(b) RULEMAKING
FOR EXCEPTION
FOR HEALTH
CENTER ENTITY ARRANGEMENTS.—
(1) ESTABLISHMENT.—
(A) 
IN
GENERAL.—The 
Secretary 
of
Health and Human Services (in this subsection
referred to as the ‘‘Secretary’’) shall establish,
on an expedited basis, standards relating to the
exception described in section 1128B(b)(3)(H)
of the Social Security Act, as added by sub-
section (a), for health center entity arrange-
ments to the antikickback penalties.
(B) FACTORS
TO
CONSIDER.—The Sec-
retary shall consider the following factors,
among others, in establishing standards relating
to the exception for health center entity ar-
rangements under subparagraph (A):
(i) Whether the arrangement between
the health center entity and the other
party results in savings of Federal grant
funds or increased revenues to the health
center entity.
(ii) Whether the arrangement between
the health center entity and the other
party restricts or limits a patient’s freedom
of choice.
(iii) Whether the arrangement be-
tween the health center entity and the
other party protects a health care profes-
sional’s independent medical judgment re-
garding medically appropriate treatment.
The Secretary may also include other standards
and criteria that are consistent with the intent
of Congress in enacting the exception estab-
lished under this section.
(2) INTERIM
FINAL
EFFECT.—No later than
180 days after the date of enactment of this Act, the
Secretary shall publish a rule in the Federal Reg-
ister consistent with the factors under paragraph
(1)(B). Such rule shall be effective and final imme-
diately on an interim basis, subject to such change
and revision, after public notice and opportunity (for
a period of not more than 60 days) for public com-
ment, as is consistent with this subsection.
SEC. 111. RELIEF FOR CERTAIN NON-TEACHING HOS-
PITALS.
(a) IN GENERAL.—In the case of a non-teaching hos-
pital that meets the condition of subsection (b), in each
of fiscal years 2003, 2004, and 2005 the amount of pay-
ment made to the hospital under section 1886(d) of the
Social Security Act for discharges occurring during such
fiscal year only shall be increased as though the applicable
percentage increase (otherwise applicable to discharges oc-
curring 
during 
such 
fiscal 
year 
under 
section
1886(b)(3)(B)(i) of the Social Security Act (42 U.S.C.
1395ww(b)(3)(B)(i)) had been increased by 5 percentage
points. The previous sentence shall be applied for each
such fiscal year separately without regard to its applica-
tion in a previous fiscal year and shall not affect payment
for discharges for any hospital occurring during a fiscal
year after fiscal year 2005.
(b) CONDITION.—A non-teaching hospital meets the
condition of this subsection if—
(1) it is located in a rural area and the amount
of the aggregate payments under subsection (d) of
section 1886 of the Social Security Act for hospitals
located in rural areas in the State for their cost re-
porting periods beginning during fiscal year 1999 is
less than the aggregate allowable operating costs of
inpatient hospital services (as defined in subsection
(a)(4) of such section) for all subsection (d) hos-
pitals in such areas in such State with respect to
such cost reporting periods; or
(2) it is located in an urban area and the
amount of the aggregate payments under subsection
(d) of such section for hospitals located in urban
areas in the State for their cost reporting periods
beginning during fiscal year 1999 is less than 103
percent of the aggregate allowable operating costs of
inpatient hospital services (as defined in subsection
(a)(4) of such section) for all subsection (d) hos-
pitals in such areas in such State with respect to
such cost reporting periods.
The amounts under paragraphs (1) and (2) shall be deter-
mined by the Secretary of Health and Human Services
based on data of the Medicare Payment Advisory Commis-
sion.
(c) DEFINITIONS.—For purposes of this section:
(1) 
NON-TEACHING
HOSPITAL.—The 
term
‘‘non-teaching hospital’’ means, for a cost reporting
period, a subsection (d) hospital (as defined in sub-
section (d)(1)(B) of section 1886 of the Social Secu-
rity Act, 42 U.S.C. 1395ww)) that is not receiving
any additional payment under subsection (d)(5)(B)
of such section or a payment under subsection (h)
of such section for discharges occurring during the
period. A subsection (d) hospital that receives addi-
tional payments under subsection (d)(5)(B) or (h) of
such section shall, for purposes of this section, also
be treated as a non-teaching hospital unless a chair-
man of a department in the medical school with
which the hospital is affiliated is serving or has been
appointed as a clinical chief of service in the hos-
pital.
(2) RURAL; URBAN.—The terms ‘‘rural’’ and
‘‘urban’’ have the meanings given such terms for
purposes of section 1886(d) of the Social Security
Act (42 U.S.C. 1395ww(d)).
TITLE II—PROVISIONS
RELATING TO PART A
Subtitle A—Inpatient Hospital
Services
SEC. 201. REVISION OF ACUTE CARE HOSPITAL PAYMENT
UPDATES.
Subclause (XVIII) of section 1886(b)(3)(B)(i) (42
U.S.C. 1395ww(b)(3)(B)(i)) is amended to read as fol-
lows:
‘‘(XVIII) for fiscal year 2003, the market bas-
ket percentage increase for sole community hospitals
and such increase minus 0.25 percentage points for
other hospitals, and’’.
SEC. 202. 2-YEAR INCREASE IN LEVEL OF ADJUSTMENT FOR
INDIRECT COSTS OF MEDICAL EDUCATION
(IME).
Section 
1886(d)(5)(B)(ii) 
(42 
U.S.C.
1395ww(d)(5)(B)(ii)) is amended—
(1) in subclause (VI) by striking ‘‘and’’ at the
end;
(2) by redesignating subclause (VII) as sub-
clause (IX);
(3) in subclause (IX) as so redesignated, by
striking ‘‘2002’’ and inserting ‘‘2004’’; and
(4) by inserting after subclause (VI) the fol-
lowing new subclause:
‘‘(VII) during fiscal year 2003, ‘c’ is equal
to 1.47;
‘‘(VIII) during fiscal year 2004, ‘c’ is
equal to 1.45; and’’.
SEC. 203. RECOGNITION OF NEW MEDICAL TECHNOLOGIES
UNDER INPATIENT HOSPITAL PPS.
(a) IMPROVING TIMELINESS
OF DATA COLLEC-
TION.—Section 
1886(d)(5)(K) 
(42 
U.S.C.
1395ww(d)(5)(K)) is amended by adding at the end the
following new clause:
‘‘(vii) Under the mechanism under this subpara-
graph, the Secretary shall provide for the addition of new
diagnosis and procedure codes in April 1 of each year, but
the addition of such codes shall not require the Secretary
to adjust the payment (or diagnosis-related group classi-
fication) under this subsection until the fiscal year that
begins after such date.’’.
(b) ELIGIBILITY STANDARD.—
(1) MINIMUM
PERIOD
FOR
RECOGNITION
OF
NEW
TECHNOLOGIES.—Section 
1886(d)(5)(K)(vi)
(42 U.S.C. 1395ww(d)(5)(K)(vi)) is amended—
(A) by inserting ‘‘(I)’’ after ‘‘(vi)’’; and
(B) by adding at the end the following new
subclause:
‘‘(II) Under such criteria, a service or technology
shall not be denied treatment as a new service or tech-
nology on the basis of the period of time in which the serv-
ice or technology has been in use if such period ends before
the end of the 2-to-3-year period that begins on the effec-
tive date of implementation of a code under ICD–9–CM
(or a successor coding methodology) that enables the iden-
tification of a significant sample of specific discharges in
which the service or technology has been used.’’.
(2) ADJUSTMENT
OF
THRESHOLD.—Section
1886(d)(5)(K)(ii)(I) 
(42 
U.S.C.
1395ww(d)(5)(K)(ii)(I)) is amended by inserting
‘‘(applying a threshold specified by the Secretary
that is the lesser of 50 percent of the national aver-
age standardized amount for operating costs of inpa-
tient hospital services for all hospitals and all diag-
nosis-related groups or one standard deviation for
the diagnosis-related group involved)’’ after ‘‘is inad-
equate’’.
(3) CRITERION
FOR
SUBSTANTIAL
IMPROVE-
MENT.—Section 
1886(d)(5)(K)(vi) 
(42 
U.S.C.
1395ww(d)(5)(K)(vi)), as amended by paragraph
(1), is further amended by adding at the end the fol-
lowing subclause:
‘‘(III) The Secretary shall by regulation provide for
further clarification of the criteria applied to determine
whether a new service or technology represents an advance
in medical technology that substantially improves the diag-
nosis or treatment of beneficiaries. Under such criteria,
in determining whether a new service or technology rep-
resents an advance in medical technology that substan-
tially improves the diagnosis or treatment of beneficiaries,
the Secretary shall deem a service or technology as meet-
ing such requirement if the service or technology is a drug
or biological that is designated under section 506 or 526
of the Federal Food, Drug, and Cosmetic Act, approved
under section 314.510 or 601.41 of title 21, Code of Fed-
eral Regulations, or designated for priority review when
the marketing application for such drug or biological was
filed or is a medical device for which an exemption has
been granted under section 520(m) of such Act, or for
which priority review has been provided under section
515(d)(5) of such Act.’’.
(4) PROCESS
FOR
PUBLIC
INPUT.—Section
1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)), as
amended by paragraph (1), is amended—
(A) in clause (i), by adding at the end the
following: ‘‘Such mechanism shall be modified
to meet the requirements of clause (viii).’’; and
(B) by adding at the end the following new
clause:
‘‘(viii) The mechanism established pursuant to clause
(i) shall be adjusted to provide, before publication of a
proposed rule, for public input regarding whether a new
service or technology not described in the second sentence
of clause (vi)(III) represents an advance in medical tech-
nology that substantially improves the diagnosis or treat-
ment of beneficiaries as follows:
‘‘(I) The Secretary shall make public and peri-
odically update a list of all the services and tech-
nologies for which an application for additional pay-
ment under this subparagraph is pending.
‘‘(II) The Secretary shall accept comments, rec-
ommendations, and data from the public regarding
whether the service or technology represents a sub-
stantial improvement.
‘‘(III) The Secretary shall provide for a meeting
at which organizations representing hospitals, physi-
cians, medicare beneficiaries, manufacturers, and
any other interested party may present comments,
recommendations, and data to the clinical staff of
the Centers for Medicare & Medicaid Services before
publication of a notice of proposed rulemaking re-
garding whether service or technology represents a
substantial improvement.’’.
(c) PREFERENCE FOR USE OF DRG ADJUSTMENT.—
Section 1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is
further amended by adding at the end the following new
clause:
‘‘(ix) Before establishing any add-on payment under
this subparagraph with respect to a new technology, the
Secretary shall seek to identify one or more diagnosis-re-
lated groups associated with such technology, based on
similar clinical or anatomical characteristics and the cost
of the technology. Within such groups the Secretary shall
assign an eligible new technology into a diagnosis-related
group where the average costs of care most closely approx-
imate the costs of care of using the new technology. In
such case, no add-on payment under this subparagraph
shall be made with respect to such new technology and
this clause shall not affect the application of paragraph
(4)(C)(iii).’’.
(d) IMPROVEMENT IN PAYMENT FOR NEW TECH-
NOLOGY.—Section 
1886(d)(5)(K)(ii)(III) 
(42 
U.S.C.
1395ww(d)(5)(K)(ii)(III)) is amended by inserting after
‘‘the estimated average cost of such service or technology’’
the following: ‘‘(based on the marginal rate applied to
costs under subparagraph (A))’’.
(e) EFFECTIVE DATE.—
(1) IN GENERAL.—The Secretary shall imple-
ment the amendments made by this section so that
they apply to classification for fiscal years beginning
with fiscal year 2004.
(2) RECONSIDERATIONS OF APPLICATIONS FOR
FISCAL YEAR 2003 THAT ARE DENIED.—In the case
of an application for a classification of a medical
service or technology as a new medical service or
technology under section 1886(d)(5)(K) of the Social
Security Act (42 U.S.C. 1395ww(d)(5)(K)) that was
filed for fiscal year 2003 and that is denied—
(A) the Secretary shall automatically re-
consider the application as an application for
fiscal year 2004 under the amendments made
by this section; and
(B) the maximum time period otherwise
permitted for such classification of the service
or technology shall be extended by 12 months.
SEC. 204. PHASE-IN OF FEDERAL RATE FOR HOSPITALS IN
PUERTO RICO.
Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is
amended—
(1) in subparagraph (A)—
(A) in clause (i), by striking ‘‘for dis-
charges beginning on or after October 1, 1997,
50 percent (and for discharges between October
1, 1987, and September 30, 1997, 75 percent)’’
and inserting ‘‘the applicable Puerto Rico per-
centage (specified in subparagraph (E))’’; and
(B) in clause (ii), by striking ‘‘for dis-
charges beginning in a fiscal year beginning on
or after October 1, 1997, 50 percent (and for
discharges between October 1, 1987, and Sep-
tember 30, 1997, 25 percent)’’ and inserting
‘‘the applicable Federal percentage (specified in
subparagraph (E))’’; and
(2) by adding at the end the following new sub-
paragraph:
‘‘(E) For purposes of subparagraph (A), for dis-
charges occurring—
‘‘(i) between October 1, 1987, and September
30, 1997, the applicable Puerto Rico percentage is
75 percent and the applicable Federal percentage is
25 percent;
‘‘(ii) on or after October 1, 1997, and before
October 1, 2003, the applicable Puerto Rico percent-
age is 50 percent and the applicable Federal per-
centage is 50 percent;
‘‘(iii) during fiscal year 2004, the applicable
Puerto Rico percentage is 45 percent and the appli-
cable Federal percentage is 55 percent;
‘‘(iv) during fiscal year 2005, the applicable
Puerto Rico percentage is 40 percent and the appli-
cable Federal percentage is 60 percent;
‘‘(v) during fiscal year 2006, the applicable
Puerto Rico percentage is 35 percent and the appli-
cable Federal percentage is 65 percent;
‘‘(vi) during fiscal year 2007, the applicable
Puerto Rico percentage is 30 percent and the appli-
cable Federal percentage is 70 percent; and
‘‘(vii) on or after October 1, 2007, the applica-
ble Puerto Rico percentage is 25 percent and the ap-
plicable Federal percentage is 75 percent.’’.
SEC. 205. REFERENCE TO PROVISION RELATING TO EN-
HANCED DISPROPORTIONATE SHARE HOS-
PITAL (DSH) PAYMENTS FOR RURAL HOS-
PITALS AND URBAN HOSPITALS WITH FEWER
THAN 100 BEDS.
For provision enhancing disproportionate share hos-
pital (DSH) treatment for rural hospitals and urban hos-
pitals with fewer than 100 beds, see section 102.
SEC. 206. REFERENCE TO PROVISION RELATING TO 2-YEAR
PHASED-IN INCREASE IN THE STANDARDIZED
AMOUNT 
IN 
RURAL 
AND 
SMALL 
URBAN
AREAS TO ACHIEVE A SINGLE, UNIFORM
STANDARDIZED AMOUNT.
For provision phasing in over a 2-year period an in-
crease in the standardized amount for rural and small
urban areas to achieve a single, uniform, standardized
amount, see section 103.
SEC. 207. REFERENCE TO PROVISION FOR MORE FRE-
QUENT UPDATES IN THE WEIGHTS USED IN
HOSPITAL MARKET BASKET.
For provision providing for more frequent updates in
the weights used in hospital market basket, see section
104.
SEC. 208. REFERENCE TO PROVISION MAKING IMPROVE-
MENTS TO CRITICAL ACCESS HOSPITAL PRO-
GRAM.
For provision providing making improvements to crit-
ical access hospital program, see section 105.
SEC. 209. GAO STUDY ON IMPROVING THE HOSPITAL WAGE
INDEX.
(a) STUDY.—
(1) IN GENERAL.—The Comptroller General of
the United States shall conduct a study on the im-
provements that can be made in the measurement of
regional differences in hospital wages reflected in the
hospital wage index under section 1886(d) of the So-
cial Security Act (42 U.S.C. 1395ww(d)).
(2) EXAMINATION OF USE OF METROPOLITAN
STATISTICAL AREAS (MSAS).—The study shall spe-
cifically examine the use of metropolitan statistical
areas for purposes of computing and applying the
wage index and whether the boundaries of such
areas accurately reflect local labor markets. In addi-
tion, the study shall examine whether regional in-
equities are created as a result of infrequent updates
of such boundaries and policies of the Bureau of the
Census relating to commuting criteria.
(3) WAGE DATA.—The study shall specifically
examine the portions of the hospital cost reports re-
lating to wages, and methods for improving the ac-
curacy of the wage data and for reducing inequities
resulting from differences among hospitals in the re-
porting of wage data.
(b) CONSULTATION WITH OMB.—The Comptroller
General shall consult with the Director of Office of Man-
agement and Budget in conducting the study under sub-
section (a)(2).
(c) REPORT.—Not later than May 1, 2003, the
Comptroller General shall submit to Congress a report on
the study conducted under subsection (a) and shall include
in the report such recommendations as may be appropriate
on—
(1) changes in the definition of labor market
areas used for purposes of the area wage index
under section 1886 of the Social Security Act; and
(2) improvements in methods for the collection
of wage data.
Subtitle B—Skilled Nursing
Facility Services
SEC. 211. PAYMENT FOR COVERED SKILLED NURSING FA-
CILITY SERVICES.
(a) TEMPORARY INCREASE IN NURSING COMPONENT
OF PPS FEDERAL RATE.—Section 312(a) of BIPA is
amended by adding at the end the following new sentence:
‘‘The Secretary of Health and Human Services shall in-
crease by 12, 10, and 8 percent the nursing component
of the case-mix adjusted Federal prospective payment rate
specified in Tables 3 and 4 of the final rule published in
the Federal Register by the Health Care Financing Ad-
ministration on July 31, 2000 (65 Fed. Reg. 46770) and
as subsequently updated under section 1888(e)(4)(E)(ii)
of 
the 
Social 
Security 
Act 
(42 
U.S.C.
1395yy(e)(4)(E)(ii)), effective for services furnished dur-
ing fiscal years 2003, 2004, and 2005, respectively.’’.
(b) ADJUSTMENT
TO
RUGS
FOR
AIDS RESI-
DENTS.—
(1) IN GENERAL.—Paragraph (12) of section
1888(e) (42 U.S.C. 1395yy(e)) is amended to read
as follows:
‘‘(12) ADJUSTMENT
FOR
RESIDENTS
WITH
AIDS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), in the case of a resident of a skilled
nursing facility who is afflicted with acquired
immune deficiency syndrome (AIDS), the per
diem amount of payment otherwise applicable
shall be increased by 128 percent to reflect in-
creased costs associated with such residents.
‘‘(B) SUNSET.—Subparagraph (A) shall
not apply on and after such date as the Sec-
retary certifies that there is an appropriate ad-
justment in the case mix under paragraph
(4)(G)(i) to compensate for the increased costs
associated with residents described in such sub-
paragraph.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to services furnished on
or after October 1, 2003.
Subtitle C—Hospice
SEC. 221. COVERAGE OF HOSPICE CONSULTATION SERV-
ICES.
(a) COVERAGE OF HOSPICE CONSULTATION SERV-
ICES.—Section 
1812(a) 
(42 
U.S.C. 
1395d(a)) 
is
amended—
(1) by striking ‘‘and’’ at the end of paragraph
(3);
(2) by striking the period at the end of para-
graph (4) and inserting ‘‘; and’’; and
(3) by inserting after paragraph (4) the fol-
lowing new paragraph:
‘‘(5) for individuals who are terminally ill, have
not made an election under subsection (d)(1), and
have not previously received services under this
paragraph, services that are furnished by a physi-
cian who is either the medical director or an em-
ployee of a hospice program and that consist of—
‘‘(A) an evaluation of the individual’s need
for pain and symptom management;
‘‘(B) counseling the individual with respect
to end-of-life issues and care options; and
‘‘(C) advising the individual regarding ad-
vanced care planning.’’.
(b) PAYMENT.—Section 1814(i) (42 U.S.C. l395f(i))
is amended by adding at the end the following new para-
graph:
‘‘(4) The amount paid to a hospice program with re-
spect to the services under section 1812(a)(5) for which
payment may be made under this part shall be equal to
an amount equivalent to the amount established for an
office or other outpatient visit for evaluation and manage-
ment associated with presenting problems of moderate se-
verity under the fee schedule established under section
1848(b), other than the portion of such amount attrib-
utable to the practice expense component.’’.
(c) 
CONFORMING
AMENDMENT.—Section
1861(dd)(2)(A)(i) (42 U.S.C. 1395x(dd)(2)(A)(i)) is
amended by inserting before the comma at the end the
following: ‘‘and services described in section 1812(a)(5)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to services provided by a hospice
program on or after January 1, 2004.
SEC. 222. 10 PERCENT INCREASE IN PAYMENT FOR HOS-
PICE CARE FURNISHED IN A FRONTIER AREA.
(a) IN GENERAL.—Section 1814(i)(1) (42 U.S.C.
1395f(i)(1)) is amended by adding at the end the following
new subparagraph:
‘‘(D) With respect to hospice care furnished in a fron-
tier area on or after January 1, 2003, and before January
1, 2008, the payment rates otherwise established for such
care shall be increased by 10 percent. For purposes of this
subparagraph, the term ‘frontier area’ means a county in
which the population density is less than 7 persons per
square mile.’’.
(b) REPORT ON COSTS.—Not later than January 1,
2007, the Comptroller General of the United States shall
submit to Congress a report on the costs of furnishing
hospice care in frontier areas. Such report shall include
recommendations regarding the appropriateness of extend-
ing, and modifying, the payment increase provided under
the amendment made by subsection (a).
SEC. 223. RURAL HOSPICE DEMONSTRATION PROJECT.
(a) IN GENERAL.—The Secretary shall conduct a
demonstration project for the delivery of hospice care to
medicare beneficiaries in rural areas. Under the project
medicare beneficiaries who are unable to receive hospice
care in the home for lack of an appropriate caregiver are
provided such care in a facility of 20 or fewer beds which
offers, within its walls, the full range of services provided
by hospice programs under section 1861(dd) of the Social
Security Act (42 U.S.C. 1395x(dd)).
(b) SCOPE OF PROJECT.—The Secretary shall con-
duct the project under this section with respect to no more
than 3 hospice programs over a period of not longer than
5 years each.
(c) COMPLIANCE WITH CONDITIONS.—Under the
demonstration project—
(1) the hospice program shall comply with oth-
erwise applicable requirements, except that it shall
not be required to offer services outside of the home
or 
to 
meet 
the 
requirements 
of 
section
1861(dd)(2)(A)(iii) of the Social Security Act; and
(2) payments for hospice care shall be made at
the rates otherwise applicable to such care under
title XVIII of such Act.
The Secretary may require the program to comply with
such additional quality assurance standards for its provi-
sion of services in its facility as the Secretary deems ap-
propriate.
(d) REPORT.—Upon completion of the project, the
Secretary shall submit a report to Congress on the project
and shall include in the report recommendations regarding
extension of such project to hospice programs serving
rural areas.
Subtitle D—Other Provisions
SEC. 231. DEMONSTRATION PROJECT FOR USE OF RECOV-
ERY AUDIT CONTRACTORS.
(a) IN GENERAL.—The Secretary of Health and
Human Services shall conduct a demonstration project
under this section (in this section referred to as the
‘‘project’’) to demonstrate the use of recovery audit con-
tractors under the Medicare Integrity Program in identi-
fying underpayments and overpayments and recouping
overpayments under the medicare program for services for
which payment is made under part A of title XVIII of
the Social Security Act. Under the project—
(1) payment may be made to such a contractor
on a contingent basis;
(2) a percentage of the amount recovered may
be retained by the Secretary and shall be available
to the program management account of the Centers
for Medicare & Medicaid Services; and
(3) the Secretary shall examine the efficacy of
such use with respect to duplicative payments, accu-
racy of coding, and other payment policies in which
inaccurate payments arise.
(b) SCOPE AND DURATION.—The project shall cover
at least 2 States and at least 3 contractors and shall last
for not longer than 3 years.
(c) WAIVER.—The Secretary of Health and Human
Services shall waive such provisions of title XVIII of the
Social Security Act as may be necessary to provide for
payment for services under the project in accordance with
subsection (a).
(d) QUALIFICATIONS OF CONTRACTORS.—
(1) IN
GENERAL.—The Secretary shall enter
into a recovery audit contract under this section
with an entity only if the entity has staff that has
knowledge of and experience with the payment rules
and regulations under the medicare program or the
entity has or will contract with another entity that
has such knowledgeable and experienced staff.
(2) INELIGIBILITY
OF
CERTAIN
CONTRAC-
TORS.—The Secretary may not enter into a recovery
audit contract under this section with an entity to
the extent that the entity is a fiscal intermediary
under section 1816 of the Social Security Act (42
U.S.C. 1395h), a carrier under section 1842 of such
Act (42 U.S.C. 1395u), or a Medicare Administra-
tive Contractor under section 1874A of such Act.
(3) PREFERENCE
FOR
ENTITIES
WITH
DEM-
ONSTRATED
PROFICIENCY
WITH
PRIVATE
INSUR-
ERS.—In awarding contracts to recovery audit con-
tractors under this section, the Secretary shall give
preference to those entities that the Secretary deter-
mines have demonstrated proficiency in recovery au-
dits with private insurers or under the medicaid pro-
gram under title XIX of such Act.
(e) REPORT.—The Secretary of Health and Human
Services shall submit to Congress a report on the project
not later than 6 months after the date of its completion.
Such reports shall include information on the impact of
the project on savings to the medicare program and rec-
ommendations on the cost-effectiveness of extending or ex-
panding the project.
TITLE III—PROVISIONS
RELATING TO PART B
Subtitle A—Physicians’ Services
SEC. 301. REVISION OF UPDATES FOR PHYSICIANS’ SERV-
ICES.
(a) UPDATE FOR 2003 THROUGH 2005.—
(1) IN GENERAL.—Section 1848(d) (42 U.S.C.
1395w–4(d)) is amended by adding at the end the
following new paragraphs:
‘‘(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 fur-
nished during 2002, as estimated by the
Secretary.
‘‘(B) 1 PERCENTAGE POINT INCREASE IN
GDP UNDER SGR.—The annual average percent-
age growth in real gross domestic product per
capita under subsection (f)(2)(C) for each of
2003, 2004, and 2005 is deemed to be in-
creased by 1 percentage point.’’.
(2) 
CONFORMING
AMENDMENT.—Paragraph
(4)(B) of such section is amended, in the matter be-
fore clause (i), by inserting ‘‘and paragraph (6)’’
after ‘‘subparagraph (D)’’.
(3) NOT TREATED AS CHANGE IN LAW AND
REGULATION IN SUSTAINABLE GROWTH RATE DE-
TERMINATION.—The amendments made by this sub-
section shall not be treated as a change in law for
purposes of applying section 1848(f)(2)(D) of the
Social Security Act (42 U.S.C. 1395w–4(f)(2)(D)).
(b) USE OF 10-YEAR ROLLING AVERAGE IN COM-
PUTING GROSS DOMESTIC PRODUCT.—
(1) IN
GENERAL.—Section 1848(f)(2)(C) (42
U.S.C. 1395w–4(f)(2)(C)) is amended—
(A) by striking ‘‘projected’’ and inserting
‘‘annual average’’; and
(B) by striking ‘‘from the previous applica-
ble period to the applicable period involved’’
and inserting ‘‘during the 10-year period ending
with the applicable period involved’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to computations of the
sustainable growth rate for years beginning with
2002.
(c) ELIMINATION OF TRANSITIONAL ADJUSTMENT.—
Section 1848(d)(4)(F) (42 U.S.C. 1395w–4(d)(4)(F)) is
amended by striking ‘‘subparagraph (A)’’ and all that fol-
lows and inserting ‘‘subparagraph (A), for each of 2001
and 2002, of ¥0.2 percent.’’.
(d) GAO STUDY OF MEDICARE PAYMENT FOR INHA-
LATION THERAPY.—
(1) STUDY.—The Comptroller General of the
United States shall conduct a study to examine the
adequacy of current reimbursements for inhalation
therapy under the medicare program.
(2) REPORT.—Not later than May 1, 2003, the
Comptroller General shall submit to Congress a re-
port on the study conducted under paragraph (1).
SEC. 302. STUDIES ON ACCESS TO PHYSICIANS’ SERVICES.
(a) GAO STUDY ON BENEFICIARY ACCESS TO PHYSI-
CIANS’ SERVICES.—
(1) STUDY.—The Comptroller General of the
United States shall conduct a study on access of
medicare beneficiaries to physicians’ services under
the medicare program. The study shall include—
(A) an assessment of the use by bene-
ficiaries of such services through an analysis of
claims submitted by physicians for such services
under part B of the medicare program;
(B) an examination of changes in the use
by beneficiaries of physicians’ services over
time;
(C) an examination of the extent to which
physicians are not accepting new medicare
beneficiaries as patients.
(2) REPORT.—Not later than 18 months after
the date of the enactment of this Act, the Comp-
troller General shall submit to Congress a report on
the study conducted under paragraph (1). The re-
port shall include a determination whether—
(A) data from claims submitted by physi-
cians under part B of the medicare program in-
dicate potential access problems for medicare
beneficiaries in certain geographic areas; and
(B) access by medicare beneficiaries to
physicians’ services may have improved, re-
mained constant, or deteriorated over time.
(b) STUDY
AND REPORT
ON SUPPLY
OF PHYSI-
CIANS.—
(1) STUDY.—The Secretary shall request the
Institute of Medicine of the National Academy of
Sciences to conduct a study on the adequacy of the
supply of physicians (including specialists) in the
United States and the factors that affect such sup-
ply.
(2) REPORT TO CONGRESS.—Not later than 2
years after the date of enactment of this section, the
Secretary shall submit to Congress a report on the
results of the study described in paragraph (1), in-
cluding any recommendations for legislation.
SEC. 303. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS’
SERVICES.
Not later than 1 year after the date of the enactment
of this Act, the Medicare Payment Advisory Commission
shall submit to Congress a report on the effect of refine-
ments to the practice expense component of payments for
physicians’ services, after the transition to a full resource-
based payment system in 2002, under section 1848 of the
Social Security Act (42 U.S.C. 1395w–4). Such report
shall examine the following matters by physician specialty:
(1) The effect of such refinements on payment
for physicians’ services.
(2) The interaction of the practice expense com-
ponent with other components of and adjustments to
payment for physicians’ services under such section.
(3) The appropriateness of the amount of com-
pensation by reason of such refinements.
(4) The effect of such refinements on access to
care by medicare beneficiaries to physicians’ serv-
ices.
(5) The effect of such refinements on physician
participation under the medicare program.
SEC. 304. 1-YEAR EXTENSION OF TREATMENT OF CERTAIN
PHYSICIAN PATHOLOGY SERVICES UNDER
MEDICARE.
Section 542(c) of BIPA is amended by striking ‘‘2-
year period’’ and inserting ‘‘3-year period’’.
SEC. 305. PHYSICIAN FEE SCHEDULE WAGE INDEX REVI-
SION.
(a) INDEX REVISION.—
(1) IN GENERAL.—Subject to paragraph (2),
notwithstanding any other provision of law, for pur-
poses of payment under the physician fee schedule
under section 1848 of the Social Security Act (42
U.S.C. 1395w–4) for physicians’ services furnished
during 2004, in no case may the work geographic
index 
otherwise 
calculated 
under 
subsection
(e)(1)(A)(iii) of such section be less than 0.985.
(2) SECRETARIAL DISCRETION.—Paragraph (1)
shall not take effect or be in force if the Secretary
determines, taking into account the report of the
Comptroller General under subsection (b)(2), that
there is no sound economic rationale for the imple-
mentation of such paragraph.
(3) EXEMPTION FROM LIMITATION ON ANNUAL
ADJUSTMENTS.—Any increase in expenditures at-
tributable to paragraph (1) during 2004 shall not be
taken 
into 
account 
in 
applying 
section
1848(c)(2)(B)(ii)(II) of the Social Security Act (42
U.S.C. 1395w–4(c)(2)(B)(ii)(II)) for that year.
(b) GAO REPORT.—
(1) EVALUATION.—As part of the study on geo-
graphic differences in payments for physicians’ serv-
ices conducted under section 109, the Comptroller
General shall evaluate the following:
(A) Whether there is a sound economic
basis for the implementation of the adjustment
under subsection (a)(1) in those areas in which
the adjustment applies.
(B) The effect of such adjustment on phy-
sician location and retention in areas affected
by such adjustment, taking into account—
(i) differences in recruitment costs
and retention rates for physicians, includ-
ing specialists, between large urban areas
and other areas; and