

pursuant to clause (i) to such a project shall not be 

used for any purpose other than— 

‘‘(I) to improve case management for families 

eligible for assistance from such a tribal program; 

‘‘(II) for supportive services and assistance to 

tribal children in out-of-home placements and the 


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tribal families caring for such children, including 

families who adopt such children; and 

‘‘(III) for prevention services and assistance to 

tribal families at risk of child abuse and neglect. 

‘‘(iii) REPORTS.—The Secretary may require a recipient of funds awarded under this subparagraph to 

provide the Secretary with such information as the Secretary deems relevant to enable the Secretary to facilitate and oversee the administration of any project for 

which funds are provided under this subparagraph. 

‘‘(C) LIMITATION ON USE OF FUNDS FOR ACTIVITIES PROMOTING RESPONSIBLE FATHERHOOD.— 

‘‘(i) IN GENERAL.—Of the amounts made available 

under subparagraph (D) for a fiscal year, the Secretary 

may not award more than $50,000,000 on a competitive basis to States, territories, Indian tribes and tribal 

organizations, and public and nonprofit community entities, including religious organizations, for activities 

promoting responsible fatherhood. 

‘‘(ii) ACTIVITIES PROMOTING RESPONSIBLE FATHER- HOOD.—In this paragraph, the term ‘activities promoting responsible fatherhood’ means the following: 

‘‘(I) Activities to promote marriage or sustain 

marriage through activities such as counseling, 

mentoring, disseminating information about the 

benefits of marriage and 2-parent involvement for 

children, enhancing relationship skills, education 

regarding how to control aggressive behavior, disseminating information on the causes of domestic 

violence and child abuse, marriage preparation 

programs, premarital counseling, marital inventories, skills-based marriage education, financial 

planning seminars, including improving a family’s 

ability to effectively manage family business affairs 

by means such as education, counseling, or mentoring on matters related to family finances, including household management, budgeting, banking, and handling of financial transactions and 

home maintenance, and divorce education and reduction programs, including mediation and counseling. 

‘‘(II) Activities to promote responsible parenting through activities such as counseling, mentoring, and mediation, disseminating information 

about good parenting practices, skills-based parenting enducation, encouraging child support payments, and other methods. 

‘‘(III) Activities to foster economic stability by 

helping fathers improve their economic status by 

providing activities such as work first services, job 

search, job training, subsidized employment, job 

retention, job enhancement, and encouraging education, including career-advancing education, dissemination of employment materials, coordination 

with existing employment services such as welfareVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00140 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

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to-work programs, referrals to local employment 

training initiatives, and other methods. 

‘‘(IV) Activities to promote responsible fatherhood that are conducted through a contract with a 

nationally recognized, nonprofit fatherhood promotion organization, such as the development, promotion, and distribution of a media campaign to 

encourage the appropriate involvement of parents 

in the life of any child and specifically the issue of 

responsible fatherhood, and the development of a 

national clearinghouse to assist States and communities in efforts to promote and support marriage and responsible fatherhood. 

‘‘(D) APPROPRIATION.—Out of any money in the Treasury of the United States not otherwise appropriated, there 

are appropriated $150,000,000 for each of fiscal years 2006 

through 2010, for expenditure in accordance with this paragraph.’’. 

(b) COUNTING OF SPENDING ON CERTAIN PRO-FAMILY ACTIVI- TIES.—Section 409(a)(7)(B)(i) (42 U.S.C. 609(a)(7)(B)(i)) is amended 

by adding at the end the following: 

‘‘(V) COUNTING OF SPENDING ON CERTAIN PRO- FAMILY ACTIVITIES.—The term ‘qualified State expenditures’ includes the total expenditures by the 

State during the fiscal year under all State programs for a purpose described in paragraph (3) or 

(4) of section 401(a).’’. 

Subtitle B—Child Care 

SEC. 7201. ENTITLEMENT FUNDING. 

Section 418(a)(3) (42 U.S.C. 618(a)(3)) is amended— 

(1) by striking ‘‘and’’ at the end of subparagraph (E); 

(2) by striking the period at the end of subparagraph (F) 

and inserting a semicolon; and 

(3) by adding at the end the following: ‘‘(G) $2,917,000,000 for each of fiscal years 2006 

through 2010.’’. 

Subtitle C—Child Support 

SEC. 7301. ASSIGNMENT AND DISTRIBUTION OF CHILD SUPPORT. 

(a) MODIFICATION OF RULE REQUIRING ASSIGNMENT OF SUP- PORT RIGHTS AS A CONDITION OF RECEIVING TANF.—Section 

408(a)(3) (42 U.S.C. 608(a)(3)) is amended to read as follows: 

‘‘(3) NO ASSISTANCE FOR FAMILIES NOT ASSIGNING CERTAIN

SUPPORT RIGHTS TO THE STATE.—A State to which a grant is 

made under section 403 shall require, as a condition of paying 

assistance to a family under the State program funded under 

this part, that a member of the family assign to the State any 

right the family member may have (on behalf of the family 

member or of any other person for whom the family member 

has applied for or is receiving such assistance) to support from 

any other person, not exceeding the total amount of assistance 


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so paid to the family, which accrues during the period that the 

family receives assistance under the program.’’. 

(b) INCREASING CHILD SUPPORT PAYMENTS TO FAMILIES AND

SIMPLIFYING CHILD SUPPORT DISTRIBUTION RULES.— (1) DISTRIBUTION RULES.— (A) IN GENERAL.—Section 457(a) (42 U.S.C. 657(a)) is 

amended to read as follows: 

‘‘(a) IN GENERAL.—Subject to subsections (d) and (e), the 

amounts collected on behalf of a family as support by a State pursuant to a plan approved under this part shall be distributed as follows: 

‘‘(1) FAMILIES RECEIVING ASSISTANCE.—In the case of a 

family receiving assistance from the State, the State shall— 

‘‘(A) pay to the Federal Government the Federal share 

of the amount collected, subject to paragraph (3)(A); 

‘‘(B) retain, or pay to the family, the State share of the 

amount collected, subject to paragraph (3)(B); and 

‘‘(C) pay to the family any remaining amount. 

‘‘(2) FAMILIES THAT FORMERLY RECEIVED ASSISTANCE.—In 

the case of a family that formerly received assistance from the 

State: 

‘‘(A) CURRENT SUPPORT.—To the extent that the 

amount collected does not exceed the current support 

amount, the State shall pay the amount to the family. 

‘‘(B) ARREARAGES.—Except as otherwise provided in an 

election made under section 454(34), to the extent that the 

amount collected exceeds the current support amount, the 

State— 

‘‘(i) shall first pay to the family the excess amount, 

to the extent necessary to satisfy support arrearages not 

assigned pursuant to section 408(a)(3); 

‘‘(ii) if the amount collected exceeds the amount required to be paid to the family under clause (i), shall— 

‘‘(I) pay to the Federal Government the Federal 

share of the excess amount described in this clause, 

subject to paragraph (3)(A); and 

‘‘(II) retain, or pay to the family, the State 

share of the excess amount described in this clause, 

subject to paragraph (3)(B); and 

‘‘(iii) shall pay to the family any remaining 

amount. 

‘‘(3) LIMITATIONS.— 

‘‘(A) FEDERAL REIMBURSEMENTS.—The total of the 

amounts paid by the State to the Federal Government 

under paragraphs (1) and (2) of this subsection with respect to a family shall not exceed the Federal share of the 

amount assigned with respect to the family pursuant to section 408(a)(3). 

‘‘(B) STATE REIMBURSEMENTS.—The total of the 

amounts retained by the State under paragraphs (1) and 

(2) of this subsection with respect to a family shall not exceed the State share of the amount assigned with respect to 

the family pursuant to section 408(a)(3). 

‘‘(4) FAMILIES THAT NEVER RECEIVED ASSISTANCE.—In the 

case of any other family, the State shall distribute to the family 


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the portion of the amount so collected that remains after withholding any fee pursuant to section 454(6)(B)(ii). 

‘‘(5) FAMILIES UNDER CERTAIN AGREEMENTS.—Notwithstanding paragraphs (1) through (3), in the case of an amount 

collected for a family in accordance with a cooperative agreement under section 454(33), the State shall distribute the 

amount collected pursuant to the terms of the agreement.’’. 

(B) STATE OPTION TO PASS THROUGH ADDITIONAL SUPPORT WITH FEDERAL FINANCIAL PARTICIPATION BEGINNING

WITH FISCAL YEAR 2009.— 

(i) IN GENERAL.—Section 457(a) (42 U.S.C. 657(a)) 

is amended by adding at the end the following: 

‘‘(7) STATE OPTION TO PASS THROUGH ADDITIONAL SUPPORT

WITH FEDERAL FINANCIAL PARTICIPATION.— 

‘‘(A) FAMILIES THAT FORMERLY RECEIVED ASSISTANCE.—Notwithstanding paragraph (2), a State shall not 

be required to pay to the Federal Government the Federal 

share of an amount collected on behalf of a family that formerly received assistance from the State to the extent that 

the State pays the amount to the family. 

‘‘(B) FAMILIES THAT CURRENTLY RECEIVE ASSISTANCE.— 

‘‘(i) IN GENERAL.—Notwithstanding paragraph (1), 

in the case of a family that receives assistance from the 

State, a State shall not be required to pay to the Federal Government the Federal share of the excepted portion (as defined in clause (ii)) of any amount collected 

on behalf of such family during a month to the extent 

that— 

‘‘(I) the State pays the excepted portion to the 

family; and 

‘‘(II) the excepted portion is disregarded in determining the amount and type of assistance provided to the family under such program. 

‘‘(ii) EXCEPTED PORTION DEFINED.—For purposes of 

this subparagraph, the term ‘‘excepted portion’’ means 

that portion of the amount collected on behalf of a family during a month that does not exceed $100 per 

month, or in the case of a family that includes 2 or 

more children, that does not exceed an amount established by the State that is not more than $200 per 

month.’’. 

(ii) EFFECTIVE DATE.—The amendment made by 

clause (i) shall take effect on October 1, 2008. 

(iii) REDESIGNATION.—Effective October 1, 2009, 

paragraph (7) of section 457(a) of the Social Security 

Act (as added by clause (i)) is redesignated as paragraph (6). 

(C) STATE PLAN TO INCLUDE ELECTION AS TO WHICH

RULES TO APPLY IN DISTRIBUTING CHILD SUPPORT ARREARAGES COLLECTED ON BEHALF OF FAMILIES FORMERLY RECEIVING ASSISTANCE.—Section 454 (42 U.S.C. 654) is 

amended— 

(i) by striking ‘‘and’’ at the end of paragraph (32); 


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(ii) by striking the period at the end of paragraph 

(33) and inserting ‘‘; and’’; and 

(iii) by inserting after paragraph (33) the following: 

‘‘(34) include an election by the State to apply section 

457(a)(2)(B) of this Act or former section 457(a)(2)(B) of this Act 

(as in effect for the State immediately before the date this paragraph first applies to the State) to the distribution of the 

amounts which are the subject of such sections and, for so long 

as the State elects to so apply such former section, the amendments made by subsection (b)(1) of section 7301 of the Deficit 

Reduction Act of 2005 shall not apply with respect to the State, 

notwithstanding subsection (e) of such section 7301.’’. 

(2) CURRENT SUPPORT AMOUNT DEFINED.—Section 457(c) 

(42 U.S.C. 657(c)) is amended by adding at the end the following: 

‘‘(5) CURRENT SUPPORT AMOUNT.—The term ‘current support amount’ means, with respect to amounts collected as support on behalf of a family, the amount designated as the monthly support obligation of the noncustodial parent in the order requiring the support or calculated by the State based on the 

order.’’. 

(c) STATE OPTION TO DISCONTINUE OLDER SUPPORT ASSIGN- MENTS.—Section 457(b) (42 U.S.C. 657(b)) is amended to read as 

follows: 

‘‘(b) CONTINUATION OF ASSIGNMENTS.— ‘‘(1) STATE OPTION TO DISCONTINUE PRE-1997 SUPPORT AS- SIGNMENTS.— ‘‘(A) IN GENERAL.—Any rights to support obligations 

assigned to a State as a condition of receiving assistance 

from the State under part A and in effect on September 30, 

1997 (or such earlier date on or after August 22, 1996, as 

the State may choose), may remain assigned after such 

date. 

‘‘(B) DISTRIBUTION OF AMOUNTS AFTER ASSIGNMENT

DISCONTINUATION.—If a State chooses to discontinue the assignment of a support obligation described in subparagraph (A), the State may treat amounts collected pursuant 

to the assignment as if the amounts had never been assigned and may distribute the amounts to the family in accordance with subsection (a)(4). 

‘‘(2) STATE OPTION TO DISCONTINUE POST-1997 ASSIGNMENTS.— 

‘‘(A) IN GENERAL.—Any rights to support obligations 

accruing before the date on which a family first receives assistance under part A that are assigned to a State under 

that part and in effect before the implementation date of 

this section may remain assigned after such date. 

‘‘(B) DISTRIBUTION OF AMOUNTS AFTER ASSIGNMENT

DISCONTINUATION.—If a State chooses to discontinue the assignment of a support obligation described in subparagraph (A), the State may treat amounts collected pursuant 

to the assignment as if the amounts had never been assigned and may distribute the amounts to the family in accordance with subsection (a)(4).’’. 


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(d) CONFORMING AMENDMENTS.—Section 6402(c) of the Internal 

Revenue Code of 1986 (relating to offset of past-due support against 

overpayments) is amended— 

(1) in the first sentence, by striking ‘‘the Social Security 

Act.’’ and inserting ‘‘of such Act.’’; and 

(2) by striking the third sentence and inserting the following: ‘‘The Secretary shall apply a reduction under this subsection first to an amount certified by the State as past due support under section 464 of the Social Security Act before any 

other reductions allowed by law.’’. 

(e) EFFECTIVE DATE.— (1) IN GENERAL.—Except as otherwise provided in this section, the amendments made by the preceding provisions of this 

section shall take effect on October 1, 2009, and shall apply to 

payments under parts A and D of title IV of the Social Security 

Act for calendar quarters beginning on or after such date, and 

without regard to whether regulations to implement the amendments (in the case of State programs operated under such part 

D) are promulgated by such date. 

(2) STATE OPTION TO ACCELERATE EFFECTIVE DATE.—Notwithstanding paragraph (1), a State may elect to have the 

amendments made by the preceding provisions of this section 

apply to the State and to amounts collected by the State (and 

the payments under parts A and D), on and after such date as 

the State may select that is not earlier than October 1, 2008, 

and not later than September 30, 2009. 

(f) USE OF TAX REFUND INTERCEPT PROGRAM TO COLLECT

PAST-DUE CHILD SUPPORT ON BEHALF OF CHILDREN WHO ARE NOT

MINORS.— 

(1) IN GENERAL.—Section 464 (42 U.S.C. 664) is amended— 

(A) in subsection (a)(2)(A), by striking ‘‘(as that term is 

defined for purposes of this paragraph under subsection 

(c))’’; and 

(B) in subsection (c)— 

(i) in paragraph (1)— 

(I) by striking ‘‘(1) Except as provided in paragraph (2), as used in’’ and inserting ‘‘In’’; and 

(II) by inserting ‘‘(whether or not a minor)’’ 

after ‘‘a child’’ each place it appears; and 

(ii) by striking paragraphs (2) and (3). 

(2) EFFECTIVE DATE.—The amendments made by paragraph (1) shall take effect on October 1, 2007. 

(g) STATE OPTION TO USE STATEWIDE AUTOMATED DATA PROC- ESSING AND INFORMATION RETRIEVAL SYSTEM FOR INTERSTATE

CASES.—Section 466(a)(14)(A)(iii) (42 U.S.C. 666(a)(14)(A)(iii)) is 

amended by inserting before the semicolon the following: ‘‘(but the 

assisting State may establish a corresponding case based on such 

other State’s request for assistance)’’. 

SEC. 7302. MANDATORY REVIEW AND ADJUSTMENT OF CHILD SUPPORT ORDERS FOR FAMILIES RECEIVING TANF. 

(a) IN GENERAL.—Section 466(a)(10)(A)(i) (42 U.S.C. 

666(a)(10)(A)(i)) is amended— 

(1) by striking ‘‘parent, or,’’ and inserting ‘‘parent or’’; and 

(2) by striking ‘‘upon the request of the State agency under 

the State plan or of either parent,’’. 


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(b) EFFECTIVE DATE.—The amendments made by subsection (a) 

shall take effect on October 1, 2007. 

SEC. 7303. DECREASE IN AMOUNT OF CHILD SUPPORT ARREARAGE 

TRIGGERING PASSPORT DENIAL. 

(a) IN GENERAL.—Section 452(k)(1) (42 U.S.C. 652(k)(1)) is 

amended by striking ‘‘$5,000’’ and inserting ‘‘$2,500’’. 

(b) CONFORMING AMENDMENT.—Section 454(31) (42 U.S.C. 

654(31)) is amended by striking ‘‘$5,000’’ and inserting ‘‘$2,500’’. 

(c) EFFECTIVE DATE.—The amendments made by this section 

shall take effect on October 1, 2006. 

SEC. 7304. MAINTENANCE OF TECHNICAL ASSISTANCE FUNDING. 

Section 452(j) (42 U.S.C. 652(j)) is amended by inserting ‘‘or the 

amount appropriated under this paragraph for fiscal year 2002, 

whichever is greater’’ before ‘‘, which shall be available’’. 

SEC. 7305. MAINTENANCE OF FEDERAL PARENT LOCATOR SERVICE 

FUNDING. 

Section 453(o) (42 U.S.C. 653(o)) is amended— 

(1) in the first sentence, by inserting ‘‘or the amount appropriated under this paragraph for fiscal year 2002, whichever is 

greater’’ before ‘‘, which shall be available’’; and 

(2) in the second sentence, by striking ‘‘for each of fiscal 

years 1997 through 2001’’. 

SEC. 7306. INFORMATION COMPARISONS WITH INSURANCE DATA. 

(a) DUTIES OF THE SECRETARY.—Section 452 (42 U.S.C. 652) is 

amended by adding at the end the following: 

‘‘(l) COMPARISONS WITH INSURANCE INFORMATION.— ‘‘(1) IN GENERAL.—The Secretary, through the Federal Parent Locator Service, may— 

‘‘(A) compare information concerning individuals 

owing past-due support with information maintained by insurers (or their agents) concerning insurance claims, settlements, awards, and payments; and 

‘‘(B) furnish information resulting from the data 

matches to the State agencies responsible for collecting 

child support from the individuals. 

‘‘(2) LIABILITY.—An insurer (including any agent of an insurer) shall not be liable under any Federal or State law to any 

person for any disclosure provided for under this subsection, or 

for any other action taken in good faith in accordance with this 

subsection.’’. 

(b) STATE REIMBURSEMENT OF FEDERAL COSTS.—Section 

453(k)(3) (42 U.S.C. 653(k)(3)) is amended by inserting ‘‘or section 

452(l)’’ after ‘‘pursuant to this section’’. 

SEC. 7307. REQUIREMENT THAT STATE CHILD SUPPORT ENFORCEMENT AGENCIES SEEK MEDICAL SUPPORT FOR CHILDREN 

FROM EITHER PARENT. 

(a) STATE AGENCIES REQUIRED TO SEEK MEDICAL SUPPORT

FROM EITHER PARENT.— 

(1) IN GENERAL.—Section 466(a)(19)(A) (42 U.S.C. 

666(a)(19)(A)) is amended by striking ‘‘which include a provision for the health care coverage of the child are enforced’’ and 

inserting ‘‘shall include a provision for medical support for the 

child to be provided by either or both parents, and shall be enforced’’. 


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(2) CONFORMING AMENDMENTS.— (A) TITLE IV–D.— (i) Section 452(f) (42 U.S.C. 652(f)) is amended by 

striking ‘‘include medical support as part of any child 

support order and enforce medical support’’ and inserting ‘‘enforce medical support included as part of a 

child support order’’. 

(ii) Section 466(a)(19) (42 U.S.C. 666(a)(19)), as 

amended by paragraph (1) of this subsection, is 

amended— 

(I) in subparagraph (A)— 

(aa) by striking ‘‘section 401(e)(3)(C)’’ and 

inserting ‘‘section 401(e)’’; and 

(bb) by striking ‘‘section 401(f)(5)(C)’’ and 

inserting ‘‘section 401(f)’’; 

(II) in subparagraph (B)— 

(aa) by striking ‘‘noncustodial’’ each place 

it appears; and 

(bb) in clause (iii), by striking ‘‘section 

466(b)’’ and inserting ‘‘subsection (b)’’; and 

(III) in subparagraph (C), by striking ‘‘noncustodial’’ each place it appears and inserting ‘‘obligated’’. 

(B) STATE OR LOCAL GOVERNMENTAL GROUP HEALTH

PLANS.—Section 401(e)(2) of the Child Support Performance 

and Incentive Act of 1998 (29 U.S.C. 1169 note) is amended, in the matter preceding subparagraph (A), by striking 

‘‘who is a noncustodial parent of the child’’. 

(C) CHURCH PLANS.—Section 401(f)(5)(C) of the Child 

Support Performance and Incentive Act of 1998 (29 U.S.C. 

1169 note) is amended by striking ‘‘noncustodial’’ each 

place it appears. 

(b) ENFORCEMENT OF MEDICAL SUPPORT REQUIREMENTS.—Section 452(f) (42 U.S.C. 652(f)), as amended by subsection (a)(2)(A)(i), 

is amended by inserting after the first sentence the following: ‘‘A 

State agency administering the program under this part may enforce medical support against a custodial parent if health care coverage is available to the custodial parent at a reasonable cost, notwithstanding any other provision of this part.’’. 

(c) DEFINITION OF MEDICAL SUPPORT.—Section 452(f) (42 

U.S.C. 652(f)), as amended by subsections (a)(2)(A)(i) and (b) of this 

section, is amended by adding at the end the following: ‘‘For purposes of this part, the term ‘medical support’ may include health 

care coverage, such as coverage under a health insurance plan (including payment of costs of premiums, co-payments, and 

deductibles) and payment for medical expenses incurred on behalf 

of a child.’’. 

SEC. 7308. REDUCTION OF FEDERAL MATCHING RATE FOR LABORATORY COSTS INCURRED IN DETERMINING PATERNITY. 

(a) IN GENERAL.—Section 455(a)(1)(C) (42 U.S.C. 655(a)(1)(C)) 

is amended by striking ‘‘90 percent (rather than the percentage specified in subparagraph (A))’’ and inserting ‘‘66 percent’’. 

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

shall take effect on October 1, 2006, and shall apply to costs incurred on or after that date. 


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SEC. 7309. ENDING FEDERAL MATCHING OF STATE SPENDING OF FEDERAL INCENTIVE PAYMENTS. 

(a) IN GENERAL.—Section 455(a)(1) (42 U.S.C. 655(a)(1)) is 

amended by inserting ‘‘from amounts paid to the State under section 

458 or’’ before ‘‘to carry out an agreement’’. 

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

shall take effect on October 1, 2007. 

SEC. 7310. MANDATORY FEE FOR SUCCESSFUL CHILD SUPPORT COLLECTION FOR FAMILY THAT HAS NEVER RECEIVED TANF. 

(a) IN GENERAL.—Section 454(6)(B) (42 U.S.C. 654(6)(B)) is 

amended— 

(1) by inserting ‘‘(i)’’ after ‘‘(B)’’; 

(2) by redesignating clauses (i) and (ii) as subclauses (I) 

and (II), respectively; 

(3) by adding ‘‘and’’ after the semicolon; and 

(4) by adding after and below the end the following new 

clause: 

‘‘(ii) in the case of an individual who has never received assistance under a State program funded under part 

A and for whom the State has collected at least $500 of 

support, the State shall impose an annual fee of $25 for 

each case in which services are furnished, which shall be 

retained by the State from support collected on behalf of the 

individual (but not from the 1st $500 so collected), paid by 

the individual applying for the services, recovered from the 

absent parent, or paid by the State out of its own funds (the 

payment of which from State funds shall not be considered 

as an administrative cost of the State for the operation of 

the plan, and the fees shall be considered income to the program);’’. 

(b) CONFORMING AMENDMENTS.—Section 457(a)(3) (42 U.S.C. 

657(a)(3)) is amended to read as follows: 

‘‘(3) FAMILIES THAT NEVER RECEIVED ASSISTANCE.—In the 

case of any other family, the State shall distribute to the family 

the portion of the amount so collected that remains after withholding any fee pursuant to section 454(6)(B)(ii).’’. 

(c) EFFECTIVE DATE.—The amendments made by this section 

shall take effect on October 1, 2006. 

SEC. 7311. EXCEPTION TO GENERAL EFFECTIVE DATE FOR STATE 

PLANS REQUIRING STATE LAW AMENDMENTS. 

In the case of a State plan under part D of title IV of the Social 

Security Act which the Secretary determines requires State legislation in order for the plan to meet the additional requirements imposed by the amendments made by this subtitle, the effective date 

of the amendments imposing the additional requirements shall be 

3 months after the first day of the first calendar quarter beginning 

after the close of the first regular session of the State legislature that 

begins after the date of the enactment of this Act. For purposes of 

the preceding sentence, in the case of a State that has a 2-year legislative session, each year of the session shall be considered to be a 

separate regular session of the State legislature. 


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Subtitle D—Child Welfare 

SEC. 7401. STRENGTHENING COURTS. 

(a) COURT IMPROVEMENT GRANTS.— 

(1) IN GENERAL.—Section 438(a) (42 U.S.C. 629h(a)) is 

amended— 

(A) by striking ‘‘and’’ at the end of paragraph (1); 

(B) by striking the period at the end of paragraph (2) 

and inserting a semicolon; and 

(C) by adding at the end the following: 

‘‘(3) to ensure that the safety, permanence, and well-being 

needs of children are met in a timely and complete manner; and 

‘‘(4) to provide for the training of judges, attorneys and 

other legal personnel in child welfare cases.’’. 

(2) APPLICATIONS.—Section 438(b) (42 U.S.C. 629h(b)) is 

amended to read as follows: 

‘‘(b) APPLICATIONS.— 

‘‘(1) IN GENERAL.—In order to be eligible to receive a grant 

under this section, a highest State court shall submit to the Secretary an application at such time, in such form, and including 

such information and assurances as the Secretary may require, 

including— 

‘‘(A) in the case of a grant for the purpose described in 

subsection (a)(3), a description of how courts and child welfare agencies on the local and State levels will collaborate 

and jointly plan for the collection and sharing of all relevant data and information to demonstrate how improved 

case tracking and analysis of child abuse and neglect cases 

will produce safe and timely permanency decisions; 

‘‘(B) in the case of a grant for the purpose described in 

subsection (a)(4), a demonstration that a portion of the 

grant will be used for cross-training initiatives that are 

jointly planned and executed with the State agency or any 

other agency under contract with the State to administer 

the State program under the State plan under subpart 1, 

the State plan approved under section 434, or the State 

plan approved under part E; and 

‘‘(C) in the case of a grant for any purpose described in 

subsection (a), a demonstration of meaningful and ongoing 

collaboration among the courts in the State, the State agency or any other agency under contract with the State who 

is responsible for administering the State program under 

part B or E, and, where applicable, Indian tribes.. 

‘‘(2) SEPARATE APPLICATIONS.— A highest State court desiring grants under this section for 2 or more purposes shall submit separate applications for the following grants: 

‘‘(A) A grant for the purposes described in paragraphs 

(1) and (2) of subsection (a). 

‘‘(B) A grant for the purpose described in subsection 

(a)(3). 

‘‘(C) A grant for the purpose described in subsection 

(a)(4).’’. 

(3) ALLOTMENTS.—Section 438(c) (42 U.S.C. 429h(c)) is 

amended— 


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(A) in paragraph (1)— 

(i) by inserting ‘‘of this section for a grant described in subsection (b)(2)(A) of this section’’ after 

‘‘subsection (b)’’; and 

(ii) by striking ‘‘paragraph (2) of this subsection’’ 

and inserting ‘‘subparagraph (B) of this paragraph’’; 

(B) in paragraph (2)— 

(i) by striking ‘‘this paragraph’’ and inserting ‘‘this 

subparagraph’’; 

(ii) by striking ‘‘paragraph (1) of this subsection’’ 

and inserting ‘‘subparagraph (A) of this paragraph’’; 

and 

(iii) by inserting ‘‘for such a grant’’ after ‘‘subsection (b)’’; 

(C) by redesignating and indenting paragraphs (1) and 

(2) as subparagraphs (A) and (B), respectively; 

(D) by inserting before and above such subparagraph 

(A) the following: 

‘‘(1) GRANTS TO ASSESS AND IMPROVE HANDLING OF COURT

PROCEEDINGS RELATING TO FOSTER CARE AND ADOPTION.—’’; 

and 

(E) by adding at the end the following: 

‘‘(2) GRANTS FOR IMPROVED DATA COLLECTION AND TRAIN- ING.— ‘‘(A) IN GENERAL.—Each highest State court which has 

an application approved under subsection (b) of this section 

for a grant referred to in subparagraph (B) or (C) of subsection (b)(2) shall be entitled to payment, for each of fiscal 

years 2006 through 2010, from the amount made available 

under whichever of paragraph (1) or (2) of subsection (e) 

applies with respect to the grant, of an amount equal to the 

sum of $85,000 plus the amount described in subparagraph 

(B) of this paragraph for the fiscal year with respect to the 

grant. 

‘‘(B) FORMULA.—The amount described in this subparagraph for any fiscal year with respect to a grant referred to in subparagraph (B) or (C) of subsection (b)(2) is 

the amount that bears the same ratio to the amount made 

available under subsection (e) for such a grant (reduced by 

the dollar amount specified in subparagraph (A) of this 

paragraph) as the number of individuals in the State who 

have not attained 21 years of age bears to the total number 

of such individuals in all States the highest State courts of 

which have approved applications under subsection (b) for 

such a grant.’’. 

(4) FUNDING.—Section 438 (42 U.S.C. 629h) is amended by 

adding at the end the following: 

‘‘(e) FUNDING FOR GRANTS FOR IMPROVED DATA COLLECTION

AND TRAINING.—Out of any money in the Treasury of the United 

States not otherwise appropriated, there are appropriated to the Secretary, for each of fiscal years 2006 through 2010— ‘‘(1) $10,000,000 for grants referred to in subsection 

(b)(2)(B); and 

‘‘(2) $10,000,000 for grants referred to in subsection 

(b)(2)(C).’’. 


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(b) REQUIREMENT TO DEMONSTRATE MEANINGFUL COLLABORA- TION BETWEEN COURTS AND AGENCIES IN CHILD WELFARE SERV- ICES PROGRAMS.—Section 422(b) (42 U.S.C. 622(b)) is amended— 

(1) by striking ‘‘and’’ at the end of paragraph (13); 

(2) by striking the period at the end of paragraph (14) and 

inserting ‘‘; and’’; and 

(3) by adding at the end the following: 

‘‘(15) demonstrate substantial, ongoing, and meaningful 

collaboration with State courts in the development and implementation of the State plan under subpart 1, the State plan approved under subpart 2, and the State plan approved under 

part E, and in the development and implementation of any program improvement plan required under section 1123A.’’. 

(c) USE OF CHILD WELFARE RECORDS IN STATE COURT PRO- CEEDINGS.—Section 471 (42 U.S.C. 671) is amended— 

(1) in subsection (a)(8), by inserting ‘‘subject to subsection 

(c),’’ after ‘‘(8)’’; and 

(2) by adding at the end the following: 

‘‘(c) USE OF CHILD WELFARE RECORDS IN STATE COURT PRO- CEEDINGS.—Subsection (a)(8) shall not be construed to limit the 

flexibility of a State in determining State policies relating to public 

access to court proceedings to determine child abuse and neglect or 

other court hearings held pursuant to part B or this part, except 

that such policies shall, at a minimum, ensure the safety and wellbeing of the child, parents, and family.’’. 

SEC. 7402. FUNDING OF SAFE AND STABLE FAMILIES PROGRAMS. 

Section 436(a) (42 U.S.C. 629f(a)) is amended to read as follows: 

‘‘(a) AUTHORIZATION.—In addition to any amount otherwise 

made available to carry out this subpart, there are authorized to be 

appropriated to carry out this subpart $345,000,000 for fiscal year 

2006. Notwithstanding the preceding sentence, the total amount authorized to be so appropriated for fiscal year 2006 under this subsection and under this subsection (as in effect before the date of the 

enactment of the Deficit Reduction Act of 2005) is $345,000,000.’’. 

SEC. 7403. CLARIFICATION REGARDING FEDERAL MATCHING OF CERTAIN ADMINISTRATIVE COSTS UNDER THE FOSTER CARE 

MAINTENANCE PAYMENTS PROGRAM. 

(a) ADMINISTRATIVE COSTS RELATING TO UNLICENSED CARE.— Section 472 (42 U.S.C. 672) is amended by inserting after subsection (h) the following: 

‘‘(i) ADMINISTRATIVE COSTS ASSOCIATED WITH OTHERWISE ELIGIBLE CHILDREN NOT IN LICENSED FOSTER CARE SETTINGS.—Expenditures by a State that would be considered administrative expenditures for purposes of section 474(a)(3) if made with respect to 

a child who was residing in a foster family home or child-care institution shall be so considered with respect to a child not residing in 

such a home or institution— 

‘‘(1) in the case of a child who has been removed in accordance with subsection (a) of this section from the home of a relative specified in section 406(a) (as in effect on July 16, 1996), 

only for expenditures— 

‘‘(A) with respect to a period of not more than the lesser 

of 12 months or the average length of time it takes for the 

State to license or approve a home as a foster home, in 


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which the child is in the home of a relative and an application is pending for licensing or approval of the home as a 

foster family home; or 

‘‘(B) with respect to a period of not more than 1 calendar month when a child moves from a facility not eligible for payments under this part into a foster family home 

or child care institution licensed or approved by the State; 

and 

‘‘(2) in the case of any other child who is potentially eligible 

for benefits under a State plan approved under this part and 

at imminent risk of removal from the home, only if— 

‘‘(A) reasonable efforts are being made in accordance 

with section 471(a)(15) to prevent the need for, or if necessary to pursue, removal of the child from the home; and 

‘‘(B) the State agency has made, not less often than 

every 6 months, a determination (or redetermination) as to 

whether the child remains at imminent risk of removal 

from the home.’’. 

(b) CONFORMING AMENDMENT.—Section 474(a)(3) (42 U.S.C. 

674(a)(3)) is amended by inserting ‘‘subject to section 472(i)’’ before 

‘‘an amount equal to’’. 

SEC. 7404. CLARIFICATION OF ELIGIBILITY FOR FOSTER CARE MAINTENANCE PAYMENTS AND ADOPTION ASSISTANCE. 

(a) FOSTER CARE MAINTENANCE PAYMENTS.—Section 472(a) (42 

U.S.C. 672(a)) is amended to read as follows: 

‘‘(a) IN GENERAL.— 

‘‘(1) ELIGIBILITY.—Each State with a plan approved under 

this part shall make foster care maintenance payments on behalf of each child who has been removed from the home of a 

relative specified in section 406(a) (as in effect on July 16, 1996) 

into foster care if— 

‘‘(A) the removal and foster care placement met, and 

the placement continues to meet, the requirements of paragraph (2); and 

‘‘(B) the child, while in the home, would have met the 

AFDC eligibility requirement of paragraph (3). 

‘‘(2) REMOVAL AND FOSTER CARE PLACEMENT REQUIREMENTS.—The removal and foster care placement of a child meet 

the requirements of this paragraph if— 

‘‘(A) the removal and foster care placement are in accordance with— 

‘‘(i) a voluntary placement agreement entered into 

by a parent or legal guardian of the child who is the 

relative referred to in paragraph (1); or 

‘‘(ii) a judicial determination to the effect that continuation in the home from which removed would be 

contrary to the welfare of the child and that reasonable 

efforts of the type described in section 471(a)(15) for a 

child have been made; 

‘‘(B) the child’s placement and care are the responsibility of— 

‘‘(i) the State agency administering the State plan 

approved under section 471; or 

‘‘(ii) any other public agency with which the State 

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tion of the State plan has made an agreement which 

is in effect; and 

‘‘(C) the child has been placed in a foster family home 

or child-care institution. 

‘‘(3) AFDC ELIGIBILITY REQUIREMENT.— ‘‘(A) IN GENERAL.—A child in the home referred to in 

paragraph (1) would have met the AFDC eligibility requirement of this paragraph if the child— 

‘‘(i) would have received aid under the State plan 

approved under section 402 (as in effect on July 16, 

1996) in the home, in or for the month in which the 

agreement was entered into or court proceedings leading to the determination referred to in paragraph 

(2)(A)(ii) of this subsection were initiated; or 

‘‘(ii)(I) would have received the aid in the home, in 

or for the month referred to in clause (i), if application 

had been made therefor; or 

‘‘(II) had been living in the home within 6 months 

before the month in which the agreement was entered 

into or the proceedings were initiated, and would have 

received the aid in or for such month, if, in such 

month, the child had been living in the home with the 

relative referred to in paragraph (1) and application 

for the aid had been made. 

‘‘(B) RESOURCES DETERMINATION.—For purposes of 

subparagraph (A), in determining whether a child would 

have received aid under a State plan approved under section 402 (as in effect on July 16, 1996), a child whose resources (determined pursuant to section 402(a)(7)(B), as so 

in effect) have a combined value of not more than $10,000 

shall be considered a child whose resources have a combined value of not more than $1,000 (or such lower amount 

as the State may determine for purposes of section 

402(a)(7)(B)). 

‘‘(4) ELIGIBILITY OF CERTAIN ALIEN CHILDREN.—Subject to 

title IV of the Personal Responsibility and Work Opportunity 

Reconciliation Act of 1996, if the child is an alien disqualified 

under section 245A(h) or 210(f) of the Immigration and Nationality Act from receiving aid under the State plan approved 

under section 402 in or for the month in which the agreement 

described in paragraph (2)(A)(i) was entered into or court proceedings leading to the determination described in paragraph 

(2)(A)(ii) were initiated, the child shall be considered to satisfy 

the requirements of paragraph (3), with respect to the month, 

if the child would have satisfied the requirements but for the 

disqualification.’’. 

(b) ADOPTION ASSISTANCE.—Section 473(a)(2) (42 U.S.C. 

673(a)(2)) is amended to read as follows: 

‘‘(2)(A) For purposes of paragraph (1)(B)(ii), a child meets the 

requirements of this paragraph if the child— 

‘‘(i)(I)(aa) was removed from the home of a relative specified 

in section 406(a) (as in effect on July 16, 1996) and placed in 

foster care in accordance with a voluntary placement agreement 

with respect to which Federal payments are provided under section 474 (or section 403, as such section was in effect on July 


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16, 1996), or in accordance with a judicial determination to the 

effect that continuation in the home would be contrary to the 

welfare of the child; and 

‘‘(bb) met the requirements of section 472(a)(3) with respect 

to the home referred to in item (aa) of this subclause; 

‘‘(II) meets all of the requirements of title XVI with respect 

to eligibility for supplemental security income benefits; or 

‘‘(III) is a child whose costs in a foster family home or 

child-care institution are covered by the foster care maintenance 

payments being made with respect to the minor parent of the 

child as provided in section 475(4)(B); and 

‘‘(ii) has been determined by the State, pursuant to subsection (c) of this section, to be a child with special needs. 

‘‘(B) Section 472(a)(4) shall apply for purposes of subparagraph 

(A) of this paragraph, in any case in which the child is an alien described in such section. 

‘‘(C) A child shall be treated as meeting the requirements of this 

paragraph for the purpose of paragraph (1)(B)(ii) if the child— 

‘‘(i) meets the requirements of subparagraph (A)(ii); 

‘‘(ii) was determined eligible for adoption assistance payments under this part with respect to a prior adoption; 

‘‘(iii) is available for adoption because— 

‘‘(I) the prior adoption has been dissolved, and the parental rights of the adoptive parents have been terminated; 

or 

‘‘(II) the child’s adoptive parents have died; and 

‘‘(iv) fails to meet the requirements of subparagraph (A) but 

would meet such requirements if— 

‘‘(I) the child were treated as if the child were in the 

same financial and other circumstances the child was in 

the last time the child was determined eligible for adoption 

assistance payments under this part; and 

‘‘(II) the prior adoption were treated as never having 

occurred.’’. 

Subtitle E—Supplemental Security Income 

SEC. 7501. REVIEW OF STATE AGENCY BLINDNESS AND DISABILITY DETERMINATIONS. 

Section 1633 (42 U.S.C. 1383b) is amended by adding at the 

end the following: 

‘‘(e)(1) The Commissioner of Social Security shall review determinations, made by State agencies pursuant to subsection (a) in 

connection with applications for benefits under this title on the 

basis of blindness or disability, that individuals who have attained 

18 years of age are blind or disabled as of a specified onset date. 

The Commissioner of Social Security shall review such a determination before any action is taken to implement the determination. 

‘‘(2)(A) In carrying out paragraph (1), the Commissioner of Social Security shall review— 

‘‘(i) at least 20 percent of all determinations referred to in 

paragraph (1) that are made in fiscal year 2006; 

‘‘(ii) at least 40 percent of all such determinations that are 

made in fiscal year 2007; and 


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‘‘(iii) at least 50 percent of all such determinations that are 

made in fiscal year 2008 or thereafter. 

‘‘(B) In carrying out subparagraph (A), the Commissioner of Social Security shall, to the extent feasible, select for review the determinations which the Commissioner of Social Security identifies as 

being the most likely to be incorrect.’’. 

SEC. 7502. PAYMENT OF CERTAIN LUMP SUM BENEFITS IN INSTALLMENTS UNDER THE SUPPLEMENTAL SECURITY INCOME 

PROGRAM. 

(a) IN GENERAL.—Section 1631(a)(10)(A)(i) (42 U.S.C. 

1383(a)(10)(A)(i)) is amended by striking ‘‘12’’ and inserting ‘‘3’’. 

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

shall take effect 3 months after the date of the enactment of this Act. 

Subtitle F—Repeal of Continued Dumping 

and Subsidy Offset 

SEC. 7601. REPEAL OF CONTINUED DUMPING AND SUBSIDY OFFSET. 

(a) REPEAL.—Effective upon the date of enactment of this Act, 

section 754 of the Tariff Act of 1930 (19 U.S.C. 1675c), and the item 

relating to section 754 in the table of contents for title VII of that 

Act, are repealed. 

(b) DISTRIBUTIONS ON CERTAIN ENTRIES.—All duties on entries 

of goods made and filed before October 1, 2007, that would, but for 

subsection (a) of this section, be distributed under section 754 of the 

Tariff Act of 1930, shall be distributed as if section 754 of the Tariff 

Act of 1930 had not been repealed by subsection (a). 

Subtitle G—Effective Date 

SEC. 7701. EFFECTIVE DATE. 

Except as otherwise provided in this title, this title and the 

amendments made by this title shall take effect as if enacted on October 1, 2005. 

TITLE VIII—EDUCATION AND PENSION 

BENEFIT PROVISIONS 

Subtitle A—Higher Education Provisions 

SEC. 8001. SHORT TITLE; REFERENCE; EFFECTIVE DATE. 

(a) SHORT TITLE.—This subtitle may be cited as the ‘‘Higher 

Education Reconciliation Act of 2005’’. 

(b) REFERENCES.—Except as otherwise expressly provided, 

whenever in this subtitle an amendment or repeal is expressed in 

terms of an amendment to, or repeal of, a section or other provision, 

the reference shall be considered to be made to a section or other 

provision of the Higher Education Act of 1965 (20 U.S.C. 1001 et 

seq.). 

(c) EFFECTIVE DATE.—Except as otherwise provided in this subtitle or the amendments made by this subtitle, the amendments 

made by this subtitle shall be effective July 1, 2006. 


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SEC. 8002. MODIFICATION OF 50/50 RULE. 

Section 102(a)(3) (20 U.S.C. 1002(a)(3)) is amended— 

(1) in subparagraph (A), by inserting ‘‘(excluding courses offered by telecommunications as defined in section 484(l)(4))’’ 

after ‘‘courses by correspondence’’; and 

(2) in subparagraph (B), by inserting ‘‘(excluding courses 

offered by telecommunications as defined in section 484(l)(4))’’ 

after ‘‘correspondence courses’’. 

SEC. 8003. ACADEMIC COMPETITIVENESS GRANTS. 

Subpart 1 of part A of title IV (20 U.S.C. 1070a) is amended 

by adding after section 401 the following new section: 

‘‘SEC. 401A. ACADEMIC COMPETITIVENESS GRANTS. 

‘‘(a) ACADEMIC COMPETITIVENESS GRANT PROGRAM.— 

‘‘(1) ACADEMIC COMPETITIVENESS GRANTS AUTHORIZED.— 

The Secretary shall award grants, in the amounts specified in 

subsection (d)(1), to eligible students to assist the eligible students in paying their college education expenses. 

‘‘(2) ACADEMIC COMPETITIVENESS COUNCIL.— 

‘‘(A) ESTABLISHMENT.—There is established an Academic Competitiveness Council (referred to in this paragraph as the ‘Council’). From the funds made available 

under subsection (e) for fiscal year 2006, $50,000 shall be 

available to the Council to carry out the duties described in 

subparagraph (B). The Council shall be chaired by the Secretary of Education, and the membership of the Council 

shall consist of officials from Federal agencies with responsibilities for managing existing Federal programs that promote mathematics and science (or designees of such officials with significant decision-making authority). 

‘‘(B) DUTIES.—The Council shall— 

‘‘(i) identify all Federal programs with a mathematics or science focus; 

‘‘(ii) identify the target populations being served by 

such programs; 

‘‘(iii) determine the effectiveness of such programs; 

‘‘(iv) identify areas of overlap or duplication in 

such programs; and 

‘‘(v) recommend ways to efficiently integrate and 

coordinate such programs. 

‘‘(C) REPORT.—Not later than one year after the date of 

enactment of the Higher Education Reconciliation Act of 

2005, the Council shall transmit a report to each committee 

of Congress with jurisdiction over a Federal program identified under subparagraph (B)(i), detailing the findings and 

recommendations under subparagraph (B), including recommendations for legislative or administrative action. 

‘‘(b) DESIGNATION.—A grant under this section— 

‘‘(1) for the first or second academic year of a program of 

undergraduate education shall be known as an ‘Academic Competitiveness Grant’; and 

‘‘(2) for the third or fourth academic year of a program of 

undergraduate education shall be known as a ‘National Science 

and Mathematics Access to Retain Talent Grant’ or a ‘National 

SMART Grant’. 


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‘‘(c) DEFINITION OF ELIGIBLE STUDENT.—In this section the 

term ‘eligible student’ means a full-time student who, for the academic year for which the determination of eligibility is made— 

‘‘(1) is a citizen of the United States; 

‘‘(2) is eligible for a Federal Pell Grant; and 

‘‘(3) in the case of a student enrolled or accepted for enrollment in— 

‘‘(A) the first academic year of a program of undergraduate education at a two- or four-year degree-granting 

institution of higher education— 

‘‘(i) has successfully completed, after January 1, 

2006, a rigorous secondary school program of study established by a State or local educational agency and 

recognized as such by the Secretary; and 

‘‘(ii) has not been previously enrolled in a program 

of undergraduate education; 

‘‘(B) the second academic year of a program of undergraduate education at a two- or four-year degree-granting 

institution of higher education— 

‘‘(i) has successfully completed, after January 1, 

2005, a rigorous secondary school program of study established by a State or local educational agency and 

recognized as such by the Secretary; and 

‘‘(ii) has obtained a cumulative grade point average of at least 3.0 (or the equivalent as determined 

under regulations prescribed by the Secretary) at the 

end of the first academic year of such program of undergraduate education; or 

‘‘(C) the third or fourth academic year of a program of 

undergraduate education at a four-year degree-granting institution of higher education— 

‘‘(i) is pursuing a major in— 

‘‘(I) the physical, life, or computer sciences, 

mathematics, technology, or engineering (as determined by the Secretary pursuant to regulations); or 

‘‘(II) a foreign language that the Secretary, in 

consultation with the Director of National Intelligence, determines is critical to the national security of the United States; and 

‘‘(ii) has obtained a cumulative grade point average of at least 3.0 (or the equivalent as determined 

under regulations prescribed by the Secretary) in the 

coursework required for the major described in clause 

(i). 

‘‘(d) GRANT AWARD.— 

‘‘(1) AMOUNTS.— 

‘‘(A) The Secretary shall award a grant under this section in the amount of— 

‘‘(i) $750 for an eligible student under subsection 

(d)(3)(A); 

‘‘(ii) $1,300 for an eligible student under subsection 

(d)(3)(B); or 

‘‘(iii) $4,000 for an eligible student under subsection (d)(3)(C). 

‘‘(B) Notwithstanding subparagraph (A)— 


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‘‘(i) the amount of such grant, in combination with 

the Federal Pell Grant assistance and other student financial assistance available to such student, shall not 

exceed the student’s cost of attendance; 

‘‘(ii) if the amount made available under subsection (f) for any fiscal year is less than the amount 

required to provide grants to all eligible students in the 

amounts determined under subparagraph (A) and 

clause (i) of this subparagraph, then the amount of the 

grant to each eligible student shall be ratably reduced; 

and 

‘‘(iii) if additional amounts are appropriated for 

any such fiscal year, such reduced amounts shall be increased on the same basis as they were reduced. 

‘‘(2) LIMITATIONS.—The Secretary shall not award a grant 

under this section— 

‘‘(A) to any student for an academic year of a program 

of undergraduate education described in subparagraph (A), 

(B), or (C) of subsection (d)(3) for which the student received credit before the date of enactment of the Higher 

Education Reconciliation Act of 2005; or 

‘‘(B) to any student for more than— 

‘‘(i) one academic year under subsection (d)(3)(A); 

‘‘(ii) one academic year under subsection (d)(3)(B); 

or 

‘‘(iii) two academic years under subsection 

(d)(3)(C). 

‘‘(e) FUNDING.— 

‘‘(1) AUTHORIZATION AND APPROPRIATION OF FUNDS.—There 

are authorized to be appropriated, and there are appropriated, 

out of any money in the Treasury not otherwise appropriated, 

for the Department of Education to carry out this section— 

‘‘(A) $790,000,000 for fiscal year 2006; 

‘‘(B) $850,000,000 for fiscal year 2007; 

‘‘(C) $920,000,000 for fiscal year 2008; 

‘‘(D) $960,000,000 for fiscal year 2009; and 

‘‘(E) $1,010,000,000 for fiscal year 2010. 

‘‘(2) USE OF EXCESS FUNDS.—If, at the end of a fiscal year, 

the funds available for awarding grants under this section exceed the amount necessary to make such grants in the amounts 

authorized by subsection (d), then all of the excess funds shall 

remain available for awarding grants under this section during 

the subsequent fiscal year. 

‘‘(f) RECOGNITION OF PROGRAMS OF STUDY.—The Secretary 

shall recognize at least one rigorous secondary school program of 

study in each State under subsection (c)(3)(A) and (B) for the purpose of determining student eligibility under such subsection. 

‘‘(g) SUNSET PROVISION.—The authority to make grants under 

this section shall expire at the end of academic year 2010–2011.’’. 

SEC. 8004. REAUTHORIZATION OF FEDERAL FAMILY EDUCATION LOAN 

PROGRAM. 

(a) AUTHORIZATION OF APPROPRIATIONS.—Section 421(b)(5) (20 

U.S.C. 1071(b)(5)) is amended by striking ‘‘an administrative cost 

allowance’’ and inserting ‘‘a loan processing and issuance fee’’. 

(b) EXTENSION OF AUTHORITY.— 


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(1) FEDERAL INSURANCE LIMITATIONS.—Section 424(a) (20 

U.S.C. 1074(a)) is amended— 

(A) by striking ‘‘2004’’ and inserting ‘‘2012’’; and 

(B) by striking ‘‘2008’’ and inserting ‘‘2016’’. 

(2) GUARANTEED LOANS.—Section 428(a)(5) (20 U.S.C. 

1078(a)(5)) is amended— 

(A) by striking ‘‘2004’’ and inserting ‘‘2012’’; and 

(B) by striking ‘‘2008’’ and inserting ‘‘2016’’. 

(3) CONSOLIDATION LOANS.—Section 428C(e) (20 U.S.C. 

1078–3(e)) is amended by striking ‘‘2004’’ and inserting ‘‘2012’’. 

SEC. 8005. LOAN LIMITS. 

(a) FEDERAL INSURANCE LIMITS.—Section 425(a)(1)(A) (20 

U.S.C. 1075(a)(1)(A)) is amended— 

(1) in clause (i)(I), by striking ‘‘$2,625’’ and inserting 

‘‘$3,500’’; and 

(2) in clause (ii)(I), by striking ‘‘$3,500’’ and inserting 

‘‘$4,500’’. 

(b) GUARANTEE LIMITS.—Section 428(b)(1)(A) (20 U.S.C. 

1078(b)(1)(A)) is amended— 

(1) in clause (i)(I), by striking ‘‘$2,625’’ and inserting 

‘‘$3,500’’; and 

(2) in clause (ii)(I), by striking ‘‘$3,500’’ and inserting 

‘‘$4,500’’. 

(c) FEDERAL PLUS LOANS.—Section 428B (20 U.S.C. 1078–2) is 

amended— 

(1) in subsection (a)(1)— 

(A) in the matter preceding subparagraph (A), by striking ‘‘Parents’’ and inserting ‘‘A graduate or professional 

student or the parents’’; 

(B) in subparagraph (A), by striking ‘‘the parents’’ and 

inserting ‘‘the graduate or professional student or the parents’’; and 

(C) in subparagraph (B), by striking ‘‘the parents’’ and 

inserting ‘‘the graduate or professional student or the parents’’; 

(2) in subsection (b), by striking ‘‘any parent’’ and inserting 

‘‘any graduate or professional student or any parent’’; 

(3) in subsection (c)(2), by striking ‘‘parent’’ and inserting 

‘‘graduate or professional student or parent’’; and 

(4) in subsection (d)(1), by striking ‘‘the parent’’ and inserting ‘‘the graduate or professional student or the parent’’. 

(d) UNSUBSIDIZED STAFFORD LOANS FOR GRADUATE OR PROFESSIONAL STUDENTS.—Section 428H(d)(2) (20 U.S.C. 1078–8(d)(2)) is 

amended— 

(1) in subparagraph (C), by striking ‘‘$10,000’’ and inserting ‘‘$12,000’’; and 

(2) in subparagraph (D)— 

(A) in clause (i), by striking ‘‘$5,000’’ and inserting 

‘‘$7,000’’; and 

(B) in clause (ii), by striking ‘‘$5,000’’ and inserting 

‘‘$7,000’’. 

(e) EFFECTIVE DATE OF INCREASES.—The amendments made by 

subsections (a), (b), and (d) shall be effective July 1, 2007. 


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SEC. 8006. PLUS LOAN INTEREST RATES AND ZERO SPECIAL ALLOWANCE PAYMENT. 

(a) PLUS LOANS.—Section 427A(l)(2) (20 U.S.C. 1077a(l)(2)) is 

amended by striking ‘‘7.9 percent’’ and inserting ‘‘8.5 percent’’. 

(b) CONFORMING AMENDMENTS FOR SPECIAL ALLOWANCES.— (1) AMENDMENTS.—Subparagraph (I) of section 438(b)(2) 

(20 U.S.C. 1087–1(b)(2)) is amended— 

(A) in clause (iii), by striking ‘‘, subject to clause (v) of 

this subparagraph’’; 

(B) in clause (iv), by striking ‘‘, subject to clause (vi) of 

this subparagraph’’; and 

(C) by striking clauses (v), (vi), and (vii) and inserting 

the following: 

‘‘(v) RECAPTURE OF EXCESS INTEREST.— 

‘‘(I) EXCESS CREDITED.—With respect to a loan 

on which the applicable interest rate is determined 

under subsection (k) or (l) of section 427A and for 

which the first disbursement of principal is made 

on or after April 1, 2006, if the applicable interest 

rate for any 3-month period exceeds the special allowance support level applicable to such loan 

under this subparagraph for such period, then an 

adjustment shall be made by calculating the excess 

interest in the amount computed under subclause 

(II) of this clause, and by crediting the excess interest to the Government not less often than annually. 

‘‘(II) CALCULATION OF EXCESS.—The amount of 

any adjustment of interest on a loan to be made 

under this subsection for any quarter shall be 

equal to— 

‘‘(aa) the applicable interest rate minus 

the special allowance support level determined 

under this subparagraph; multiplied by 

‘‘(bb) the average daily principal balance 

of the loan (not including unearned interest 

added to principal) during such calendar 

quarter; divided by 

‘‘(cc) four. 

‘‘(III) SPECIAL ALLOWANCE SUPPORT LEVEL.— 

For purposes of this clause, the term ‘special allowance support level’ means, for any loan, a number 

expressed as a percentage equal to the sum of the 

rates determined under subclauses (I) and (III) of 

clause (i), and applying any substitution rules applicable to such loan under clauses (ii), (iii), and 

(iv) in determining such sum.’’. 

(2) EFFECTIVE DATE.—The amendments made by this subsection shall not apply with respect to any special allowance 

payment made under section 438 of the Higher Education Act 

of 1965 (20 U.S.C 1087–1) before April 1, 2006. 

SEC. 8007. DEFERMENT OF STUDENT LOANS FOR MILITARY SERVICE. 

(a) FEDERAL FAMILY EDUCATION LOANS.—Section 428(b)(1)(M) 

(20 U.S.C. 1078(b)(1)(M)) is amended— 

(1) by striking ‘‘or’’ at the end of clause (ii); 

(2) by redesignating clause (iii) as clause (iv); and 


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(3) by inserting after clause (ii) the following new clause: 

‘‘(iii) not in excess of 3 years during which the borrower— 

‘‘(I) is serving on active duty during a war or 

other military operation or national emergency; or 

‘‘(II) is performing qualifying National Guard 

duty during a war or other military operation or 

national emergency; or’’. 

(b) DIRECT LOANS.—Section 455(f)(2) (20 U.S.C. 1087e(f)(2)) is 

amended— 

(1) by redesignating subparagraph (C) as subparagraph 

(D); and 

(2) by inserting after subparagraph (B) the following new 

subparagraph: 

‘‘(C) not in excess of 3 years during which the borrower— 

‘‘(i) is serving on active duty during a war or other 

military operation or national emergency; or 

‘‘(ii) is performing qualifying National Guard duty 

during a war or other military operation or national 

emergency; or’’. 

(c) PERKINS LOANS.—Section 464(c)(2)(A) (20 U.S.C. 

1087dd(c)(2)(A)) is amended— 

(1) by redesignating clauses (iii) and (iv) as clauses (iv) and 

(v), respectively; and 

(2) by inserting after clause (ii) the following new clause: 

‘‘(iii) not in excess of 3 years during which the borrower— 

‘‘(I) is serving on active duty during a war or 

other military operation or national emergency; or 

‘‘(II) is performing qualifying National Guard 

duty during a war or other military operation or 

national emergency;’’. 

(d) DEFINITIONS.—Section 481 (20 U.S.C. 1088) is amended by 

adding at the end the following new subsection: 

‘‘(d) DEFINITIONS FOR MILITARY DEFERMENTS.—For purposes of 

parts B, D, and E of this title: 

‘‘(1) ACTIVE DUTY.—The term ‘active duty’ has the meaning 

given such term in section 101(d)(1) of title 10, United States 

Code, except that such term does not include active duty for 

training or attendance at a service school. 

‘‘(2) MILITARY OPERATION.—The term ‘military operation’ 

means a contingency operation as such term is defined in section 101(a)(13) of title 10, United States Code. 

‘‘(3) NATIONAL EMERGENCY.—The term ‘national emergency’ 

means the national emergency by reason of certain terrorist attacks declared by the President on September 14, 2001, or subsequent national emergencies declared by the President by reason of terrorist attacks. 

‘‘(4) SERVING ON ACTIVE DUTY.—The term ‘serving on active 

duty during a war or other military operation or national emergency’ means service by an individual who is— 

‘‘(A) a Reserve of an Armed Force ordered to active 

duty under section 12301(a), 12301(g), 12302, 12304, or 

12306 of title 10, United States Code, or any retired memVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00161 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

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ber of an Armed Force ordered to active duty under section 

688 of such title, for service in connection with a war or 

other military operation or national emergency, regardless 

of the location at which such active duty service is performed; and 

‘‘(B) any other member of an Armed Force on active 

duty in connection with such emergency or subsequent actions or conditions who has been assigned to a duty station 

at a location other than the location at which such member 

is normally assigned. 

‘‘(5) QUALIFYING NATIONAL GUARD DUTY.—The term ‘qualifying National Guard duty during a war or other military operation or national emergency’ means service as a member of the 

National Guard on full-time National Guard duty (as defined 

in section 101(d)(5) of title 10, United States Code) under a call 

to active service authorized by the President or the Secretary of 

Defense for a period of more than 30 consecutive days under 

section 502(f) of title 32, United States Code, in connection with 

a war, other military operation, or a national emergency declared by the President and supported by Federal funds.’’. 

(e) RULE OF CONSTRUCTION.—Nothing in the amendments 

made by this section shall be construed to authorize any refunding 

of any repayment of a loan. 

(f) EFFECTIVE DATE.—The amendments made by this section 

shall apply with respect to loans for which the first disbursement 

is made on or after July 1, 2001. 

SEC. 8008. ADDITIONAL LOAN TERMS AND CONDITIONS. 

(a) DISBURSEMENT.—Section 428(b)(1)(N) (20 U.S.C. 

1078(b)(1)(N)) is amended— 

(1) by striking ‘‘or’’ at the end of clause (i); and 

(2) by striking clause (ii) and inserting the following: 

‘‘(ii) in the case of a student who is studying outside the United States in a program of study abroad 

that is approved for credit by the home institution at 

which such student is enrolled, and only after 

verification of the student’s enrollment by the lender or 

guaranty agency, are, at the request of the student, disbursed directly to the student by the means described 

in clause (i), unless such student requests that the 

check be endorsed, or the funds transfer be authorized, 

pursuant to an authorized power-of-attorney; or 

‘‘(iii) in the case of a student who is studying outside the United States in a program of study at an eligible foreign institution, are, at the request of the foreign institution, disbursed directly to the student, only 

after verification of the student’s enrollment by the 

lender or guaranty agency by the means described in 

clause (i).’’. 

(b) REPAYMENT PLANS: DIRECT LOANS.—Section 455(d)(1) (20 

U.S.C. 1087e(d)(1)) is amended by striking subparagraphs (A), (B), 

and (C) and inserting the following: 

‘‘(A) a standard repayment plan, consistent with subsection (a)(1) of this section and with section 428(b)(9)(A)(i); 

‘‘(B) a graduated repayment plan, consistent with section 428(b)(9)(A)(ii); 


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‘‘(C) an extended repayment plan, consistent with section 428(b)(9)(A)(v), except that the borrower shall annually 

repay a minimum amount determined by the Secretary in 

accordance with section 428(b)(1)(L); and’’. 

(c) ORIGINATION FEES.— 

(1) FFEL PROGRAM.—Paragraph (2) of section 438(c) (20 

U.S.C. 1087–1(c)) is amended— 

(A) by striking the designation and heading of such 

paragraph and inserting the following: 

‘‘(2) AMOUNT OF ORIGINATION FEES.— 

‘‘(A) IN GENERAL.—’’; and 

(B) by adding at the end the following new subparagraph: 

‘‘(B) SUBSEQUENT REDUCTIONS.—Subparagraph (A) 

shall be applied to loans made under this part (other than 

loans made under sections 428C and 439(o))— 

‘‘(i) by substituting ‘2.0 percent’ for ‘3.0 percent’ 

with respect to loans for which the first disbursement 

of principal is made on or after July 1, 2006, and before July 1, 2007; 

‘‘(ii) by substituting ‘1.5 percent’ for ‘3.0 percent’ 

with respect to loans for which the first disbursement 

of principal is made on or after July 1, 2007, and before July 1, 2008; 

‘‘(iii) by substituting ‘1.0 percent’ for ‘3.0 percent’ 

with respect to loans for which the first disbursement 

of principal is made on or after July 1, 2008, and before July 1, 2009; 

‘‘(iv) by substituting ‘0.5 percent’ for ‘3.0 percent’ 

with respect to loans for which the first disbursement 

of principal is made on or after July 1, 2009, and before July 1, 2010; and 

‘‘(v) by substituting ‘0.0 percent’ for ‘3.0 percent’ 

with respect to loans for which the first disbursement 

of principal is made on or after July 1, 2010.’’. 

(2) DIRECT LOAN PROGRAM.—Subsection (c) of section 455 

(20 U.S.C. 1087e(c)) is amended— 

(A) by striking ‘‘(c) LOAN FEE.—’’ and inserting the following: 

‘‘(c) LOAN FEE.— 

‘‘(1) IN GENERAL.—’’; and 

(B) by adding at the end the following: 

‘‘(2) SUBSEQUENT REDUCTION.—Paragraph (1) shall be applied to loans made under this part, other than Federal Direct 

Consolidation loans and Federal Direct PLUS loans— 

‘‘(A) by substituting ‘3.0 percent’ for ‘4.0 percent’ with 

respect to loans for which the first disbursement of principal is made on or after the date of enactment of the Higher Education Reconciliation Act of 2005, and before July 1, 

2007; 

‘‘(B) by substituting ‘2.5 percent’ for ‘4.0 percent’ with 

respect to loans for which the first disbursement of principal is made on or after July 1, 2007, and before July 1, 

2008; 


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‘‘(C) by substituting ‘2.0 percent’ for ‘4.0 percent’ with 

respect to loans for which the first disbursement of principal is made on or after July 1, 2008, and before July 1, 

2009; 

‘‘(D) by substituting ‘1.5 percent’ for ‘4.0 percent’ with 

respect to loans for which the first disbursement of principal is made on or after July 1, 2009, and before July 1, 

2010; and 

‘‘(E) by substituting ‘1.0 percent’ for ‘4.0 percent’ with 

respect to loans for which the first disbursement of principal is made on or after July 1, 2010.’’. 

(3) CONFORMING AMENDMENT.—Section 455(b)(8)(A) (20 

U.S.C. 1087e(b)(8)(A)) is amended by inserting ‘‘or origination 

fee’’ after ‘‘reductions in the interest rate’’. 

SEC. 8009. CONSOLIDATION LOAN CHANGES. 

(a) CONSOLIDATION BETWEEN PROGRAMS.—Section 428C (20 

U.S.C. 1078–3) is amended— 

(1) in subsection (a)(3)(B)(i)— 

(A) by inserting ‘‘or under section 455(g)’’ after ‘‘under 

this section’’ both places it appears; 

(B) by inserting ‘‘under both sections’’ after ‘‘terminates’’; 

(C) by striking ‘‘and’’ at the end of subclause (III); 

(D) by striking the period at the end of subclause (IV) 

and inserting ‘‘; and’’; and 

(E) by adding at the end the following new subclause: 

‘‘(V) an individual may obtain a subsequent consolidation loan under section 455(g) only for the purposes of obtaining an income contingent repayment plan, and only if 

the loan has been submitted to the guaranty agency for default aversion.’’; and 

(2) in subsection (b)(5), by striking the first sentence and inserting the following: ‘‘In the event that a lender with an agreement under subsection (a)(1) of this section denies a consolidation loan application submitted to the lender by an eligible borrower under this section, or denies an application submitted to 

the lender by such a borrower for a consolidation loan with income-sensitive repayment terms, the Secretary shall offer any 

such borrower who applies for it, a Federal Direct Consolidation loan. The Secretary shall offer such a loan to a borrower 

who has defaulted, for the purpose of resolving the default.’’. 

(b) REPEAL OF IN-SCHOOL CONSOLIDATION.— 

(1) DEFINITION OF REPAYMENT PERIOD.—Section 

428(b)(7)(A) (20 U.S.C. 1078(b)(7)(A)) is amended by striking 

‘‘shall begin—’’ and all that follows through ‘‘earlier date.’’ and 

inserting the following: ‘‘shall begin the day after 6 months 

after the date the student ceases to carry at least one-half the 

normal full-time academic workload (as determined by the institution).’’. 

(2) CONFORMING CHANGE TO ELIGIBLE BORROWER DEFINITION.—Section 428C(a)(3)(A)(ii)(I) (20 U.S.C. 1078– 

3(a)(3)(A)(ii)(I)) is amended by inserting ‘‘as determined under 

section 428(b)(7)(A)’’ after ‘‘repayment status’’. 

(c) ADDITIONAL AMENDMENTS.—Section 428C (20 U.S.C. 1078– 

3) is amended in subsection (a)(3), by striking subparagraph (C). 


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(d) CONFORMING AMENDMENTS TO DIRECT LOAN PROGRAM.— 

Section 455 (20 U.S.C. 1087e) is amended— 

(1) in subsection (a)(1) by inserting ‘‘428C,’’ after ‘‘428B,’’; 

(2) in subsection (a)(2)— 

(A) by striking ‘‘and’’ at the end of subparagraph (B); 

(B) by redesignating subparagraph (C) as subparagraph (D); and 

(C) by inserting after subparagraph (B) the following: 

‘‘(C) section 428C shall be known as ‘Federal Direct 

Consolidation Loans’; and’’; and 

(3) in subsection (g)— 

(A) by striking the second sentence; and 

(B) by adding at the end the following new sentences: 

‘‘To be eligible for a consolidation loan under this part, a 

borrower shall meet the eligibility criteria set forth in section 428C(a)(3). The Secretary, upon application for such a 

loan, shall comply with the requirements applicable to a 

lender under section 428C(b)(1)(F).’’. 

SEC. 8010. REQUIREMENTS FOR DISBURSEMENTS OF STUDENT LOANS. 

Section 428G (20 U.S.C. 1078–7) is amended— 

(1) in subsection (a)(3), by adding at the end the following: 

‘‘Notwithstanding section 422(d) of the Higher Education 

Amendments of 1998, this paragraph shall be effective beginning on the date of enactment of the Higher Education Reconciliation Act of 2005.’’; 

(2) in subsection (b)(1), by adding at the end the following: 

‘‘Notwithstanding section 422(d) of the Higher Education 

Amendments of 1998, the second sentence of this paragraph 

shall be effective beginning on the date of enactment of the 

Higher Education Reconciliation Act of 2005.’’; and 

(3) in subsection (e), by striking ‘‘, made to a student to 

cover the cost of attendance at an eligible institution outside the 

United States’’. 

SEC. 8011. SCHOOL AS LENDER. 

Paragraph (2) of section 435(d) (20 U.S.C. 1085(d)(2)) is 

amended to read as follows: 

‘‘(2) REQUIREMENTS FOR ELIGIBLE INSTITUTIONS.— 

‘‘(A) IN GENERAL.—To be an eligible lender under this 

part, an eligible institution— 

‘‘(i) shall employ at least one person whose fulltime responsibilities are limited to the administration 

of programs of financial aid for students attending 

such institution; 

‘‘(ii) shall not be a home study school; 

‘‘(iii) shall not— 

‘‘(I) make a loan to any undergraduate student; 

‘‘(II) make a loan other than a loan under section 428 or 428H to a graduate or professional student; or 

‘‘(III) make a loan to a borrower who is not enrolled at that institution; 


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‘‘(iv) shall award any contract for financing, servicing, or administration of loans under this title on a 

competitive basis; 

‘‘(v) shall offer loans that carry an origination fee 

or an interest rate, or both, that are less than such fee 

or rate authorized under the provisions of this title; 

‘‘(vi) shall not have a cohort default rate (as defined in section 435(m)) greater than 10 percent; 

‘‘(vii) shall, for any year for which the institution 

engages in activities as an eligible lender, provide for 

a compliance audit conducted in accordance with section 428(b)(1)(U)(iii)(I), and the regulations thereunder, 

and submit the results of such audit to the Secretary; 

‘‘(viii) shall use any proceeds from special allowance payments and interest payments from borrowers, 

interest subsidies received from the Department of Education, and any proceeds from the sale or other disposition of loans, for need-based grant programs; and 

‘‘(ix) shall have met the requirements of subparagraphs (A) through (F) of this paragraph as in effect on 

the day before the date of enactment of the Higher Education Reconciliation Act of 2005, and made loans 

under this part, on or before April 1, 2006. 

‘‘(B) ADMINISTRATIVE EXPENSES.—An eligible lender 

under subparagraph (A) shall be permitted to use a portion 

of the proceeds described in subparagraph (A)(viii) for reasonable and direct administrative expenses. 

‘‘(C) SUPPLEMENT, NOT SUPPLANT.—An eligible lender 

under subparagraph (A) shall ensure that the proceeds described in subparagraph (A)(viii) are used to supplement, 

and not to supplant, non-Federal funds that would otherwise be used for need-based grant programs.’’. 

SEC. 8012. REPAYMENT BY THE SECRETARY OF LOANS OF BANKRUPT, 

DECEASED, OR DISABLED BORROWERS; TREATMENT OF 

BORROWERS ATTENDING SCHOOLS THAT FAIL TO PROVIDE A REFUND, ATTENDING CLOSED SCHOOLS, OR 

FALSELY CERTIFIED AS ELIGIBLE TO BORROW. 

Section 437 (20 U.S.C. 1087) is amended— 

(1) in the section heading, by striking ‘‘CLOSED 

SCHOOLS OR FALSELY CERTIFIED AS ELIGIBLE TO 

BORROW’’ and inserting ‘‘SCHOOLS THAT FAIL TO PROVIDE A REFUND, ATTENDING CLOSED SCHOOLS, OR 

FALSELY CERTIFIED AS ELIGIBLE TO BORROW’’; and 

(2) in the first sentence of subsection (c)(1), by inserting ‘‘or 

was falsely certified as a result of a crime of identity theft’’ after 

‘‘falsely certified by the eligible institution’’. 

SEC. 8013. ELIMINATION OF TERMINATION DATES FROM TAXPAYERTEACHER PROTECTION ACT OF 2004. 

(a) EXTENSION OF LIMITATIONS ON SPECIAL ALLOWANCE FOR

LOANS FROM THE PROCEEDS OF TAX EXEMPT ISSUES.—Section 

438(b)(2)(B) (20 U.S.C. 1087–1(b)(2)(B)) is amended— 

(1) in clause (iv), by striking ‘‘and before January 1, 2006,’’; 

and 

(2) in clause (v)(II)— 


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(A) by striking ‘‘and before January 1, 2006,’’ each 

place it appears in divisions (aa) and (bb); and 

(B) by striking ‘‘, and before January 1, 2006’’ in division (cc). 

(b) ADDITIONAL LIMITATION ON SPECIAL ALLOWANCE FOR LOANS

FROM THE PROCEEDS OF TAX EXEMPT ISSUES.—Section 438(b)(2)(B) 

(20 U.S.C. 1087–1(b)(2)(B)) is further amended by adding at the end 

thereof the following new clauses: 

‘‘(vi) Notwithstanding clauses (i), (ii), and (v), but subject 

to clause (vii), the quarterly rate of the special allowance shall 

be the rate determined under subparagraph (A), (E), (F), (G), 

(H), or (I) of this paragraph, as the case may be, for a holder 

of loans— 

‘‘(I) that were made or purchased on or after the date 

of enactment of the Higher Education Reconciliation Act of 

2005; or 

‘‘(II) that were not earning a quarterly rate of special 

allowance determined under clauses (i) or (ii) of subparagraph (B) of this paragraph (20 U.S.C. 1087–1(b)(2)(b)) as 

of the date of enactment of the Higher Education Reconciliation Act of 2005. 

‘‘(vii) Clause (vi) shall be applied by substituting ‘December 

31, 2010’ for ‘the date of enactment of the Higher Education 

Reconciliation Act of 2005’ in the case of a holder of loans 

that— 

‘‘(I) was, as of the date of enactment of the Higher Education Reconciliation Act of 2005, and during the quarter 

for which the special allowance is paid, a unit of State or 

local government or a nonprofit private entity; 

‘‘(II) was, as of such date of enactment, and during 

such quarter, not owned or controlled by, or under common 

ownership or control with, a for-profit entity; and 

‘‘(III) held, directly or through any subsidiary, affiliate, 

or trustee, a total unpaid balance of principal equal to or 

less than $100,000,000 on loans for which special allowances were paid under this subparagraph in the most recent quarterly payment prior to September 30, 2005.’’. 

(c) ELIMINATION OF EFFECTIVE DATE LIMITATION ON HIGHER

TEACHER LOAN FORGIVENESS BENEFITS.— 

(1) TECHNICAL CLARIFICATION.—The matter preceding paragraph (1) of section 2 of the Taxpayer-Teacher Protection Act of 

2004 (Public Law 108–409; 118 Stat. 2299) is amended by inserting ‘‘of the Higher Education Act of 1965’’ after ‘‘Section 

438(b)(2)(B)’’. 

(2) AMENDMENT.—Paragraph (3) of section 3(b) of the Taxpayer-Teacher Protection Act of 2004 (20 U.S.C. 1078–10 note) 

is amended by striking ‘‘, and before October 1, 2005’’. 

(3) EFFECTIVE DATES.—The amendment made by paragraph (1) shall be effective as if enacted on October 30, 2004, 

and the amendment made by paragraph (2) shall be effective as 

if enacted on October 1, 2005. 

(d) COORDINATION WITH SECOND HIGHER EDUCATION EXTENSION ACT OF 2005.— 


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(1) REPEAL.—Section 2 of the Second Higher Education Extension Act of 2005 is amended by striking subsections (b) and 

(c). 

(2) EFFECT ON AMENDMENTS.—The amendments made by 

subsections (a) and (c) of this section shall be effective as if the 

amendments made subsections (b) and (c) of section 2 of the 

Second Higher Education Extension Act of 2005 had not been 

enacted. 

(e) ADDITIONAL CHANGES TO TEACHER LOAN FORGIVENESS PROVISIONS.— 

(1) FFEL PROVISIONS.—Section 428J (20 U.S.C. 1078–10) 

is amended— 

(A) in subsection (b)(1)(B), by inserting after ‘‘1965’’ the 

following: ‘‘, or meets the requirements of subsection (g)(3)’’; 

and 

(B) in subsection (g), by adding at the end the following new paragraph: 

‘‘(3) PRIVATE SCHOOL TEACHERS.—An individual who is employed as a teacher in a private school and is exempt from State 

certification requirements (unless otherwise applicable under 

State law), may, in lieu of the requirement of subsection 

(b)(1)(B), have such employment treated as qualifying employment under this section if such individual is permitted to and 

does satisfy rigorous subject knowledge and skills tests by taking competency tests in the applicable grade levels and subject 

areas. For such purposes, the competency tests taken by such a 

private school teacher shall be recognized by 5 or more States 

for the purpose of fulfilling the highly qualified teacher requirements under section 9101 of the Elementary and Secondary 

Education Act of 1965, and the score achieved by such teacher 

on each test shall equal or exceed the average passing score of 

those 5 States.’’. 

(2) DIRECT LOAN PROVISIONS.—Section 460 (20 U.S.C. 

1087j) is amended— 

(A) in subsection (b)(1)(A)(ii), by inserting after ‘‘1965’’ 

the following: ‘‘, or meets the requirements of subsection 

(g)(3)’’; and 

(B) in subsection (g), by adding at the end the following new paragraph: 

‘‘(3) PRIVATE SCHOOL TEACHERS.—An individual who is employed as a teacher in a private school and is exempt from State 

certification requirements (unless otherwise applicable under 

State law), may, in lieu of the requirement of subsection 

(b)(1)(A)(ii), have such employment treated as qualifying employment under this section if such individual is permitted to 

and does satisfy rigorous subject knowledge and skills tests by 

taking competency tests in the applicable grade levels and subject areas. For such purposes, the competency tests taken by 

such a private school teacher shall be recognized by 5 or more 

States for the purpose of fulfilling the highly qualified teacher 

requirements under section 9101 of the Elementary and Secondary Education Act of 1965, and the score achieved by such 

teacher on each test shall equal or exceed the average passing 

score of those 5 States.’’. 


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SEC. 8014. ADDITIONAL ADMINISTRATIVE PROVISIONS. 

(a) INSURANCE PERCENTAGE.— 

(1) AMENDMENT.—Subparagraph (G) of section 428(b)(1) 

(20 U.S.C. 1078(b)(1)(G)) is amended to read as follows: 

‘‘(G) insures 98 percent of the unpaid principal of loans 

insured under the program, except that— 

‘‘(i) such program shall insure 100 percent of the 

unpaid principal of loans made with funds advanced 

pursuant to section 428(j) or 439(q); 

‘‘(ii) for any loan for which the first disbursement 

of principal is made on or after July 1, 2006, the preceding provisions of this subparagraph shall be applied by substituting ‘97 percent’ for ‘98 percent’; and 

‘‘(iii) notwithstanding the preceding provisions of 

this subparagraph, such program shall insure 100 percent of the unpaid principal amount of exempt claims 

as defined in subsection (c)(1)(G);’’. 

(2) EFFECTIVE DATE OF AMENDMENT.—The amendment 

made by this subsection shall apply with respect to loans for 

which the first disbursement of principal is made on or after 

July 1, 2006. 

(b) FEDERAL DEFAULT FEES.— 

(1) IN GENERAL.—Subparagraph (H) of section 428(b)(1) (20 

U.S.C. 1078(b)(1)(H)) is amended to read as follows: 

‘‘(H) provides— 

‘‘(i) for loans for which the date of guarantee of 

principal is before July 1, 2006, for the collection of a 

single insurance premium equal to not more than 1.0 

percent of the principal amount of the loan, by deduction proportionately from each installment payment of 

the proceeds of the loan to the borrower, and ensures 

that the proceeds of the premium will not be used for 

incentive payments to lenders; or 

‘‘(ii) for loans for which the date of guarantee of 

principal is on or after July 1, 2006, for the collection, 

and the deposit into the Federal Student Loan Reserve 

Fund under section 422A of a Federal default fee of an 

amount equal to 1.0 percent of the principal amount of 

the loan, which fee shall be collected either by deduction from the proceeds of the loan or by payment from 

other non-Federal sources, and ensures that the proceeds of the Federal default fee will not be used for incentive payments to lenders;’’. 

(2) UNSUBSIDIZED LOANS.—Section 428H(h) (20 U.S.C. 

1078–8(h)) is amended by adding at the end the following new 

sentences: ‘‘Effective for loans for which the date of guarantee 

of principal is on or after July 1, 2006, in lieu of the insurance 

premium authorized under the preceding sentence, each State 

or nonprofit private institution or organization having an 

agreement with the Secretary under section 428(b)(1) shall collect and deposit into the Federal Student Loan Reserve Fund 

under section 422A, a Federal default fee of an amount equal 

to 1.0 percent of the principal amount of the loan, which fee 

shall be collected either by deduction from the proceeds of the 

loan or by payment from other non-Federal sources. The FedVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00169 Fmt 6659 Sfmt 6603 E:\HR\OC\HR362.XXX HR362

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eral default fee shall not be used for incentive payments to lenders.’’. 

(3) VOLUNTARY FLEXIBLE AGREEMENTS.—Section 428A(a)(1) 

(20 U.S.C. 1078–1(a)(1)) is amended— 

(A) by striking ‘‘or’’ at the end of subparagraph (A); 

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

(B) and inserting ‘‘; or’’; and 

(C) by adding at the end the following new subparagraph: 

‘‘(C) the Federal default fee required by section 

428(b)(1)(H) and the second sentence of section 428H(h).’’. 

(c) TREATMENT OF EXEMPT CLAIMS.— 

(1) AMENDMENT.—Section 428(c)(1) (20 U.S.C. 1078(c)(1)) 

is amended— 

(A) by redesignating subparagraph (G) as subparagraph (H), and moving such subparagraph 2 em spaces to 

the left; and 

(B) by inserting after subparagraph (F) the following 

new subparagraph: 

‘‘(G)(i) Notwithstanding any other provisions of this section, 

in the case of exempt claims, the Secretary shall apply the provisions of— 

‘‘(I) the fourth sentence of subparagraph (A) by substituting ‘100 percent’ for ‘95 percent’; 

‘‘(II) subparagraph (B)(i) by substituting ‘100 percent’ 

for ‘85 percent’; and 

‘‘(III) subparagraph (B)(ii) by substituting ‘100 percent’ 

for ‘75 percent’. 

‘‘(ii) For purposes of clause (i) of this subparagraph, the 

term ‘exempt claims’ means claims with respect to loans for 

which it is determined that the borrower (or the student on 

whose behalf a parent has borrowed), without the lender’s or 

the institution’s knowledge at the time the loan was made, provided false or erroneous information or took actions that caused 

the borrower or the student to be ineligible for all or a portion 

of the loan or for interest benefits thereon.’’. 

(2) EFFECTIVE DATE OF AMENDMENTS.—The amendments 

made by this subsection shall apply with respect to loans for 

which the first disbursement of principal is made on or after 

July 1, 2006. 

(d) CONSOLIDATION OF DEFAULTED LOANS.—Section 428(c) (20 

U.S.C. 1078(c)) is further amended— 

(1) in paragraph (2)(A)— 

(A) by inserting ‘‘(i)’’ after ‘‘including’’; and 

(B) by inserting before the semicolon at the end the following: ‘‘and (ii) requirements establishing procedures to 

preclude consolidation lending from being an excessive proportion of guaranty agency recoveries on defaulted loans 

under this part’’; 

(2) in paragraph (2)(D), by striking ‘‘paragraph (6)’’ and inserting ‘‘paragraph (6)(A)’’; and 

(3) in paragraph (6)— 

(A) by redesignating subparagraphs (A) and (B) as 

clauses (i) and (ii), respectively; 


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(B) by inserting ‘‘(A)’’ before ‘‘For the purpose of paragraph (2)(D),’’; and 

(C) by adding at the end the following new subparagraphs: 

‘‘(B) A guaranty agency shall— 

‘‘(i) on or after October 1, 2006— 

‘‘(I) not charge the borrower collection costs in an 

amount in excess of 18.5 percent of the outstanding 

principal and interest of a defaulted loan that is paid 

off through consolidation by the borrower under this 

title; and 

‘‘(II) remit to the Secretary a portion of the collection charge under subclause (I) equal to 8.5 percent of 

the outstanding principal and interest of such defaulted loan; and 

‘‘(ii) on and after October 1, 2009, remit to the Secretary the entire amount charged under clause (i)(I) with 

respect to each defaulted loan that is paid off with excess 

consolidation proceeds. 

‘‘(C) For purposes of subparagraph (B), the term ‘excess consolidation proceeds’ means, with respect to any guaranty agency 

for any Federal fiscal year beginning on or after October 1, 

2009, the proceeds of consolidation of defaulted loans under 

this title that exceed 45 percent of the agency’s total collections 

on defaulted loans in such Federal fiscal year.’’. 

(e) DOCUMENTATION OF FORBEARANCE AGREEMENTS.—Section 

428(c) (20 U.S.C. 1078(c)) is further amended— 

(1) in paragraph (3)(A)(i)— 

(A) by striking ‘‘in writing’’; and 

(B) by inserting ‘‘and documented in accordance with 

paragraph (10)’’ after ‘‘approval of the insurer’’; and 

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

‘‘(10) DOCUMENTATION OF FORBEARANCE AGREEMENTS.— For the purposes of paragraph (3), the terms of forbearance 

agreed to by the parties shall be documented by confirming the 

agreement of the borrower by notice to the borrower from the 

lender, and by recording the terms in the borrower’s file.’’. 

(f) VOLUNTARY FLEXIBLE AGREEMENTS.—Section 428A(a) (20 

U.S.C. 1078–1(a)) is further amended— 

(1) in paragraph (1)(B), by striking ‘‘unless the Secretary’’ 

and all that follows through ‘‘designated guarantor’’; 

(2) by striking paragraph (2); 

(3) by redesignating paragraph (3) as paragraph (2); and 

(4) by striking paragraph (4). 

(g) FRAUD: REPAYMENT REQUIRED.—Section 428B(a)(1) (20 

U.S.C. 1078–2(a)(1)) is further amended— 

(1) by striking ‘‘and’’ at the end of subparagraph (A); 

(2) by redesignating subparagraph (B) as subparagraph 

(C); and 

(3) by inserting after subparagraph (A) the following new 

subparagraph: 

‘‘(B) in the case of a graduate or professional student 

or parent who has been convicted of, or has pled nolo 

contendere or guilty to, a crime involving fraud in obtaining funds under this title, such graduate or professional 


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student or parent has completed the repayment of such 

funds to the Secretary, or to the holder in the case of a loan 

under this title obtained by fraud; and’’. 

(h) DEFAULT REDUCTION PROGRAM.—Section 428F(a)(1) (20 

U.S.C. 1078–6(a)(1)) is amended— 

(1) in subparagraph (A), by striking ‘‘consecutive payments 

for 12 months’’ and inserting ‘‘9 payments made within 20 days 

of the due date during 10 consecutive months’’; 

(2) by redesignating subparagraph (C) as subparagraph 

(D); and 

(3) by inserting after subparagraph (B) the following new 

subparagraph: 

‘‘(C) A guaranty agency may charge the borrower and 

retain collection costs in an amount not to exceed 18.5 percent of the outstanding principal and interest at the time 

of sale of a loan rehabilitated under subparagraph (A).’’. 

(j) EXCEPTIONAL PERFORMANCE INSURANCE RATE.—Section 

428I(b)(1) (20 U.S.C. 1078–9(b)(1)) is amended— 

(1) in the heading, by striking ‘‘100 PERCENT’’ and inserting 

‘‘99 PERCENT’’; and 

(2) by striking ‘‘100 percent of the unpaid’’ and inserting 

‘‘99 percent of the unpaid’’. 

(k) UNIFORM ADMINISTRATIVE AND CLAIMS PROCEDURE.—Section 432(l)(1)(H) (20 U.S.C. 1082(l)(1)(H)) is amended by inserting 

‘‘and anticipated graduation date’’ after ‘‘status change’’. 

(2) Section 428(a)(3)(A)(v) (20 U.S.C. 1078(a)(3)(A)(v)) is 

amended— 

(A) by striking ‘‘or’’ at the end of subclause (I); 

(B) by striking the period at the end of subclause (II) 

and inserting ‘‘; or’’; and 

(C) by adding after subclause (II) the following new 

subclause: 

‘‘(III) in the case of a loan disbursed through an escrow 

agent, 3 days before the first disbursement of the loan.’’. 

(3) Section 428(c)(1)(A) (20 U.S.C. 1078(c)(1)(A)) is amended by striking ‘‘45 days’’ in the last sentence and inserting ‘‘30 

days’’. 

(4) Section 428(i)(1) (20 U.S.C. 1078(i)(1)) is amended by 

striking ‘‘21 days’’ in the third sentence and inserting ‘‘10 days’’. 

SEC. 8015. FUNDS FOR ADMINISTRATIVE EXPENSES. 

Section 458 is amended to read as follows: 

‘‘SEC. 458. FUNDS FOR ADMINISTRATIVE EXPENSES. 

‘‘(a) ADMINISTRATIVE EXPENSES.— ‘‘(1) MANDATORY FUNDS FOR FISCAL YEAR 2006.—For fiscal 

year 2006, there shall be available to the Secretary, from funds 

not otherwise appropriated, funds to be obligated for— 

‘‘(A) administrative costs under this part and part B, 

including the costs of the direct student loan programs 

under this part; and 

‘‘(B) account maintenance fees payable to guaranty 

agencies under part B and calculated in accordance with 

subsections (b) and (c), 

not to exceed (from such funds not otherwise appropriated) 

$820,000,000 in fiscal year 2006. 


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‘‘(2) AUTHORIZATION FOR ADMINISTRATIVE COSTS BEGINNING

IN FISCAL YEARS 2007 THROUGH 2011.—For each of the fiscal 

years 2007 through 2011, there are authorized to be appropriated such sums as may be necessary for administrative costs 

under this part and part B, including the costs of the direct student loan programs under this part. 

‘‘(3) CONTINUING MANDATORY FUNDS FOR ACCOUNT MAINTENANCE FEES.—For each of the fiscal years 2007 through 2011, 

there shall be available to the Secretary, from funds not otherwise appropriated, funds to be obligated for account maintenance fees payable to guaranty agencies under part B and calculated in accordance with subsection (b). 

‘‘(4) ACCOUNT MAINTENANCE FEES.—Account maintenance 

fees under paragraph (3) shall be paid quarterly and deposited 

in the Agency Operating Fund established under section 422B. 

‘‘(5) CARRYOVER.—The Secretary may carry over funds 

made available under this section to a subsequent fiscal year. 

‘‘(b) CALCULATION BASIS.—Account maintenance fees payable to 

guaranty agencies under subsection (a)(3) shall not exceed the basis 

of 0.10 percent of the original principal amount of outstanding 

loans on which insurance was issued under part B. 

‘‘(c) BUDGET JUSTIFICATION.—No funds may be expended under 

this section unless the Secretary includes in the Department of Education’s annual budget justification to Congress a detailed description of the specific activities for which the funds made available by 

this section have been used in the prior and current years (if applicable), the activities and costs planned for the budget year, and the 

projection of activities and costs for each remaining year for which 

administrative expenses under this section are made available.’’. 

SEC. 8016. COST OF ATTENDANCE. 

Section 472 (20 U.S.C. 1087ll) is amended— 

(1) by striking paragraph (4) and inserting the following: 

‘‘(4) for less than half-time students (as determined by the 

institution), tuition and fees and an allowance for only— 

‘‘(A) books, supplies, and transportation (as determined 

by the institution); 

‘‘(B) dependent care expenses (determined in accordance with paragraph (8)); and 

‘‘(C) room and board costs (determined in accordance 

with paragraph (3)), except that a student may receive an 

allowance for such costs under this subparagraph for not 

more than 3 semesters or the equivalent, of which not more 

than 2 semesters or the equivalent may be consecutive;’’; 

(2) in paragraph (11), by striking ‘‘and’’ after the semicolon; 

(3) in paragraph (12), by striking the period and inserting 

‘‘; and’’; and 

(4) by adding at the end the following: 

‘‘(13) at the option of the institution, for a student in a program requiring professional licensure or certification, the one 

time cost of obtaining the first professional credentials (as determined by the institution).’’. 

SEC. 8017. FAMILY CONTRIBUTION. 

(a) FAMILY CONTRIBUTION FOR DEPENDENT STUDENTS.— 


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(1) AMENDMENTS.—Section 475 (20 U.S.C. 1087oo) is 

amended— 

(A) in subsection (g)(2)(D), by striking ‘‘$2,200’’ and inserting ‘‘$3,000’’; and 

(B) in subsection (h), by striking ‘‘35’’ and inserting 

‘‘20’’. 

(2) EFFECTIVE DATE.—The amendments made by paragraph (1) shall apply with respect to determinations of need for 

periods of enrollment beginning on or after July 1, 2007. 

(b) FAMILY CONTRIBUTION FOR INDEPENDENT STUDENTS WITHOUT DEPENDENTS OTHER THAN A SPOUSE.— 

(1) AMENDMENTS.—Section 476 (20 U.S.C. 1087pp) is 

amended— 

(A) in subsection (b)(1)(A)(iv)— 

(i) in subclause (I), by striking ‘‘$5,000’’ and inserting ‘‘$6,050’’; 

(ii) in subclause (II), by striking ‘‘$5,000’’ and inserting ‘‘$6,050’’; and 

(iii) in subclause (III), by striking ‘‘$8,000’’ and inserting ‘‘$9,700’’; and 

(B) in subsection (c)(4), by striking ‘‘35’’ and inserting 

‘‘20’’. 

(2) EFFECTIVE DATE.—The amendments made by paragraph (1) shall apply with respect to determinations of need for 

periods of enrollment beginning on or after July 1, 2007. 

(c) FAMILY CONTRIBUTION FOR INDEPENDENT STUDENTS WITH

DEPENDENTS OTHER THAN A SPOUSE.— 

(1) AMENDMENT.—Section 477(c)(4) (20 U.S.C. 

1087qq(c)(4)) is amended by striking ‘‘12’’ and inserting ‘‘7’’. 

(2) EFFECTIVE DATE.—The amendment made by paragraph 

(1) shall apply with respect to determinations of need for periods of enrollment beginning on or after July 1, 2007. 

(d) REGULATIONS; UPDATED TABLES.—Section 478(b) (20 U.S.C. 

1087rr(b)) is amended— 

(1) in paragraph (1), by adding at the end the following: 

‘‘For the 2007–2008 academic year, the Secretary shall revise 

the tables in accordance with this paragraph, except that the 

Secretary shall increase the amounts contained in the table in 

section 477(b)(4) by a percentage equal to the greater of the estimated percentage increase in the Consumer Price Index (as determined under the preceding sentence) or 5 percent.’’; and 

(2) in paragraph (2)— 

(A) by striking ‘‘2000–2001’’ and inserting ‘‘2007–2008’’; 

and 

(B) by striking ‘‘1999’’ and inserting ‘‘2006’’. 

(e) EMPLOYMENT EXPENSE ALLOWANCE.—Section 478(h) (20 

U.S.C. 1087rr(h)) is amended— 

(1) by striking ‘‘476(b)(4)(B),’’; and 

(2) by striking ‘‘meals away from home, apparel and upkeep, transportation, and housekeeping services’’ and inserting 

‘‘food away from home, apparel, transportation, and household 

furnishings and operations’’. 


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SEC. 8018. SIMPLIFIED NEED TEST AND AUTOMATIC ZERO IMPROVEMENTS. 

(a) AMENDMENTS.—Section 479 (20 U.S.C. 1087ss) is amended— 

(1) in subsection (b)— 

(A) in paragraph (1)— 

(i) in subparagraph (A), by striking clause (i) and 

inserting the following: 

‘‘(i) the student’s parents— 

‘‘(I) file, or are eligible to file, a form described 

in paragraph (3); 

‘‘(II) certify that the parents are not required to 

file a Federal income tax return; or 

‘‘(III) received, or the student received, benefits 

at some time during the previous 12-month period 

under a means-tested Federal benefit program as 

defined under subsection (d); and’’; and 

(ii) in subparagraph (B), by striking clause (i) and 

inserting the following: 

‘‘(i) the student (and the student’s spouse, if any)— 

‘‘(I) files, or is eligible to file, a form described 

in paragraph (3); 

‘‘(II) certifies that the student (and the student’s spouse, if any) is not required to file a Federal income tax return; or 

‘‘(III) received benefits at some time during the 

previous 12-month period under a means-tested 

Federal benefit program as defined under subsection (d); and’’; and 

(B) in the matter preceding subparagraph (A) of paragraph (3), by striking ‘‘A student or family files a form described in this subsection, or subsection (c), as the case may 

be, if the student or family, respectively, files’’ and inserting 

‘‘In the case of an independent student, the student, or in 

the case of a dependent student, the family, files a form described in this subsection, or subsection (c), as the case may 

be, if the student or family, as appropriate, files’’; 

(2) in subsection (c)— 

(A) in paragraph (1)— 

(i) by striking subparagraph (A) and inserting the 

following: 

‘‘(A) the student’s parents— 

‘‘(i) file, or are eligible to file, a form described in 

subsection (b)(3); 

‘‘(ii) certify that the parents are not required to file 

a Federal income tax return; or 

‘‘(iii) received, or the student received, benefits at 

some time during the previous 12-month period under 

a means-tested Federal benefit program as defined 

under subsection (d); and’’; and 

(ii) by striking subparagraph (B) and inserting the 

following: 

‘‘(B) the sum of the adjusted gross income of the parents is less than or equal to $20,000; or’’; and 

(B) in paragraph (2)— 


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(i) by striking subparagraph (A) and inserting the 

following: 

‘‘(A) the student (and the student’s spouse, if any)— 

‘‘(i) files, or is eligible to file, a form described in 

subsection (b)(3); 

‘‘(ii) certifies that the student (and the student’s 

spouse, if any) is not required to file a Federal income 

tax return; or 

‘‘(iii) received benefits at some time during the previous 12-month period under a means-tested Federal 

benefit program as defined under subsection (d); and’’; 

and 

(ii) by striking subparagraph (B) and inserting the 

following: 

‘‘(B) the sum of the adjusted gross income of the student and spouse (if appropriate) is less than or equal to 

$20,000.’’; and 

(3) by adding at the end the following: 

‘‘(d) DEFINITION OF MEANS-TESTED FEDERAL BENEFIT PROGRAM.—In this section, the term ‘means-tested Federal benefit program’ means a mandatory spending program of the Federal Government, other than a program under this title, in which eligibility for 

the program’s benefits, or the amount of such benefits, are determined on the basis of income or resources of the individual or family seeking the benefit, and may include such programs as— 

‘‘(1) the supplemental security income program under title 

XVI of the Social Security Act (42 U.S.C. 1381 et seq.); 

‘‘(2) the food stamp program under the Food Stamp Act of 

1977 (7 U.S.C. 2011 et seq.); 

‘‘(3) the free and reduced price school lunch program established under the Richard B. Russell National School Lunch Act 

(42 U.S.C. 1751 et seq.); 

‘‘(4) the program of block grants for States for temporary 

assistance for needy families established under part A of title 

IV of the Social Security Act (42 U.S.C. 601 et seq.); 

‘‘(5) the special supplemental nutrition program for women, 

infants, and children established by section 17 of the Child Nutrition Act of 1966 (42 U.S.C. 1786); and 

‘‘(6) other programs identified by the Secretary.’’. 

(b) EVALUATION OF SIMPLIFIED NEEDS TEST.— 

(1) ELIGIBILITY GUIDELINES.—The Secretary of Education 

shall regularly evaluate the impact of the eligibility guidelines 

in subsections (b)(1)(A)(i), (b)(1)(B)(i), (c)(1)(A), and (c)(2)(A) of 

section 479 of the Higher Education Act of 1965 (20 U.S.C. 

1087ss(b)(1)(A)(i), (b)(1)(B)(i), (c)(1)(A), and (c)(2)(A)). 

(2) MEANS-TESTED FEDERAL BENEFIT PROGRAM.—For each 

3-year period, the Secretary of Education shall evaluate the impact of including the receipt of benefits by a student or parent 

under a means-tested Federal benefit program (as defined in 

section 479(d) of the Higher Education Act of 1965 (20 U.S.C. 

1087ss(d)) as a factor in determining eligibility under subsections (b) and (c) of section 479 of the Higher Education Act 

of 1965 (20 U.S.C. 1087ss(b) and (c)). 


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SEC. 8019. ADDITIONAL NEED ANALYSIS AMENDMENTS. 

(a) TREATING ACTIVE DUTY MEMBERS OF THE ARMED FORCES

AS INDEPENDENT STUDENTS.—Section 480(d)(3) (20 U.S.C. 

1087vv(d)(3)) is amended by inserting before the semicolon at the 

end the following: ‘‘or is currently serving on active duty in the 

Armed Forces for other than training purposes’’. 

(b) DEFINITION OF ASSETS.—Section 480(f)(1) (20 U.S.C. 

1087vv(f)(1)) is amended by inserting ‘‘qualified education benefits 

(except as provided in paragraph (3)),’’ after ‘‘tax shelters,’’. 

(d) TREATMENT OF FAMILY OWNERSHIP OF SMALL BUSINESSES.—Section 480(f)(2) (20 U.S.C. 1087vv(f)(2)) is amended— 

(1) in subparagraph (A), by striking ‘‘or’’; 

(2) in subparagraph (B), by striking the period at the end 

and inserting ‘‘; or’’; and 

(3) by adding at the end the following new subparagraph: 

‘‘(C) a small business with not more than 100 full-time or 

full-time equivalent employees (or any part of such a small 

business) that is owned and controlled by the family.’’. 

(d) ADDITIONAL DEFINITIONS.—Section 480(f) is further amended by adding at the end the following new paragraphs: 

‘‘(3) A qualified education benefit shall not be considered an 

asset of a student for purposes of section 475. 

‘‘(4) In determining the value of assets in a determination of 

need under this title (other than for subpart 4 of part A), the value 

of a qualified education benefit shall be— 

‘‘(A) the refund value of any tuition credits or certificates 

purchased under a qualified education benefit; and 

‘‘(B) in the case of a program in which contributions are 

made to an account that is established for the purpose of meeting the qualified higher education expenses of the designated 

beneficiary of the account, the current balance of such account. 

‘‘(5) In this subsection: 

‘‘(A) The term ‘qualified education benefit’ means— 

‘‘(i) a qualified tuition program (as defined in section 

529(b)(1)(A) of the Internal Revenue Code of 1986) or other 

prepaid tuition plan offered by a State; and 

‘‘(ii) a Coverdell education savings account (as defined 

in section 530(b)(1) of the Internal Revenue Code of 1986). 

‘‘(B) The term ‘qualified higher education expenses’ has the 

meaning given the term in section 529(e) of the Internal Revenue Code of 1986.’’. 

(f) DESIGNATED ASSISTANCE.—Section 480(j) (20 U.S.C. 

1087vv(j)) is amended— 

(1) in the subsection heading, by striking ‘‘; TUITION PRE- PAYMENT PLANS’’; 

(2) by striking paragraph (2); 

(3) by redesignating paragraph (3) as paragraph (2); and 

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

‘‘(3) Notwithstanding paragraph (1) and section 472, assistance 

not received under this title may be excluded from both estimated 

financial assistance and cost of attendance, if that assistance is provided by a State and is designated by such State to offset a specific 

component of the cost of attendance. If that assistance is excluded 

from either estimated financial assistance or cost of attendance, it 

shall be excluded from both.’’. 


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SEC. 8020. GENERAL PROVISIONS. 

(a) ACADEMIC YEAR.—Paragraph (2) of section 481(a) (20 

U.S.C. 1088(a)) is amended to read as follows: 

‘‘(2)(A) For the purpose of any program under this title, the term 

‘academic year’ shall— 

‘‘(i) require a minimum of 30 weeks of instructional time for 

a course of study that measures its program length in credit 

hours; or 

‘‘(ii) require a minimum of 26 weeks of instructional time 

for a course of study that measures its program length in clock 

hours; and 

‘‘(iii) require an undergraduate course of study to contain 

an amount of instructional time whereby a full-time student is 

expected to complete at least— 

‘‘(I) 24 semester or trimester hours or 36 quarter credit 

hours in a course of study that measures its program 

length in credit hours; or 

‘‘(II) 900 clock hours in a course of study that measures 

its program length in clock hours. 

‘‘(B) The Secretary may reduce such minimum of 30 weeks to 

not less than 26 weeks for good cause, as determined by the Secretary on a case-by-case basis, in the case of an institution of higher 

education that provides a 2-year or 4-year program of instruction 

for which the institution awards an associate or baccalaureate degree.’’. 

(b) DISTANCE EDUCATION: ELIGIBLE PROGRAM.—Section 481(b) 

(20 U.S.C. 1088(b)) is amended by adding at the end the following 

new paragraphs: 

‘‘(3) An otherwise eligible program that is offered in whole or 

in part through telecommunications is eligible for the purposes of 

this title if the program is offered by an institution, other than a 

foreign institution, that has been evaluated and determined (before 

or after the date of enactment of the Higher Education Reconciliation Act of 2005) to have the capability to effectively deliver distance education programs by an accrediting agency or association 

that— 

‘‘(A) is recognized by the Secretary under subpart 2 of part 

H; and 

‘‘(B) has evaluation of distance education programs within 

the scope of its recognition, as described in section 496(n)(3). 

‘‘(4) For purposes of this title, the term ‘eligible program’ includes an instructional program that, in lieu of credit hours or clock 

hours as the measure of student learning, utilizes direct assessment 

of student learning, or recognizes the direct assessment of student 

learning by others, if such assessment is consistent with the accreditation of the institution or program utilizing the results of the assessment. In the case of a program being determined eligible for the 

first time under this paragraph, such determination shall be made 

by the Secretary before such program is considered to be an eligible 

program.’’. 

(c) CORRESPONDENCE COURSES.—Section 484(l)(1) (20 U.S.C. 

1091(l)(1)) is amended— 

(1) in subparagraph (A)— 

(A) by striking ‘‘for a program of study of 1 year or 

longer’’; and 


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(B) by striking ‘‘unless the total’’ and all that follows 

through ‘‘courses at the institution’’; and 

(2) by amending subparagraph (B) to read as follows: 

‘‘(B) EXCEPTION.—Subparagraph (A) shall not apply to 

an institution or school described in section 3(3)(C) of the 

Carl D. Perkins Vocational and Technical Education Act of 

1998.’’. 

SEC. 8021. STUDENT ELIGIBILITY. 

(a) FRAUD: REPAYMENT REQUIRED.—Section 484(a) (20 U.S.C. 

1091(a)) is amended— 

(1) by striking the period at the end of paragraph (5) and 

inserting ‘‘; and’’; and 

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

‘‘(6) if the student has been convicted of, or has pled nolo 

contendere or guilty to, a crime involving fraud in obtaining 

funds under this title, have completed the repayment of such 

funds to the Secretary, or to the holder in the case of a loan 

under this title obtained by fraud.’’. 

(b) VERIFICATION OF INCOME DATE.—Paragraph (1) of section 

484(q) (20 U.S.C. 1091(q)) is amended to read as follows: 

‘‘(1) CONFIRMATION WITH IRS.—The Secretary of Education, 

in cooperation with the Secretary of the Treasury, is authorized 

to confirm with the Internal Revenue Service the information 

specified in section 6103(l)(13) of the Internal Revenue Code of 

1986 reported by applicants (including parents) under this title 

on their Federal income tax returns for the purpose of verifying 

the information reported by applicants on student financial aid 

applications.’’. 

(c) SUSPENSION OF ELIGIBILITY FOR DRUG OFFENSES.—Section 

484(r)(1) (20 U.S.C. 1091(r)(1)) is amended by striking everything 

preceding the table and inserting the following: 

‘‘(1) IN GENERAL.—A student who is convicted of any offense 

under any Federal or State law involving the possession or sale 

of a controlled substance for conduct that occurred during a period of enrollment for which the student was receiving any 

grant, loan, or work assistance under this title shall not be eligible to receive any grant, loan, or work assistance under this 

title from the date of that conviction for the period of time specified in the following table:’’. 

SEC. 8022. INSTITUTIONAL REFUNDS. 

Section 484B (20 U.S.C. 1091b) is amended— 

(1) in the matter preceding clause (i) of subsection (a)(2)(A), 

by striking ‘‘a leave of’’ and inserting ‘‘1 or more leaves of’’; 

(2) in subsection (a)(3)(B)(ii), by inserting ‘‘(as determined 

in accordance with subsection (d))’’ after ‘‘student has completed’’; 

(3) in subsection (a)(3)(C)(i), by striking ‘‘grant or loan assistance under this title’’ and inserting ‘‘grant assistance under 

subparts 1 and 3 of part A, or loan assistance under parts B, 

D, and E,’’; 

(4) in subsection (a)(4), by amending subparagraph (A) to 

read as follows: 

‘‘(A) IN GENERAL.—After determining the eligibility of 

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bursement (as required in regulations prescribed by the 

Secretary), the institution of higher education shall contact 

the borrower and obtain confirmation that the loan funds 

are still required by the borrower. In making such contact, 

the institution shall explain to the borrower the borrower’s 

obligation to repay the funds following any such disbursement. The institution shall document in the borrower’s file 

the result of such contact and the final determination made 

concerning such disbursement.’’; 

(5) in subsection (b)(1), by inserting ‘‘not later than 45 days 

from the determination of withdrawal’’ after ‘‘return’’; 

(6) in subsection (b)(2), by amending subparagraph (C) to 

read as follows: 

‘‘(C) GRANT OVERPAYMENT REQUIREMENTS.— 

‘‘(i) IN GENERAL.—Notwithstanding subparagraphs 

(A) and (B), a student shall only be required to return 

grant assistance in the amount (if any) by which— 

‘‘(I) the amount to be returned by the student 

(as determined under subparagraphs (A) and (B)), 

exceeds 

‘‘(II) 50 percent of the total grant assistance received by the student under this title for the payment period or period of enrollment. 

‘‘(ii) MINIMUM.—A student shall not be required to 

return amounts of $50 or less.’’; 

(7) in subsection (d), by striking ‘‘(a)(3)(B)(i)’’ and inserting 

‘‘(a)(3)(B)’’; and 

(8) in subsection (d)(2), by striking ‘‘clock hours—’’ and all 

that follows through the period and inserting ‘‘clock hours 

scheduled to be completed by the student in that period as of 

the day the student withdrew.’’. 

SEC. 8023. COLLEGE ACCESS INITIATIVE. 

Part G is further amended by inserting after section 485C (20 

U.S.C. 1092c) the following new section: 

‘‘SEC. 485D. COLLEGE ACCESS INITIATIVE. 

‘‘(a) STATE-BY-STATE INFORMATION.—The Secretary shall direct 

each guaranty agency with which the Secretary has an agreement 

under section 428(c) to provide to the Secretary the information necessary for the development of Internet web links and access for students and families to a comprehensive listing of the postsecondary 

education opportunities, programs, publications, Internet web sites, 

and other services available in the States for which such agency 

serves as the designated guarantor. 

‘‘(b) GUARANTY AGENCY ACTIVITIES.— 

‘‘(1) PLAN AND ACTIVITY REQUIRED.—Each guaranty agency 

with which the Secretary has an agreement under section 428(c) 

shall develop a plan, and undertake the activity necessary, to 

gather the information required under subsection (a) and to 

make such information available to the public and to the Secretary in a form and manner as prescribed by the Secretary. 

‘‘(2) ACTIVITIES.—Each guaranty agency shall undertake 

such activities as are necessary to promote access to postsecondary education for students through providing information 

on college planning, career preparation, and paying for college. 


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The guaranty agency shall publicize such information and coordinate such activities with other entities that either provide or 

distribute such information in the States for which such guaranty agency serves as the designated guarantor. 

‘‘(3) FUNDING.—The activities required by this section may 

be funded from the guaranty agency’s Operating Fund established pursuant to section 422B and, to the extent funds remain, from earnings on the restricted account established pursuant to section 422(h)(4). 

‘‘(4) RULE OF CONSTRUCTION.—Nothing in this subsection 

shall be construed to require a guaranty agency to duplicate 

any efforts under way on the date of enactment of the Higher 

Education Reconciliation Act of 2005 that meet the requirements of this section. 

‘‘(c) ACCESS TO INFORMATION.— 

‘‘(1) SECRETARY’S RESPONSIBILITY.—The Secretary shall ensure the availability of the information provided, by the guaranty agencies in accordance with this section, to students, parents, and other interested individuals, through Internet web 

links or other methods prescribed by the Secretary. 

‘‘(2) GUARANTY AGENCY RESPONSIBILITY.—The guaranty 

agencies shall ensure that the information required by this section is available without charge in printed format for students 

and parents requesting such information. 

‘‘(3) PUBLICITY.—Not later than 270 days after the date of 

enactment of the Higher Education Reconciliation Act of 2005, 

the Secretary and guaranty agencies shall publicize the availability of the information required by this section, with special 

emphasis on ensuring that populations that are traditionally 

underrepresented in postsecondary education are made aware of 

the availability of such information.’’. 

SEC. 8024. WAGE GARNISHMENT REQUIREMENT. 

Section 488A(a)(1) (20 U.S.C. 1095a(a)(1)) is amended by striking ‘‘10 percent’’ and inserting ‘‘15 percent’’. 

Subtitle B—Pensions 

SEC. 8201. INCREASES IN PBGC PREMIUMS. 

(a) FLAT-RATE PREMIUMS.— 

(1) SINGLE-EMPLOYER PLANS.— 

(A) IN GENERAL.—Clause (i) of section 4006(a)(3)(A) of 

the Employee Retirement Income Security Act of 1974 (29 

U.S.C. 1306(a)(3)(A)) is amended by striking ‘‘$19’’ and inserting ‘‘$30’’. 

(B) ADJUSTMENT FOR INFLATION.—Section 4006(a)(3) of 

such Act (29 U.S.C. 1306(a)(3)) is amended by adding at 

the end the following new subparagraph: 

‘‘(F) For each plan year beginning in a calendar year after 

2006, there shall be substituted for the premium rate specified in 

clause (i) of subparagraph (A) an amount equal to the greater of— 

‘‘(i) the product derived by multiplying the premium rate 

specified in clause (i) of subparagraph (A) by the ratio of— 

‘‘(I) the national average wage index (as defined in section 209(k)(1) of the Social Security Act) for the first of the 


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2 calendar years preceding the calendar year in which such 

plan year begins, to 

‘‘(II) the national average wage index (as so defined) 

for 2004; and 

‘‘(ii) the premium rate in effect under clause (i) of subparagraph (A) for plan years beginning in the preceding calendar 

year. 

If the amount determined under this subparagraph is not a multiple of $1, such product shall be rounded to the nearest multiple 

of $1.’’. 

(2) MULTIEMPLOYER PLANS.— 

(A) IN GENERAL.—Section 4006(a)(3)(A) of such Act (29 

U.S.C. 1306(a)(3)(A)) is amended— 

(i) in clause (iii)— 

(I) by inserting ‘‘and before January 1, 2006,’’ 

after ‘‘Act of 1980,’’; and 

(II) by striking the period at the end and inserting ‘‘, or’’; and 

(ii) by adding at the end the following: 

‘‘(iv) in the case of a multiemployer plan, for plan years beginning after December 31, 2005, $8.00 for each individual who 

is a participant in such plan during the applicable plan year.’’. 

(B) ADJUSTMENT FOR INFLATION.—Section 4006(a)(3) of 

such Act (29 U.S.C. 1306(a)(3)), as amended by this subsection, is amended by adding at the end the following new 

subparagraph: 

‘‘(G) For each plan year beginning in a calendar year after 

2006, there shall be substituted for the premium rate specified in 

clause (iv) of subparagraph (A) an amount equal to the greater of— 

‘‘(i) the product derived by multiplying the premium rate 

specified in clause (iv) of subparagraph (A) by the ratio of— 

‘‘(I) the national average wage index (as defined in section 209(k)(1) of the Social Security Act) for the first of the 

2 calendar years preceding the calendar year in which such 

plan year begins, to 

‘‘(II) the national average wage index (as so defined) 

for 2004; and 

‘‘(ii) the premium rate in effect under clause (iv) of subparagraph (A) for plan years beginning in the preceding calendar 

year. 

If the amount determined under this subparagraph is not a multiple of $1, such product shall be rounded to the nearest multiple 

of $1.’’. 

(b) PREMIUM RATE FOR CERTAIN TERMINATED SINGLE-EMPLOYER PLANS.—Subsection (a) of section 4006 of such Act (29 

U.S.C. 1306) is amended by adding at the end the following: 

‘‘(7) PREMIUM RATE FOR CERTAIN TERMINATED SINGLE-EMPLOYER PLANS.— 

‘‘(A) IN GENERAL.—If there is a termination of a single-employer plan under clause (ii) or (iii) of section 4041(c)(2)(B) or 

section 4042, there shall be payable to the corporation, with respect to each applicable 12-month period, a premium at a rate 

equal to $1,250 multiplied by the number of individuals who 

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nation date. Such premium shall be in addition to any other 

premium under this section. 

‘‘(B) SPECIAL RULE FOR PLANS TERMINATED IN BANKRUPTCY

REORGANIZATION.—In the case of a single-employer plan terminated under section 4041(c)(2)(B)(ii) or under section 4042 during pendency of any bankruptcy reorganization proceeding 

under chapter 11 of title 11, United States Code, or under any 

similar law of a State or a political subdivision of a State (or 

a case described in section 4041(c)(2)(B)(i) filed by or against 

such person has been converted, as of such date, to such a case 

in which reorganization is sought), subparagraph (A) shall not 

apply to such plan until the date of the discharge or dismissal 

of such person in such case. 

‘‘(C) APPLICABLE 12-MONTH PERIOD.—For purposes of subparagraph (A)— 

‘‘(i) IN GENERAL.—The term ‘applicable 12-month period’ means— 

‘‘(I) the 12-month period beginning with the first 

month following the month in which the termination 

date occurs, and 

‘‘(II) each of the first two 12-month periods immediately following the period described in subclause (I). 

‘‘(ii) PLANS TERMINATED IN BANKRUPTCY REORGANIZATION.—In any case in which the requirements of subparagraph (B)(i)(I) are met in connection with the termination 

of the plan with respect to 1 or more persons described in 

such subparagraph, the 12-month period described in 

clause (i)(I) shall be the 12-month period beginning with 

the first month following the month which includes the earliest date as of which each such person is discharged or 

dismissed in the case described in such clause in connection with such person. 

‘‘(D) COORDINATION WITH SECTION 4007.— 

‘‘(i) Notwithstanding section 4007— 

‘‘(I) premiums under this paragraph shall be due 

within 30 days after the beginning of any applicable 

12-month period, and 

‘‘(II) the designated payor shall be the person who 

is the contributing sponsor as of immediately before the 

termination date. 

‘‘(ii) The fifth sentence of section 4007(a) shall not 

apply in connection with premiums determined under this 

paragraph. 

‘‘(E) TERMINATION.—Subparagraph (A) shall not apply 

with respect to any plan terminated after December 31, 2010.’’. 

(c) CONFORMING AMENDMENT.—Section 4006(a)(3)(B) of such 

Act (29 U.S.C. 1306(a)(3)(B)) is amended by striking ‘‘subparagraph 

(A)(iii)’’ and inserting ‘‘clause (iii) or (iv) of subparagraph (A)’’. 

(d) EFFECTIVE DATES.— 

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to 

plan years beginning after December 31, 2005. 

(2) PREMIUM RATE FOR CERTAIN TERMINATED SINGLE-EMPLOYER PLANS.— 


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

(B), the amendment made by subsection (b) shall apply to 

plans terminated after December 31, 2005. 

(B) SPECIAL RULE FOR PLANS TERMINATED IN BANKRUPTCY.—The amendment made by subsection (b) shall not 

apply to a termination of a single-employer plan that is terminated during the pendency of any bankruptcy reorganization proceeding under chapter 11 of title 11, United 

States Code (or under any similar law of a State or political subdivision of a State), if the proceeding is pursuant 

to a bankruptcy filing occurring before October 18, 2005. 

TITLE IX—LIHEAP PROVISIONS 

SEC. 9001. FUNDING AVAILABILITY. 

(a) IN GENERAL.—In addition to amounts otherwise made available, there are appropriated, out of any money in the Treasury not 

otherwise appropriated, to the Secretary of Health and Human 

Services for a 1-time only obligation and expenditure— 

(1) $250,000,000 for fiscal year 2007 for allocation under 

section 2604(a) through (d) of the Low-Income Home Energy Assistance Act of 1981 (42 U.S.C. 8623(a) through (d)); and 

(2) $750,000,000 for fiscal year 2007 for allocation under 

section 2604(e) of the Low-Income Home Energy Assistance Act 

of 1981 (42 U.S.C. 8623(e)). 

(b) SUNSET.—The provisions of this section shall terminate, be 

null and void, and have no force and effect whatsoever after September 30, 2007. No monies provided for under this section shall be 

available after such date. 

TITLE X—JUDICIARY RELATED 

PROVISIONS 

Subtitle A—Civil Filing Adjustments 

SEC. 10001. CIVIL CASE FILING FEE INCREASES. 

(a) CIVIL ACTIONS FILED IN DISTRICT COURTS.—Section 1914(a) 

of title 28, United States Code, is amended by striking ‘‘$250’’ and 

inserting ‘‘$350’’. 

(b) APPEALS FILED IN COURTS OF APPEALS.—The $250 fee for 

docketing a case on appeal or review, or docketing any other proceeding, in a court of appeals, as prescribed by the Judicial Conference, effective as of January 1, 2005, under section 1913 of title 

28, United States Code, shall be increased to $450. 

(c) EXPENDITURE LIMITATION.—Incremental amounts collected 

by reason of the enactment of this section shall be deposited in a 

special fund in the Treasury to be established after the enactment 

of this Act. Such amounts shall be available for the purposes specified in section 1931(a) of title 28, United States Code, but only to 

the extent specifically appropriated by an Act of Congress enacted 

after the enactment of this Act. 


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(d) EFFECTIVE DATE.—This section and the amendment made 

by this section shall take effect 60 days after the date of the enactment of this Act. 

Subtitle B—Bankruptcy Fees 

SEC. 10002. BANKRUPTCY FEES. 

(a) BANKRUPTCY FILING FEES.—Section 1930(a) of title 28, 

United States Code, is amended— 

(1) in paragraph (1)— (A) in subparagraph (A) by striking ‘‘$220’’ and insert- ing ‘‘$245’’; and (B) in subparagraph (B) by striking ‘‘$150’’ and insert- ing ‘‘$235’’; and 

(2) in paragraph (2) by striking ‘‘$1,000’’ and inserting ‘‘$2,750’’. 

(b) EXPENDITURE LIMITATION.—Incremental amounts collected 

by reason of the amendments made by subsection (a) shall be deposited in a special fund in the Treasury to be established after the enactment of this Act. Such amounts shall be available for the purposes specified in section 1931(a) of title 28, United States Code, but 

only to the extent specifically appropriated by an Act of Congress enacted after the enactment of this Act. 

(c) EFFECTIVE DATE.—This section and the amendments made 

by this section shall take effect 60 days after the date of the enactment of this Act. 

And the House agree to the same. 

For consideration of the Senate bill, and the House amendment thereto, and modifications committed to conference: 

JIM NUSSLE, JIM RYUN, ANDER CRENSHAW, ADAM PUTNAM, ROGER F. WICKER, 

KENNY C. HULSHOF, 

PAUL D. RYAN, 

ROY BLUNT, 

TOM DELAY, 

From the Committee on Agriculture, for consideration of 

title I of the Senate bill and title I of the House amendment, and modifications committed to conference: 

BOB GOODLATTE, 

FRANK D. LUCAS, 

From the Committee on Education and the Workforce, for 

consideration of title VII of the Senate bill and title II and 

subtitle C of title III of the House amendment, and modifications committed to conference: 

JOHN BOEHNER, 

HOWARD P. MCKEON, 

From the Committee on Energy and Commerce, for consideration of title III and title VI of the Senate bill and title 

III of the House amendment, and modifications committed 

to conference: 

JOE BARTON, 

NATHAN DEAL, 


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From the Committee on Financial Services, for consideration of title II of the Senate bill and title IV of the House 

amendment, and modifications committed to conference: 

MICHAEL G. OXLEY, SPENCER BAUCUS, (Provided that Mr. Ney is 

appointed in lieu of Mr. 

Bachus for consideration 

of subtitles C and D of 

title II of the Senate bill 

and subtitle B of title IV of 

the House amendment:) 

From the Committee on the Judiciary, for consideration of 

title VIII of the Senate bill and title V of the House 

amendment, and modifications committed to conference: 

F. JAMES SENSENBRENNER, Jr., 

LAMAR SMITH, 

From the Committee on Resources, for consideration of 

title IV of the Senate bill and title VI of the House amendment, and modifications committed to conference: 

RICHARD POMBO, JIM GIBBONS, From the Committee on Transportation and Infrastructure, for consideration of title V and division A of the Senate bill and title VII of the House amendment, and modifications committed to conference: 

DON YOUNG, FRANK LOBIONDO, From the Committee on Ways and Means, for consideration of sections 6039, 6071, and subtitle B of title VI of 

the Senate bill and title VIII of the House amendment, 

and modifications committed to conference: 

WILLIAM THOMAS, WALLY HERGER, 

Managers on the Part of the House. 

JUDD GREGG, 

PETE DOMENICI, 

CHUCK GRASSLEY, 

MICHAEL B. ENZI, 

WAYNE ALLARD, 

JEFF SESSIONS, 

TED STEVENS, 

RICHARD SHELBY, 

ARLEN SPECTER, 

SAXBY CHAMBLISS, 

MITCH MCCONNELL, Managers on the Part of the Senate. 


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JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF 

CONFERENCE 

The managers on the part of the House and the Senate at the 

conference on the disagreeing votes of the two Houses on the 

amendment of the House to the bill (S. 1932), to provide for reconciliation pursuant to section 202(a) of the concurrent resolution 

on the budget for fiscal year 2006 (H. Con. Res. 95), submit the following joint statement to the House and the Senate in explanation 

of the effect of the action agreed upon by the managers and recommended in the accompanying conference report: 

The House amendment struck all of the Senate bill after the 

enacting clause and inserted a substitute text: 

The Senate recedes from its disagreement to the amendment 

of the House with an amendment that is a substitute for the Senate bill and the House amendment. The differences between the 

Senate bill, the House amendment, and the substitute agreed to in 

conference are noted below, except for clerical corrections, conforming changes made necessary by agreements reached by the 

conferees, and minor drafting and clarifying changes. 

The managers representing authorizing committees submitted 

separate joint statements explaining the provisions within their respective jurisdictions: Committee on Agriculture, Committee on 

Education and the Workforce, Committee on Energy and Commerce, Committee on Financial Services, Committee on Transportation and Infrastructure, Committee on Ways and Means. 

TITLE I—COMMITTEE ON AGRICULTURE

(1) Short Title 

The Senate bill cites this Title as the ‘‘Agricultural Reconciliation Act of 2005.’’ (Section 1001) 

The House amendment cites this Title as the ‘‘Agricultural 

Reconciliation Act of 2005’’ and contains a table of contents. (Section 1001) 

The Conference substitute adopts the Senate provision. 

Subtitle A—Commodity Programs 

(2) Reduction of Commodity Program Payments 

The Senate bill adds a new section to Title I of the Farm Security and Rural Investment Act to reauthorize direct payments, 

counter-cyclical payments and marketing assistance loans through 

2011 and reduce these program payments 2.5 percent for crop 

years 2006 through 2010. It also reduces by 2.5 percent payments 

to dairy producers pursuant to section 1502 of the Farm Security 

and Rural Investment Act (known as ‘‘MILC’’) during the period of 

October 1, 2005, through September 30, 2007. The reauthorization 


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does not include 1104(f) and 1304(g) which specify the times at 

which the Secretary is required to make partial counter-cyclical 

payments. It also does not include section 1307(a)(6) which requires 

the Secretary to pay storage, handling, and other costs for peanut 

crops. Further, the Senate bill extends the period during which the 

prevailing world market price for upland cotton must be further 

adjusted to July 31, 2012, and extends the extra long staple competitiveness program through July 31, 2012. (Section 1101) 

The House amendment amends section 1103 of the Farm Security and Rural Investment Act to reduce the total amount of direct 

payments to be paid to producers of covered commodities by 1 percent for crop years 2006 and 2007, and for crop years 2008 and 

2009 if direct payments are made in these years. The House 

amendment also amends section 1303 of the Farm Security and 

Rural Investment Act to reduce the total amount of the direct payments to be paid to producers of peanuts by 1 percent for crop 

years 2006 and 2007, and for crop years 2008 and 2009 if direct 

payments are made in these years. (Section 1101) 

The Conference substitute adopts neither provision. 

(3) Forfeiture Penalty for Nonrecourse Sugar Loans 

The Senate bill amends the Federal Agriculture Improvement 

and Reform (FAIR) Act of 1996 to require that a penalty be assessed on the forfeiture of any sugar from the 2006 through 2010 

crops of sugar beets and sugarcane pledged as collateral for a nonrecourse loan. It provides that the penalty is 1.2 percent of the loan 

rate established under section 156 of the FAIR Act. Further, it reduces payments owed to a producer by a processor that forfeits 

sugar pledged as collateral in proportion to the penalty incurred by 

the processor. (Section 1102) 

The House amendment has no comparable provision. 

The Conference substitute deletes the Senate provision. 

(4) Cotton Competitiveness Provisions 

The Senate bill amends the Farm Security and Rural Investment Act to eliminate authority for the establishment of the upland 

cotton user marketing certificate program known as ‘‘Step 2.’’ It 

also repeals section 136 of the Federal Agriculture Improvement 

and Reform Act of 1996 which has duplicate language for the establishment of Step 2. Further, it provides that the above amendments take effect on August 1, 2006. (Section 1103) 

The House amendment has identical language. (Section 1103) 

The Conference substitute adopts the Senate provision with an 

amendment that eliminates the language repealing section 136 of 

the Federal Agriculture Improvement and Reform Act of 1996. 

(5) National dairy market loss payments 

The Senate bill amends the MILC Program (section 1502 of the 

Farm Security and Rural Investment Act) by extending until September 30, 2007, the period during which the Secretary must offer 

to enter into contracts with producers. It also includes a new provision that decreases the multiplier used to calculate payments from 

45 percent to 34 percent during the period of October 1, 2005, 

through September 30, 2007. In addition it extends until SepVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00188 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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tember 30, 2007, the period during which eligible production must 

be covered in any contract entered into by a producer. It also 

strikes section 1502(h) of the Farm Security and Rural Investment 

Act and strikes an obsolete reference to section 1502. (Section 

1104) 

The House amendment has no comparable provision. 

The Conference substitute adopts the Senate provision with an 

amendment that will decrease the multiplier used to calculate payments from 45 percent to 34 percent during the period from October 1, 2005, through August 31, 2007, and from 34 percent to 0 

percent after September 1, 2007. 

(6) Advance direct payments 

The Senate bill reduces the direct payment amounts that producers are eligible to receive in advance for the 2006 through 2011 

crop years. It gives producers the option of receiving up to 40 percent of their direct payments in advance for the 2006 crop year and 

up to 29 percent of their direct payments in advance for any of the 

2007 through 2011 crop years. 

The Senate bill provides for a corresponding reduction in the 

direct payment amount that peanut producers may receive in advance for any of the 2006 through 2011 crop years. It gives peanut 

producers the option of receiving up to 40 percent of their direct 

payments in advance for the 2006 crop year and up to 29 percent 

of their direct payments in advance for any of the 2007 through 

2011 crop years. (Section 1105) 

The House amendment reduces the direct payment amounts 

that producers are eligible to receive in advance for the 2006 and 

2007 crop years. It gives producers the option of receiving up to 40 

percent of their direct payments in advance for the 2006 and 2007 

crop years. 

The House amendment provides for a corresponding reduction 

in the direct payment amounts that producers of peanuts are eligible to receive in advance for the 2006 and 2007 crop years. It gives 

peanut producers the option of receiving up to 40 percent of their 

direct payments in advance for the 2006 and 2007 crop years. (Section 1102) 

The Conference substitute adopts the House provision with an 

amendment that reduces the direct payment amounts that producers are eligible to receive in advance from 50 percent to 40 percent for the 2006 crop year and to 22 percent for the 2007 crop 

year. Advance direct payments to peanut producers are reduced in 

an identical fashion. 

Subtitle B—Conservation 

(7) Conservation Reserve Program 

The Senate bill extends the Conservation Reserve Program 

(CRP) through 2011. It decreases the amount of acres that the Secretary is authorized to maintain in the conservation reserve program to 36.4 million acres through calendar year 2010, and 38.3 

million acres in 2011. It extends the period during which the Secretary may enroll acres, and it extends the requirement to enroll 

wetland and buffer acreage in reserve through 2011. 


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It also requires the Secretary, in implementing the amendments made by this section, to achieve the new maximum acreage 

enrollment limit not later than 2 years after the date of enactment 

of the bill without affecting conservation reserve existing contracts. 

(Section 1201) 

The House amendment has no comparable provision. 

The Conference substitute deletes the Senate provision. 

(8) Conservation Security Program 

The Senate bill extends the authorization for the Conservation 

Security Program (CSP) through 2011. It strikes the current limitation on funding and inserts a new limitation with two restraints. 

The new limits are $1,954,000,000 for fiscal years 2006 through 

2010 and $5,200,000,000 for fiscal years 2006 through 2015. (Section 1202). 

The House amendment extends the authorization for the Conservation Security Program through 2011, strikes the current limitation on funding and inserts a new limitation with two restraints. 

The new limits are $2,213,000,000 for fiscal years 2006 through 

2010 and $5,729,000,000 for fiscal years 2006 through 2015. (Section 1202) 

The Conference substitute adopts the Senate provision with an amendment that provides for a limit of $5,650,000,000 for fiscal 

years 2006 through 2015. 

(9) Environmental Quality Incentives Program 

The Senate bill extends the authorization for the Environmental Quality Incentives Program (EQIP) through 2011, and extends the aggregate payment limit for all EQIP payments through 

2011. It also amends the funding provisions to provide: 

$1,017,000,000 for fiscal year 2005; $1,185,000,000 for fiscal year 

2006; $1,270,000,000 for fiscal year 2007 through 2010; and 

$1,300,000,000 for fiscal year 2011. (Section 1203) 

The House amendment has no comparable provision. 

The Conference substitute adopts the Senate provision with an 

amendment that provides for $1,270,000,000 in each of fiscal years 

2007 and 2009 and $1,300,000,000 in fiscal year 2010, limits payments under this program to $450,000 during any six-year period, 

and extends the authorization for EQIP through fiscal year 2010. 

(10) Limitation on use of Commodity Credit Corporation funds to 

carry out watershed rehabilitation program 

The Senate bill has no comparable provision. 

The House amendment removes the requirement that funds for 

the watershed rehabilitation program remain available to the Secretary until expended. It reduces funding for the watershed rehabilitation program by $15 million in fiscal year 2007, and it rescinds funds that are previously made available and are unobligated as of September 30, 2006. (Section 1201) 

The Conference substitute adopts the House provision with an 

amendment that cancels the authority to obligate funds previously 

made available for a fiscal year and unobligated as of October 1, 

2006, but permits funding to remain available until expended and 

maintains funding at $65,000,000 for fiscal year 2007. 


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(11) Limitation on use of Commodity Credit Corporation funds to 

carry out the agricultural management assistance program 

The Senate bill has no comparable provision. 

The House amendment eliminates funding for the agricultural 

management assistance program in 2007. (Section 1203) 

The Conference substitute deletes the House provision. 

Subtitle C—Miscellaneous (Senate Bill) 

Subtitle E—Research (House Amendment) 

(12) Initiative for Future Agriculture and Food Systems 

The Senate bill reduces the amount of funds the Secretary is 

required to transfer on October 1, 2005, to $104 million and on October 1, 2006 through 2009 to $130 million. It provides 

$200,000,000 of funding in 2010 and in subsequent fiscal years, 

and provides that the amendments take effect on October 1, 2005. 

(Section 1301) 

The House amendment eliminates funding for the Initiative for 

Future Agriculture and Food Systems in fiscal years 2007, 2008, 

and 2009. It provides $200,000,000 of funding in 2010 and in subsequent fiscal years, and limits availability of fiscal year 2006 

funds to the one year period beginning on October 1, 2005, while 

maintaining the two-year period of availability for funds made 

available in other fiscal years. (Section 1501) 

The Conference substitute adopts the House provision. 

Subtitle C—Energy 

(13) Termination of use of commodity credit funds to carry out renewable energy systems and energy efficiency improvement program 

The Senate bill has no comparable provision. 

The House amendment eliminates the requirement that the 

Secretary make funding available for loans and grants under the 

renewable energy systems and energy efficiency improvements program. (Section 1301) 

The Conference substitute adopts the House provision with an 

amendment that maintains $3,000,000 of funding for this program 

in fiscal year 2007. 

Subtitle D—Rural Development 

(14) Enhanced access to broadband telecommunication services in 

rural areas 

The Senate bill has no comparable provision. 

The House amendment eliminates the requirement that the 

Secretary provide loans for enhanced broadband access in fiscal 

year 2007, prohibits funding for this program from remaining 

available until expended, and rescinds all funding that is available 

and unobligated as of September 30, 2006. (Section 1401) 

The Conference substitute adopts the House provision with an 

amendment that cancels funding previously made available for a 

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ing to remain available until expended and maintains the funding 

for fiscal year 2007. 

(15) Value-added agricultural product market development grants 

The Senate bill has no comparable provision. 

The House amendment eliminates funding for value-added agricultural product grants in fiscal year 2007, prohibits funding for 

this program from remaining available until expended, and rescinds all funding that is available and unobligated as of September 30, 2006. (Section 1402) 

The Conference substitute adopts the House provision with an 

amendment that cancels funding previously made available for a 

fiscal year and unobligated as of October 1, 2006, but permits funding to remain available until expended and maintains the funding 

for fiscal year 2007. 

(16) Rural business investment program 

The Senate bill has no comparable provision. 

The House amendment eliminates funding for the rural business investment program in fiscal year 2007, prohibits funding for 

this program from remaining available until expended, and rescinds all funding that is available and unobligated as of September 30, 2006. (Section 1403). 

The Conference substitute adopts the House provision with an 

amendment that eliminates funding in fiscal year 2007 and rescinds all funding that is available and unobligated as of October 

1, 2006, but permits funding to remain available until expended. 

(17) Rural business strategic investment grants 

Senate bill has no comparable provision. 

The House amendment eliminates funding for rural business 

strategic investment grants in fiscal year 2007 and rescinds all 

funding that is available and unobligated as of September 30, 2006. 

(Section 1404) 

The Conference substitute adopts the House provision with an 

amendment that cancels funding previously made for a fiscal year 

and unobligated as of October 1, 2006, but maintains the funding 

for fiscal year 2007. 

(18) Rural firefighters and emergency personnel grants 

The Senate bill has no comparable provision. 

The House amendment eliminates funding for rural firefighter 

and emergency personnel grants in fiscal year 2007, prohibits funding for this program from remaining available until expended, and 

rescinds all funding that is available and unobligated as of September 30, 2006. (Section 1405). 

The Conference substitute adopts the House provision with an 

amendment that permits funding to remain available until expended, but eliminates funding in fiscal year 2007, and rescinds all 

funding that is available and unobligated as of October 1, 2006. 


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Subtitle F—Nutrition 

(19) Eligible households 

The Senate bill has no comparable provision. 

The House amendment amends the Food Stamp Act to restrict 

categorical eligibility status, during fiscal years 2006 through 2010, 

to only those households in which each member receives cash benefits under the Temporary Assistance for Needy Families program 

(TANF). It provides an exception to the ‘‘cash benefits’’ rule for 

households in which each member receives substantial and ongoing 

non-cash benefits under TANF. It further provides that such noncash benefits must be provided for purposes of shelter, utilities, 

child care, health care, transportation, or job training, and it requires that such households must have a monthly income that does 

not exceed 150 percent of the poverty line. 

The House amendment reauthorizes provisions in the Food 

Stamp Act through 2011 (except assistance for community food 

projects (section 25(b)) and innovative programs for addressing 

common community problems (section 25(h)). It also amends the 

eligibility categories for free school lunch and breakfast to provide 

a new eligibility category that will include a child who is a member 

of a household: (1) in which each member receives or is eligible to 

receive non-cash or in-kind benefits under TANF; and (2) that has 

a gross monthly income at or below 200 percent of the Federal poverty level. (Section 1601) 

The Conference substitute deletes the House provision. 

(20) Availability of commodities for the Emergency Food Assistance 

Program 

The Senate bill has no comparable provision. 

The House amendment reauthorizes the purchase of $140,000,000 worth of commodities per year for the Emergency 

Food Assistance Program through 2011, and it authorizes the purchase of an additional $12,000,000 worth of commodities in 2006 to 

be distributed to States affected by Hurricanes Katrina and Rita. 

(Section 1602) 

The Conference substitute deletes the House provision. 

(21) Residency requirement 

The Senate bill has no comparable provision. 

The House amendment amends the Personal Responsibility 

and Work Opportunity Reconciliation Act to require that, until fiscal year 2010, non-citizens must reside in the U.S. for 7 years or 

more before becoming eligible for food stamp benefits. It provides 

an exemption, however, for aliens who currently receive food stamp 

benefits and who are 60 years of age or older or have petitioned 

for naturalization as a U.S. citizen. It also provides that on October 

1, 2010, these provisions will expire. (Section 1603) 

The Conference substitute deletes the House provision. 

(22) Disaster Food Stamp Program 

The Senate bill has no comparable provision. 

The House amendment authorizes the Secretary of Agriculture 

to pay to state agencies 100 percent of the administrative costs inVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00193 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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curred in the delivery of food stamp benefits under the disaster 

food stamp program initiated in response to Hurricanes Katrina 

and Rita (Section 1604) 

The Conference substitute deletes the House provision. 

TITLE II—SENATE COMMITTEE ON BANKING AND HOUSE COMMITTEE

ON FINANCIAL SERVICES

Subtitle A—FHA Asset Disposition 

SUMMARY OF FHA RECONCILIATION LANGUAGE (DECEMBER 15, 2005)

The House Financial Services and Senate Banking Committees 

approved reconciliation language that will make several FHA multifamily authorities subject to appropriations. This move to discretionary spending will enable the Administration and Congress to 

set the level of activity for these FHA authorities and better control 

their use. This legislation authorizes $100 million to be appropriated for fiscal year 2006 to make these reforms. 

Bill summary 

Originally proposed in the President’s budget, the FHA Asset 

Disposition Act of 2005 will make several FHA multifamily authorities subject to appropriations, including (1) discount property 

sales; (2) discount loan sales; and (3) up-front grant assistance. 

The Congressional Budget Office estimate of total savings in 

outlays are as follows (in millions): 

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 Total 

$30 $60 $60 $60 $60 $270 

The savings from this proposal, taken together with Deposit 

Insurance Reform, constitute the reconciliation recommendations of 

the House Financial Services and Senate Banking Committees. Together the proposals will save an estimated $520 million over fiscal 

years 2006–10, with $30 million in fiscal 2006. This amount is the 

savings target for these committees contemplated in the budget 

resolution. 

Background 

Since 1934, FHA and HUD have insured almost 33 million 

home mortgages and multifamily project mortgages. Within HUD, 

FHA provides mortgage insurance to lenders to protect against 

losses as a result of borrower default. Currently, FHA has the authority to sell, at below-market rates, properties taken over by the 

agency because of mortgage defaults. FHA also has the authority 

to sell discount loans. This legislation will make these mandatory 

authorities discretionary and subject to appropriations. Additionally, FHA can provide up-front grants to rehabilitate dilapidated 

multifamily properties. Funding for the grants currently comes 

from the General Insurance Fund, which collects money from premiums and servicing of insured mortgages. The amount spent on 

the grants is left to the discretion of FHA. Under this legislation, 

funding for these grants will no longer be drawn from the General 


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Insurance Fund and would be subject to appropriations. Finally, 

this proposal is effective during fiscal years 2006 through 2010. 

Subtitle B—Deposit Insurance 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 2101. Short title; table of contents 

This section establishes the short title of the subtitle, the ‘Federal Deposit Insurance Reform Act of 2005,’ and provides a table 

of contents. 

Section 2102. Merging the BIF and SAIF 

This section amends provisions of the Federal Deposit Insurance Act to merge the Bank Insurance Fund and the Savings Association Insurance Fund no later than the first day of the first calendar quarter that begins after the end of the 90-day period beginning on the date of the enactment of this Act. 

Section 2103. Increase in deposit insurance coverage 

This section provides for an inflation index for general depositors and a higher level of deposit insurance coverage for certain individual retirement accounts. Credit unions are provided with complete parity in coverage with other insured depository institutions. 

The section also retains the $100,000 deposit insurance limit 

on accounts at insured depository institutions, to be known as the 

‘‘standard maximum deposit insurance amount,’’ subject to future 

cost of living adjustments. 

Beginning April 1, 2010, and every succeeding five years, the 

Board of Directors of the FDIC and the National Credit Union Administration Board shall jointly determine whether an increase in 

the standard maximum deposit insurance is appropriate after considering certain factors. If appropriate, the new standard maximum 

deposit insurance limit would be increased by a cost of living adjustment. This adjustment would be calculated according to the 

Personal Consumption Expenditures Chain-Type Index (PCE) published by the Department of Commerce and rounded down to the 

nearest $10,000. The FDIC and National Credit Union Administration (NCUA) Boards of Directors are required to publish the new 

standard maximum deposit insurance amount in the Federal Register and provide a corresponding report to Congress by April 5, 

2010, and April 5 of every succeeding fifth year. The approved adjustment in the standard maximum deposit insurance amount 

would automatically occur unless a Congressional act provides otherwise and would take effect on January 1 of the year immediately 

succeeding the calendar year in which the new amount is calculated. 

The section also provides pass-through coverage to certain employee benefit plans, even if the institution is not authorized to accept employee benefit plan deposits because it is not well-capitalized or adequately capitalized. 

The section also increases the deposit insurance limit for certain retirement accounts to $250,000, also subject to future cost-ofliving adjustments. 


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Section 2104. Setting assessments and repeal of special rules relating to minimum assessments and free deposit insurance 

This section allows the FDIC Board to set assessments in such 

amounts as it may determine to be necessary or appropriate. This 

provision also eliminates the existing restrictions on the FDIC’s authority to levy assessments on any institution above amounts needed to achieve and maintain the existing DRR of 1.25 percent. The 

minimum statutory rate (23 basis point cliff rate) applicable in certain circumstances is eliminated. 

This section also provides that under the FDIC’s risk-based assessment system, no depository institution shall be barred from the 

lowest-risk category solely because of size. 

The section also requires insured depository institutions to 

maintain all records that the FDIC may require for verifying the 

accuracy of any assessment for 3 years or, in the case of disputed 

assessments, until the dispute has been resolved, and increases the 

fees that the FDIC can impose for late payments of premium assessments from $100 to 1 percent of assessments per day, for institutions with assessments greater than $10,000. Institutions with 

assessments lower than $10,000 would face a maximum penalty of 

$100 for each day they were delinquent in paying their premium 

assessments. 

The bill repeals a number of provisions requiring the FDIC to 

set premiums on a semiannual basis, replacing them with a provision granting the FDIC greater flexibility in the timing of those 

evaluations. 

Section 2105. Replacement of fixed designated reserve ratio with reserve range 

This section eliminates the current 1.25 percent ‘hard target’ 

DRR and provides the FDIC Board with the discretion to set the 

DRR within a range of 1.15 to 1.50 percent for any given year, 

using the following criteria as a basis for making these determinations: (1) present and future risk of losses to the deposit insurance 

fund; (2) economic conditions; and (3) any other factors the Board 

may determine to be appropriate. 

In designating the reserve ratio, the FDIC must follow noticeand-comment rulemaking procedures, and is required to publish a 

thorough analysis of the data and projections if it proposes to 

change the DRR. 

Section 2106. Requirements applicable to the risk-based assessment 

system 

This section directs the FDIC to collect information from all 

appropriate sources in determining risk of losses to the DIF. This 

provision does not authorize the FDIC to impose additional recordkeeping requirements on insured depository institutions. 

The FDIC is required to consult with the appropriate Federal 

banking agency in assessing the risk of loss to the DIF with respect 

to any insured depository institution. This risk of loss evaluation 

may be done on an aggregate basis for institutions that are determined to be well-capitalized and well-managed. 


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The FDIC is also required to provide notice and opportunity for 

comment prior to revising or modifying the risk-based assessment 

system. 

Section 2107. Refunds, dividends, and credits from Deposit Insurance Fund 

This section provides for refunds or credits of any assessment 

payment that was made by an insured depository institution in excess of the amount due the FDIC. 

The section specifies two circumstances under which the FDIC 

is required to pay dividends to insured depository institutions: (1) 

whenever the reserve ratio of the DIF equals or exceeds 1.35 percent of estimated insured deposits and is less than or equal to 1.5 

percent of such deposits, the FDIC is required to pay dividends 

equal to 50 percent of the amount in excess of what is required to 

maintain the reserve ratio at 1.35 percent unless the FDIC determines that a significant risk of losses to the DIF exists and such 

losses justify the growth of the reserve ratio; and (2) whenever the 

reserve ratio of the DIF exceeds 1.5 percent of estimated insured 

deposits, the FDIC is required to pay dividends in the amount of 

the excess of what is necessary to maintain the ratio at 1.5 percent. 

The section also provides for a transitional credit of 10.5 basis 

points of the total assessment base as of December 31, 2001 (or 

about $4.7 billion) to eligible insured depository institutions based 

on their respective percentage of total industry assessable deposits 

held as of December 31, 1996. Eligible insured depository institutions had to be in existence at December 31, 1996, or be a successor 

to such an institution, and to have paid a deposit insurance assessment prior to that date. 

For purposes of allocating dividends, the FDIC is required to 

determine each insured depository institution’s relative contribution to the DIF (or any predecessor deposit insurance fund), taking 

into account the institution’s share of the assessment base as of 

December 31, 1996; the total amount of deposit insurance assessments paid by the institution after December 31, 1996; that portion 

of assessments paid by an institution that reflects higher levels of 

risk assumed by the institution; and such other factors as the 

FDIC deems appropriate. The FDIC’s calculation, declaration and 

payment of dividends are made subject to notice-and-comment rulemaking. 

For any insured depository institution that exhibits financial, 

operational or compliance weaknesses ranging from moderately severe to unsatisfactory at the beginning of the assessment period, 

credits may not exceed the amount calculated by applying to that 

institution the average assessment rate on all insured depository 

institutions for that assessment period. 

In promulgating regulations establishing a system for dividends and credits, the FDIC is required to include provisions allowing insured depository institutions a reasonable opportunity to 

challenge administratively the amount of their dividends or credits. 

In determining the appropriate distribution of dividends, the 

FDIC must weigh a number of factors in its rulemaking process. 

The calculation should recognize past contributions to the deposit 

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tution in the calculation of the institution’s one-time credit based 

on total assessment base at year-end 1996, as well as the actual 

assessments paid since that time. In establishing the dividend system, the FDIC should also take into account and make adjustments 

that reflect the higher risk profiles of some institutions so that they 

are not rewarded for riskier behavior. The FDIC is given the discretion to incorporate additional factors, through the rulemaking 

process, as it deems appropriate. 

Section 2108. Deposit Insurance Fund restoration plans 

Whenever the reserve ratio falls or is projected to fall below 

the low end of the range within which the FDIC is authorized to 

set the DRR, the FDIC is required, within 90 days, to establish and 

implement a plan for restoring the DIF to that level within five 

years or a longer period in extraordinary circumstances. While 

such a restoration plan is in effect, the FDIC has the authority to 

restrict the use of assessment credits by insured depository institutions, but is required to apply to an institution’s assessment an 

amount that is the lesser of the institution’s assessment or 3 basis 

points of an institution’s assessment base. The FDIC must publish 

the details of its restoration plan in the Federal Register within 30 

days of its implementation. 

Section 2109. Regulations required 

This section provides that the FDIC has 270 days after the 

date of enactment to prescribe final regulations, after notice and 

opportunity for public comment, establishing the DRR, implementing increases in deposit insurance coverage, implementing the 

dividend requirement and the one-time assessment credit, and providing for premium assessments under the amended Act. 

Section 2010. Studies of FDIC structure and expenses and certain 

activities and further possible changes to deposit insurance system 

This section provides that within one year of enactment, reports must be submitted to Congress on the following issues: 

(1) The efficiency and effectiveness of the administration of the 

prompt corrective action (PCA) program, including the degree of effectiveness of the Federal banking agencies in identifying troubled 

depository institutions and the degree of accuracy of the risk assessments made by the FDIC; 

(2) The appropriateness of the FDIC’s organizational structure 

for the mission of the FDIC, to take into account the current size 

and complexity of the business of insured depository institutions; 

the extent to which the organizational structure contributes to or 

reduces operational inefficiencies that increase operational costs; 

and the effectiveness of internal controls; 

(3) The feasibility of establishing a voluntary deposit insurance 

system for deposits in excess of the maximum amount of deposit insurance for any depositor; 

(4) The feasibility of increasing the limit on deposit insurance 

for deposits of municipalities and other units of general local government; 


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(5) The feasibility of privatizing all deposit insurance at insured depository institutions and insured credit unions; and, 

(6) The feasibility of using an alternative to estimated insured 

deposits in calculating the DIF’s reserve ratio and the DRR. 

(7) The section directs the FDIC to conduct a study of the reserve methodology and loss accounting for insured depository institutions in a troubled condition over the period January 1, 1992 

through December 31, 2004, and report its findings and conclusions 

to Congress within one year of the date of enactment. The FDIC 

is required to obtain comments on the design of this study from the 

Government Accountability Office (GAO), and to provide a draft of 

the final report to GAO prior to its submission to Congress. 

(8) The section directs the Comptroller General to report to the 

Committee on Financial Services of the House and the Committee 

on Banking, Housing, and Urban Affairs in the Senate, the potential impact on the United States financial system, the implementation of the new Basel Capital Accord and the proposed revisions to 

current reserve requirement regulations for non-Basel II banks. 

Section 2111. Bi-annual FDIC survey and report on increasing the 

deposit base by encouraging use of depository institutions by the 

unbanked 

This section requires the FDIC to conduct a bi-annual survey 

on efforts by insured depository institutions to bring the ‘unbanked’ 

into the conventional finance system, and report its findings and 

conclusions to the House Committee on Financial Services and the 

Senate Committee on Banking, Housing and Urban Affairs, together with any recommendations for legislative or administrative 

action. 

Section 2112. Technical and conforming amendments to the Federal 

Deposit Insurance Act relating to the merger of the BIF and 

SAIF 

This section makes numerous amendments to ensure the technical conformity of the Federal Deposit Insurance Reform Act to 

various provisions in the Federal Deposit Insurance Act and other 

banking laws, to include the authority of the DIF to borrow from 

insured depository institutions and the Federal Home Loan Banks. 

In particular, this section repeals section 5(d)(2) of the Federal 

Deposit Insurance Act, dealing with exit fees collected from institutions leaving the Savings Association Insurance Fund (SAIF). 

These funds will be returned to the DIF upon the repeal of this 

provision. 

Section 2113. Other Technical and conforming amendments relating 

to the merger of the BIF and SAIF 

This section ensures the technical conformity of the Federal 

Deposit Insurance Reform Act to various provisions in the Federal 

Deposit Insurance Act and other banking laws. 

The managers on the part of the House and Senate at the conference on the disagreeing votes of the two Houses on the amendment of the Senate to bill (S. 1932), to expedite the digital television (DTV) transition while helping consumers to continue to use 

their analog televisions, to free spectrum for public safety and comVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00199 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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mercial use, to improve emergency communications, to provide resources for the design and deployment of a temporary digital television broadcast system for New York City in response to the destruction of the World Trade Center during the terrorist attacks of 

September 11, 2001, and to ensure continued air service to rural 

communities through the Essential Air Service program and for 

other purposes, submit the following joint statement to the House 

and Senate in explanation of the effect of the action agreed upon 

by the managers and recommended in the accompanying conference report. 

CONGRESSIONAL DIRECTIVES 

The statement of the managers remains silent on provisions 

that were in both the House and Senate bills that remain unchanged by this conference agreement, except as noted in this 

statement of the managers. 

The conferees agree that executive branch wishes cannot substitute for Congress’ own statements as to the best evidence of congressional intentions—that is, the official reports of the Congress. 

TITLE III—DIGITAL TELEVISION TRANSITION

Section 3001. Short title 

Section 3001 would provide that this Title may be cited as the 

‘‘Digital Television Transition and Public Safety Act of 2005.’’ 

Sec. 3002. Analog spectrum recovery; firm deadline 

Section 3002 directs the Federal Communication Commission 

(FCC) to take all steps necessary to require, by February 18, 2009, 

that full-power television stations stop analog broadcasting, and 

that Class A stations, whether broadcasting in analog or digital format, and full-power television stations broadcasting in digital format, conduct such broadcasting on channels 2 to 36 and 38 to 51. 

This enables channels 52 to 62 and 65 to 67 to be auctioned, and 

channels 63, 64, 68, and 69 to be used for public-safety purposes. 

Among the necessary steps the FCC will need to take are to issue 

a report and order on the digital television table of channel allotments, and to coordinate those allotments with Canada and Mexico 

to resolve any international interference issues. 

Section 3002 also clarifies that only full-power stations, not 

low-power stations, must cease analog broadcasting by February 

18, 2009. Low-power stations, including Class A stations, may continue broadcasting in analog format after February 18, 2009, subject to future decisions by the FCC on how to complete the digital 

television transition for such stations. Low-power stations other 

than Class A stations may also continue such analog broadcasting 

above channel 51, subject to future FCC decisions, so long as those 

stations’ use of those channels is secondary to the use of those 

channels by the auction winners and public safety officials. 

Section 3003. Auction of recovered spectrum 

Section 3003 would amend the Communications Act of 1934 to 

require the FCC to conduct an auction of the recovered spectrum 


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commencing by January 28, 2008. The FCC’s auction authority 

would be extended through September 30, 2011. 

Sec. 3004. Reservation of auction proceeds 

This provision requires that the proceeds from the auction of 

analog spectrum be deposited in a single separate fund in the 

Treasury, to be called the ‘‘Digital Television Transition and Public 

Safety Fund,’’ in order to fund several programs. On September 30, 

2009, $7,363,000,000 shall be transferred from the Digital Television Transition and Public Safety Fund to the general fund of the 

Treasury. 

Section 3005. Digital transition and public safety fund 

To help consumers who wish to continue receiving broadcast 

programming over the air using analog-only televisions not connected to cable or satellite service, the bill authorizes the National 

Telecommunications and Information Administration (NTIA) to create a digital-to-analog converter box assistance program. Under the 

program, the NTIA is initially allocated up to $990 million of the 

spectrum auction revenues to send by U.S. mail up to two $40 coupons to each U.S. household that requests to participate in the program. Consumers may use the coupons toward the purchase of eligible digital-to-analog converter-boxes. Such boxes, and over-the-air 

digital televisions in general, can work with the antennas consumers already use in their homes for analog over-the-air broadcasts. The NTIA may use up to $100 million of the $990 million 

for administrative costs. Up to $5,000,000 of the administrative 

funds may be used to educate consumers about the digital television transition and the digital-to-analog converter-box program. 

If, as the program progresses, it appears the NTIA will need additional funds, the NTIA may certify to Congress that it cannot operate the program without more money, at which point the funds 

available for the program shall increase to $1.5 billion and the cap 

on administrative expenses shall increase to $160 million. The 

NTIA would be allowed access to the additional funds 60 days after 

the certification. 

Even if NTIA spends $100 million on administrative costs, the 

remaining $890 million in converter-box program proceeds would 

fund 22,250,000 coupons. And each additional $40 the NTIA does 

not spend on administration is another coupon it can make available to consumers. Thus, the Managers expect in any NTIA certification to raise the caps that the NTIA explain in detail why access 

to additional funds is necessary, whether those funds are to be 

used for administrative costs or for the coupons themselves, and 

why the NTIA was unable to operate the program within the $990 

million overall cap and $100 million administrative cap. 

The Managers note that the February 17, 2009, firm deadline 

will have little impact on most television households. Only consumers relying on over-the-air broadcasts should need to participate in the converter-box program. Only 14.86 percent of U.S. television households relied exclusively on over-the-air transmission as 

of June 2004, according to the FCC. By contrast, the FCC reports 

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scribed to a multichannel video programming distribution (MVPD) 

service, such as those offered by a cable or satellite operator. 

The coupon structure of the program and requiring consumers 

to make affirmative requests for coupons takes into account that 

many consumers will neither need nor want a subsidized converter 

box. By contrast, if converter-boxes were made directly available at 

subsidized rates at stores, or coupons were automatically sent to 

every U.S. household, impulse participation by consumers who do 

not really need either a converter-box or a subsidy would cause the 

program to run out of funds before consumers who really do need 

a subsidized box avail themselves of the program. 

The Managers expect NTIA to promulgate regulations within 

nine months of enactment governing: (1) the content and distribution of coupon request forms and coupons; (2) consumer redemption 

of, and retailer reimbursement for, the coupons; (3) the types of 

converter boxes that shall be eligible for purchase with a coupon; 

(4) certification, education, and auditing of retailers involved in the 

program; and (5) consumer and retailer appeals. The requirement 

to send the coupons through the U.S. mail is designed to help 

NTIA administer the two-coupon per household limit. That limit 

would be much more difficult to implement if the coupons themselves were distributed electronically or simply made available at 

government buildings such as post offices. The U.S. mail requirement is also intended to reduce fraud that might occur with electronically distributed coupons. The Managers expect NTIA to take 

additional measures to reduce fraud and abuse, such as including 

anti-counterfeit measures and perhaps unique serial numbers on 

the coupons. The Managers do expect NTIA to use the efficiencies 

of electronic media and networks, however, to make other aspects 

of the program more efficient, such as outreach efforts, the distribution of coupon request forms, and the reimbursement of retailers for coupons that consumers redeem. NTIA should also take 

measures to protect consumer privacy in the use of information 

provided in conjunction with participation in the program. 

Sec. 3006. Public safety interoperable communications 

Section 3006 provides funding in the amount of $1,000,000,000 

to help ensure interoperability for our nation’s first responders. In 

order to obtain a grant under this section, a public safety agency 

shall—(1) submit an application to the Assistant Secretary at such 

time, in such form, and containing or accompanied by such information and assurances as the Assistant Secretary shall require; (2) 

agree that, if awarded a grant, the public safety agency will submit 

annual reports to the Assistant Secretary for the duration of the 

grant award period with respect to—(A) the expenditure of grant 

funds; and (B) progress toward acquiring and deploying interoperable communications systems funded by the grant; and (3) agree to 

remit to the Assistant Secretary any grant funds that remain unexpended at the end of the 3-year period of the grant. 

Grants under this section shall be awarded in the form of a 

single grant for a period of not more that 3 years. At the end of 

3 years, any grant funds that remain unexpended should be remitted by the grantee to the Assistant Secretary, and, may be awarded 

to other eligible grant recipients. At the end of fiscal year 2010, 


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any such re-awarded grant funds that remain unexpended shall be 

remitted by the grantee to the Assistant Secretary and may not be 

re-awarded to other grantees. 

In order to ensure consistency amongst various federal interoperable communications grant programs, the Managers expect the 

Assistant Secretary, in consultation with the Secretary of the Department of Homeland Security, to administer the grant program 

in a manner consistent with the recommended guidance for public 

safety communications and interoperability grants established by 

the Office of Grant and Training of the Preparedness Directorate 

and the SAFECOM Program of the Office for Interoperability and 

Compatibility of the Science and Technology Directorate of the Department of Homeland Security. In addition, the Managers expect 

that the Assistant Secretary, in consultation with the Secretary of 

the Department of Homeland Security, will ensure that the grants 

awarded under this program are utilized by public safety agencies 

in a manner which is consistent with applicable state interoperable 

communications plans, state and urban area homeland security 

strategies, and the National Preparedness Goal and accompanying 

guidance. 

Moreover, in order to minimize the paperwork and administrative burden of public safety agencies applying for funds under this 

grant program, the Managers expect the Assistant Secretary, in 

consultation with the Secretary of the Department of Homeland Security, to enable a public safety agency to utilize, to the maximum 

extent practicable, the identical application such public safety 

agency may have submitted to the Department of Homeland Security for any interoperable communications funding from the Department of Homeland Security and to take any other steps to minimize the administrative burden of public safety agencies that may 

be applying both for funds under this grant program and funds for 

interoperable communications from the Department of Homeland 

Security. 

The Managers intend that grants under this section may be 

used for the acquisition costs associated with designing an interoperable communications system so that the system is properly engineered based upon the topography, population density, or other 

characteristics of the area in which the system will operate. The 

Managers note that there is a diverse array of technological and 

engineering solutions that enable interoperable communications 

systems. 

The Managers encourage the Assistant Secretary, in consultation with the Secretary of the Department of Homeland Security, 

to consider distributing a limited portion of grant funds under this 

section in a manner that gives priority to those public safety agencies in areas designated as at high risk for natural disasters and 

threats of terrorism to the agriculture, food, banking, and chemical 

industries; the defense industrial base; emergency services; energy; 

government facilities; postal, shipping, public health, health care, 

information technology, telecommunications, and transportation 

systems; water; dams; commercial facilities; and national monuments and icons. 


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Section 3007. NYC 9/11 digital transition 

The funding provided under this section, $30,000,000, would 

enable New York City broadcasters can build interim facilities to 

ensure that the New York metropolitan area could receive an adequate digital broadcast signal until the new facilities atop the Freedom tower can be completed. The Managers do not intend this program to alter or affect the FCC’s authority with respect to licensing, interference, or other regulation. 

Sec. 3008. Low-power television and translator digital to analog 

conversion 

Section 3008 provides funding to facilitate continued service for 

the viewers of low power television stations over their analog TVs. 

The Assistant Secretary shall determine the maximum amount of 

compensation such a low-power television station may receive 

based on the average cost of such digital-to-analog conversion devices during the time period such low-power broadcast television 

station purchased the digital-to-analog conversion device, but in no 

case shall such compensation exceed $1,000. 

Section 3009. Low-power and translator upgrade program 

The funding provided under this section would make available $65,000,000 for a program to convert low-power television stations 

and television translator stations from analog to digital transmissions. 

Sec. 3010. National alert and tsunami warning program 

The funding provided under this section, $156,000,000, will 

provide for a modern all hazards alert and warning program to provide alerts in response to natural disasters, man-made accidents, 

and terrorist incidents. The program will encourage, but not mandate, new technologies such as wireless communication devices, 

satellite radios, and personal computers to enhance the nation’s 

current emergency warning capability. The goal of the program will 

be to help ensure that regardless of what communication technology an individual relies upon they will get an alert to a threat 

to public safety. 

The funding will be used to develop technologies to allow emergency managers to precisely geographically target their alerts to 

only populations at risk. Research and development will be encouraged, but not mandated, to be conducted through a cooperative research program with the telecommunications industry. The funds 

should also be used to provide emergency managers with the tools 

necessary to input alerts into a national alerting system and have 

them retransmitted across all appropriate communication mediums. There should be established a procedure to provide credentials to emergency managers who wish to use the system to ensure 

the integrity of emergency alert communications to the public. The 

office responsible for managing the system should also ensure that 

personnel using the system are appropriately trained on how and 

when to use the system and understand that the system should 

only be used for grave threats to public safety. Personnel should 

also be trained to issue alerts that provide the public with information on what to do to protect themselves from the threat. 


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Section 3011. ENHANCE 911 

The funding provided under this section would make available 

$43,500,000 in grants to implement the ENHANCE 911 Act of 

2004. 

Section 3012. Essential air service program 

The funding provided under this section would make 

$30,000,000 in grants to the Essential Air Service program. 

Section 3013. Supplemental license fees 

This section provides for additional fees to be assessed by the 

Federal Communications Commission in the aggregate amount of 

$10,000,000 during fiscal year 2006. 

TITLE V—MEDICARE

Subtitle A—Part A 

Hospital Quality Improvement (Section 5001 of the Conference 

Agreement, Section 6110 of the Senate Bill and no provision in 

the House Bill) 

Current Law 

Each year, Medicare’s operating payments to hospitals are increased or updated by a factor that is determined in part by the 

projected annual change in the hospital market basket (MB), a 

measure that estimates price inflation affecting hospitals. Congress 

establishes the update for Medicare’s inpatient prospective payment system (IPPS) for operating costs in acute care hospitals, 

often several years in advance. Currently, through FY2007, the 

IPPS operating update has been established as the MB for hospitals that submit specific quality information and as the MB 

minus 0.4 percentage points for hospitals that do not provide such 

information. The required data are those ten quality indicators established by the Secretary of the Department of Health and 

Human Services (the Secretary) as of November 1, 2003. Starting 

in FY2008, the IPPS update will be the hospital MB. Any MB reduction does not apply when computing the applicable percentage 

increase in subsequent years. 

Outlier payments are intended to protect IPPS hospitals from 

the risk of financial losses associated with patients with exceptionally high costs or unusually long stays. Medicare cases qualify for 

outlier payments if they exceed a threshold or fixed loss amount 

that is established each year. As directed by statute, the total 

amount of any outlier payments for any year should equal no less 

than 5 percent nor more than 6 percent of total projected operating 

diagnosis related group (DRG) payments. Outlier payments are financed by a reduction in the national average standardized 

amount, typically set at 5.1 percent. 

For the purpose of establishing the correct IPPS payment, 

Medicare discharges are classified into diagnosis related groups 

(DRGs) primarily on the basis of the diagnosis and procedure code 

information included on the beneficiary’s claim. The information includes the principal diagnosis (or main problem requiring inpatient 


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care), up to eight secondary diagnoses codes as well as up to six 

procedures performed during the stay. Medicare pays for inpatient 

hospital services using per discharge rates that will vary by the 

DRG (and its calculated weight) to which a patient’s stay is assigned. Each DRG weight represents the average resources required to provide care for cases in that specific DRG relative to the 

average resources used to treat cases in all DRGs. The Center for 

Medicare and Medicaid Services (CMS) annually reviews the DRG 

definitions and relative weights to (1) reflect changes in treatment 

patterns and technology improvements and (2) ensure that cases 

with clinically similar conditions requiring comparable resources 

are grouped together. 

Under the DRG classification system, certain secondary diagnoses are considered to be complications or comorbidities (CC). 

When present as a secondary condition (with a specific principal diagnosis), these diagnosis codes are considered to increase the 

length of stay by at least one day in at least 75 percent of the patients. In FY2006, there are 3,285 diagnosis codes on the CC list. 

524 DRGs are used for Medicare payment purposes and 121 paired 

DRGs are split into higher and lower paid DRGs on the presence 

or the absence of a CC. CMS has added and deleted codes from the 

standard list of CCs, but has never conducted a comprehensive review of the list. It is planning to review systematically the CC list 

for FY2007 Medicare payments. 

Senate Bill 

The Medicare statute would be amended by adding a new Section l860E–2 which establishes the hospital value-based purchasing 

program for inpatient hospital services, starting FY2007. The program would make value-based payments to hospitals based on data 

reported under the quality measurement system established by the 

Secretary. Hospitals paid under Medicare’s prospective payment 

system (PPS) that have substantially improved the quality of care 

over the prior year or exceeded an established quality threshold 

would receive a value-based payment as determined by the Secretary. A majority of the total amount available for value-based 

payments in any fiscal year would be paid to hospitals that are receiving such payments for exceeding a quality threshold. Starting 

in FY2008, the percentage of the total amount for value-based payments in any fiscal year that is paid to such hospitals would be 

greater than the equivalent percentage paid in the previous year. 

Hospitals would be required to comply with all the quality data reporting requirements and attest to the accuracy of the data in 

order to be eligible for a value-based payment. The total amount 

of value-based payments in a fiscal year would equal the total 

amount of available funding for such payments for that year. The 

payments would be based on the methods determined by the Secretary and would be made to hospitals no later than the close of 

the following fiscal year. No later than January 1, 2007, the Secretary would provide each hospital with a description of how its 

payments for FY2006 would have been affected had the valuebased 

payment program been in effect that fiscal year. 

Value-based payments in a fiscal year would be made from 

Medicare’s Part A Trust fund and would equal specified reductions 


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in those trust fund expenditures as established in Section 6110(b) 

of the bill. Specifically, IPPS outlier payments would be established 

as no less than 5 percent and no more than 6 percent for fiscal 

years prior to 2007. In FY2007, outlier payments would be established as no less than 4 percent and no more than 5 percent. In 

FY2008, outlier payments would be established as no less than 

3.75 percent and no more than 4.75 percent. In FY2009, outlier 

payments would be established as no less than 3.5 percent and no 

more than 4.5 percent. In FY2010, outlier payments would be established as no less than 3.25 percent and no more than 4.25 percent. In FY2011 and in subsequent years, outlier payments would 

be established as no less than 3 percent and no more than 4 percent. 

The Secretary would be directed to reduce the average standardized amount by certain percentages to fund outlier payments 

and the hospital value-based purchasing program. The reduction 

factor would be equal to a calculation where the numerator is the 

sum of the additional outlier payments (as discussed in the preceding paragraph) plus a specified percentage of total projected 

DRG prospective payment rates divided by the total projected DRG 

prospective payment rates. The specific percentages would be 0 

percent for fiscal years prior to 2007, 1 percent in FY2007, 1.25 

percent in FY2008, 1.5 percent in FY2009, 1.75 percent in FY2010, 

and 2 percent in FY2011 and in subsequent years. 

Acute care hospitals that do not submit required quality data 

would receive the MB minus 2 percentage points for FY2007 and 

each subsequent fiscal year. The reduction would apply only with 

respect to the fiscal year involved and would not be taken into account when computing subsequent updates. The required quality 

data would be that determined by the Secretary to be appropriate 

for the measurement of health care quality, including data necessary for the operation of the IPPS hospital value-based purchasing program. 

House Bill 

No provision. 

Conference Agreement 

Hospitals that do not submit the required data in FY2007 and 

each subsequent year will have the applicable MB percentage increase reduced by 2 percentage points. Each IPPS hospital is required to submit data on measures selected by the Secretary in the 

established form, manner, and specified time. Any reduction applies only to the fiscal year in question and does not affect subsequent fiscal years. 

The conference agreement establishes that the Secretary will 

expand the number of quality indicators required to be reported by 

acute care hospitals. Beginning October 1, 2006 the Secretary will 

begin to adopt the baseline set of performance measures set forth 

in the November 2005 Institute of Medicine report that was required by section 238(b) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Beginning October 1, 

2007, the Secretary will add other measures that reflect consensus 

among the affected parties. To the extent feasible and practicable, 


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these measures will include those established by national consensus building entities. The Secretary is permitted to vary and replace any measures in appropriate cases, such as where all hospitals are effectively in compliance or where measures have been 

shown not to represent the best clinical practice. 

The Secretary is required to establish procedures for making 

the submitted quality data available to the public. These procedures will ensure that a hospital has the opportunity to review the 

data before they are made available to the public. The Secretary 

is required to report quality measures of process, structure, outcome, patients’ perspective on care, efficiency, and costs of care 

that relate to inpatient services on the Internet website of CMS. 

The Secretary is required to develop a plan to implement a 

value-based purchasing program for IPPS payments to acute care 

hospitals beginning with FY2009. The plan will include consideration of (1) the on-going development, selection, and modification 

process for measures of quality and resource use in hospital inpatient settings; (2) the reporting, collection, and validation of the 

data; (3) the structure of value-based payment adjustments such as 

the determination of thresholds for a payment adjustment, the size 

of the payment adjustment and the sources of funding for the 

value-based payments; and (4) the disclosure of information on hospital performance. The Secretary will consult with relevant affected 

parties and consider experience with applicable demonstration programs. 

The Secretary is required to submit a report to Congress on 

the plan for the value-based purchasing program no later than August 1, 2007. The Medicare Payment Advisory Commission 

(MedPAC) is required to submit a report with detailed recommendations on the structure of the valued based payment adjustments no later than June 1, 2007. The report will include (1) 

a determination of thresholds, size of payments, sources of funds, 

and relationship of payments to quality measures; (2) analyses of 

hospital efficiency measures such as costs per discharge, related 

services (including physician services) within an episode of care; 

and (3) an identification of other changes that are needed within 

the IPPS payment structure. 

Starting for discharges on October 1, 2007, hospitals are required to report any secondary diagnosis codes applicable to patients at their admission. By October 1, 2007, the Secretary is required to identify at least 2 high cost or high volume (or both high 

cost and high volume) diagnoses codes with a DRG assignment that 

has a higher payment weight when present with secondary diagnoses. These diagnoses codes represent conditions, including certain hospital acquired infections, that could reasonably have been 

prevented through the application of evidence-based guidelines. 

Starting for discharges on October 1, 2008, the DRG assigned to a 

discharge with the identified diagnosis codes will be the DRG that 

does not result in higher payments based on the presence of these 

secondary diagnosis codes. This assignment of the lower paid DRG 

applies to discharges, where, at the time of the patient’s admission, 

the beneficiary had none of the identified diagnosis codes. Adjustments to the relative weight that occur because of this action are 


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not budget neutral. Specifically, aggregate payments for discharges 

in a fiscal year could be changed as a result of such adjustments. 

The list of selected diagnosis may be revised from time to time 

as long as there are at least two conditions selected for discharges 

occurring during any fiscal year. The Secretary is required to consult with the Centers for Disease Control and Prevention and other 

appropriate entities when selecting and revising the identified diagnosis codes. The list of diagnosis codes and DRGs are not subject 

to judicial review. 

Clarification of Determination of Medicaid Patient Days for DSH 

Computation (Section 5002 of the Conference Agreement, no 

provision in the Senate Bill and no provision in the House Bill) 

Current Law 

Hospitals that serve a certain number of low income Medicare 

and Medicaid beneficiaries will receive a disproportionate share 

hospital (DSH) adjustment that increases their Medicare IPPS payments. Most DSH hospitals receive the additional payments based 

on their DSH patient percentage which is the proportion of the hospital’s total days provided to Medicaid recipients added to the proportion of the hospital’s Medicare inpatient days provided to poor 

Medicare beneficiaries (those who are eligible for Part A and receive Supplemental Security Income). After a minimum threshold 

of 15 percent is met, a hospital’s DSH adjustment will vary by the 

hospital’s bed size or urban or rural location. 

The policy of whether inpatient days provided to a patient covered under a demonstration project established by Section 1115 

waivers could be included in the Medicare DSH calculation has 

changed over time. Prior to January 20, 2000, hospitals could not 

include the inpatient hospital days attributable to patients made 

eligible for Medicaid pursuant to a state’s Social Security Act Section 1115 waiver. Starting on January 20, 2000, hospitals could include days for populations under the section 1115 waiver who were 

or could have been made eligible under a State Medicaid plan. This 

policy was corrected for discharge starting on October 1, 2003, 

when hospital inpatient days attributed to patients who do not receive coverage for inpatient benefits under Section 1115 demonstration projects could not be counted in the Medicare DSH calculation. 

These policies were established by regulation in January, 2000 and 

August, 2003. 

Senate Bill 

No provision. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement permits the Secretary to include inpatient hospital days of patients eligible for medical assistance 

under a Section 1115 demonstration waiver in the Medicare DSH 

calculation. These days will be counted as if they were provided to 

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proved Medicaid state plan. The existing regulations and their effective date are ratified. No hospital cost reports that are closed on 

the enactment date will be reopened to implement this provision. 

Improvements to the Medicare-Dependent Hospital (MDH) Program (Section 5003 of the Conference Agreement, Section 6101 

of the Senate Bill, and no provision in the House Bill) 

Current Law 

Certain rural hospitals with 100 beds or less that have at least 

60 percent of its inpatient days or discharges during FY1987 or 

during two of the three most recently audited cost reporting periods (for which there is a settled cost report) are attributed to patients covered under Medicare qualify for special treatment under 

the inpatient prospective payment system as Medicare dependent 

hospitals (MDH). MDH hospitals are paid at national standardized 

rate or, if higher, 50 percent of their adjusted FY1982 or FY1987 

hospital-specific costs. This special treatment will lapse for discharges starting on October 1, 2006. 

Certain hospitals that serve a high proportion of Medicaid patients or poor Medicare beneficiaries qualify for a disproportionate 

share hospital (DSH) adjustment to their inpatient payments. 

Small urban and most rural hospitals (except for rural referral centers) have their DSH adjustment capped at 12 percent. 

Senate Bill 

The MDH status for qualifying rural hospitals would be extended through discharges occurring before October 1, 2011. Starting for discharges on October 1, 2006, a MDH would be able to 

elect payments based of its FY2002 hospital-specific costs if that 

would result in higher Medicare payments. MDH’s payments would 

be based on 75 percent of their adjusted hospital-specific costs 

starting for discharges on October 1, 2006. MDH’s that qualify for 

a disproportionate share hospital (DSH) adjustment would not 

have the adjustment capped at 12 percent. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement adopts the Senate provision. 

Reduction in Payments to Skilled Nursing Facilities for Bad Debt 

(Section 5004 of the Conference Agreement, Section 6102 of the 

Senate Bill, and no provision in the House Bill) 

Current Law 

Medicare pays for the costs of certain items outside of the Prospective Payment System on a reasonable costs basis. Section 

1861(v)(1)(A)(I) of the Social Security Act states that the costs for 

individuals covered by the Medicare program must not be borne by 

individuals not covered by the program, and the costs for individuals not covered by the program must not be borne by Medicare. 

Under this authority, the Secretary adopted a bad debt policy in 

1966. Under this policy, Medicare reimburses certain providers for 


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debt unpaid by beneficiaries for coinsurance and deductibles. Historically, CMS has reimbursed certain providers for 100 percent of 

this bad debt. SNFs are among the Medicare entities that are currently being reimbursed for 100 percent of beneficiary’s bad debt. 

Effective beginning with cost reports starting in FY2001, Medicare began reimbursing hospitals for 70 percent of the reasonable 

costs associated with beneficiaries’ bad debt. In 2003, CMS issued 

a proposed rule (42 CFR Part 413, Medicare Program; Provider 

Bad Debt Payment) in which it described its intent to reduce reimbursement of bad debt for certain providers, including SNFs, by 30 

percent. Within the rule, CMS explained that it believed that reducing the amount of Medicare debt reimbursement would encourage accountability and foster an incentive to be more efficient in 

bad debt collection efforts. It also stated that it believed that Medicare bad debt policy should be applied consistently and fairly 

among all providers eligible to receive bad debt reimbursement. 

Senate Bill 

The provision would amend Section 1861(v)(1) of the Social Security Act to reduce the payment for the allowable bad debts attributable to Medicare deductibles and coinsurance amounts by 30 percent for services furnished in SNFs on or after October 1, 2005. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement reduces payments for allowable bad 

debts attributable to Medicare coinsurance by 30 percent for those 

individuals who are not dually eligible for Medicare and Medicaid. 

Bad debt payments for individuals who are dually eligible for Medicare and Medicaid remain at 100 percent. 

Extended Phase-in of the Inpatient Rehabilitation Facility Classification Criteria (Section 5005 of the Conference Agreement, 

Section 6103 of the Senate Bill, and no provision in the House 

Bill) 

Current Law 

Inpatient rehabilitation facilities (IRFs) are either freestanding 

hospitals or distinct part units of other hospitals that are exempt 

from Medicare’s inpatient prospective payment system (IPPS) used 

to pay short-term general hospitals. The Medicare statute gives the 

Secretary discretion to establish the criteria that facilities must 

meet in order to be considered an IRF. Since 1983, CMS has required that a facility must treat a certain proportion of patients 

with specified medical conditions in order to qualify as an IRF and 

receive higher Medicare payments. The rule was suspended temporarily and reissued in 2004 with a revised set of qualifying conditions and a transition period for the compliance threshold as follows: at 50 percent from July 1, 2004 and before July 1, 2005; at 

60 percent from July 1, 2005 and before July 1, 2006; at 65 percent 

from July 1, 2006 and before July 1, 2007; and at 75 percent from 

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countability Office issued a final report recommending that the 

Centers for Medicare and Medicaid Services (CMS) refine the rule 

to describe more thoroughly the subgroups of patients within a condition that require IRF services, possibly using functional status or 

other factors in addition to condition, to help ensure that IRFs can 

be classified appropriately and that only patients needing IRF services are admitted. 

Senate Bill 

The provision would establish the compliance threshold at 50 

percent from July 1, 2005 through June 30, 2007. The Secretary 

would not be permitted to change the designation of an IRF that 

is in compliance with that threshold. The Secretary would be required to restore the status of a facility as an IRF from July 1, 

2005 through the effective date of this provision because of not 

meeting the 60 percent threshold. The Secretary would be required 

to make appropriate payments to those facilities. IRFs that failed 

to meet the 50 percent compliance threshold would be deemed to 

meet that threshold while an additional 6 months of claims data 

is examined. If the review of the new data indicates that the IRF 

is not in compliance with the 50 percent threshold, the IRF’s 

deemed status would be revoked retroactively to the beginning of 

the 6 month period. The Secretary would collect any overpayments 

made to the IRF. The Inspector General would be required to analyze the types of patients treated in IRFs that have a compliance 

rate between 50 percent and 60 percent. A report would be submitted to Congress and the Secretary by January 1, 2005. A Rehabilitation Advisory Council would be established until September 

30, 2010 to provide advice and recommendations concerning coverage of rehabilitation services under the Medicare program. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement establishes the compliance threshold 

at 60 percent during the 12-month period beginning on July 1, 

2006; at 65 percent during the 12-month period beginning on July 

1, 2007; and at 75 percent beginning on July 1, 2008 and subsequently. The conferees encourage CMS to conduct additional research and study on this issue. 

Development of a strategic plan regarding physician investment in 

specialty hospitals (Section 5006 of the Conference Agreement, 

Section 6104 of the Senate Bill, and no provision in the House 

Bill) 

Current Law 

Physicians are generally prohibited from referring Medicare 

and Medicaid patients to facilities in which they (or their immediate family member) have financial interests. Physicians, however, 

are not prohibited from referring patients to hospitals where they 

have ownership or investment interest in the whole hospital itself 

(and not merely in a subdivision of the hospital). Section 507 of the 


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Medicare Prescription Drug Improvement, and Modernization Act 

of 2003 (MMA) established that the exception for physician investment and self-referral would not extend to specialty hospitals for 

a period of 18-months from enactment (or until June 8, 2004). In 

this instance, a specialty hospital is primarily or exclusively engaged in the care and treatment of patients with a cardiac condition, an orthopedic condition, those receiving a surgical procedure, 

or other specialized category of patient or cases that the Secretary 

designates as inconsistent with the purpose of permitting physician 

investment in a hospital. A specialty hospital does not include any 

hospital that is determined by the Secretary to be in operation or 

under development as of November 18, 2003, with the same number of physician investors as of such date that meets other specified 

requirements. For instance, an increase in the number of beds 

could only occur on the main campus of the hospital and could not 

exceed the greater of 50 percent of the number of beds in the hospital as of November 18, 2003, or 5 beds. The Secretary was directed to consider the certain factors in determining whether a hospital is under development, such as the completion of architectural 

plans, and the status of funding, zoning requirements, and necessary approvals from State agencies. 

Senate Bill 

The prohibition on Medicare and Medicaid referrals to specialty hospitals by physician investors would be effective on and 

after December 8, 2003. The exception to the definition of specialty 

hospital would be modified to include those: (1) where the percent 

investment by physician investors is no greater than the percentage on June 8, 2005; (2) where the percent investment by any physician investor is no greater than the percentage on June 8, 2005; 

and (3) where the number of operating rooms is not greater than 

the number on June 8, 2005. The existing requirement concerning 

permissible changes in the number of beds in order to qualify for 

the specialty hospital exception would be modified. From December 

8, 2003 through June 7, 2005, an acceptable increase in the number of beds would only occur on the main campus of the hospital 

and could not exceed the greater of 50 percent of the number of 

beds in the hospital as of November 18, 2003, or 5 beds. After June 

8, 2005, the number of beds at the specialty hospital would not be 

able to increase. These amendments would be effective on June 8, 

2005. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement directs the Secretary to develop a 

strategic and implementing plan regarding physician investment in 

specialty hospitals that addresses issues related to proportionality 

of investment return, bona fide investments, annual disclosure of 

investment information, and the provision of Medicaid and charity 

care by specialty hospitals. An interim report is due within three 

months and a final report no later than six months after date of 

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ment of new specialty hospitals until the earlier of the date of submission of the report or 6 months after date of enactment. If the 

Secretary fails to comply with the statutory requirement to submit 

the final report within the six month time period, then the suspension on enrollment will be extended an additional two months. In 

developing the strategic and implementing plan the Secretary may 

waive certain requirements under the Administrative Procedures 

Act. 

Medicare demonstration projects to permit gainsharing arrangements (Section 5007 of the Conference Agreement, no provision 

in the Senate Bill, and no provision in the House Bill) 

Current Law 

No provision. 

Senate Bill 

No provision. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement establishes a gainsharing demonstration project to test and evaluate arrangements between hospitals and other providers, including physicians, and practitioners, 

that govern the utilization of inpatient hospital resources to improve the quality and efficiency of care provided to Medicare beneficiaries and to improve operational efficiency and performance. 

The Secretary will solicit applications 90 days after enactment, will 

approve not more than 6 demonstration projects with at least 2 of 

which will be in a rural area, and will begin on January 1, 2007. 

The projects will meet certain requirements to maintain or improve quality while achieving cost savings. Such requirements include arrangements that provide remuneration as a share of savings, a written plan agreement, patient notification, quality and efficiency monitoring, independent review, and referral limitations. 

Restrictions on incentive payments in a project are waived, and 

similar protections extend to existing arrangements. 

Not later than December 1, 2006, the Secretary will report to 

Congress on the number of demonstration projects. Not later than 

December 1, 2007, the Secretary will provide a project update to 

Congress including improvements toward quality and efficiency. By 

December 1, 2008, the Secretary will report to Congress on quality 

improvement and savings from the program. A final report will be 

submitted to Congress by May 1, 2010. 

Post-acute care payment reform demonstration (Section 5008 of the 

Conference Agreement, no provision in the Senate Bill, and no 

provision in the House Bill) 

Current Law 

No provision. 


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Senate Bill 

No provision. 

House Bill 

No provision. 

Conference Agreement 

By January 1, 2008, the Secretary shall establish a demonstration program to better understand costs and outcomes across different post-acute care sites. Under the program, for certain diagnoses specified by the Secretary, an individual receiving treatment 

for such diagnosis shall receive a comprehensive assessment on the 

date of discharge of clinical characteristics and patient needs, to 

determine appropriate placement of the patient in a post-acute care 

site. The Secretary shall use a standardized patient assessment instrument across all post-acute sites, to measure functional status 

and other factors during treatment and discharge from each provider. Participants shall provide information on the fixed and variable cost for each individual, and an additional comprehensive assessment shall be provided at the end of the individual’s episode 

of care. The program will operate for a three year period, and shall 

be conducted with sufficient numbers to determine statistically reliable results. 

No later than 6 months after the end of the program, the Secretary will submit a report to Congress on results and recommendations. 

Subtitle B—Provisions Relating to Part B 

CHAPTER 1—PAYMENT PROVISIONS

Beneficiary Ownership of Certain DME (Section 5101 of the Conference Agreement, Sections 6109 and Section 6116 of Senate 

Bill, no provision in the House Bill) 

Current Law 

Medicare Part B pays for certain items of durable medical 

equipment such as hospital beds, nebulizers and power-driven 

wheelchairs under the capped rental category. Most items in this 

category are provided on a rental basis for a period that cannot exceed fifteen months. After using the equipment for ten months, 

beneficiaries must be given the option of purchasing it effective 

thirteen months after the start of the rental period. If they choose 

the purchase option, the title to the equipment is transferred to 

beneficiaries. If the purchase option is not chosen, the supplier retains ownership of the equipment. Beneficiaries can continue to use 

it, but Medicare rental payments to the supplier are terminated. In 

the case of a power-driven wheelchair, the supplier must offer the 

beneficiary the option of purchasing the equipment when it is first 

furnished. 

Medicare payments to suppliers for maintenance and servicing 

differ based on whether the beneficiary has purchased the equipment or whether the supplier continues to own it. In the case of 

a purchase agreement, payment for repairs and extensive maintenance recommended by the manufacturer is covered. When the 


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equipment remains in the ownership of the supplier and continues 

to be used by a beneficiary after the fifteen month rental period, 

Medicare makes a payment to the supplier every six months for 

servicing and maintenance regardless of whether any maintenance 

and servicing is performed. 

Senate Bill 

The Senate bill would require the supplier to transfer the title 

of durable medical equipment in the capped rental category to the 

beneficiary after a thirteen month rental period. The option for a 

fifteen month rental period with the supplier retaining ownership 

of the item would be eliminated. The option for beneficiaries to purchase power-driven wheelchairs when initially furnished would be 

retained. 

Automatic payments to the supplier every six months for maintenance and servicing would be eliminated. Such payments (for 

parts and labor not covered by the supplier’s or manufacturer’s 

warranty) would only be made if the Secretary determined them to 

be reasonable and necessary. This amendment would apply to 

items for which the first rental month occurred on or after January 

1, 2006. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement includes the Senate bill. The provisions apply to items for which the first rental month occurs on or 

after January 1, 2006. 

The agreement further provides that rental payments for oxygen equipment (including portable oxygen equipment) are converted to ownership at 36 months. The supplier is required to 

transfer the title of the equipment to the beneficiary after a 36 

month rental period. After transfer of the title, monthly payments 

for oxygen contents (in the case of gaseous and liquid oxygen) will 

continue to be made, as provided for under current law, for the period of medical need. Payments for maintenance and servicing (for 

parts and labor not covered by the supplier’s or manufacturer’s 

warranty) will be made if the Secretary determines them to be reasonable and necessary. The agreement specifies that the provision 

takes effect on January 1, 2006. In the case of an individual receiving oxygen equipment as of December 31, 2005, the 36-month period begins January 1, 2006. 

Adjustments in Payments for Imaging Services (Section 5102 of the 

Conference Agreement, no provision in the Senate Bill and no 

provision in the House Bill) 

Current Law 

Medicare has a long-standing policy of reducing payment for 

multiple surgical procedures performed by the same physician, on 

the same patient on the same day. Full payment is made for the 

highest priced procedure, with any subsequent procedure paid at 


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50 percent. In 1995, the policy was extended to certain nuclear 

medicine diagnostic procedures. 

Under the physician fee schedule, diagnostic imaging procedures are priced as follows: (1) the professional component (PC) 

represents the physician work, i.e. the interpretation; (2) the technical component (TC) represents practice expenses including clinical staff, supplies, and equipment; and (3) the global service which 

represents both the PC and TC. Diagnostic imaging services, even 

those paid on contiguous body parts, are generally paid at 100 percent for each procedure. 

In its March 2005 report, Medicare Payment Policy, the Medicare Payment Advisory Commission recommended that CMS expand its coding edit policy to help the program pay more accurately 

for multiple imaging services performed during the same encounter. It noted that a number of private plans use coding edits to adjust payments for multiple imaging services performed on contiguous body parts. Private insurers usually pay the full amount for 

the first service but a reduced amount (usually half) for the technical component of any additional study that is of the same modality. This is based on the premise that there are savings in clerical 

time, preparation, and supplies. 

In August 2005, CMS issued its proposed physician fee schedule for 2006 (Federal Register, vol. 70, no. 151, 45764–46064). CMS 

noted that its analysis supported a 50 percent reduction in the TC 

for the subsequent imaging procedure performed on contiguous 

body parts. It did not propose to apply the multiple procedure reduction to PC services because it believed that physician work is 

not significantly affected for multiple procedures. When a global 

service code is billed, the TC portion, but not the PC portion, would 

be reduced. CMS identified 11 families of imaging procedures by 

imaging modality. It recommended extending the multiple procedure TC payment reduction only to procedures involving contiguous 

body parts within a family of codes, not across families. 

On November 21, 2005, CMS issued its final physician fee 

schedule regulation for 2006 (Federal Register, vol 70, no. 223, 

70116–70476). It retained the proposed reduction with modifications. The payment reduction is to be phased in with a 25 percent 

reduction in 2006 and a 50 percent reduction in 2007. Further, the 

budget neutrality adjustment is to be applied only to practice expense relative value units rather than to both work and practice 

expense relative value units. 

When the Secretary revises the relative values for the work, 

practice expense and malpractice components of physician payments, the revisions may not change the amount of physician expenditures by more than $20 million. Thus, changes must be budget neutral. When reducing practice expenses for imaging, the Secretary is required to increase practice expenses for other physician 

services to maintain budget neutrality. 

Senate Bill 

No provision. 

House Bill 

No provision. 


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Conference Agreement 

The conference agreement specifies that, effective for fee schedules established beginning with 2007, the reduced expenditures attributable to the multiple procedure payment reduction for imaging 

(under the final rule published November 21, 2005) will not be 

taken into account for purposes of the budget neutrality calculation 

for fee schedules for 2006 and 2007. 

The agreement further provides that for specified imaging 

services furnished on or after January 1, 2007, the technical component (including the technical component of the global fee) for a 

service will be reduced if it exceeds (without regard to the geographic wage adjustment factor) the outpatient department (OPD) 

fee schedule amount for the service established under the prospective payment system for hospital outpatient departments. In such 

cases, the Secretary will provide for the use of that OPD amount, 

adjusted by the geographic adjustment factor under the physician 

fee schedule. The services this policy applies to are: imaging and 

computer-assisted imaging services, including X-ray, ultrasound 

(including echocardiography), nuclear medicine (including positron 

emission tomography), magnetic resonance imaging, computed tomography, and fluoroscopy. Not included are diagnostic and screening mammography. This change will not be taken into account for 

purposes of the budget neutrality calculation beginning in 2007. 

This provision moves toward payment neutrality across sites of 

service delivery. 

Limitation on Payments for Procedures in Ambulatory Surgical 

Centers (Section 5103 of the Conference Agreement, no provision in the Senate Bill, and no provision in the House Bill) 

Current Law 

Medicare uses a fee schedule to pay for the facility services related to a surgery provided in an ambulatory care surgery center 

(ASC). The associated physician services (surgery and anesthesia) 

are reimbursed under the physician fee schedule. CMS maintains 

a list of approved ASC procedures which is required to be updated 

every two years. The approved ASC procedures are categorized into 

one of nine payment groups that comprise the ASC facility fee 

schedule. The nine payment rates reflect the national median cost 

of procedures in that group adjusted to reflect geographic price variation. 

The Secretary is required under the MMA to implement a new 

payment system for ASCs no later than January 2008. 

Medicare reimbursement for hospital outpatient department 

(OPD) services is based on a fee schedule established by a separate 

prospective payment system (OPPS). Under OPPS, the unit of payment is the individual service or procedure as assigned to an ambulatory payment classification (APC). The payment rate for each 

service is determined by multiplying the relative weight for the 

service’s APC by the conversion factor. 

Senate Bill 

No provision. 


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House Bill 

No provision. 

Conference Agreement 

Beginning on January 1, 2007, when the ASC facility payment 

(without application of any geographic price differences) is greater 

than the Medicare OPD fee schedule amount established under 

OPPS (without application of any geographic adjustment) for the 

same service, the ASC will be paid the OPD fee schedule amount. 

This adjustment applies to ASC payments until the revised ASC 

payment system is implemented. Total payments to ASCs will be 

held budget neutral between the year prior to implementation of 

the new payment system and the first year of the new payment 

system. 

This provision moves toward payment neutrality across sites of 

service delivery. 

Update for Physicians’ Services for 2006 (Section 5104 of the Conference Agreement, Section 6105 of Senate Bill, and no provision in the House Bill) 

Current Law 

Medicare payments for services of physicians and certain nonphysician practitioners are made on the basis of a fee schedule. The 

fee schedule assigns relative values to services that reflect physician work (i.e., the time, skill, and intensity it takes to provide the 

service), practice expenses, and malpractice costs. The relative values are adjusted for geographic variations in costs. The adjusted 

relative values are then converted into a dollar payment amount by 

a conversion factor. The conversion factor for 2005 is $37.8975. 

The conversion factor is the same for all services. It is updated 

each year according to a formula specified in law. The intent of the 

formula is to place a restraint on overall spending for physicians’ 

services. Several factors enter into the calculation of the formula. 

These include: (1) the sustainable growth rate (SGR) which is essentially a cumulative target for Medicare spending growth over 

time (with 1996 serving as the base period); (2) the Medicare economic index (MEI) which measures inflation in the inputs needed 

to produce physicians services; and (3) the update adjustment factor which modifies the update, which would otherwise be allowed 

by the MEI, to bring spending in line with the SGR target. In no 

case can the adjustment factor be less than minus seven percent 

or more than plus three percent. 

The law specifies a formula for calculating the SGR. It is based 

on changes in four factors: (1) estimated changes in fees; (2) estimated change in the average number of Part B enrollees (excluding 

Medicare Advantage beneficiaries); (3) 10-year rolling average 

change in real gross domestic product (GDP) growth per capita; 

and (4) estimated change in expenditures due to changes in law or 

regulations. 

The SGR target is not a limit on expenditures. Rather, the fee 

schedule update reflects the success or failure in meeting the target. If expenditures exceed the target, the update for a future year 

is reduced. This is what occurred for 2002. It was also slated to 


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occur in 2003 and 2004; however, the MMA prevented this from occurring through 2005. A negative 4.4 percent update is slated to 

occur in 2006. 

Senate Bill 

The Senate bill would specify that the update to the conversion 

factor in 2006 could not be less than one percent. The provision 

would further specify that these amendments would not be considered as a change in law for purposes of calculating the SGR. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement specifies that the update for 2006 is 

zero percent. These amendments are not considered as a change in 

law for purposes of calculating the SGR. 

MedPAC is required to report to Congress by March, 2007 on 

mechanisms to replace the Sustainable Growth Rate system. 

Three-year Transition of the Hold Harmless Payments for Small 

Rural Hospitals Under the Prospective Payment System For 

Hospital Outpatient Department Services (Section 5105 of the 

Conference Agreement, Section 6106 of the Senate Bill, and no 

provision of the House Bill) 

Current Law 

The prospective payment system for services provided by hospital outpatient departments (OPD) was implemented in August 

2000 for most acute care hospitals. Under hold harmless provisions, as modified by the MMA, rural hospitals with no more than 

100 beds and sole community hospitals (SCH) located in rural 

areas are paid no less under this payment system than they would 

have received under the prior reimbursement system for covered 

OPD services provided before January 1, 2006. 

Senate Bill 

The hold harmless provisions governing OPD reimbursement 

for small rural hospitals and rural SCH would be extended to January 1, 2007. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement establishes that small rural hospitals (with no more than 100 beds that are not SCHs) can receive 

additional Medicare payments, if their outpatient payments under 

the prospective payment system are less than under the prior reimbursement system. For calendar year (CY) 2006, these hospitals 

will receive 95 percent of the difference between the prospective 

payment system and the prior reimbursement system. The hospitals will receive 90 percent of the difference in CY2007 and 85 

percent of the difference in CY2008 


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On November 10, 2005, CMS issued its final hospital outpatient prospective payment system regulation for CY2006 (Federal 

Register, vol. 70, no. 217, 68516–68980). Under this rule, rural sole 

community hospitals will receive a 7.1 percent increase on January 

1, 2006. 

Update to the Composite Rate Component of the Basic Case-Mix 

Adjusted Prospective Payment System for Dialysis Services 

(Section 5106 of the Conference Agreement, Section 6107 of the 

Senate Bill, no provision in the House Bill) 

Current Law 

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) required the Secretary to establish 

a basic case-mix adjusted prospective payment system for dialysis 

services furnished either at a facility or in a patient’s home, for 

services furnished beginning on January 1, 2005. The basic casemix adjusted system has two components: (1) the composite rate, 

which covers services, including dialysis; and (2) a drug add-on adjustment for the difference between the payment amounts for separately billable drugs and biologicals and their acquisition costs, as 

determined by the Inspector General Report. 

The Secretary is required to update the basic case-mix adjusted payment amounts annually beginning with 2006, but only 

for that portion of the case-mix adjusted system that is represented 

by the add-on adjustment and not for the portion represented by 

the composite rate. 

Senate Bill 

The provision would increase the composite rate component of 

the basic case-mix adjusted system for services beginning January 

1, 2006 by 1.6 percent above the amount paid for such services furnished on December 31, 2005. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement follows the Senate bill. 

Revisions to Payments for Therapy Services (Section 5107 of the 

Conference Agreement, Section 6108 of Senate Bill and no provision in the House Bill) 

Current Law 

The Balanced Budget Act of 1997 established annual per beneficiary payment limits for all outpatient therapy services provided 

by non-hospital providers. The limits applied to services provided 

by independent therapists as well as to those provided by comprehensive outpatient rehabilitation facilities (CORFs) and other 

rehabilitation agencies. The limits did not apply to outpatient services provided by hospitals. 

Beginning in 1999, there were two beneficiary limits. The first 

was a $1,500 per beneficiary annual cap for all outpatient physical 

therapy services and speech language pathology services. The secVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00221 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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ond was a $1,500 per beneficiary annual cap for all outpatient occupational therapy services. Beginning in 2002, the amount would 

increase by the Medicare economic index (MEI) rounded to the 

nearest multiple of $10. 

The Balanced Budget Refinement Act of 1999 (BBRA) suspended application of the limits for 2000 and 2001. The Medicare, 

Medicaid, and SCHIP Benefits Improvement and Protection Act of 

2000 (BIPA) extended the suspension through 2002. Implementation of the provision was delayed until September 2003. The caps 

were implemented from September 1, 2003 through December 7, 

2003. MMA reinstated the moratorium from December 8, 2003 

through December 31, 2005. The caps are slated to go into effect 

beginning January 1, 2006. In the November 2005 final physician 

fee schedule regulation for 2006 CMS announced that the caps 

would be $1,740 in 2006. 

Senate Bill 

The Senate bill would extend the moratorium for an additional 

year, through 2006. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement would not extend the therapy cap 

moratorium. However, the Secretary would be required to implement an exceptions process for expenses incurred in 2006. Under 

the process, a Part B enrollee, or a person acting on behalf of the 

enrollee, may request an exception from the physical therapy/ 

speech language pathology and occupational therapy caps. The individual may obtain such exception if the provision of services is 

determined medically necessary. If the Secretary does not make a 

decision on a request within 10 business days of receipt, the Secretary is deemed to have found the services medically necessary. 

The provision may be implemented by program instruction or otherwise. The agreement specifies that there can be no administrative or judicial review of the exceptions process (including establishment of the process). 

The agreement requires the Secretary, by July 1, 2006, to implement clinically appropriate coding edits for physical therapy 

services, occupational therapy services, and speech language pathology services. The edits are to identify and eliminate improper 

payments. The edits are to include edits of clinically illogical combinations of procedure codes and other edits to control inappropriate billings. 

CHAPTER 2—MISCELLANEOUS

Accelerated Implementation of Income-Related Reduction in Part B 

Premium Subsidy (Section 5111 of the Conference Agreement, 

no provision in the Senate Bill, no provision in the House Bill) 

Current Law 

The MMA increased the Part B premiums for higher income 

enrollees beginning in 2007. In 2007, individuals whose modified 


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adjusted gross income (AGI) exceeds $80,000 and couples whose 

modified AGI exceeds $160,000 will be subject to higher premium 

amounts. The increase will be phased-in over five years. During the 

first year, higher income enrollees will pay premiums ranging from 

27 percent to 36 percent of the value of Part B. When fully phasedin, higher income individuals will pay premiums ranging from 35 

percent to 80 percent of the value of Part B. 

Senate Bill 

No provision. 

House Bill 

No provision. 

Conference Agreement 

The agreement accelerates the phase-in period from five years 

to three years, with the provision fully effective in 2009. In 2007, 

higher income enrollees will pay total premiums ranging from 28 

percent to 43 percent of the total value of Part B. In 2008, enrollees 

will pay total premiums ranging from 32 percent to 62 percent of 

the total value of Part B. When fully phased-in in 2009, higher income individuals will pay total premiums ranging from 35 percent 

to 80 percent of the total value of Part B. 

Medicare Coverage of Ultrasound Screening for Abdominal Aortic 

Aneurysms (Section 5112 of the Conference Agreement, Section 

6117 of the Senate Bill and no provision in the House Bill) 

Current Law 

Medicare provides coverage for services which are reasonable 

and necessary for the diagnosis or treatment of illness or injury or 

to improve the functioning of a malformed body member. In addition, Medicare covers certain preventive services specified in law. 

Senate Bill 

The Senate bill would authorize Medicare coverage of 

ultrasound screening for abdominal aortic aneurysms for individuals who: (1) received referrals for such screenings as a result of 

an initial preventive physical exam performed for new Medicare enrollees; (2) who had not previously had such a test covered by 

Medicare; and (3) who had a family history of abdominal aortic aneurysms or who manifested risk factors included in a beneficiary 

category (not related to age) identified by the United States Preventive Services Task Force. 

An ultrasound screening for abdominal aortic aneurysms would 

be defined as a procedure using sound waves provided for the early 

detection of abdominal aortic aneurysms. The Secretary could 

specify other procedures using alternative technologies which were 

of commensurate accuracy and cost. The term would include the 

physician’s interpretation of the results of the procedure. 

Ultrasound screening for abdominal aortic aneurysms would be included in the package of services (including related education, 

counseling and referral) provided in the initial preventive service 

exam offered to new Medicare enrollees. 


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Payment for services would be made under the physician fee 

schedule. The provision would specify that payment would not be 

made for screenings performed more frequently than specified 

above. The Part B deductible would not apply to these services. 

The Secretary would be required to establish quality assurance 

standards, in consultation with national medical, vascular technologist and sonographer societies, with respect to individuals 

(other than physicians) performing ultrasound screening for abdominal aortic aneurysms and diagnostic laboratories. Such standards would specify that the individual or laboratory was certified 

by the appropriate state licensing or certifying agency or (in the 

case of a state which did not license or certify such individuals or 

laboratories) by a national accreditation agency recognized by the 

Secretary. Medicare payment would not be made where individuals 

or laboratories performing the screening did not meet the quality 

assurance standards. 

The bill would require the Secretary (after consultation with 

national medical, vascular technologist and sonographer societies) 

to conduct a national education and information campaign to promote awareness among health care practitioners and the general 

public with respect to the importance of early detection and treatment of abdominal aortic aneurysms. The section would authorize 

the appropriation of such funds as may be necessary, beginning in 

FY 2006 and each fiscal year thereafter. The Secretary could use 

such amounts to make grants to national medical, vascular technologist and sonographer societies to enable them to educate practitioners and providers about matters relating to such aneurysms. 

Such grants would be made in accordance with procedures and criteria specified by the Secretary. 

The amendments would apply to ultrasound screenings for abdominal aortic aneurysms performed on or after January 1, 2007. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement includes the Senate bill with modifications. The agreement does not specify that beneficiary categories recommended for screening cannot include categories related to age. The agreement does not provide for the development 

of quality assurance standards. Further, it does not include the national education and information campaign. 

Improving Patient Access to, and Utilization of, Colorectal Cancer 

Screening Under Medicare (Section 5113 of the Conference 

Agreement, Section 6118 of the Senate Bill and no provision in 

the House Bill) 

Current Law 

Medicare covers certain cancer screening tests, subject to coverage limitations based on the type of test and the individual’s 

level of risk. Covered tests are fecal occult blood test, flexible 

sigmoidoscopy, screening colonoscopy, and barium enema. Payments for services are made under the physician fee schedule 


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which assigns relative values to services based on physician work, 

practice expense costs, and malpractice costs. The relative values 

are then adjusted for geographic variations in costs. These adjusted 

relative values are converted into dollar payment amounts by a 

conversion factor. 

The Secretary is required to review and adjust relative values 

for specific services periodically, and has established a process for 

this review and adjustment. 

Senate Bill 

The Senate bill would require the Secretary to establish minimum payment amounts for CPT codes 45378 (diagnostic 

colonoscopy), 45380 (colonoscopy and biopsy), and 45385 (lesion removal, colonoscopy) and HCPCS codes G0105 (colorectal screen, 

high risk individual) and G0121 (colon cancer screen, not high risk 

individual) for items and services furnished after January 1, 2007. 

The amounts would reflect a 5 percent increase above the relative 

value units in effect as the non-facility rates for such codes on December 31, 2006; the revised payment levels would apply to items 

and services furnished in non-facility settings. Similarly, the provision would require the Secretary to establish minimum payment 

amounts for the same CPT and HCPCS codes for items and services furnished after January 1, 2007 which would reflect a 5 percent increase above the relative value units in effect as the facility 

rates for such codes on December 31, 2006; the revised payment 

levels would apply to items and services furnished in facility settings. The payment amounts would be adjusted annually in accordance with the payment update rules under the fee schedule. The 

Secretary would not take into account the revised payment 

amounts in determining the amount of payment under the prospective payment system for covered hospital outpatient department 

services. 

The bill would also authorize Medicare coverage for an office 

visit or consultation prior to a screening colonoscopy or in connection with a beneficiary’s decision to obtain such a screening. The 

visit or consultation would be for the purpose of beneficiary education, assuring selection of the proper screening test, and securing 

information relating to the procedure and sedation of the beneficiary. The visit or consultation would be covered regardless of 

whether the screening was medically indicated for the beneficiary. 

Payments would equal 80 percent of the lesser of the actual charge 

or the amount established under the physician fee schedule. Payment amounts established under the fee schedule would be consistent with those established for CPT codes 99203 (office/outpatient visit, new patient) and 99243 (office consultation). The provision would apply to services furnished on or after January 1, 

2007. 

The Part B deductible would not apply to colorectal cancer 

screening tests, effective January 1, 2007. 

House Bill 

No provision. 


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Conference Agreement 

The conference agreement only includes the Senate provision 

waiving the Part B deductible. 

Delivery of Services at Federally Qualified Health Centers (Section 

5114 of the Conference Agreement, Section 6115 of the Senate 

Bill, and no provision in the House Bill) 

Current Law 

The Omnibus Budget Reconciliation Act (OBRA) of 1989 

amended the Social Security Act (SSA) to create a new category of 

facility under Medicare and Medicaid known as a federally qualified health center (FQHC). An FQHC is required to provide certain 

primary care services by physicians and appropriate mid-level practitioners as well as other preventive health services including those 

required under certain sections of the Public Health Service (PHS) 

Act (specifically Sections 329, 330, and 340 of the PHS). 

Prior to the enactment of MMA, FQHC services were covered 

by a skilled nursing facility’s (SNF) consolidated billing requirement. FQHC services were bundled into the SNF comprehensive 

per diem payment for the covered stay and not separately billable. 

MMA specified that a SNF Part A resident who receives FQHC 

services from a physician or appropriate practitioner would be excluded from SNF consolidated billing and be paid separately. 

Senate Bill 

The provision would add diabetes self-management training 

and nutrition therapy benefits, as covered under Medicare, as additional services that may be covered under the all-inclusive per visit 

payment rate for FQHCs. It would allow FQHCs to receive payments for services provided through a health care professional who 

contracts with the center and would remove restrictions on receipt 

of homeless grants. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement adopts the Senate provision. 

Waiver of Part B Late Enrollment Penalty for Certain International Volunteers (Section 5115 of the Conference Agreement, Section 6114 of the Senate Bill and no provision in the 

House Bill) 

Current Law 

Medicare Part B is a voluntary program. Individuals generally 

enroll in Part B when they turn 65. Individuals who delay enrollment in the program after their initial enrollment period are subject to a premium penalty. This penalty is a surcharge equal to 10 

percent of the premium amount for each 12 months of delayed enrollment. There is no upper limit on the amount of the surcharge 

that may apply. Further, the penalty continues to apply for the entire time the individual is enrolled in Part B. The law establishes 


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certain exceptions to the delayed enrollment penalty. One exception 

applies to the ‘‘working aged.’’ Delayed enrollment is also permitted 

for certain disabled persons who have group health insurance coverage based on their own or a family member’s current employment 

with a large group health plan. 

Individuals who are permitted to delay enrollment have their 

own special enrollment periods. A special enrollment period begins 

when current employment ends or when coverage under the plan 

ends. The special enrollment period ends eight months later. Individuals who fail to enroll in this period are considered to have delayed enrollment and could become subject to the penalty. 

Senate Bill 

The Senate bill would permit certain individuals to delay enrollment in Part B without a delayed enrollment penalty. Those individuals who volunteer outside of the United States for at least 12 

months through a program sponsored by a tax-exempt organization 

defined under section 501(c)(3) of the Internal Revenue Code would 

be permitted to delay enrollment under Medicare Part B. They 

would have a 6 month special Part B enrollment period beginning 

on the first day of the month the individual was no longer in the 

program. Coverage would begin the month after the individual enrolled. This section would apply to months and special enrollment 

periods beginning January 2007. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement includes the Senate bill with a 

modification. The provision applies to individuals who can demonstrate health insurance coverage while volunteering outside the 

United States.. 

Coverage of Marriage and Family Therapist Services and Mental 

Health Counselor Services Under Part B of the Medicare Program (No provision in the Conference Agreement, Section 6119 

of the Senate Bill and no provision in the House Bill) 

Current Law 

Medicare provides coverage for mental health services, subject 

to certain limitations. Medicare Part B will make direct payments 

to physicians, psychologists, and clinical social workers for such 

services. Medicare does not make direct payments for services provided by marriage and family therapists and mental health counselors. Their services are generally paid as incident to a physician’s 

professional services. They may also be included as part of covered 

facility services such as those provided by a skilled nursing facility. 

Senate Bill 

The Senate bill would include ‘‘marriage and family therapist 

services’’ and ‘‘mental health counselor services’’ within the definition of ‘‘medical and other health services’’ covered under Medicare 

Part B. The term marriage and family therapist services would be 


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defined as services performed by marriage and family therapists 

for the diagnosis and treatment of mental illnesses. Such services 

would be those which the individual was legally authorized to perform under state law (or the state regulatory mechanism provided 

by state law) of the state in which the services were performed. 

Such services would also have to be of the type which would otherwise be covered if furnished by a physician or as incident to a physician’s professional services. Payment would only be made if no facility or other provider charged or was paid for such services. 

The term marriage and family therapist would be defined as 

an individual who: (1) possessed a master’s or doctoral degree 

which qualified the individual for licensure or certification as a 

marriage and family therapist pursuant to state law; (2) performed 

at least 2 years of clinical supervised experience in marriage and 

family therapy after obtaining the degree; (3) was licensed or certified as a marriage and family therapist in the state if such state 

provided for licensure and certification of marriage and family 

therapists. 

The provision would define mental health counselor services as 

services performed by mental health counselors for the diagnosis 

and treatment of mental illnesses. Such services would be those 

which the individual was legally authorized to perform under state 

law (or the state regulatory mechanism provided by state law) of 

the state in which the services were performed. Such services 

would also have to be of the type which would otherwise be covered 

if furnished by a physician or as incident to a physician’s professional services. Payment would only be made if no facility or other 

provider charged or was paid for such services. 

The term mental health counselor would be defined as an individual who: (1) possessed a master’s or doctoral degree in mental 

health counseling or a related field; (2) performed at least 2 years 

of supervised mental health counselor practice after obtaining the 

degree; (3) was licensed or certified as a mental health counselor 

or professional counselor in the state if such state provided for licensure and certification of mental health counselors or professional counselors. 

Payment for covered services would be made under Medicare 

Part B. Payment would equal the lesser of 80 percent of the actual 

charge for the service or 75 percent of the amount paid to a psychologist for such services. All services provided by marriage and 

family therapists and mental health counselors would be paid on 

an assignment basis. Further, services provided by marriage and 

family therapists and mental health counselors would be added to 

the list of services excluded from payment as part of the skilled 

nursing facility prospective payment system. 

The bill would include services provided by marriage and family therapists and mental health counselors in the definition of covered rural health clinic services. It would modify the definition of 

the required interdisciplinary team for a hospice program to permit 

a marriage or family therapist to be on the team instead of a social 

worker. 

The provision would apply to services provided on or after January 1, 2007. 


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House Bill 

No provision. 

Conference Agreement 

No provision. 

Subtitle C—Provisions Relating to Parts A and B 

Home Health Payments. (Section 5201 of the Conference Agreement, Section 6110 of the Senate Bill—with respect to quality 

of home health services, and no provision in the House Bill) 

Current Law 

The Medicare home health prospective payment system, which 

was implemented on October 1, 2000, provides a standardized payment for a 60-day episode of care furnished to a Medicare beneficiary. Medicare’s payment is adjusted to reflect the type and intensity of care furnished and area wages as measured by the hospital wage index. 

Each year Medicare’s payment to home health agencies is updated by the projected annual change in the home health market 

basket (HHMB), with specified reductions in some years. For the 

last three calendar quarters of 2004 through 2006, the home health 

update is the HHMB minus 0.8 percentage points. In 2007 and 

subsequent years, the payment update for home health agencies is 

equal to the full HHMB. 

The Medicare Prescription Drug Improvement and Modernization act of 2003 provided for a one-year 5 percent additional payment for home health services furnished in rural areas. The temporary payment began for episodes and visits ending on or after 

April 1, 2004 and before April 1, 2005. It was made without regard 

to certain budget neutrality provisions and was not included in the 

base for determination of payment updates. 

Senate Bill 

The Medicare statute would be amended by adding a new Section 1860E–6 which establishes the Home Health Agency ValueBased Purchasing Program. In 2008 and in subsequent years, the 

Secretary would make value-based payments to those home health 

agencies that, based on data submitted under the quality measurement system, have either substantially improved quality of care 

over the prior year, or exceed a threshold established by the Secretary. A majority of the total amount available for value-based 

payments in any fiscal year would be paid to home health agencies 

that qualify for payments because they exceed a quality threshold. 

Starting in 2009 and in each subsequent year, the percentage of 

total value-based payments made to agencies that exceed the quality threshold would be greater than the percentage made in the 

previous year. To be eligible for a value-based payment, home 

health agencies would be required to submit the required quality 

data and attest that it is complete and accurate. 

The total amount of value-based payments made in a year 

would equal the total funds available for such payments. The Secretary would determine the most appropriate method for making 


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payments. Payments for a year would be required to be made no 

later than December 31 of the subsequent year. By January 1, 

2008, the Secretary would be required to provide each home health 

agency with a description of how its payments for 2007 would have 

been affected had the value-based purchasing system been in effect 

that year. 

Value-based payments would be made from Part A and Part B 

in the same proportion as payments for home health services are 

made. 

In 2007 and subsequent years, a home health agency that does 

not submit to the Secretary the required quality data would receive 

an update of the market basket minus two percentage points. This 

reduction would only apply to the fiscal year in question. For 2007 

and subsequently, each home health agency would be required to 

submit data necessary for a value-based purchasing system in the 

form, manner, and time period specified by the Secretary. Procedures for making the data available to the public would be established. 

To fund the program, spending under the trust funds for home 

health services would be reduced by a percent applied to the standard prospective payment amount made to all agencies that comply 

with the data submission requirements. The percent reduction 

would be 1 percent in 2008, 1.25 percent in 2009, 1.5 percent in 

2010, 1.75 percent in 2011, and 2 percent in 2012 and subsequent 

years. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement eliminates the update for home 

health payments in 2006. It also provides for a one-year 5 percent 

additional payment for home health episodes or visits furnished in 

a rural area during calendar year 2006. 

The Conference agreement accepts the Senate language with 

respect to (1) the collection of health care quality data, as determined appropriate by the Secretary, (2) procedures for making the 

data available to the public, and (3) the reduction of payments to 

home health agencies that do not submit quality data in 2007 and 

beyond. The reduction in payments is equal to the market basket 

minus two percentage points. However the reduction will not be 

taken into account for calculation of the payment rate in subsequent years. 

The conference agreement directs the Medicare Payment Advisory Commission to submit a report to Congress no later than June 

1, 2007 on a value-based purchasing program for home health services. The report is to include recommendations on the structure of 

the program, the determination of thresholds, the size of valuebased payments, sources of funds, and the relationship of payments 

for improvements in health care quality. 


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Revision of Period for Providing Payment for Claims that are not 

Submitted Electronically (Section 5202 of the Conference 

Agreement, no provision in the Senate Bill, and no provision 

in the House Bill) 

Current Law 

Mandatory electronic claims submission went into effect on 

July 1, 2005 for all providers, with a few exceptions. The exceptions 

include: (1) small providers with fewer than 25 full-time equivalent 

(FTEs) employees and physicians, practitioners, or suppliers with 

fewer than 10 FTEs, (2) dentists, and (3) other providers as specified by the Centers for Medicare and Medicaid Services (CMS). 

Medicare contractors must pay 95 percent of all ‘‘clean’’ paper 

claims within 27–30 days of receipt. 

Senate Bill 

No provision. 

House Bill 

No provision. 

Conference Agreement 

The Conference agreement directs Medicare contractors to 

delay the payment of claims that are not submitted electronically. 

The contractors are directed to pay 95 percent of all ‘‘clean’’ claims 

within 29–30 days of receipt for paper claims. 

Timeframe for Part A and B Payments (Section 5203 of the Conference Agreement, Section 6112(b) of the Senate Bill, and no 

provision in the House Bill) 

Current Law 

Medicare contractors accept, process and pay claims submitted 

by providers for Medicare-covered services. Medicare contractors 

must pay interest on claims that are not promptly paid. The contractors must pay 95 percent of all ‘‘clean’’ claims within 14–30 

days of receipt for electronically submitted claims, or within 27–30 

days of receipt for paper claims. If the payment is not made within 

that time, interest begins accruing on the day after the required 

payment date and ends on the date on which the payment is made. 

The interest rate is set at the higher of the ‘‘private consumer 

rate,’’ or the ‘‘current value of the funds.’’ 

Senate Bill 

The Senate bill would delay Medicare Part A and B payments 

by 9 days. Claims that would otherwise be paid on September 22, 

2006, through September 30, 2006 would be paid on the first business day of October 2006. No interest or late penalty would be paid 

to an entity or individuals for any delay in a payment during the 

period. 

House Bill 

No provision. 


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Conference Agreement 

The conference agreement accepts the Senate provision. 

Medicare Integrity Program Funding (Section 5204 of the Conference Agreement, no provision in the Senate Bill and no provision in the House Bill) 

Current Law 

As part of the Health Insurance Portability and Accountability 

Act of 1996 (HIPAA), Congress acted to increase and stabilize federal funding for anti-fraud activities. As required by Section 

1817(k) of the Medicare law, an expenditure account was established within the Federal Hospital Insurance Trust Fund (the 

HCFAC account). Certain amounts were appropriated from the 

Trust Fund for specific activities, including the Medicare Integrity 

Program (MIP). These amounts have been established as not less 

than $710 million and not more than $720 million for FY2002 and 

subsequently. 

Senate Bill 

No provision. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement would increase MIP funding amounts by $100 million for FY2006. 

Subtitle D—Provisions Relating to Part C 

Phase-out of risk adjustment budget neutrality in determining the 

amount of payments to Medicare Advantage organizations. 

(Section 5301 of the Conference Agreement, Section 6111 of the 

Senate Bill, and no provision in the House Bill) 

Current Law 

Medicare Advantage payment rates are risk adjusted to control 

for the variation in the cost of providing health care among beneficiaries. Rates are adjusted by demographic and health status indicators. In the report language to the Medicare, Medicaid, and 

SCHIP Balanced Budget Refinement Act of 1999, Congress urged 

the Secretary to implement a more clinically-based risk adjustment 

methodology without reducing overall payments to plans. To keep 

payments from being reduced overall, the Secretary applied a budget neutrality adjustment to the risk adjusted rates. However, the 

Secretary has proposed to phase-out the budget neutrality adjustment citing studies that show a difference in the reported health 

status of Medicare Advantage enrollees compared to the reported 

health status of beneficiaries in traditional Medicare. 

Senate Bill 

Beginning in 2007, this section would specify an adjustment to 

the benchmarks to phase-out overall increases in MA rates that result from the budget neutral implementation of risk adjustment. In 


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2007, if the Secretary does not rebase rates to 100 percent of per 

capita fee-for-service costs, the MA benchmarks would be equal to 

the 2006 rates as announced by the Secretary on April 4, 2005, 

with four adjustments—(1) exclusion of any national adjustments 

for coding intensity, (2) exclusion of risk adjustment budget neutrality, (3) increase based on the national per capita MA growth 

percentage, and (4) omission of any adjustments to account for errors in previous years’ projections of the national per capita MA 

growth percentage. If the Secretary does rebase the rates in 2007, 

the MA benchmark would be set at the greater of either the rate 

calculated above, or 100 percent of per capita fee-for-service spending in the area. After 2007, if the Secretary does not rebase rates, 

the MA benchmarks would be the previous year’s benchmark increased by the national per capita MA growth percentage without 

adjusting for errors in the estimation of the growth percentage for 

a year before 2004. After 2007, if the Secretary rebases rates, the 

benchmark would be equal to the greater of either the rate calculated above, or 100 percent of per capita fee-for-service spending. 

The benchmarks described above would be free of the budget 

neutral risk adjustment. However, the benchmarks would be adjusted so that budget neutrality would be phased-out over 4 years. 

The applicable phase-out factors would be equal to .55 in 2007, .40 

in 2008, .25 in 2009 and .05 in 2010. This means that in 2007, 55 

percent of the payment to plans would be based on payment rates 

including the budget neutral risk adjustment, and 45 percent of the 

payment to plans would be based on a rate without the budget neutral adjustment. The budget neutrality factor is calculated through 

a formula that equals the Secretary’s estimate of the total amount 

of payments that would have been made to plans under the demographic risk adjustment system, minus the Secretary’s estimate of 

the payments that would have been made to plans under the 

health status risk adjustment system without the budget neutrality 

adjustment, divided by the Secretary’s estimate of the total amount 

of payments that would be made under the health status risk adjustment system without the budget neutrality adjustment. When 

making this calculation, the Secretary would (a) use a complete set 

of the most recent and representative MA risk scores available, (b) 

adjust the risk scores to reflect changes in treatment and coding 

practices in fee-for-service, and (c) adjust the risk scores for differences in coding patterns under Medicare Part A and B compared 

to Medicare Part C, to the extent the Secretary has identified differences and (d) as necessary, adjust for late data submissions, 

lagged cohorts, and changes in MA enrollment. The Secretary could 

take into account estimated health risk of enrollees in preferred 

provider organizations (including MA regional plans) for the year. 

The Secretary would be required to conduct an analysis of differences in coding patterns between MA plans and providers under 

Parts A and B of Medicare using data starting in 2004, and incorporate, to the extent such differences are identified, the findings 

into calculations of MA benchmarks no later than 2008. Adjustments would be terminated if the total amount of payments adjusted for health status exceeded payments adjusted for demographics. 


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The Secretary could not make any adjustments to the budget 

neutrality factor, other than those specified above. The Secretary’s 

authority to risk adjust MA benchmarks based on 100 percent of 

per capita fee-for-service spending would not be limited by these 

changes. 

This section also refines adjustments for health status when 

plans are paid based on their bid amounts (rather than the benchmark). The Secretary would ensure that such risk adjustments reflect changes in the treatment and coding practices between Medicare Part A and Part B relative to Medicare Part C to the extent 

that the Secretary has identified differences. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement accepts the Senate language in part, 

with modifications. The conference agreement codifies the phaseout of the budget neutrality factor over 2006 to 2010 and outlines 

the adjustments that can be made to that factor. Under the agreement, the Secretary must conduct an analysis to identify differences in coding patterns between Medicare Advantage plans and 

fee for service. To the extent that the Secretary identifies any differences, they are to be incorporated into calculations of the risk 

rates and the budget neutrality factor in 2008, 2009, and 2010. The 

conferees intend that any adjustments made for differences in coding patterns be made for differences resulting from inaccurate coding. The conference agreement makes no permanent change to 

Medicare Advantage payment calculations. 

Rural Pace Provider Grant Program (Section 5302 in the Conference Agreement, Section 6113 of the Senate Bill, and no provision in the House Bill) 

Current Law 

PACE is a program providing comprehensive Medicare and 

Medicaid services under a managed care arrangement to individuals over age 55 who are eligible for a nursing home level of care. 

PACE organizations, which are public or private non-profit entities, 

receive a fixed monthly Medicare and Medicaid payment to cover 

a comprehensive set of services for PACE participants. The PACE 

service package must include all Medicare and Medicaid covered 

services, and other services determined necessary by the multidisciplinary team for the care of the PACE participant. 

Senate Bill 

This provision would create site development grants, provide 

technical assistance to established rural PACE providers, and establish a fund to reimburse rural PACE providers for certain 

outlier costs. A rural area would be a county that is not part of a 

Metropolitan Statistical Areas (as defined by the Office of Management and Budget) as established for Medicare IPPS payments to 

acute care hospitals. The Secretary would establish a procedure to 

award site development grants to be used for expenses incurred in 


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relation to establishing or delivering services in rural areas. Up to 

15 qualified PACE providers that serve a rural area, in whole or 

in part can receive a grant not to exceed $750,000. The Secretary 

would be appropriated $7.5 million in FY2006 and FY2007 out of 

the Treasury for these development grants. The appropriated funds 

would remain available for expenditure until FY 2010. The Secretary would establish a technical assistance program to provide (1) 

outreach and education to specified entities interested in starting 

rural PACE programs, and (2) technical assistance necessary to 

support rural PACE pilot sites. The Secretary would establish an 

outlier fund for inpatient and related physician and ancillary costs 

incurred for an eligible participant within a given l2-month period. 

Outlier costs would be those costs for inpatient and related physician and ancillary services in excess of $50,000 incurred within a 

given 12-month period for an eligible participant who resides in a 

rural area. For the first 3 years of its operation, a rural PACE site 

would receive 80 percent of the outlier costs in excess of $50,000 

for that period. Total outlier payments for an eligible participant 

could not exceed $100,000 for the 12-month period used to calculate 

the payment. No site may receive more than $500,000 in total 

outlier expense payments in a 12-month period. A rural PACE pilot 

site would be required to access and exhaust risk reserves held or 

arranged for the provider and any working capital established 

through a site development grant prior to receiving any payment 

from the outlier fund. The Secretary would be appropriated $10 

million for FY2006 and FY2007 for the outlier fund. These outlier 

appropriations would remain available for expenditure through 

FY2010. The Secretary would be required to submit a report to 

Congress on the evaluation of the rural PACE pilot sites no later 

than 60 months from the date of enactment. Any amount paid 

under this authority would be in addition to Medicare PACE funds 

paid under Section 1894 of the Social Security Act or Medicaid 

PACE funds paid for under Section 1934 of the same act. 

Conference Agreement 

The conference agreement adopts the Senate provision with 

certain exceptions. The Secretary is required to establish a process 

and criteria to award site development grants to qualified PACE 

providers that have been approved to serve a rural area. The Secretary is appropriated $7.5 million for FY2006 for the rural site development grants. These appropriated funds would remain available for expenditure through FY2008. The Secretary is appropriated $10 million for FY2006 for the outlier funds. These appropriated funds would remain available for expenditure through 

FY2010. Rural PACE pilot sites must apply to receive outlier funds 

and document their incurred costs for the outlier participant in a 

manner specified by the Secretary. 


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Elimination of Medicare Advantage Regional Plan Stabilization 

Fund (No provision in Conference agreement, Section 6112(a) 

of the Senate Bill, and no provision in the House Bill) 

Current Law 

The Secretary must establish an MA Regional Plan Stabilization Fund to provide incentives for plan entry in each region and 

plan retention in certain MA regions with below average MA penetration. Initially, $10 billion will be available for expenditures from 

the Fund beginning on January 1, 2007 and ending on December 

31, 2013. Additional funds will be available in an amount equal to 

12.5 percent of average per capita monthly savings from regional 

plans that bid below the benchmark. 

Senate Bill 

The Senate bill would repeal the stabilization fund retrospectively as of the enactment of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. 

House Bill 

No provision. 

Conference Agreement 

No provision. 

Establishment of Medicare Value-based Purchasing Programs. (No 

provision in the Conference Agreement, Section 6110 of Senate 

Bill and no provision in the House Bill) 

Subsection (a) Establishment of Medicare Value-Based Purchasing 

Programs Part E Value-Based Purchasing Programs—Quality 

Measurement Systems for Value-Based Purchasing Programs. 

(No provision in the Conference Agreement, Section 6110 of the 

Senate Bill and no provision in the House Bill) 

Current Law 

No provision. 

Senate Bill 

Section 6110 would amend the Medicare statute by redesignating the existing Section 1860E as Section 1860F and by adding 

a new Section 1860E which requires the Secretary to establish 

value-based purchasing systems for different providers. 

Subsection (a) of Section 6110 would create Section 1860E–1 in 

the Medicare statute and would require the Secretary to develop 

provider-specific quality measurement systems for making valuebased payments to hospitals, physicians and practitioners, Medicare Advantage (MA) and Part D prescription drug plans, end stage 

renal disease providers and facilities, and home health agencies. 

Measures for each quality system would be required to (1) be evidence-based; (2) be easy to collect and report; (3) address process, 

structures, outcomes, beneficiary experience, efficiency, equity, and 

overuse and underuse of health care; and (4) include at least one 

measure of health information technology infrastructure during the 

first year of implementation. Additional measures would be added 


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in subsequent years. Measures would include those that assess the 

quality of care furnished to older, frail individuals and those with 

multiple complex chronic conditions. By 2008, hospital quality systems would be required to include at least 5 measures that take 

into account the unique characteristics of small hospitals located in 

rural areas and frontier areas. 

Before a measure would be used to determine whether a provider receives a value-based payment, data on the measure must 

have been collected for at least a twelve month period. Each set of 

quality measures selected for specific categories of providers would 

be able to vary in their application to an individual or entity depending on the type, size, scope and volume of services provided by 

the individual or entity. 

The Secretary would be required to establish risk adjustment 

procedures to control for differences in beneficiaries’ health status 

and characteristics and to assign weights to measures used by each 

quality system. If appropriate, measures of clinical effectiveness 

would be weighted more heavily than measures of beneficiary experience; and measures of risk adjusted outcomes would be weighted 

more heavily than measures of process. The Secretary would be required to update the quality measurement system, but not more 

often than every twelve months. The update would permit a comparison of data from one year to the next. The Secretary would be 

required to use the most recent quality data for a provider type. 

However, if the Secretary determines that there is insufficient data 

because of the low service volume, the Secretary would be able to 

aggregate data across more than one fiscal or calendar year. 

In developing and updating each quality measurement system, 

the Secretary would be required to consult with provider-based 

groups and clinical specialty societies. The Secretary would also 

take into account quality measures developed by nationally recognized entities, existing quality measurement systems, reports by 

MedPAC required by this Act, results of relevant demonstrations, 

and the report on Health Care Performance Measures being developed by the Institute of Medicine under section 238(b) of the MMA. 

In implementing each quality measurement system, the Secretary 

would be required to consult with entities that have developed 

strategies for quality measurement and reporting as well as a wide 

range of stakeholders. 

By July 1, 2006, the Secretary would be required to have in 

place an arrangement with an entity that will provide the Secretary with advice and recommendations about the development 

and updating of the quality measurement systems established by 

this Act. This arrangement, with a private nonprofit entity, would 

meet a specific set of requirements. For FY2006 and FY2007, 

$3,000,000 is authorized for this purpose, with the amount in subsequent years increased by the Consumer Price Index for urban 

consumers. 

House Bill 

No provision. 

Conference Agreement 

No provision. 


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Physician and practitioner value-based purchasing program 

Current Law 

No provision. 

Senate Bill 

A new Section 1860E–3 would direct the Secretary to establish 

a program under which value-based payments are provided each 

year to physicians and practitioners that demonstrate the provision 

of high quality health care to individuals enrolled under part B. In 

addition, MedPAC would be required to conduct five studies evaluating the new program. 

The first study would examine how the Medicare value-based 

purchasing programs under this section will affect Medicare beneficiaries, Medicare providers, and Medicare financing, including the 

impact of these programs on the access of such beneficiaries to 

items and services, the volume and utilization of such items and 

services, and low-volume providers. The initial report would be due 

to Congress and the Secretary no later than March 1, 2008, and 

a final report due no later than June 1, 2012. 

The second study would examine the advisability and feasibility of establishing a value-based purchasing program for critical 

access hospitals (CAHs). This report would be due to Congress and 

the Secretary no later than March 1, 2007. 

The third study would address the advisability and feasibility 

of including renal dialysis facilities in the value-based purchasing 

program described in this section or establishing a separate valuebased purchasing program for renal dialysis facilities under this 

title. This report would be required to be submitted to Congress 

and the Secretary no later than June 1, 2007. 

The fourth study would be a report on the implementation of 

an end-stage renal disease (ESRD) provider and facility valuebased purchasing program. This report would take into account the 

results to date of the demonstration of bundled case-mix adjusted 

payment system for ESRD services under Section 623(e) of MMA 

and would include issues for the Secretary to consider in operating 

the ESRD provider and facility value-based purchasing program as 

well as recommendations on such issues. This report would be required to be submitted to Congress and the Secretary no later than 

June 1, 2008. 

The fifth study, due to Congress and the Secretary by June 1, 

2007, would report on the advisability and feasibility of establishing a value-based purchasing program for skilled nursing facilities (SNFs). 

The value-based purchasing program would be established so 

that value-based payments will be made initially in 2009 and in 

each subsequent year. The definition of a physician would not be 

changed as a result of this section and would remain as given in 

current law (section 1861(r)). The term ‘practitioner’ would mean: 

(i) a practitioner defined under current law; (ii) a physical therapist; (iii) an occupational therapist; and (iv) a qualified speech-language pathologist. The Secretary would be charged with establishing procedures for the identification of physicians and practiVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00238 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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tioners for payment purposes under this section, such as through 

physician or practitioner billing units or other units. 

The value-based payments would be based on either relative or 

absolute standards. The Secretary would be able to make a valuebased payment to a physician or a practitioner if both the quality 

and efficiency of care to an individual enrolled under Part B has 

improved substantially or has exceeded an established threshold. 

In determining which physicians and practitioners would qualify 

for a value-based payment, the Secretary would be required to use 

both the quality measurement system developed for this section 

with respect to the quality of the care provided by the physician 

or practitioner and the comparative utilization system developed 

under this section with respect to the efficiency of such care. 

In determining the amount of award and the allocation of 

awards under the value-based purchasing program, the Secretary 

would determine both the amount of a value-based payment provided to a physician or a practitioner and the allocation of the total 

amount available for value-based payments for any year between 

payments with respect to physicians and practitioners that meet 

the quality threshold requirements described above. 

In determining the amount and allocation of the value-based 

payments for physicians and practitioners who exceed the threshold that allows them to receive such payments, the Secretary would 

ensure that a majority of the total amount available for valuebased payments for any year is provided to physicians and practitioners who meet the threshold for receiving such payments. Additionally, the percentage of value-based payments would not be able 

to decrease. For every year beginning in 2010, the Secretary would 

be required to ensure that the percentage of the total amount available for value-based payments for any year that is used to make 

payments to physicians and practitioners is greater than the previous year’s percentage. 

In order for a physician or a practitioner to be eligible for a 

value-based payment for a year, the physician or practitioner would 

be required to submit quality data with respect to that year, and 

provide the Secretary (under procedures established by the Secretary) with an attestation that the data submitted is complete and 

accurate. 

The Secretary would be required to establish value-based payments such that the estimated total amount of the value-based 

payments is equal to the total amount of available funding for 

value-based payments for the year. The payment of value-based 

payments would be based on such a method as the Secretary determines appropriate, and the Secretary would ensure that valuebased payments with respect to a year are made by not later than 

December 31 of the subsequent year. 

The Secretary, in consultation with relevant unnamed stakeholders, would develop a comparative utilization system for purposes of providing value-based payments. The resulting comparative utilization system would measure the efficiency of the care provided by a physician or practitioner. Under this comparative utilization system, the Secretary would select the measures of efficiency 

and review the most recent claims data with respect to services 

furnished or ordered by physicians and practitioners to determine 


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utilization patterns and efficiency. The Secretary would establish 

risk adjustment procedures, as appropriate, to control for differences in beneficiary health status and beneficiary characteristics. 

Beginning in 2007, the Secretary would provide physicians and 

practitioners with annual reports on the utilization of items and 

services under this title based upon the review of claims data. The 

2007 and 2008 reports would be confidential and not be made 

available to the public. Not later than March 1, 2009, the Secretary 

would provide each physician and practitioner with a description of 

the Secretary’s estimate of how payments to the physician or practitioner would have been affected with respect to items and services 

furnished in 2008 if the value-based payment program had been in 

effect in 2008. 

Payments to physicians and practitioners under the valuebased payment program would be made from the Federal Supplementary Medical Insurance (Part B) Trust Fund. The total amount 

available for value-based payments with respect to a year would be 

equal to the amount of the reduction in expenditures under the 

Federal Supplementary Medical Insurance Trust Fund in the year 

as a result of the amendments made by Section 6110(c)(2) of the 

bill, as estimated by the Secretary. 

House Bill 

No provision. 

Conference Agreement 

No provision. 

Subsection (c) physicians and practitioners 

(1) Voluntary submission of physician and practitioner quality data 

Current Law 

No provision. 

Senate Bill 

In 2007 and in subsequent years, physicians and providers who 

do not submit the required quality data would receive an update 

to the conversion factor minus two percentage points. This reduction would only apply to the fiscal year in question. In 2007 and 

subsequently, physicians and practitioners would be required to 

submit appropriate data necessary for a value-based purchasing 

system in the specified form, manner, and time of the data submission as determined by the Secretary. Procedures for making the 

data available to the public would be established. These procedures 

would be required to provide the physicians and practitioners with 

an opportunity to review the data before it is released to the public. 

The Secretary would be allowed to make exceptions to the requirement for making data available to the public and would take into 

account the size and specialty representation of the practice involved when providing such exceptions. 


hmoore on PROD1PC68 with HMRPT
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House Bill 

No provision. 

Conference Agreement 

No provision. 

(2) Reduction in conversion factor for physicians and practitioners that submit quality data in order to fund program 

Current Law 

Medicare payments under Part B are based on a fee schedule. 

The fee schedule reflects a set of weights that vary across the many 

procedures that encompass the range of activities and services that 

physicians and practitioners provide. These relative weights are 

converted to dollar amounts for payment under Medicare by applying a multiplicative conversion factor. The conversion factor is updated each year according to a formula that aims to place a restraint on overall increases in Medicare spending for Part B services. 

Senate Bill 

To fund the value-based purchasing program for physicians 

and practitioners, the conversion factor would be reduced as follows: 1.0 percent in 2009, 1.25 percent in 2010, 1.5 percent in 2011, 

1.75 percent in 2012, and 2.0 percent in 2013 and subsequent 

years. 

House Bill 

No provision. 

Conference Agreement 

No provision. 

ESRD provider and facility value-based purchasing program 

Current Law 

No provision. 

Senate Bill 

Section 1680E–5. Beginning in 2007, the Secretary would establish a program under which value-based payments are provided 

each year to providers of services and renal dialysis facilities that 

provide services to ESRD individuals enrolled under part B and 

that demonstrate the provision of high quality health care. Facilities with at least 50 percent of their patients under the age of 18, 

as well as those providers and facilities currently participating in 

the bundled case-mix demonstration are excluded from this program. 

Value-based payments would be made to a provider or facility, 

if the Secretary determines that the quality of care in that year has 

substantially improved over the prior year or exceeds a threshold 

established by the Secretary, using the quality measurement system. 


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The Secretary would determine the amount of a value-based 

payment and the allocation of the total amount available for all 

such payments, subject to certain requirements. The Secretary 

would ensure that the majority of the total amount available is 

awarded to those providers of services and renal dialysis facilities 

who provide high quality services. For 2007, the entire amount 

would be available for those who meet the requirements. Beginning 

in 2009, the percentage of the total amount available would be provided to those who improved in meeting such requirements relative 

to the previous year. 

Beginning in 2007, each provider of services and renal dialysis 

facility would be required to submit data that the Secretary determines is appropriate for the measurement of health outcomes and 

other indices of quality, including data necessary for the operation 

of the program. A provider or facility would be required to submit 

this data, in order to be eligible for a value-based payment for a 

year. The Secretary would establish procedures for making submitted data available to the public in a clear and understandable 

form and would ensure that a provider or facility first has the opportunity to review the data. The provider or facility would be required to provide an attestation that the data is complete and accurate. 

The Secretary would establish payment amounts so that, as estimated by the Secretary, the total amount of value-based payments made in a year is equal to the total amount available. The 

payment of the awards would be based on a method as determined 

by the Secretary and must be paid no later than December 31 of 

the subsequent year. The amount available for value-based payments would be equal to the amount of the reduction in expenditures under the Federal Supplementary Medical Insurance (SMI) 

Trust Fund, as estimated by the Secretary. Payments to providers 

of services and renal dialysis facilities, under this section, would be 

made from the Federal SMI Trust Fund. 

House Bill 

No provision. 

Conference Agreement 

No provision. 

Subsection (e) ESRD 

Providers and facilities 

Current Law 

No provision. 

Senate Bill 

No later than July 31, 2006, the Secretary would establish procedures for providers of services and renal dialysis facilities, who 

are paid based on the case-mix adjusted prospective payment system, to submit data that permits the measurement of health outcomes and other indices of quality. 

In the case of any payment for an item or service furnished on 

or after January 1, 2007, the case-mix adjusted prospective payVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00242 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

hmoore on PROD1PC68 with HMRPT
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ment amount would be reduced by the applicable percent, but only 

for those providers of services or renal facilities included in the 

value-based program. The applicable percent would be 1 percent for 

2007, 1.25 percent for 2008, 1.5 percent for 2009, 1.75 percent for 

2010, and 2 percent for each year thereafter. 

Beginning January 1, 2007, the Secretary would implement a 

value-based purchasing program for providers and facilities participating in the bundled case-mix demonstration (as established 

under Section 623 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003), in a manner similar to the 

value-based program established under Section 1860E–5 of this 

bill, including the funding of the program. 

House Bill 

No provision. 

Conference Agreement 

No provision. 

PPS Hospital value-based purchasing program 

Current Law 

No provision. 

Senate Bill 

The Medicare statute would be amended by adding a new Section 1860E–2 which establishes the hospital value-based purchasing program for inpatient hospital services, starting FY2007. 

The program would make value-based payments to hospitals based 

on data reported under the quality measurement system established by the Secretary. Hospitals paid under Medicare’s prospective payment system (PPS) that have substantially improved the 

quality of care over the prior year or exceeded an established quality threshold would receive a value-based payment as determined 

by the Secretary. A majority of the total amount available for 

value-based payments in any fiscal year would be paid to hospitals 

that are receiving such payments for exceeding a quality threshold. 

Starting in FY2008, the percentage of the total amount for valuebased payments in any fiscal year that is paid to such hospitals 

would be greater than the equivalent percentage paid in the previous year. Hospitals would be required to comply with all the 

quality data reporting requirements and attest to the accuracy of 

the data in order to be eligible for a value-based payment. The 

total amount of value-based payments in a fiscal year would equal 

the total amount of available funding for such payments for that 

year. The payments would be based on the methods determined by 

the Secretary and would be made to hospitals no later than the 

close of the following fiscal year. No later than January 1, 2007, 

the Secretary would provide each hospital with a description of how 

its payments for FY2006 would have been affected had the valuebased payment program been in effect that fiscal year. 

Value-based payments in a fiscal year would be made from 

Medicare’s Part A Trust fund and would equal specified reductions 


hmoore on PROD1PC68 with HMRPT
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in those trust fund expenditures as established in Section 6110(b) 

of the bill. 

House Bill 

No provision. 

Conference Agreement 

See Section 5001 of the Conference Agreement. 

Plan value-based purchasing program 

Current Law 

No provision. 

Senate Bill 

A new Section 1860E–4 would require the Secretary to establish a program to award value-based payments to Medicare Advantage (MA) organizations that provide high quality health care. Payments would start in 2009, and continue each year thereafter. The 

program would apply to both MA regional and local plans. It also 

would apply to reasonable cost contract plans, except for provisions 

that would require plans to submit data two years prior to the 

start of the program, and provisions relating to plan bids. 

The Secretary would make payments for each plan offered by 

an MA organization if the plan substantially improved over the 

prior year, or exceeded a minimum threshold. The Secretary would 

use measures of quality developed for the plan value-based payments system (Section 1860E–1) and ensure that awards are based 

on data from a full 12 months when making a comparison against 

a threshold, and 24 months when measuring improvement over a 

prior year. 

The Secretary would determine the amount of the value-based 

payments, but must ensure that the majority of funds go to plans 

that receive a payment because their health measures exceeded a 

threshold. In 2010 and each subsequent year, the percentage of the 

total amount available is greater than the percentage in a previous 

year. 

Value-based payments may only be used to invest in quality 

improvement programs or to enhance beneficiary benefits. 

To be eligible for value-based payments, an MA plan or reasonable cost contract would be required to have collected, analyzed and 

reported the required data for the two previous years. Also, an MA 

plan would be required to provide the Secretary with an attestation 

that the value-based payment program including payment adjustments made by reason of Section 6110(d)(2)(A) had no effect on the 

integrity and actuarial soundness of the plan’s bid. 

The Secretary would ensure that the total of value-based payments is equal to the amount made available for those payments. 

Payments for a particular year would be required to be made not 

later than March 1 of the subsequent year, in a manner determined by the Secretary. 

By March 1, 2009, the Secretary would provide each MA organization with an estimate of how plan payments would have been 


hmoore on PROD1PC68 with HMRPT
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affected if the value-based payment system had been in effect in 

2008. 

The amount available for value-based payments would be 

equal to the amount of the reduction in expenditures under the 

Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund as a result of amendments 

to fund the value-based payment system, as estimated by the Secretary. Payments to MA organizations would be drawn from the 

two trust funds in proportion to the relative weight that part A and 

part B benefits represent of the total actuarial value of Medicare 

benefits. 

House Bill 

No provision. 

Conference Agreement 

No provision. 

Home Health Agency Value-based Purchasing Program 

Current Law 

No provision. 

Senate Bill 

The Medicare statute would be amended by adding a new Section 1860E–6 which establishes the Home Health Agency ValueBased Purchasing Program. In 2008 and in subsequent years, the 

Secretary would make value-based payments to those home health 

agencies that, based on data submitted under the quality measurement system, have either substantially improved quality of care 

over the prior year, or exceed a threshold established by the Secretary. A majority of the total amount available for value-based 

payments in any fiscal year would be paid to home health agencies 

that qualify for payments because they exceed a quality threshold. 

Starting in 2009 and in each subsequent year, the percentage of 

total value-based payments made to agencies that exceed the quality threshold would be greater than the percentage made in the 

previous year. To be eligible for a value-based payment, home 

health agencies would be required to submit the required quality 

data and attest that it is complete and accurate. 

The total amount of value-based payments made in a year 

would equal the total funds available for such payments. The Secretary would determine the most appropriate method for making 

payments. Payments for a year would be required to be made no 

later than December 31 of the subsequent year. By January 1, 

2008, the Secretary would be required to provide each home health 

agency with a description of how its payments for 2007 would have 

been affected had the value-based purchasing system been in effect 

that year. 

Value-based payments would be made from Part A and Part B 

in the same proportion as payments for home health services are 

made. 


hmoore on PROD1PC68 with HMRPT
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House Bill 

No provision. 

Conference Agreement 

No provision. 

Subsection (b).—Hospitals 

(1) Voluntary submission of hospital quality data 

Current Law 

Each year, Medicare’s operating payments to acute general 

hospitals are increased or updated by a factor that is determined, 

in part, by the projected annual change in the hospital market basket (MB). Congress establishes the update for Medicare’s inpatient 

prospective payment system (IPPS) for operating costs, often several years in advance. An IPPS hospital will receive an operating 

update of the MB from FY2005 through FY2007 if it submits data 

on the 10 quality indicators established by the Secretary as of November 1, 2003. The Secretary will specify the form, manner, and 

time of the data submission. A hospital that does not submit data 

to the Secretary will receive an update of the MB minus 0.4 percentage points for the fiscal year in question. The Secretary will 

not take into account this reduction when computing the applicable 

percentage increase in subsequent years. For FY2008 and subsequent fiscal years, hospitals will receive an update of the MB. 

Senate Bill 

In FY2007 and subsequent years, an IPPS hospital that does 

not submit the required quality data would receive an update of 

the MB minus two percentage points. This reduction would only 

apply to the fiscal year in question. In FY2007 and subsequently, 

an IPPS hospital would be required to submit appropriate data 

necessary for a value-based purchasing system in the specified 

form, manner, and time of the data submission as determined by 

the Secretary. Procedures for making the data available to the public would be established. These procedures would be required to 

provide the hospitals with an opportunity to review the data before 

it is released to the public. 

House Bill 

No provision. 

Conference Agreement 

No provision. 

(2) Reduction in outlier payments in order to fund program 

Current Law 

Outlier payments are intended to protect IPPS hospitals from 

the risk of financial losses associated with patients with exceptionally high costs or unusually long stays. Medicare cases qualify for 

outlier payments if they exceed a threshold or fixed loss amount 

that is established each year. As directed by statute, the total 

amount of any outlier payments for any year should equal no less 


hmoore on PROD1PC68 with HMRPT
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than 5 percent nor more than 6 percent of total projected operating 

diagnosis related group (DRG) payments. Outlier payments are financed by a reduction in the national average standardized 

amount, typically set at 5.1 percent. 

Senate Bill 

Outlier payments would be established as no less than 5 percent and no more than 6 percent for fiscal years prior to 2007. In 

FY2007, outlier payments would be established as no less than 4 

percent and no more than 5 percent. In FY2008, outlier payments 

would be established as no less than 3.75 percent and no more 

than 4.75 percent. In FY2009, outlier payments would be established as no less than 3.5 percent and no more than 4.5 percent. 

In FY2010, outlier payments would be established as no less than 

3.25 percent and no more than 4.25 percent. In FY2011 and in subsequent years, outlier payments would be established as no less 

than 3 percent and no more than 4 percent. 

The Secretary would be directed to reduce the average standardized amount by certain percentages to fund outlier payments 

and the hospital value-based purchasing program. The reduction 

factor will be equal to a calculation where the numerator is the 

sum of the additional outlier payments (as discussed in the preceding paragraph) plus a specified percentage of total projected 

DRG prospective payment rates divided by the total projected DRG 

prospective payment rates. The specific percentages would be 0 

percent for fiscal years prior to 2007, 1 percent in FY2007, 1.25 

percent in FY2008, 1.5 percent in FY2009, 1.75 percent in FY2010, 

and 2 percent in FY2011 and in subsequent years. 

House Bill 

No provision. 

Conference Agreement 

No provision. 

(3) Value-based purchasing demonstration program for critical access hospitals 

Current Law 

No provision. 

Senate Bill 

The Secretary, within six months from enactment, would be required to establish a two-year value-based payment demonstration 

program at six representative CAHs, using such funds as are necessary from the Part A trust fund. The Secretary would be required 

to report to Congress with recommendations within six months of 

completing the demonstration. 

House Bill 

No provision. 

Conference Agreement 

No provision. 


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Subsection (d)—Plans 

(1) Submission of quality data 

Current Law 

Each Medicare Advantage (MA) organization has an ongoing 

quality improvement program. MA private fee-for-service plans, 

MSA plans and Medicare cost reimbursement plans are exempt 

from this requirement. Each MA organization collects, analyzes 

and reports health outcomes and quality data. The quality improvement program for local preferred provider organizations only 

applies to providers that have contracts with the organization. The 

Secretary can collect only the types of data that were collected by 

the Secretary as of November 1, 2003. The Secretary can collect 

other types of data only after consulting with MA organizations 

and private accrediting bodies, and submitting a report to Congress. 

Senate Bill 

Beginning on or after January 1, 2006, the Secretary would 

also collect data necessary for the plan value-based purchasing program (Section 1860E–4). The Secretary would establish requirements for MA private fee-for-service plans and cost reimbursement 

plans with respect to the collection, analysis and reporting of data 

on health outcomes and quality. The Secretary would establish procedures for making health outcomes and quality data available to 

the public in a clear and understandable form. Prior to the data 

being made public, the Secretary would ensure that an MA organization has the opportunity to review the data for the plans it offers. 

The Secretary may change the type of data collected for the valuebased purchasing program after complying with requirements for 

the development, update and implementation of the program. 

The Secretary would take into account the data reporting requirements that plans must comply with under other federal and 

state programs and in the commercial market when establishing a 

time frame for data reporting requirements under the new program. 

House Bill 

No provision. 

Conference Agreement 

No provision. 

(2) Reduction in payments to organizations in order to fund 

program 

Current Law 

No provision. 

Senate Bill 

For those providers included in the value-based program, including reasonable cost contracts, the monthly payment to plans 

would be reduced by 1 percent in 2009, 1.25 percent in 2010, 1.5 

percent in 2011, 1.75 percent in 2012, and 2.0 percent for 2013 and 


hmoore on PROD1PC68 with HMRPT
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each subsequent year. These reductions would not have any effect 

on determining whether the risk adjusted benchmark exceeds a 

plan’s risk adjusted bid, or the amount of the difference. 

House Bill 

No provision. 

Conference Agreement 

No provision. 

(3) Requirements for reporting on use of value-based payments 

Current Law 

No provision. 

Senate Bill 

Beginning on or after January 1, 2011, MA plans would submit 

information describing how the organization will use any valuebased payments received under the program. This information 

would be submitted by plans at the same time they submit plan 

bids. Beginning in 2010, not later than July 1 of each year, any 

reasonable cost reimbursement contract that received a valuebased payment would submit a report to the Secretary describing 

how the organization will use the value-based payment. 

House Bill 

No provision. 

Conference Agreement 

No provision. 

Subsection (f) Home Health Agencies 

Value-based purchasing program for home health agencies 

Current Law 

No provision. 

Senate Bill 

In 2007 and subsequent years, a home health agency that does 

not submit to the Secretary the required quality data would receive 

an update of the market basket minus two percentage points. This 

reduction would only apply to the fiscal year in question. For 2007 

and subsequently, each home health agency would be required to 

submit data necessary for a value-based purchasing system in the 

form, manner, and time period specified by the Secretary. Procedures for making the data available to the public would be established. 

To fund the program, spending under the trust funds for home 

health services would be reduced by a percent applied to the standard prospective payment amount made to all agencies that comply 

with the data submission requirements. The percent reduction 

would be 1 percent in 2008, 1.25 percent in 2009, 1.5 percent in 


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2010, 1.75 percent in 2011, and 2 percent in 2012 and subsequent 

years. 

House Bill 

No provision. 

Conference Agreement 

See Section 5201 of the Conference Agreement. 

Subsection (g) Skilled Nursing Facilities 

(1) Requirement for skilled nursing facilities to report functional capacity of medicare residents upon admission 

and discharge 

Current Law 

Medicare law requires nursing homes to conduct a comprehensive, accurate, standardized, reproducible assessment of each resident’s functional capacity. Under the law, this assessment must describe the resident’s capability of performing daily life functions 

and significant impairments in functional capacity and be based on 

a uniform minimum data set specified by the Secretary, or specified 

by the state with the Secretary’s approval. If specified by a state, 

it must be consistent with the minimum data set of core elements, 

common definitions, and utilization guidelines. 

As a result, the Minimum Data Set (MDS), designed by the 

Secretary, consists of a core set of screening, clinical and functional 

status elements, including common definitions and coding categories which form the foundation of the comprehensive assessment for all residents of long-term care facilities certified to participate in Medicare or Medicaid. The items in the MDS standardize 

communication about resident problems and conditions within facilities, between facilities, and between facilities and outside agencies. MDS is designed to facilitate and standardize resident assessments, which are structured, problem-oriented frameworks for organizing MDS information, and examining additional clinically relevant information about an individual. These resident assessments 

help identify social, medical and psychological problems and form 

the basis for individualized care planning. MDS is also used as a 

data collection tool to classify Medicare and Medicaid residents into 

the Resource Utilization Groups (RUG–III). The RUG–III Classification system is used in the PPS for nursing facilities, hospital 

swing bed programs, and in many State Medicaid case mix payment systems to group residents into similar resource usage categories for the purposes of reimbursement. 

In general, MDS resident assessments are conducted on the 

5th, 14th, 30th, 60th, and 90th days of post-hospital SNF care. 

SNFS also conduct other assessments that may be needed to account for changes in patient care needs. 

Senate Bill 

This provision would amend section 1819(b) of the Social Security Act by adding a requirement that on or after October 1, 2006, 

a SNF would be required to submit a report to the Secretary on 

the functional capacity of each resident who is entitled to SNF benVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00250 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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efits at the time of his or her admission and discharge. This report 

would be required to be submitted within 10 days of the admission 

or discharge as the case may be. 

House Bill 

No provision. 

Conference Agreement 

No provision. 

(2) Voluntary submission of skilled nursing facility data 

Current Law 

As described above, the MDS submitted to CMS by states is intended to provide information on the quality of care provided to 

residents in SNFs. In recent years, CMS has attempted to make 

available additional quality measures. CMS posts data on nursing 

home’s care records from complaint surveys, staffing levels, and 

number and types of residents, facility ownership and 15 quality 

measure scores on a website entitled Nursing Home Compare. This 

site is available to the public and is intended to assist individuals 

in choosing a Medicare- and Medicaid-certified nursing home by 

state, county, city, zip code, or by facility name. Additional research 

into the development of quality measures, staffing, and best practices is currently underway through CMS contracts with Quality 

Improvement Organizations (QIOs). 

Senate Bill 

This provision would also require SNFs to submit quality data 

for the measurement of health outcomes and other indices of quality to the Secretary for FY 2009 and each subsequent fiscal year. 

Data required would be determined by the Secretary after conducting a study in consultation with certain nationally recognized 

quality measurement entities, researchers, health care provider organizations, and other appropriate groups and consult with, and 

take into account, recommendations of, the entity that the Secretary has an arrangement with based on criteria specified in section 6110(e) of this bill. The Secretary would also be required to 

consult with entities that have joined together to develop strategies 

for quality measurement and reporting, including the feasibility of 

collecting and reporting meaningful data on quality measures and 

that involve representatives of health care providers, health plans, 

consumers, employers, purchasers, quality experts, government 

agencies, and other individuals and groups that are interested in 

quality of care. 

For FY 2009 and each subsequent year, SNF market basket 

percentage changes would be reduced by two percentage points for 

SNFs that do not submit this data. Such reductions would apply 

only with respect to the fiscal year involved and the Secretary 

would be prohibited from taking into account a reduction in the 

Federal per diem rate. 

The Secretary would be required to establish procedures for 

making this data available to the public in a clear and understandable form. Such procedures would be required to ensure that a faVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00251 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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cility has the opportunity to review the data that is be made public 

with respect to the facility prior to such data being made public. 

House Bill 

No provision. 

Conference Agreement 

No provision. 

TITLE VI—MEDICAID AND SCHIP 

Subtitle A—Medicaid 

Chapter 1—Payment for Prescription Drugs 

Federal Upper Payment Limit for Multiple Source Drugs and 

Other Drug Payment Provisions (Section 6001 of the Conference Agreement, Section 6001 of the Senate Bill, and Section 3101 of the House Bill) 

a. Modification of federal upper payment limit for multiple 

source drugs; definition of multiple source drugs 

Current Law 

States set the amounts to pay pharmacies for outpatient prescription drugs provided to Medicaid enrollees. States pay those 

amount to pharmacies and then seek reimbursement of the federal 

share of those payments. Federal reimbursements to states for 

state spending for certain outpatient prescription drugs are subject 

to ceilings called federal upper limits (FULs). The FUL applies, in 

the aggregate, to payments for multiple source drugs—those that 

have at least three therapeutically equivalent drug versions. The 

Centers for Medicare and Medicaid Services (CMS) calculates the 

FUL to be equal to 150 percent of the published price for the least 

costly therapeutic equivalent. The published prices that CMS uses 

as a basis for calculating the FULs are the lowest of the average 

wholesale prices (AWP) for each group of drug equivalents. Brand 

name drugs are subject to an upper limit equal to the amount that 

pharmacists must pay to acquire the drug (the acquisition cost) as 

estimated by the states. 

Pharmaceutical manufacturers whose drugs are available to 

Medicaid beneficiaries must provide state Medicaid programs with 

rebates. Rebates are calculated based on the average manufacturer’s price (AMP) of each product, and for certain other products, the 

best price at which the manufacturers sell the drug. The AMP is 

defined as the average price paid to a manufacturer by wholesalers 

for drugs distributed to retail pharmacies. Certain federal drug 

purchases as well as several other specific kinds of sales are exempt from the AMP and from the best price calculation. Sales at 

prices that are ‘‘nominal’’ in amount are excluded from the computation of best price. CMS defines nominal prices to be those that 

are below 10 percent of the AMP. 


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Senate Bill 

The Senate bill would specify that FULs for multiple source 

drugs provided in pharmacies that are not critical access pharmacies would be calculated to be equal to 115 percent of the 

weighted AMP for those drugs. The FULs for multiple source drugs 

provided in critical access pharmacies would be calculated to be 

equal to the lesser of 140 percent of the AMP or the wholesale acquisition cost (WAC) for the drug. The bill would establish FULs 

for single source drugs. For those single source drugs provided in 

pharmacies that are not critical access pharmacies, the FUL would 

be calculated to be equal to 105 percent of the AMP. FULs for 

those single source drugs provided in critical access retail pharmacies would be calculated to be equal to the lesser of 108 percent 

of the AMP or the WAC for the drug. 

Exceptions to the FUL would be for drugs sold during an initial sales period in which data on sales for the drug are not sufficiently available from the manufacturer to compute the AMP or the 

weighted AMP, and for drugs for which alternatives would not be 

as effective. For drugs sold during an initial sales period, the Senate bill would establish a transitional upper payment limit to apply 

only during such period. For a period not to exceed 2 calendar 

quarters, the upper limit for single source drugs would be calculated to be equal to the wholesale acquisition cost (WAC) for the 

drug. The bill would define WAC—the definition would be identical 

to the current law Medicare definition. For first non-innovator multiple source drugs, the upper limit during the transition period 

would be equal to the AMP for the single source drug rated as therapeutically equivalent minus 10 percent. For subsequent non-innovator multiple source drugs, if the Secretary has sufficient data to 

determine AMP, the FUL during the transition period would be 

equal to the weighted AMP for the therapeutically equivalent and 

bioequivalent form of the drug. If the Secretary does not have sufficient data, the FUL would be the AMP for the single source drug 

that is therapeutically equivalent and bioequivalent minus 10 percent. 

In the case of an innovator multiple source drug that a prescribing health care provider determines is necessary for treatment 

of a condition and that a non-innovator multiple source drug would 

not be as effective for the individual or would have adverse effects 

for the individual or both, and for which the provider obtains prior 

authorization in accordance with the states’ program, the upper 

payment limit for the innovator multiple source drug shall be equal 

to 105 percent of the AMP for such drug. 

The Secretary would be required to update FULs on a quarterly basis, taking into account the most recent data collected for 

the purposes of determining such limits and the FDA’s most recent 

publication of ‘‘Approved Drug Products with Therapeutic Equivalence Evaluations.’’ 

The Senate FUL provisions would become effective on the later 

of January 1, 2007 or the date that is 6 months after the close of 

the first regular session of the State legislature that begins after 

the date of enactment. 

The Senate bill would establish interim FULs to apply during 

calendar year 2006, before the new FULs become effective. During 


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the period January 1, 2006 through the effective date of the FUL 

provisions, the Secretary would apply the FUL as under current 

law and regulations except that instead of limiting federal matching to 150 percent of AWP, it would be limited to 125 percent of 

AWP. In the case of covered outpatient drugs that are marketed as 

of July 1, 2005 and are subject to FULs under current law, the Secretary would be required to use the AWPs, direct prices, and WACs 

as of that date to calculate the applicable FUL. New drugs first 

marketed between July 1, 2005 and January 1, 2007 would be subject to this interim FUL calculation. 

House Bill 

The House bill would specify that the FUL for the ingredient 

cost of a multiple source drug would be equal to 120 percent of the 

volume weighted average RAMP for that drug. The bill would establish upper limits for single source drugs as well. The FUL for 

the ingredient cost of a single source drug would be equal to the 

106 percent of the RAMP for that drug. A drug product that is a 

single source drug and that becomes a multiple source drug would 

continue to be treated as a single source drug, with respect to the 

applicable FUL, until the Secretary determines that there is sufficient data to compile the volume weighted average RAMP. 

The House bill would provide the Secretary with an option to 

develop an alternative methodology setting the FUL based on the 

most recently reported retail survey price instead of a percentage 

of RAMP or the volume weighted average RAMP. The House bill 

would allow the Secretary to use this methodology, in 2007, for a 

limited number of covered outpatient drugs, including both single 

source and multiple source drugs selected to be representative of 

the classes of drugs dispensed under Medicaid. 

The House bill provides exceptions to the FULs for drugs sold 

during an initial sales period and for drugs dispensed by specialty 

pharmacies. For those drugs sold during an initial sales period for 

which data for computation of the RAMP may not be available, the 

House bill includes a provision similar to the Senate provision, except it would apply only to single source drugs sold during the initial sales period and the provision does not include any specification for first innovator multiple source drugs. The bill includes a 

definition of WAC, to be used during the initial sales period, that 

is identical to the definition of WAC in the Senate bill. The House 

bill would also allow a state to elect not to apply the new FUL to 

covered outpatient drugs dispensed by specialty pharmacies, such 

as those that dispense only immunosuppressive drugs, as defined 

by the Secretary, or drugs administered by a physician in a physician’s office. 

The House bill would require the Secretary to update the FULs 

at least on a quarterly basis. Otherwise, the provision regarding 

FUL updates is identical to the Senate provision. 

The effective date for the House FUL provisions would be on 

the later of January 1, 2007 or the date that is 6 months after the 

close of the first regular session of the state legislature that begins 

after the date of enactment of this Act. 

The House bill would provide the Secretary with the authority 

to delay the implementation of the new FUL limits for a period of 


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not more than 1 year, if the Comptrol1er General finds that the estimated average payment amount to pharmacies for covered outpatient drugs under the new FULs are below the average prices 

paid by pharmacies for acquiring such drugs. If the Secretary 

delays the implementation of the FULs then the Secretary would 

be required to transmit to Congress, prior to the termination of the 

period of delay, a report containing specific recommendations for 

legislation to establish a more equitable payment system. 

The House bill would clarify that the FULs would not affect 

maximum allowable cost limits as established by states and rebates 

would continue to be paid without regard to whether or not states’ 

payments are subject to such a limit. In addition, it would prohibit 

administrative and judicial reviews of the Secretary’s determinations of FULs, RAMPs, volume weighted average RAMPs including 

the: 

• assignment of National Drug Codes to billing and payment 

classes; 

• Secretary’s disclosure to states of AMP, RAMP, volume 

weighted average RAMP, and retail survey prices; 

• determinations by the Secretary of covered outpatient drugs 

dispensed by specialty pharmacies or administered in physicians’ 

offices; 

• contracting and calculations under these provisions; and 

• methods of allocating rebates, chargebacks, or other price 

concessions if specified by the Secretary. 

The House bill would require the Comptroller General of the 

U.S. to provide a report to Congress no later than nine months 

after the date of enactment on the appropriateness of payment levels to pharmacies for dispensing fees under the Medicaid program 

and on whether the estimated average payment amounts to pharmacies for covered outpatient drugs under the new FUL method 

are below the average prices paid by pharmacies for acquiring such 

drugs. The bill would also require the Inspector General of HHS to 

provide a report to Congress, no later than two years after the date 

of enactment, on the appropriateness of using RAMP and retail 

survey prices rather than the AMP or other price measures, as the 

basis for establishing a FUL for reimbursement of outpatient drugs 

under Medicaid. 

Conference Agreement 

The conference agreement applies FULs to multiple source 

drugs for which the FDA has rated 2 or more products to be therapeutically and pharmaceutically equivalent. For those drugs, the 

FUL would be equal to 250 percent of the average manufacturer 

price computed without regard to prompt pay discounts for the lowest cost drug. Effective January 1, 2007. 

The agreement modifies the definition of multiple source drug 

so that a drug qualifies as a multiple source drug if there is at 

least one other drug sold and marketed during the period that is 

rated as therapeutically equivalent and bioequivalent to it. 


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b. Disclosure of price information to states and the public 

Current Law 

AMP and best price data are required to be reported by manufacturers to CMS no later than 30 days after the date of entering 

into a rebate agreement and then no later than 30 days after the 

last day of each rebate period. Those prices are required to be kept 

confidential except for the purpose of carrying out the requirements 

of Medicaid rebates, or to permit the Comptroller General and the 

Director of the Congressional Budget Office to review the information. 

Senate Bill 

The Senate bill would modify the confidentiality requirements 

to allow states access to reported price information and would require the Secretary to make available to states, beginning with the 

first quarter of FY2006, the most recently reported AMP and 

weighted AMPs. The Secretary would be required to devise and implement a means of electronic distribution for these prices to state 

Medicaid agencies. 

House Bill 

The House bill would modify the confidentiality requirements 

to allow states access to reported price information. In addition, the 

bill would require the Secretary to devise and implement a means 

for electronic distribution to state Medicaid agencies, of retail survey prices. 

Conference Agreement 

The conference agreement would increase the required reporting of AMP and best prices. AMP would be reported and calculated 

on a monthly basis. In addition, the agreement allows states to 

have access to reported AMP data for multiple source drugs for the 

purpose of carrying out the Medicaid programs and would require 

the Secretary to disclose such information through a website accessible to the public. In addition, the provision requires the Secretary 

to provide AMPs to States on a monthly basis and to update information posted to the website on at least a quarterly basis. 

c. Definition of average manufacturer price 

Current Law 

The AMP is defined as the average price paid to a manufacturer by wholesalers for drugs distributed to retail pharmacies. 

CMS instructs manufacturers to exclude certain federal drug purchases as well as free goods from the computation of AMP. Sales 

at nominal prices are excluded from the best price computation. 

Manufacturers are required to report, for each rebate period, the 

AMP for all Medicaid covered outpatient drug products and the 

best price for single source and innovator multiple source drugs to 

CMS. 


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Senate Bill 

The Senate bill would modify the definition of AMP and require the modified AMP to be used to calculate the FUL for single 

source drugs in addition to rebates, as under current law. The provision would specify that sales exempted from inclusion in the determination of best price, nominal price sales (except for those contingent on purchase requirements or agreements), and bona fide 

service fees would be exempted from the computation of the AMP. 

Computation of AMP would include cash and volume discounts; 

nominal price sales contingent on a purchase agreement or requirement; free goods; chargebacks or rebates to a pharmacy (excluding 

mail order, nursing home pharmacies and pharmacy benefit managers), or any other direct or indirect discounts; and any other 

price concessions which may be based on recommendations of the 

Inspector General of HHS. Bona fide user fees would be defined as 

expenses for a service actually performed by an entity for a manufacturer that would have generally been paid for by the manufacturer at the same rate had these services been performed by another entity. 

The Senate bill would define the weighted AMP, to be used in 

calculating the FUL for multiple source drugs, with respect to the 

rebate period, as the volume-weighted average of manufacturers’ 

reported prices for all drug products that are therapeutically equivalent and bioequivalent. It would be computed by summing, for all 

therapeutic equivalents and bioequivalent forms of the drug, the 

products of the AMP and the number of units sold. The sum of 

those amounts would be divided by the sum of all units sold for all 

NDCs assigned to such products. In cases in which there is a lag 

in the reporting of information on rebates and chargebacks so that 

adequate data are not available on a timely basis to update the 

weighted AMP for a multiple source drug, the manufacturer of 

such drug would apply a methodology based on a 12-month rolling 

average to estimate costs attributable to rebates and chargebacks 

for such drugs. For years after 2006, the Secretary would be required to establish a uniform methodology to estimate and apply 

such costs. 

The Senate bill would modify the existing price reporting requirements so that manufacturers would be required to report the 

modified AMP and the weighted AMP to the Secretary of CMS as 

well as information and data on any sales made during the reporting period at a nominal price. The bill would provide the Secretary 

with the authority to enter into contracts with appropriate entities 

to determine AMP, prices, volume, and other data necessary to calculate the FUL and payment limits for covered drugs. 

The Senate modifications to the definition of AMP would become effective as if enacted on July 1, 2005 except for the provisions related to the exclusion of nominal prices from AMP. Those 

provisions would become effective on the later of the expiration 

date of a contract in effect on the date of enactment or October 1, 

2006 and would apply to sales made and rebate periods beginning 

on or after that date. 


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House Bill 

The House bill would not change AMP. Instead it would establish a measure of price referred to as RAMP for the purpose of calculating the FUL for single source drugs. RAMP would be defined 

as the average price paid to a manufacturer for the drug in the 

U.S. in the quarter by wholesalers for drugs distributed to retail 

pharmacies, excluding service fees. For this purpose, retail pharmacies would be defined to exclude mail-order only pharmacies and 

pharmacies at nursing facilities and homes. Specified items to be 

excluded from RAMP are similar to those to be excluded from AMP 

in the Senate bill except that the House bill allows the Secretary 

to define nominal sales, and free goods contingent on purchase requirements would not be excluded from RAMP. In addition, service 

fees that represent fair market value for a bonafide service provided by the entity would be excluded from RAMP. Items to be included in RAMP are also similar to those included in AMP in the 

Senate bill except that RAMP includes free goods contingent upon 

a purchase requirement; and does not provide for an exception for 

mail order, nursing home pharmacies and pharmacy benefit managers. 

The volume weighted average RAMP would be defined, for all 

drug products in the same multiple source drug billing and payment code (or other methodology as specified by the Secretary), as 

the volume weighted average of the reported RAMPs. It would be 

computed by summing the products of the RAMPs for all product 

with an NDC code and multiplying by the total number of units of 

the drug product sold. Those amounts would be summed together 

and divided by the total number of units sold for all NDC codes assigned to such products. 

The House bill would establish reporting requirements of drug 

manufacturers. Manufacturers would be required, beginning after 

July 1, 2006, to submit the RAMP, the total number of units required to compute the volume weighted average RAMP, the WAC 

for drugs sold during an initial sales period, and information on 

nominal price sales. The reporting would be by National Drug Code 

(NDC). In addition, the bill would provide the Secretary with the 

authority to enter into contracts with appropriate entities to determine RAMPs and other data necessary to calculate the FULs and 

payment limits and would modify the confidentiality provisions allowing states access to reported price information. 

Conference Agreement 

The conference agreement amends the definition of AMP to exclude customary prompt pay discounts extended to wholesalers 

from those amounts. In addition, the agreement modifies the price 

reporting requirements so that manufacturers would be required to 

submit, not later than 30 days after the last day of each rebate period, the customary prompt pay discounts extended to wholesalers 

in addition to the AMP and best price reporting required under 

current law. 

The conference agreement requires the Inspector General of 

the Department of Health and Human Services (HHS) to, no later 

than June 1, 2006, review the requirements for, and the manner 

in which AMP is determined and to submit to the Secretary and 


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Congress any recommendations for changes as determined to be 

appropriate. 

The agreement also requires the Secretary of HHS to promulgate a regulation clarifying the requirements for and the manner 

in which AMPs are to be determined, taking into consideration the 

recommendations of the Inspector General. 

d. Exclusion of sales at a nominal price from determination 

of best price 

Current Law 

In addition to the AMP, pharmaceutical manufacturers are required to report to the Secretary of HHS the ‘‘best price’’ at which 

the manufacturer sells each of its drug products to certain purchasers for the purpose of calculating the rebate amounts. Prices 

that are nominal in amount are excluded from best price reporting. 

Nominal prices are defined by CMS to be those that are below 10 

percent of the average manufacturer’s price. 

Senate Bill 

The Senate bill would exclude, for the purposes of computing 

the AMP, sales by a manufacturer of covered outpatient drugs that 

are single source, innovator multiple source drugs, or are authorized generics that are made available at nominal prices to the following listed entities: (a) entities eligible for discounted prescription drug prices under Section 340(B) of the Public Health Service 

Act; (b) intermediate care facilities for the mentally retarded, (c) 

stateowned or operated nursing facilities, (d) any other facility or 

entity that the Secretary determines is a safety net provider to 

which sales of such drugs at nominal prices would be appropriate 

based on the type of facility, the services it provides, the patients 

served and the number of other such facilities eligible for nominal 

pricing in the area. The nominal price limitations would not apply 

to nominal drug purchases pursuant to a master agreement for 

procurement of drugs on the Federal Supply Schedule. In addition, 

the bill would modify manufacturers’ price reporting requirements 

to include, for calendar quarters beginning on or after January 1, 

2006 information on sales made at a nominal price. 

House Bill 

The House bill would exclude, for the purpose of computing the 

RAMP, sales as the Secretary identifies, that are nominal in 

amount. In addition, the bill would modify manufacturers’ price reporting requirements to include, for calendar quarters beginning on 

or after July 1, 2006 information on sales made at a nominal price. 

Conference Agreement 

The conference agreement modifies the manufacturer price reporting requirements so that for calendar quarters beginning on or 

after January 1, 2007, manufacturers would be required to report 

information on sales of Medicaid covered drugs that are made at 

a nominal price. 

In addition, the agreement defines the sales are to be considered nominal for the purpose of reporting nominal price sales and 


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for computing and reporting the best price. (The agreement does 

not amend the AMP vis-a-vis nominal prices.) Nominal sales are 

those made by a manufacturer of covered drugs at nominal prices 

to (a) entities eligible for discounted prescription drug prices under 

Section 340(B) of the Public Health Service Act; (b) intermediate 

care facilities for the mentally retarded, (c) state-owned or operated 

nursing facilities, (d) any other facility or entity that the Secretary 

determines is a safety net provider to which sales of such drugs at 

nominal prices would be appropriate based on the type of facility, 

the services it provides, the patients served and the number of 

other such facilities eligible for nominal pricing in the area. The 

nominal price limitations do not apply to nominal drug purchases 

pursuant to a master agreement for procurement of drugs on the 

Federal Supply Schedule. 

e. Retail survey prices; state payment and utilization rates; 

and performance rankings 

Current Law 

No provision. 

Senate Bill 

No provision. 

House Bill 

The House bill would allow the Secretary to contract with a 

vendor to obtain retail survey prices for Medicaid covered outpatient drugs that represent a nationwide average of pharmacy 

sales costs for such drugs, net of all discounts and rebates. Such 

a contract would be awarded for a term of 2 years. 

The Secretary would be required to competitively bid for an 

outside vendor with a demonstrated history in surveying and determining on a representative nationwide basis, retail prices for ingredient costs of prescription drugs; working with retail pharmacies, 

commercial payers, and states in obtaining and disseminating price 

information; and collecting and reporting price information on at 

least a monthly basis. The contract would include the terms and 

conditions specified by the Secretary and would include a requirement that the vendor monitor the marketplace and report to the 

Secretary each time there is a new covered outpatient drug available nationwide; update the Secretary no less often than monthly 

on the retail survey prices for multiple source drugs and on the 

computed upper payment limit for those drugs; to independently 

confirm retail survey prices. Information on the retail survey prices 

obtained through this process, including information on single 

source drugs would be required to be provided to states on an ongoing and timely basis. 

Conference Agreement 

The conference agreement includes a provision similar to the 

House provision. The agreement allows the Secretary to contract 

for services for the determination of retail survey prices for covered 

outpatient drugs that represent a nationwide average of consumer 

purchase prices for such drugs. The conference agreement adds a 


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provision allowing such a contract to include notification of the Secretary when a drug product that is therapeutically and pharmaceutically equivalent and bioequivalent becomes generally available. The vendor must update the Secretary no less often than 

monthly on the retail survey prices for covered outpatient drugs. 

The contract shall be effective for a term of two years. If the Secretary were to be notified that such a product has become generally 

available, the Secretary would be required to make a determination 

within 7 days as to whether the drug meets the definition of a multiple source drug subject to the application of the FUL. The agreement allows the Secretary to waive those provisions the Secretary 

determines are appropriate to waive, of the Federal Acquisition 

Regulation, for the efficient implementation of the contract. 

The agreement does not require the contractor to independently confirm retail survey prices, as in the House bill, and does 

not require the Secretary to provide for electronic distribution to 

states. On the other hand, the Secretary would be required to devise and implement a means for providing access to each state 

Medicaid agency of collected price information and to provide information on retail survey prices, including information on single 

source drugs, to states at least monthly. 

The agreement requires an annual report from each state 

agency. States are required to provide to the Secretary, the payment rates for all covered drugs, dispensing fees and utilization of 

innovator multiple source drugs under the state Medicaid plan. The 

Secretary is required to compare, on an annual basis, for the 50 

most widely prescribed drugs, the national retail sales price data 

for each state. In addition, the Secretary is required to submit full 

information regarding the annual rankings to Congress. The provision becomes effective on January 1, 2007. 

(f) Miscellaneous amendments 

Current Law 

States are required to have in place a program of prospective 

drug review wherein before each prescription is filled, the use of 

the prescription is screened for potential drug therapy problems. 

The requirement includes language clarifying that nothing in the 

provision is intended to require a pharmacist to provide this consultation when a beneficiary refuses such a consultation. 

Senate Bill 

No provision. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement clarifies that the requirement to 

provide prospective drug reviews is not intended to require 

verifications that consultations were offered or refused. 

Effective on the date of enactment. 


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(g) Effective date 

Current Law 

No provision. 

Senate Bill 

No provision. 

House Bill 

No provision. 

Conference Agreement 

Unless otherwise specified, the provisions in Section 6001 take 

effect on January 1, 2007, without regard to whether or not final 

regulations to carry out such amendments have been promulgated 

by such date. 

Collection and Submission of Utilization Data for Certain Physician 

Administered Drugs (Section 6002 of the Conference Agreement, Section 6004 of the Senate Bill, and Section 3102 of the 

House Bill) 

Current Law 

Manufacturers are required to provide rebates to states for all 

outpatient prescription drugs with some exceptions. Outpatient 

prescription drugs provided through managed care organizations 

are explicitly exempted from the rebate requirement. In addition, 

outpatient drugs dispensed by a hospital and billed at no more 

than the hospital’s purchasing costs are exempt from the rebate requirement. Certain drugs administered by physicians in their offices or in another outpatient setting, such as chemotherapy, have 

often been excluded from the drug rebate program although there 

is no specific statutory exclusion. This is because providers use 

Healthcare Common Procedure Coding System (HCPCS) J-codes to 

bill the Medicaid program for injectible prescription drugs, including cancer drugs. The HCPCS J-codes do not, however, provide 

States with the specific manufacturer information necessary to enable them to seek rebates. The NDC number is necessary for the 

state to bill manufacturers for rebates. CMS has requested that 

states identify Medicaid drugs, specifically those using HCPCS Jcodes, by their NDC codes so that rebates can be collected for these 

drugs (Letter to State Medicaid Director, SMDL #03–002, dated 

March 14, 2003). CMS has concluded that because of this coding, 

many state Medicaid programs have not collected rebates on these 

drugs, resulting in millions of dollars in uncollected rebates. 

Senate Bill 

As a condition of receiving Medicaid payment, states would be 

required to submit, to the Secretary of HHS, utilization data and 

coding information for physician administered outpatient drugs. 

The Secretary would determine the drugs for which such reporting 

information would be required. The reporting would include J-codes 

and National Drug Code numbers. The purpose of the reporting 

would be to allow the Secretary to secure rebates for such drugs. 


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Effective upon enactment. 

House Bill 

As a condition of receiving Medicaid payment, and in order to 

secure rebates for physician administered drugs states would be required to submit: 

—No later than January 1, 2006, utilization data and coding 

information for single source drugs or biologicals that are physician 

administered outpatient drugs. The Secretary would determine the 

drugs for which such reporting information would be required. 

—No later than January 1, 2007, utilization data and coding 

information by NDC (unless the Secretary identifies an alternative 

coding system) for multiple source drugs. 

—No later than January 1, 2008, utilization and coding information for those drugs on the list of 20 high volume physician administered drugs. 

—No later than January 1, 2007, the Secretary would be required to publish a list of the 20 physician administered multiple 

source drugs that have the highest volume of physician administered dispensing under Medicaid. The Secretary would be able to 

modify such list from year. 

The Secretary would be permitted to delay the application of 

the reporting requirements in the case of a State to prevent hardship to States that require additional time to implement such a reporting system. 

Conference Agreement 

The agreement includes a provision similar to the House provision. For drugs administered on or after January 1, 2006, states 

are required to provide for the collection and submission of utilization and coding information for each Medicaid single source drug 

that is physician administered. For drugs administered on or after 

January 1, 2008, states are required to provide for the collection 

and submission of utilization and coding information for each Medicaid multiple source drug that is physician administered. Submissions from states will be based on National Drug Codes unless the 

Secretary specified an alternative coding system. All other provisions are identical to the House bill. 

Improved Regulation of Drugs Sold Under a New Drug Application 

Approved Under Section 505(c) of the Federal Food, Drug, and 

Cosmetic Act (Section 6003 of the Conference Agreement, Section 6003 of the Senate Bill, and Section 3103 of the House 

Bill) 

Current Law 

Prescription drug manufacturers participating in the Medicaid 

program are required to report, to the Secretary of HHS, the AMP 

for each pharmaceutical product offered under Medicaid and, for 

each brand name drug product, the best price available to any 

wholesaler, retailer, provider, health maintenance organization 

(HMO), nonprofit entity, or governmental entity. The term ‘best 

price’ is defined in the Medicaid statute but only with respect to 

single source and innovator multiple source drugs since the best 


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price is part of the rebate computation for only those drugs. These 

reported prices are used to calculate rebates—which are generally 

calculated separately for brand name drug products and for 

generics. 

Sometimes manufacturers produce both a brand name version 

of a prescription drug and also sell or license a second manufacturer (or a subsidiary) to produce some of the same product to be 

sold or re-labeled as a generic. These generics, called ‘‘authorized 

generics,’’ are subject to a separate rebate calculation. Rebates for 

brand name products, take into account the best price reported for 

each drug. Such price often does not include the price of the product sold as the authorized generic. 

Current law defines best price with respect only to a single 

source drug or innovator multiple source drug, as the lowest price 

available from the manufacturer during the rebate period to any 

wholesaler, retailer, provider, HMO, nonprofit entity, or governmental entity within the U.S. excluding prices charged to specified 

governmental purchasers. The AMP is defined as the average price 

paid to a manufacturer by wholesalers for drugs distributed to retail pharmacies. Certain federal drug purchases as well as several 

other specific kinds of sales are exempt from the AMP and from the 

best price calculation. 

Senate Bill 

The Senate bill would modify the existing drug price reporting 

requirements to include, for single source drugs, innovator multiple 

source drugs, authorized generic drugs, and any other drugs sold 

under a new drug application approved (under Section 505c of the 

Federal Food, Drug and Cosmetic Act, FFDCA) by FDA, both the 

average manufacturer’s price and the manufacturer’s best price for 

such drugs. An authorized generic drug would be defined as a listed drug that has been approved by the FDA under Section 505( c) 

of such Act and is marketed, sold or distributed directly or indirectly to retail class of trade under a different labeling, packaging 

(other than repackaging the listed drug for use in institutions), 

product code, labeler code, trade name, or trade mark than the listed drug. 

The definition of best price would be modified so that, in the 

case of a manufacturer that approves, allows or otherwise permits 

an authorized generic or any other drug to be sold under an NDA, 

it is inclusive of the lowest price such drug is sold to any wholesaler, retailer, provider, HMO, nonprofit or governmental entity. 

The definition of AMP would be modified to include, in the case of 

a manufacturer that approves, allows, or otherwise permits an authorized generic or any other drug of the manufacturer to be sold 

under an NDA to be inclusive of the average price paid for such 

drugs. The provision would become effective on January 1, 2006. 

House Bill 

The provision would modify the existing drug price reporting 

requirements for pharmaceutical manufacturers. No later than 30 

days after the last day of each rebate period, manufacturers would 

be required to report, 


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• for each covered outpatient drug, including those sold under 

a new drug application approved by the FDA, the average manufacturer’s price for such drugs; and, 

• for single source drugs, innovator multiple source drugs, and 

any other drug sold under a new drug application approved by the 

FDA, the manufacturers best price for such drugs during the applicable rebate period. 

Not later than 30 days after the date of entering into a drug 

rebate agreement, manufacturers would be required to report on 

the average manufacturer price for each of the manufacturer’s covered outpatient drugs, including those sold under a new drug application approved by the FDA. 

The definition of best price would be changed to apply, not only 

to each single source drug and innovator multiple source drug, but 

also to drugs sold under a new drug application (NDA) approved 

by (under Section 505c of FFDCA) FDA. In addition, the definition 

would be modified so that the best price, in the case of a manufacturer that approves, allows or otherwise permits an authorized. generic or any other drug of the manufacturer to be sold under an 

NDA, is inclusive of the lowest price such authorized generic or 

other drug is sold to any wholesaler, retailer, provider, HMO, nonprofit or governmental entity except for those entities excluded 

under current law. The provision would modify the current law definition of AMP to include, in the case of a manufacturer that approves, allows, or otherwise permits a drug of the manufacturer to 

be sold under an NDA to be inclusive of the average manufacturer 

price paid for such drugs. The provision would become effective on 

January 1, 2006. 

Conference Agreement 

The agreement includes a provision similar to the Senate provision. The provision is different from the Senate provision in that 

it does not refer to the affected drugs as ‘‘authorized generics’’. Instead, the agreement uses the phrase ‘‘any drug of the manufacturer sold under a new drug application approved under section 

‘‘505(c) of the Federal Food, Drug, and Cosmetic Act’’ to include authorized generics. The conference agreement does not include a definition of ‘‘authorized generics.’’ In addition, the definition of best 

price would be modified so that it is inclusive, in the case of a manufacturer that approves, allows, or otherwise permits any other 

drug of the manufacturer to be sold under a new drug application 

approved under section 505(c) of the FFDCA, of the lowest price for 

an authorized drug available from the manufacturer during the rebate period to any manufacturer, wholesaler, retailer, provider, 

health maintenance organization, nonprofit entity, or governmental 

entity within the U.S. The effective date would be January 1, 2007. 

Children’s Hospital Participation in Drug Discount Program (Section 6004 of the Conference Agreement, no provision of the 

Senate Bill, and Section 3104 of the House Bill) 

Current Law 

Section 340(B) of the Public Health Service Act allows certain 

health care providers, including community health centers and disVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00265 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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proportionate share hospitals, access to prescription drug prices 

that are similar to the prices paid by Medicaid agencies after being 

reduced by manufacturer rebates. 

Senate Bill 

No provision. 

House Bill 

The House bill would include a provision adding Children’s 

Hospitals to the list of providers that may have access to 340(B) 

discounted prices. The provision would become effective for drugs 

purchased on or after the date of enactment. 

Conference Agreement 

The conference agreement includes the House provision. 

Dispensing Fees (No provision in the Conference Agreement, Section 6001 of the Senate Bill, and Section 3101 of the House 

Bill) 

Current Law 

States are allowed to pay pharmacies reasonable dispensing 

fees. 

Senate Bill 

The Senate bill would require states to establish dispensing 

fees that are (a) greater for noninnovator multiple source drugs 

than those for innovator multiple source drugs that are therapeutically equivalent and bioequivalent; and (b) that take into account 

requirements established by the Secretary to include reasonable 

costs associated with a pharmacist’s time checking an individual’s 

coverage or performing quality assurance; measuring or mixing of 

a drug; filing the container; providing the completed prescription; 

delivery; special packaging; physical overhead and salaries of pharmacists and other pharmacy workers; geographic factors that impact costs; patient counseling; and drugs requiring specialty pharmacy management services. 

The Senate bill would require, no later than 15 months after 

the date of enactment, with quarterly updates thereafter, the Secretary to establish of list of covered outpatient drugs requiring specialty pharmacy care management services. The list would include 

only those drugs for which the Secretary determines that access to 

the drug would be seriously impaired without the provision of such 

care management services. Specialty pharmacy care management 

services would be defined as those services provided in connection 

with the dispensing of a covered drug that requires: 

• significant caregiver contact, education about the disease 

state, prevention, treatment, drug indications, benefits, risks, complications, pharmacy counseling and explanation; 

• patient compliance services including coordination of provider visits with drug delivery, compliance with dosing regimen, 

mailing or telephone call reminders, compiling compliance data, assistance providers with compliance programs; 


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• tracking services, referral processes, screening referrals, and 

tracking patient weight for dosage. 

In addition, the Senate bill would require states to consider, in 

establishing dispensing fees, the costs associated with operating a 

critical access retail pharmacy. 

House Bill 

The House bill would require states to pay a dispensing fee for 

each covered outpatient drug. States would be allowed to vary dispensing fees to take into account the special circumstances of pharmacies serving rural and underserved areas and sole community 

pharmacies. Dispensing fees for drugs defined as multiple source 

drugs under the FUL policy would be required to be no less than 

$8 per prescription unit. The Secretary would be required to define 

what constitutes a prescription unit for this purpose. 

Conference Agreement 

No provision. 

Increase in rebates for covered outpatient drugs (No provisions of 

the Conference Agreement, Sections 6001, 6002 and 6039D of 

the Senate Bill, and no provisions of the House Bill) 

Current Law 

Basic Medicaid rebates for single source and innovator multiple source drugs are equal to the greater of 15.1 percent of the 

AMP or the difference between the reported AMP and best price for 

each drug. In addition, if the prices of single source or innovator 

multiple source drugs rise faster than inflation, additional rebates 

are due. Rebates for all other multiple source drugs is equal to 11 

percent of the AMP. 

Senate Bill 

The Senate bill would modify the formulas for prescription 

drug rebates under the Medicaid program. Beginning on January 

1, 2006, rebates for single source and innovator multiple source 

drugs would be equal to the greater of 18.1 percent of the AMP or 

the difference between the reported AMP and the best price for 

each drug. (Sections 6002(a)(3) and 6001(b)(2).) 

Rebates for single source and innovator multiple source drugs 

equal to 17.8 percent of the AMP or the difference between the reported AMP and the best price for each drug. (Section 6039D.) 

Rebates for all other drugs would be equal to 17 percent. 

Changes to the rebate formula would begin on January 1, 2006. 

House Bill 

No provision. 

Conference Agreement 

No provision. 


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Extension of rebates to Medicaid MCOs (No provisions of the Conference Agreement, Sections 6001 and 6038 of the Senate Bill, 

and no provisions of the House Bill) 

Current Law 

Rebates are not required for drugs dispensed by Medicaid managed care organizations (MCO) when the drugs are paid as part of 

the MCO capitation rate, to drugs provided in hospitals, and sometimes in physicians’, or dentists’ offices. 

Senate Bill 

Section 6001(a)(5) of the Senate bill would establish rebates for 

drugs dispensed by Medicaid MCOs. States would have the option 

of collecting rebates directly from manufacturers or allowing the 

MCO to collect the rebates in exchange for a reduction in the prepaid payment made to the entity for Medicaid enrollees. The provision would become effective on the date of enactment and would 

apply to Medicaid rebate agreements entered into or renewed on or 

after that date. 

Section 6038 would establish rebates for drugs dispensed by 

Medicaid MCOs except for those drugs purchased at discounted 

prices under the Public Health Service Act Sec. 340B drug discount 

program. 

House Bill 

No provision. 

Conference Agreement 

No provision. 

Improving Patient Outcomes (No provision of the Conference 

Agreement, no provision of the Senate Bill, and Section 3105 

of the House Bill) 

Current Law 

States may establish a prior authorization program as long as 

the system provides a response for a request for approval within 

24 hours, and as long as the program allows for a dispensing of at 

least a 72 hour supply of a covered drug in an emergency situation. 

Other restrictions may be imposed if they are necessary to discourage waste, fraud or abuse. 

Senate Bill 

No provision. 

House Bill 

The provision would limit the ability of states to place atypical 

antipsychotic or antidepressant single source drugs on prior authorization lists imposing other restrictions unless a drug use review board has determined that doing so is not likely to harm patients or increase overall medical costs. It also would require states 

to pay for a 30 day supply of such drugs in cases where a request 

for authorization is not responded to within 24 hours after the preVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00268 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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scription is transmitted. The provision would be effective on January 1, 2007. 

Conference Agreement 

No provision. 

Chapter 2—Long-Term Care Under Medicaid 

SUBCHAPTER A—REFORM OF ASSET TRANSFER RULES; LENGTHENING

LOOK-BACK PERIOD; CHANGE IN BEGINNING DATE FOR PERIOD OF

INELIGIBILITY

Lengthening Look-back Period for all Disposals to 5 years (Section 

6011(a) of the Conference Agreement, no provision in the Senate Bill, and Section 3111(a) of the House Bill) 

Current Law 

Current law requires states to impose penalties on individuals 

who transfer assets (all income and resources of the individual and 

of the individual’s spouse) for less than fair market value (an estimate of the value of an asset if sold at the prevailing price at the 

time it was actually transferred). Specifically, the rules require 

states to delay Medicaid eligibility for certain Medicaid long-term 

care services for individuals applying for care in a nursing home, 

and, at state option, for certain people receiving care in community-based settings, who have transferred assets for less than fair 

market value on or after a ‘‘look-back date.’’ The ‘‘look-back date’’ 

is 36 months prior to application for Medicaid for income and most 

assets disposed of by the individual, and 60 months in the case of 

certain trusts. 

Ineligibility for Medicaid coverage is limited to only certain 

long-term care services, not all services covered under the program. 

The services for which the penalty applies include nursing facility 

care; services provided in any institution in which the level of care 

is equivalent to those provided by a nursing facility; Section 1915(c) 

home and community-based waiver services; home health services; 

and personal care furnished in a home or other locations. States 

may choose to apply this ineligibility period to other state plan 

long-term care services. (They also currently apply to home and 

community care for functionally disabled elderly individuals under 

section 1929 of the Act. This is an optional coverage group which 

operates only in Texas.) In general, states do not extend the penalty to Medicaid’s acute care services. 

Senate Bill 

No provision. 

House Bill 

The House bill would amend section 1917(c)(1)(B)(i) of the Social Security Act to lengthen the look-back date to 5 years, or 60 

months, for all income and assets disposed of by the individual 

after this Act’s date of enactment. For income and assets disposed 

of prior to the enactment date, the look back periods of 36 months 

for income and assets and 60 months for certain trusts would 


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apply. The House bill would become effective on the date of the enactment of this Act. 

Conference Agreement 

The conference agreement includes the House provision. 

Change in Beginning Date for Period of Ineligibility (Section 

6011(b) of the Conference Agreement, no provision in the Senate Bill, and Section 3111(b) of the House Bill) 

Current Law 

The period of ineligibility, or penalty period, begins on the first 

day of the first month during or after which assets have been improperly transferred and which does not occur in any other period 

of ineligibility. There is no limit to the length of the penalty period. 

Some penalties imposed on applicants who made improper transfers within the look-back period and prior to the date of Medicaid 

application may expire before the date of Medicaid application. For 

example, an improper transfer of $100,000 made 2 years prior to 

Medicaid application could result in a 20-month penalty period 

($100,000 divided by the private rate for a nursing home state in 

a state of $5,000). Since the individual applies to Medicaid two 

years, or 24 months, after having made the transfer, the penalty 

has already expired before the individual applies to Medicaid. However, if the transfer of $100,000 is made one year prior to Medicaid 

application, the penalty of 20 months would not have expired before the applicant needed Medicaid coverage, but rather would continue for eight months after Medicaid application. 

Senate Bill 

No provision. 

House Bill 

The House bill would amend section 1917(c)(1)(D) of the Social 

Security Act by changing the start date of the ineligibility period 

for all transfers made on or after the date of the enactment, to the 

first day of a month during or before which assets have been transferred for less than fair market value, or the date on which the individual is eligible for Medicaid and is receiving certain long-term 

care services, whichever is later and which does not occur during 

any period of ineligibility as a result of an asset transfer policy. For 

transfers made prior to this Act’s enactment, current law applies. 

Conference Agreement 

The conference agreement includes the House provision but 

specifies that the start date begins on the first day of a month during or after which assets have been transferred for less than fair 

market value, or the date on which the individual is eligible for 

Medicaid and would otherwise be receiving institutional level care 

based on an approved application for such care but for the application of the penalty period, whichever is later, and which does not 

occur during any period of ineligibility as a result of an asset transfer policy. 


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Effective Date (Sections 6011(c) of the Conference Agreement, no 

provision in the Senate Bill, and Section 3111(c) of the House 

Bill) 

Current Law 

Currently effective. 

Senate Bill 

No provision. 

House Bill 

The amendments made by this section would apply to transfers 

made on or after the date of enactment. 

Conference Agreement 

The conference agreement includes the House provision. 

Availability of Hardship Waivers (Sections 6011(d) and (e) of the 

Conference Agreement, Section 6011(f) of the Senate Bill, and 

Sections 3111(d) and (e) of the House Bill) 

Current Law 

To protect beneficiaries from unintended consequences of the 

asset transfer penalties, current law requires states to establish 

procedures for not imposing penalties on persons who, according to 

criteria established by the Secretary, can show that a penalty 

would impose an undue hardship. CMS guidance specifies that 

undue hardship can occur when application of the penalty would 

deprive the individual of medical care so that his or her health or 

life would be endangered, or when it would deprive the individual 

of food, clothing, shelter, or other necessities of life. The guidance 

explains that undue hardship does not exist when application of 

the penalty would merely cause the individual inconvenience or 

when it might restrict his or her lifestyle but would not put him 

or her at risk of serious deprivation. 

CMS guidance requires that state procedures, at a minimum, 

provide for and discuss: (1) a notice to recipients that an undue 

hardship exception exists; (2) a timely process for determining 

whether an undue hardship waiver win be granted; and (3) a process under which an adverse determination can be appealed. 

Senate Bill 

The Senate bill would amend Section 1917(c) of the Social Security Act by adding a requirement that states establish undue 

hardship procedures (in accordance with standards specified by the 

Secretary) that would provide for: (1) a notice that an undue hardship exception exists before the imposition of a penalty period to 

an applicant for Medicaid who would be subject to such a penalty; 

(2) a timely process before the imposition of a penalty determining 

whether an undue hardship waiver will be granted for the individual; (3) a process under which an adverse determination can be 

appealed; and (4) an application of criteria that specifies that 

undue hardship exists when application of the ineligibility period 

or counting of trusts would deprive the individual of medical care 


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so that the individual’s health or life would be endangered or when 

it would deprive the individual of food, clothing, shelter, or other 

necessities of life. 

House Bill 

The House bill would amend section 1917(c)(2)(D) of the Social 

Security Act to specify the criteria by which an application for an 

undue hardship waiver would be approved. Approval would be subject to a finding that the application of an ineligibility period would 

deprive the individual of medical care such that the individual’s 

health or life would be endangered, or that the individual would be 

deprived of food, clothing, shelter, or other necessities of life. States 

would also be required to provide for: (A) notice to recipients that 

an undue hardship exception exists; (B) a timely process for determining whether an undue hardship waiver will be granted; and (C) 

a process under which an adverse determination can be appealed. 

This provision would also amend section 1917(c)(2) of the Social Security Act to permit facilities in which institutionalized individuals reside to file undue hardship waiver applications on behalf 

of the individual, with the institutionalized individual’s consent or 

the consent of his or her guardian. If the application for undue 

hardship of nursing facility residents meets criteria specified by the 

Secretary, the state would have the option of providing payments 

for nursing facility services to hold the bed for these individuals at 

a facility while an application is pending. Such payments could not 

be made for longer than 30 days. 

Conference Agreement 

The conference agreement includes the House provision. 

Disclosure and Treatment of Annuities and of Large Transactions 

(Section 6012 of the Conference Agreement, Section 6011(d) of 

the Senate Bill, and Section 3112 of the House Bill) 

Current Law 

Current law provides that the term ‘‘trust,’’ for purposes of 

asset transfers and the look-back period, includes annuities only to 

the extent that the Secretary of DHHS defines them as such. CMS 

guidance (Transmittal Letter 64) asks states to determine the ultimate purpose of an annuity in order to distinguish those that are 

validly purchased as part of a retirement plan from those that abusively shelter assets. To be deemed valid in this respect, the life of 

the annuity must coincide with the average number of years of life 

expectancy for the individual (according to tables in the transmittal). If the individual is not reasonably expected to live longer 

than the guarantee period of the annuity, the individual will not 

receive fair market value for the annuity based on the projected return; in this case, the annuity is not ‘‘actuarially sound’’ and a 

transfer of assets for less than fair market value has taken place. 

The State Medicaid Manual provides life expectancy tables to be 

used by states for determining whether an annuity is actuarially 

sound. 

States and courts interpret this guidance differently. In Mertz 

v. Houston, 155 F. Supp.2d 415 (E.D. Pa. 2001), for example, the 


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court held that if an annuity was actuarially sound then the intent 

of the transfer was not relevant under federal law. In a recent case 

in Ohio, a state court ruled that it was proper to look at the intent 

of asset transfers, even if the annuity was actuarially sound. 

(Bateson v. Ohio Dept. of Job and Family (Ohio Ct. Appl., 12th, No. 

CA2003–09–093, Nov. 22, 2004). 

Medicaid Estate Recovery. Current law requires states to recover the private assets (e.g., countable and non-countable assets) 

of the estates of deceased beneficiaries who have received certain 

long-term care services. Recovery of Medicaid payments may be 

made only after the death of the individual’s surviving spouse, and 

only when there is no surviving child under age 21 and no surviving child who is blind or has a disability; Estate recovery is limited to the amounts paid by Medicaid for services received by the 

individual and is limited to only certain assets that remain in the 

estate of the beneficiary upon his or her death. As a result, estate 

recovery is generally applied to a beneficiary’s home, if available, 

and certain other assets within a beneficiary’s estate. 

For purposes of these recovery requirements, estates are defined as all real and personal property and other assets in an estate as defined in state probate law. At the option of the state, recoverable assets also may include any other real and personal property and other assets in which the person has legal title or interest 

at the time of death, including assets conveyed to a survivor, heir, 

or through assignment through joint tenancy, tenancy in common, 

survivorship, life estate, living trust, or other arrangement. Thus 

assets such as living trusts, life insurance policies, certain annuities, which may pass to heirs outside of probate, would be subject 

to Medicaid recovery only if a state expanded its definition of ‘‘estate.’’ 

Senate Bill 

The Senate bill would amend section 1917(c)(1) of the Social 

Security Act to include, in the definition of assets subject to transfer penalties, an annuity purchased by or on behalf of an annuitant 

who has applied for Medicaid-covered nursing facility or other longterm care services. Annuities that would not be subject to asset 

transfer penalties would include an annuity as defined in section 

408(b) or (q) of the Internal Revenue Code (IRC), or purchased with 

proceeds from: (1) an account or trust described in section 

408(a)(c)(p) of the IRC; (2) a simplified employee pension as defined 

in section 408(k) of the IRC; or (3) a Roth IRA defined in section 

408A of the IRC. Annuities would also be excluded from penalties 

if they are irrevocable and non-assignable, actuarially sound (as determined by actuarial publications of the Office of the Chief Actuary of the Social Security Administration), and provide for payments in equal amounts during the term of the annuity, with no 

deferral and no balloon payments. 

The Senate bill would amend section 1917(c)(1) of the Social 

Security Act by adding that the purchase of an annuity shall be 

treated as the disposal of an asset for less than fair market value 

unless the state is named as the remainder beneficiary in the first 

position for at least the total amount of Medicaid expenditures paid 

on behalf of the annuitant or is named as such a beneficiary in the 


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second position after the community spouse and such spouse does 

not dispose of any such remainder for less than fair market value. 

The Senate bill would amend Section 1917(b)(4) of the Social 

Security Act to include an annuity in the definition of estate that 

is subject to estate recovery unless the annuity was purchased from 

a financial institution or other business that sells annuities in the 

state as part of its regular business. 

House Bill 

The House bill would amend section 1917 of the Social Security 

Act by adding a new subsection that would require individuals, at 

the initial application or recertification for certain Medicaid longterm care services, to disclose to the state the following: 

(A) A description of any interest the individual has in an annuity (or similar financial instrument which provides for the conversion of a countable asset to a noncountable asset, as specified by 

the Secretary), regardless of whether the annuity is irrevocable or 

is treated as an asset; 

Applications or recertification forms shall include a statement 

that designates the state as the remainder beneficiary under such 

an annuity or similar financial instrument, subject to the following 

provisions: 

(A) For institutionalized individuals who receive certain Medicaid-covered long-term care services, the state would become the 

remainder beneficiary in the first position of an annuity (in which 

he or she has an interest) for the total amount paid by Medicaid 

on behalf of the individual; the state becomes the remainder beneficiary in the second position when there is a spouse, minor, or disabled child as a named beneficiary. 

(B) In the case of disclosure concerning an annuity, the state 

would notify the annuity’s issuer of the state’s right as a preferred 

remainder beneficiary in the annuity for Medicaid services furnished to the individual. This provision would not prevent the 

issuer from notifying persons with any other remainder of the 

state’s interest in the remainder. 

(C) The state may require an issuer to notify when there is a 

change in the amount of income or principal being withdrawn from 

the amount being withdrawn at the time of the most recent disclosure, as specified above. A state would take such information into 

account when determining the amount of the state’s obligations for 

Medicaid or the individual’s eligibility. Such a change in amount 

would be deemed as a transfer of an asset for less than fair market 

value unless the individual demonstrates, to the state’s satisfaction, that the asset transfer was for fair market value. 

The Secretary may provide guidance to states on categories of 

arm’s length transactions (such as the purchase of a commercial 

annuity) that could be generally treated as an asset transfer for 

fair market value. 

The House bill would not prevent a state from denying Medicaid eligibility for an individual based on the income or resources 

derived from an annuity. 

The House bill would apply to transactions (including the purchase of an annuity) occurring on or after the date of the enactment. 


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Conference Agreement 

The conference agreement requires individuals, upon Medicaid 

application and recertification of eligibility, to disclose to the state, 

a description of any interest the individual or community spouse 

has in an annuity (or similar financial instrument, as specified by 

the Secretary), regardless of whether the annuity is irrevocable or 

is treated as an asset. Such application or recertification form includes a statement naming the state as the remainder beneficiary. 

In the case of disclosure concerning an annuity, the state notifies 

the annuity’s issuer of the state’s right as a preferred remainder 

beneficiary for Medicaid assistance furnished to the individual. 

Issuers may notify persons with any other remainder interest of 

the state’s remainder interest. 

States may require an issuer to notify the state when there is 

a change in the amount of income or principal withdrawn from the 

amount withdrawn at the point of Medicaid application or recertification. States take this information into account when determining 

the amount of the state’s financial share of costs or in the individual’s eligibility for Medicaid. 

The Secretary may provide guidance to states on categories of 

transactions that may be treated as a transfer of asset for less than 

fair market value. States may deny eligibility for medical assistance for an individual based on the income or resources derived 

from an annuity. 

The conference agreement amends section 1917(c)(1) of the Social Security Act by adding that the purchase of an annuity shall 

be treated as the disposal of an asset for less than fair market 

value unless the state is named as the remainder beneficiary in the 

first position for at least the total amount of Medicaid expenditures 

paid on behalf of the annuitant or is named as such a beneficiary 

in the second position after the community spouse or minor or disabled child and is named in the first position if such spouse or a 

representative of such child disposes of any such remainder for less 

than fair market value. 

The conference agreement amends section 1917(c)(1) of the Social Security Act to include, in the definition of assets subject to 

transfer penalties, an annuity purchased by or on behalf of an annuitant who has applied for a Medicaid-covered nursing facility or 

other long-term care services. Annuities that would not be subject 

to asset transfer penalties would include an annuity as defined in 

subsection (b) and (q) of section 408 of the Internal Revenue Code 

(IRC), or purchased with proceeds from: (1) an account or trust described in subsections (a), (c), and (p) of section 408 of the IRC; (2) 

a simplified employee pension as defined in section 408(k) of the 

IRC; or (3) a Roth IRA defined in section 408A of the IRC. Annuities would also be excluded from penalties if they are irrevocable 

and non-assignable, actuarially sound (as determined by actuarial 

publications of the Office of the Chief Actuary of the Social Security 

Administration), and provide for payments in equal amounts during the term of the annuity, with no deferral and no balloon payments. 

The amendments apply to transactions, including the purchase 

of annuity, occurring on or after the date of this Act’s enactment. 


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Application of Income-First Rule in Applying Community Spouse’s 

Income Before Assets in Providing Support of Community 

Spouse (Section 6013 of the Conference Agreement, no provision in the Senate Bill, and Section 3113 of the House Bill) 

Current Law 

Current law includes provisions intended to prevent impoverishment of a spouse whose husband or wife seeks Medicaid coverage for long-term care services. These provisions were added by 

the Medicare Catastrophic Coverage Act (MCCA) of 1988 to address the situation that would otherwise leave the spouse not receiving Medicaid (community spouse) with little or no income or assets when the other spouse is institutionalized or, at state option, 

receives Medicaid’s home- and community-based services. Before 

MCCA, states could consider all of the assets of the community 

spouse, as well as the spouse needing Medicaid coverage, to be 

available to pay for care for the spouse needing Medicaid coverage. 

These rules created hardships for the spouse living in the community who was forced to spend down virtually all of the couple’s assets to Medicaid eligibility levels so that the other spouse could 

qualify for coverage. MCCA established new rules for the treatment 

of income and assets of married couples, allowing the community 

spouse to retain higher amounts of income and assets (on top of 

non-countable assets such as a house, car, etc.) than allowed under 

general Medicaid rules. 

Regarding income, current law exempts all of the community 

spouse’s income (e.g., pension or Social Security) from being considered available to the other spouse for purposes of Medicaid eligibility. For community spouses with more limited income, section 

1924(d) of the Social Security Act provides for the establishment of 

a minimum monthly maintenance needs allowance for each community spouse to try to ensure that the community spouse has sufficient income to meet his or her basic monthly needs. (The community spouse’s minimum monthly maintenance needs allowance is 

set at a level that is higher than the official federal poverty level.) 

Once income is attributed to each of the spouses according to their 

ownership interest, the community spouse’s monthly income is 

compared against the minimum monthly maintenance needs allowance. If the community spouse’s monthly income amount is less 

than the minimum monthly maintenance needs allowance, the institutionalized spouse may choose to transfer an amount of his or 

her income or assets to make up for the shortfall (i.e. the difference 

between the community spouse’s monthly income and the statespecified minimum monthly maintenance needs allowance). This 

transfer allows more income to be available to the community 

spouse, while Medicaid pays a larger share of the institutionalized 

spouse’s care costs. Within federal limits, states set the maximum 

monthly income level that community spouses may retain. Federal 

requirements specify that this amount may be no greater than 

$2,377.50 per month, and no less than $1,561.25 per month in 

2005. 

Regarding assets, federal law allows states to select the 

amount of assets a community spouse may be allowed to retain. 

This amount is referred to as the community spouse resource alVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00276 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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lowance (CSRA). Federal requirements specify that this amount 

may be no greater than $95,100 and no less than $19,020 in total 

countable assets in 2005. When determining eligibility, all assets of 

the couple are combined, counted, and split in half, regardless of 

ownership. If the community spouse’s share of the assets is less 

than the state-specified maximum, then the Medicaid beneficiary 

must transfer his or her share of the assets to the community 

spouse until the community spouse’s share reaches the maximum. 

All other non-exempt assets must be depleted before the applicant 

can qualify for Medicaid. 

States have some flexibility in the way they apply these rules 

at the time in which a person applies through the fair hearing 

process to raise his or her minimum maintenance needs allowance. 

At this point, a state may decide to allocate more income or resources from the institutionalized spouse to the community spouse. 

In doing so, states have employed two divergent methods. Under 

the method used by most states, known as the ‘‘income-first’’ method, the state requires that the institutionalized spouse’s income is 

first allocated to the community spouse to enable the community 

spouse sufficient income to meet or, if approved by the state, exceed the minimum monthly maintenance needs allowance; the remainder, if any, is applied to the institutionalized spouse’s cost of 

care. Under this method, the assets of an institutionalized spouse 

(e.g. an annuity or other income producing asset) cannot be transferred to the community spouse to generate additional income for 

the community spouse unless the income transferred by the institutionalized spouse would not enable the community spouse’s total 

monthly income to reach the state-approved monthly maintenance 

needs allowance. This method generally requires a couple to deplete a larger share of their assets than the resources-first method. 

In contrast, under the other method, known as the ‘‘resourcesfirst’’ method, the couple’s resources can be protected first for the 

benefit of the community spouse to the extent necessary to ensure 

that the community spouse’s total income, including income generated by the CSRA, meets or, if approved by the state, exceeds the 

community spouse’s minimum monthly maintenance needs allowance. Additional income from the institutionalized spouse that may 

be, but has not been, made available for the community spouse is 

used toward the cost of care for the institutionalized spouse. This 

method generally allows the community-spouse to retain a larger 

amount of assets than the income-first method. 

On September 7, 2001, the Secretary issued a proposed rule 

(Federal Register Vol. 66, No. 174) that would have codified state 

practices. The proposed rule would have allowed states to choose 

between using either the income-first or resources-first method 

when determining whether the community spouse has sufficient income to meet the minimum monthly maintenance needs allowance. 

Under the proposed rule, states would not have been able to apply 

different rules to different individuals, on a case-by-case basis. The 

Secretary has not issued a final rule. 

Senate Bill 

No provision. 


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House Bill 

The House bill would amend section 1924(d) of the Social Security Act to require that any transfer or allocation made from an institutionalized spouse to meet the need of a community spouse for 

a community spouse’s monthly income allowance be first made 

from income of the institutionalized spouse. Only when sufficient 

income is not available, could resources of the institutionalized 

spouse be transferred or allocated. 

The House bill would apply to transfers and allocations made 

on or after the date of this Act’s enactment by individuals who become institutionalized spouses on or after such date. 

Conference Agreement 

The conference agreement amends section 1924(d), and therein 

sections (c) and (e), of the Social Security Act to require that states 

consider that all income of the institutionalized spouse that could 

be made available to the community spouse, in accordance with the 

calculation of the post-eligibility allocation of income or additional 

income allowance allocated at a fair hearing, has been made before 

states allocate the community spouse an amount of resources adequate to provide the difference between the minimum monthly 

maintenance needs allowance and all income available to the community spouse. These amendments apply to transfers and allocations made on or after the date of this Act’s enactment by individuals who become institutionalized spouses on or after such date. 

Disqualification for Long-Term Care Assistance for Individuals 

with Substantial Home Equity (Section 6014 of the Conference 

Agreement, no provision in the Senate Bill, and Section 3114 

of the House Bill). 

Current Law 

Within federal law, states set asset standards that applicants 

must meet to qualify for Medicaid coverage. Among other things, 

these standards specify a limit on the amount of countable assets 

a person may have to qualify, as well as define which types of assets are counted and not counted. In general, countable assets cannot exceed $2,000 for an individual applicant. States generally follow SSI rules for computing both countable and non-countable assets. 

Under Medicaid and SSI rules, the value of an item may be totally or partially excluded when calculating countable resources. 

For example, the entire value of a car, regardless of its worth, is 

excluded, but life insurance is counted to the extent that the cash 

surrender value exceeds $1,500 (if the total value of all life insurance policies on any person does not exceed $1,500, no part of the 

cash surrender value of such life insurance will be counted for eligibility purposes). 

Current Medicaid and SSI asset counting practices generally 

exclude the entire value of an applicant’s home. A home is defined 

as any property in which an individual (and spouse, if any) has an 

ownership interest and which serves as the individual’s principal 

place of residence. This property includes the shelter in which an 

individual resides, the land on which the shelter is located and reVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00278 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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lated outbuildings. If an individual (and spouse, if any) moves out 

of his or her home without the intent to return, the home becomes 

a countable resource because it is no longer the individual’s principal place of residence. However, if an individual leaves his or her 

home to live in an institution, the home is still considered to be the 

individual’s principal place of residence, irrespective of the individual’s intent to return, as long as a spouse or dependent relative of 

the eligible individual continues to live there. The individual’s equity in the former home becomes a countable resource effective 

with the first day of the month following the month it is no longer 

his or her principal place of residence. 

Senate Bill 

No provision. 

House Bill 

The House bill would amend section 1917 of the Social Security 

Act to exclude from Medicaid eligibility for nursing facility or other 

long-term care services, certain individuals with an equity interest 

in their home of greater than $750,000. (The Secretary would establish a process to waive application of this provision for demonstrated cases of hardship.) This amount would be increased, beginning in 2011, from year to year based on the percentage increase in the consumer price index for all urban consumers (all 

items, United States city average), rounded to the nearest $1,000. 

Individuals whose spouse, child under age 21, or child who is 

blind or disabled (as defined by the section 1614 of the Social Security Act) lawfully resides in the individual’s home would not be excluded from eligibility. This provision would not prevent an individual from using a reverse mortgage or home equity loan to reduce the individual’s total equity interest in the home. 

The House bill would apply to individuals who are determined 

eligible for Medicaid with respect to nursing facility or other longterm care services based on an application filed on or after January 

1, 2006. 

Conference Agreement 

The Conference agreement amends section 1917 of the Social 

Security Act to exclude from Medicaid eligibility for nursing facility 

or other long-term care services, certain individuals with an equity 

interest in their home of greater than $500,000. A state may elect 

an amount that exceeds $500,000, but does not exceed $750,000. 

These dollar amounts are increased, beginning in 2011, from year 

to year based on the percentage increase in the consumer price 

index for all urban consumers (all items, United States city average), rounded to the nearest $1,000. 

Individuals whose spouse, child under age 21, or child who is 

blind or disabled (as defined by the section 1614 of the Social Security Act) lawfully resides in the individual’s home would not be excluded from eligibility. This provision would not prevent an individual from using a reverse mortgage or home equity loan to reduce the individual’s total equity interest in the home. 

The House bill would apply to individuals who are determined 

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term care services based on an application filed on or after January 

1, 2006. 

Enforceability of Continuing Care Retirement Communities 

(CCRC) and Life Care Community Admission Contracts (Section 6015 of the Conference Agreement, no provision in the 

Senate Bill, and Section 3115 of the House Bill) 

Current Law 

Continuing Care Retirement Communities (CCRCs) offer a 

range of housing and health care services to serve older persons as 

they age and as their health care needs change over time. CCRCs 

generally offer independent living units, assisted living, and nursing facility care for persons who can afford to pay entrance fees and 

who often reside in such CCRCs throughout their older years. The 

services generally offered include meals, transportation, emergency 

response systems, and on-site nursing and physician services. 

Many also offer home care, maid services and laundry. CCRCs 

were developed, in large part, in response to an interest among 

many elderly persons to age-in-place. CCRCs can be either for-profit or not-for-profit CCRCs. They are paid primarily with private 

funds, but a number also accept Medicaid payment for nursing facility services. Although the majority of CCRC residents do not 

meet the financial criteria for Medicaid, some do. Under current 

law, section 1919(c)(5)(A)(i)(II) of the Social Security Act prohibits 

Medicaid-certified nursing facility from requiring that individuals 

provide them with oral or written assurance that they are not eligible for, or will not apply for, Medicaid or Medicare benefits. 

Senate Bill 

No provision. 

House Bill 

The House bill would amend section 1919(c)(5)(A)(i)(II) of the 

Social Security Act to provide an exception for state-licensed, registered, certified, or equivalent continuing care retirement communities (CCRCs) or a life care community (including nursing facility 

services provided as part of that community) that are certified to 

accept Medicaid and/or Medicare payment to allow them to require 

in their admissions contracts that residents spend their resources 

(subject to Medicaid’s rules concerning the resources allowance for 

community spouses, described above), declared for the purposes of 

admission, on their care before they apply for Medicaid. 

The House bill would also amend section 1917 of the Social Security Act to consider certain entrance fees for CCRCs or life care 

communities to be countable resources, and thus available to the 

applicant, for purposes of the Medicaid eligibility determination. 

For applicants with community spouses, only that part of the entrance fee that is not protected for by the community spouse’s resource allowance would be considered in the computation of the 

spousal share available to Medicaid. Entrance fees that would be 

considered a resource available to the individual would meet the 

following criteria: 


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(A) the individual would have the ability to use the entrance 

fee, or the contract provides that the entrance fee could be used, 

to pay for care should other resources or income of the individual 

be insufficient to pay for care; 

(B) the individual would be eligible for a refund of any remaining entrance fee when the individual dies or terminates the CCRC 

or life care community contracts and leaves the community; and 

(C) the entrance fee does not confer an ownership interest in 

the continuing care retirement community or life care community 

Conference Agreement 

The conference agreement includes the House provision except 

that a CCRC or life care community cannot retain a portion of an 

entrance fee, otherwise made available to spend on care before applying for Medicaid, on account of a community spouse’s resource 

allowance. 

Additional Reforms of Medicaid Asset Transfer Rules 

Requirement to Impose Partial Months of Ineligibility (Section 

6016(a) of the Conference Agreement, Section 6011 (a) of the 

Senate Bill, and no provision in the House Bill) 

Current Law 

Current law requires states to impose penalties on individuals 

applying for Medicaid who transfer assets (all income and resources of the individual and of the individual’s spouse) for less 

than fair market value (an estimate of the value of an asset if sold 

at the prevailing price at the time it was actually transferred). Specifically, the roles require states to delay Medicaid eligibility for individuals receiving care in a nursing home, and, at state option, 

certain people receiving care in community-based settings, who 

have transferred assets for less than fair market value on or after 

a ‘‘look-back date.’’ The look-back date’’ is 36 months prior to application for Medicaid for income and most assets disposed of by the 

individual, and 60 months in the case of certain trusts. 

The length of the delay is determined by dividing the total cumulative uncompensated value of all assets transferred by the individual (or individual’s spouse) on or after the look-back date by the 

average monthly cost to a private patient of a nursing facility in 

the state (or, at the option of the state, in the community in which 

the individual is institutionalized) at the time of application. For 

example, a transferred asset worth $60,000, divided by a $5,000 average monthly private pay rate in a nursing home, results in a 12– 

month period of ineligibility for Medicaid long-term care services. 

The period of ineligibility begins the first day of the first month 

during or after which assets have been improperly transferred and 

which does not occur in any other period of ineligibility. There is 

no limit to the length of the penalty period. 

When calculating the length of the penalty period when assets 

are transferred for less than fair market value, current law allows 

states to ‘‘round down,’’ or not include in the ineligibility period the 

quotient amounts (resulting from the division of the value of the 

transferred asset by the average monthly private pay rate in a 

nursing home) that are less than one month. For example, in a 


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state with an average private stay in a nursing home of $4,100, an 

ineligibility period for an improper transfer of $53,000 could be 

12.92 months (i.e. $53,000/$4,100=12.92). Although some states 

would impose an ineligibility period of 12 months and 28 days (of 

a 31 day month), other states may round down the quotient to an 

ineligibility period of 12 months only. 

Senate Bill 

The Senate bill would amend Section 1917(c)(1)(E) of the Social 

Security Act by adding that a state shall not round down, or otherwise disregard any fractional period of ineligibility when determining the ineligibility period. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement includes the Senate provision. 

Authority for States to Accumulate Multiple Transfers into One 

Penalty Period (Section 6016(b) of the Conference Agreement, 

Section 6011(b) of the Senate Bill, and no provision in the 

House Bill) 

Current Law 

Current law and additional CMS guidance provides that when 

a number of assets are transferred for less than fair market value 

on or after the look-back date during the same month, the penalty 

period is calculated using the total cumulative uncompensated 

value of all assets transferred during that month by the individual 

(or individual’s spouse) divided by the average monthly cost to a 

private patient of a nursing facility in the state (or, at the option 

of the state, in the community in which the individual is institutionalized) at the time of application. When a number of assets are 

transferred during different months, then the rules vary based 

upon whether the penalty periods overlap. If a penalty period for 

each transfer overlaps with the beginning of a new penalty period, 

then states may either add together the value of the transferred assets and calculate a single penalty period or impose each penalty 

period sequentially. If the penalty period for each transfer does not 

overlap, then states must treat each transfer as a separate event 

and impose each penalty period starting on the first day of the 

month in which each transfer was made. 

Senate Bill 

The Senate bill would amend Section 1917(c)(1) of the Social 

Security Act by adding that for an individual or an individual’s 

spouse who disposes of multiple assets in more than one month for 

less than fair market value on or after the applicable look-back 

date, states may determine the penalty period by treating the total, 

cumulative uncompensated value of all assets transferred by the 

individual (or individual’s spouse) during all months as one transfer. States would be allowed to begin such penalty periods on the 

earliest date which would apply to such transfers. 


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1 Under former SSI rules, there were restrictions placed on the value of the automobile and 

household goods and personal effects that could be excluded from countable assets. As of March 

9, 2005, one automobile and all household goods and personal effects are excluded, regardless 

of their value. 70 Federal Register 6340, no. 24, Feb. 7, 2005. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement includes the Senate provision but 

refers to the disposal of multiple fractional transfers of assets instead of multiple assets. 

Inclusion of Transfer of Certain Notes and Loans Assets (Section 

6016(c) of the Conference Agreement, Section 6011(c) of the 

Senate Bill, and no provision in the House Bill) 

Current Law 

Under current law, states set standards, within federal parameters, for the amount and type of assets that applicants may have 

to qualify for Medicaid. In general, countable assets cannot exceed 

$2,000 for an individual. However, not all assets are counted for 

eligibility purposes. The standards states set also include criteria 

for defining non-countable, or exempt, assets. States generally follow rules for the Supplemental Security Income (SSI) program for 

computing both countable and non-countable assets. 

Under state Medicaid and SSI rules, countable assets may include, but are not limited to, funds in a savings or money market 

account, stocks or other types of equities, accelerated cash benefits 

from certain types of insurance policies, and funds from certain 

types of trusts that can be obtained by the individual, the individual’s spouse, or anyone acting for the individual or the individual’s 

spouse, to pay for the individual’s medical or nursing facility care, 

even if the funds or payments are not distributed. Under Medicaid 

and SSI rules, non-countable assets include an individual’s primary 

place of residence, one automobile, household goods and personal 

effects,1 property essential to income-producing activity, up to 

$1,500 in burial funds, life insurance policies whose total face value 

is not greater than $1,500, and miscellaneous other items. 

Other rules defining countable and non-countable assets apply 

only in particular states. Their rules are generally intended to restrict the use of certain financial instruments (e.g. annuities, promissory notes, or trusts) to protect assets so that applicants can qualify for Medicaid earlier than they might otherwise. 

Senate Bill 

The Senate bill would amend Section 1917(c)(1) of the Social 

Security Act to make additional assets subject to the look-back period, and thus a penalty, if established or transferred for less than 

fair market value. Such assets would include funds used to purchase a promissory note, loan or mortgage, unless the repayment 

terms are actuarially sound, provide for payments to be made in 

equal amounts during the term of the loan and with no deferral 

nor balloon payments, and prohibit the cancellation of the balance 

upon the death of the lender. 


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In the case of a promissory note, loan, or mortgage that does 

not satisfy these requirements, their value shall be the outstanding 

balance due as of the date of the individual’s application for certain 

Medicaid long-term care services. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement includes the Senate provision. 

Inclusion of Transfers to Purchase Life Estates (Section 6016(d) of 

the Conference Agreement, Section 6011(e) of the Senate Bill, 

and no provision in the House Bill) 

Current Law 

Current law does not specify whether life estates should be 

treated as countable or noncountable assets for purposes of applying the Medicaid asset transfer rules. In CMS guidance, however, 

the Secretary specifies that the establishment of a life estate constitutes a transfer of assets. The guidance also explains that a 

transfer for less than fair market value occurs whenever the value 

of the transferred asset is greater than the value of the rights conferred by the life estate. According to CMS, a life estate is involved 

when an individual who owns property transfers ownership to another individual while retaining, for the rest of his or her life (or 

the life of another person), certain rights to that property. 

General1y, a life estate entitles the grantor to possess, use, and obtain profits from the property as long as he or she lives, even 

though actua1 ownership of the property has passed to another individual. 

Senate Bill 

The Senate bill would amend Section 1917(c)(l) of the Social 

Security Act to add a provision that would redefine the term ‘assets,’ with respect to the Medicaid asset transfer rules, to include 

the purchase of a life estate interest in another individual’s home 

unless the purchaser resides in the home for at least one year after 

the date of purchase. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement includes the Senate provision. 

Effective Date (Section 6016(e) of the Conference Agreement, Section 6011(g) of the Senate Bill, and no provision in the House 

Bill) 

Current Law 

No provision. 


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Senate Bill 

This provision would apply to payment made under the Medicaid program for calendar quarters beginning on or after the date 

of this Act’s enactment, without regard to whether or not final regulations to carry out such amendments have been promulgated by 

such date. Amendments made by this provision would not apply to 

Medicaid assistance provided for services before the date of enactment, with respect to assets disposed of on or before the date of enactment, or with respect to trusts established on or before the date 

of enactment. 

In the case of a state that the Secretary of Health and Human 

Services determines requires state legislation to meet the additional requirements of this provision, the state Medicaid plan 

would not be regarded as failing to comply with the requirements 

solely on the basis of its failure to meet these additional requirements before the first day of the first calendar quarter beginning 

after the close of the first regular session of the state legislature 

that begins after the date of enactment of this Act. In the case of 

a state that has a two-year legislative. session, each year of the 

session would be considered to be a separate regular session of the 

state legislature. This amendment applies to provision under section 6011 of the Senate bill. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement includes the Senate provision with 

respect to amendments made by section 6016. 

Subchapter B—Expanded Access to Certain Benefits 

Expansion of State Long-Term Care Partnership Program (Section 

6021 of the Conference Agreement, and Section 6012 of the 

Senate Bill, and Section 3133 of the House Bill) 

Current Law 

Under Medicaid’s long-term care (LTC) insurance partnership 

program, certain persons who have exhausted (or used at least 

some of) the benefits of a private long-term care insurance policy 

may access Medicaid without meeting the same means-testing requirements as other groups of Medicaid eligibles. For these individuals, means-testing requirements are relaxed at: (1) the time of application to Medicaid; and (2) the time of the beneficiary’s death 

when Medicaid estate recovery is generally applied. 

In general, states allow individuals to retain no more than 

$2,000 in countable assets and exempt certain non-countable assets 

such as an individual’s primary place of residence, one automobile, 

household goods and personal effects. Under section 1902 of the Social Security Act, a state may request the Secretary’s permission to 

amend its Medicaid state plans to allow certain applicants to retain 

greater amounts of countable assets than other applicants and still 

qualify for Medicaid. Specifically, states that obtain the Secretary’s 

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ing for Medicaid who have purchased long-term care insurance 

policies. 

Section 1917 of the Social Security Act (amended by the Omnibus Budget Reconciliation Act of 1993, P.L. 103–66) allows only 

those states with an approved state plan amendment as of May 14, 

1993 to exempt individuals from Medicaid estate recovery who 

apply to Medicaid after exhausting their private long-term care insurance benefits. By that date, five states (California, Connecticut, 

Indiana, Iowa, and New York) had received CMS approval. All of 

these states, except Iowa, have implemented partnership programs. 

The four partnership states with active programs have different models for determining the amount of assets that an eligible 

participant may protect. Connecticut and California use a dollarfor-dollar model, in which the amount of the assets protected is 

equivalent to the value of the benefit package paid by the policy 

purchased (e.g., $100,000 of nursing-home or assisted living benefits paid enables that individual to retain up to $100,000 in assets 

and still qualify for Medicaid coverage in that state). New York 

uses a total asset protection model in which persons who purchase 

certain state-approved policies may qualify for Medicaid without 

having to meet any of Medicaid’s asset criteria. Indiana uses a hybrid model, offering both dollar-for-dollar and total asset protection 

(Indiana switched from the dollar-for-dollar model to the hybrid 

model in 1998). 

Federal oversight of long-term care insurance is largely limited 

to provisions established by the Health Insurance Portability and 

Accountability Act of 1996 (HIPAA, P.L. 104–191). HIPAA established new rules regarding the tax treatment of LTC insurance and 

expenses, and defined the requirements for a tax-qualified LTC insurance policy. LTC insurance products are largely regulated by 

states. Every state and the District of Columbia has some laws governing LTC insurance. Many of these laws reflect guidance provided by the National Association of Insurance Commissioners 

(NAIC), an organization of state insurance regulators. This guidance, provided in the form of a Model Act and Model Regulations 

for LTC insurance, addresses a number of areas, including the following. 

Model Regulations: 

• Application forms and replacement coverage; 

• Reporting requirements; 

• Filing requirements for marketing; 

• Standards for marketing; 

• Appropriateness of recommended purchase; 

• Standard format outline of coverage; and 

• Requirements to deliver shopper’s guide. 

Model Act: 

• Outline of coverage; 

• Requirements for certificates under group plans; 

• Policy summary; 

• Accelerated death benefits; and 

• Incontestability period. 

HIPPA also includes requirements that tax-qualified policies 

comply with consumer protections regarding the delivery of policies, information on denials of claims, and disclosure. While many 


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state laws and regulations are based largely on the NAIC standards, others have adopted only some of these standards. As a result, there is significant variation in regulatory practices across 

states. 

National Clearinghouse for Long-Term Care. No provision in 

current law requires the establishment of a long-term care consumer clearinghouse. 

In related activities, DHHS has funded some states to establish state-based consumer-friendly access to information about 

long-term care services. In FY2003 and FY2004, the Centers for 

Medicare and Medicaid (CMS) and AoA awarded approximately 

$19 million in grants to states for the purpose of assisting their efforts to create a single, coordinated system of information and access for all persons seeking long term care to minimize confusion, 

enhance individual choice, and support informed decision-making. 

In FY2005, $15 million was awarded. A total of 43 states have received grants for this purpose. Some of the common activities 

under this grants program include information and referral, outreach, counseling about public benefits and long-term care options, 

and case management. States’ methods for implementing the grant 

may vary; some states have established an actual physical location, 

and other states have established a statewide clearinghouse 

through a toll-tree number or a web-based information site. 

In addition, CMS has made available to the public, via its 

website, a comparison of Medicare and Medicaid-certified nursing 

homes and home health agencies. The information provides detailed facility and agency information and characteristics, and contains several measures of quality (e.g., improvement in mobility). 

This website does not cover assisted living facilities, group homes 

and other residential facilities that are not nursing facilities; nor 

does it cover non-medical, non-certified, home and communitybased long-term care services. 

Senate Bill 

The Senate bill would exempt an additional group of persons 

with certain long-term care insurance plans from Medicaid estate 

recovery. This group would include individuals who received Medicaid under a Qualified State Long-Term Care Insurance Partnership plan meeting requirements A through G described below. The 

provision would also require that existing LTC insurance partnership programs satisfy requirements B through G below for LTC insurance policies sold on or after 2 years after enactment. 

The Senate bill would define LTC insurance policies as including, but not be limited to, certificates issued under group insurance 

contracts [also would include individual and other LTC insurance 

contracts]. The term ‘‘Qualified State LTC Insurance Partnership,’’ 

would mean a state with an approved Medicaid State plan amendment meeting the following requirements: 

(A) the disregard of any assets or resources in an amount equal 

to the amount of payments made to, or on behalf of, an individual 

who is a beneficiary under any LTC insurance policy sold under 

such plan amendment; 

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surance Partnership’’ or a long-term care insurance policy, the 

same as the state treats benefits paid under such a policy under 

the state’s plan amendment; 

(C) any long-term care insurance policy sold would be required 

to be a tax-qualified policy (Meeting specifications defined in section 7702B(b) of the Internal Revenue Code of 1986) and meet the 

consumer protection requirements described below; 

(D) any policy would be required to provide for compound annual inflation protection of at least 5 percent and asset protection 

that does not exceed $250,000. This amount would be increased, beginning with 2007, from year-to-year based on the percentage increase in the medical care expenditure category of the Consumer 

Price Index for Urban Consumers (United States city average), 

published by the Bureau of Labor Statistics rounded to the nearest 

$100; 

(E) an insurer would be allowed to rescind a LTC insurance 

policy in effect for at least 2 years or deny an otherwise valid LTC 

insurance claim only upon a showing (1) of misrepresentation that 

is material to the acceptance of coverage; (2) pertains to the claim 

made; and (3) could not have been known by the insurer at the 

time the policy was sold; 

(F) any individual who sells these policies would be required 

to receive training and demonstrate evidence of an understanding 

of the policy and how it relates to other public and private LTC 

coverage; and 

(G) the issuer would be required to report, to the Secretary required information, and to report to the state: (1) the information 

or data reported to the Secretary, (2) the information or data required under the minimum reporting requirements developed 

under section 103(c)(1)(B) of the Improving LTC Choices Act of 

2005, and (3) such additional information or data as the state may 

require. If a LTC insurance policy is exchanged for another such 

policy, the effective date of coverage under the first policy would 

determine when coverage first becomes effective. 

LTC insurance policies would be required to meet the following 

requirements specified in the National Association of Insurance 

Commissioner’s (NAIC) Long-Term Care Insurance Model Regulations and Long-Term Care Insurance Model Act (as adopted as of 

October 2000). The requirements include the following topics described below. 

Model Regulations: 

• Guaranteed renewal or noncancellability; 

• Prohibitions on limitations and exclusions; 

• Extension of benefits; 

• Continuation or conversion of coverage; 

• Discontinuance and replacement of policies; 

• Unintentional lapse; 

• Disclosure; 

• Required disclosure of rating practices to consumer; 

• Prohibitions against post-claims underwriting; 

• Minimum standards; 

• Application forms and replacement coverage; 

• Reporting requirements; 

• Filing requirements for marketing; 


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• Standards for marketing, including inaccurate completion of 

medical histories; • Suitability; • Prohibition against preexisting conditions and probationary 

periods in replacement policies or certificates; • Contingent nonforfeiture benefits if the policyholder declines 

the offer of a nonforfeiture provision; • Standard format outline of coverage; and • Deliver shopper’s guide. 

Model Act: 

• Preexisting conditions; • Prior hospitalization; • Contingent nonforfeiture benefits; • Right of return; • Outline of coverage; • Requirements for certificates under group plans; • Policy summary; and • Monthly reports on accelerated death benefits. 

These provisions of the Long-Term Care Insurance Model Regulation and Long-Term Care Insurance Model Act would be treated 

as including any other provision the Regulation or Act necessary to 

implement the provision. The determination of whether any requirement under the Model Act or Regulation have been met would 

be made by the Secretary. 

No later than one year after enactment, the Secretary, in consultation with the NAIC, issuers of LTC insurance policies, states 

with experience with LTC insurance partnership plans, other 

states, and representatives of consumers of LTC insurance policies 

would be required to develop uniform standards for: • Reciprocity. These standards would ensure that LTC insurance policies issued under the state LTC partnership (described in 

this provision) would be portable to other states with such-LTC insurance partnerships; • Minimum reporting requirements. These standards would be 

required to specify the data and information that each issuer of 

LTC insurance policies under State LTC insurance partnerships 

shall report to the state with which it has such a partnership. The 

requirements developed would be required to specify the type and 

format of the data and information to be reported and the frequency with which such reports are to be made. States would be 

permitted to require an issuer of LTC insurance policy sold in the 

state (regardless of whether the policy is issued under a State LTC 

insurance partnership) to require the issuer to report information 

or data to the state that is in addition to the information or data 

required under these minimum reporting requirements; 

• Suitability. These standards would be for determining 

whether a long-term care insurance policy is appropriate for the 

needs of an applicant (based on guidance of the NAIC regarding 

suitability). 

The Secretary, in consultation with those listed above, would 

also be required to submit recommendations to Congress with respect to the following: 

• Incontestability. Recommendations regarding whether the 

requirements relating to incontestability for LTC insurance policies 


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sold under a state partnership program should be modified based 

on NAIC guidance; 

• Nonforfeiture. Recommendations regarding whether requirements relating to nonforfeiture for issuers of LTC insurance policies under a state LTC insurance partnership program should be 

modified to reflect changes in an insured’s financial circumstances; 

• Independent certification for benefits assessment. Recommendations regarding whether uniform standards for requiring 

benefits assessment evaluations to be conducted by independent 

entities should be established for issuers of LTC insurance policies 

under such a state partnership program, and if so, what such 

standards should be; 

• Rating requirements. Recommendations regarding whether 

uniform standards for the establishment of, and annual increases 

in, premiums for LTC insurance policies sold under such a state 

partnership program should be established and if so, what such 

standards should be; and 

• Dispute Resolution. Recommendations regarding whether 

uniform standards are needed to ensure fair adjudication of coverage disputes under LTC insurance policies sold under such a 

state partnership program and the delivery of the benefits promised under such policies. 

The DHHS Secretary would be required to annually report to 

Congress on the LTC insurance partnerships. Such reports would 

be required to include analyses of the extent to which such partnerships expand or limit access of individuals to LTC and the impact 

of such partnerships on Federal and State Medicaid expenditures 

and federal Medicare expenditures. 

Effective Date. These amendments would become effective on 

October 1, 2007 and apply to long-term care insurance policies sold 

on or after that date. 

House Bill 

The House bill would amend section 1917(b)(1)(C)(ii) of the Social Security Act to allow additional groups of individuals in states 

with state plan amendments approved after May 14, 1993 to be exempt from estate recovery requirements if the amendment provides 

for a qualified state long-term care insurance partnership program. 

The term ‘‘Qualified State LTC Insurance Partnership,’’ would 

mean a Medicaid State plan amendment that provides for the disregard of any assets or resources in the amount equal to the 

amount of insurance benefit made to or on behalf of an individual 

who is a beneficiary under a long-term care policy (including a certificate issued under a group insurance contract), if the following 

requirements are met: 

(I) The policy covers an insured who was a resident of such 

state when coverage first became effective under the policy. (In the 

case of a long-term care insurance policy exchanged for another 

such policy, this requirement would apply based on the coverage of 

the first such policy that was exchanged); 

(II) The policy is a qualified long-term care insurance policy 

(meeting specifications defined in section 7702B(b) of the Internal 

Revenue Code of 1986) issued on or after the first day of the first 


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calendar quarter in which the plan amendment was submitted to 

the Secretary; 

(III) If the policy does not provide some level of inflation protection, the insured was offered, before the policy was sold, a longterm care insurance policy that provides some level of inflation protection; 

(IV) The state Medicaid agency provides information and technical assistance to the state insurance department on the insurance 

department’s role of assuring that any individual who sells a longterm care insurance policy under the partnership receives training 

or demonstrates evidence of an understanding of such policies and 

how they relate to other public and private coverage of long-term 

care; 

(V) The issuer of the policy provides regular reports to the Secretary that include, in accordance with the Secretary’s regulations 

(promulgated after consultation with the states), notification regarding when all benefits provided under the policy have been paid 

and the amount of such benefits paid, when the policy otherwise 

terminates, and such other information as the Secretary determines appropriate to the administration of such partnerships; 

(VI) The state does not impose any requirement affecting the 

terms or benefits of such a policy unless the state imposes such requirement on long-term care insurance policies without regard to 

whether the policy is covered under the partnership or is offered 

in connection with such a partnership. 

The Secretary, as appropriate, would provide copies of the 

state reports to the state involved and would promote the education 

of consumers regarding qualified state long-term care insurance 

partnerships. In addition, in consultation with other appropriate 

Federal agencies, issuers of long-term care insurance, and the National Association of Insurance Commissioners, the Secretary 

would develop recommendations for Congress to authorize and fund 

a uniform minimum data set to be reported electronically by all 

issuers of long-term care insurance policies under qualified state 

long-term care insurance partnerships to a secure, centralized electronic query and report generating mechanism that State, the Secretary, and other Federal agencies can access. 

To permit portability in long-term care insurance policies purchased under state long-term care insurance partnerships, the Secretary may develop, in consultation with the states and the National Association of Insurance Commissioners, uniform standards 

for reciprocal recognition of such policies among states with qualified state long-term care insurance partnerships. 

Effective Date. A state plan amendment that provides for a 

qualified state long-term care insurance partnership would be effective for long-term care insurance policies issued on or after a date, 

specified in the amendment, that is not earlier than the first day 

of the first calendar quarter in which the plan amendment was 

submitted to the Secretary. 

Conference Agreement 

The conference agreement amends section 1917(b)(l)(C)(ii) of 

the Social Security Act to: (1) require that existing partnership programs not allow consumer protection standards, as defined in a 


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Medicaid state plan amendment, to be less stringent (determined 

by the Secretary) than those applying under the state plan amendment as of December 31, 2005; and (2) allows certain individuals 

in states with state plan amendments approved after May 14, 1993 

to be exempt from estate recovery requirements if the amendment 

provides for the disregard of any assets or resources in the amount 

equal to the amount of insurance benefits made to or on behalf of 

an individual who is a beneficiary under a long-term care policy 

(including a certificate issued under a group insurance contract), if 

the following requirements are met: 

(I) The policy covers an insured who was a resident of such 

state when coverage first became effective under the policy. In the 

case of a long-term care insurance policy exchanged for another 

such policy, this requirement applies based on the coverage of the 

first such policy that was exchanged; 

(II) The policy is a qualified long-term care insurance policy 

(meeting specifications defined in section 7702B(b) of the Internal 

Revenue Code of 1986) issued not earlier than the effective date of 

the Medicaid state plan amendment; 

(III) The policy meets the following requirements specified in 

the National Association of Insurance Commissioner’s (NAIC) 

Long-Term Care Insurance Model Regulations and Long-Term Care 

Insurance Model Act (as adopted as of October 2000). 

Model Regulations relating to: 

• Guaranteed renewal or noncancellability (including some 

sections of the Model Act); • Prohibitions on limitations and exclusions; • Extension of benefits; • Continuation or conversion of coverage; • Discontinuance and replacement of policies; • Unintentional lapse; • Disclosure; • Required disclosure of rating practices to consumer; • Prohibitions against post-claims underwriting; 

• Minimum standards; 

• Application forms and replacement coverage; 

• Reporting requirements; 

• Filing requirements for marketing; 

• Standards for marketing, including inaccurate completion of 

medical histories; 

• Prohibition against preexisting conditions and probationary 

periods in replacement policies or certificates; 

• Contingent nonforfeiture benefits if the policyholder declines 

the offer of a nonforfeiture provision; 

• Appropriateness of recommended purchase; 

• Standard format outline of coverage; and 

• Delivery of shopper’s guide. 

Model Act relating to: 

• Preexisting conditions; 

• Prior hospitalization; 

• Contingent nonforfeiture benefits; 

• Right of return; 

• Outline of coverage; 

• Requirements for certificates under group plans; 


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• Policy summary; and 

• Monthly reports on accelerated death benefits. 

These provisions of the Long-Term Care Insurance Model Regulation and Long-Term Care Insurance Model Act are treated as 

including any other provision of the Regulation or Act necessary to 

implement the provision. Long-term care insurance policies issued 

in a state shall be deemed as meeting the requirements of the 

model regulation or the Model Act if the state plan amendment 

provides that the State insurance commissioner for the state certifies (in a manner satisfactory to the Secretary) that the policy 

meets such requirements. 

(IV) If at the date of purchase the purchaser is younger than 

age 61, the policy must provide for compound inflation; if the purchaser is at least age 61 but not older than age 76, the policy must 

provide some level of inflation protection; and if the purchaser is 

age 76 or older, the policy may, but is not required to, provide some 

level of inflation protection. 

(V) The state Medicaid agency provides information and technical assistance to the state insurance department on the insurance 

department’s role of assuring that any individual who sells a longterm care insurance policy under the partnership receives training 

or demonstrates evidence of an understanding of such policies and 

how they relate to other public and private coverage of long-term 

care; 

(VI) The issuer of the policy provides regular reports to the 

Secretary that include, in accordance with the Secretary’s regulations (after consultation with the National Association of Insurance 

Commissioners, issuers of long-term care insurance policies, states 

with experience with long-term care insurance partnership plans, 

other states, and representatives of consumers of long-term care insurance policies) notification regarding when all benefits and their 

amounts under the policy have been paid, when the policy otherwise terminates, and other information that the Secretary determines is appropriate to the administration of the partnership programs. These regulations shall specify the data format and information to be reported, and the frequency with which such reports 

are to be made. The Secretary, as appropriate, provides copies of 

the reports to the state involved; 

(VII) The state does not impose any requirement affecting the 

terms or benefits of such a policy unless the state imposes such requirement on long-term care insurance policies without regard to 

whether the policy is covered under the partnership or is offered 

in connection with such a partnership. 

In consultation with other appropriate Federal agencies, 

issuers of long-term care insurance, and the National Association 

of Insurance Commissioners, state insurance commissioners, states 

with experience with long-term care insurance partnership plans, 

other states, and representatives of consumers of long-term care insurance policies, the Secretary develops recommendations for Congress to authorize and fund a uniform minimum data set to be reported electronically by all issuers of long-term care insurance policies under qualified state long-term care insurance partnerships to 

a secure, centralized electronic query and report generating mechaVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00293 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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nism that State, the Secretary, and other Federal agencies can access. 

Not later than 12 months after the National Association of Insurance Commissioners issues a revision, update or other modification of a model regulation or model act provision listed above or 

substantially related those listed above, the Secretary reviews 

these changes, determines whether incorporating such changes into 

the corresponding provision would improve qualified state longterm care insurance partnerships, and, if so, incorporate the 

changes into the provision. 

States may require issuers of long-term care insurance policies 

sold in that state (regardless of whether the policy is issued under 

a qualified state long-term care insurance partnership) to report 

additional information or data to the state. 

To permit portability in long-term care insurance policies purchased under state long-term care insurance partnerships, the Secretary develops no later than January 1, 2007, in consultation with 

the National Association of Insurance Commissioners, states with 

experience with long-term care insurance partnership plans, other 

state, and representatives of consumers of long-term care insurance 

policies, standards for uniform reciprocal recognition of such policies among states with qualified state long-term care insurance 

partnerships which have benefits paid under such policies will be 

treated the same by all such states, and states with such partnerships shall be subject to such standards unless the state notifies 

the Secretary of the State’s election to be exempt from such standards. 

The Secretary annually reports to Congress on the long-term 

care insurance partnerships. Such reports would include analyses 

of the extent to which partnership programs expand or limit access 

of individuals to long-term care and the impact of such partnerships on federal and state expenditures under Medicare and Medicaid. Nothing in this provision shall require the Secretary to conduct an independent review of each long-term care insurance policy 

offered under or in connection with a state partnership program. 

A state plan amendment that provides for a qualified state 

long-term care insurance partnership may provide that the amendment be effective for long-term care insurance policies issued on or 

after a date that is not earlier than the first day of the first calendar quarter in which the plan amendment was submitted to the 

Secretary. 

With respect to policy exchanges, Conferees expect existing policy holders will be able to exchange existing policies for Partnership policies in accordance with policy provisions and state law 

after a State’s plan amendment is effective. 

National Clearinghouse for Long-Term Care. The Secretary establishes a National Clearinghouse for Long-Term Care Information (this may be done through a contract or interagency agreement). The National Clearinghouse for Long-Term Care: (1) educates consumers with respect to the availability and limitations of 

Medicaid long-term care coverage, including state Medicaid eligibility and estate recovery requirements; (2) provides objective information to assist consumers with the decision-making process for 

determining whether to purchase long-term care insurance or to 


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pursue other private market alternatives for purchasing long-term 

care; (3) provide contact information for additional objective sources 

on planning for long-term care services needs; and (4) maintain a 

list of states with state long-term care insurance partnerships. 

In providing information to consumers on long-term care, the 

National Clearinghouse for Long-Term Care Information shall not 

advocate in favor of a specific long-term care insurance provider or 

a specific long-term care insurance policy. 

Out of any funds in the Treasury not otherwise appropriated, 

there is appropriated to carry out for the National Clearinghouse 

for Long-Term Care $3 million for each of fiscal years 2006 through 

2010. 

Expanded Access to Home and Community-based Services for the 

Elderly and Disabled (Section 6022 of the Conference Agreement, no provision in the Senate Bill, and Section 3131 of the 

House Bill) 

Current Law 

Medicaid home and community-based service (HCBS) waivers 

authorized by Section 1915(c) of the Social Security Act allow 

states to provide home and community-based services to Medicaid 

beneficiaries who would otherwise need the level of care provided 

in a nursing facility, intermediate care facility for persons with 

mental retardation (ICF–MR) or hospital. HCBS waiver services 

can include case management, homemaker/home health aide services, personal care, psychosocial rehabilitation, home health, private duty nursing, adult day care, habilitation, respite care, day 

treatment, and any other service requested by the state and approved by the Secretary. As part of the waiver, states may define 

the services that will be offered, target a specific population (e.g., 

individuals with developmental disabilities) or a specific geographic 

region, and limit the number of waiver participants (resulting in a 

waiting list for services in many states). 

Approval for a HCBS waiver is contingent on a state documenting the cost-neutrality of the waiver. Cost-neutrality is met if, 

on average, the per person cost under the HCBS waiver is no higher than the cost if the person were residing in one of the three 

types of institutions identified in Medicaid law, (hospital, nursing 

facility or ICF–MR). The state determines which type of institution(s) it will use to make the cost-neutrality calculation. 

A HCBS waiver is generally approved for a 3- or 5-year time 

period and is subject to additional oversight from the Centers for 

Medicare and Medicaid Services (CMS). In July 2003, there were 

275 HCBS waivers nationwide in all states (except Arizona which 

offers HCBS services under a Section 1115 waiver). 

Senate Bill 

No provision. 

House Bill 

The House bill would allow states to cover a broad range of 

home and community-based services (HCBS) as an optional benefit 

under the state Medicaid plan without requiring a waiver. States 


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would be able to define which HCBS services will be covered and 

could include any service authorized by federal law for existing 

HCBS waiver programs (as defined in Section 1915(c)(4)(B) of the 

Social Security Act). Similar to the existing HCBS waiver program, 

paying for an individual’s room and board would not be permitted 

under this new benefit. 

To qualify for this benefit the individual must meet the following criteria: (1) Age 65 or older or disabled (as defined under 

the Medicaid state plan) but who is not an individual with a developmental disability, mental retardation or a related condition; (2) 

have had a determination that, but for the provision of such services, the individual would require the level of care provided in a 

hospital or nursing facility (the cost of which could be reimbursed 

under Medicaid); and (3) meet the Medicaid eligibility standards in 

effect in the state (which may include an approved Medicaid waiver) as of the date of enactment of this provision. 

A state would be able to cover this benefit under the Medicaid 

state plan if certain conditions are met: (1) Any state waiver or 

demonstration under Sections 1915 or 1115 of the Social Security 

Act with respect to such services for individuals described in this 

provision must have expired; and (2) the state must monitor and 

report to the Secretary of the Department of Health and Human 

Services (DHHS) on a quarterly basis the enrollment and expenditures for services provided under this option. 

A state would not be required to comply with existing Medicaid 

requirements regarding the statewide availability of the service, 

the comparability of services, and the income and resource rules 

applicable in the community. A state may also limit the number of 

individuals who are eligible for services, establish waiting lists for 

the receipt of these services, and limit the amount, duration, and 

scope of services. 

This section would be effective for home and community-based 

services furnished on or after October 1, 2006. 

Conference Agreement 

The conference agreement establishes home and communitybased services as an optional Medicaid benefit that would not require a waiver and that meets certain other requirements for individuals whose income does not exceed 150 percent of the federal 

poverty level. The scope of services may include any services permitted under Section 1915(c)(4)(B) of the Social Security Act which 

the Secretary has the authority to approve, and would not include 

an individual’s room and board. The state may provide this option 

to individuals without determining that but for the provision of 

such services, the person would require the level of care provided 

in a hospital, nursing home, or ICF–MR. 

States are required to establish needs-based criteria for determining an individual’s eligibility for the HCBS option established 

by this provision, and the specific HCBS the individual will receive. 

The State must also establish needs-based criteria for determining 

whether an individual requires the level of care provided in a hospital, nursing home, ICF–MR, or under a waiver of the state plan, 

that is more stringent than the needs-based criteria for the HCBS 

option established by this provision. 


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The state is also required to submit to the Secretary a projection of the number of individuals to be served under the option, 

and may limit the number of individuals who are eligible for such 

services. 

The needs-based criteria must be based on an assessment of an 

individual’s support needs and capabilities, and may take into account the inability of the individual to perform two or more activities of daily living (ADLs) as defined in the Internal Revenue Service (IRS) code (i.e., bathing, dressing, transferring, toileting, eating, 

and continence), or the need for significant assistance to perform 

these activities, and other risk factors determined to be appropriate 

by the state. 

A state is allowed to modify the needs-based criteria described 

above in the event that enrollment of individuals for the HCBS option exceeds projected enrollment. The state is not required to seek 

prior approval of the Secretary if the state wishes to modify the 

needs-based criteria, but must give the Secretary and the public at 

least 60 days notice of the proposed modification. If a state modifies the needs-based criteria, existing recipients of the HCBS optional state plan services will continue to be eligible to receive 

those services for at least 12 months beginning on the date the individual first received medical assistance for HCBS services. After 

such a modification, the state, at a minimum, must apply the level 

of care determination for hospitals, nursing facilities, and ICF–MRs 

that were in effect prior to the application of more stringent criteria. 

The state is required to use an independent evaluation for determining an individual’s eligibility for HCBS. The independent 

evaluation must include an assessment of the needs of the individual to: (1) determine a necessary level of services and supports 

consistent with the individual’s physical and mental capacity; (2) 

prevent unnecessary or inappropriate care, and (3) establish an individualized care plan for the individual. 

The assessment must include: (1) an objective evaluation of an 

individual’s inability or need for significant assistance to perform 

two or more activities of daily living as defined in the Internal Revenue Service code; (2) a face-to-face evaluation of the individual by 

an individual trained in the assessment and evaluation of individuals whose physical or mental conditions trigger a potential need 

for HCBS; (3) where appropriate, consultation with the individual’s 

family, spouse, guardian, or other responsible individual; (4) consultation with all treating and consulting health and support professionals caring for the individual; (5) an examination of the individual’s relevant history and medical records, and care and support 

needs guided by best practices and research on effective strategies 

that result in improved health and quality of life outcomes. The assessment must also evaluate the ability of the individual or individual’s representative to self-direct the purchase and control of HCBS 

if he/she elects this option, and if such an option is covered by the 

state. 

The independent evaluation is to establish a written individualized plan of care. The plan must be developed in consultation 

with the individual, the individual’s treating physician, health care 

or support professionals, or other appropriate individuals, and the 


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family caregiver or individual representative if appropriate; (2) to 

take into account the extent, and the need for, any family or other 

supports for the individual; (3) to identify the HCBS services to be 

provided (or purchase, if the individual elects to self-direct his/her 

care); (4) to be reviewed at least annually or as needed when there 

is a significant change in circumstances. 

States may allow individual (or the individual’s representative) 

to elect to self-direct the purchase and control of state plan HCBS. 

Under the self-directed option, the individual’s needs, preferences, 

and capabilities are assessed, and based on the assessment, a service plan is developed jointly with the individual (or representative) 

that is approved by the state. The service plan must include certain 

activities such as a person-centered planning process and risk management techniques. States may also include an individualized 

budget that identifies a dollar value for the services and supports 

under the control and direction of the individual or his or her representative. States are required to provide information in the state 

plan amendment about how an individualized budget is developed 

and implemented. 

The state must ensure that the provision of home and community-based services meets federal and state guidelines for quality 

assurance. The state must establish standards for the conduct of 

the independent evaluation to prevent conflicts of interest, and 

must allow for at least annual redetermination of eligibility and appeals using the process for appeals under the State Plan. 

States may elect to provide for a period of presumptive eligibility (not to exceed 60 days) for individuals that the state has reason to believe may be eligible for home and community-based services. The covered activities include carrying out the independent 

evaluation and assessment and, if eligible, the specific services the 

individual will receive. 

In covering this benefit, a state may elect not to comply with 

existing Medicaid requirements related to statewideness and the 

income and resource rules applicable in the community, but only 

for purposes of providing home and community-based services in 

accordance with this benefit. This option should not be construed 

as applying to those receiving Medicaid in an institution as a result 

of a determination that the individual requires the level of care in 

a hospital, nursing facility or ICF/MR. 

Federal Medicaid funding will continue to be available for individuals who are receiving Medicaid in an institution or home and 

community-based setting (under a HCBS waiver program or Section 1115 demonstration) as of the effective date of the Medicaid 

state plan amendment, without regard to whether the individuals 

satisfy the more stringent eligibility criteria established under that 

paragraph until the individual is discharged from the institution or 

waiver program, or no longer requires such level of care. 

The provision requires the Secretary acting through the Director of the Agency for Healthcare Research and Quality, to consult 

with consumers and health and social service providers and other 

professionals knowledgeable about long-term care services and supports to develop program performance indicators, client function indicators, and measures of client satisfaction regarding HCBS offered under Medicaid. 


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The Secretary is required to use the indicators and measures 

to assess HCBS and outcomes, particularly with respect to a recipient’s health and welfare, and the overall system for RCBS under 

Medicaid. The Secretary is also required to make best practices and 

comparative analyses of system features available to the public. 

This provision will be effective on January 1, 2007. 

Optional Choice of Self-directed Personal Assistance Services (Cash 

and Counseling) (Section 6023 of the Conference Agreement, 

and no provision in the Senate Bill, and Section 3132 of the 

House Bill) 

Current Law 

Under current law, state Medicaid programs offer several types 

of long-term care services to individuals who, because of disability 

or chronic illness, need assistance with activities such as eating, 

bathing, and dressing. Medicaid programs have the option of covering personal care services and may also cover a broad set of other 

services through a home and community-based services (HCBS) 

waiver authorized under Section 1915(c) of the Social Security Act. 

To qualify for a HCBS waiver, the individual must require the level 

of care of a hospital, nursing facility or intermediate care facility 

for persons with mental retardation (ICF/MR). 

Traditionally, Medicaid personal care and other related services have been provided to individuals through local public or private agencies. However, in the last decade, Medicaid beneficiaries 

with disabilities or chronic conditions and federal and state policymakers have been increasing the discretion that beneficiaries have 

over key elements of the service (e.g., what time a personal care 

worker comes to the home to help the beneficiary, who provides the 

service, etc.) These types of programs are broadly known as ‘‘selfdirected’’ or ‘‘consumer-directed’’ programs. The specific elements 

that a Medicaid beneficiary can control vary widely depending upon 

the state and the type of service covered. Currently, Medicaid law 

allows certain types of self directed programs to be implemented 

through the normal Medicaid state plan and HCBS waiver process. 

Other types of self-directed programs require a research and demonstration waiver under Section 1115 of the Social Security Act. 

Under the Medicaid personal care benefit, the Centers for 

Medicare and Medicaid Services (CMS) explicitly permits self-direction of personal care services. The CMS State Medicaid Manual 

specifies, ‘‘Medicaid beneficiaries may hire their own provider, train 

the provider according to their personal preferences, supervise and 

direct the provision of the personal care services and, if necessary, 

fire the provider.’’ However, the state Medicaid agency maintains 

responsibility for monitoring service delivery and ensuring that 

qualified providers are delivering the personal care services. The 

state is not permitted to provide Medicaid funds directly to a consumer to pay for the personal care services. 

Generally, CMS policy has been that payments for personal 

care (or similar) services delivered by legally responsible individuals (e.g., the parent of a minor child or a spouse) are not eligible 

for federal Medicaid matching funds. However, CMS has recently 

amended its policy so that under a HCBS waiver (though not the 


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Medicaid personal care benefit), states have the option of paying legally responsible relatives in extraordinary circumstances when the 

provision of personal care services is determined to be necessary to 

ensure the health and welfare of the waiver participant and so long 

as the parent or spouse meets the Medicaid provider requirements 

established by the state. 

Senate Bill 

No provision. 

House Bill 

This proposal would aIlow a state to cover, under the Medicaid 

program, payment for part or all of the cost of self-directed personal assistance services (other than room and board) based on a 

written plan of care to individuals for whom there has been a determination that, but for the provision of such services, the individuals would require and receive personal care services under Medicaid state plan or home and community-based services under a 

HCBS waiver. Self-directed personal assistance services may not be 

provided to individuals who reside in a home or property that is 

owned, operated, or controlled by a provider of services, not related 

by blood or marriage. 

The Secretary must not approve a state’s self-directed personal 

assistance services program unless the state assures that the necessary safeguards have been taken to protect the health and welfare of individuals receiving these services and that financial accountability exists for funds expended for these services. 

The state must also evaluate the need for personal care under 

the Medicaid state plan or personal services under a HCBS waiver 

for individuals who (1) are entitled to Medicaid personal care under 

the state plan or receive HCBS waiver services; (2) may require 

self-directed personal assistance services; and (3) may be eligible 

for self-directed personal assistance services. If covered by the state 

and at the choice of the individual, those who are likely to require 

personal care or HCBS waiver services must be informed of the 

feasible alternatives in the provision of Medicaid personal care 

services or personal assistance services under a HCBS waiver. The 

state must also provide a support system that ensures participants 

in the program are appropriately assessed and counseled prior to 

enrollment and are able to manage their budgets. Additional counseling and management support may be provided at the request of 

the participant. 

The state will be required to submit an annual report to the 

Secretary which includes the number of individuals served and 

total expenditures on their behalf, in the aggregate. The state must 

also provide an evaluation of overall impact on the health and welfare of participants compared to non-participants every three years. 

A state may provide self-directed personal assistance services 

under the state plan without regard to the Medicaid requirements 

for statewideness (under Section 1902(a)(1) of the Social Security 

Act), and may limit the population eligible to receive these services 

and the number of persons served without regard to Medicaid requirements regarding comparability (Section 1902(a)(10)(B) of the 

Social Security Act). 


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Under this provision, the term ‘‘self-directed personal assistance services’’ means personal care and related services, or HCBS 

waiver services that are provided to an eligible participant. Individuals participating in such services will be permitted, within an approved self-directed services plan and budget, to purchase personal 

assistance and related services, and hire, fire, supervise, and manage the individuals providing such services. 

At the election of the state, a participant will be allowed to (1) 

choose as a paid service provider, any individual capable of providing the assigned tasks including legally liable relatives, and (2) 

use the individualized budget to acquire items that increase independence or substitute (such as a microwave oven or an accessibility ramp) for human assistance, to the extent that expenditures 

would otherwise be made for the human assistance. 

An approved self-directed services plan and budget under this 

provision must meet the following requirements: (1) The participant (or his/her guardian or authorized representative if appropriate) exercises choice and control over the budget, planning, and 

purchase of self-directed personal assistance services, including the 

amount, duration, scope, provider and location of service provision; 

(2) There is an assessment of the needs, strengths, and preferences 

of the participants for such service; (3) An individual’s plan for selfdirected services and supports, which has been developed and approved by the state, is based on a person-centered assessment process that builds upon the participant’s capacity to engage in activities that promote community life; respects the participant’s preferences, choices and abilities; and involves families, and professionals in the planning or delivery of services or supports as desired or required by the participant. 

The budget for self-directed services and supports must be developed and approved by the state based on the assessment and 

plan (described above), and on a methodology that uses valid, reliable cost data, is open to public inspection, and includes a calculation of the expected cost of such services if those services were not 

self-directed. The budget may not restrict access to other medically 

necessary care and services furnished under the plan and approved 

by the state but not included in the budget 

In establishing and implementing the self-directed services 

plan and budget, appropriate quality assurance and risk management techniques must be used which recognize the roles and sharing of responsibilities in obtaining services in a self-directed manner and which assure the appropriateness of the plan and the 

budget, based on the individual’s resources and capabilities. 

A state may employ a financial management entity to make 

payments to providers, track costs, and make reports under this 

program. Payment for the activities of the financial management 

entity will be reimbursed at the same rate as other Medicaid administrative activities (generally federal Medicaid administrative 

reimbursement is 50 percent, though certain activities may be eligible for 75 percent reimbursement). 

This provision win apply to apply to services furnished on or 

after January 1, 2006. 


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Conference Agreement 

The conference agreement follows the House provision except 

that the effective date has been changed to January 1, 2007. 

Authority to continue providing certain adult day health care services or medical adult day care services (No provision in Conference Agreement, Section 6039B of Senate Bill, and no provision in the House Bill) 

Current Law 

Most states currently offer adult day care services to Medicaid 

beneficiaries through either the rehabilitation or clinic benefits of 

the Medicaid state plan (in about 8 states), or through a home and 

community-based (HCBS) waiver under Section 1915(c) of Medicaid 

law (in about 44 states through 102 separate HCBS programs). 

Senate Bill 

The Senate bill would prohibit the Secretary of HHS from denying federal Medicaid funding or withdrawing federal approval for 

adult day health care services or medical adult day care services 

under the Medicaid state plan, as defined by the state and approved by the Secretary on or before 1982. 

House Bill 

No provision. 

Conference Agreement 

No provision. 

Chapter 3—Eliminating Fraud, Waste, and Abuse in Medicaid 

Limitation on Use of Contingency Fee Arrangements (Section 6031 

of the Conference Agreement, Section 6022 of the Senate Bill, 

and no provision in the House Bill) 

Current Law 

Federal law requires each state to designate a single state 

agency to administer or supervise the administration of its Medicaid program. This agency, which is usually part of a welfare, 

health, or human resources umbrella agency, will often contract 

with other public or private entities (e.g., other state agencies or 

departments, consulting firms) to perform various administrative 

functions. In some cases, contingency fee arrangements are used to 

pay contractors based on Medicaid dollars saved, recovered, or otherwise obtained for the state (e.g., a fee equal to 10 percent of third 

party liability collections). The federal reimbursement rate for most 

Medicaid administrative costs is 50 percent. 

In determining the amount of administrative costs—including 

contingency fees—that may be eligible for federal reimbursement, 

states must comply with a number of federal statutes and regulations. In general, federal Medicaid law requires states to use methods of administration that are found by the Secretary of HHS to 

be necessary for the proper and efficient operation of their Medicaid programs. With regard to contingency fee contracts, guidance 

issued by the Centers for Medicare and Medicaid Services (CMS) 


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to its regional offices in 2002 notes that in order to be eligible for 

federal reimbursement, contingency fees must: (1) be based on 

Medicaid cost avoidance savings or recoveries in which the federal 

government shares, (2) be intended to produce Medicaid program 

savings, not additional expenditures reported for federal reimbursement, and (3) not be contingent upon recoveries from the federal 

government. CMS guidance also notes that states may not claim 

federal reimbursement for contingency fee payments made to another government unit for Medicaid administrative activities. 

Additional federal guidance is contained in Office of Management Budget (OMB) Circular A–87, which establishes principles 

and standards for determining allowable costs for states (and other 

governmental units) under federal grant programs such as Medicaid. The circular specifies that the cost of professional and consultant services are allowable when reasonable in relation to the 

services rendered and when not contingent upon recovery of the 

costs from the federal government. 

Senate Bill 

Under the Senate bill, states would not be eligible for federal 

reimbursement of amounts expended in connection with a contract 

or agreement (other than a Medicaid managed care contract) between the state Medicaid agency (or any state or local agency that 

administers a portion of the Medicaid program) and a consultant 

or other contractor if the terms of compensation for the consultant 

or other contractor do not meet standards established by the Inspector General (IG) of HHS. 

Such standards would be designed by the IG to ensure prudent 

purchasing and program integrity with respect to federal funds. 

The IG would annually review the standards and revise them as 

necessary to promptly address new compensation arrangements 

that may present a risk to Medicaid program integrity. The standards would be issued no later than six months after enactment of 

the provision. 

The provision would be effective January 1, 2007, except that 

in the case of a state which the Secretary of HHS determines that 

state legislation is required for compliance, the state would not be 

regarded as failing to comply solely on the basis of its failure to 

meet the requirements before the first day of the first calendar 

quarter beginning after the close of the first regular session of the 

state legislature that begins after the date of enactment of the bill. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement follows the House bill. 


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Encouraging the Enactment of State False Claims Acts (Section 

6032 of the Conference Agreement, Section 6023 of the Senate 

Bill, and no provision in the House Bill) 

Current Law 

Under the federal False Claims Act, anyone who knowingly 

submits a false claim to the federal government is liable for damages up to three times the amount of the government’s damages 

plus mandatory penalties of $5,500 to $11,000 for each false claim 

submitted. Under qui tam (whistleblower) provisions of the act, private citizens with knowledge of potential violations (‘‘relators’’) may 

file suit on behalf of the government and are entitled to receive a 

share of the proceeds of the action or settlement of the claim (ranging from 15 percent to 30 percent, depending on whether or not the 

government elects to participate in the case). 

States may have a variety of laws in place to facilitate prosecution of Medicaid fraud, and some have established their own 

versions of a false claims act. With limited exceptions, a state must 

repay the federal share (generally determined by the federal medical assistance percentage, or FMAP) of any provider overpayment 

within 60 days of discovering the overpayment, regardless of 

whether or not the state has recovered the overpayment. 

Senate Bill 

Under the Senate bill, if a state has in effect a law relating to 

false or fraudulent claims that meets certain requirements (described below), the federal medical assistance percentage, with respect to any amounts recovered under a state action brought under 

such a law, would be decreased by 10 percentage points. 

The state law relating to false and fraudulent claims must be 

determined by the Inspector General of HHS, in consultation with 

the Attorney General, to: (1) establish liability to the state for false 

or fraudulent claims described in the federal False Claims Act, 

with respect to Medicaid expenditures, (2) contain provisions that 

are at least as effective in rewarding and facilitating qui tam actions as those in the federal False Claims Act, (3) contain a requirement for filing an action under seal for 60 days with review 

by the state Attorney General, (4) contain a civil penalty that is not 

less than the amount authorized by the federal False Claims Act, 

(5) contain provisions that are designed to prevent a windfall recovery for a qui tam relator that files a federal and state action for 

the same false or fraudulent claim. 

The provision would be effective January 1, 2007. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement follows the Senate bill, but excludes 

language regarding windfall recoveries for qui tam relators. 


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Employee Education About False Claims Recovery (Section 6033 of 

the Conference Agreement, Section 6024 of the Senate Bill, 

and no provision in the House Bill). 

Current Law 

No provision. 

Senate Bill 

Under the Senate bill, a state would be required to provide 

that any entity that receives annual Medicaid payments of at least 

$1 million, as a condition of receiving such payments, must: (1) establish written policies, procedures, and protocols for training of all 

employees of the entity, and of any contractor or agent of the entity, that includes a detailed discussion of the federal False Claims 

Act, federal administrative remedies for false claims and statements, any state laws pertaining to civil or criminal penalties for 

false claims and statements, and whistleblower protections under 

such laws, with respect to the role of such laws in preventing and 

detecting fraud, waste, and abuse in federal health care programs, 

(2) include in such written materials detailed provisions and training regarding the entity’s policies and procedures for detecting and 

preventing fraud, waste, and abuse, (3) include in any employee 

handbook for the entity a specific discussion of such laws, the 

rights of employees to be protected as whistleblowers, and the entity’s policies and procedures for detecting and preventing fraud, 

waste, and abuse, and (4) require mandatory training for all employees of the entity and of any contractor or agent of the entity, 

at the time of hiring, with respect to such laws and the entity’s 

policies and procedures for detecting fraud, waste, and abuse. 

The provision would be effective January 1, 2007, except that 

in the case of a state which the Secretary of HHS determines that 

state legislation is required for compliance, the state would not be 

regarded as failing to comply solely on the basis of its failure to 

meet the requirements before the first day of the first calendar 

quarter beginning after the close of the first regular session of the 

state legislature that begins after the date of enactment of the bill. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement follows the Senate bill, but applies 

only to entities receiving annual Medicaid payments of at least $5 

million and does not require the establishment of protocols and 

procedures for training of employees (i.e., only written policies are 

required). 

Prohibition on Restocking and Double Billing of Prescription Drugs 

(Section 6034 of the Conference Agreement, and Section 6025 

of the Senate Bill, and no provision in the House Bill) 

Current Law 

No provision. 


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Senate Bill 

The Senate bill would prohibit federal matching payments for 

the ingredient cost of a covered outpatient drug for which the pharmacy has already received payment (other than a reasonable restocking fee). It would become effective on the first day of the first 

fiscal quarter beginning after enactment. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement includes the Senate provision. 

Medicaid Integrity Program (Section 6035 of the Conference Agreement, Section 6026 of the Senate Bill, and no provision in the 

House Bill) 

Current Law 

States and the federal government share in the responsibility 

for safeguarding Medicaid program integrity. States must comply 

with federal requirements designed to ensure that Medicaid funds 

are properly spent (or recovered, when necessary). The Centers for 

Medicare and Medicaid Services (CMS) is the primary federal agency responsible for providing oversight of states’ activities and facilitating their program integrity efforts. The HHS Office of Inspector 

General (OIG) also plays a role in Medicaid fraud and abuse detection and prevention efforts through its investigations, audits, evaluations, issuances of program recommendations, and other activities. 

As part of its program integrity activities, CMS operates a 

Medicare-Medicaid (MediMedi) data match project that analyzes 

claims data from both programs together to detect aberrant patterns that may not be evident when billings are viewed in isolation 

(e.g., providers submitting claims to both programs for procedures 

that add up to more than 24 hours of patient care in a single day). 

The Medi-Medi project began with one state in 2001, and was subsequently expanded to include eight others. It is primarily supported by ‘‘wedge’’ funds from the Health Care Fraud and Abuse 

Control (HCFAC) account within the federal Hospital Insurance 

(Medicare Part A) trust fund. HCFAC wedge funds are divided between the Department of Justice, the HHS Office of Inspector General, CMS, and other HHS agencies. The HCFAC account also 

funds the Medicare Integrity Program and activities of the Federal 

Bureau of Investigation related to health care fraud. Annual minimum and maximum HCFAC appropriations are specified in statute. 

Senate Bill 

The Senate bill would establish a Medicaid Integrity Program 

under title XIX. The Secretary of HHS would enter into contracts 

with eligible entities to carry out the program’s activities, which 

would include: (1) review of the actions of individuals or entities 

furnishing items or services for which a Medicaid payment may be 

made, (2) audit of claims for payment for items or services furVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00306 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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nished or for administrative services rendered, (3) identification 

and recovery of overpayments to individuals or entities receiving 

federal funds under Medicaid, (4) education of service providers, 

managed care entities, beneficiaries, and other individuals with respect to payment integrity and benefit quality assurance issues. 

An entity would be eligible to enter into a contract to carry out 

Medicaid Integrity Program activities if it meets eligibility and contracting requirements similar to those under the Medicare Integrity Program. Beginning in FY2006 and every five years, the Secretary of HHS—in consultation with the Attorney General, the Director of the Federal Bureau of Investigation, the Comptroller General of the United States, the Inspector General of HHS, and state 

officials with responsibility for controlling provider fraud and abuse 

under Medicaid—would establish a comprehensive plan for ensuring Medicaid program integrity by combating fraud, waste, and 

abuse. 

Appropriations for the Medicaid Integrity Program would total $50 million in FY2006, $49 million in each of FY2007 and FY2008, 

$74 million in each of FY2009 and FY2010, and $75 million in 

FY2011 and each fiscal year thereafter. No later than 180 days 

after the end of each fiscal year (beginning with FY2006), the Secretary of HHS would submit a report to Congress that identifies 

the use and effectiveness of the use of such funds. 

A Medicaid Chief Financial Officer (CFO) and Medicaid Program Integrity Oversight Board would also be established under 

title XIX. The Medicaid CFO would be appointed by and would report directly to the Administrator of CMS. The duties and authority of the Medicaid CFO would be comparable to those of other 

CFOs with respect to the management and expenditure of federal 

funds under federal health care programs. A Medicaid Program Integrity Oversight Board would also be established by the Secretary 

of HHS. The duties and authority of the board would be comparable to those of the Medicare Contractor Oversight Board, and 

would include responsibility for identifying vulnerabilities and developing strategies for minimizing integrity risks to state Medicaid 

programs. 

States would be required to comply with any requirements determined by the Secretary of HHS to be necessary for carrying out 

the Medicaid Integrity Program, or the duties of the Medicaid CFO 

and the Medicaid Program Integrity Oversight Board. 

In each of fiscal years 2006 through 2010, $25 million would 

be appropriated for Medicaid activities of the HHS Office of Inspector General (in addition to any other amounts appropriated or 

made available for its Medicaid activities, to remain available until 

expended). No later than 180 days after the end of each fiscal year 

(beginning with FY2006), the Inspector General of HHS would submit a report to Congress that identifies the use and effectiveness 

of the use of such funds. 

The Secretary of HHS would significantly increase the number 

of full-time equivalent CMS employees whose duties consist solely 

of ensuring the integrity of the Medicaid program. 

House Bill 

No provision. 


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Conference Agreement 

The conference agreement generally follows the Senate bill, but 

excludes recovery of overpayments from the list of Medicaid Integrity Program activities and does not establish a Medicaid CFO or 

oversight board. It appropriates $5 million in FY2006, $50 million 

in each of FY2007 and FY2008, and $75 million in each fiscal year 

thereafter for Medicaid Integrity Program activities. 

The conference agreement also establishes a national expansion of the Medicare-Medicaid data match project (referred to as 

the Medi-Medi Program) as a required activity of the Medicare Integrity Program under Title XVIII of the Social Security Act. The 

Secretary of HHS shall enter into contracts with eligible entities to 

ensure that the Medi-Medi Program is conducted for the purpose 

of: (1) identifying program vulnerabilities in Medicare and Medicaid through the use of computer algorithms to look for payment 

anomalies, (2) working with states, the Attorney General, and the 

Inspector General of HHS to coordinate appropriate actions to protect Medicare and Medicaid expenditures, and (3) increasing the effectiveness and efficiency of both programs through cost avoidance, 

savings, and recoupment of fraudulent, wasteful, or abuse expenditures. At least quarterly, the Secretary shall make available in a 

timely manner any data and statistical information collected by the 

Medi-Medi Program to the Attorney General, the Director of the 

Federal Bureau of Investigation, the Inspector General of HHS, 

and the states. 

In addition to HCFAC appropriations for the Medicare Integrity Program (which have a statutory floor and ceiling), the MediMedi Program would receive $12 million in FY2006, $24 million in 

FY2007, $36 million in FY2008, $48 million in FY2009, and $60 

million in FY2010 and each fiscal year thereafter. 

Enhancing Third Party Identification and Payment (Section 6036 of 

the Conference Agreement, Section 6021 of the Senate Bill, 

and Section 3144 of the House Bill) 

Current Law 

Third-party liability (TPL) refers to the legal obligation of third 

parties—individuals, entities, or programs—to pay all or part of the 

expenditures for medical assistance furnished under a Medicaid 

state plan. In general, federal law requires Medicaid to be the 

payor of last resort, meaning that all other available third parties 

must meet their legal obligation to pay claims before the Medicaid 

program pays for the care of an individual. Examples of third parties which may be liable to pay for services include employmentrelated health insurance, court-ordered medical support (including 

health insurance) from noncustodial parents, workers’ compensation, long-term care insurance, and other state and federal programs (with certain exceptions, such as the Indian Health Service). 

States are required to take all reasonable measures to ascertain the legal liability of third parties to pay for care and services 

available under the state Medicaid plan. To this end, they must: 

(1) collect health insurance information from individuals at the 

time of initial application for Medicaid and during any subsequent 

redeterminations of eligibility, (2) match data provided by Medicaid 


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applicants and recipients to certain files maintained by government 

agencies (e.g., state wage and income, Social Security Administration wage and earnings, state workers’ compensation, state motor 

vehicle accident reports), (3) identify claims with diagnosis codes 

that would indicate trauma-related injury for which a third party 

may be liable for payment, and (4) follow up on TPL leads identified through these information-gathering activities. 

If the state has determined that probable third party liability 

exists at the time a claim for reimbursement is filed, it generally 

must reject the claim and return it to the provider for a determination of the amount of third party liability (referred to as ‘‘cost 

avoidance’’). If probable liability has not been established or the 

third party is not available to pay the individual’s medical expenses, the state must pay the claim and then attempt to recover 

the amount paid (referred to as ‘‘pay and chase’’). States are generally required to cost avoid claims unless they have an approved 

waiver that allows them to use the pay and chase method. 

As a condition of eligibility for Medicaid, individuals are required to assign to the state Medicaid agency their rights to medical support and payment for medical care from any third party. 

This assignment of rights facilitates TPL recovery by allowing the 

state to collect, on behalf of Medicaid enrollees, amounts owed by 

third parties for claims paid by Medicaid. 

Senate Bill 

The Senate bill would amend the list of third parties named 

in Section 1902(a)(25) of the Social Security Act for which states 

must take all reasonable measures to ascertain the legal liability 

to include: (1) self-insured plans, (2) pharmacy benefit managers, 

and (3) other parties that are legally responsible (by statute, contract, or agreement) for payment of a claim for a health care item 

or service. It would also amend that section to include these entities in the list of health insurers that states must prohibit from 

taking an individual’s Medicaid status into account when enrolling 

the individual or making payments for benefits to or on behalf of 

the individual. 

In addition, it would require a state to provide assurances satisfactory to the Secretary of HHS that it has laws in effect requiring health insurers (including parties that are legally responsible 

for payment of a claim for a health care item or service), as a condition of doing business in the state, to: (1) provide, upon request 

of the state, eligibility and claims payment data with respect to individuals who are eligible for or receiving Medicaid, (2) accept an 

individual’s or other entity’s assignment of rights (i.e., rights to 

payment from the parties) to the state, (3) respond to any inquiry 

from the state regarding a claim for payment for any health care 

item or service submitted not later than three years after the date 

such item or service was provided, and (4) agree not to deny a 

claim submitted by the state solely on the basis of the date of submission of the claim. 

The provision would be effective January 1, 2006, except that 

in the case of a state which the Secretary of HHS determines that 

state legislation is required for compliance, the state would not be 

regarded as failing to comply solely on the basis of its failure to 


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meet the requirements before the first day of the first calendar 

quarter beginning after the close of the first regular session of the 

state legislature that begins after the date of enactment of the bill. 

House Bill 

The House bill is similar to the Senate bill. 

Conference Agreement 

The conference agreement generally follows the Senate and 

House bills, but substitutes the term ‘‘managed care organization’’ 

for ‘‘health maintenance organization’’ in Section 1902(a)(25) of the 

Social Security Act and specifies that states must require parties 

legally responsible for payment of a claim to provide, upon request 

of the state, information to determine during what period an individual or their spouses and dependents may be (or may have been) 

covered by a health insurer and the nature of the coverage that is 

or was provided by the health insurer (including the name, address, and identifying number of the plan) in a manner prescribed 

by the Secretary of HHS. 

Chapter 4—Flexibility in Cost Sharing and Benefits 

State Option for Alternative Medicaid Premiums and Cost Sharing 

(Section 6041 of the Conference Agreement, no provision in the 

Senate Bill, and Sections 3121 and 3126 of the House Bill) 

Current Law 

With some exceptions, premiums and enrollment fees are generally prohibited under Medicaid. When applicab1e, nominal 

amounts for such charges are between $1 and $19 depending on 

family income. States are allowed to establish nominal service-related cost-sharing requirements that are generally between $0.50 

and $3, depending on the cost of the service provided. The regulations that specify nominal premium and service-related cost-sharing amounts were published and amended in the late 1970s and 

the early 1980s. These amounts are not adjusted by any factor. 

Specific services and groups are exempted from such cost-sharing. 

Waiver authority is required to change these rules. 

Under certain circumstances, families qualifying for transitional Medicaid, pregnant women and infants with income over 150 

percent FPL, medically needy groups, and workers with disabilities 

may be charged premiums for Medicaid coverage. 

All service-related cost-sharing is prohibited for: (1) children 

under 18 years of age; (2) pregnant women for any services that 

relate to the pregnancy or to any other medical condition which 

may complicate pregnancy; (3) services furnished to individuals 

who are inpatients in a hospital, or are residing in a long term care 

facility or in another medical institution if the individual is required to spend most of their income for medical care; (4) services 

furnished to individuals receiving hospice care; (5) emergency services; and (6) family planning services and supplies. For most other 

beneficiaries and services, states may impose nominal service-related cost-sharing (described above). For workers with disabilities, 

service-related cost-sharing may be required that exceeds nominal 

amounts as long as they are set on a sliding scale based on income. 


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Under the state Medicaid plan, providers must not deny care 

or services to Medicaid beneficiaries due to the individual’s inability to pay a cost-sharing charge. However, this requirement does 

not eliminate the beneficiary’s liability for payment of such 

charges. For certain groups of pregnant women and infants for 

which monthly premiums may be charged, states must not require 

prepayment and must not terminate Medicaid eligibility for failure 

to pay such premiums until such failure continues for at least 60 

days. States may waive those premiums when such payments 

would cause undue hardship. 

States may offer Medicaid to certain uninsured women who are 

under age 65, and are in need of treatment for breast or cervical 

cancer based on screening services provided by an early detection 

program run by the CDC. This group has access to the same Medicaid services offered to the categorically needy in a given state, 

and are subject to Medicaid’s nominal cost-sharing rules. 

Senate Bill 

No provision. 

House Bill 

The House Bill would allow states to impose premiums and 

cost-sharing for any group of individuals for any type of service, 

through Medicaid state plan amendments (rather than waivers), 

subject to specific restrictions. Premiums and cost-sharing imposed 

under this option would be allowed to vary among classes or groups 

of individuals, or types of service, including through the use of 

tiered cost-sharing for prescription drugs. Generally, the total 

amount of annual cost-sharing for all individuals in a family would 

be capped at 5 percent of family income for all families regardless 

of income. Individuals in families with income below 100 percent 

FPL would not be subject to premiums but could be subject to 

nominal service-related cost-sharing. Individuals in families with 

income exceeding 100 percent FPL may be subject to premiums 

and higher than nominal cost-sharing amounts. 

Premiums would not be permitted for: (1) mandatory groups of 

children under 18, including individuals receiving adoption or foster care assistance under Title IV–E regardless of age; (2) pregnant 

women; (3) terminally ill persons receiving Medicaid hospice care; 

(4) individuals in institutions who are required to spend for costs 

of care all but a minimal amount of their income for personal 

needs. States may exempt additional groups from premiums. ’ 

Service related cost-sharing would not be permitted for: (1) 

services provided to mandatory groups of children under 18, including individuals receiving adoption or foster care assistance under 

Title IV–E regardless of age; (2) preventive services provided to 

children under 18 regardless of family income; (3) services provided 

to pregnant women that relate to pregnancy or to other medical 

conditions that may complicate pregnancy; (4) services provided to 

individuals receiving Medicaid hospice services; (5) services provided to individuals in institutions who are required to spend for 

costs of care all but a minimal amount of their income for personal 

needs; (6) emergency services; and (7) family planning services and 


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supplies. States may exempt additional individuals or services from 

service-related cost-sharing. 

In applying limits on cost-sharing amounts under this option 

that states may impose on individuals under 100 percent FPL, beginning with 2006, the Secretary would be required to increase 

nominal amounts of service-related cost-sharing by the annual percentage increase in the medical care component of the consumer 

price index (CPI) for all urban consumers (U.S. city average), as 

rounded up in an appropriate manner. 

The bill further specifies that these provisions would not prevent states from further limiting cost-sharing, affect the authority 

of the Secretary to waive limits on premiums or cost-sharing, nor 

affect waivers in effect before the date of enactment. 

The bill would allow states to condition the provision of medical assistance on the payment of premiums, and to terminate Medicaid eligibility on the basis of failure to pay a premium if that failure continues for at least 60 days. States may apply this provision 

to some or all groups of beneficiaries, and may waive premium payments in cases where such payments would be an undue hardship. 

In addition, the provision would allow states to permit providers 

participating in Medicaid to require a Medicaid beneficiary to pay 

authorized cost-sharing as a condition for the provision of care or 

services. Providers would also be allowed to reduce or waive costsharing amounts. 

The Government Accountability Office (GAO) would be required to conduct a study of the impact of premiums and cost-sharing under Medicaid on access to and utilization of services. The report would be required to be submitted to Congress no later than 

January 1, 2008. 

These provisions would apply to cost-sharing for items and 

services furnished on or after January 1, 2006. The House bill 

also specifies that none of the proposed cost-sharing (or benefit) 

provisions described above would apply to women who qualify for 

Medicaid under the breast and cervical cancer eligibility group. 

Conference Agreement 

The conference agreement includes the House bill, with modifications. It clarifies that rules with respect to optional cost sharing 

for prescribed drugs (see below) are separate from the rules for 

other optional cost sharing. Explicit cost sharing limits for individuals in families with income under 100 percent FPL are dropped 

in the conference agreement. For individuals in families with income between 100 and 150 percent FPL: (1) no premiums may be 

imposed, (2) cost sharing for any item or service cannot exceed 10 

percent of the cost of the item or service, and (3) the total aggregate amount of all cost-sharing (including cost sharing for prescribed drugs and emergency room copayments for non-emergency 

care; see below) cannot exceed 5 percent of family income as applied on a quarterly or monthly basis as specified by the state. For 

individuals in families with income above 150 percent FPL: (1) the 

total aggregate amount of all cost sharing (including cost sharing 

for prescribed drugs and emergency room copayments for nonemergency care) cannot exceed 5 percent of family income as applied on a quarterly or monthly basis as specified by the state, and 


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(2) cost-sharing for any item or service cannot exceed 20 percent of 

the cost of the item or service. 

Two groups are added to the list of those exempt from paying 

premiums and cost-sharing under the House bill. In the conference 

agreement, these additional groups include (1) children in foster 

care who receive aid and assistance under Part B of Title IV (Child 

and Family Services) of the Social Security Act; and (2) women who 

qualify for Medicaid under the breast and cervical cancer eligibility 

group (a technical change from the House bill). 

In addition, the agreement clarifies that providers could reduce 

or waive cost-sharing on a case-by-case basis. 

Under the conference agreement, increases in the nominal 

cost-sharing amounts follow the House bill (i.e., annual adjustments using the medical CPI), but apply more broadly to existing 

cost-sharing provisions in statute (Section 1916) as well as to the 

new cost-sharing provisions in the House bill specific to prescription drugs and non-emergency care provided in an emergency room 

(described below). 

Special Rules for Cost Sharing for Prescription Drugs (Section 6042 

of the Conference Agreement, no provision in the Senate Bill, 

and Section 3122 of the House Bill) 

Current Law 

States are allowed to establish nominal service-related costsharing requirements (defined in regulation) that are generally between $0.50 and $3, depending on the cost of the service provided. 

Specific services and groups are exempted from such cost-sharing. 

Waiver authority is required to change these rules. As with other 

Medicaid benefits, nominal cost-sharing may be imposed on prescribed drugs, and states may vary nominal cost-sharing amounts 

for preferred and non-preferred drugs. States may also implement 

prior authorization for prescribed drugs. 

Senate Bill 

No provision. 

House Bill 

The House bill would allow states to impose cost-sharing 

amounts that exceed the proposed state option limits described 

above for certain state-identified non-preferred drugs if the cost 

sharing plan meets the following characteristics. Under this option, 

states may impose higher cost-sharing amounts for non-preferred 

drugs within a class; waive or reduce the cost-sharing otherwise 

applicable for preferred drugs within such class; and must not 

apply such cost-sharing for preferred drugs to persons exempt from 

cost-sharing (identified above). 

Cost-sharing for non-preferred drugs would be based on multiples of the nominal amounts based on family income. For persons 

with family income below 100 percent of FPL, nominal cost sharing 

would apply. For those with family income at or above 100 percent 

but below l50 percent of FPL, the multiple is equal to two times 

the applicable nominal amount, and for those with income equal to 

or exceeding 150 percent of FPL, the multiple is equal to three 


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times the applicable nominal amount. For persons generally exempt from cost-sharing (identified above), cost-sharing for non-preferred drugs may be applied. Such cost-sharing may not exceed 

nominal amounts, and aggregate caps on cost-sharing (in terms of 

nominal amounts and maximum cost-sharing based on the specified percentage of family income identified above) would still apply. 

For Medicaid purposes, states would not be allowed to treat a 

preferred drug under the TRICARE pharmacy benefit program as 

a non-preferred drug, nor could states impose cost-sharing that exceeds the standards under this program that are in effect on the 

date of enactment for this provision. 

In cases in which a prescribing physician determines that the 

preferred drug would not be effective or would have adverse health 

effects or both, the state may impose the cost-sharing amount for 

preferred drugs on the prescribed non-preferred product. 

The House bill would not prevent states from excluding specified drugs or classes of drugs from these special cost-sharing rules. 

States would be prohibited from implementing these special 

cost-sharing rules for prescription drugs unless the state has instituted a system for prior authorization and related appeals processes for outpatient prescription drugs. 

These provisions would become effective for cost-sharing imposed for items and services furnished on or after October 1, 2006. 

Conference Agreement 

The conference agreement includes the House bill, with modifications. Cost-sharing for non-preferred drugs may not exceed: (1) 

nominal amounts for individuals in families with income below or 

equal to 150 percent FPL, and (2) 20 percent of the cost of the drug 

for individuals in families with income above 150 percent FPL. 

The conference agreement also drops both the TRICARE and 

the prior authorization/appeals process provisions in the House bill. 

It also changes the effective date of these provisions to January 1, 

2007. 

Emergency Room Copayments for Non-Emergency Care (Section 

6043 of the Conference Agreement, no provision in the Senate 

Bill, and Section 3123 of the House Bill) 

Current Law 

Waivers may be used to allow states to impose up to twice the 

otherwise applicable nominal cost-sharing amounts for non-emergency services provided in a hospital emergency room (ER). States 

may impose these higher amounts if they have established that 

Medicaid beneficiaries have available and accessible alternative 

sources of non-emergency, outpatient services. 

Senate Bill 

No provision. 

House Bill 

The House bill would allow states, through a state plan 

amendment, to impose increased cost-sharing on state-specified 

groups for non-emergency services provided in an ER, when certain 


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conditions are met. First, alternative non-emergency providers 

must be available and accessible to the person seeking care. Second, after initial screening but before the nonemergency care is 

provided at the ER, the beneficiary must be told: (1) the hospital 

can require a higher copayment, (2) the name and location of an 

alternative non-emergency provider and that this provider and that 

a lower copayment may apply, and (3) the hospital can provide a 

referral. When these conditions are met, states could apply or 

waive cost-sharing for services delivered by the alternate provider. 

For persons with income below 100 percent FPL, cost-sharing 

for non-emergency services in an ER could not exceed twice the 

nominal amounts. Individuals exempt from premiums or service-related cost-sharing under other provisions of this bill may be subject 

to nominal copayments for non-emergency services in an ER, only 

when no cost-sharing is imposed for care in hospital outpatient departments or by other alternative providers in the area served by 

the hospital ER. Aggregate caps on cost-sharing established under 

this bill (described in Sec. 3121(a)) would still apply. 

These provisions would have no impact on a hospital’s obligations with respect to screening and stabilizing emergency medical 

conditions, nor would they modify the application of the prudentlayperson standard with respect to payment or coverage of emergency services by any managed care organization. In addition, no 

hospital or physician that makes a cost-sharing determination 

would be liable in any civil action or proceeding, absent a finding 

by clear and convincing evidence of gross negligence. Liabilities related to the provision of care (or failure to do so) would not be affected by these provisions. 

‘‘Non-emergency services’’ would mean any care or services furnished in an ER that the physician determines does not constitute 

an appropriate medical screening examination or stabilizing examination and treatment screening required for hospitals under Medicare law (regarding examination and treatment for emergency medical conditions and women in labor). ‘‘Alternative non-emergency 

services provider’’ would mean a Medicaid-participating health care 

provider, such as a physician’s office, health care clinic, community 

health center, hospital outpatient department, or similar health 

care provider that provides clinically appropriate services for such 

diagnosis or treatment of the condition within a clinically appropriate time of the provision of such non-emergency services. 

The Secretary would be required to provide for payments to 

states for the establishment of alternate non-emergency providers, 

or networks of such providers. The House bill also authorizes and 

appropriates $100 million for paying such providers for the 4-year 

period beginning with 2006. The Secretary would be required to 

give a preference to states that establish or provide for alternate 

non-emergency services providers (or networks) that serve rural or 

underserved areas where beneficiaries may have limited access to 

primary care providers, or in partnership with local community 

hospitals. To access these funds, states would be required to file an 

application meeting requirements set by the Secretary. 

These amendments would apply to non-emergency services furnished on or after the date of enactment of this Act. 


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Conference Agreement 

The conference agreement includes the House bill, with modifications. This provision allows states to permit a hospital to impose cost sharing for non-emergency care delivered in an ER under 

the same conditions identified in the House bill. But the conditions 

defining the beneficiary notification process are expanded to explicitly include a medical screening examination for emergency medical 

conditions as defined in Medicare law and a determination that 

such an emergency does not exist, prior to the delivery of nonemergency care in the ER. In addition, the hospital (not the physician or hospital) is responsible for the notification process. 

The conference agreement clarifies that no hospital or physician can be held liable in any civil action or proceeding for the imposition of cost sharing under this new option, absent a finding of 

gross negligence by the hospital or physician. This provision does 

not affect liability with respect to examination and treatment for 

emergency medical conditions (including women in labor) as specified in Medicare law or otherwise applicable under state law based 

on the provision of (or failure to provide) care. 

The conference agreement also slightly modifies the definition 

of an alternative nonemergency services provider by specifying that 

such providers be able to diagnose or treat a condition contemporaneously with (rather than within a clinically appropriate time of) 

the provision of similar non-emergency services that would be provided in an ER. 

The conference agreement also changes the effective date of 

these provisions to January 1, 2007. 

Use of Benchmark Packages (Section 6044 of the Conference Agreement, no provision in the Senate Bill, and Section 3124 of the 

House Bill) 

Current Law 

Categorically needy (CN) eligibility groups include families 

with children, the elderly, certain persons with disabilities, and 

certain other pregnant women and children who meet applicable financial standards. Medically needy (MN) groups include the same 

types of individuals, but different, typically higher financial standards apply. Some benefits are mandatory for the CN (e.g., inpatient 

and outpatient hospital care, lab and x-ray services, physician services, nursing facility care for persons age 21 and over). Other benefits are optional for the CN (e.g., other practitioner services, routine dental care, physical therapy). Benefits offered to CN groups 

must be the same statewide, and in amount, duration and scope. 

States may offer a more restrictive benefit package to the MN, but 

must offer prenatal and delivery services, ambulatory services for 

persons under 21 and those entitled to institutional services, and 

home health services for those entitled to nursing facility care. 

Benefits offered to MN groups must be the same statewide, and in 

amount, duration and scope. Changes in comparability or 

statewideness for benefits for CN and MN groups require a waiver. 

As described above, some benefits are mandatory for the CN 

(e.g., inpatient and outpatient hospital care, lab and x-ray services, 

physician services, FQHC services, nursing facility care for persons 


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age 21 and over). Other benefits are optional for the CN (e.g., other 

practitioner services, routine dental care, physical therapy). Benefits offered to CN groups must be the same statewide, and in 

amount, duration and scope. States may offer a more restrictive 

benefit package to the MN, but must offer prenatal and delivery 

services, ambulatory services for persons under 21 and those entitled to institutional services, and home health services for those entitled to nursing facility care. Benefits offered to MN groups must 

be the same statewide, and in amount, duration and scope. 

Changes in comparability or statewideness for benefits for CN and 

MN groups require a waiver. 

Under the Early and Periodic, Screening, Diagnostic and 

Treatment (EPSDT) benefit, Medicaid children in CN groups are 

guaranteed access to all federally coverable routine and follow-up 

dental services necessary to treat a dental problem. EPSDT may be 

offered to MN children. 

Both the services provided by rural health clinics (RHCs) and 

federally qualified health services (FQHCs) are required benefits 

for CN groups under Medicaid. Among other mandatory benefits 

for MN groups, states must offer ambulatory services for persons 

under 21 and those entitled to institutional services. Such ambulatory services may include RHC and FQHC services at state option. 

In general, RHCs and FQHCs are paid on a per visit basis, using 

a prospective payment system that takes into account costs incurred and changes in the scope of services provided. Per visit payment rates are also adjusted annually by the Medicare Economic 

Index applicable to primary care services. 

Senate Bill 

No provision. 

House Bill 

The House bill would give states the option to provide Medicaid to state-specified groups through enrollment in benchmark 

and benchmark-equivalent coverage (described below). States could 

only apply this option to eligibility categories established before the 

date of enactment of this provision. States may choose to provide 

wrap-around and additional benefits. 

Enrollment in benchmark and benchmark-equivalent coverage 

could be required for ‘‘full benefit eligible individuals,’’ including 

persons eligible for all services covered for the CN, or any other 

category of eligibility for all covered services as determined by the 

Secretary. Certain individuals would be excluded from the definition of a full-benefit eligible, including (1) the MN; (2) CN individuals in certain states who are required to pay for medical expenses 

from their income until their remaining net income meets SSI financial standards in effect in 1972; and (3) other individuals who 

qualify for Medicaid when costs incurred for medical expenses or 

other remedial care are subtracted from income to meet financial 

eligibility requirements (also known as spend-down populations). 

The House bill would require that specified groups be exempted from this option, including: (1) mandatory pregnant women and 

children; (2) dual eligibles (i.e., Medicaid beneficiaries also entitled 

to benefits under Medicare); (3) terminally ill persons receiving 


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Medicaid hospice services; (4) individuals in medical institutions 

who are required, as a condition of receiving institutional care, to 

pay for costs of medical care except for a minimal amount retained 

from their income for personal needs; (5) individuals who are medically frail or who have special medical needs, as identified in accordance with regulations of the Secretary; and (6) individuals who 

qualify for Medicaid long-term care services (i.e., nursing facility 

services, a level of care in any institution equivalent to nursing facility services, home and community-based waiver services, home 

health services, home and community-care for functionally disabled 

elderly individuals, personal care, and other optional long-term 

care services offered by the state). 

Benchmark and benchmark-equivalent packages would be 

nearly identical to those offered under SCHIP, with some additions. 

Benchmark coverage would include: (1) the standard Blue Cross/ 

Blue Shield preferred provider plan under FEHBP; (2) health coverage for state employees; and (3) health coverage offered by the 

largest commercial HMO. Benchmark-equivalent coverage would 

have the same actuarial value as one of the benchmark plans. Such 

coverage would include: (1) inpatient and outpatient hospital services, (2) physician services, (3) lab and x-ray services, (4) well child 

care, including immunizations, and (5) other appropriate preventive care (designated by the Secretary). Such coverage must also include at least 75 percent of the actuarial value of coverage under 

the benchmark plan for: (1) prescribed drugs, (2) mental health 

services, (3) vision care, and (4) hearing services. Determination of 

actuarial value would follow generally accepted actuarial principles 

and methodologies and would be conducted by a member of the 

American Academy of Actuaries. 

Both benchmark and benchmark-equivalent coverage would include ‘‘qualifying child benchmark dental coverage.’’ A qualifying 

child would include individuals under 18 with family income below 

133 percent FPL. Benchmark dental coverage would be equivalent 

to or better than the dental plan that covers the greatest number 

of individuals in the state who are not eligible for Medicaid. 

States could only enroll eligible beneficiaries in benchmark and 

benchmark-equivalent coverage if such persons have access to services provided by RHCs and FQHCs, and the Medicaid prospective 

payment system for both types of providers remains in effect. 

These provisions would be effective upon the date of enactment. 

Conference Agreement 

The conference agreement includes the House bill, with modifications. For any child under age 19 in one of the major mandatory 

and optional eligibility groups (defined in Section 1902(a)(10)(A)) 

under the state Medicaid plan, wrap-around benefits to the benchmark or benchmark-equivalent coverage consists of early and periodic screening, diagnostic and treatment services as defined in current Medicaid law. The agreement drops benchmark dental coverage and accompanying provisions defining the children who 

would qualify for such benchmark dental coverage. 


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Also, under the conference agreement, states may exercise this 

option only for eligibility groups that were established under the 

state plan before the date of enactment of this option. 

The conference agreement drops mandatory children under 18 

(under Section 1902(a)(10)(A)(i)) from the list of groups exempted 

from this option. 

The conference agreement also expands the list of specified 

groups that would be exempted from benchmark coverage to include: (1) individuals who qualify for Medicaid under the state plan 

on the basis of being blind or disabled regardless of whether the 

individual is eligible for SSI on such basis, including children with 

disabilities that meet SSI disability standards who require institutional care, but for whom care is delivered outside the institution, 

and the cost of that care does not exceed the otherwise applicable 

institutional care (also known as Katie Beckett or TEFRA children); (2) children in foster care receiving child welfare services 

(under Part B of Title IV) and children receiving foster care or 

adoption assistance under Part E of Title IV without regard to age; 

(3) individuals who qualify for Medicaid on the basis of receiving 

assistance under TANF (as in effect on or after the welfare reform 

effective date); (4) women in the breast and cervical cancer eligibility group (a technical change from the House bill); and (5) other 

‘‘limited services beneficiaries,’’ including certain tuberculosis-infected individuals, and legal and undocumented non-citizens who 

meet the financial and categorical requirements for Medicaid eligibility without regard to time in the U.S. and are eligible only for 

emergency medical services. 

The conference agreement also adds to the set of three benchmark benefit packages, a fourth option called ‘‘secretary approved 

coverage’’ which may include any other health benefits coverage 

that the Secretary determines will provide appropriate coverage for 

the population targeted to receive such coverage. 

Finally, the conference agreement changes the effective date of 

these provisions to January 1, 2007. 

Chapter 5—State Financing Under Medicaid 

Managed Care Organization Provider Tax (Section 6051 of the Conference Agreement, and Section 6033 of the Senate Bill, and 

Section 3142 of the House Bill) 

Current Law 

States’ ability to use provider-specific taxes to fund Medicaid 

expenditures is limited. If a state establishes provider-specific taxes 

to fund the state’s share of program costs, reimbursement of the 

federal share will not be available unless the tax program meets 

the following three rules: the taxes collected cannot exceed 25 percent of the state (or non-federal) share of Medicaid expenditures; 

the state cannot provide a guarantee to the providers that the 

taxes will be returned to them; and the tax must be ‘‘broad-based.’’ 

A broad-based tax is a tax that is uniformly applied to all providers 

or services within the provider class. The federal statute identifies 

each of the classes of providers or services for the purpose of determining whether a tax is broad-based. 


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Medicaid managed care organizations (MCOs) are identified as 

a separate class of providers for the purposes of determining if a 

tax is broad-based. This class is unlike all of the other classes of 

providers or services because it is limited to only Medicaid providers. Other classes of providers or services identified in statute, 

such as inpatient hospital services, outpatient hospital services, 

physicians—are not restricted to Medicaid providers or Medicaid 

services. 

Senate Bill 

The Senate bill would expand the Medicaid MCO provider 

class to include all MCOs. To qualify for federal reimbursement, a 

state’s provider tax would need to apply to both Medicaid and nonMedicaid MCOs. This would make the MCO provider class more 

consistent with the other provider classes for purposes of determining if a provider tax is broad-based. 

The provision would become effective on January 1, 2006 except in states that have, as of December 31, 2005, a tax on the 

Medicaid MCO class of providers as defined under current law. The 

provision would not apply to those states. 

House Bill 

Similar to Senate provision except the provision would become 

effective upon enactment except for in states with taxes based on 

the current law Medicaid MCO provider class. For those states, the 

prohibition would become effective on October 1, 2008 and the reduction in Medicaid reimbursement due to this provision would be 

50 percent for the fiscal year beginning on that day. 

Conference Agreement 

The conference agreement expands the Medicaid MCO provider 

class to include all MCOs. To qualify for federal reimbursement, a 

state’s provider tax would need to apply to both Medicaid and nonMedicaid MCOs. The provision becomes effective upon enactment 

except in states with taxes based on the current law Medicaid 

MCO provider class as of December 8, 2005. In those states, the 

provision becomes effective on October 1, 2009. 

Reforms of Case Management and Targeted Case Management 

Services (Section 6052 of the Conference Agreement, and Section 6031 of the Senate Bill, and Section 3146 of the House 

Bill) 

Current Law 

Under current Medicaid law (Section 1915(g)(2) of the Social 

Security Act), case management is defined as including services to 

assist a Medicaid beneficiary in gaining access to needed medical, 

social, educational and other services. Case management services 

are an optional benefit under the Medicaid state plan. The term 

‘‘targeted case management’’ (TCM) refers to situations in which 

these services are not provided statewide to all Medicaid beneficiaries but rather are provided only to specific classes of Medicaid 

eligible individuals as defined by the state (e.g., those with chronic 

mental illness), or persons who reside in a specific area. 


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Several states extend the Medicaid TCM benefit to individuals 

who may also be receiving case management services as a component of another state and/or federal program. For example, a state 

may provide TCM services for Medicaid beneficiaries in foster 

care—defined in the Medicaid state plan as ‘‘children in the state’s 

custody and who are placed in foster homes.’’ As part of the foster 

care program, children receive certain case management services 

regardless of whether or not they are a Medicaid beneficiary. 

In addition, the existing federal guidance is conflicting with respect to the process states should follow to claim Medicaid reimbursement for TCM services when another program also covers 

case management services for the same beneficiary. The State Medicaid Manual (Section 4302.2) states that claims for targeted case 

management services must be fully documented for a specific Medicaid beneficiary in order to receive payment. In addition, documentation that includes time studies and cost allocation plans ‘‘are 

not acceptable as a basis for Federal participation in the costs of 

Medicaid services.’’ Cost allocation plans are a narrative description of the procedures that a state agency uses in identifying, 

measuring, and allocating the state agency’s administrative costs 

incurred for supervising or operating programs. Per federal regulations (45 CFR 95.505), the cost allocation plan does not include 

payments for services and goods provided directly to program recipients. However, a State Medicaid Director’s (SMD) letter dated 

January 19, 2001, which discusses targeted case management services for children in foster care under the federal Title IV–E program, requires states to ‘‘properly allocate case management costs 

between the two programs in accordance with OMB Circular A–87 

under an approved cost allocation program.’’ Thus, this letter extended the application of cost allocation plans to claim reimbursement for case management services when a child is receiving these 

services under both the Title IV–E (foster care) and Medicaid programs. 

Senate Bill 

This proposal would further define the Medicaid TCM benefit 

under Section 1915(g)(2) of the Social Security Act, and would codify the ability of states to use an approved cost allocation plan (as 

outlined under OMB Circular A–87, or other related or subsequent 

guidance) for determining the amount that can be billed as Medicaid TCM services when case management is also reimbursable by 

another federally-funded program. 

Specifically, the proposal would clarify that the TCM benefit 

includes the following: (1) assessment of an eligible individual to 

determine service needs by taking a client history, identifying an 

individual’s needs and completing related documentation, and if 

needed, gathering information from other sources; (2) development 

of a specific care plan based on the information collected through 

an assessment that specifies the goals and actions to address the 

individual’s needs; (3) referral and related activities to help an individual obtain needed services; and (4) monitoring and follow-up 

activities including activities and contacts to ensure the care plan 

is effectively implemented and adequately addressing the individual’s needs. 


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The proposal would also specify certain activities that are not 

reimbursable as TCM services. First, the TCM benefit would not 

include the direct delivery of an underlying medical, educational, 

social or other services to which an eligible individual has been referred. In addition, with respect to the direct delivery of foster care 

services, the TCM benefit would not cover: research gathering and 

completion of required foster care documentation, assessing adoption placements, recruiting or interviewing potential foster care 

parents, serving legal papers, home investigations, providing transportation, administering foster care subsidies, and making placement arrangements. 

In cases where a TCM provider contacts individuals who are 

not Medicaid eligible or who are not part of the TCM target population, the activity could be billed as TCM services if the purpose 

of the contact is directly related to the management of the eligible 

individual’s care. If the contact is related to the identification and 

management of the non-eligible or non-targeted individual’s needs 

and care, the activity may not be billed as TCM services. 

Finally, consistent with existing Medicaid law, this proposal 

would also specify that federal Medicaid funding would only be 

available for TCM services if there are no other third parties liable 

to pay for such services, including as reimbursement under a medical, social, educational, or other program. 

This provision would take effect January 1, 2006. 

House Bill 

Same as Senate provision. 

Conference Agreement 

The conference agreement modifies the Senate and House bills 

to differentiate between case management and targeted case management services. It would define case management services in federal law as services that will assist Medicaid-eligible individuals in 

gaining access to needed medical, social, educational, and other 

services including: (1) assessment of an eligible individual to determine service needs by taking a client history, identifying an individual’s needs and completing related documentation, and if needed, gathering information from other sources; (2) development of a 

specific care plan based on the information collected through an assessment that specifies the goals and actions to address the individual’s needs; (3) referral and related activities to help an individual obtain needed services; and (4) monitoring and follow-up activities including activities and contacts to ensure the care plan is 

effectively implemented and adequately addressing the individual’s 

needs. 

The conference agreement also establishes those activities that 

are not reimbursable as case management services including the 

direct delivery of an underlying medical, educational, social or 

other services to which an eligible individual has been referred. 

With respect to the direct delivery of foster care services, case management would not include research gathering and completion of 

required foster care documentation, assessing adoption placements, 

recruiting or interviewing potential foster care parents, serving 


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legal papers, home investigations, providing transportation, administering foster care subsidies, and making placement arrangements. 

The term ‘‘targeted case management services’’ is defined as 

case management services that are provided to specific classes of 

individuals or to individuals who reside in specific areas. 

In cases where a case management provider contacts individuals who are not Medicaid eligible, or who are not part of the TCM 

target population, the activity could be billed as case management 

services if the purpose of the contact is directly related to the management of the eligible individual’s care. If the contact is related 

to the identification and management of the non-eligible or non-targeted individual’s needs and care, the activity may not be billed as 

case management services. 

Consistent with existing Medicaid law, this proposal would 

also specify that federal Medicaid funding would only be available 

for case management (or TCM) services if there are no other third 

parties liable to pay for such services, including as reimbursement 

under a medical, social, educational, or other program. If case management (or TCM) services are reimbursable by another federallyfunded program the state would be required to allocate the costs 

of these services using OMB Circular A–87 (or any related or successor guidance or regulations). 

Finally, the conference agreement established that (1) nothing 

in the provision would affect the application of rules with respect 

to third party liability under programs or activities carried out 

under Title XXVI of the Public Health Service Act (the HIV Health 

Care Services Program) or the Indian Health Service; and (2) the 

Secretary would be required to promulgate regulations to carry out 

the changes made by this provision. The effective date of this provision would be January 1, 2006. 

Additional FMAP Adjustments (Section 6053 of the Conference 

Agreement, Sections 6032 and 6037 of the Senate Bill, and 

Sections 3148 and 3205 of the House Bill) 

Current Law 

The federal medical assistance percentage (FMAP) is the rate 

at which states are reimbursed for most Medicaid service expenditures. It is based on a formula that provides higher reimbursement 

to states with lower per capita incomes relative to the national average (and vice versa); it has a statutory minimum of 50 percent 

and maximum of 83 percent. An enhanced FMAP is available for 

both services and administration under the State Children’s Health 

Insurance Program (SCHIP), subject to the availability of funds 

from a state’s SCHIP allotment. In addition to Medicaid and 

SCHIP, the FMAP is used in determining federal reimbursement 

for a number of other programs, including foster care and adoption 

assistance under Title IV–E of the Social Security Act. 

When state FMAPs are calculated by HHS for an upcoming fiscal year, the state and U.S. amounts used in the formula are equal 

to the average of the three most recent calendar years of data on 

per capita personal income available from the Department of Commerce’s Bureau of Economic Analysis (BEA). For example, to calculate FMAPs for FY2006, HHS used per capita personal income 


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data for 2001, 2002, and 2003 that became available from BEA in 

October 2004. 

BEA revises its most recent estimates of state per capita personal income on an annual basis to incorporate revised Census Bureau population figures and newly available source data. It also undertakes a comprehensive data revision—reflecting methodological 

and other changes—every few years that may result in upward and 

downward revisions to each of the component parts of personal income, which include: wages and salaries, supplements to wages and 

salaries (such as employer contributions for employee pension and 

insurance funds), proprietors’ income, and dividends, interest, and 

rent. 

As a result of these annual and comprehensive revisions, it is 

often the case that the value of a state’s per capita personal income 

for a given year will change over time. For example, the 2001 per 

capita personal income data published by BEA in October 2003 

(used in the calculation of FY2005 FMAPs) differed from the 2001 

per capita personal income published in October 2004 (used in the 

calculation of FY2006 FMAPs). 

P.L. 106–554 (Consolidated Appropriations Act, 2001), provided 

that for fiscal years 2001 through 2005, the Medicaid and SCHIP 

FMAPs for Alaska would be calculated using the state’s per capita 

income divided by 1.05. Dividing by 1.05 lowered the state’s per 

capita income, thereby increasing its FMAP. 

Senate Bill 

Under the Senate bill, FY2006 FMAPs for Medicaid and 

SCHIP would be re-computed for all states so that no FY2006 

FMAP would be less than the greater of: (1) a state’s FY2005 

FMAP minus 0.5 percentage points (0.1 in the case of Delaware 

and Michigan, 0.3 in the case of Kentucky) or (2) the FY2006 

FMAP that would have been determined for a state if per capita 

incomes for 2001 and 2002 that were used to calculate the state’s 

FY2005 FMAP were used. 

In a separate provision, if Alaska’s calculated FY2006 or 

FY2007 FMAP for Medicaid or SCHIP is less than its FY2005 

FMAP, the FY2005 FMAP would apply. 

House Bill 

Under the House bill, for purposes of computing Medicaid 

FMAPs beginning with FY2006, employer contributions toward 

pensions that exceed 50 percent of a state’s total increase in personal income for a period would be excluded from the per capita income of a state, but not from U.S. per capita income. 

In a separate provision, for purposes of computing Medicaid 

and SCHIP FMAPs for any year after 2006 for a state that the Secretary of HHS determines has a significant number of individuals 

who were evacuated to and live in the state as a result of Hurricane Katrina as of October 1, 2005, the Secretary would disregard 

such evacuees and their incomes. 

Conference Agreement 

The conference agreement follows the Alaska provision in the 

Senate bill and the Katrina provision in the House bill. 


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DSH Allotment for the District of Columbia (Section 6054 of the 

Conference Agreement, and Section 6035 of the Senate Bill, 

and no provision in the House Bill) 

Current Law 

States and the District of Columbia are required to recognize, 

in establishing hospital payment rates, the situation of hospitals 

that serve a disproportionate number of Medicaid beneficiaries and 

other low-income patients with special needs. Under broad federal 

guidelines, each state determines which hospitals receive DSH payments and the payment amounts to be made to each qualifying 

hospital. The federal government shares in the cost of state DSH 

payments at the same federal matching percentage as for most 

other Medicaid services. Total federal reimbursement for each 

state’s DSH payments, however, are capped at a statewide ceiling, 

referred to as the state’s DSH allotment. 

Senate Bill 

The Senate bill would raise the allotments for the District of 

Columbia for FY 2000, 2001, and 2002 from $32 million to $49 million. The higher allotments would be used to calculate DSH allotments beginning with FY 2006 amounts. The provision would take 

effect as if enacted on October 1, 2005 and would apply to expenditures made on or after that date. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement includes a provision similar to the 

Senate provision. The agreement clarifies that the increased 

amounts calculated based on the modified allotments for FY 2000, 

2001, and 2002 only apply to DSH expenditures applicable to fiscal 

year 2006 and subsequent fiscal years that are paid on or after October 1, 2005. 

Increase in Medicaid Payments to Insular Areas (Section 6055 of 

the Conference Agreement, no provision in the Senate Bill, and 

Section 3141 of the House Bill) 

Current Law 

In the 50 states and the District of Columbia, Medicaid is an 

individual entitlement. There are no limits on the federal payments 

for Medicaid as long as the state is able to contribute its share of 

the matching funds. In contrast, Medicaid programs in the territories are subject to spending caps. For fiscal year 1999 and subsequent fiscal years, these caps are increased by the percentage 

change in the medical care component of the Consumer Price Index 

(CPI–U) for all Urban Consumers (as published by the Bureau of 

Labor Statistics). The federal Medicaid matching rate, which determines the share of Medicaid expenditures paid for by the federal 

government, is statutorily set at 50 percent of the territories. 

Therefore, the federal government pays 50 percent of the cost of 


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Medicaid items and services in the territories up to the spending 

caps. 

Senate Bill 

No provision. 

House Bill 

For each of fiscal years 2006 and 2007, the House bill would 

increase the total annual cap on federal funding for the Medicaid 

programs in each of the Virgin Islands, Guam, the Northern Marianas, and American Samoa. Puerto Rico would not receive additional federal Medicaid funding from this provision. 

For the Virgin Islands and Guam, the FY2006 total annual 

Medicaid caps would be increased by $2.5 million and the FY2007 

caps would be increased by $5.0 million. For the Northern Marianas, the FY2006 total annual Medicaid cap would be increased by 

$1.0 million and the FY2007 cap would be increased by $2.0 million. For American Samoa, the FY2006 total annual Medicaid cap 

would be increased by $2.0 million and the FY2007 cap would be 

increased by $4.0 million. For fiscal year 2008 and subsequent fiscal years, the total annual cap on federal funding for the Medicaid 

programs in each of the Virgin Islands, Guam, the Northern Marianas, and American Samoa would be calculated by increasing the 

FY2007 ceiling, as modified by this provision, by the percentage 

change in the medical care component of the Consumer Price Index 

(CPI–U) for all Urban Consumers (as published by the Bureau of 

Labor Statistics). 

Conference Agreement 

The conference agreement follows the House bill. 

Demonstration Project Regarding Medicaid Coverage of Low-income HIV-infected individuals (no provision in the Conference 

Agreement, Sec. 6039(c) of the Senate Bill, and no provision in 

the House Bill) 

Current Law 

Section 1115 gives the Secretary of HHS authority to modify 

virtually all aspects of the Medicaid (and SCHIP) programs. Among 

other projects, the Secretary has used the Section 1115 waiver authority to approve benefit-specific demonstrations that provide targeted services to certain individuals. For example, under existing 

Medicaid HIV/AIDS Section 1115 demonstration waivers, the Secretary approved programs that provide a limited set of Medicaid 

benefits (e.g., case management, and pharmacy services) to individuals with HIV/AIDS who would not otherwise be eligible for Medicaid. Approved Section 1115 waivers are deemed to be part of a 

state’s Medicaid (or SCHIP) state plan for purposes of federal reimbursement. Project costs associated with waiver programs granted 

under the Medicaid (or SCHIP) programs are subject to that state’s 

FMAP (or enhanced-FMAP). Unlike regular Medicaid (or SCHIP), 

CMS waiver guidance specifies that costs associated with waiver 

programs must be budget neutral (or allotment neutral) to the federal government over the life of the waiver program whereby the 


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federal and state government negotiate a spending cap beyond 

which the federal government has no fiscal responsibility. 

Senate Bill 

The Senate Bill would require the Secretary of HHS to allow 

states to seek approval for time limited (i.e., 5-year) Section 1115 

demonstration projects that provide full Medicaid coverage to specified HIV-infected individuals. For fiscal years 2006 through 2010, 

$450,000,000 in federal funds would be appropriated for such demonstrations. From this amount, the Secretary would allocate money 

to states and territories (without regard to existing federal Medicaid spending caps applicable in the territories) with approved 

HIV Section 1115 demonstrations based on the availability of such 

funds. Allotment of funds among states (or territories) with approved demonstrations would be based on an amount equal to the 

state’s SCHIP Enhanced Federal Medical Assistance Percentage 

(Enhanced-FMAP) for quarterly expenditures associated with medical assistance provided to individuals under the waiver up to the 

specified cap. The Secretary would be required to submit a program 

evaluation to Congress not later than December 31, 2010. This provision would be effective on January 1, 2006. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement does not include the Senate bill. 

Inclusion of Podiatrists As Physicians (no provision in the Conference Agreement, Section 6034 of the Senate Bill, and no provision in the House Bill) 

Current Law 

Under Medicaid, services provided by podiatrists may be covered under the optional ‘‘other practitioners’’ benefit category. 

‘‘Physician services’’ are a mandatory Medicaid benefit. 

Senate Bill 

The Senate bill would treat podiatrists as physicians, as is the 

case under Medicare. Thus, states would be required to cover the 

medical services of podiatrists (i.e., doctors of podiatric medicine) 

under Medicaid. This provision would apply to all such services furnished on or after January 1, 2006. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement does not include this provision. 


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Demonstration Project Regarding Medicaid Reimbursement for Stabilization of Emergency Medicaid Conditions by Non-Publicly 

Owned or Operated Institutions for Mental Diseases (no provision in the Conference Agreement, Section 6036 of the Senate 

Bill, and no provision in the House Bill) 

Current Law 

An IMD is defined as a hospital, nursing facility, or other institution of more than 16 beds, that is primarily engaged in providing 

diagnosis, treatment, or care of persons with mental diseases, including medical attention, nursing care, and related services. The 

1950 amendments to the Social Security Act established the prohibition of federal assistance for IMD residents as well as for patients diagnosed with a psychosis found in other medical institutions. When Medicaid was established in 1965, the law included a 

state option to allow Medicaid funding for inpatient psychiatric 

care rendered in general hospitals as we1l as funding for specific 

services provided to residents age 65 years and older in IMDs. The 

1972 amendments allowed for optional coverage, under certain circumstances, for IMD residents under age 21 or, in some cases, 

under age 22. In general, reimbursement for services obtained in 

IMDs by Medicaid beneficiaries ages 22 to 64 years remains prohibited. The term ‘‘State’’ includes the District of Columbia, Puerto 

Rico, the Virgin Islands, Guam, the Northern Mariana Islands, and 

American Samoa. 

Under Medicare, ‘‘emergency medical condition’’ means a medical condition with acute symptoms of sufficient severity such that 

the absence of immediate medical attention could result in (1) placing the health of the individual in serious jeopardy, (2) serious impairment to bodily functions, or (3) serious dysfunction of any 

organ. Under Medicare, the term ‘‘stabilize’’ means medical treatment as may be necessary to assure, within reasonable medical 

probability, that no material deterioration of the condition is likely 

to result from or occur during the transfer of the individual from 

a facility. 

Senate Bill 

The Senate bill would require the Secretary to establish a 3- 

year demonstration project in eligible states to provide Medicaid 

coverage for certain IMD services (not publicly-owned or operated) 

for Medicaid eligible individuals who are between the ages of 21 

and 64, and who require IMD services to stabilize an emergency 

medical condition. Upon approval of an application, eligible states 

would include Arizona, Arkansas, Louisiana, Maine, North Dakota, 

Wyoming, and four additional states to be selected by the Secretary 

to provide geographic diversity. The provision would appropriate 

$30 million for FY2006 for the demonstration which would be 

available through December 31, 2008. The Secretary would allocate 

funds to eligible states based on their applications and the availability of funds. Payments to states would be drawn from these allocations, based on the federal matching rate (FMAP) for benefits. 

For purposes of the demonstration, the Secretary would be required to waive current law limitations on payments for services 

delivered to persons under 65 who are patients in an IMD. The 


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Secretary would have the option to also waive other requirements 

in Sections XI and XIX, including requirements relating to 

statewideness and comparability of benefits, only to the extent necessary to carry out the demonstration project. The terms ‘‘emergency medical condition’’ and ‘‘stabilize,’’ as defined under Medicare, would apply to the demonstration described in this provision. 

The Senate bill would also require the Secretary to submit annual reports to Congress on the progress of the demonstration 

project. No later than March 31, 2009, the Secretary would submit 

to Congress a final report describing whether the demonstration: 

(1) resulted in increased access to Medicaid inpatient mental 

health services, (2) produced a significant reduction in the use of 

higher cost emergency room services for Medicaid beneficiaries, (3) 

impacted the costs of providing Medicaid inpatient psychiatric care, 

and (4) should be continued after December 31, 2008, and expanded nationwide. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement does not include this provision. 

Chapter 6—Other Provisions 

Subchapter A—Family Opportunity Act 

Opportunity for Families of Disabled Children to Purchase Medicaid Coverage for Such Children (Section 6062 of the Conference Agreement, Section 6042 of the Senate Bill, and no provision in the House Bill) 

Current Law 

For children with disabilities, there are a number of potentially 

applicable Medicaid eligibility groups, some mandatory but most 

optional. For some of these groups, disability status or medical 

need is directly related to Medicaid eligibility (e.g., children receiving SSI with family income below 75 percent FPL). But there are 

other pathways through which such children may qualify for Medicaid coverage for which disability status and/or medical need are 

irrelevant (e.g., children under age 6 with family income below 133 

percent FPL). All of the Medicaid eligibility pathways for children 

require income levels that are generally below 300 percent of the 

federal poverty level (FPL) with some state-specific exceptions. 

States may require Medicaid beneficiaries to apply for coverage 

in certain employer-sponsored group health plans (in which such 

persons are eligible) when it is cost-effective to do so (defined 

below). This requirement may be imposed as a condition of continuing Medicaid eligibility, except that failure of a parent to enroll 

a child must not affect the child’s continuing eligibility for Medicaid. If all members of the family are not eligible for Medicaid, and 

the group health plan requires enrollment of the entire family, 

Medicaid will pay associated premiums for full family coverage if 

doing so is cost-effective. Medicaid will not pay deductibles, coinsurance or other cost-sharing for family members ineligible for 


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Medicaid. Third party liability rules apply to coverage in a group 

health plan; that is, such plans, not Medicaid, must pay for all covered services under the plan. Cost-effectiveness means that the reduction in Medicaid expenditures for Medicaid beneficiaries enrolled in a group health plan is likely to be greater than the additional costs for premiums and cost-sharing required under the 

group health plan. 

For certain eligibility categories, states may not impose enrollment fees, premiums or similar charges. States are specifically prohibited from requiring payment of deductions, cost-sharing or similar charges for services furnished to children under 18 (up to age 

21; or reasonable subcategories, at state option). Also, in certain 

circumstances, states may impose monthly premiums for Medicaid. 

For example, states may require certain workers with disabilities 

to pay premiums and cost-sharing set on a sliding scale based on 

income. For one of these groups, states may require those with income between 250 percent and 450 percent FPL to pay the full premium. But the sum of such payments may not exceed 7.5 percent 

of income. For other groups, states may not require prepayment of 

premiums and may not terminate eligibility due to failure to pay 

premiums, unless such failure continues for at least 60 days. States 

may also waive premiums when such payments would cause undue 

hardship. 

Unless otherwise specified for a given coverage group, Medicaid eligibility for children is limited to those in families with income up to 1331⁄3 percent of the applicable AFDC payment standard in place as of July 16, 1996. In addition, targeted low-income 

children under SCHIP statute are defined as those who would not 

qualify for Medicaid under the state plan in effect on March 31, 

1997. Payments for services provided to children who receive Medicaid benefits through an expansion of eligibility under SCHIP authority are reimbursed by the federal government at the enhanced 

federal medical assistance percentage (E–FMAP) rate, and funds 

based on this rate are drawn from annual SCHIP allotments. The 

SCHIP E–FMAP builds on the Medicaid FMAP. The FMAP formula is designed to provide a higher federal matching rate for 

states with lower average per capita income, compared to the national average. 

Senate Bill 

The Senate bill would create a new optional Medicaid eligibility group for children with disabilities under age 19 who meet 

the severity of disability required under the Supplemental Security 

Income (SSI) program with family income that exceeds SSI financial standards but is below 300 percent FPL. Medicaid coverage 

would be phased in by age group, beginning with children through 

age 6 in the second through fourth quarters of FY2008, then covering children through age 12 beginning in FY2009, and finally, 

covering children through age 18 during FY2010 and thereafter. 

The Senate bill would require states to require certain parents 

of children eligible for Medicaid under the new optional coverage 

group to enroll in family coverage through employer-sponsored insurance (ESI) if certain conditions are met. When the employer offers family coverage, the parent is eligible for such coverage, and 


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the employer contributes at least 50 percent of the total cost of annual premiums for such coverage, states must require participation 

in such coverage as a condition of continuing Medicaid eligibility 

for the child. Also, if such coverage is obtained, states must reduce 

premiums by an amount that reasonably reflects the premium contribution made by the parent for private coverage on behalf of a 

child with a disability. States could pay any portion of required 

premiums on behalf of eligible children under such plans. Medicaid 

would be the secondary payer to these ESI plans. Benefits offered 

by Medicaid but not offered by the ESI plans would be covered 

under Medicaid. 

States would be permitted, within certain limits, to require 

families with children that qualify for Medicaid under the new optional eligibility category to pay monthly premiums on a sliding 

scale based on income, but only if specific caps on aggregate payments for cost-sharing (premiums plus other charges) for employersponsored family coverage are met. These caps specify that costsharing would not exceed 5 percent of income for families with income up to 200 percent FPL, and would not exceed 7.5 percent of 

income for families with income between 200 percent and 300 percent FPL. States could not require prepayment of premiums, nor 

would states be allowed to terminate eligibility of an enrolled child 

for failure to pay premiums unless lack of payment continues for 

a minimum of 60 days beyond the due date. States could waive 

payment of premiums when such payment would cause undue 

hardship. 

The Senate bill would permit the income level for the new optional coverage group (set at 300 percent FPL) to exceed the otherwise applicable AFDC-related income standard for children under 

Medicaid. This section also stipulates that children with disabilities 

made eligible for Medicaid through the new optional coverage 

group would not be considered to be targeted low-income children 

as defined under SCHIP. Thus, the regular Medicaid FMAP, rather 

than the higher SCHIP E–FMAP, would apply for determining the 

federal share of Medicaid expenditures for the new optional coverage group. In addition, federal payments would be drawn from 

the open-ended Medicaid account and not the capped SCHIP account. 

These provisions would be effective for items and services furnished on or after January 1, 2008. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement includes the Senate bill, with modifications. First, the agreement defines qualifying children as those 

considered disabled under the SSI program without regard to any 

income or asset eligibility requirements that apply under SSI for 

children and whose family income does not exceed 300 percent 

FPL. In addition, the agreement moves up the start date by one 

year for phasing in Medicaid coverage for this new group. That is, 

Medicaid coverage would be phased in, beginning with children 

through age 6 in the second through fourth quarters of FY2007 


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(rather than FY2008), then covering children through age 12 beginning in FY2008 (rather than FY2009), and finally, covering children through age 18 beginning in FY2009 (rather than FY2010) 

and thereafter. 

As under the Senate bill, the conference agreement allows 

states to impose income-related premiums under this option. But 

the agreement changes the aggregate amount of cost sharing for 

families based on income levels. 

For children in families with income that does not exceed 200 

percent FPL, the aggregate amount of premiums for Medicaid coverage and any premium for employer-sponsored family coverage (in 

order to cover the disabled child) plus other cost-sharing cannot exceed 5 percent of family income. For children in families with income between 200 percent FPL and 300 percent FPL, the aggregate 

amount of premiums for Medicaid coverage and any premium for 

employer-sponsored family coverage (in order to cover the disabled 

child) plus other cost sharing cannot exceed 7.5 percent of family 

income. 

Finally, the conference agreement changes the effective date of 

these provisions to January 1, 2007. 

Demonstration Projects Regarding Home and Community-based Alternative to Psychiatric Residential Treatment Facilities for 

Children (Section 6063 of the Conference Agreement, Section 

6043 of the Senate Bill, and no provision in the House Bill) 

Current Law 

Medicaid home and community-based service (HCBS) waivers 

authorized by Section 1915(c) of the Social Security Act allows 

states to provide a broad range of home and community-based services to Medicaid beneficiaries who would otherwise need the level 

of care provided in a hospital, nursing facility, or intermediate care 

facility for individuals with mental retardation (ICF–MR). Federal 

approval for these waivers is contingent on the state’s documentation of the waiver’s cost-neutrality. Cost-neutrality is met if, on average, the per person cost with the HCBS waiver is no higher than 

the cost if the person were residing in a hospital, nursing home, 

or ICF–MR. The state determines which type of institution(s) it 

will use to make the cost-neutrality calculation. 

For children with psychiatric disabilities, many states provide 

Medicaid funding for inpatient psychiatric residential treatment facilities. However, because the waiver cost-neutrality calculation 

does not allow a comparison of HCBS waiver expenditures to expenditures in these psychiatric residential treatment facilities, 

most states have had difficulty covering HCBS waiver services for 

children with psychiatric disabilities. Four states (Indiana, Kansas, 

New York and Vermont) have been able to offer HCBS waiver services for children with psychiatric disabilities by documenting the 

cost-neutrality of the waiver compared to the state’s hospital expenditures. However given the cost-neutrality requirement, those 

states that have limited the use of hospitals for children with psychiatric disabilities may be unable to develop HCBS waivers for 

this population. 


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Senate Bill 

The Senate bill would authorize the Secretary to conduct demonstration projects in up to 10 states during the period from 

FY2007 through FY2011 to test the effectiveness of improving or 

maintaining the child’s functional level, and cost-effectiveness of 

providing coverage of home and community-based alternatives to 

psychiatric residential treatment, for children enrolled in Medicaid. 

These demonstration projects will develop home and communitybased services as an alternative to a psychiatric residential treatment facility. However, these projects must also follow the requirements of the HCBS waiver program. Specifically, demonstration 

participants would be required to meet the level of care of a psychiatric residential treatment facility, and the average, per-person 

project expenditures may not exceed the average, per-person cost of 

a psychiatric residential treatment facility. 

The demonstration states would be selected through a competitive bidding process. At the end of the demonstration period, the 

state may allow children enrolled in the demonstration project to 

continue receiving the Medicaid home and community-based waiver 

services provided under the demonstration; however, no new children could be added to the project. 

As part of the demonstration, the following conditions would 

apply: (1) projects must meet the same terms and conditions that 

apply to all HCBS waivers; (2) the Secretary must ensure that the 

projects are budget neutral; that is, total Medicaid expenditures 

under the demonstration projects will not be allowed to exceed the 

amount that the Secretary estimates would have been paid in the 

absence of the demonstration projects; and (3) applications for a 

demonstration project must include an assurance to conduct an interim and final evaluation by an independent third party and any 

reports that the Secretary may require. 

This proposal would appropriate $218 million for FY2007 

through FY2011 for the state demonstration projects and the federal evaluations and report. Total expenditures for state demonstration projects would not be allowed to exceed $21 million in 

FY2007, $37 million in FY2008, $49 million in FY2009, $53 million 

in FY2010, and $57 million in FY2011. Funds not expended in a 

given fiscal year would continue to be available in subsequent fiscal 

years. An additional $1 million would be available to the Secretary 

to complete a required interim and final evaluation of the project 

and report the conclusions of the evaluations to the President and 

Congress within 12 months of completing these evaluations. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement follows the Senate provision. 


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Development and Support of Family-to-Family Health Information 

Centers (Section 6064 of the Conference Agreement, Section 

6044 of the Senate Bill, and no provision in the House Bill) 

Current Law 

Family-to-family health centers provide information and assistance to help families of children with special health care needs 

navigate the system of care and make decisions about the needs 

and available supports for their child. No provision in current law 

specifically authorizes a dedicated amount of funds for these family-to-family health information centers. However, since 2002, the 

Department of Health and Human Services (HHS) has awarded approximately $6.9 million to develop these information centers in 36 

states under various program authorities including: (1) Special 

Projects of Regional and National Significance Program (SPRANS) 

of the Maternal and Child Services Block Grant (Title V of the Social Security Act) operated by the Health Resources Services Administration (HRSA); (2) the Real Choice Systems Change grant 

program operated by the Centers for Medicare and Medicaid Services (CMS); and (3) a one-year direct Congressional appropriation 

to an organization in Iowa. Federal funding for these projects is 

time-limited. Except for the one-year direct appropriation, state 

projects have generally been funded for a three- or four-year period. 

HRSA intends to fund additional family-to-family health information centers awarding up to $2.4 million to six projects for a fouryear period starting in FY2006. 

Senate Bill 

The Senate bill would increase funding under the SPRANS 

program of Title V of the Social Security Act for the development 

and support of new family-to-family health information centers (described below). This proposal would appropriate an additional $3 

million for FY2007, $4 million for FY2008, and $5 million for 

FY2009 for this new purpose. For each of fiscal years 2010 and 

2011, the bill would authorize to be appropriated to the Secretary 

$5 million for this purpose. Funds would remain available until expended. 

The family-to-family health information centers would: (1) assist families of children with disabilities or special health care 

needs to make informed choices about health care so as to promote 

good treatment decisions, cost-effectiveness, and improved health 

outcomes for such children; (2) provide information regarding the 

health care needs of, and resources available for children with disabilities or special health care needs; (3) identify successful health 

delivery models; (4) develop a model for collaboration between families of such children and health professionals; (5) provide training 

and guidance with regard to the care of such children; and (6) conduct outreach activities to the families of such children, health professionals, schools, and other appropriate entities and individuals. 

The family-to-family health information center would be staffed by 

families who have expertise in public and private health care systems and by health professionals. 


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The Secretary would be required to develop family-to-family 

health information centers in at least 25 states in FY2007, 40 

states in FY2008, and all states in FY2009. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement follows the Senate provision. 

Restoration of Medicaid Eligibility for Certain SSI Beneficiaries 

(Section 6065 of the Conference Agreement, Section 6045 of the 

Senate Bill, and no provision in the House Bill) 

Current Law 

SSI and Medicaid eligibility is effective on the later of (1) the 

first day of the month following the date the application is filed, 

or (2) the first day of the month following the date that the individual is determined eligible. 

Senate Bill 

The Senate bill would extend Medicaid eligibility to persons 

who are under age 21 and who are eligible for SSI, effective on the 

later of: (1) the date the application was filed, or (2) the date SSI 

eligibility was granted. This provision would be effective one year 

after the date of enactment. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement includes the Senate bill provision. 

Subchapter B—Money Follows the Person Rebalancing 

Demonstration 

Money Follows the Person Rebalancing Demonstration (Section 

6071 of the Conference Agreement, Section 6061 of the Senate 

Bill, and no provision in the House Bill) 

Current Law 

Under Medicaid, states can offer a variety of home and community-based services to Medicaid beneficiaries who need long-term 

care. Some of these services may be offered statewide as part of the 

Medicaid state plan (e.g., home health services and personal care 

services). Other services may be offered through a home and community-based services (HCBS) waiver under Section 1915(c) of the 

Social Security Act. These waivers allow states to provide a broad 

range of home and community-based services to individuals who 

would otherwise require the level of care provided in certain types 

of institutions (i.e., a hospital, nursing facility or intermediate care 

facility for individuals with mental retardation (ICF-MR)). For example, HCBS waiver services could include respite, personal care, 

adult day care, or therapy. As part of the HCBS waiver, states 

have the ability to define the specific services that will be offered, 


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to target a specific population (e.g., elderly individuals) and to limit 

the number of individuals who can participate in the waiver. 

Approval for an HCBS waiver is contingent on a state documenting the cost-neutrality of the waiver. Cost-neutrality is met if 

the average per person cost under the HCBS waiver is no higher 

than the average per person cost of receiving care in a hospital, 

nursing facility or ICF-MR. The state determines which type of institution(s) it will use to make the cost-neutrality calculation. 

Under current law, Medicaid beneficiaries who are residents of 

an institution (such as a nursing home) and who would like to 

leave that institution would be entitled to receive those Medicaid 

services covered by the Medicaid state plan. However, individuals 

may not be able to access the broader range of services under an 

HCBS waiver because many states have waiting lists for the waiver. 

Medicaid expenditures for services (including the Medicaid 

state plan and HCBS waiver) are generally shared between the federal and state governments. In FY2003 (the latest expenditure data 

available), the federal government covered 59 percent of the cost of 

services; states covered the remaining 41 percent of expenditures. 

The specific federal share of a state is based on the state’s federal 

medical assistance percentage (FMAP) rate which can range from 

50 percent to 83 percent. 

Senate Bill 

The Senate provision would authorize the Secretary to conduct 

a demonstration project in states to increase the use of home and 

community-based care instead of institutions. States awarded a 

demonstration would receive 90 percent of the costs of home and 

community-based, long-term care services (under a HCBS waiver 

and/or the state plan) for 12 months following a demonstration participant’s transition from an institution into the community. In a 

given fiscal year, funding would be capped at the amount of a 

state’s grant award. After the 12 months of grant funding, the 

state would be required to continue providing services through a 

Medicaid home and community-based long-term care program, as 

described below. 

Individuals will be eligible to participate in the demonstration 

if they meet the following criteria: they are residents of a hospital, 

nursing facility, ICF–MR, or an institution for mental disease 

(IMD) (but only to the extent that the IMD benefit is offered as 

part of the existing state Medicaid plan); they have resided in the 

facility for no less than six months or for a longer time period specified by the state (up to a maximum of two years); they are receiving Medicaid benefits for the services in this facility; and they will 

continue to require the level of care of the facility but for the provision of HCBS services. 

The state’s application for a demonstration project will be required to include, at a minimum, the following information: (1) assurance that the project was developed and will be operated 

through a public input process; (2) assurance that the project will 

operate in conjunction with an existing Medicaid home and community-based program; (3) the duration of the project, which must be 

for at least two consecutive fiscal years in a five-year period startVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00336 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

hmoore on PROD1PC68 with HMRPT
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ing in FY2009; (4) the service area, which may be statewide or lessthan-statewide; (5) the target groups and the projected number to 

be enrolled and the estimated total expenditures for each fiscal 

year; (6) assurance that the project defers to individual choice and 

that the state will continue services for participants after the demonstration ends, as long as the state offers such services and the 

individual remains eligible; (7) information on recent Medicaid expenditures for long-term care and home and community-based services and proposed methods to increase the state’s investment in 

home and community-based services; (8) methods the state will use 

to eliminate barriers to paying for long-term care services for participants in the setting(s) of their choice; (9) assurance that the 

state will meet a maintenance of effort for Medicaid HCBS expenditures and will continue to operate a HCBS waiver that meets the 

statutory requirements for cost-neutrality. 

A state will also be required to describe a plan for quality assurance and improvement of HCBS services under Medicaid; any 

requested waivers of Medicaid law; if applicable, the process for 

participants to self-direct his or her own services (meeting standards outlined in this proposal); and compliance with reports and 

evaluation, as required by the Secretary. 

In addition to evaluating the merits of a state’s application, in 

selecting demonstration projects, the Secretary will be required to 

consider a national balance of target groups and geographic distribution and to give a preference to states that cover multiple 

groups or offer project participants the opportunity to self-direct 

their services. The Secretary will be authorized to waive certain 

sections of Medicaid law to achieve the purpose of the demonstration. 

To qualify for grant awards after year one, states will be required to meet numerical benchmarks measuring the increased investment in services under this proposal and the number of individuals transitioned into the community. States will also be required to demonstrate that they are assuring the health and welfare of project participants. For states that do not meet these requirements, the Secretary will be required to rescind the grant 

award for future grant periods and will be allowed to re-award unused funding. 

The proposal would require the Secretary to provide technical 

assistance and oversight to state grantees and may use up to $2.4 

million of the amounts appropriated for the portion of fiscal year 

2009 that begins on January 1, 2009, and ends on September 30, 

2009, and for fiscal year 2010, to carry out these activities during 

the period beginning on January 1, 2009 and ending on September 

30, 2013. The Secretary would also be required to conduct a national evaluation and report its findings to the President and Congress no later than September 30, 2012 and may use up to $1.1 

million each year from FY2010 through FY2013 to carry out these 

activities. 

This proposal would appropriate $250 million for the portion of 

FY2009 which begins on January 1, 2009, and ends on September 

30, 2009; $300 million in FY2010; $350 million in FY2011; $400 

million in FY2012; and $450 million in FY2013 to carry out the 

demonstration project. Funds not awarded to states in a given fisVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00337 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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cal year would continue to be available in subsequent fiscal years 

through September 30, 2013. 

Payments for home and community-based long-term care services under the demonstration project would be in lieu of payment 

with respect to expenditures that could otherwise be paid for by 

Medicaid. However, if a state exhausts its grant funding in a particular year, the state is not prevented from using Medicaid to pay 

for home and community-based long term care services. Finally, a 

state that does not use all of its funding in a given fiscal year will 

continue to have access to that funding for four subsequent fiscal 

years. 

House Bill 

No provision. 

Conftrence Agreement 

The conference agreement follows the Senate provision, but 

makes several changes to the Senate bill. First, to be eligible an 

individual must continue to require the level of care in an institution. However, in any case where a state would apply a more stringent level of care standard as a result of implementing a Medicaid 

state plan option under section 1915(I), established under this conference agreement, the individual must continue to require the 

level of care which had resulted in admission to the institution. 

A state must assure that it will continue services for participants after the demonstration ends, as long as the state offers such 

services and the individual remains eligible. If the state chooses to 

apply a more stringent level of care as a result of covering the state 

plan option under Section 1915(I), established under this conference agreement, the individual must continue to meet the requirement for the level of care that had resulted in his or her admission to the institution. 

In addition, those states awarded a demonstration would receive an enhanced FMAP rate (referred to as the ‘‘MFP-enhanced 

FMAP’’) equal to the current FMAP rate for the state increased by 

a number of percentage points equal to 50 percent of the difference 

between 100 percent and the normal FMAP rate. However, in no 

case can the FMAP rate exceed 90 percent for a state. The state 

will receive the MFP-enhanced FMAP for the costs of home and 

community-based, long-term care services for 12 months following 

a demonstration participant’s transition from an institution into 

the community. 

Finally, demonstration grants would be awarded starting in 

2007, instead of 2009 which changes all relevant dates within this 

provision including: 

• The duration of the project must be for at least two consecutive fiscal years in a five-year period starting in FY2007; and 

• The Secretary would be able to use up to $2.4 million of the 

amounts appropriated for the portion of fiscal year 2007 that begins on January 1, 2007, and ends on September 30, 2007, and for 

fiscal year 2008, to carry out technical assistance and quality assurance activities during the period beginning on January 1, 2007 

and ending on September 30, 2011; and 


hmoore on PROD1PC68 with HMRPT
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• The Secretary will also be required to report evaluation and 

findings to the President and Congress no later than September 30, 

2011 and may use up to $1.1 million each year from FY2008 

through FY2011 to carry out these activities; and 

• The provision would appropriate $250 million for the portion 

of FY2007 which begins on January 1, 2007, and ends on September 30, 2007; $300 million in FY2008; $350 million in FY2OO9; 

$400 million in FY2010; and $450 million in FY2011 to carry out 

the demonstration project; and 

• Funds not awarded to states in a given fiscal year would 

continue to be available in subsequent fiscal years through September 30, 2011. 

Subchapter C—Miscellaneous 

Medicaid Transformation Grants (Section 6081 of the Conference 

Agreement, no provision in the Senate Bill, and Section 3143 

of the House Bill) 

Current Law 

Section 1903(a) of the Social Security Act describes the level of 

federal reimbursement available to states for various Medicaid program functions. The federal medical assistance percentage (FMAP) 

is the rate at which states are reimbursed for most Medicaid service expenditures. It is based on a formula that provides higher reimbursement to states with lower per capita incomes relative to the 

national average (and vice versa); it has a statutory minimum of 

50 percent and maximum of 83 percent. The federal reimbursement 

rate for Medicaid administrative expenditures does not vary by 

state and is generally 50 percent, but certain administrative functions receive enhanced (usually 75 percent) reimbursement. 

Senate Bill 

No provision. 

House Bill 

Under the House bill, in addition to the normal federal Medicaid reimbursement received by states under section 1903( a), the 

Secretary of HHS would provide for payments to states for the 

adoption of innovative methods to improve the effectiveness and efficiency in providing medical assistance under Medicaid. 

Examples of innovative methods for which such funds may be 

used include: (1) methods for reducing patient error rates through 

the implementation and use of electronic health records, electronic 

clinical decision support tools, or e-prescribing programs, (2) methods for improving rates of collection from estates of owed to Medicaid, (3) methods for reducing waste, fraud, and abuse under Medicaid, such as reducing improper payment rates as measured by the 

annual payment error rate measurement (PERM) project rates, (4) 

implementation of a medication risk management program as part 

of a drug use review program, and (5) methods for reducing, in 

clinically appropriate ways, Medicaid expenditures for covered outpatient drugs, particularly in the categories of greatest drug utilization, by increasing the utilization of generic drugs through the 


hmoore on PROD1PC68 with HMRPT
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use of education programs and other incentives to promote greater 

use of generics. 

No payments would be made to a state unless the state applied 

to the Secretary of HHS for such payments in a form, manner, and 

time specified by the Secretary. Payments would be made under 

such terms and conditions consistent with the subsection as the 

Secretary prescribes. Payment to a state under the subsection 

would be conditioned on the state submitting to the Secretary an 

annual report on the programs supported by such payment. The reports would include information on: (1) the specific uses of such 

payment, (2) an assessment of the quality improvements and clinical outcomes under such programs, and (3) estimates of the cost 

savings resulting from such programs. 

Total payments would equal and not exceed $50 million in 

each of FY2007 and FY2008. The Secretary would specify a method 

for allocating the funds among states. Such method would provide 

preference for states that design programs that target health providers that treat significant numbers of Medicaid beneficiaries. The 

method would also allocate at least 25 percent of the funds among 

states whose populations as of July 1, 2004 were more than 105 

percent of their populations as of April 1, 2000. 

Conference Agreement 

The conference agreement follows the House bill, but would increase total payments to equal and not exceed $75 million in each 

of FY2007 and FY2008. The agreement also adds, as an additional 

option for use of funds, methods for improving access to primary 

and specialty physician care for the uninsured using integrated 

university-based hospital clinic systems. Conferees believe that it is 

important to develop new models to meet the needs of the uninsured. University-based physicians are uniquely qualified to assume this task. Bringing the resources of academia and health care 

systems together to serve the poor and medically needy will create 

new opportunities to develop strategies that can be used on a 

broader scale. 

Improved Enforcement of Documentation Requirements (Section 

6082 of the Conference Agreement, no provision in the Senate 

Bill, and Section 3145 of the House Bill) 

Current Law 

To be eligible for the full range of benefits offered under Medicaid, an individual must be a citizen or national of the United 

States or a qualified alien (e.g., a legal permanent resident, refugee, alien granted asylum or related relief) who meets all other 

Medicaid program eligibility criteria. Non-qualified aliens (e.g., 

those who are unauthorized or illegally present, non-immigrants 

admitted for a temporary purpose such as education or employment, short-term parolees) who would otherwise be eligible for 

Medicaid except for their immigration status may only receive 

Medicaid care and services that are necessary for the treatment of 

an emergency medical condition and are not related to an organ 

transplant procedure. 


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As a condition of an individual’s eligibility for Medicaid benefits, Section 1137(d) of the Social Security Act requires a state to 

obtain a written declaration, under penalty of perjury, stating 

whether the individual is a citizen or national of the United States. 

If an individual declares that he or she is a citizen or national, the 

state is not required to obtain additional documentary evidence but 

may choose to do so. According to a 2005 report from the Department of Health and Human Services’ Office of Inspector General, 

46 states and the District of Columbia allow or sometimes allow 

self-declaration of United States citizenship, while four states require Medicaid applicants to submit documentary evidence to verify 

citizenship statements. 

If an individual declares that he or she is not a citizen or national, the individual must declare that he or she is a qualified 

alien and must present: (1) alien registration documentation or 

other proof of immigration registration from the Department of 

Homeland Security’s United States Citizenship and Immigration 

Services Bureau (DHS/USCIS, formerly the Immigration and Naturalization Service) or (2) other documents determined by the state 

to constitute reasonable evidence of satisfactory immigration status. If an individual presents DHS/USCIS documentation, the state 

must verify the individual’s immigration status with DHS/USCIS 

through the automated Systematic Alien Verification for Entitlements (SAVE) system, or by using an alternative verification system approved by the Secretary of Health and Human Services. 

States receive 100 percent federal reimbursement for the operation 

of such systems. 

Senate Bill 

No provision. 

House Bill 

Under the House bill, states would be prohibited from receiving federal reimbursement for medical assistance provided under 

Medicaid to an individual who has not provided satisfactory documentary evidence of citizenship or nationality. 

Such evidence would include one of the following documents: 

• a United States passport; 

• Form N–550 or N–570 (Certificate of Naturalization); 

• Form N–560 or N–561 (Certificate of United States Citizenship); 

• such other document that the Secretary may specify, by regulation, that provides proof of United States citizenship or nationality and that provides a reliable means of documentation of personal identity. 

Satisfactory documentary evidence would also include a document from each of the fol1owing lists: 

• a certificate of birth in the United States; 

• Form FS–545 or Form DS–1350 (Certificate of Birth 

Abroad); 

• Form 1–97 (United States Citizen Identification Card); 

• Form FS–240 (Report of Birth Abroad of a Citizen of the 

United States); or 


hmoore on PROD1PC68 with HMRPT
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• such other document as the Secretary may specify (excluding 

a document specified by the Secretary as described above) that provides proof of United States citizenship or nationality; 

AND 

• any identity document described in section 274A(b)(l)(D) of 

the Immigration and Nationality Act; or 

• any other documentation of personal identity of such other 

type as the Secretary finds, by regulation, provides a reliable 

means of identification. 

The documentary requirements would not apply to an alien 

who is: (1) eligible for Medicaid and is entitled to or enrolled for 

Medicare benefits, (2) eligible for Medicaid on the basis of receiving 

Supplemental Security Income benefits, or (3) eligible for Medicaid 

on such other basis as the Secretary may specify under which satisfactory documentary evidence of citizenship or nationality had been 

previously presented. 

The provision would apply to determinations of initial eligibility for Medicaid made on or after July 1, 2006, and to redeterminations made after such date in the case of individuals for whom 

the new documentary requirements were not previously met. 

Conference Agreement 

The conference agreement follows the House bill, but allows a 

state-issued driver’s license or other identity document described in 

section 274(A)(b)(1)(D) of the Immigration and Nationality Act as 

satisfactory evidence, but only if the state issuing the license or 

such document requires proof of U.S. citizenship before issuance or 

obtains a Social Security number from the applicant and verifies 

before certification that such number is valid and assigned to an 

applicant who is a citizen. 

Health Opportunity Accounts (Section 6083 of the Conference 

Agreement, no provision in the Senate Bill, and Section 3134 

of the House Bill) 

Current Law 

Medicaid is a joint federal-state entitlement program that finances health care coverage for certain low-income families, children, pregnant women, and individuals who are aged or disabled. 

To qualify for Medicaid, an individual must meet both categorical 

and financial eligibility requirements. The specific income and resource limitations that apply to each eligibility group are set 

through a combination of federal parameters and state definitions. 

Each state designs and administers its own program under broad 

federal guidelines. Variation exists among states in eligibility, covered services, and the delivery of, and reimbursement for services. 

States that wish to experiment with new approaches for providing 

health care coverage that promote the objectives of the Medicaid 

program may seek approval for Section 1115 demonstration waivers. 

Medicaid’s basic benefits rules require all states to provide certain ‘‘mandatory’’ services as listed in Medicaid statute. Federal 

matching payments are also available for optional services if states 

choose to include them in their Medicaid plans. States define the 


hmoore on PROD1PC68 with HMRPT
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specific features of each service to be provided under that plan 

within broad federal guidelines including: (1) Amount, duration, 

and scope. Each covered service must be sufficient in amount, duration, and scope to reasonably achieve its purpose, (2) Comparability. With certain exceptions, services available to any categorically needy beneficiary in a state must be equal in amount, 

duration, and scope to those available to any other categorically 

needy beneficiary in the state. Similarly, services available to any 

medically needy beneficiary in a state must be equal in amount, 

duration, and scope to those available to any other medically needy 

beneficiary in the state, (3) Statewideness. State plan services must 

be covered throughout an entire state, and (4) Freedom of choice. 

With certain exceptions, a state’s Medicaid plan must allow recipients freedom of choice among health care providers or managed 

care entities participating in Medicaid. 

States may generally impose nominal cost-sharing on beneficiaries, with certain exceptions. They are precluded from imposing 

cost sharing on services for children under 18, services related to 

pregnancy, family planning or emergency services, services provided to nursing facility residents who are required to spend all of 

their income for medical care except for a personal needs allowance, and services furnished to individuals receiving hospice care. 

States may require nominal copayments, coinsurance, or 

deductibles within federal limits from other beneficiaries or for 

other services. Beneficiaries may be charged only one type of cost 

sharing per service. Providers may collect cost sharing amounts 

from beneficiaries and generally are not to be reimbursed by the 

state if they are unsuccessful in collecting cost sharing from beneficiaries. Providers generally may not deny services if beneficiaries 

are unable to pay cost sharing amounts. 

For the most part, states establish their own rates to pay Medicaid providers for services. By regulation these rates must be sufficient to enlist enough providers so that covered services will be 

available to Medicaid beneficiaries at least to the extent they are 

available to the general population in a geographic area. All providers are required to accept payments under the program as payment in full for covered services except where states require nominal cost-sharing by beneficiaries. 

Senate Bill 

No provision. 

House Bill 

The House bill would require the Secretary of HHS to establish 

no more than 10 demonstration programs within Medicaid for 

health opportunity accounts (HOA), effective January 1, 2006. 

While demonstration programs described in the House bill have 

some of the elements of a Section 1115 demonstration waiver, 

‘‘Health Opportunity Accounts,’’ as defined by the provision, are not 

explicitly authorized under current law. 

If successful during the initial 5-year test period, other demonstrations would be approved. HOAs would be used to pay (via 

electronic funds transfers) health care expenses specified by the 

state; payments could be restricted to licensed or otherwise authorVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00343 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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ized providers as well as to items and services that are medically 

appropriate or necessary. Eligibility for HOAs would be determined 

by the state, though individuals age 65 or older, or who are disabled, pregnant, or receiving terminal care or long-term care, 

would be among those who would be precluded from participating. 

Once account holders were no longer eligible for Medicaid they 

could continue to make HOA withdrawals under state-specified 

conditions, though accounts could then also be used to pay for 

health insurance or, at state option, for job training or education. 

Among other things, state demonstration programs would have to 

make patients aware of the high cost of medical care, provide incentives for them to seek preventive care, and reduce inappropriate 

uses of health care. 

Demonstration participants would have both an HOA and coverage for medical items and services that, after an annual deductible is met, were available under the existing Medicaid state plan 

and/or Section 1115 waiver authorities. HOA contributions could be 

made by the state or by other persons or entities, including charitable organizations. Including federal shares, state contributions 

generally could not exceed $2,500 for each adult and $1,000 for 

each child. 

Demonstration participants would be required to meet an annual deductible before they would be permitted to access coverage 

for medical items and services available under the existing Medicaid state plan and/or Section 1115 waiver authorities. The deductible would have to be at least 100 percent, but no more than 

110 percent, of the annual state contributions to the HOA. Both the 

deductible and the maximum for out-of-pocket cost-sharing could 

vary among families. The deductible need not apply to preventive 

care. 

The House bill would require demonstration participants to be 

able to obtain services from Medicaid providers or managed care 

organizations at the same payment rates that would be applicable 

if the coverage deductible did not apply, or from any provider for 

payment rates not exceeding 125 percent of those rates. 

Conference Agreement 

The House bill is agreed to with the following modifications. 

The conference agreement requires the Secretary of HHS to establish no more then 10 demonstration programs within Medicaid for 

health opportunity accounts (HOA), effective January 1, 2007. If 

successful (based on cost-effectiveness, quality of care and other 

Secretary-specified criteria) during the initial 5-year test period, 

such demonstrations may be extended or made permanent, and 

other demonstrations may be approved. Not later than 3 months 

prior to the end of the initial 5-year test period, the conference 

agreement requires the Comptroller General of the Unites States 

to submit an evaluation of the demonstration programs to Congress. 

HOAs are used to pay (via electronic funds transfers) health 

care expenses specified by the state; payments could be restricted 

to licensed or otherwise authorized providers as well as to items 

and services that are medically appropriate or necessary. Eligibility 

for HOAs is determined by the state, though individuals age 65 or 


hmoore on PROD1PC68 with HMRPT
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older, or who are disabled, pregnant, or receiving terminal care or 

long-term care, are among those who are precluded from participating. Once account holders are no longer eligible for Medicaid 

they may continue to make HOA withdrawals under state-specified 

conditions for a period of three years, though no additional account 

contributions will be made and the account balances will be reduced by 25 percent. For ineligible individuals who participated in 

the demonstration program for at least one year, accounts could 

then also be used to pay for health insurance or, at state option, 

for additional expenditures such as job training or education. The 

conference agreement adds a 1-year moratorium for reenrollment, 

whereby eligible individuals disenrolled from the state demonstration programs are not permitted to reenroll for a full year from 

such individual’s disenrollment date. Among other things, state 

demonstration programs are required to make patients aware of 

the high cost of medical care, provide incentives for them to seek 

preventive care, and reduce inappropriate uses of health care. 

The conference agreement requires demonstration participants 

have both an HOA and coverage for medical items and services 

that, after an. annual deductible is met, are available under the existing Medicaid state plan and/or Section 1115 waiver authorities. 

HOA contributions could be made by the state or by other persons 

or entities, including charitable organizations as permitted under 

current law. Including federal shares, state contributions generally 

may not exceed $2,500 for each adult and $1,000 for each child. 

The conference agreement requires demonstration participants 

to meet an annual deductible before they are permitted to access 

coverage for medical items and services available under the existing Medicaid state plan and/or Section 1115 waiver authorities. 

The deductible must be at least 100 percent, but no more than 110 

percent, of the annual state contributions to the HOA without regard to state-specified limits on the HOA balance. Both the deductible and the maximum for out-of-pocket cost-sharing could vary 

among families. The deductible need not apply to preventive care. 

The conference agreement requires demonstration participants 

to be able to obtain services from Medicaid providers, or Medicaid 

managed care organizations at the same payment rates that are 

applicable if the coverage deductible did not apply, or from any 

other provider or managed care organization at payment rates not 

exceeding 125 percent of such Medicaid provider payment rates. 

The conference agreement requires that the payment rates for 

Medicaid providers or managed care organizations be computed 

without regard to any cost sharing that are otherwise applicable 

under current law (as modified by the conference agreement). 

State Option to Establish Non-emergency Medical Transportation 

Program (Section 6084 of the Conference Agreement, no provision in the Senate Bill, and Section 3125 of the House Bill) 

Current Law 

Federal regulations require states to ensure necessary transportation for beneficiaries to and from providers. When states offer 

transportation as an optional benefit, federal reimbursement uses 

the federal assistance medical percentage (FMAP) rate which varVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00345 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

hmoore on PROD1PC68 with HMRPT
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ies by state and ranges from 50 percent to 83 percent. FMAP reimbursement is only available if transportation is furnished by a provider to whom a direct payment can be made. Beneficiaries must 

have freedom of choice among transportation providers and such 

services must be equal in amount, duration and scope for all beneficiaries classified as categorically needy (CN). This comparability 

requirement also applies among medically needy (MN) groups. 

Other arrangements, such as payments to a broker who manages 

and pays transportation vendors, must be c1aimed as an administrative expense rather than as a benefit. Such costs are reimbursed 

by the federal government at 50 percent, and fewer federal requirements must be met. 

Senate Bill 

No provision. 

House Bill 

The House bill would allow states to establish a non-emergency 

medical transportation brokerage program for beneficiaries who 

need access to medical care but have no other means of transportation. The state would not be required to provide comparable services for all Medicaid enrollees, nor freedom of choice among providers. The program would include wheelchair van, taxi, stretcher 

car, bus passes and tickets, and other transportation methods 

deemed appropriate by the Secretary, and could be conducted 

under contract with a broker who: (1) is selected through a competitive bidding process that assesses the broker’s experience, references, qualifications, resources and costs; (2) has oversight procedures to monitor beneficiary access and complaints and to ensure 

that transport personnel are licensed, qualified, competent and 

courteous; (3) is subject to regular auditing by the state to ensure 

quality of services and adequacy of beneficiary access to medical 

care; and (4) complies with requirements related to prohibitions on 

referrals and conflict of interest established by the Secretary. These 

provisions would be effective upon enactment. 

The Office of the Inspector General (OIG) of DHHS would be 

required to submit a report to Congress examining the non-emergency medical transportation brokerage program implemented 

under this provision no later than January 1, 2007. This report 

must include findings regarding conflicts of interest and improper 

utilization of transportation services under this program, as well as 

recommendations for improvements. 

Conference Agreement 

The conference agreement includes the House bill, and specifies that non-emergency medical transportation brokerage programs do not have to be available statewide. 


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Extension of Transitional Medical Assistance (TMA) and Abstinence Education Program (Section 6085 of the Conference 

Agreement, no provision in the Senate Bill, no provision in the 

House Bill) 

Current Law 

States are required to continue Medicaid benefits for certain 

low-income families who would otherwise lose coverage because of 

changes in their income. This continuation of benefits is known as 

transitional medical assistance (TMA). States are currently required to provide TMA to families losing eligibility for Medicaid 

under two scenarios: one related to child or spousal support, and 

one related to work. 

First, under 1931(c) of the Social Security Act, states must provide four months of TMA coverage to families losing Medicaid eligibility due to increased child or spousal support. This is a permanent provision of law with no sunset date. 

Second, states are required to provide TMA to families losing 

Medicaid eligibility for work-related reasons. While Section 

1902(e)(1) of the Social Security Act permanently requires states to 

provide four months of TMA to families losing Medicaid eligibility 

due to an increase in hours of work or income from employment, 

the Family Support Act (FSA) of 1988 expanded state TMA requirements under Section 1925 of the Social Security Act. As a result, states are currently required to provide at least six, and up 

to 12, months of TMA coverage to families losing Medicaid eligibility due to increased hours of work or income from employment, 

as well as to families who lose eligibility due to the loss of a timelimited earned income disregard (such disregards have the effect of 

increasing the income level at which a family may qualify for Medicaid). FSA originally authorized Section 1925 to replace the fourmonth requirement in Section 1902(e)(1) through FY1998. However, the sunset date for Section 1925 has been extended a number 

of times, most recently through December 31, 2005. 

Under Section 510 of the Social Security Act, federal law appropriated $50 million annually for each of the fiscal years 1998– 

2003 for matching grants to states to provide abstinence education 

and, at state option, mentoring, counseling, and adult supervision 

to promote abstinence from sexual activity, with a focus on groups 

that are most likely to bear children out-of-wedlock. Funds must be 

requested by states when they apply for Maternal and Child 

Health Services (MCR) Block Grant funds and must be used exclusively for the teaching of abstinence. States must match every $4 

in federal funds with $3 in state funds. 

A state’s allotment of abstinence education block grant program funding is based on the proportion of low-income children in 

the state as compared to the national total. Funding for the abstinence education block grant has been extended through December 

31, 2005 by temporary extension measures. 

Senate Bill 

No provision. 


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House Bill 

No provision. 

Conference Agreement 

The conference agreement extends TMA under Section 1925 of 

the Social Security Act through December 31, 2006. It also extends 

the $50 million annual appropriation for the abstinence education 

block grant program through fiscal year 2006 and provides an additional $12.5 million for the program for the first quarter of fiscal 

year 2007 (i.e., through December 31, 2006). 

Emergency Services Furnished by Non-Contract Providers for Medicaid Managed Care Entities (Section 6086 of the Conference 

Agreement, no provision in the Senate Bill, and Section 3147 

of the House Bill) 

Current Law 

Medicaid law provides certain protections for beneficiaries enrolled in managed care, including assuring coverage of emergency 

services under each managed care contract awarded by the state. 

Senate Bill 

No provision. 

House Bill 

A Medicaid provider that does not have a contract with a Medicaid managed care entity (MCE) that furnishes emergency care to 

a beneficiary enrolled with that MCO must accept as payment in 

full the amount otherwise applicable outside of managed care (e.g., 

in the fee-for-service setting) minus any payments for indirect costs 

of medical education and direct costs of graduate medical education. The effective date of this provision would be January 1, 

2007. 

Conference Agreement 

The conference agreement includes the House bill, but clarifies 

that the fee-for-service rate is the maximum payment rate. Also, in 

a state where rates paid to hospitals under the state plan are negotiated by contract and not publicly released, the payment amount 

applicable under this provision must be the average contract rate 

that would apply under the state plan for general acute care hospitals or the average contract rate that would apply under the plan 

for tertiary hospitals. 

Subtitle B—SCHIP 

Additional allotments to eliminate fiscal year 2006 funding shortfalls (Section 6101 Subsection a of the Conference Agreement, 

Section 6051 Subsection a of the Senate Bill, and no provision 

in the House Bill) 

Current Law 

In general, funds for the SCHIP program are authorized and 

appropriated for FY1998 through FY2007. From each year’s appropriation, a state is allotted an amount detennined by a formula set 


hmoore on PROD1PC68 with HMRPT
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in law. Federal funds not drawn from a state’s allotment by the 

end of each fiscal year continue to be available to that state for two 

additional fiscal years. At the end of the three-year period, unspent 

funds from the original allotment are reallocated in ways that vary 

depending on the fiscal year. The original SCHIP law, (i.e., 

BBA97), specifies that only those states that spend all of their 

original allotment by the applicable three-year deadline would receive redistributed funds from the other states’ unspent allotments, 

based on a process determined by the Secretary of Health and 

Human Services (HHS); and these redistributed funds would be 

available for one year. However, later laws (i.e., P.L. 106–554 and 

P.L. 108–74) overrode how the reallocation of unspent FY1998 to 

FY2001 original allotments would occur. The redistribution of 

unspent FY2002 SCHIP original allotments was determined by the 

Secretary of HHS in accordance with the default redistribution provision in BBA97. 

Under current law, unspent original allotments from FY2003 

forward are to be redistributed according to the original BBA97 

methodology. That is, redistributed funds will go only to those 

states that spend all of their original allotments by the applicable 

three-year deadline, with the redistributed amounts determined by 

the Secretary of HHS and made available for one year only. 

Senate Bill 

In general, the Senate bill would reduce the period of availability of the FY2004 and FY2005 original allotments from three 

years to two, and would specify rules for the reallocation of unspent 

FY2003, FY2004, and FY2005 SCHIP original allotments. The reallocated FY2003 and FY2004 funds would be available in FY2006; 

the reallocated FY2005 funds would be available in FY2007. 

In FY2006, the Senate bill would require that unspent FY2003 

original allotments remaining at the end of FY2005 (after a setaside of 1.05 percent of the total unspent FY2003 funds for the territories) would be redistributed to states with an initial projected 

FY2006 shortfall. The initial projected shortfall is the amount by 

which a state’s estimated federal SCHIP expenditures in FY2006 

would exceed the amounts available from the state’s FY2005 and 

FY2006 original allotments. Each state with an initial projected 

shortfall would receive a portion of the available unspent FY2003 

original allotments in proportion to its contribution to the total pool 

of such shortfalls. From the 1.05 percent territory set-aside, each 

territory would receive an amount in proportion to its contribution 

to the total pool of FY2003 original allotments for the territories. 

Also in FY2006, the Senate bill would require that the territories receive a set-aside of 1.05 percent of the total unspent 

FY2004 original allotments available at the end of FY2005. Described states would be permitted to extend the use of their 

unspent FY2004 original allotments in an amount equal to the 

shortfall still remaining after receiving redistributed FY2003 funds. 

Described states would be defined as states that: (1) spent all 

FY2003 original allotments by the end of FY2005, (2) did not spend 

all of their FY2004 original allotment by the end of FY2005, and 

(3) reported an initial projected FY2006 shortfall. After the setaside for the territories as well as the reduction of FY2004 exVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00349 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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tended funds for the described states, the remaining unspent 

FY2004 funds would be available to states with a net projected 

FY2006 shortfall, defined as each state’s initial projected shortfall 

reduced by the redistributed FY2003 funds it received and by the 

extended FY2004 funds if it is a described state. Each state with 

a net projected shortfall would receive a redistribution of FY2004 

funds to cover its net projected shortfall. Any remaining FY2004 

unspent original allotments would then be extended proportionally 

to states that did not spend their FY2004 allotments by the end of 

the two-year period of availability. From the 1.05 percent territory 

set-aside, each territory would receive an amount in proportion to 

its contribution to the total pool of FY2004 original allotments for 

the territories. 

In FY2007, the Senate bill would require that the territories 

receive a set-aside of 1.05 percent of the total unspent FY2005 

original allotments available at the end of FY2006. Described 

states would be permitted to extend the use of their unspent 

FY2005 original allotments in an amount equal to their initial projected FY2007 shortfall. The initial projected shortfall is the 

amount by which a state’s estimated federal SCHIP expenditures 

for FY2007 exceeds the amount available from the state’s FY2006 

and FY2007 original allotments. Described states would be defined 

as states that: (1) did not spend all of their FY2005 original allotment by the end of FY2006, and (2) reported an initial projected 

FY2007 shortfall. After the set-aside for the territories as well as 

the reduction of FY2005 extended funds for the described states, 

the remaining unspent FY2005 funds would be available to states 

with a net projected FY2007 shortfall, described as each state’s initial projected shortfall reduced by the extended FY2005 funds for 

the described states. Each state with a net projected shortfall 

would receive a redistribution of FY2005 funds to cover its net projected shortfall or, if the remaining funds are inadequate to cover 

the FY2007 projected shortfalls, a portion of the available unspent 

FY2005 original allotments in proportion to the state’s contribution 

to the total shortfall pool. If any FY2005 unspent original allotments remain, they would then be extended proportionally to states 

that did not spend their FY2005 allotments by the end of the twoyear period of availability. From the 1.05 percent territory setaside, each territory would receive an amount in proportion to its 

contribution to the total pool of FY2005 original allotments for the 

territories. 

To calculate the amounts available for redistribution and retention in each formula described above, the Secretary would use 

expenditures reported by states not later than November 30, 2005, 

for the FY2003 and FY2004 redistributions, and November 30, 

2006, for the FY2005 redistribution. To calculate states with projected shortfalls in each formula described above, the Secretary 

would use projected expenditures reported by the states not later 

than September 30, 2005, for the FY2003 and FY2004 redistributions, and not later than September 30, 2006, for the FY2005 redistribution. This provision of the Senate bill would be effective upon 

enactment of this Act. 


hmoore on PROD1PC68 with HMRPT
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House Bill 

No provision. 

Conference Agreement 

Out of money not otherwise available in the Treasury, the conference agreement authorizes and appropriates $283 million for the 

purpose of providing additional SCHIP allotments to shortfall 

states in FY2006. The conference agreement defines shortfall states 

as those with an approved SCHIP plan for which (based on the 

most recent SCHIP data as of December 16, 2005) the Secretary estimates that such state’s FY2006 projected expenditures exceed the 

sum of all funds available for expenditure by that state in FY2006 

including: (1) the amount of such state’s FY2004 and FY2005 original allotments that will not be expended in FY2005; (2) the 

amount, if any, that is redistributed to such state during FY2006; 

and (3) the amount of such state’s FY2006 original allotment. From 

the additional SCHIP appropriation, each FY2006 shortfall state 

would receive an allotment to cover its projected shortfall or, if the 

appropriated funds are inadequate to cover the FY2006 projected 

shortfalls, the Secretary shall distribute the available funds on a 

pro rata basis based on each such state’s estimated shortfall. Such 

additional SCHIP allotments are available for one year only. On 

October 1, 2006, any remaining unspent additional allotments will 

not be subject to redistribution, but will instead revert to the 

Treasury. 

The conference agreement limits the types of payments that 

may be matched at the SCHIP enhanced matching rate for SCHIP 

expenditures drawn against the additional FY2006 appropriation 

available to shortfall states to include child health assistance payments made on behalf of targeted low-income children. The amendments made by this section of the conference agreement apply to 

items and services furnished on or after October 1, 2005, without 

regard to whether or not regulations implementing such amendments have been issued. 

Prohibition against covering nonpregnant childless adults with 

SCHIP funds (Section 6102 of the Conference Agreement, and 

Section 6053 of the Senate Bill) 

Current Law 

Section 1115 of the Social Security Act gives the Secretary of 

HHS broad authority to modify virtually all aspects of the Medicaid 

and SCHIP programs. Under Section 1115, the Secretary may 

waive requirements in Section 1902 (usually, freedom of choice of 

provider, comparability, and statewideness). For SCHIP, no specific 

sections or requirements are cited as ‘‘waive-able.’’ SCHIP statute 

simply states that Section 1115, pertaining to research and demonstration projects, applies to SCHIP. 

With respect to SCHIP, the Clinton Administration issued a 

July 31, 2000, letter regarding treatment of adults. While this Administration was supportive of using the 1115 authority to expand 

SCHIP to parents of Medicaid or SCHIP-eligible children, as well 

as to certain pregnant women, it opposed coverage of childless 

adults. Under the Bush Administration, the Health Insurance 


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Flexibility and Accountability (HIFA) Initiative was implemented 

using the 1115 waiver authority. The initiative was created to encourage states to increase the number of individuals with health 

insurance coverage (including childless adults) within current program resources. 

Senate Bill 

The Senate bill would limit the Secretary of Health and 

Human Services’s Section 1115 waiver authority by prohibiting the 

approval of new waiver, experimental, pilot, or demonstration 

projects that allow federal SCHIP funds to be used to provide child 

health assistance or other health benefits coverage to nonpregnant 

childless adults. The provision would allow the Secretary to continue to approve projects that expand the SCHIP program to caretaker relatives of Medicaid or SCHIP-eligible children (as defined 

under Section 1931 of Medicaid statue), and to pregnant adults. Finally, the provision would allow for the continuation of existing 

Medicaid or SCHIP waiver projects (and/or extensions, amendments, or renewals to such projects) affecting federal SCHIP funds 

that had been approved under the Section 1115 waiver authority 

before the date of enactment of this Act. This provision would be 

effective upon the enactment of this Act. 

House Bill 

No provision. 

Conference Agreement 

The Senate bill is agreed to. 

Continued authority for qualifying states to use certain funds for 

Medicaid expenditures. (Section 6103 of the Conference Agreement, Section 6054 of the Senate Bill, and no provision in the 

House Bill) 

Current Law 

Current law permits qualifying states (i.e., states that on or 

after April 15, 1997, had an income eligibility standard for children, other than infants, of at least 184 percent of the FPL.—Other 

qualifications also apply to states with statewide waivers under 

Section 1115 of the Social Security Act.) to receive the SCHIP enhanced federal matching rate for the coverage of certain children 

enrolled in regular Medicaid. Specifically, for services delivered to 

Medicaid beneficiaries under the age of 19 who are not otherwise 

eligible for SCHIP and have family income that exceeds 150 percent of the FPL, federal SCHIP funds can be used to pay the difference between the SCHIP enhanced federal matching rate and 

the regular Medicaid federal matching rate. The maximum amount 

that qualifying states may claim under this allowance is the lesser 

of the following two amounts: (1) 20 percent of the state’s available 

FY1998 through FY2001 original SCHIP allotments; and (2) the 

state’s balance (calculated quarterly) of any available FY1998 to 

FY2001 federal SCHIP funds (original allotments or reallocated 

funds). If there is no balance, states may not claim 20 percent 


hmoore on PROD1PC68 with HMRPT
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spending. No 20 percent spending will be permitted in FY2006 or 

any fiscal year thereafter. 

House Bill 

No provision. 

Senate Bill 

The Senate bill would continue the authority for qualifying 

states to apply federal SCHIP matching funds toward the coverage 

of certain children enrolled in regular Medicaid (not an SCHIP 

Medicaid expansion). Specifically, the bill would allow qualifying 

states to use any available FY2004 and FY2005 SCHIP funds (i.e., 

FY2005 original allotments, and/or FY2004 and FY2005 retained 

allotments or redistributed funds, as the case may be) for such 

Medicaid services made on or after October 1, 2005 under the 20 

percent allowance. This provision of the Senate bill would be effective on or after October 1, 2005. 

Conference Agreement 

The Senate bill is agreed to. 

Use of Redistributed Funds for Child Health Assistance for Targeted Low-income Children (No provision in the Conference 

Agreement, Section 6051—Subsection b of the Senate Bill, and 

no provision in the House Bill) 

Current Law 

Like Medicaid, SCHIP is a federal-state matching program. 

For each dollar of state spending, the federal government makes a 

matching payment drawn from SCHIP accounts. The federal government contributes more toward the coverage of individuals in 

SCHIP than it does for those covered under Medicaid. All SCHIP 

assistance for targeted low-income children, including claims submitted to and approved by CMS for expenditures under the Section 

1115 waiver authority, are matched at the enhanced federal medical assistance percentage (enhanced-FMAP). 

Title XXI of the Social Security Act specifies that federal 

SCHIP funds can be used for child health assistance that meets 

certain requirements. Apart from these benefit payments, SCHIP 

payments at the enhanced FMAP rate for four other specific health 

care activities can be made, including: (1) other child health assistance for targeted low-income children; (2) health services initiatives 

to improve the health of targeted low-income children and other 

low-income children; (3) outreach activities; and (4) other reasonable administrative costs. 

Senate Bill 

The Senate bill would limit the types of payments that could 

be matched at the SCHIP enhanced matching rate for SCHIP expenditures drawn against the FY2003, FY2004, and FY2005 redistributed funds available to shortfall states. Specifically, the Senate 

bill would require the federal government to make matching payments at the SCHIP enhanced matching rate for child health assistance payments made on behalf of targeted low-income children. 


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However, expenditures drawn against the FY2003, FY2004, and 

FY2005 redistributed SCHIP funds would occur at the regular 

Medicaid FMAP rate for all other approved SCHIP expenditures, 

consisting of the following: (1) benefit expenditures for adults 

(other than pregnant women) approved under the Section 1115 

waiver authority; (2) health services initiatives to improve the 

bealth of targeted low-income children and other low-income children: (3) outreach activities; and (4) other reasonable administrative costs. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement does not include this provision. 

Authority to Use up to 10 Percent of Fiscal Year 2006 and 2007 

Allotments for Outreach (No provision in the Conference 

Agreement, Section 6052 of the Senate Bill, and no provision 

in the House Bill) 

Current Law 

In general, Title XXI of the Social Security Act specifies that 

federal SCHIP funds can be used for child health assistance that 

meets certain requirements. Apart from these benefit payments, 

SCHIP payments at the enhanced FMAP rate can be made for the 

following four specific health care activities: (1) other child health 

assistance for targeted low-income children; (2) health services initiatives to improve the health of targeted low-income children and 

other low-income children; (3) outreach activities; and (4) other reasonable administrative costs. For a given fiscal year, payments for 

these four specific health care activities cannot exceed 10 percent 

of the total amount of expenditures for SCHIP insurance benefits 

and other specific health care activities combined. The Medicare, 

Medicaid and SCHIP Benefits Improvement and Protection Act of 

2000 (BIPA) created a special rule for the redistribution of unspent 

FY1998 and FY1999 original allotments. Under BIPA, states that 

did not use all of their original allotments for the year were permitted to use up to 10 percent of their retained FY1998 funds for 

outreach activities. This allowance is over and above spending for 

such activities under the general administrative cap, described 

above. 

Senate Bill 

The Senate bill would allow states to use up to 10 percent of 

their FY2006 and FY2007 original allotments for expenditures on 

outreach activities incurred during FY2006 and FY2007 respectively. This allowance would be over and above spending for such 

activities under the general administrative cap described under 

current law. Outreach activities would include: (1) activities to promote the coordination of the administration of SCHIP with other 

public and private health insurance programs; and (2) strategies to 

market the program to the target population and to simplify and 


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expedite the eligibility determination and enrollment process. This 

provision would be effective upon enactment of this Act. 

House Bill 

No provision. 

Conference Agreement 

The conference agreement does not include this provision. 

Grants to Promote Innovative Outreach and Enrollment Under 

Medicaid and SCHIP (No provision in the Conference Agreement, Section 6055 of the Senate Bill, and no provision in the 

House Bill) 

Current Law 

The federal and state governments share in the costs of both 

Medicaid and SCHIP, based on formulas defining the federal contribution in federal law. States are responsible for the nonfederal 

share, using state tax revenues, for example, but can also use local 

government funds to comprise a portion of the non-federal share. 

Generally, the non-federal share of costs under Medicaid and 

SCHIP cannot be comprised of other federal funds. 

Under Medicaid, there are no caps on administrative expenses 

that may be claimed for federal matching dollars. Title XXI specifies that federal SCHIP funds can be used for SCHIP health insurance coverage, called child health assistance that meets certain requirements. Apart from these benefit payments, SCHIP payments 

for four other specific health care activities can be made, including: 

(1) other child health assistance for targeted low-income children; 

(2) health services initiatives to improve the health of SCHIP children and other low-income children; (3) outreach activities; and (4) 

other reasonable administrative costs. For a given fiscal year, payments for other specific health care activities cannot exceed 10 percent of the total amount of expenditures for SCHIP benefits and 

other specific health care activities combined. 

Senate Bill 

The Senate bill would establish a new grant program under 

SCHIP to (1) finance outreach and enrollment efforts to increase 

participation of eligible children in both SCHIP and Medicaid, and 

(2) promote understanding of the importance of health insurance 

coverage for prenatal care and children. The Secretary would be 

permitted to reserve a portion of the grant funds for the purpose 

of awarding performance bonuses to eligible entities (defined below) 

that meet enrollment goals or other criteria established by the Secretary. 

In awarding grants, the Secretary would be required to give 

priority to: (1) entities that propose to target geographic areas with 

high rates of eligible but not enrolled children, or racial and ethnic 

minorities and health disparity populations, and (2) entities targeting the same populations that are federal health safety net organizations (defined below) or faith-based organizations or consortia. 

Of the funds appropriated for this grant program (see below), 10 

percent would be set aside for grants to certain Indian health care 


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providers for outreach and enrollment of Indian children. These Indian health care providers would include the Indian Health Service 

(IHS) and Urban Indian Organization (UIO) providers that receive 

funds under Title V of the Indian Health Care Improvement Act. 

The Senate bill would require entities seeking a grant to submit an application to the Secretary containing information on the 

quality and outcome performance measures to be used to evaluate 

the effectiveness of grant activities to ensure that these activities 

are meeting their goals. In addition, the application must provide 

assurances that the entity would: (1) conduct an assessment of the 

effectiveness using such performance measures, and (2) collect and 

report enrollment data and other information from these assessments to the Secretary in a form and manner as required by the 

Secretary. 

The Senate bill would require the Secretary to disseminate to 

eligible entities and make publicly available the enrollment data 

and information collected and reported by grantees. The Secretary 

would also be required to submit an annual report to Congress on 

the funded outreach activities. 

The Senate bill would require that federal funds awarded 

under this new grant be used to supplement, not supplant, non-federal funds that are otherwise available for these grant activities. 

Specific definitions would be applicable to the new grant program. Five types of entities would be eligible to receive these 

grants, including: (1) state or local governments, (2) federal health 

safety net organizations, (3) national, local or community-based 

public or nonprofit private organizations, (4) faith-based organizations or consortia, to the extent that a grant awarded to such an 

entity is consistent with the requirements of Section 1955 of the 

Public Health Service Act (relating to grant awards to non-governmental entities), and (5) elementary or secondary schools. Federal 

health safety net organizations include a number of different types 

of entities, including for example: (1) Indian tribes, tribal organizations, UIOs and IHS providers, (2) federally qualified health centers, (3) hospitals that receive disproportionate share hospital 

(DSH) payments, (4) entities described in Section 340B(a)(4) of the 

Public Health Service Act (e.g., certain family planning projects, 

certain grantees providing early intervention services for HIV disease, certain comprehensive hemophilia diagnostic treatment centers, and certain Native Hawaiian health centers), and (5) any 

other entity that serves children under a federally-funded program, 

including the Special Supplemental Nutrition Program for Women, 

Infants and Children (WIC), Head Start programs, school lunch 

programs, and elementary or secondary schools. 

The Senate bill would appropriate $25 million for fiscal year 

2007 for these grants. These grants would be in addition to existing 

SCHIP appropriations, and would not be subject to restrictions on 

expenditures for outreach activities under current law. 

These provisions would be effective with the FY2007 appropriation for this new grant program. 

House Bill 

No provision. 


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Conference Agreement 

The conference agreement does not include this provision. 

Subtitle C—Katrina Relief 

Additional Federal Payments Under Hurricane-Related Multi-State 

Section 1115 Demonstrations (Section 6201 of the Conference 

Agreement, Sections 6032 and 6071 of the Senate Bill, and 

Sections 3100 and 3201 of the House Bill) 

Current Law 

The federal medical assistance percentage (FMAP) is the rate 

at which states are reimbursed for most Medicaid service expenditures. It is based on a formula that provides higher reimbursement 

to states with lower per capita incomes relative to the national average (and vice versa); it has a statutory minimum of 50 percent 

and maximum of 83 percent. An enhanced FMAP is available for 

both services and administration under SCHIP, subject to the 

availability of funds from a state’s SCHIP allotment. In order for 

a state to receive federal Medicaid or SCHIP reimbursement, it 

must have in effect a state plan approved by the Secretary of HHS 

that meets requirements set forth in federal statute and regulations. 

Using an application template developed by the Centers for 

Medicare and Medicaid Service within HHS, a number of states (17 

as of December 15, 2005) have been granted waivers under Section 

1115 of the Social Security Act to provide Medicaid and SCHIP 

services to certain individuals affected by Hurricane Katrina (these 

waivers are referred to as being part of a multistate demonstration 

project). For purposes of FMAP reimbursement, Section 1115 waivers are deemed to be part of a state’s Medicaid or SCHIP state plan 

(i.e., its ‘‘regular’’ Medicaid or SCHIP program). 

All of the waivers granted thus far under the Hurricane 

Katrina multi-state Section 1115 demonstration create a temporary 

eligibility period, not to exceed five months, during which certain 

Hurricane Katrina evacuees will be granted access to Medicaid and 

SCHIP services in the host state (i.e., the state that has been 

granted a Section 1115 waiver) based on simplified eligibility criteria. In addition to creating temporary Medicaid or SCHIP eligibility for evacuees, waivers for some states also create an uncompensated care pool that may be used through January 31, 2006, to 

augment Medicaid and SCHIP services for evacuees and to reimburse providers that incur uncompensated care costs for uninsured 

evacuees who do not qualify for Medicaid or SCHIP. 

Disaster declarations were issued in the wake of Hurricane 

Katrina pursuant to the Robert T. Stafford Disaster Relief and 

Emergency Assistance Act, which authorizes the President to issue 

such declarations to speed a wide range of federal aid—including 

individual assistance (e.g., housing for individuals and families) 

and public assistance (e.g., repair of community infrastructure)—to 

states determined to be overwhelmed by hurricanes or other catastrophes. The Federal Emergency Management Agency (FEMA) 

makes the decision as to when a major disaster or emergency is 

‘‘closed out’’ for administrative purposes. 


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Senate Bill 

Under the Senate bill, for items and services furnished during 

the period August 28, 2005 through May 15, 2006, states would receive 100 percent FMAP reimbursement for Medicaid and SCHIP 

assistance provided to individuals who resided during the week 

preceding Hurricane Katrina in one of the parishes of Louisiana or 

counties of Mississippi and Alabama specified in the bill. Costs directly attributable to related administrative activities would also be 

reimbursed at 100 percent. 

A separate provision would allow the state of Louisiana, Mississippi, or Alabama to elect to not have the Medicaid subtitle of 

the bill apply with respect to the state during any period for which 

a major disaster declared in accordance with the Stafford Act with 

respect to a parish (in the case of Louisiana) or a county (in the 

case of Mississippi or Alabama) as a result of Hurricane Katrina 

is in effect. 

House Bill 

Under the House bill, for items and services furnished during 

the period August 28, 2005 through May 15, 2006, states would receive 100 percent FMAP reimbursement for Medicaid and SCHIP 

assistance provided to: (1) any individual residing in a parish of 

Louisiana, a county of Mississippi, or a major disaster county of 

Alabama and (2) individuals who resided during the week preceding Hurricane Katrina in a parish or county for which a major 

disaster has been declared as a result of the hurricane and for 

which the President has determined, as of September 14, 2005, 

warrants individual assistance under the Stafford Act. Costs directly attributable to related administrative activities would also be 

reimbursed at 100 percent. 

A separate provision would allow the Medicaid subtitle of the 

bill to not apply during the 11-month period beginning September 

1, 2005, to individuals entitled to Medicaid assistance by reason of 

their residence in a parish of Louisiana or a county of Mississippi 

or Alabama for which a major disaster has been declared as a result of Hurricane Katrina and for which the President has determined, before September 14, 2005, warrants individual and public 

assistance under the Stafford Act. 

Conference Agreement 

The conference agreement appropriates $2 billion (in addition 

to any funds made available for the National Disaster Medical System under the Department of Homeland Security for health care 

costs related to Hurricane Katrina) for use by the Secretary of 

HHS to pay eligible states (those who have provided care to affected individuals or evacuees under a Section 1115 project) for the 

following purposes: • the non-federal share of expenditures for health care provided to affected individuals (those who reside in a major disaster 

area declared as a result of Hurricane Katrina and continue to reside in the same state) and evacuees (affected individuals who have 

been displaced to another state) under approved multi-state Section 

1115 demonstration projects; 

• reasonable administrative costs related to such projects; 


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• the non-federal share of expenditures for medical care provided to individuals under existing Medicaid and SCHIP state 

plans; and 

• other purposes, if approved by the Secretary, to restore access to health care in impacted communities. 

The non-federal share paid to eligible states shall not be regarded as federal funds for purposes of Medicaid matching requirements. No payment obligations may be incurred under approved 

multi-state Section 1115 projects for costs of: (1) health care provided as Medicaid or SCHIP medical assistance incurred after June 

30, 2006 and (2) uncompensated care or services and supplies beyond those included as Medicaid or SCHIP medical assistance incurred after January 31, 2006. 

State High Risk Health Insurance Pool Funding (Section 6202 of 

the Conference Agreement, no provision in the Senate Bill, and 

Section 3202 of the House Bill) 

Current Law 

A majority of states have established high-risk health insurance pool programs as one approach to reduce the number of uninsured persons. These programs target individuals who cannot obtain or afford health insurance in the private health insurance 

market, primarily because of pre-existing health conditions. Many 

states also use their high-risk pools to provide access to health insurance to individuals eligible under the guaranteed issue and 

portability provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA, P.L. 104–191). In general, highrisk pools are operated through state-established nonprofit organizations that contract with private insurance companies to collect 

premiums, administer benefits, and pay claims. These programs 

tend to be small and enroll a small percentage of the uninsured. 

As of December 2004, 33 states operate high risk health insurance 

pool programs. Authorizing legislation for federal funding of these 

pools expired September 30, 2005. 

Senate Bill 

No provision. 

House Bill 

The House bill would amend the Public Health Service Act to 

reauthorize federal funding for state high risk health insurance 

pools. For FY2006, it would provide $90 million in appropriations 

for grants to states to be used to cover up to 50 percent of operating expenses of existing state high risk pools. 

Conference Agreement 

The conference agreement would appropriate, for FY2006, $75 

million for the losses incurred by a State in connection with the operation of their qualified high risk pool. There is also $15 million 

in FY2006 appropriated to fund seed grants to States to create, and 

initially fund, a high risk pool. This funding will also apply upon 

the enactment of the State High Risk Pool Funding Extension Act 

of 2005. 


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Recomputation of HPSA, MUA, and MUP Designations Within 

Hurricane Katrina Affected Areas (No provision in the Conference Agreement, no provision in the Senate Bill, and Section 

3203 of the House Bill) 

Current Law 

The Public Health Service Act provides for the designation of 

areas underserved by healthcare personnel, providing federal loans, 

scholarships and grants to improve the distribution of health care 

workers. The program is authorized through 2006. 

Senate Bill 

No provision. 

House Bill 

The House bill would direct the Secretary of HHS to review all 

such shortage designations in Hurricane Katrina declared disaster 

areas (pursuant to the Stafford Act), considering potential new 

shortages of health care workers. 

Conference Agreement 

No provision. 

Waiver of Certain Requirements Applicable to the Provision of 

Health Care in Areas Impacted by Hurricane Katrina (No provision in the Conference Agreement, no provision in the Senate 

Bill, and Section 3204 of the House Bill) 

Current Law 

The Public Health Service Act establishes requirements for 

federally qualified health centers and personnel in the National 

Health Service Corps. Programs are authorized through 2006. 

Senate Bill 

No provision. 

House Bill 

The House bill would direct the Secretary of HHS to relax certain requirements for the conduct of federally qualified health centers, and National Health Service Corps personnel staffing them, 

in areas directly affected by Hurricane Katrina, or indirectly affected by hosting large numbers of evacuees. 

Conference Agreement 

No provision. 

House Bill 

Section 7001 temporarily increases the vessel tonnage fees 

paid by vessels arriving in the United States. Specifically, section 

7001 increases the vessel tonnage fees paid by vessels arriving in 

the U.S. from a place in North America, Central America, the West 

India Islands, the Bahama Islands, and Newfoundland, and by certain vessels returning from a ‘‘voyage to nowhere.’’ The fees are increased from 2 cents per ton, not to exceed 10 cents per ton in a 


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single year, to 4.5 cents per ton, not to exceed 22.5 cents per ton 

in a single year. In addition, section 7001 increases the vessel tonnage fees paid by vessels arriving from a foreign port anywhere 

else in the world from 6 cents per ton, not to exceed to 30 cents 

per ton, to 13.5 cents per ton, not to exceed 67.5 cents per ton in 

a single year. These increased rates will be in effect for fiscal years 

2006 through 2010. 

TITLE VII—HOUSE COMMITTEE ON WAYS AND MEANS

TANF—Temporary Assistance for Needy Families (Subtitle A) 

Reauthorization of Grants 

Current Law 

The TANF block grant provides states with funding for a wide 

range of benefits and services to families with children, including 

cash welfare. Basic block grants are funded nationally at $16.5 billion per year. The law also provides supplemental grants to certain 

states funded at $319 million per year; performance bonus funds of 

$200 million per year for meeting program goals and $100 million 

per year for reducing out-of-wedlock pregnancies; contingency funds 

of $2 billion for states experiencing economic downturns; and a 

loan fund. Funding authority for the program expires December 31, 

2005. 

Allows up to 30 percent of TANF block grants to be transferred 

to the Child Care and Development Block Grant (CCDBG) and Social Services Block Grant (SSBG), although limit on transfers to 

SSBG is set at 4.25 percent for FY2006 and later. 

House Passed Bill 

Extends TANF block grant at current level through FY2010 

and TANF supplemental grants at current levels through FY2009. 

Eliminates all bonus funds and the loan fund. (Some of these savings are used to finance grants to promote healthy marriages and 

responsible fatherhood, see below.) Continues a $2 billion contingency fund through FY2010. 

Raises overall transfer authority to 50 percent of the TANF 

block grant, and increases maximum transfer to SSBG to 10 percent (level allowed in the original 1996 welfare law). 

Senate Passed Bill 

No provision. 

Conference Report 

Recede to the House, with the modification that TANF supplemental grants are authorized at their current level for three fiscal 

years (through FY2008). Recede to the Senate with regard to transfer authority. 

Work Participation Requirements 

Current Law 

States are required to make an assessment of the work-readiness of TANF assistance recipients and may establish an IndiVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00361 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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vidual Responsibility plan for them. States are required to sanction 

families with a recipient who does not comply with work. 

Recipients are required to visit their children’s schools twice 

per year. 

Senate Passed Bill 

No provision. 

Conference Report 

Recede to the Senate with respect to self-sufficiency plans, 

sanctions, and the increase in work participation standard to 70 

percent. 

Recede to the House with regard to the caseload reduction 

credit, with the modification that the base year for this credit is 

changed to FY2005, effective October 1, 2006. Adds that families 

receiving assistance under separate state programs are included in 

the calculation of work participation rates; and the Secretary of 

Health and Human Services is to provide additional direction to 

and oversight of states related to activities that may be counted as 

work activities, how to count and verify reported hours of work, 

and determining who is a work-eligible individual, with a new penalty for states that fail to establish and maintain such improved 

work participation verification procedures. 

Recede to the Senate on additional credits for states with large 

past caseload declines, hours of work, partial credits, special allowances or requirements, and changes in list of work activities and 

extent to which such activities may be counted as work. 

Healthy Marriage Promotion Grants 

Current Law 

No special grants. States may use TANF funds for activities to 

promote the formation and maintenance of two-parent families. 

House Passed Bill 

Establishes $100 million per year in matching grants and $100 

million per year in demonstration grants to fund various activities 

to promote healthy marriages. Requires that marriage promotion 

activities be voluntary. Requires that grantees consult with organizations with experts in domestic violence. 

Senate Passed Bill 

No provision. 

Conference Report 

Recede to the House with the modification that the Secretary 

of HHS will award $150 million per fiscal year in healthy marriage 

promotion, responsible fatherhood, and related grants in each of 

FYs 2006–2010. Of this amount, up to $50 million per fiscal year 

may be awarded on a competitive basis for activities promoting responsible fatherhood, and up to $2 million per fiscal year is available for demonstration projects for coordination of child welfare 

and TANF services to tribal families at risk of child abuse or neglect. 


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Conference Report 

Recede to the House with the modification that total child care 

funding will increase by $1 billion above the current level over five 

years, appropriating $2.917 billion in mandatory child care funding 

for each of FYs 2006–2010. 

Child Support Enforcement (Subtitle C) 

Current Law 

The Child Support Enforcement (CSE) program is a federalstate program that provides the following basic services to both 

welfare and nonwelfare families: parent location, review and modification of child support orders, collection of child support payments, establishment of medical child support, and distribution of 

child support payments. The CSE program is funded with both 

state and federal dollars. There are four funding mechanisms. 

First, states spend their own money to operate a CSE program. 

Second, the federal government reimburses each state 66 percent 

for most of its child support enforcement activities or services. The 

federal government reimburses states at a higher 90 percent 

matching rate for paternity determination expenditures. Third, 

states collect child support on behalf of families receiving welfare 

benefits to reimburse themselves (and the federal government) for 

the cost of welfare payments to the family. Fourth, an incentive 

payment is given to states for operating a good program (current 

law requires that states reinvest incentive payments back into the 

CSE program or related activities). 

House Passed Bill 

Revises some child support enforcement collection mechanisms 

and add others. 

Provides financial incentives to states that send more child 

support collected on behalf of families on welfare to the families 

themselves (rather than retain funds as reimbursement for welfare 

costs). The federal government would pay for a share of support 

passed through to welfare families as long as that support did not 

reduce the family’s welfare benefit. Also gives states financing incentives to send to former welfare families more of the child support payments collected on their behalf. 

Includes a provision to gradually reduce (from FY2007– 

FY2010) the federal matching rate for child support administrative 

expenditures from its current 66 percent to 50 percent. Also, prohibits the federal government from matching child support incentive payments reinvested in the CSE program. 

Senate Passed Bill 

No provision. 

Conference Report 

Recede to the House with modifications that revise child support enforcement collection mechanisms, and provide financial incentives to states that pass through more child support to current 

and former TANF families. Recede to the House with respect to 

ending federal matching of state expenditure of federal child supVerDate Aug 31 2005 02:51 Dec 28, 2005 Jkt 025160 PO 00000 Frm 00363 Fmt 6601 Sfmt 6601 E:\HR\OC\HR362.XXX HR362

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port incentive funds, effective in FY 2008. Recede to the Senate 

with regard to reducing the federal administrative matching rate. 

Includes provision changing to 66 percent the federal matching rate 

for laboratory costs incurred in determining paternity, effective October 1, of the Social Security Act and determinations regarding 

foster care placement, termination of parental rights, and recognition of adoptions. Courts can also use these grant funds to implement changes found necessary as a result of the assessments. 

House Passed Bill 

Restates the federal foster care eligibility rules to effectively 

nullify the Rosales decision. Restates adoption assistance eligibility 

to make the same clarification and to simplify the eligibility determination. 

Senate Passed Bill 

No provision. 

Conference Report 

Recede to the House, with the modification to include (1) new 

funds totaling $100 million over the five-year period FY 2006–2010 

for strengthening courts involved in child welfare proceedings, and 

(2) new funds for the Safe and Stable Families program, increasing 

mandatory funding to $345 million in FY 2006 (and thus totaling 

$200 million over the five-year period FY 2006–2010). 

Limit Federal Foster Care Administrative Claims 

Current Law 

States may claim reimbursement for some administrative costs 

related to children who are at ‘‘imminent’’ risk of entering foster 

care. Some states, relying on prior HHS policy guidance, make additional administrative claims for children placed in unlicensed, or 

otherwise federally ineligible placement settings, provided the foster child meets all other federal foster care eligibility criteria. 

House Passed Bill 

Specifies in which cases, and for how long, states may seek reimbursement of foster care administrative costs only on behalf of 

otherwise federally eligible children who are living with unlicensed 

relatives, in another ineligible setting, or who have not yet entered 

foster care. 

Senate Passed Bill 

No provision. 

Conference Report 

Recede to the House. 

Supplemental Security Income (Subtitle E) 

Review of State Agency Blindness and Disability Determinations 

Current Law 

No provision. 


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Conference Report 

Recede to the Senate. 

STATEMENT OF MANAGERS

TITLE VIII—EDUCATION AND PENSION BENEFIT PROVISIONS

With respect to Section 2201(d) of the House amendment, the 

managers on the Part of the House agree to request a study by the 

Government Accountability Office regarding the effect of the premium as provided under Section 4006(a)(7) of ERISA on persons 

who are a contributing sponsor of the plan or a member of such 

sponsor’s controlled group and who has filed or has had filed 

against such person a petition seeking reorganization in a case 

under title 11 of the United States Code, or under any similar law 

of a State or a political subdivision of a State (or a case described 

in section 4041(c)(2)(B)(i) filed by or against such person and report 

the same to the Committees on Education and the Workforce and 

the Committee on the Judiciary within 18 months of enactment of 

this Act. 

STATEMENT OF MANAGERS

LIHEAP PROVISION

The Congress finds the following: 

(1) Hurricanes Katrina and Rita severely disrupted crude oil 

and natural gas production in the Gulf of Mexico. The Energy Information Administration estimates that as a result of these two 

hurricanes, the amount of shut in crude oil production nearly doubled to almost 1,600,000 barrels per day, and the amount of natural gas production shut in also doubled to about 8,000,000,000 

cubic feet per day. The hurricanes also initially shut down most of 

the crude oil refinery capacity in the Gulf of Mexico region. These 

disruptions led to significantly higher prices for crude oil, refined 

oil products, and natural gas expected to continue in the foreseeable future. 

(2) These production and supply disruptions are expected to 

lead to significantly higher heating costs for consumers for the foreseeable future. These significant increases in home heating costs 

this winter and for the foreseeable future will particularly harm 

low-income consumers. The Low-Income Home Energy Assistance 

Program is designed to assist these low-income consumers in this 

situation. Accordingly, Congress seeks a one-time only supplement 

to the Low-Income Home Energy Assistance Program fund to assist 

low-income consumers with the additional home heating expenditures that they will face in the foreseeable future as a result of 

Hurricanes Katrina and Rita. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 9001 Funding Availability 

This section appropriates to the Secretary of Health and 

Human Services for a 1-time only obligation and expenditure 

$250,000,000 for fiscal year 2007 for allocation under section 

2604(a) through (d) and $750,000,000 for allotment of emergency 


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funds under section 2604(e) of the Low-Income Home Energy Assistance Act of 1981 (42 D.S.C. 8623(a) through (e)), for the sole 

purpose of providing assistance to offset the anticipated higher energy costs caused by Hurricane Katrina and Hurricane Rita. 

This section sunsets after September 30, 2007, and no monies 

provided for under this section shall be available after such date. 

P.L. 109–58, the Energy Policy Act of 2005, reauthorized annual regular LIHEAP funds at $5.1 billion per year from FY2005 

to FY2007. The LIHEAP appropriation for FY2005 was $2.182 billion for allocation pursuant to the formula set forth by law. No 

funds were appropriated for allotment of emergency funds. 

For consideration of the Senate bill, and the House amendment thereto, and modifications committed to conference: 

JIM NUSSLE, 

JIM RYUN, 

ANDER CRENSHAW, 

ADAM PUTNAM, 

ROGER F. WICKER, 

KENNY C. HULSHOF, 

PAUL D. RYAN, 

ROY BLUNT, 

TOM DELAY, 

From the Committee on Agriculture, for consideration of 

title I of the Senate bill and title I of the House amendment, and modifications committed to conference: 

BOB GOODLATTE, 

FRANK D. LUCAS, 

From the Committee on Education and the Workforce, for 

consideration of title VII of the Senate bill and title II and 

subtitle C of title III of the House amendment, and modifications committed to conference: 

JOHN BOEHNER, 

HOWARD P. MCKEON, 

From the Committee on Energy and Commerce, for consideration of title III and title VI of the Senate bill and title 

III of the House amendment, and modifications committed 

to conference: 

JOE BARTON, 

NATHAN DEAL, 

From the Committee on Financial Services, for consideration of title II of the Senate bill and title IV of the House 

amendment, and modifications committed to conference: 

MICHAEL G. OXLEY, 

SPENCER BACHUS

(Provided that Mr. Ney is 

appointed in lieu of Mr. 

Bachus for consideration 

of subtitles C and D of 

title II of the Senate bill 

and subtitle B of title IV 

of the House amendment:), 


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From the Committee on the Judiciary, for consideration of 

title VIII of the Senate bill and title V of the House 

amendment, and modifications committed to conference: 

F. JAMES SENSENBRENNER, Jr., 

LAMAR SMITH, From the Committee on Resources, for consideration of 

title IV of the Senate bill and title VI of the House amendment, and modifications committed to conference: 

RICHARD POMBO, JIM GIBBONS, From the Committee on Transportation and Infrastructure, for consideration of title V and division A of the Senate bill and title VII of the House amendment, and modifications committed to conference: 

DON YOUNG, 

FRANK LOBIONDO, 

From the Committee on Ways and Means, for consideration of sections 6039, 6071, and subtitle B of title VI of 

the Senate bill and title VIII of the House amendment, 

and modifications committed to conference: 

WILLIAM THOMAS, WALLY HERGER, Managers on the Part of the House. 

JUDD GREGG, 

PETE DOMENICI, 

CHUCK GRASSLEY, 

MICHAEL B. ENZI, 

WAYNE ALLARD, 

JEFF SESSIONS, 

TED STEVENS, 

RICHARD SHELBY, 

ARLEN SPECTER, 

SAXBY CHAMBLISS, 

MITCH MCCONNELL, 

Managers on the Part of the Senate. 

Æ 


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