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[House Report 107-549]
[From the U.S. Government Publishing Office]

107th Congress                                            Rept. 107-549
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1

======================================================================

 
  MEDICARE MODERNIZATION AND PRESCRIPTION DRUG ACT OF 2002 (TITLE V: 
                     PROVISIONS RELATING TO PART B)

                                _______
                                

                 June 26, 2002.--Ordered to be printed

                                _______
                                

 Mr. Tauzin, from the Committee on Energy and Commerce, submitted the 
                               following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 4986]

    The Committee on Energy and Commerce, to whom was referred 
the bill (H.R. 4986) to amend part B of title XVIII of the 
Social Security Act to improve payments for physicians' 
services and other outpatient services furnished under the 
medicare program, and for other purposes, having considered the 
same, report favorably thereon without amendment and recommend 
that the bill do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     2
Background and Need for Legislation..............................     2
Hearings.........................................................     4
Committee Consideration..........................................     4
Committee Votes..................................................     4
Committee Oversight Findings.....................................    10
Statement of General Performance Goals and Objectives............    10
New Budget Authority, Entitlement Authority, and Tax Expenditures    10
Committee Cost Estimate..........................................    10
Congressional Budget Office Estimate.............................    10
Federal Mandates Statement.......................................    10
Advisory Committee Statement.....................................    10
Constitutional Authority Statement...............................    10
Applicability to Legislative Branch..............................    11
Section-by-Section Analysis of the Legislation...................    11
Changes in Existing Law Made by the Bill, as Reported............    16
Additional Views.................................................    28

                          Purpose and Summary

    The purpose of H.R. 4986 is to ensure that Medicare 
beneficiaries continue to have access to needed medical care. 
This legislation includes an important new benefit and cost-
sharing protection for Medicare beneficiaries, along with 
payment adjustments and improvements for several different 
Medicare providers, including physicians, therapists, ambulance 
operators, and renal dialysis facilities. It also formalizes 
the competitive bidding program that has been successful in 
helping to protect taxpayers from overpaying for certain types 
of medical equipment and supplies.

                  Background and Need for Legislation

    Beneficiary access to high quality medical care continues 
to be of paramount concern to the Committee. Medicare covers 
several preventive benefits under Part B of the program, 
including bone mass measurements, colorectal cancer screening, 
diabetes services and supplies, glaucoma screening, mammogram 
screening, pap test and pelvic examinations, prostate cancer 
screening, and vaccinations. However, Medicare does not 
currently cover a physical examination. H.R. 4986 adds coverage 
of a one-time physical to the list of Medicare-covered 
preventive benefits. Available to all Medicare beneficiaries 
when they enter the program, a one-time physical can help 
detect a number of problems early and avoid costly 
hospitalizations later. Moreover, in combination with the new 
outpatient drug benefit, seniors will be able to prevent a 
number of diseases that can be treated with prescription 
medicines.
    Medicare beneficiaries share some of the costs for health 
care services they receive under the Medicare program. However, 
the financial burden a Medicare beneficiary bears varies 
depending on the service provided. Beneficiaries must pay a 
premium for Part B coverage while also being responsible for 
deductibles, coinsurance, and copayments.
    Beneficiaries pay coinsurance for hospital outpatient 
services under Part B, which varies by service and may exceed 
50 percent. Before implementation of the prospective payment 
system for hospital outpatient services, beneficiary 
coinsurance was generally based on 20 percent of the hospital's 
charges, while the Medicare program based its payments on the 
hospital's costs. Over time, hospitals' charges grew more 
quickly than costs; as a result, the share paid by 
beneficiaries grew to about 50 percent. The Balanced Budget Act 
of 1997 (BBA), P.L. 105-33, provided for a gradual decrease in 
the portion paid by beneficiaries. Under the new payment 
system, coinsurance is set at 20 percent of historical national 
median charges for all services in the group. For all 
ambulatory payment classification (APC) groups with coinsurance 
rates above 20 percent, the dollar amounts are frozen until the 
coinsurance represents 20 percent of total payments. The 
Medicare Payment Advisory Commission (MedPAC) estimated this 
process could take several decades for certain services. The 
Balanced Budget Refinement Act of 1999 (BBRA), P.L. 106-113, 
limited the coinsurance by placing a dollar cap on the 
coinsurance for a given service equal to the inpatient hospital 
deductible. The Benefits Improvement and Protection Act of 2000 
(BIPA), P.L. 106-554, established an additional coinsurance 
reduction policy. H.R. 4986 accelerates the reduction in 
beneficiarycoinsurance payments for hospital outpatient 
services, so that by 2012 the coinsurance rate will be 20 percent for 
such services.
    In addition to beneficiary access and cost-sharing issues, 
the Committee has also examined provider payment adjustments 
and improvements. In February 2002, the Subcommittee on Health 
held a hearing to examine the effect of the 5.4 percent payment 
reduction physicians are experiencing this year. At the 
hearing, witnesses testified about flaws in the sustainable 
growth rate (SGR) formula, which is used to update physician 
payments. H.R. 4986 addresses these flaws in the formula and 
the significant cuts looming in the future, providing relief to 
physicians in the short term and permanently reducing 
instability in payment changes from year-to-year.
    The Committee has also examined the need for payment 
adjustments for ambulance providers and suppliers. Medicare 
covers medically necessary ambulance services, but only when no 
other transportation is appropriate for the beneficiary's 
medical condition and when the provider meets basic vehicle and 
staffing requirements. Prior to April 1, 2002, Medicare paid 
for ambulance services based on the amount providers 
historically charged for their services. This payment system 
led to wide variation in payment rates for the same service, 
depending on where the service was provided. In BBA, Congress 
required that the Centers for Medicare and Medicaid Services 
(CMS) replace the existing ambulance cost- and charge-based 
payment system with a national fee schedule developed through a 
negotiated rulemaking process. This process allowed interested 
parties affected by the ambulance fee schedule to play an 
integral part in developing the proposed rule. The new fee 
schedule will be phased in over 5 years, blending the current 
payment with the new fee schedule rates. H.R. 4986 recognizes 
that some ambulance suppliers and providers in different 
regions across the country have had historically higher 
charges/costs than average, which makes moving to a national 
fee schedule a major adjustment for them. This legislation 
provides relief, easing the current transition with a regional 
blend.
    Following up on a request for reports included in the 
regulatory relief bill passed late last year, the Committee has 
also directed attention to therapy services. Between 1990 and 
1996, Medicare spending for outpatient rehabilitation therapy 
services grew at nearly double the rate of Medicare spending 
overall. At the same time, inadequate program controls failed 
to ensure that this spending growth was warranted. As a result, 
Congress enacted BBA and required Medicare to pay providers on 
the basis of a fee schedule. In fact, therapy providers are now 
paid under the physician fee schedule. The BBA also limited 
coverage beginning in 1999. Specifically, the law provided for 
an annual $1,500 per-beneficiary cap on payments for outpatient 
physical therapy and speech language pathology services 
combined and a separate $1,500 cap on outpatient occupational 
therapy. Application of these caps was delayed in subsequent 
legislation. Currently, the caps are scheduled to go into 
effect beginning in 2003. Rehabilitation therapy providers have 
raised concerns that the limits will arbitrarily curtail 
necessary treatments for Medicare beneficiaries, particularly 
victims of stroke, hip injuries, or multiple medical incidents 
within a single year. These concerns have led to several 
legislative proposals since the enactment of BBA to include 
exceptions to the caps or eliminate them altogether. To ensure 
continued access to therapy services, H.R. 4986 extends the 
current moratorium on the outpatient therapy caps for an 
additional 2 years and calls for an Institute of Medicine study 
identifying conditions or diseases that should justify 
conducting an assessment of the need to waive the therapy caps.

                                Hearings

    The Subcommittee on Health held a hearing on Medicare 
Payment Policy: Ensuring Stability and Access Through Physician 
Payments on February 14, 2002. The Subcommittee received 
testimony from The Honorable Thomas Scully, Administrator, 
Centers for Medicare and Medicaid Services; William J. Scanlon, 
Director, Health Care Issues, U.S. General Accounting Office; 
Theodore Lewers, M.D., Trustee, American Medical Association; 
Allison Shuren, C.P.N.P., C.N.S., J.D., American College of 
Nurse Practitioners; Thomas R. Russell, M.D., F.A.C.S., 
Executive Director, American College of Surgeons; Martha 
McSteen, President, National Committee to Preserve Social 
Security and Medicare; Susan Turney, M.D., F.A.C.P., Board of 
Directors, Medical Group Management Association, Director of 
Reimbursement, Marshfield Clinic.

                        Committee Consideration

    On Friday, June 21, 2002, the Full Committee met in open 
markup session and favorably ordered reported a Committee Print 
on Provisions Relating to Part B by voice vote, as amended, a 
quorum being present. Chairman Tauzin then introduced H.R. 4986 
to reflect the Committee's action.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
following are the record votes taken on the amendments offered 
by the measure, including the names of those members voting for 
and against. A motion by Mr. Tauzin to order H.R. 4986 reported 
to the House, as amended, was agreed to by a voice vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee held an oversight 
hearing and made findings that are reflected in this report.

         Statement of General Performance Goals and Objectives

    The objective of H.R. 4986 is to ensure that Medicare 
beneficiaries continue to have access to needed medical care 
and to improve payment policies for several Medicare providers.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee finds that H.R. 
4986, to amend part B of title XVIII of the Social Security Act 
to improve payments for physicians' services and other 
outpatient services furnished under the Medicare Program, and 
for other purposes, would result in no new or increased budget 
authority, entitlement authority, or tax expenditures or 
revenues.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974, which is 
included in the report to accompany H.R. 4984.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the cost estimate provided by the 
Congressional Budget Office pursuant to section 402 of the 
Congressional Budget Act of 1974 is included in the report to 
accompany H.R. 4984.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act. The estimate is included in the report to accompany H.R. 
4984.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional authority for this legislation is provided in 
Article I, section 8, clause 3, which grants Congress the power 
to regulate commerce with foreign nations, among the several 
States, and with the Indian tribes.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation

                 TITLE V--PROVISIONS RELATING TO PART B

        Subtitle A--Provisions Relating to Physicians' Services

Section 501. Revision of Updates for Physicians' Services

    Section 501 modifies the calculation of the updates for 
2003 through 2005. The 2003 update to the conversion factor is 
set at 2 percent. The calculation of the 2004 and 2005 update 
will be modified in the following manner--the base year for the 
calculation (April 1, 1996) is reset to 2002 (January 1, 2002), 
the allowed expenditures for 2002 are deemed to be equal to 
actual expenditures for services furnished during 2002, and the 
current GDP component is increased to GDP+1. Section 501 
permanently changes the current GDP component of the 
sustainable growth rate formula to a 10-year rolling average of 
GDP. The 10-year rolling average of GDP is to be calculated 
first, to which one percentage point will be added according to 
the special payment rules established in this section. Section 
501 also eliminates budget neutrality adjustments for 2003 
through 2005. It also directs the Comptroller General to 
examine the adequacy of current reimbursements for inhalation 
therapy under the Medicare program. The Comptroller General 
must submit a report on this study to Congress by May 1, 2003.
    In BBRA, Congress stated that the data to be used in 
calculating the sustainable growth rates for a given year and 
the preceding two years must be the best data available to the 
Secretary as of September 1 of the year preceding the year for 
which the calculation is made. Nothing in this section 
supersedes this requirement. This requirement continues to 
apply for the payment periods that are governed by the special 
rules established in this section.
    This section is effective upon enactment.

Section 502. Studies on Access to Physicians' Services

    Section 502 directs the Comptroller General to study 
Medicare beneficiary access to physician services. The study 
will (1) assess beneficiaries' use of physician services, (2) 
examine changes in beneficiaries' use of services over time, 
and (3) examine the extent to which physicians are not 
accepting new Medicare beneficiaries as patients. Within 1 year 
of enactment, the Comptroller General will submit to Congress a 
report regarding this study focusing on whether Medicare claims 
data indicate potential access problems in certain geographic 
areas and whether access to physician services may have 
improved, remained constant, or deteriorated over time. Section 
502 also directs the Secretary to request that the Institute of 
Medicine of the National Academy of Sciences conduct a study on 
the adequacy of the supply of physicians (including 
specialists) in the United States and the factors that affect 
such supply. Within 2 years of enactment, the Secretary must 
submit to Congress a report on the results of this study, 
including any recommendations for legislation.
    This section is effective upon enactment.

Section 503. MedPAC Report on Payment for Physicians' Services

    Section 503 directs the Medicare Payment Advisory 
Commission (MedPAC) to submit a report to Congress within 1 
year of enactment on the effect of refinements to the practice 
expense component of payments for physicians' services in the 
case of services for which there are no physician work relative 
value units. The study should examine this issue as it relates 
to each physician specialty, specifically: (1) the effect of 
such refinements on payment for physicians' services; (2) the 
interaction of the practice expense component with other 
components of and adjustments to payment for physicians' 
services; (3) the appropriateness of the amount of compensation 
by reason of such refinements; (4) the effect of such 
refinements on access to care; and, (5) the effect of such 
refinements on physician participation under the Medicare 
program.
    Nothing in this section should be construed as precluding 
the implementation (by statute or otherwise) of reform of the 
reimbursements for prescription drugs currently covered under 
Part B.
    This section is effective upon enactment.

Section 504. Physician Fee Schedule Wage Index Revision

    Section 504 raises the lower limit or floor of the 
geographic adjustment for wages in 2004 and allows 34 
localities across the country to receive a higher reimbursement 
rate without harming any other localities. It also directs the 
Comptroller General to carefully evaluate the methodology used 
for these types of adjustments, including the economic basis 
for such calculations. The Comptroller General will also look 
at the effect of geographic adjustments on where physicians 
practice and will evaluate recruitment costs and retention 
rates to better understand what it takes to keep physicians in 
underserved areas. The report will include recommendations on 
how to permanently fix this problem for all affected 
physicians.
    This section applies to payment under the physician fee 
schedule for physicians' services furnished during 2004.

                       Subtitle B--Other Services

Section 511. Competitive Acquisition of Certain Items and Services

    Section 511 directs the Secretary to establish competitive 
acquisition areas throughout the United States for certain Part 
B items and services beginning in 2004. This policy, phased in 
evenly over a 3-year period, specifies that certain durable 
medical equipment and off-the-shelf orthotics will be subject 
to competitive bidding practices. The Secretary will have the 
discretion to choose the appropriate codes for competitive 
bidding. Exemptions may be made for areas that are not 
competitive due to low-population density (rural areas) or for 
items and services for which competitive bidding will not 
likely result in significant savings. This policy limits 
beneficiaries' copayments to 20 percent of the contract price 
and ensures that multiple suppliers in each geographic area 
will be maintained. Additionally, quality and customer service 
standards will be created for the items and services subject to 
competition. Section 511 also directs the Secretary to conduct 
a demonstration project of competitive bidding for clinical 
diagnostic laboratories and submit to Congress an initial 
report on the project by December 31, 2004. The Comptroller 
General is directed to undertake a study examining differences 
in laboratory payment rates between public and private payors 
and submit a report on such study within 18 months of 
enactment.
    This section is effective upon enactment.

Section 512. Payment for Ambulance Services

    By January 1, 2003, the Secretary is required to develop 
nine regional fee schedules corresponding to the nine Census 
Divisions. These fee schedules are to be based on the same 
methodology and data used to construct the national fee 
schedule. The regional conversion factor in each regional fee 
schedule will be adjusted in the same way the national 
conversion factor is adjusted--the relative value units will be 
used with each regional conversion factor to create a regional 
base payment rate for each level of service. In addition, the 
same payment adjustments will apply in the regional fee 
schedules, including the rural mileage adjustments. Payments 
under the appropriate regional fee schedule will be blended 
with the payment amount under the national fee schedule within 
the existing fee schedule transition. This blend replaces the 
national fee schedule amount in the current transition. In 
2003, the blended rate will be based on 20 percent of the 
payment under the national fee schedule and 80 percent of the 
payment under the appropriate regional fee schedule. In 2004, 
the blended rate will be based on 40 percent of the national 
fee schedule amount and 60 percent of the regional fee schedule 
amount. In 2005, the blended rate will be based on 60 percent 
of the national fee schedule amount and 40 percent of the 
regional fee schedule amount. In 2006, the blended rate will be 
based on 80 percent of the national fee schedule and 20 percent 
of the regional fee schedule amount. Beginning in 2007, payment 
for ambulance services will be based entirely on the national 
fee schedule. In those cases where a provider would be paid a 
higher amount under the national fee schedule without the 
regional blend, the payment will be entirely based on the 
national fee schedule amount consistent with the current 
transition schedule. Section 512 also increases mileage 
payments for ground ambulance trips above 50 miles. Such 
payments will be increased by at least one-quarter of the 
payment per mile otherwise established under the fee schedule 
for trips on or after January 1, 2003 through December 31, 
2007.
    The Committee recognizes the concerns of low-volume, rural 
ambulance providers and suppliers about the effect the new 
ambulance fee schedule is having on low-volume, rural areas. 
The Committee notes that the Final Rule, issued on February 27, 
2002, clearly states that the Negotiated Rulemaking Committee 
on the Medicare Ambulance Fee Schedule was unable to reach 
agreement on this issue. BIPA required the Comptroller General 
to submit a study to Congress on the cost of efficiently 
providing ambulance services for trips originating in rural 
areas. The Comptroller General was also directed to examine 
ways to identify rural areas with low population density for 
the purpose of designating areas in which the cost of providing 
ambulance services would be expected to be higher. BIPA also 
required the Comptroller General to submit recommendations on 
steps that should be taken to assure access to ambulance 
services in rural areas. The Committee is awaiting the receipt 
of this information from the Comptroller General and will 
examine this information closely to determine if an additional 
adjustment should be made to ensure access to ambulance 
services in low-volume, rural areas.
    This section applies to ambulance services furnished on or 
after January 1, 2003.

Section 513. 2-Year Extension of Moratorium on Therapy Caps; Provisions 
        Relating to Reports

    Section 513 continues the current moratorium on the payment 
limits established per beneficiary for all outpatient therapy 
services provided by non-hospital providers through the end of 
calendar year 2004. It also urges the Secretary to submit 
required therapy reports to Congress by December 31, 2002. 
Section 513 also directs the Secretary to request that the 
Institute of Medicine of the National Academy of Sciences 
identify conditions or diseases that should justify conducting 
an assessment of the need to waive the therapy caps. When 
identifying conditions that would justify such an assessment, 
the Institute of Medicine should include consideration of 
comorbidities and how they may affect the need for therapy. In 
addition, the study should address conditions in which there 
are multiple incidents of need occurring for the same 
beneficiary during one calendar year. The Secretary must submit 
to Congress a preliminary report on the conditions and diseases 
identified by October 1, 2003 and a final report by December 
31, 2003.
    Section 513 also directs the Comptroller General to study 
access to physical therapist services in States that authorize 
such services without a physician referral and in States that 
require such a referral, examining the use of and referral 
patterns for patients age 50 and older, including patients who 
are Medicare beneficiaries. This review should also examine the 
delivery of physical therapists' services within facilities of 
the Department of Defense. In addition, the Comptroller General 
is directed to analyze the potential impact on Medicare 
beneficiaries and on Medicare expenditures of eliminating the 
need for a physician referral. The report will be submitted to 
Congress within 1 year of enactment.
    This section is effective upon enactment.

Section 514. Accelerated Implementation of 20 Percent Coinsurance for 
        Hospital Outpatient Department (OPD) Services; Other OPD 
        Provisions

    Section 514 accelerates the reduction in beneficiary 
coinsurance payments for hospital outpatient services, so that 
by 2012 the coinsurance rate will be 20 percent. This section 
also removes devices used for temperature-monitored 
cryoablation from the list of drugs and devices that are 
eligible for receiving an additional transitional pass-through 
payment.
    This section is effective upon enactment, except the 
provision dealing with temperature monitored cryoablation 
applies to payments for services furnished on or after January 
1, 2003.
    When the hospital outpatient department prospective payment 
system was established, there was significant concern that it 
would delay the availability of new drugs and biologicals in 
the outpatient hospital setting. As a result, this Committee 
and others worked to develop a transitional pass-through system 
to ensure beneficiary access to new technologies as early as 
possible after product introduction. The Committee observes 
that the implementation of the transitional pass-through system 
for new drugs and technologies has been problematic. Members of 
the Committee have communicated concerns about the imposition 
of a pro rata reduction for pass-through products in FY 2002, 
and we have concerns about the treatment of former pass-through 
products in FY 2003.
    In fashioning this legislation, the Committee addressed the 
issue of whether the reimbursement for pharmaceuticals in the 
outpatient prospective payment system fully met the standards 
established in 1833(t) and considered whether the statute 
should be amended to clarify the intent of Congress and to 
ensure adequate access to new drugs and biologicals for 
Medicare beneficiaries.
    Upon examination, the Committee determined that further 
statutory clarification should not be necessary because the 
statute reflects the clear intent of Congress that the payment 
weights in any classification system adopted by the Secretary 
reflect not only acquisition costs of pharmacy products, but 
also fully and explicitly account for both the direct and 
indirect costs of handling, storing and dispensing pharmacy 
therapy. The Committee is concerned that the wide degree of 
cost variation among drugs and biologicals could make it 
impossible to design a packaging system that complies with 
statutory requirements, possibly hindering patient access to 
important therapies. The Committee urges the Secretary to 
implement systems in 2003 that will ensure appropriate 
beneficiary access to needed therapies and new technologies.

Section 515. Coverage of an Initial Preventive Physical Examination

    On or after January 1, 2004, Medicare will cover an initial 
preventive physical examination for individuals whose coverage 
period begins on or after such date (and within 6 months of the 
date the individual's coverage period first begins). An initial 
preventive physical examination is defined as physician 
services consisting of a physical examination that promotes 
health and disease detection, as well as items and services 
that the Secretary may specify in regulation.
    This section applies to services furnished on or after 
January 1, 2004.

Section 516. Renal Dialysis Services

    Section 516 directs the Comptroller General to study and 
report back to Congress within 1 year of enactment on the 
differences in costsbetween home and in-facility dialysis 
(including overhead costs) and evaluate whether the charges for home 
dialysis supplies and equipment are reasonable and necessary. This 
section also exempts pediatric dialysis facilities (at least 50 percent 
of the facilities' patients are individuals under 18 years of age) from 
the rule limiting reimbursement to the composite rate. Section 516 also 
increases the composite rate for in-facility dialysis furnished in 2004 
by 1.2 percent.
    This section is effective upon enactment.

Section 517. Improved Payment for Certain Mammography Services

    Section 517 excludes both screening and diagnostic 
mammography from the hospital outpatient prospective payment 
system and directs the Secretary to determine a new 
reimbursement rate for diagnostic mammography based on the most 
current cost data available.
    This section applies to mammography performed on or after 
January 1, 2004.
    Cardiac rehabilitation includes medical evaluation, 
prescribed exercise, cardiac risk factor modification, 
education, counseling, and behavioral interventions. There is 
no specific Medicare benefit category for cardiac 
rehabilitation programs; rather, they are covered as services 
furnished incident to a physician's professional service and 
have been covered by Medicare as an ``incident to'' service 
since the 1980s. To be covered by Medicare, ``incident to'' 
services must be ``reasonable and necessary'' and provided 
under a physician's direct supervision.
    Section 35-25 of the Medicare Coverage Issues Manual 
defines direct supervision for cardiac rehabilitation as 
requiring a physician to be

        in the exercise program area and immediately available 
        and accessible for an emergency at all times the 
        exercise program is conducted. It does not require that 
        a physician be physically present in the exercise room 
        itself.

    The Committee believes that direct physician supervision, 
which has been required for Medicare coverage of cardiac 
rehabilitation since the 1980s, is the correct level of 
supervision for cardiac rehabilitation services that are 
currently covered by Medicare, i.e., those services furnished 
to patients who (1) have a documented diagnosis of acute 
myocardial infarction within the preceding 12 months; (2) have 
had coronary bypass surgery; or, (3) have stable angina 
pectoris.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                          SOCIAL SECURITY ACT

           *       *       *       *       *       *       *

        TITLE XVIII--HEALTH INSURANCE FOR THE AGED AND DISABLED

           *       *       *       *       *       *       *

   Part B--Supplementary Medical Insurance Benefits for the Aged and 
                               Disabled

           *       *       *       *       *       *       *

                          PAYMENT OF BENEFITS

  Sec. 1833. (a) * * *

           *       *       *       *       *       *       *

  (g)(1) * * *

           *       *       *       *       *       *       *

  (4) This subsection shall not apply to expenses incurred with 
respect to services furnished during 2000, 2001, [and 2002] 
2002, 2003, and 2004.

           *       *       *       *       *       *       *

  (t) Prospective Payment System for Hospital Outpatient 
Department Services.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Transitional pass-through for additional costs of 
        innovative medical devices, drugs, and biologicals.--
                  (A) In general.--The Secretary shall provide 
                for an additional payment under this paragraph 
                for any of the following that are provided as 
                part of a covered OPD service (or group of 
                services):
                          (i) * * *
                          (ii) Current cancer therapy drugs and 
                        biologicals and brachytherapy.--A drug 
                        or biological that is used in cancer 
                        therapy, including (but not limited to) 
                        a chemotherapeutic agent, an 
                        antiemetic, a hematopoietic growth 
                        factor, a colony stimulating factor, a 
                        biological response modifier, a 
                        bisphosphonate, and a device of 
                        brachytherapy [or temperature monitored 
                        cryoablation], if payment for such 
                        drug, biological, or device as an 
                        outpatient hospital service under this 
                        part was being made on such first date.

           *       *       *       *       *       *       *

          (8) Copayment amount.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Limitation on copayment amount.--
                          (i) * * *
                          (ii) To specified percentage.--The 
                        Secretary shall reduce the national 
                        unadjusted copayment amount for a 
                        covered OPD service (or group of such 
                        services) furnished in a year in a 
                        manner so that the effective copayment 
                        rate (determined on a national 
                        unadjusted basis) for that service in 
                        the year does not exceed the following 
                        percentage:
                                  (I) * * *

           *       *       *       *       *       *       *

                                  [(III) For procedures 
                                performed in 2004, 50 percent.
                                  [(IV) For procedures 
                                performed in 2005, 45 percent.
                                  [(V) For procedures performed 
                                in 2006 and thereafter, 40 
                                percent.]
                                  (III) For procedures 
                                performed in 2004, 45 percent.
                                  (IV) For procedures performed 
                                in 2005, 40 percent.
                                  (V) For procedures performed 
                                in 2006, 2007, 2008 and 2009, 
                                35 percent.
                                  (VI) For procedures performed 
                                in 2010, 30 percent.
                                  (VII) For procedures 
                                performed in 2011, 25 percent.
                                  (VIII) For procedures 
                                performed in 2012 and 
                                thereafter, 20 percent.

           *       *       *       *       *       *       *

        SPECIAL PAYMENT RULES FOR PARTICULAR ITEMS AND SERVICES

  Sec. 1834. (a) * * *

           *       *       *       *       *       *       *

  (l) Establishment of Fee Schedule for Ambulance Services.--
          (1) * * *
          (2) Considerations.--In establishing such fee 
        schedule, the Secretary shall--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) phase in the application of the payment 
                rates under the fee schedule in an efficient 
                and fair manner consistent with paragraph (10), 
                except that such phase-in shall provide for 
                full payment of any national mileage rate for 
                ambulance services provided by suppliers that 
                are paid by carriers in any of the 50 States 
                where payment by a carrier for such services 
                for all such suppliers in such State did not, 
                prior to the implementation of the fee 
                schedule, include a separate amount for all 
                mileage within the county from which the 
                beneficiary is transported.

           *       *       *       *       *       *       *

          [(8)] (9) Transitional assistance for rural 
        providers.--In the case of ground ambulance services 
        furnished on or after July 1, 2001, and before January 
        1, 2004, for which the transportation originates in a 
        rural area (as defined in section 1886(d)(2)(D)) or in 
        a rural census tract of a metropolitan statistical area 
        (as determined under the most recent modification of 
        the Goldsmith Modification, originally published in the 
        Federal Register on February 27, 1992 (57 Fed. Reg. 
        6725)), the fee schedule established under this 
        subsection shall provide that, with respect to the 
        payment rate for mileage for a trip above 17 miles, and 
        up to 50 miles, the rate otherwise established shall be 
        increased by not less than \1/2\ of the additional 
        payment per mile established for the first 17 miles of 
        such a trip originating in a rural area.
          (10) Phase-in providing floor using blend of fee 
        schedule and regional fee schedules.--In carrying out 
        the phase-in under paragraph (2)(E) for each level of 
        service furnished in a year before January 1, 2007, the 
        portion of the payment amount that is based on the fee 
        schedule shall not be less than the following blended 
        rate of the fee schedule under paragraph (1) and of a 
        regional fee schedule for the region involved:
                  (A) For 2003, the blended rate shall be based 
                20 percent on the fee schedule under paragraph 
                (1) and 80 percent on the regional fee 
                schedule.
                  (B) For 2004, the blended rate shall be based 
                40 percent on the fee schedule under paragraph 
                (1) and 60 percent on the regional fee 
                schedule.
                  (C) For 2005, the blended rate shall be based 
                60 percent on the fee schedule under paragraph 
                (1) and 40 percent on the regional fee 
                schedule.
                  (D) For 2006, the blended rate shall be based 
                80 percent on the fee schedule under paragraph 
                (1) and 20 percent on the regional fee 
                schedule.
        For purposes of this paragraph, the Secretary shall 
        establish a regional fee schedule for each of the 9 
        Census divisions using the methodology (used in 
        establishing the fee schedule under paragraph (1)) to 
        calculate a regional conversion factor and a regional 
        mileage payment rate and using the same payment 
        adjustments and the same relative value units as used 
        in the fee schedule under such paragraph.
          (11) Adjustment in payment for certain long trips.--
        In the case of ground ambulance services furnished on 
        or after January 1, 2003, and before January 1, 2008, 
        regardless of where the transportation originates, the 
        fee schedule established under this subsection shall 
        provide that, with respect to the payment rate for 
        mileage for a trip above 50 miles the per mile rate 
        otherwise established shall be increased by \1/4\ of 
        the payment per mile otherwise applicable to such 
        miles.

           *       *       *       *       *       *       *

[SEC. 1847. DEMONSTRATION PROJECTS FOR COMPETITIVE ACQUISITION OF ITEMS 
                    AND SERVICES.

  [(a) Establishment of Demonstration Project Bidding Areas.--
          [(1) In general.--The Secretary shall implement not 
        more than 5 demonstration projects under which 
        competitive acquisition areas are established for 
        contract award purposes for the furnishing under this 
        part of the items and services described in subsection 
        (d).
          [(2) Project requirements.--Each demonstration 
        project under paragraph (1)--
                  [(A) shall include such group of items and 
                services as the Secretary may prescribe,
                  [(B) shall be conducted in not more than 3 
                competitive acquisition areas, and
                  [(C) shall be operated over a 3-year period.
          [(3) Criteria for establishment of competitive 
        acquisition areas.--Each competitive acquisition area 
        established under a demonstration project implemented 
        under paragraph (1)--
                  [(A) shall be, or shall be within, a 
                metropolitan statistical area (as defined by 
                the Secretary of Commerce), and
                  [(B) shall be chosen based on the 
                availability and accessibility of entities able 
                to furnish items and services, and the probable 
                savings to be realized by the use of 
                competitive bidding in the furnishing of items 
                and services in such area.
  [(b) Awarding of Contracts in Areas.--
          [(1) In general.--The Secretary shall conduct a 
        competition among individuals and entities supplying 
        items and services described in subsection (c) for each 
        competitive acquisition area established under a 
        demonstration project implemented under subsection (a).
          [(2) Conditions for awarding contract.--The Secretary 
        may not award a contract to any entity under the 
        competition conducted pursuant to paragraph (1) to 
        furnish an item or service unless the Secretary finds 
        that the entity meets quality standards specified by 
        the Secretary and that the total amounts to be paid 
        under the contract are expected to be less than the 
        total amounts that would otherwise be paid.
          [(3) Contents of contract.--A contract entered into 
        with an entity under the competition conducted pursuant 
        to paragraph (1) is subject to terms and conditions 
        that the Secretary may specify.
          [(4) Limit on number of contractors.--The Secretary 
        may limit the number of contractors in a competitive 
        acquisition area to the number needed to meet projected 
        demand for items and services covered under the 
        contracts.
  [(c) Expansion of Projects.--
          [(1) Evaluations.--The Secretary shall evaluate the 
        impact of the implementation of the demonstration 
        projects on medicare program payments, access, 
        diversity of product selection, and quality. The 
        Secretary shall make annual reports to the Committees 
        on Ways and Means and Commerce of the House of 
        Representatives and the Committee on Finance of the 
        Senate on the results of the evaluation described in 
        the preceding sentence and a final report not later 
        than 6 months after the termination date specified in 
        subsection (e).
          [(2) Expansion.--If the Secretary determines from the 
        evaluations under paragraph (1) that there is clear 
        evidence that any demonstration project--
                  [(A) results in a decrease in Federal 
                expenditures under this title, and
                  [(B) does not reduce program access, 
                diversity of product selection, and quality 
                under this title,
        the Secretary may expand the project to additional 
        competitive acquisition areas.
  [(d) Services described.--The items and services to which 
this section applies are all items and services covered under 
this part (except for physicians' services as defined in 
section 1861(s)(1)) that the Secretary may specify. At least 
one demonstration project shall include oxygen and oxygen 
equipment.
  [(e) Termination.--Notwithstanding any other provision of 
this section, all projects under this section shall terminate 
not later than December 31, 2002.]

         COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND SERVICES

  Sec. 1847. (a) Establishment of Competitive Acquisition 
Programs.--
          (1) Implementation of programs.--
                  (A) In general.--The Secretary shall 
                establish and implement programs under which 
                competitive acquisition areas are established 
                throughout the United States for contract award 
                purposes for the furnishing under this part of 
                competitively priced items and services 
                (described in paragraph (2)) for which payment 
                is made under this part. Such areas may differ 
                for different items and services.
                  (B) Phased-in implementation.--The programs 
                shall be phased-in among competitive 
                acquisition areas over a period of not longer 
                than 3 years in a manner so that the 
                competition under the programs occurs in--
                          (i) at least \1/3\ of such areas in 
                        2004; and
                          (ii) at least \2/3\ of such areas in 
                        2005.
                  (C) Waiver of certain provisions.--In 
                carrying out the programs, the Secretary may 
                waive such provisions of the Federal 
                Acquisition Regulation as are necessary for the 
                efficient implementation of this section, other 
                than provisions relating to confidentiality of 
                information and such other provisions as the 
                Secretary determines appropriate.
          (2) Items and services described.--The items and 
        services referred to in paragraph (1) are the 
        following:
                  (A) Durable medical equipment and inhalation 
                drugs used in connection with durable medical 
                equipment.--Covered items (as defined in 
                section 1834(a)(13)) for which payment is 
                otherwise made under section 1834(a), other 
                than items used in infusion, and inhalation 
                drugs used in conjunction with durable medical 
                equipment.
                  (B) Off-the-shelf orthotics.--Orthotics 
                (described in section 1861(s)(9)) for which 
                payment is otherwise made under section 1834(h) 
                which require minimal self-adjustment for 
                appropriate use and does not require expertise 
                in trimming, bending, molding, assembling, or 
                customizing to fit to the patient.
          (3) Exemption authority.--In carrying out the 
        programs under this section, the Secretary may exempt--
                  (A) areas that are not competitive due to low 
                population density; and
                  (B) items and services for which the 
                application of competitive acquisition is not 
                likely to result in significant savings.
  (b) Program Requirements.--
          (1) In general.--The Secretary shall conduct a 
        competition among entities supplying items and services 
        described in subsection (a)(2) for each competitive 
        acquisition area in which the program is implemented 
        under subsection (a) with respect to such items and 
        services.
          (2) Conditions for awarding contract.--
                  (A) In general.--The Secretary may not award 
                a contract to any entity under the competition 
                conducted in an competitive acquisition area 
                pursuant to paragraph (1) to furnish such items 
                or services unless the Secretary finds all of 
                the following:
                          (i) The entity meets quality and 
                        financial standards specified by the 
                        Secretary or developed by accreditation 
                        entities or organizations recognized by 
                        the Secretary.
                          (ii) The total amounts to be paid 
                        under the contract (including costs 
                        associated with the administration of 
                        the contract) are expected to be less 
                        than the total amounts that would 
                        otherwise be paid.
                          (iii) Beneficiary access to a choice 
                        of multiple suppliers in the area is 
                        maintained.
                          (iv) Beneficiary liability is limited 
                        to the applicable percentage of 
                        contract award price.
                  (B) Quality standards.--The quality standards 
                specified under subparagraph (A)(i) shall not 
                be less than the quality standards that would 
                otherwise apply if this section did not apply 
                and shall include consumer services standards. 
                The Secretary shall consult with an expert 
                outside advisory panel composed of an 
                appropriate selection of representatives of 
                physicians, practitioners, and suppliers to 
                review (and advise the Secretary concerning) 
                such quality standards.
          (3) Contents of contract.--
                  (A) In general.--A contract entered into with 
                an entity under the competition conducted 
                pursuant to paragraph (1) is subject to terms 
                and conditions that the Secretary may specify.
                  (B) Term of contracts.--The Secretary shall 
                rebid contracts under this section not less 
                often than once every 3 years.
          (4) Limit on number of contractors.--
                  (A) In general.--The Secretary may limit the 
                number of contractors in a competitive 
                acquisition area to the number needed to meet 
                projected demand for items and services covered 
                under the contracts. In awarding contracts, the 
                Secretary shall take into account the ability 
                bidding entities to furnish items or services 
                in sufficient quantities to meet the 
                anticipated needs of beneficiaries for such 
                items or services in the geographic area 
                covered under the contract on a timely basis.
                  (B) Multiple winners.--The Secretary shall 
                award contracts to more than one entity 
                submitting a bid in each area for an item or 
                service.
          (5) Participating contractors.--Payment shall not be 
        made for items and services described in subsection 
        (a)(2) furnished by a contractor and for which 
        competition is conducted under this section unless--
                  (A) the contractor has submitted a bid for 
                such items and services under this section; and
                  (B) the Secretary has awarded a contract to 
                the contractor for such items and services 
                under this section.
          (6) Authority to contract for education, outreach and 
        complaint services.--The Secretary may enter into a 
        contract with an appropriate entity to address 
        complaints from beneficiaries who receive items and 
        services from an entity with a contract under this 
        section and to conduct appropriate education of and 
        outreach to such beneficiaries with respect to the 
        program.
  (c) Annual Reports.--The Secretary shall submit to Congress 
an annual management report on the programs under this section. 
Each such report shall include information on savings, 
reductions in cost-sharing, access to items and services, and 
beneficiary satisfaction.
  (d) Demonstration Project for Clinical Laboratory Services.--
          (1) In general.--The Secretary shall conduct a 
        demonstration project on the application of competitive 
        acquisition under this section to clinical diagnostic 
        laboratory tests--
                  (A) for which payment is otherwise made under 
                section 1833(h) or 1834(d)(1) (relating to 
                colorectal cancer screening tests); and
                  (B) which are furnished without a face-to-
                face encounter between the individual and the 
                hospital or physician ordering the tests.
          (2) Terms and conditions.--Such project shall be 
        under the same conditions as are applicable to items 
        and services described in subsection (a)(2).
          (3) Report.--The Secretary shall submit to Congress--
                  (A) an initial report on the project not 
                later than December 31, 2004; and
                  (B) such progress and final reports on the 
                project after such date as the Secretary 
                determines appropriate.

           *       *       *       *       *       *       *

                    PAYMENT FOR PHYSICIANS' SERVICES

  Sec. 1848. (a) * * *

           *       *       *       *       *       *       *

  (d) Conversion Factors.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Update for years beginning with 2001.--
                  (A) * * *
                  (B) Update adjustment factor.--For purposes 
                of subparagraph (A)(ii), subject to 
                subparagraph (D) and paragraph (6), the 
                ``update adjustment factor'' for a year is 
                equal (as estimated by the Secretary) to the 
                sum of the following:
                          (i)  * * *

           *       *       *       *       *       *       *

                  (F) Transitional adjustment designed to 
                provide for budget neutrality.--Under this 
                subparagraph the Secretary shall provide for an 
                adjustment to the update under [subparagraph 
                (A)--
                          [(i) for each of 2001, 2002, 2003, 
                        and 2004, of -0.2 percent; and
                          [(ii) for 2005 of +0.8 percent.] 
                        subparagraph (A), for each of 2001 and 
                        2002, of -0.2 percent.
          (5) Update for 2003.--The update to the single 
        conversion factor established in paragraph (1)(C) for 
        2003 is 2 percent.
          (6) Special rules for update for 2004 and 2005.--The 
        following rules apply in determining the update 
        adjustment factors under paragraph (4)(B) for 2004 and 
        2005:
                  (A) Use of 2002 data in determining allowable 
                costs.--
                          (i) The reference in clause (ii)(I) 
                        of such paragraph to April 1, 1996, is 
                        deemed to be a reference to January 1, 
                        2002.
                          (ii) The allowed expenditures for 
                        2002 is deemed to be equal to the 
                        actual expenditures for physicians' 
                        services furnished during 2002, as 
                        estimated by the Secretary.
                  (B) 1 percentage point increase in gdp under 
                sgr.--The annual average percentage growth in 
                real gross domestic product per capita under 
                subsection (f)(2)(C) for each of 2003, 2004, 
                and 2005 is deemed to be increased by 1 
                percentage point.

           *       *       *       *       *       *       *

  (f) Sustainable Growth Rate.--
          (1) * * *
          (2) Specification of growth rate.--The sustainable 
        growth rate for all physicians' services for a fiscal 
        year (beginning with fiscal year 1998 and ending with 
        fiscal year 2000) and a year beginning with 2000 shall 
        be equal to the product of--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) 1 plus the Secretary's estimate of the 
                [projected] annual average percentage growth in 
                real gross domestic product per capita (divided 
                by 100) [from the previous applicable period to 
                the applicable period involved] during the 10-
                year period ending with the applicable period 
                involved, and

           *       *       *       *       *       *       *

  (j) Definitions.--In this section:
          (1) * * *

           *       *       *       *       *       *       *

          (3) Physicians' services.--The term ``physicians' 
        services'' includes items and services described in 
        paragraphs (1), (2)(A), (2)(D), (2)(G), (2)(P) (with 
        respect to services described in subparagraphs (A) and 
        (C) of section 1861(oo)(2)), (2)(R) (with respect to 
        services described in suparagraphs (B), (C), and (D) of 
        section 1861(pp)(1)), (2)(S), (2)(W), (3), (4), (13), 
        (14) (with respect to services described in section 
        1861(nn)(2)), and (15) of section 1861(s) (other than 
        clinical diagnostic laboratory tests and, except for 
        purposes of subsection (a)(3), (g), and (h) such other 
        items and services as the Secretary may specify).

           *       *       *       *       *       *       *

                    Part D--Miscellaneous Provisions

              DEFINITIONS OF SERVICES, INSTITUTIONS, ETC.

  Sec. 1861. For purposes of this title--

                            Spell of Illness

  (a) * * *

           *       *       *       *       *       *       *

                   Medical and Other Health Services

  (s) The term ``medical and other health services'' means any 
of the following items or services:
          (1) * * *
          (2)(A) * * *

           *       *       *       *       *       *       *

          (U) screening for glaucoma (as defined in subsection 
        (uu)) for individuals determined to be at high risk for 
        glaucoma, individuals with a family history of glaucoma 
        and individuals with diabetes; [and]
          (V) medical nutrition therapy services (as defined in 
        subsection (vv)(1)) in the case of a beneficiary with 
        diabetes or a renal disease who--
                  (i) * * *

           *       *       *       *       *       *       *

                  (iii) meets such other criteria determined by 
                the Secretary after consideration of protocols 
                established by dietitian or nutrition 
                professional organizations; and
                  (W) an initial preventive physical 
                examination (as defined in subsection (ww));

           *       *       *       *       *       *       *

                Initial Preventive Physical Examination

  (ww) The term ``initial preventive physical examination'' 
means physicians' services consisting of a physical examination 
with the goal of health promotion and disease detection and 
includes items and services specified by the Secretary in 
regulations.

        EXCLUSIONS FROM COVERAGE AND MEDICARE AS SECONDARY PAYER

  Sec. 1862. (a) Notwithstanding any other provision of this 
title, no payment may be made under part A or part B for any 
expenses incurred for items or services--
          (1)(A) * * *

           *       *       *       *       *       *       *

          (H) in the case of colorectal cancer screening tests, 
        which are performed more frequently than is covered 
        under section 1834(d), [and]
          (I) the frequency and duration of home health 
        services which are in excess of normative guidelines 
        that the Secretary shall establish by regulation[;], 
        and
          (J) in the case of an initial preventive physical 
        examination, which is performed not later than 6 months 
        after the date the individual's first coverage period 
        begins under part B;

           *       *       *       *       *       *       *

          (7) where such expenses are for routine physical 
        checkups, eyeglasses (other than eyewear described in 
        section 1861(s)(8)) or eye examinations for the purpose 
        of prescribing, fitting, or changing eyeglasses, 
        procedures performed (during the course of any eye 
        examination) to determine the refractive state of the 
        eyes, hearing aids or examinations therefor, or 
        immunizations (except as otherwise allowed under 
        section 1861(s)(10) and subparagraph (B), (F), (G), [or 
        (H)] (H), or (J) of paragraph (1));

           *       *       *       *       *       *       *

         MEDICARE COVERAGE FOR END STAGE RENAL DISEASE PATIENTS

  Sec. 1881. (a) * * *
  (b)(1) * * *

           *       *       *       *       *       *       *

  (7) The Secretary shall provide by regulation for a method 
(or methods) for determining prospectively the amounts of 
payments to be made for dialysis services furnished by 
providers of services and renal dialysis facilities to 
individuals in a facility and to such individuals at home. Such 
method (or methods) shall provide for the prospective 
determination of a rate (or rates) for each mode of care based 
on a single composite weighted formula (which takes into 
account the mix of patients who receive dialysis services at a 
facility or at home and the relative costs of providing such 
services in such settings) for hospital-based facilities and 
such a single composite weighted formula for other renal 
dialysis facilities, or based on such other method or 
combination of methods which differentiate between hospital-
based facilities and other renal dialysis facilities and which 
the Secretary determines, after detailed analysis, will more 
effectively encourage the more efficient delivery of dialysis 
services and will provide greater incentives for increased use 
of home dialysis than through the single composite weighted 
formulas. The amount of a payment made under any method other 
than a method based on a single composite weighted formula may 
not exceed the amount (or, in the case of continuous cycling 
peritoneal dialysis, 130 percent of the amount) of the median 
payment that would have been made under the formula for 
hospital-based facilities. [The Secretary] Subject to section 
422(a)(2) of the Medicare, Medicaid, and SCHIP Benefits 
Improvement and Protection Act of 2000, the Secretary shall 
provide for such exceptions to such methods as may be warranted 
by unusual circumstances (including the special circumstances 
of sole facilities located in isolated, rural areas and of 
pediatric facilities). Each application for such an exception 
shall be deemed to be approved unless the Secretary disapproves 
it by not later than 60 working days after the date the 
application is filed. The Secretary may provide that such 
method will serve in lieu of any target reimbursement rate that 
would otherwise be established under paragraph (6). The 
Secretary shall reduce the amount of each composite rate 
payment under this paragraph for each treatment by 50 cents 
(subject to such adjustments as may be required to reflect 
modes of dialysis other than hemodialysis) and provide for 
payment of such amount to the organizations (designated under 
subsection (c)(1)(A)) for such organizations' necessary and 
proper administrative costs incurred in carrying out the 
responsibilities described in subsection (c)(2). The Secretary 
shall provide that amounts paid under the previous sentence 
shall be distributed to the organizations described in 
subsection (c)(1)(A) to ensure equitable treatment of all such 
network organizations. The Secretary in distributing any such 
payments to network organizations shall take into account--
          (A) * * *

           *       *       *       *       *       *       *

                              ----------                              

 MEDICARE, MEDICAID, AND SCHIP BENEFITS IMPROVEMENT AND PROTECTION ACT 
                            OF 2000 (BIPA)

           *       *       *       *       *       *       *

                TITLE IV--PROVISIONS RELATING TO PART B

           *       *       *       *       *       *       *

                       Subtitle C--Other Services

           *       *       *       *       *       *       *

SEC. 422. UPDATE IN RENAL DIALYSIS COMPOSITE RATE.

  (a) Update.--
          (1) * * *
          (2) Prohibition on exceptions.--
                  (A) In general.--Subject to subparagraphs (B) 
                [and (C)], (C), and (D), the Secretary of 
                Health and Human Services may not provide for 
                an exception under section 1881(b)(7) of the 
                Social Security Act (42 U.S.C. 1395rr(b)(7)) on 
                or after December 31, 2000.
                  (B) Deadline for new applications.--[In the 
                case] Subject to subparagraph (D), in the case 
                of a facility that during 2000 did not file for 
                an exception rate under such section, the 
                facility may submit an application for an 
                exception rate by not later than July 1, 2001.

           *       *       *       *       *       *       *

                  (D) Inapplicability to pediatric 
                facilities.--Subparagraphs (A) and (B) shall 
                not apply, as of October 1, 2002, to pediatric 
                facilities that do not have an exception rate 
                described in subparagraph (C) in effect on such 
                date. For purposes of this subparagraph, the 
                term ``pediatric facility'' means a renal 
                facility at least 50 percent of whose patients 
                are individuals under 18 years of age.

           *       *       *       *       *       *       *

                            ADDITIONAL VIEWS

    We are generally supportive of the provisions included in 
H.R. 4986. We believe, however, that more should be done to 
address the cuts in physician reimbursement under Medicare.
    Flaws in Medicare's physician payment formula have led to 
payment cuts this year, and expected reductions in the next few 
years as well. These payment reductions have deeply affected 
physicians. Some are questioning whether to remain in the 
program; others are reducing the number of Medicare patients 
they see or not accepting new patients. This is troubling 
because physicians are the bedrock of the Medicare program. 
Currently, nearly all physicians across the country participate 
in the Medicare program. They are the providers that 
beneficiaries see most often, providers that seniors often have 
known for years, providers that they trust.
    It is imperative that Congress address the problems with 
the sustainable growth rate formula to eliminate the projected 
reductions in physician payments. We have only to look to the 
Medicaid program, which has a long standing history of 
inadequate payment rates, to see how dramatically this can 
affect beneficiaries access to care. Continued cuts to 
physician payments threaten the continued viability of fee-for-
service Medicare.
    This bill does a curious thing in this regard. It addresses 
the problem of physician payments--but only for the next three 
years--through 2005. The next year, doctors will face a 
significant reduction in payments--as much as 18%--due to the 
formula, which will mean cuts stretched out over a number of 
years. Coincidentally, this is right at the time that the 
Republican ``privatization'' plan is set to begin.
    If physicians are troubled now and are re-evaluating their 
participation in Medicare after a 5.4% cut--imagine the 
situation when they are facing an 18% cut. We will see doctors 
dropping out of the Medicare program and seniors left with no 
choice but to enroll in private plans.
    Therefore, we believe that a permanent solution is required 
to ensure that physician payments are stable for years to come. 
Some will say that the provision in the bill is just a 
temporary fix so that we have time to examine the problem and 
find a better solution. Democrats, however, believe that our 
first goal should be to shore up the fee-for-service program 
and ensure that providers that seniors depend on are not facing 
uncertainty in payments.
    Democrats believe that the fee-for-service program is worth 
investing in so it can continue to provide the same dependable 
quality health care that seniors have counted on for more than 
35 years.
                                   John D. Dingell.
                                   Sherrod Brown.
                                   Henry A. Waxman.
                                   Rick Boucher.
                                   Edolphus Towns.
                                   Gene Green.
                                   Frank Pallone, Jr.
                                   Mike Doyle.
                                   Karen McCarthy.
                                   Tom Barrett.
                                   Chris John.
                                   Bobby L. Rush.
                                   Ted Strickland.
                                   Anna G. Eshoo.
                                   Lois Capps.
                                   Peter Deutsch.
                                   Eliot L. Engel.
                                   Bart Stupak.
                                   Tom Sawyer.
                                   Diana DeGette.
                                   Bart Gordon.

                                  
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