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benefits under this title for the fiscal year
through a Medicare Choice plan offered under
part C, and also includes an individual who is
receiving benefits under this part through enroll-
ment with an eligible organization with a risk-
sharing contract under section 1876.’’.
(b) CONFORMING AMENDMENTS.—So much of section
1848(f) (42 U.S.C. 1395w–4(f)) as precedes paragraph (2)
is amended to read as follows:
‘‘(f) SUSTAINABLE GROWTH RATE.—
‘‘(1) PUBLICATION.—The Secretary shall cause to
have published in the Federal Register the sustainable
growth rate for each fiscal year beginning with fiscal
year 1998. Such publication shall occur in the last 15
days of October of the year in which the fiscal year
begins, except that such rate for fiscal year 1998 shall
be published not later than January 1, 1998.’’.
SEC. 5504. PAYMENT RULES FOR ANESTHESIA SERVICES.
(a) IN GENERAL.—Section 1848(d)(1) (42 U.S.C.
1395w–4(d)(1)), as amended by section 5501, is amended—
(A) in subparagraph (B), striking ‘‘The sin-
gle’’ and inserting ‘‘Except as provided in sub-
paragraph (C), the single’’;
(B) by redesignating subparagraph (C) as
subparagraph (D); and
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(C) by inserting after subparagraph (B) the
following new subparagraph:
‘‘(C) SPECIAL
RULES
FOR
ANESTHESIA
SERVICES.—The separate conversion factor for
anesthesia services for a year shall be equal to 46
percent of the single conversion factor established
for other physicians’ services, except as adjusted
for changes in work, practice expense, or mal-
practice relative value units.’’.
(b) CLASSIFICATION OF ANESTHESIA SERVICES.—The
first sentence of section 1848(j)(1) (42 U.S.C. 1395w–
4(j)(1)) is amended—
(1) by striking ‘‘and including anesthesia serv-
ices’’; and
(2) by inserting before the period the following:
‘‘(including anesthesia services)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to services furnished on or after January
1, 1998.
SEC. 5505. IMPLEMENTATION OF RESOURCE-BASED METH-
ODOLOGIES.
(a) ADJUSTMENTS TO RELATIVE VALUE UNITS FOR
1998.—Section 1848(c)(2) (42 U.S.C. 1395w–4(c)(2)) is
amended by adding at the end the following new subpara-
graph:
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‘‘(G) ADJUSTMENTS
IN
RELATIVE
VALUE
UNITS FOR 1998.—
‘‘(i) 
IN
GENERAL.—The 
Secretary
shall—
‘‘(I) reduce the practice expense
relative value units applied to any
services described in clause (ii) fur-
nished in 1998 to a number equal to
110 percent of the number of work rel-
ative value units, and
‘‘(II) increase the practice expense
relative value units for office visit pro-
cedure codes during 1998 by a uniform
percentage which the Secretary esti-
mates will result in an aggregate in-
crease in payments for such services
equal to the aggregate decrease in pay-
ments by reason of subclause (I).
‘‘(ii) SERVICES
COVERED.—For pur-
poses of clause (i), the services described in
this clause are physicians’ services that are
not described in clause (iii) and for
which—
‘‘(I) there are work relative value
units, and
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‘‘(II) the number of practice ex-
pense relative value units (determined
for 1998) exceeds 110 percent of the
number of work relative value units
(determined for such year).
‘‘(iii) EXCLUDED SERVICES.—For pur-
poses of clause (ii), the services described in
this clause are services which the Secretary
determines at least 75 percent of which are
provided under this title in an office set-
ting.’’.
(b) DELAY OF IMPLEMENTATION TO 1999; PHASEIN OF
IMPLEMENTATION.—Section 1848(c)(2) (42 U.S.C. 1395w–
4(c)(2)), as amended by subsection (a), is amended—
(1) in subparagraph (C)(ii)—
(A) by striking ‘‘1998’’ each place it ap-
pears and inserting ‘‘1999’’, and
(B) by inserting ‘‘, to the extent provided
under subparagraph (H),’’ after ‘‘based’’ in the
matter following subclause (II), and
(2) by adding at the end the following new sub-
paragraph:
‘‘(H) 3-YEAR ADDITIONAL PHASEIN OF RE-
SOURCE-BASED PRACTICE EXPENSE UNITS.—Not-
withstanding subparagraph (C)(ii), the Sec-
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retary shall implement the resource-based prac-
tice expense unit methodology described in such
subparagraph ratably over the 3-year period be-
ginning with 1999 such that such methodology is
fully implemented for 2001 and succeeding
years.’’.
(c) REVIEW BY COMPTROLLER GENERAL.—The Comp-
troller General of the United States shall review and evalu-
ate the proposed rule on resource-based methodology for
practice expenses issued by the Health Care Financing Ad-
ministration. The Comptroller General shall, within 6
months of the date of the enactment of this Act, report to
the Committee on Ways and Means of the House of Rep-
resentatives and the Committee on Finance of the Senate
the results of its evaluation, including an analysis of—
(1) the adequacy of the data used in preparing
the rule,
(2) categories of allowable costs,
(3) methods for allocating direct and indirect ex-
penses,
(4) the potential impact of the rule on bene-
ficiary access to services, and
(5) any other matters related to the appropriate-
ness of resource-based methodology for practice ex-
penses.
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The Comptroller General shall consult with representatives
of physicians’ organizations with respect to matters of both
data and methodology.
(d) CONSULTATION.—
(1) IN GENERAL.—The Secretary of Health and
Human Services shall assemble a group of physicians
with expertise in both surgical and nonsurgical areas
(including primary care physicians and academics),
accounting experts, and the chair of the Prospective
Payment Review Commission (or its successor) to so-
licit their individual views on whether sufficient data
exist to allow the Health Care Financing Administra-
tion to proceed with implementation of the rule de-
scribed in subsection (c). After hearing the views of
individual members of the group, the Secretary shall
determine whether sufficient data exists to proceed
with practice expense relative value determination
and shall report on such views of the individual mem-
bers to the committees described in subsection (c), in-
cluding any recommendations for modifying such
rule.
(2) ACTION.—If the Secretary determines under
paragraph (1) that insufficient data exists or that the
rule described in subsection (c) needs to be revised, the
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Secretary shall provide for additional data collection
and such other actions to correct any deficiencies.
(e) APPLICATION OF RESOURCE-BASED METHODOL-
OGY TO MALPRACTICE RELATIVE VALUE UNITS.—Section
1848(c)(2)(C)(iii) (42 U.S.C. 1395w–4(c)(2)(C)(iii)) is
amended—
(1) by inserting ‘‘for years before 1999’’ before
‘‘equal’’, and
(2) by striking the period at the end and insert-
ing a comma and by adding at the end the following
flush matter:
‘‘and for years beginning with 1999 based
on the malpractice expense resources in-
volved in furnishing the service’’.
(f) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to years beginning on and
after January 1, 1998.
(2) MALPRACTICE.—The amendments made by
subsection (e) shall apply to years beginning on and
after January 1, 1999.
SEC. 5506. INCREASED MEDICARE REIMBURSEMENT FOR
NURSE 
PRACTITIONERS 
AND 
CLINICAL
NURSE SPECIALISTS.
(a) REMOVAL OF RESTRICTIONS ON SETTINGS.—
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(1) 
IN
GENERAL.—Clause 
(ii) 
of 
section
1861(s)(2)(K) (42 U.S.C. 1395x(s)(2)(K)) is amended
to read as follows:
‘‘(ii) services which would be physicians’ services
if furnished by a physician (as defined in subsection
(r)(1)) and which are performed by a nurse practi-
tioner or clinical nurse specialist (as defined in sub-
section (aa)(5)) working in collaboration (as defined
in subsection (aa)(6)) with a physician (as defined in
subsection (r)(1)) which the nurse practitioner or
clinical nurse specialist is legally authorized to per-
form by the State in which the services are performed,
and such services and supplies furnished as an inci-
dent to such services as would be covered under sub-
paragraph (A) if furnished incident to a physician’s
professional service, but only if no facility or other
provider charges or is paid any amounts with respect
to the furnishing of such services;’’.
(2) CONFORMING
AMENDMENTS.—(A) Section
1861(s)(2)(K) of such Act (42 U.S.C. 1395x(s)(2)(K))
is further amended—
(i) in clause (i), by inserting ‘‘and such
services and supplies furnished as incident to
such services as would be covered under subpara-
graph (A) if furnished incident to a physician’s
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professional service; and’’ after ‘‘are performed,’’;
and
(ii) by striking clauses (iii) and (iv).
(B) Section 1861(b)(4) (42 U.S.C. 1395x(b)(4))
is amended by striking ‘‘clauses (i) or (iii) of sub-
section 
(s)(2)(K)’’ 
and 
inserting 
‘‘subsection
(s)(2)(K)’’.
(C) 
Section 
1862(a)(14) 
(42 
U.S.C.
1395y(a)(14)) is amended by striking ‘‘section
1861(s)(2)(K)(i) or 1861(s)(2)(K)(iii)’’ and inserting
‘‘section 1861(s)(2)(K)’’.
(D) 
Section 
1866(a)(1)(H) 
(42 
U.S.C.
1395cc(a)(1)(H)) is amended by striking ‘‘section
1861(s)(2)(K)(i) or 1861(s)(2)(K)(iii)’’ and inserting
‘‘section 1861(s)(2)(K)’’.
(E) 
Section 
1888(e)(2)(A)(ii) 
(42 
U.S.C.
1395yy(e)(2)(A)(ii)), as added by section 5301(a), is
amended by striking ‘‘through (iii)’’ and inserting
‘‘and (ii)’’.
(b) INCREASED PAYMENT.—
(1) FEE SCHEDULE AMOUNT.—Clause (O) of sec-
tion 1833(a)(1) (42 U.S.C. 1395l(a)(1)) is amended to
read as follows: ‘‘(O) with respect to services described
in section 1861(s)(2)(K)(ii) (relating to nurse practi-
tioner or clinical nurse specialist services), the
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amounts paid shall be equal to 80 percent of (i) the
lesser of the actual charge or 85 percent of the fee
schedule amount provided under section 1848, or (ii)
in the case of services as an assistant at surgery, the
lesser of the actual charge or 85 percent of the amount
that would otherwise be recognized if performed by a
physician who is serving as an assistant at surgery;
and’’.
(2) CONFORMING
AMENDMENTS.—(A) Section
1833(r) (42 U.S.C. 1395l(r)) is amended—
(i) in paragraph (1), by striking ‘‘section
1861(s)(2)(K)(iii) (relating to nurse practitioner
or clinical nurse specialist services provided in a
rural 
area)’’ 
and 
inserting 
‘‘section
1861(s)(2)(K)(ii) (relating to nurse practitioner
or clinical nurse specialist services)’’;
(ii) by striking paragraph (2);
(iii) in paragraph (3), by striking ‘‘section
1861(s)(2)(K)(iii)’’ 
and 
inserting 
‘‘section
1861(s)(2)(K)(ii)’’; and
(iv) by redesignating paragraph (3) as
paragraph (2).
(B) 
Section 
1842(b)(12)(A) 
(42 
U.S.C.
1395u(b)(12)(A)) is amended, in the matter preceding
clause (i), by striking ‘‘clauses (i), (ii), or (iv) of sec-
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tion 1861(s)(2)(K) (relating to a physician assistants
and nurse practitioners)’’ and inserting ‘‘section
1861(s)(2)(K)(i) (relating to physician assistants)’’.
(c) DIRECT PAYMENT
FOR NURSE PRACTITIONERS
AND CLINICAL NURSE SPECIALISTS.—
(1) IN GENERAL.—Section 1832(a)(2)(B)(iv) (42
U.S.C. 1395k(a)(2)(B)(iv)) is amended by striking
‘‘provided in a rural area (as defined in section
1886(d)(2)(D))’’ and inserting ‘‘but only if no facility
or other provider charges or is paid any amounts
with respect to the furnishing of such services’’.
(2) 
CONFORMING
AMENDMENT.—Section
1842(b)(6)(C) (42 U.S.C. 1395u(b)(6)(C)) is amend-
ed—
(A) by striking ‘‘clauses (i), (ii), or (iv)’’
and inserting ‘‘clause (i)’’; and
(B) by striking ‘‘or nurse practitioner’’.
(d) DEFINITION
OF CLINICAL NURSE SPECIALIST
CLARIFIED.—Section 1861(aa)(5) (42 U.S.C. 1395x(aa)(5))
is amended—
(1) by inserting ‘‘(A)’’ after ‘‘(5)’’;
(2) by striking ‘‘The term ‘physician assistant’ ’’
and all that follows through ‘‘who performs’’ and in-
serting ‘‘The term ‘physician assistant’ and the term
‘nurse practitioner’ mean, for purposes of this title, a
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physician assistant or nurse practitioner who per-
forms’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(B) The term ‘clinical nurse specialist’ means, for
purposes of this title, an individual who—
‘‘(i) is a registered nurse and is licensed to prac-
tice nursing in the State in which the clinical nurse
specialist services are performed; and
‘‘(ii) holds a master’s degree in a defined clinical
area of nursing from an accredited educational insti-
tution.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply with respect to services furnished and
supplies provided on and after January 1, 1998.
SEC. 5507. INCREASED MEDICARE REIMBURSEMENT FOR
PHYSICIAN ASSISTANTS.
(a) REMOVAL OF RESTRICTION ON SETTINGS.—Sec-
tion 1861(s)(2)(K)(i) (42 U.S.C. 1395x(s)(2)(K)(i)), as
amended by the section 5506, is amended—
(1) by striking ‘‘(I) in a hospital’’ and all that
follows through ‘‘shortage area,’’, and
(2) by adding at the end the following: ‘‘but only
if no facility or other provider charges or is paid any
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amounts with respect to the furnishing of such serv-
ices,’’.
(b) INCREASED PAYMENT.—Paragraph (12) of section
1842(b) (42 U.S.C. 1395u(b)), as amended by section
5506(b)(2)(B), is amended to read as follows:
‘‘(12) With respect to services described in section
1861(s)(2)(K)(i)—
‘‘(A) payment under this part may only be made
on an assignment-related basis; and
‘‘(B) the amounts paid under this part shall be
equal to 80 percent of (i) the lesser of the actual
charge or 85 percent of the fee schedule amount pro-
vided under section 1848 for the same service pro-
vided by a physician who is not a specialist; or (ii)
in the case of services as an assistant at surgery, the
lesser of the actual charge or 85 percent of the amount
that would otherwise be recognized if performed by a
physician who is serving as an assistant at surgery.’’.
(c) REMOVAL OF RESTRICTION ON EMPLOYMENT RE-
LATIONSHIP.—Section 1842(b)(6) (42 U.S.C. 1395u(b)(6))
is amended by adding at the end the following new sentence:
‘‘For purposes of clause (C) of the first sentence of this para-
graph, an employment relationship may include any inde-
pendent contractor arrangement, and employer status shall
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be determined in accordance with the law of the State in
which the services described in such clause are performed.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply with respect to services furnished and
supplies provided on and after January 1, 1998.
CHAPTER 2—OTHER PAYMENT
PROVISIONS
SEC. 5521. REDUCTION IN UPDATES TO PAYMENT AMOUNTS
FOR 
CLINICAL 
DIAGNOSTIC 
LABORATORY
TESTS; STUDY ON LABORATORY SERVICES.
(a) CHANGE IN UPDATE.—Section 1833(h)(2)(A)(ii)
(42 U.S.C. 1395l(h)(2)(A)(ii)) is amended by striking
‘‘and’’ at the end of subclause (III), by striking the period
at the end of subclause (IV) and inserting ‘‘, and’’, and
by adding at the end the following:
‘‘(V) the annual adjustment in the
fee schedules determined under clause
(i) for each of the years 1998 through
2002 shall be reduced (but not below
zero) by 2.0 percentage points.’’.
(b) LOWERING CAP ON PAYMENT AMOUNTS.—Section
1833(h)(4)(B) (42 U.S.C. 1395l(h)(4)(B)) is amended—
(1) in clause (vi), by striking ‘‘and’’ at the end;
(2) in clause (vii)—
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(A) by inserting ‘‘and before January 1,
1998,’’ after ‘‘1995,’’, and
(B) by striking the period at the end and
inserting ‘‘, and’’; and
(3) by adding at the end the following new
clause:
‘‘(viii) after December 31, 1997, is equal to 74
percent of such median.’’.
(c) STUDY AND REPORT ON CLINICAL LABORATORY
SERVICES.—
(1) IN GENERAL.—The Secretary shall request
the Institute of Medicine of the National Academy of
Sciences to conduct a study of payments under part
B of title XVIII of the Social Security Act for clinical
laboratory services. The study shall include a review
of the adequacy of the current methodology and rec-
ommendations regarding alternative payment sys-
tems. The study shall also analyze and discuss the re-
lationship between such payment systems and access
to high quality laboratory services for medicare bene-
ficiaries, including availability and access to new
testing methodologies.
(2) REPORT TO CONGRESS.—The Secretary shall,
not later than 2 years after the date of enactment of
this section, report to the appropriate committees of
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Congress the results of the study described in para-
graph (1), including any recommendations for legisla-
tion.
SEC. 5522. IMPROVEMENTS IN ADMINISTRATION OF LAB-
ORATORY SERVICES BENEFIT.
(a) SELECTION OF REGIONAL CARRIERS.—
(1) IN GENERAL.—The Secretary of Health and
Human Services (in this section referred to as the
‘‘Secretary’’) shall—
(A) divide the United States into no more
than 5 regions, and
(B) designate a single carrier for each such
region,
for the purpose of payment of claims under part B
of title XVIII of the Social Security Act with respect
to clinical diagnostic laboratory services furnished on
or after such date (not later than January 1, 1999)
as the Secretary specifies.
(2) DESIGNATION.—In designating such carriers,
the Secretary shall consider, among other criteria—
(A) a carrier’s timeliness, quality, and ex-
perience in claims processing, and
(B) a carrier’s capacity to conduct elec-
tronic data interchange with laboratories and
data matches with other carriers.
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(3) SINGLE
DATA
RESOURCE.—The Secretary
shall select one of the designated carriers to serve as
a central statistical resource for all claims informa-
tion relating to such clinical diagnostic laboratory
services handled by all the designated carriers under
such part.
(4) ALLOCATION OF CLAIMS.—The allocation of
claims for clinical diagnostic laboratory services to
particular designated carriers shall be based on
whether a carrier serves the geographic area where the
laboratory specimen was collected or other method
specified by the Secretary.
(5) TEMPORARY
EXCEPTION.—Paragraph (1)
shall not apply with respect to clinical diagnostic lab-
oratory services furnished by independent physician
offices until such time as the Secretary determines
that such offices would not be unduly burdened by the
application of billing responsibilities with respect to
more than one carrier.
(b) ADOPTION OF UNIFORM POLICIES FOR CLINICAL
LABORATORY BENEFITS.—
(1) IN GENERAL.—Not later than July 1, 1998,
the Secretary shall first adopt, consistent with para-
graph (2), uniform coverage, administration, and
payment policies for clinical diagnostic laboratory
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tests under part B of title XVIII of the Social Secu-
rity Act, using a negotiated rulemaking process under
subchapter III of chapter 5 of title 5, United States
Code.
(2) CONSIDERATIONS
IN
DESIGN
OF
UNIFORM
POLICIES.—The policies under paragraph (1) shall be
designed to promote program integrity and uniform-
ity and simplify administrative requirements with re-
spect to clinical diagnostic laboratory tests payable
under such part in connection with the following:
(A) Beneficiary information required to be
submitted with each claim or order for labora-
tory services.
(B) Physicians’ obligations regarding docu-
mentation requirements and recordkeeping.
(C) Procedures for filing claims and for
providing remittances by electronic media.
(D) The documentation of medical necessity.
(E) Limitation on frequency of coverage for
the same tests performed on the same individual.
(3) CHANGES IN LABORATORY POLICIES PENDING
ADOPTION OF UNIFORM POLICY.—During the period
that begins on the date of the enactment of this Act
and ends on the date the Secretary first implements
uniform policies pursuant to regulations promulgated
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under this subsection, a carrier under such part may
implement changes relating to requirements for the
submission of a claim for clinical diagnostic labora-
tory tests.
(4) USE OF INTERIM POLICIES.—After the date
the Secretary first implements such uniform policies,
the Secretary shall permit any carrier to develop and
implement interim policies of the type described in
paragraph (1), in accordance with guidelines estab-
lished by the Secretary, in cases in which a uniform
national policy has not been established under this
subsection and there is a demonstrated need for a pol-
icy to respond to aberrant utilization or provision of
unnecessary services. Except as the Secretary specifi-
cally permits, no policy shall be implemented under
this paragraph for a period of longer than 2 years.
(5) INTERIM NATIONAL GUIDELINES.—After the
date the Secretary first designates regional carriers
under subsection (a), the Secretary shall establish a
process under which designated carriers can collec-
tively develop and implement interim national guide-
lines of the type described in paragraph (1). No such
policy shall be implemented under this paragraph for
a period of longer than 2 years.
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(6) BIENNIAL REVIEW PROCESS.—Not less often
than once every 2 years, the Secretary shall solicit
and review comments regarding changes in the uni-
form policies established under this subsection. As
part of such biennial review process, the Secretary
shall specifically review and consider whether to in-
corporate or supersede interim, regional, or national
policies developed under paragraph (4) or (5). Based
upon such review, the Secretary may provide for ap-
propriate changes in the uniform policies previously
adopted under this subsection.
(7) REQUIREMENT AND NOTICE.—The Secretary
shall ensure that any guidelines adopted under para-
graph (3), (4), or (5) shall apply to all laboratory
claims payable under part B of title XVIII of the So-
cial Security Act, and shall provide for advance no-
tice to interested parties and a 45-day period in
which such parties may submit comments on the pro-
posed change.
(c) INCLUSION OF LABORATORY REPRESENTATIVE ON
CARRIER ADVISORY COMMITTEES.—The Secretary shall di-
rect that any advisory committee established by such a car-
rier, to advise with respect to coverage, administration or
payment policies under part B of title XVIII of the Social
Security Act, shall include an individual to represent the
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interest and views of independent clinical laboratories and
such other laboratories as the Secretary deems appropriate.
Such individual shall be selected by such committee from
among nominations submitted by national and local orga-
nizations that represent independent clinical laboratories.
SEC. 5523. PAYMENTS FOR DURABLE MEDICAL EQUIPMENT.
(a) REDUCTION IN PAYMENT AMOUNTS FOR ITEMS OF
DURABLE MEDICAL EQUIPMENT.—
(1) FREEZE IN UPDATE FOR COVERED ITEMS.—
Section 1834(a)(14) (42 U.S.C. 1395m(a)(14)) is
amended to read as follows:
‘‘(14) COVERED
ITEM
UPDATE.—In this sub-
section—
‘‘(A) IN GENERAL.—The term ‘covered item
update’ means, with respect to any year, the per-
centage increase in the consumer price index for
all urban consumers (U.S. city average) for the
12-month period ending with June of the pre-
vious year.
‘‘(B) REDUCTION FOR CERTAIN YEARS.—In
the case of each of the years 1998 through 2002,
the covered item update under subparagraph (A)
shall be reduced (but not below zero) by 2.0 per-
centage points.’’.
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(2) UPDATE
FOR
ORTHOTICS
AND
PROSTHET-
ICS.—Section 
1834(h)(4)(A) 
(42 
U.S.C.
1395m(h)(4)(A)) is amended to read as follows:
‘‘(A) the term ‘applicable percentage in-
crease’ means, with respect to any year, the per-
centage increase in the consumer price index for
all urban consumers (U.S. city average) for the
12-month period ending with June of the pre-
vious year, except that in each of the years 1998
through 2000, such increase shall be reduced (but
not below zero) by 2.0 percentage points;’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection applies to items furnished on and
after January 1, 1998.
(b) REDUCTION IN INCREASE FOR PARENTERAL AND
ENTERAL NUTRIENTS, SUPPLIES, AND EQUIPMENT.—The
reasonable charge under part B of title XVIII of the Social
Security Act for parenteral and enteral nutrients, supplies,
and equipment furnished during each of the years 1998
through 2002, shall not exceed the reasonable charge for such
items furnished during the previous year (after application
of this subsection), increased by the percentage increase in
the consumer price index for all urban consumers (United
States city average) for the 12-month period ending with
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June of the previous year reduced (but not below zero) by
2.0 percentage points.
SEC. 5524. OXYGEN AND OXYGEN EQUIPMENT.
(a) IN GENERAL.—Section 1834(a)(9)(B) (42 U.S.C.
1395m(a)(9)(B)) is amended—
(1) by striking ‘‘and’’ at the end of clause (iii);
(2) in clause (iv)—
(A) by striking ‘‘a subsequent year’’ and in-
serting ‘‘1995, 1996, and 1997’’, and
(B) by striking the period at the end and
inserting a semicolon; and
(3) by adding at the end the following new
clauses:
‘‘(v) in 1998, 75 percent of the amount
determined under this subparagraph for
1997;
‘‘(vi) in 1999, 62.5 percent of the
amount determined under this subpara-
graph for 1997; and
‘‘(vii) for each subsequent year, the
amount determined under this subpara-
graph for the preceding year increased by
the covered item update for such subsequent
year.’’.
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(b) UPGRADED DURABLE MEDICAL EQUIPMENT.—
Section 1834(a) (42 U.S.C. 1395m(a)) is amended by in-
serting after paragraph (15) the following new paragraph:
‘‘(16) CERTAIN UPGRADED ITEMS.—
‘‘(A) INDIVIDUAL’S RIGHT TO CHOOSE UP-
GRADED ITEM.—Notwithstanding any other pro-
vision of law, effective on the date on which the
Secretary issues regulations under subparagraph
(C), an individual may purchase or rent from a
supplier an item of upgraded durable medical
equipment for which payment would be made
under this subsection if the item were a standard
item.
‘‘(B) PAYMENTS TO SUPPLIER.—In the case
of the purchase or rental of an upgraded item
under subparagraph (A)—
‘‘(i) the supplier shall receive payment
under this subsection with respect to such
item as if such item were a standard item;
and
‘‘(ii) the individual purchasing or
renting the item shall pay the supplier an
amount equal to the difference between the
supplier’s charge and the amount under
clause (i).
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In no event may the supplier’s charge for an up-
graded item exceed the applicable fee schedule
amount (if any) for such item.
‘‘(C) 
CONSUMER
PROTECTION
SAFE-
GUARDS.—The Secretary shall issue regulations
providing for consumer protection standards
with respect to the furnishing of upgraded equip-
ment under subparagraph (A). Such regulations
shall provide for—
‘‘(i) determination of fair market
prices with respect to an upgraded item;
‘‘(ii) full disclosure of the availability
and price of standard items and proof of re-
ceipt of such disclosure information by the
beneficiary before the furnishing of the up-
graded item;
‘‘(iii) conditions of participation for
suppliers in the simplified billing arrange-
ment;
‘‘(iv) sanctions of suppliers who are de-
termined to engage in coercive or abusive
practices, including exclusion; and
‘‘(v) such other safeguards as the Sec-
retary determines are necessary.’’.
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(c) ESTABLISHMENT OF CLASSES FOR PAYMENT.—
Section 1848(a)(9) (42 U.S.C. 1395m(a)(9)) is amended by
adding at the end the following:
‘‘(D) AUTHORITY TO CREATE CLASSES.—
‘‘(i) IN
GENERAL.—Subject to clause
(ii), the Secretary may establish separate
classes for any item of oxygen and oxygen
equipment and separate national limited
monthly payment rates for each of such
classes.
‘‘(ii) BUDGET NEUTRALITY.—The Sec-
retary may take actions under clause (i)
only to the extent such actions do not result
in expenditures for any year to be more or
less than the expenditures which would have
been made if such actions had not been
taken.’’.
(d) STANDARDS AND ACCREDITATION.—The Secretary
shall as soon as practicable establish service standards and
accreditation requirements for persons seeking payment
under part B of title XVIII of the Social Security Act for
the providing of oxygen and oxygen equipment to bene-
ficiaries within their homes.
(e) ACCESS TO HOME OXYGEN EQUIPMENT.—
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(1) STUDY.—The Comptroller General of the
United States shall study issues relating to access to
home oxygen equipment and shall, within 6 months
after the date of the enactment of this Act, report to
the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of the
Senate the results of the study, including rec-
ommendations (if any) for legislation.
(2) PEER REVIEW EVALUATION.—The Secretary
of Health and Human Services shall arrange for peer
review organizations established under section 1154 of
the Social Security Act to evaluate access to, and
quality of, home oxygen equipment.
(f) DEMONSTRATION PROJECT.—Not later than 6
months after the date of enactment of this Act, the Secretary
shall, in consultation with appropriate organizations, initi-
ate a demonstration project in which the Secretary utilizes
a competitive bidding process for the furnishing of home
oxygen equipment to medicare beneficiaries under title
XVIII of the Social Security Act.
(g) EFFECTIVE DATE.—
(1) OXYGEN.—The amendments made by sub-
section (a) shall apply to items furnished on and
after January 1, 1998.
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(2) OTHER PROVISIONS.—The amendments made
by this section other than subsection (a) shall take ef-
fect on the date of the enactment of this Act.
SEC. 5525. UPDATES FOR AMBULATORY SURGICAL SERV-
ICES.
Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is
amended by inserting at the end the following: ‘‘In each
of the fiscal years 1998 through 2002, the increase under
this subparagraph shall be reduced (but not below zero) by
2.0 percentage points.’’.
SEC. 
5526. 
REIMBURSEMENT 
FOR 
DRUGS 
AND
BIOLOGICALS.
(a) IN GENERAL.—Section 1842 (42 U.S.C. 1395u) is
amended by inserting after subsection (n) the following new
subsection:
‘‘(o)(1) If a physician’s, supplier’s, or any other per-
son’s bill or request for payment for services includes a
charge for a drug or biological for which payment may be
made under this part and the drug or biological is not paid
on a cost or prospective payment basis as otherwise pro-
vided in this part, the amount payable for the drug or bio-
logical is equal to 95 percent of the average wholesale price,
as specified by the Secretary.
‘‘(2)(A) In the case of a drug or biological for which
payment was under this part on May 1, 1997, the amount
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determined under paragraph (1) for any drug or biological
shall not exceed—
‘‘(i) in the case of 1998, the amount of the pay-
ment under this part on May 1, 1997, and
‘‘(ii) in the case of 1999 and each succeeding
year, the amount determined under this subpara-
graph for the previous year, increased by the percent-
age increase in the consumer price index for all urban
consumers (U.S. city average) for the 12-month pe-
riod ending with June of the previous year.
‘‘(B) In the case of a drug or biological not described
in subparagraph (A), the amount determined under para-
graph (1) for any year following the first year for which
payment is made under this part for such drug or biological
shall not exceed the amount payable under this part (after
application of this subparagraph) for the previous year, in-
creased by the percentage increase in the consumer price
index for all urban consumers (U.S. city average) for the
12-month period ending with June of the previous year.
‘‘(3) If payment for a drug or biological is made to
a licensed pharmacy approved to dispense drugs or
biologicals under this part, the Secretary shall pay a dis-
pensing fee (less the applicable deductible and insurance
amounts) to the pharmacy, as the Secretary determines ap-
propriate.
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‘‘(4) The Secretary shall conduct such studies or sur-
veys as are necessary to determine the average wholesale
price (and such other price as the Secretary determines ap-
propriate) of any drug or biological for purposes of para-
graph (1). The Secretary shall, not later than 6 months
after the date of the enactment of this subsection, report to
the appropriate committees of Congress the results of the
studies and surveys conducted under this paragraph.’’.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) apply to drugs and biologicals furnished on or
after January 1, 1998.
CHAPTER 3—PART B PREMIUM AND
RELATED PROVISIONS
SEC. 5541. PART B PREMIUM.
(a) IN GENERAL.—Section 1839(a)(3) (42 U.S.C.
1395r(a)(3)) is amended by striking the first 3 sentences
and inserting the following: ‘‘The Secretary, during Sep-
tember of each year, shall determine and promulgate a
monthly premium rate for the succeeding calendar year that
is equal to 50 percent of the monthly actuarial rate for en-
rollees age 65 and over, determined according to paragraph
(1), for that succeeding calendar year.’’.
(b) CONFORMING AND TECHNICAL AMENDMENTS.—
(1) SECTION
1839.—Section 1839 (42 U.S.C.
1395r) is amended—
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retary in accordance with paragraph (3)) exceeds the
threshold amount described in paragraph (5)(B), the Sec-
retary shall increase the amount of the monthly premium
for months in the calendar year by an amount equal to
the difference between—
‘‘(A) 200 percent of the monthly actuarial rate
for enrollees age 65 and over as determined under
subsection (a)(1) for that calendar year; and
‘‘(B) the total of the monthly premiums paid by
the individual under this section (determined without
regard to subsection (b)) during such calendar year.
‘‘(2) In the case of an individual described in para-
graph (1) whose modified adjusted gross income exceeds the
threshold amount by less than $50,000, the amount of the
increase in the monthly premium applicable under para-
graph (1) shall be an amount which bears the same ratio
to the amount of the increase described in paragraph (1)
(determined without regard to this paragraph) as such ex-
cess bears to $50,000.
‘‘(3) The Secretary shall make an initial determina-
tion of the amount of an individual’s modified adjusted
gross income for a taxable year ending with or within a
calendar year for purposes of this subsection as follows:
‘‘(A) Not later than September 1 of the year pre-
ceding the year, the Secretary shall provide notice to
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each individual whom the Secretary finds (on the
basis of the individual’s actual modified adjusted
gross income for the most recent taxable year for
which such information is available or other informa-
tion provided to the Secretary by the Secretary of the
Treasury) will be subject to an increase under this
subsection that the individual will be subject to such
an increase, and shall include in such notice the Sec-
retary’s estimate of the individual’s modified adjusted
gross income for the year.
‘‘(B) If, during the 30-day period beginning on
the date notice is provided to an individual under
subparagraph (A), the individual provides the Sec-
retary with information on the individual’s antici-
pated modified adjusted gross income for the year, the
amount initially determined by the Secretary under
this paragraph with respect to the individual shall be
based on the information provided by the individual.
‘‘(C) If an individual does not provide the Sec-
retary with information under subparagraph (B), the
amount initially determined by the Secretary under
this paragraph with respect to the individual shall be
the amount included in the notice provided to the in-
dividual under subparagraph (A).
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‘‘(4)(A) If the Secretary determines (on the basis of
final information provided by the Secretary of the Treas-
ury) that the amount of an individual’s actual modified
adjusted gross income for a taxable year ending with or
within a calendar year is less than or greater than the
amount initially determined by the Secretary under para-
graph (3), the Secretary shall increase or decrease the
amount of the individual’s monthly premium under this
section (as the case may be) for months during the following
calendar year by an amount equal to 1⁄12 of the difference
between—
‘‘(i) the total amount of all monthly premiums
paid by the individual under this section during the
previous calendar year; and
‘‘(ii) the total amount of all such premiums
which would have been paid by the individual during
the previous calendar year if the amount of the indi-
vidual’s modified adjusted gross income initially de-
termined under paragraph (3) were equal to the ac-
tual amount of the individual’s modified adjusted
gross income determined under this paragraph.
‘‘(B)(i) In the case of an individual for whom the
amount initially determined by the Secretary under para-
graph (3) is based on information provided by the individ-
ual under subparagraph (B) of such paragraph, if the Sec-
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retary determines under subparagraph (A) that the amount
of the individual’s actual modified adjusted gross income
for a taxable year is greater than the amount initially de-
termined under paragraph (3), the Secretary shall increase
the amount otherwise determined for the year under sub-
paragraph (A) by interest in an amount equal to the sum
of the amounts determined under clause (ii) for each of the
months described in clause (ii).
‘‘(ii) Interest shall be computed for any month in an
amount determined by applying the underpayment rate es-
tablished under section 6621 of the Internal Revenue Code
of 1986 (compounded daily) to any portion of the difference
between the amount initially determined under paragraph
(3) and the amount determined under subparagraph (A)
for the period beginning on the first day of the month begin-
ning after the individual provided information to the Sec-
retary under subparagraph (B) of paragraph (3) and end-
ing 30 days before the first month for which the individual’s
monthly premium is increased under this paragraph.
‘‘(iii) Interest shall not be imposed under this subpara-
graph if the amount of the individual’s modified adjusted
gross income provided by the individual under subpara-
graph (B) of paragraph (3) was not less than the individ-
ual’s modified adjusted gross income determined on the
basis of information shown on the return of tax imposed
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by chapter 1 of the Internal Revenue Code of 1986 for the
taxable year involved.
‘‘(C) In the case of an individual who is not enrolled
under this part for any calendar year for which the individ-
ual’s monthly premium under this section for months dur-
ing the year would be increased pursuant to subparagraph
(A) if the individual were enrolled under this part for the
year, the Secretary may take such steps as the Secretary
considers appropriate to recover from the individual the
total amount by which the individual’s monthly premium
for months during the year would have been increased
under subparagraph (A) if the individual were enrolled
under this part for the year.
‘‘(D) In the case of a deceased individual for whom
the amount of the monthly premium under this section for
months in a year would have been decreased pursuant to
subparagraph (A) if the individual were not deceased, the
Secretary shall make a payment to the individual’s surviv-
ing spouse (or, in the case of an individual who does not
have a surviving spouse, to the individual’s estate) in an
amount equal to the difference between—
‘‘(i) the total amount by which the individual’s
premium would have been decreased for all months
during the year pursuant to subparagraph (A); and
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‘‘(ii) the amount (if any) by which the individ-
ual’s premium was decreased for months during the
year pursuant to subparagraph (A).
‘‘(5) In this subsection, the following definitions apply:
‘‘(A) The term ‘modified adjusted gross income’
means adjusted gross income (as defined in section 62
of the Internal Revenue Code of 1986)—
‘‘(i) determined without regard to sections
135, 911, 931, and 933 of such Code, and
‘‘(ii) increased by the amount of interest re-
ceived or accrued by the taxpayer during the
taxable year which is exempt from tax under
such Code.
‘‘(B) The term ‘threshold amount’ means—
‘‘(i) except as otherwise provided in this
paragraph, $50,000,
‘‘(ii) $75,000, in the case of a joint return
(as defined in section 7701(a)(38) of such Code),
and
‘‘(iii) zero in the case of a taxpayer who—
‘‘(I) is married at the close of the tax-
able year but does not file a joint return (as
so defined) for such year, and
‘‘(II) does not live apart from his
spouse at all times during the taxable year.
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‘‘(6)(A) The Secretary shall transfer amounts received
pursuant to this subsection to the Federal Hospital Insur-
ance Trust Fund.
‘‘(B) In applying section 1844(a), amounts attrib-
utable to clause (i) shall not be counted in determining the
dollar amount of the premium per enrollee under para-
graph (1)(A) or (1)(B).’’.
(b) CONFORMING AMENDMENTS.—(1) Section 1839 (42
U.S.C. 1395r) is amended—
(A) in subsection (a)(2), by inserting ‘‘or section
subsection (h)’’ after ‘‘subsections (b) and (e)’’;
(B) in subsection (a)(3) of section 1839(a), by
inserting ‘‘or subsection (h)’’ after ‘‘subsection (e)’’;
(C) in subsection (b), inserting ‘‘(and as in-
creased under subsection (h))’’ after ‘‘subsection (a) or
(e)’’; and
(D) in subsection (f), by striking ‘‘if an individ-
ual’’ and inserting the following: ‘‘if an individual
(other than an individual subject to an increase in
the monthly premium under this section pursuant to
subsection (h))’’.
(2) Section 1840(c) (42 U.S.C. 1395r(c)) is amended
by inserting ‘‘or an individual determines that the estimate
of modified adjusted gross income used in determining
whether the individual is subject to an increase in the
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monthly premium under section 1839 pursuant to sub-
section (h) of such section (or in determining the amount
of such increase) is too low and results in a portion of the
premium not being deducted,’’ before ‘‘he may’’.
(c) REPORTING REQUIREMENTS FOR SECRETARY OF
THE TREASURY.—
(1) IN GENERAL.—Subsection (l) of section 6103
of the Internal Revenue Code of 1986 (relating to con-
fidentiality and disclosure of returns and return in-
formation) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(16) DISCLOSURE OF RETURN INFORMATION TO
CARRY OUT INCOME-RELATED REDUCTION IN MEDI-
CARE PART B PREMIUM.—
‘‘(A) IN
GENERAL.—The Secretary may,
upon written request from the Secretary of
Health and Human Services, disclose to officers
and employees of the Health Care Financing Ad-
ministration return information with respect to
a taxpayer who is required to pay a monthly
premium under section 1839 of the Social Secu-
rity Act. Such return information shall be lim-
ited to—
‘‘(i) taxpayer identity information
with respect to such taxpayer,
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‘‘(ii) the filing status of such taxpayer,
‘‘(iii) the adjusted gross income of such
taxpayer,
‘‘(iv) the amounts excluded from such
taxpayer’s gross income under sections 135
and 911,
‘‘(v) the interest received or accrued
during the taxable year which is exempt
from the tax imposed by chapter 1 to the ex-
tent such information is available, and
‘‘(vi) the amounts excluded from such
taxpayer’s gross income by sections 931 and
933 to the extent such information is avail-
able.
‘‘(B) RESTRICTION ON USE OF DISCLOSED
INFORMATION.—Return 
information 
disclosed
under subparagraph (A) may be used by officers
and employees of the Health Care Financing Ad-
ministration only for the purposes of, and to the
extent necessary in, establishing the appropriate
monthly premium under section 1839 of the So-
cial Security Act.’’.
(2) 
CONFORMING
AMENDMENT.—Paragraphs
(3)(A) and (4) of section 6103(p) of such Code are
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each amended by striking ‘‘or (15)’’ each place it ap-
pears and inserting ‘‘(15), or (16)’’.
(d) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
subsections (a) and (b) shall apply to the monthly
premium under section 1839 of the Social Security
Act for months beginning with January 1998.
(2) INFORMATION FOR PRIOR YEARS.—The Sec-
retary of Health and Human Services may request
information under section 6013(l)(16) of the Social
Security Act (as added by subsection (c)) for taxable
years beginning after December 31, 1994.
SEC. 5543. DEMONSTRATION PROJECT ON INCOME-RELAT-
ED PART B DEDUCTIBLE.
(a) ESTABLISHMENT OF PROJECT.—
(1) IN
GENERAL.—Notwithstanding any other
provision of law, the Secretary of Health and Human
Services (in this section referred to as the ‘‘Sec-
retary’’) shall conduct a demonstration project (in
this section referred to as the ‘‘project’’) in which in-
dividuals otherwise responsible for an income-related
premium by reason of section 1839(h) of the Social
Security Act (42 U.S.C. 1395r(h)) (as added by sec-
tion 5542 of this Act) would instead be responsible for
an income-related deductible using the same income
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limits and administrative procedures provided for in
such section 1839(h).
(2) SITES.—The Secretary shall conduct the
project in a representative number of sites and shall
include a sufficient number of individuals in the
project to ensure that the project produces statistically
satisfactory findings.
(3) PARTICIPATION.—
(A) IN
GENERAL.—Participation in the
project shall be on a voluntary basis.
(B) MEDIGAP.—No individual shall be eli-
gible to participate in the project if such individ-
ual is covered under a medicare supplemental
policy under section 1882 of the Social Security
Act (42 U.S.C. 1395ss).
(4) CONSULTATION.—In conducting the project,
the Secretary shall consult with appropriate organi-
zations and experts.
(5) DURATION.—The project shall be conducted
for a period not to exceed 5 years.
(b) WAIVER AUTHORITY.—The Secretary shall waive
compliance with the requirements of titles XI, XVIII, and
XIX of the Social Security Act (42 U.S.C. 1301 et seq., 1395
et seq., 1396 et seq.) to such extent and for such period as
the Secretary determines is necessary to conduct the project.
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(c) REPORTS TO CONGRESS.—
(1) IN GENERAL.—Not later than 2 and 5 years
after the date of enactment of this Act, and bian-
nually thereafter, the Secretary shall submit to Con-
gress a report regarding the project.
(2) CONTENTS
OF
REPORT.—The reports in
paragraph (1) shall include the following:
(A) A description of the demonstration
projects conducted under this section.
(B) A description of the utilization and
health care status of individuals participating in
the project.
(C) Any other information regarding the
project that the Secretary determines to be ap-
propriate.
SEC. 5544. LOW-INCOME MEDICARE BENEFICIARY BLOCK
GRANT PROGRAM.
(a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et
seq.), as amended by section 5047, is amended by adding
at the end the following:
‘‘LOW-INCOME MEDICARE BENEFICIARY BLOCK GRANT
PROGRAM
‘‘SEC. 1898. (a) ESTABLISHMENT.—The Secretary
shall establish a program to award block grants to States
for the payment of medicare cost sharing described in sec-
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tion 1905(p)(3)(A)(ii) on behalf of eligible low-income med-
icare beneficiaries.
‘‘(b) APPLICATION.—To be eligible to receive a block
grant under this section, a State shall prepare and submit
to the Secretary an application at such time, in such man-
ner, and containing such information as the Secretary may
require.
‘‘(c) PAYMENTS.—
‘‘(1) AMOUNT OF GRANT.—From amounts appro-
priated under subsection (d) for a fiscal year, the Sec-
retary shall award a grant to each State with an ap-
plication approved under subsection (b), in an
amount that bears the same ratio to such amounts as
the total number of eligible low-income medicare bene-
ficiaries in the State bears to the total number of eli-
gible low-income medicare beneficiaries in all States.
‘‘(2) 100 PERCENT FMAP.—Notwithstanding sec-
tion 1905(b), the Federal medical assistance percent-
age for any State that receives a grant under this sec-
tion shall be 100 percent.
‘‘(d) APPROPRIATIONS.—
‘‘(1) IN GENERAL.—The Secretary is authorized
to transfer from the Federal Supplementary Medical
Insurance Trust Fund under section 1841 for the pur-
pose of carrying out this section, an amount equal to
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$200,000,000 in fiscal year 1998, $250,000,000 in fis-
cal year 1999, $300,000,000 in fiscal year 2000,
$350,000,000 in fiscal year 2001, and $400,000,000
in fiscal year 2002, to remain available without fiscal
year limitation.
‘‘(2) STATE
ENTITLEMENT.—This section con-
stitutes budget authority in advance of appropria-
tions Acts and represents the obligation of the Federal
Government to provide for the payment to States of
amounts provided in accordance with the provisions
of this section.
‘‘(e) DEFINITIONS.—In this section:
‘‘(1) ELIGIBLE
LOW-INCOME
MEDICARE
BENE-
FICIARY.—The term ‘eligible low-income medicare
beneficiary’ means an individual who is described in
section 1902(a)(10)(E)(iii) but whose family income
is greater than or equal to 120 percent of the poverty
line and does not exceed 150 percent of the poverty
line for a family of the size involved.
‘‘(2) STATE.—The term ‘State’ means each of the
50 States, the District of Columbia, Puerto Rico,
Guam, the Virgin Islands, American Samoa, and the
Northern Mariana Islands.’’.
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Subtitle H—Provisions Relating to
Parts A and B
CHAPTER 1—SECONDARY PAYOR
PROVISIONS
SEC. 5601. EXTENSION AND EXPANSION OF EXISTING RE-
QUIREMENTS.
(a) DATA MATCH.—
(1) ELIMINATION OF MEDICARE SUNSET.—Sec-
tion 1862(b)(5)(C) (42 U.S.C. 1395y(b)(5)(C)) is
amended by striking clause (iii).
(2) ELIMINATION OF INTERNAL REVENUE CODE
SUNSET.—Section 6103(l)(12) of the Internal Revenue
Code of 1986 is amended by striking subparagraph
(F).
(b) APPLICATION
TO
DISABLED
INDIVIDUALS
IN
LARGE GROUP HEALTH PLANS.—
(1) IN
GENERAL.—Section 1862(b)(1)(B) (42
U.S.C. 1395y(b)(1)(B)) is amended—
(A) in clause (i), by striking ‘‘clause (iv)’’
and inserting ‘‘clause (iii)’’;
(B) by striking clause (iii); and
(C) by redesignating clause (iv) as clause
(iii).
(2) 
CONFORMING
AMENDMENTS.—Paragraphs
(1) through (3) of section 1837(i) (42 U.S.C.
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1395p(i)) and the second sentence of section 1839(b)
(42 U.S.C. 1395r(b)) are each amended by striking
‘‘1862(b)(1)(B)(iv)’’ each place it appears and insert-
ing ‘‘1862(b)(1)(B)(iii)’’.
(c) INDIVIDUALS WITH END STAGE RENAL DIS-
EASE.—Section 1862(b)(1)(C) (42 U.S.C. 1395y(b)(1)(C))
is amended—
(1) in the last sentence by striking ‘‘October 1,
1998’’ and inserting ‘‘the date of enactment of the
Balanced Budget Act of 1997’’; and
(2) by adding at the end the following: ‘‘Effective
for items and services furnished on or after the date
of enactment of the Balanced Budget Act of 1997,
(with respect to periods beginning on or after the date
that is 18 months prior to such date), clauses (i) and
(ii) shall be applied by substituting ‘30-month’ for
‘12-month’ each place it appears.’’.
SEC. 5602. IMPROVEMENTS IN RECOVERY OF PAYMENTS.
(a) PERMITTING RECOVERY AGAINST THIRD PARTY
ADMINISTRATORS
OF
PRIMARY
PLANS.—Section
1862(b)(2)(B)(ii) (42 U.S.C. 1395y(b)(2)(B)(ii)) is amend-
ed—
(1) by striking ‘‘under this subsection to pay’’
and inserting ‘‘(directly, as a third-party adminis-
trator, or otherwise) to make payment’’; and
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(2) by adding at the end the following: ‘‘The
United States may not recover from a third-party ad-
ministrator under this clause in cases where the
third-party administrator would not be able to re-
cover the amount at issue from the employer or group
health plan for whom it provides administrative serv-
ices due to the insolvency or bankruptcy of the em-
ployer or plan.’’.
(b) EXTENSION OF CLAIMS FILING PERIOD.—Section
1862(b)(2)(B) (42 U.S.C. 1395y(b)(2)(B)) is amended by
adding at the end the following:
‘‘(v) 
CLAIMS-FILING
PERIOD.—Not-
withstanding any other time limits that
may exist for filing a claim under an em-
ployer group health plan, the United States
may seek to recover conditional payments
in accordance with this subparagraph where
the request for payment is submitted to the
entity required or responsible under this
subsection to pay with respect to the item or
service (or any portion thereof) under a pri-
mary plan within the 3-year period begin-
ning on the date on which the item or serv-
ice was furnished.’’.
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(c) EFFECTIVE DATE.—The amendments made by this
section apply to items and services furnished on or after
the date of enactment of this Act.
CHAPTER 2—OTHER PROVISIONS
SEC. 5611. CONFORMING AGE FOR ELIGIBILITY UNDER
MEDICARE TO RETIREMENT AGE FOR SOCIAL
SECURITY BENEFITS.
(a) ENTITLEMENT TO HOSPITAL INSURANCE BENE-
FITS.—Section 226 (42 U.S.C. 426) is amended by striking
‘‘age 65’’ each place such term appears and inserting ‘‘re-
tirement age’’.
(b) HOSPITAL
INSURANCE
BENEFITS
FOR
THE
AGED.—Section 1811 (42 U.S.C. 1395c) is amended by
striking ‘‘age 65’’ each place such term appears and insert-
ing ‘‘retirement age (as such term is defined in section
216(l)(1))’’.
(c) HOSPITAL INSURANCE BENEFITS FOR UNINSURED
ELDERLY INDIVIDUALS NOT OTHERWISE ELIGIBLE.—Sec-
tion 1818 (42 U.S.C. 1395i–2) is amended—
(1) in subsection (a)(1), by striking ‘‘age of 65’’
and inserting ‘‘retirement age (as such term is de-
fined in section 216(l)(1))’’;
(2) in subsection (d)(1), by striking ‘‘age 65’’
and inserting ‘‘retirement age (as such term is de-
fined in section 216(l)(1))’’; and
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(3) in subsection (d)(3), by striking ‘‘65’’ and in-
serting ‘‘retirement age (as such term is defined in
section 216(l)(1))’’.
(d) HOSPITAL INSURANCE BENEFITS FOR DISABLED
INDIVIDUALS WHO HAVE EXHAUSTED OTHER ENTITLE-
MENT.—Section 1818A(a)(1) (42 U.S.C. 1395i–2a(a)(1)) is
amended by striking ‘‘the age of 65’’ and inserting ‘‘retire-
ment age (as such term is defined in section 216(l)(1))’’.
(e) ELIGIBILITY FOR PART B BENEFITS.—
(1) IN
GENERAL.—Section 1836 (42 U.S.C.
1395o) is amended by striking ‘‘age 65’’ each place
such term appears and inserting ‘‘retirement age (as
such term is defined in section 216(l)(1))’’.
(2) ENROLLMENT PERIODS.—Section 1837 (42
U.S.C. 1395p) is amended by striking ‘‘age 65’’ and
‘‘the age of 65’’ each place such terms appear and in-
serting ‘‘retirement age (as such term is defined in
section 216(l)(1))’’.
(3) COVERAGE
PERIOD.—Section 1838(c) (42
U.S.C. 1395q(c)) is amended by striking ‘‘the age of
65’’ and inserting ‘‘retirement age (as such term is
defined in section 216(l)(1))’’.
(4) AMOUNTS OF PREMIUMS.—Section 1839 (42
U.S.C. 1395r) is amended by striking ‘‘age 65’’ and
‘‘the age of 65’’ each place such terms appear and in-
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serting ‘‘retirement age (as such term is defined in
section 216(l)(1))’’.
(f) APPROPRIATIONS TO COVER GOVERNMENT CON-
TRIBUTIONS
AND
CONTINGENCY
RESERVE.—Section
1844(a)(1) (42 U.S.C. 1395w) is amended by striking ‘‘age
65’’ each place such term appears and inserting ‘‘retirement
age’’.
(g) MEDICARE SECONDARY PAYER.—Section 1862(b)
(42 U.S.C. 1395y(b)) is amended by striking ‘‘age 65’’ each
place such term appears and inserting ‘‘retirement age (as
such term is defined in section 216(l)(1))’’.
(h) MEDICARE SUPPLEMENTAL POLICIES.—Section
1882(s)(2)(A) (42 U.S.C. 1395ss(s)(2)(A)) is amended by
striking ‘‘65 years of age’’ and inserting ‘‘retirement age
(as such term is defined in section 216(l)(1))’’.
SEC. 5612. INCREASED CERTIFICATION PERIOD FOR CER-
TAIN 
ORGAN 
PROCUREMENT 
ORGANIZA-
TIONS.
Section 
1138(b)(1)(A)(ii) 
(42 
U.S.C. 
1320b–
8(b)(1)(A)(ii)) is amended by striking ‘‘two years’’ and in-
serting ‘‘2 years (3 years if the Secretary determines appro-
priate for an organization on the basis of its past prac-
tices)’’.
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SEC. 5613. FACILITATING THE USE OF PRIVATE CONTRACTS
UNDER THE MEDICARE PROGRAM.
(a) IN GENERAL.—Title XVIII of the Social Security
Act (42 U.S.C. 1395 et seq.) is amended by inserting after
section 1804 of such Act (42 U.S.C. 1395b–2) the following:
‘‘CLARIFICATION OF PRIVATE CONTRACTS FOR HEALTH
SERVICES
‘‘SEC. 1805. (a) IN GENERAL.—Nothing in this title
shall prohibit a physician or another health care profes-
sional who does not provide items or services under the pro-
gram under this title from entering into a private contract
with a medicare beneficiary for health services for which
no claim for payment is to be submitted under this title.
‘‘(b) LIMITATION ON ACTUAL CHARGE NOT APPLICA-
BLE.—Section 1848(g) shall not apply with respect to a
health service provided to a medicare beneficiary under a
contract described in subsection (a).
‘‘(c) DEFINITION
OF MEDICARE BENEFICIARY.—In
this section, the term ‘medicare beneficiary’ means an indi-
vidual who is entitled to benefits under part A or enrolled
under part B.
‘‘(d) REPORT.—Not later than October 1, 2001, the Ad-
ministrator of the Health Care Financing Administration
shall submit a report to Congress on the effect on the pro-
gram under this title of private contracts entered into under
this section. Such report shall include—
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‘‘(1) analyses regarding—
‘‘(A) the fiscal impact of such contracts on
total Federal expenditures under this title and
on out-of-pocket expenditures by medicare bene-
ficiaries for health services under this title; and
‘‘(B) the quality of the health services pro-
vided under such contracts; and
‘‘(2) recommendations as to whether medicare
beneficiaries should continue to be able to enter pri-
vate contracts under this section and if so, what legis-
lative changes, if any should be made to improve such
contracts.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply with respect to contracts entered into
on and after October 1, 1997.
Subtitle I—Miscellaneous
Provisions
SEC. 5651. INCLUSION OF STANLY COUNTY, N.C. IN A LARGE
URBAN AREA UNDER MEDICARE PROGRAM.
(a) IN GENERAL.—For purposes of section 1886(d) of
the Social Security Act (42 U.S.C. 1395ww(d)), the large
urban area of Charlotte-Gastonia-Rock Hill-North Caro-
lina-South Carolina may be deemed to include Stanly
County, North Carolina.
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(b) EFFECTIVE DATE.—This section shall apply with
respect to discharges occurring on or after October 1, 1997.
SEC. 5652. MEDICARE ANTI-DUPLICATION PROVISION.
(a) In section 1395ss(d)(3)(A)(v) of title 42, United
States Code, insert ‘‘(a)’’ before ‘‘For’’, and after the first
sentence insert:
‘‘(b) For purposes of this subparagraph, a health in-
surance policy (which may be a contract with a health
maintenance organization) is not considered to ‘duplicate’
health benefits under this title or title XIX or under another
health insurance policy if it—
‘‘(1) provides comprehensive health care benefits
that replace the benefits provided by another health
insurance policy,
‘‘(2) is being provided to an individual entitled
to benefits under part A or enrolled under part B on
the basis of section 226(b), and
‘‘(3) coordinates against items and services
available or paid for under this title or title XIX,
provided that payments under this title or title XIX
shall not be treated as payments under such policy in
determining annual or lifetime benefit limits.’’.
(b) In section 1395ss(d)(3)(A)(v) of title 42, United
States Code, insert ‘‘(c)’’ before ‘‘For purposes of this
clause’’.
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DIVISION 
2—MEDICAID 
AND
CHILDREN’S HEALTH INSUR-
ANCE INITIATIVES
Subtitle I—Medicaid
CHAPTER 1—MEDICAID SAVINGS
Subchapter A—Managed Care Reforms
SEC. 5701. STATE OPTION FOR MANDATORY MANAGED
CARE.
(a) IN GENERAL.—Title XIX is amended—
(1) by inserting after the title heading the follow-
ing:
‘‘PART A—GENERAL PROVISIONS’’; and
(2) by adding at the end the following new part:
‘‘PART B—PROVISIONS RELATING TO MANAGED CARE
‘‘SEC. 1941. BENEFICIARY CHOICE; ENROLLMENT.
‘‘(a) STATE OPTIONS FOR ENROLLMENT OF BENE-
FICIARIES IN MANAGED CARE ARRANGEMENTS.—
‘‘(1) IN
GENERAL.—Subject to the succeeding
provisions of this part and notwithstanding para-
graphs (1), (10)(B), and (23)(A) of section 1902(a),
a State may require an individual who is eligible for
medical assistance under the State plan under this
title and who is not a special needs individual (as de-
fined in subsection (e)) to enroll with a managed care
entity (as defined in section 1950(a)(1)) as a condi-
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tion of receiving such assistance (and, with respect to
assistance furnished by or under arrangements with
such entity, to receive such assistance through the en-
tity), if the following provisions are met:
‘‘(A) ENTITY MEETS REQUIREMENTS.—The
entity meets the applicable requirements of this
part.
‘‘(B) CONTRACT WITH STATE.—The entity
enters into a contract with the State to provide
services for the benefit of individuals eligible for
benefits under this title under which prepaid
payments to such entity are made on an actuari-
ally sound basis. Such contract shall specify ben-
efits the provision (or arrangement) for which
the entity is responsible.
‘‘(C) CHOICE OF COVERAGE.—
‘‘(i) IN GENERAL.—The State permits
an individual to choose a managed care en-
tity from managed care organizations and
primary care case managers who meet the
requirements of this part but not less than
from—
‘‘(I) 2 medicaid managed care or-
ganizations,
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‘‘(II) a medicaid managed care
organization and a primary care case
manager, or
‘‘(III) a primary care case man-
ager as long as an individual may
choose between 2 primary care case
managers.
‘‘(ii) STATE OPTION.—At the option of
the State, a State shall be considered to
meet the requirements of clause (i) in the
case of an individual residing in a rural
area, if the State—
‘‘(I) requires the individual to en-
roll with a medicaid managed care or-
ganization or a primary care case
manager if such organization or entity
permits the individual to receive such
assistance through not less than 2 phy-
sicians or case managers (to the extent
that at least 2 physicians or case man-
agers are available to provide such as-
sistance in the area), and
‘‘(II) permits the individual to ob-
tain such assistance from any other
provider in appropriate circumstances
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(as established by the State under regu-
lations of the Secretary).
‘‘(iii) RELIGIOUS CHOICE.—The State,
in permitting an individual to choose a
managed care entity under clause (i) shall
permit the individual to have access to ap-
propriate 
religiously-affiliated 
long-term
care facilities that are not pervasively sec-
tarian and that provide comparable non-
sectarian medical care. With respect to such
access, the State shall permit an individual
to select a facility that is not a part of the
network of the managed care entity if such
network does not provide access to appro-
priate faith-based facilities. Such facility
that provides care under this clause shall
accept the terms and conditions offered by
the managed care entity to other providers
in the network. No facility may be com-
pelled to admit an individual if the medical
director of that facility believes that the fa-
cility cannot provide the specific nursing
care and services an enrollee requires.
‘‘(D) 
CHANGES
IN
ENROLLMENT.—The
State—
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‘‘(i) provides the individual with the
opportunity to change enrollment among
managed care entities once annually and
notifies the individual of such opportunity
not later than 60 days prior to the first
date on which the individual may change
enrollment, and
‘‘(ii) permits individuals to terminate
their enrollment as provided under para-
graph (2).
‘‘(E) ENROLLMENT PRIORITIES.—The State
establishes a method for establishing enrollment
priorities in the case of a managed care entity
that does not have sufficient capacity to enroll
all such individuals seeking enrollment under
which individuals already enrolled with the en-
tity are given priority in continuing enrollment
with the entity.
‘‘(F) DEFAULT
ENROLLMENT
PROCESS.—
The State establishes a default enrollment process
which meets the requirements described in para-
graph (3) and under which any such individual
who does not enroll with a managed care entity
during the enrollment period specified by the
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State shall be enrolled by the State with such an
entity in accordance with such process.
‘‘(G) SANCTIONS.—The State establishes the
sanctions provided for in section 1949.
‘‘(H) INDIAN ENROLLMENT.—No individual
who is an Indian (as defined in section 4 of the
Indian Health Care Improvement Act of 1976) is
required to enroll in any entity that is not one
of the following (and only if such entity is par-
ticipating under the plan):
‘‘(i) The Indian Health Service.
‘‘(ii) An Indian health program oper-
ated by an Indian tribe or tribal organiza-
tion pursuant to a contract, grant, coopera-
tive agreement, or compact with the Indian
Health Service pursuant to the Indian Self-
Determination Act (25 U.S.C. 450 et seq.).
‘‘(iii) An urban Indian health program
operated by an urban Indian organization
pursuant to a grant or contract with the
Indian Health Service pursuant to title V of
the Indian Health Care Improvement Act
(25 U.S.C. 1601 et seq.).
‘‘(2) TERMINATION OF ENROLLMENT.—
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‘‘(A) IN GENERAL.—The State, enrollment
broker, and managed care entity (if any) shall
permit an individual eligible for medical assist-
ance under the State plan under this title who
is enrolled with the entity to terminate such en-
rollment for cause at any time, and without
cause during the 90-day period beginning on the
date the individual receives notice of enrollment
and at least every 12 months thereafter, and
shall notify each such individual of the oppor-
tunity to terminate enrollment under these con-
ditions.
‘‘(B) FRAUDULENT INDUCEMENT OR COER-
CION AS GROUNDS FOR CAUSE.—For purposes of
subparagraph (A), an individual terminating
enrollment with a managed care entity on the
grounds that the enrollment was based on fraud-
ulent inducement or was obtained through coer-
cion or pursuant to the imposition against the
managed care entity of the sanction described in
section 1949(b)(3) shall be considered to termi-
nate such enrollment for cause.
‘‘(C) NOTICE OF TERMINATION.—
‘‘(i) NOTICE TO STATE.—
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‘‘(I) BY INDIVIDUALS.—Each in-
dividual terminating enrollment with
a managed care entity under subpara-
graph (A) shall do so by providing no-
tice of the termination to an office of
the State agency administering the
State plan under this title, the State or
local welfare agency, or an office of a
managed care entity.
‘‘(II) BY
ORGANIZATIONS.—Any
managed care entity which receives no-
tice of an individual’s termination of
enrollment with such entity through re-
ceipt of such notice at an office of a
managed care entity shall provide
timely notice of the termination to the
State agency administering the State
plan under this title.
‘‘(ii) NOTICE
TO
PLAN.—The State
agency administering the State plan under
this title or the State or local welfare agen-
cy which receives notice of an individual’s
termination of enrollment with a managed
care entity under clause (i) shall provide
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timely notice of the termination to such en-
tity.
‘‘(3) DEFAULT ENROLLMENT PROCESS REQUIRE-
MENTS.—The requirements of a default enrollment
process established by a State under paragraph (1)(F)
are as follows:
‘‘(A) The process shall provide that the
State may not enroll individuals with a man-
aged care entity which is not in compliance with
the applicable requirements of this part.
‘‘(B) The process shall provide (consistent
with subparagraph (A)) for enrollment of such
an individual with a medicaid managed care or-
ganization—
‘‘(i) that maintains existing provider-
individual relationships or that has entered
into contracts with providers (such as Fed-
erally qualified health centers, rural health
clinics, hospitals that qualify for dispropor-
tionate share hospital payments under sec-
tion 1886(d)(5)(F), and hospitals described
in section 1886(d)(1)(B)(iii)) that have tra-
ditionally served beneficiaries under this
title, and
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‘‘(ii) if there is no provider described
in clause (i), in a manner that provides for
an equitable distribution of individuals
among all qualified managed care entities
available to enroll individuals through such
default enrollment process, consistent with
the enrollment capacities of such entities.
‘‘(C) The process shall permit and assist an
individual enrolled with an entity under such
process to change such enrollment to another
managed care entity during a period (of at least
90 days) after the effective date of the enrollment.
‘‘(D) The process may provide for consider-
ation of factors such as quality, geographic prox-
imity, continuity of providers, and capacity of
the plan when conducting such process.
‘‘(b) REENROLLMENT OF INDIVIDUALS WHO REGAIN
ELIGIBILITY.—
‘‘(1) IN GENERAL.—If an individual eligible for
medical assistance under a State plan under this title
and enrolled with a managed care entity with a con-
tract under subsection (a)(1)(B) ceases to be eligible
for such assistance for a period of not greater than 2
months, the State may provide for the automatic re-
enrollment of the individual with the entity as of the
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first day of the month in which the individual is
again eligible for such assistance, and may consider
factors such as quality, geographic proximity, con-
tinuity of providers, and capacity of the plan when
conducting such reenrollment.
‘‘(2) CONDITIONS.—Paragraph (1) shall only
apply if—
‘‘(A) the month for which the individual is
to be reenrolled occurs during the enrollment pe-
riod covered by the individual’s original enroll-
ment with the managed care entity,
‘‘(B) the managed care entity continues to
have a contract with the State agency under sub-
section (a)(1)(B) as of the first day of such
month, and
‘‘(C) the managed care entity complies with
the applicable requirements of this part.
‘‘(3) NOTICE
OF
REENROLLMENT.—The State
shall provide timely notice to a managed care entity
of any reenrollment of an individual under this sub-
section.
‘‘(c) STATE OPTION OF MINIMUM ENROLLMENT PE-
RIOD.—
‘‘(1) IN GENERAL.—In the case of an individual
who is enrolled with a managed care entity under
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this part and who would (but for this subsection) lose
eligibility for benefits under this title before the end
of the minimum enrollment period (defined in para-
graph (2)), the State plan under this title may pro-
vide, notwithstanding any other provision of this
title, that the individual shall be deemed to continue
to be eligible for such benefits until the end of such
minimum period, but, except for benefits furnished
under section 1902(a)(23)(B), only with respect to
such benefits provided to the individual as an enrollee
of such entity.
‘‘(2) MINIMUM ENROLLMENT PERIOD DEFINED.—
For purposes of paragraph (1), the term ‘minimum
enrollment period’ means, with respect to an individ-
ual’s enrollment with an entity under a State plan,
a period, established by the State, of not more than
6 months beginning on the date the individual’s en-
rollment with the entity becomes effective, except that
a State may extend such period for up to a total of
12 months in the case of an individual’s enrollment
with a managed care entity (as defined in section
1950(a)(1)) so long as such extension is done uni-
formly for all individuals enrolled with all such enti-
ties.
‘‘(d) OTHER ENROLLMENT-RELATED PROVISIONS.—
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‘‘(1) NONDISCRIMINATION.—A managed care en-
tity may not discriminate on the basis of health sta-
tus or anticipated need for services in the enrollment,
reenrollment, or disenrollment of individuals eligible
to receive medical assistance under a State plan
under this title or by discouraging enrollment (except
as permitted by this section) by eligible individuals.
‘‘(2) PROVISION OF INFORMATION.—
‘‘(A) IN GENERAL.—Each State, enrollment
broker, or managed care organization shall pro-
vide all enrollment notices and informational
and instructional materials in a manner and
form which may be easily understood by enroll-
ees of the entity who are eligible for medical as-
sistance under the State plan under this title, in-
cluding enrollees and potential enrollees who are
blind, deaf, disabled, or cannot read or under-
stand the English language.
‘‘(B) INFORMATION TO HEALTH CARE PRO-
VIDERS, ENROLLEES, AND POTENTIAL ENROLL-
EES.—Each medicaid managed care organiza-
tion shall—
‘‘(i) upon request, make the informa-
tion described in section 1945(c)(1) avail-
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able to enrollees and potential enrollees in
the organization’s service area, and
‘‘(ii) provide to enrollees and potential
enrollees information regarding all items
and services that are available to enrollees
under the contract between the State and
the organization that are covered either di-
rectly or through a method of referral and
prior authorization.
‘‘(3) PROVISION
OF
COMPARATIVE
INFORMA-
TION.—
‘‘(A) BY STATE.—A State that requires in-
dividuals to enroll with managed care entities
under this part shall annually provide to all en-
rollees and potential enrollees a list identifying
the managed care entities that are (or will be)
available and information described in subpara-
graph (C) concerning such entities. Such infor-
mation shall be presented in a comparative,
chart-like form.
‘‘(B) BY ENTITY.—Upon the enrollment, or
renewal of enrollment, of an individual with a
managed care entity under this part, the entity
shall provide such individual with the informa-
tion described in subparagraph (C) concerning
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such entity and other entities available in the
area, presented in a comparative, chart-like
form.
‘‘(C) REQUIRED
INFORMATION.—Informa-
tion under this subparagraph, with respect to a
managed care entity for a year, shall include the
following:
‘‘(i) BENEFITS.—The benefits covered
by the entity, including—
‘‘(I) covered items and services be-
yond those provided under a tradi-
tional fee-for-service program;
‘‘(II) any beneficiary cost sharing;
and
‘‘(III) any maximum limitations
on out-of-pocket expenses.
‘‘(ii) PREMIUMS.—The net monthly
premium, if any, under the entity.
‘‘(iii) SERVICE
AREA.—The service
area of the entity.
‘‘(iv) QUALITY AND PERFORMANCE.—
To the extent available, quality and per-
formance indicators for the benefits under
the entity (and how they compare to such
indicators under the traditional fee-for-serv-
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ice programs in the area involved), includ-
ing—
‘‘(I) disenrollment rates for enroll-
ees electing to receive benefits through
the entity for the previous 2 years (ex-
cluding disenrollment due to death or
moving outside the service area of the
entity);
‘‘(II) information on enrollee sat-
isfaction;
‘‘(III) information on health proc-
ess and outcomes;
‘‘(IV) grievance procedures;
‘‘(V) the extent to which an en-
rollee may select the health care pro-
vider of their choice, including health
care providers within the network of
the entity and out-of-network health
care providers (if the entity covers out-
of-network items and services); and
‘‘(VI) an indication of enrollee ex-
posure to balance billing and the re-
strictions on coverage of items and
services provided to such enrollee by an
out-of-network health care provider.
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‘‘(v) SUPPLEMENTAL
BENEFITS
OP-
TIONS.—Whether the entity offers optional
supplemental benefits and the terms and
conditions (including premiums) for such
coverage.
‘‘(vi) PHYSICIAN COMPENSATION.—An
overall summary description as to the meth-
od of compensation of participating physi-
cians.
‘‘(e) SPECIAL NEEDS INDIVIDUALS DESCRIBED.—In
this part, the term ‘special needs individual’ means any
of the following individuals:
‘‘(1) SPECIAL
NEEDS
CHILD.—An individual
who is under 19 years of age who—
‘‘(A) is eligible for supplemental security
income under title XVI;
‘‘(B) 
is 
described 
under 
section
501(a)(1)(D);
‘‘(C) is a child described in section
1902(e)(3); or
‘‘(D) is not described in any preceding sub-
paragraph but is in foster care or otherwise in
an out-of-home placement.
‘‘(2) MEDICARE
BENEFICIARIES.—A qualified
medicare 
beneficiary 
(as 
defined 
in 
section
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1905(p)(1)) or an individual otherwise eligible for
benefits under title XVIII.
‘‘(f) RULE OF CONSTRUCTION.—Nothing in this part
shall be construed as allowing a managed care entity that
has entered into a contract with the State under this part
to restrict the choice of an individual in receiving services
described in section 1905(a)(4)(C).
‘‘SEC. 1942. BENEFICIARY ACCESS TO SERVICES GEN-
ERALLY.
‘‘(a) ACCESS TO SERVICES.—
‘‘(1) IN GENERAL.—Each managed care entity
shall provide or arrange for the provision of all medi-
cally necessary medical assistance under this title
which is specified in the contract entered into between
such entity and the State under section 1941(a)(1)(B)
for enrollees who are eligible for medical assistance
under the State plan under this title.
‘‘(2) 
PRIMARY-CARE-PROVIDER-TO-ENROLLEE
RATIO AND MAXIMUM TRAVEL TIME.—Each such en-
tity shall assure adequate access to primary care serv-
ices by meeting standards, established by the Sec-
retary, relating to the maximum ratio of enrollees
under this title to full-time-equivalent primary care
providers available to serve such enrollees and to
maximum travel time for such enrollees to access such
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providers. The Secretary may permit such a maxi-
mum ratio to vary depending on the area and popu-
lation served. Such standards shall be based on stand-
ards commonly applied in the commercial market,
commonly used in accreditation of managed care or-
ganizations, and standards used in the approval of
waiver applications under section 1115, and shall be
consistent 
with 
the 
requirements 
of 
section
1876(c)(4)(A) and part C of title XVIII.
‘‘(b) REFERRAL TO SPECIALTY CARE FOR ENROLLEES
REQUIRING TREATMENT BY SPECIALISTS.—
‘‘(1) IN GENERAL.—In the case of an enrollee
under a managed care entity and who has a condi-
tion or disease of sufficient seriousness and complex-
ity to require treatment by a specialist, the entity
shall make or provide for a referral to a specialist
who is available and accessible to provide the treat-
ment for such condition or disease.
‘‘(2) SPECIALIST DEFINED.—For purposes of this
subsection, the term ‘specialist’ means, with respect to
a condition, a health care practitioner, facility, or
center (such as a center of excellence) that has ade-
quate expertise through appropriate training and ex-
perience (including, in the case of a child, an appro-
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priate pediatric specialist) to provide high quality
care in treating the condition.
‘‘(3) CARE
UNDER
REFERRAL.—Care provided
pursuant to such referral under paragraph (1) shall
be—
‘‘(A) pursuant to a treatment plan (if any)
developed by the specialist and approved by the
entity, in consultation with the designated pri-
mary care provider or specialist and the enrollee
(or the enrollee’s designee), and
‘‘(B) in accordance with applicable quality
assurance and utilization review standards of
the entity.
Nothing in this subsection shall be construed as pre-
venting such a treatment plan for an enrollee from re-
quiring a specialist to provide the primary care pro-
vider with regular updates on the specialty care pro-
vided, as well as all necessary medical information.
‘‘(4) REFERRALS
TO
PARTICIPATING
PROVID-
ERS.—An entity is not required under paragraph (1)
to provide for a referral to a specialist that—
‘‘(A) is not a participating provider, unless
the entity does not have an appropriate special-
ist that is available and accessible to treat the
enrollee’s condition, and
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‘‘(B) is a participating provider with re-
spect to such treatment.
‘‘(5) TREATMENT OF NONPARTICIPATING PROVID-
ERS.—If an entity refers an enrollee to a nonpartici-
pating specialist, services provided pursuant to the
approved treatment plan shall be provided at no ad-
ditional cost to the enrollee beyond what the enrollee
would otherwise pay for services received by such a
specialist that is a participating provider.
‘‘(c) TIMELY DELIVERY OF SERVICES.—Each managed
care entity shall respond to requests from enrollees for the
delivery of medical assistance in a manner which—
‘‘(1) makes such assistance—
‘‘(A) available and accessible to each such
individual, within the area served by the entity,
with reasonable promptness and in a manner
which assures continuity; and
‘‘(B) when medically necessary, available
and accessible 24 hours a day and 7 days a
week, and
‘‘(2) with respect to assistance provided to such
an individual other than through the entity, or with-
out prior authorization, in the case of a primary care
case manager, provides for reimbursement to the indi-
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vidual (if applicable under the contract between the
State and the entity) if—
‘‘(A) the services were medically necessary
and immediately required because of an unfore-
seen illness, injury, or condition and meet the re-
quirements for access to emergency care under
section 1943; and
‘‘(B) it was not reasonable given the cir-
cumstances to obtain the services through the en-
tity, or, in the case of a primary care case man-
ager, with prior authorization.
‘‘(d) INTERNAL GRIEVANCE PROCEDURE.—Each med-
icaid managed care organization shall establish an internal
grievance procedure under which an enrollee who is eligible
for medical assistance under the State plan under this title,
or a provider on behalf of such an enrollee, may challenge
the denial of coverage of or payment for such assistance.
‘‘(e) INFORMATION ON BENEFIT CARVE OUTS.—Each
managed care entity shall inform each enrollee, in a written
and prominent manner, of any benefits to which the enrollee
may be entitled to medical assistance under this title but
which are not made available to the enrollee through the
entity. Such information shall include information on
where and how such enrollees may access benefits not made
available to the enrollee through the entity.
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‘‘(f) DEMONSTRATION OF ADEQUATE CAPACITY AND
SERVICES.—Each medicaid managed care organization
shall provide the State and the Secretary with adequate as-
surances (as determined by the Secretary) that the organi-
zation, with respect to a service area—
‘‘(1) has the capacity to serve the expected enroll-
ment in such service area,
‘‘(2) offers an appropriate range of services for
the population expected to be enrolled in such service
area, including transportation services and trans-
lation services consisting of the principal languages
spoken in the service area,
‘‘(3) maintains a sufficient number, mix, and ge-
ographic distribution of providers of services included
in the contract with the State to ensure that services
are available to individuals receiving medical assist-
ance and enrolled in the organization to the same ex-
tent that such services are available to individuals en-
rolled in the organization who are not recipients of
medical assistance under the State plan under this
title,
‘‘(4) maintains extended hours of operation with
respect to primary care services that are beyond those
maintained during a normal business day,
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‘‘(5) provides preventive and primary care serv-
ices in locations that are readily accessible to mem-
bers of the community,
‘‘(6) 
provides 
information 
concerning 
edu-
cational, social, health, and nutritional services of-
fered by other programs for which enrollees may be el-
igible, and
‘‘(7) complies with such other requirements relat-
ing to access to care as the Secretary or the State
may impose.
‘‘(g) COMPLIANCE WITH CERTAIN MATERNITY AND
MENTAL HEALTH REQUIREMENTS.—Each medicaid man-
aged care organization shall comply with the requirements
of subpart 2 of part A of title XXVII of the Public Health
Service Act insofar as such requirements apply with respect
to a health insurance issuer that offers group health insur-
ance coverage.
‘‘(h) TREATMENT
OF
CHILDREN
WITH
SPECIAL
HEALTH CARE NEEDS.—
‘‘(1) IN GENERAL.—In the case of an enrollee of
a managed care entity who is a child described in sec-
tion 1941(e)(1)—
‘‘(A) if any medical assistance specified in
the contract with the State is identified in a
treatment plan prepared for the enrollee, the
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managed care entity shall provide (or arrange to
be provided) such assistance in accordance with
the treatment plan either—
‘‘(i) by referring the enrollee to a pedi-
atric health care provider who is trained
and experienced in the provision of such as-
sistance and who has a contract with the
managed care entity to provide such assist-
ance; or
‘‘(ii) if appropriate services are not
available through the managed care entity,
permitting such enrollee to seek appropriate
specialty services from pediatric health care
providers outside of or apart from the man-
aged care entity, and
‘‘(B) the managed care entity shall require
each health care provider with whom the man-
aged care entity has entered into an agreement
to provide medical assistance to enrollees to fur-
nish the medical assistance specified in such en-
rollee’s treatment plan to the extent the health
care provider is able to carry out such treatment
plan.
‘‘(2) PRIOR
AUTHORIZATION.—An enrollee re-
ferred for treatment under paragraph (1)(A)(i), or
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permitted to seek treatment outside of or apart from
the managed care entity under paragraph (1)(A)(ii)
shall be deemed to have obtained any prior authoriza-
tion required by the entity.
‘‘SEC. 1943. REQUIREMENTS FOR ACCESS TO EMERGENCY
CARE.
‘‘(a) IN GENERAL.—A managed care entity shall—
‘‘(1) provide coverage for emergency services (as
defined in subsection (c)) without regard to prior au-
thorization or the emergency care provider’s contrac-
tual relationship with the organization; and
‘‘(2) comply with such guidelines as the Sec-
retary shall prescribe relating to promoting efficient
and timely coordination of appropriate maintenance
and post-stabilization care of an enrollee after the en-
rollee has been determined to be stable in accordance
with section 1867.
‘‘(b) CONTENT OF GUIDELINES.—The guidelines pre-
scribed under subsection (a) shall provide that—
‘‘(1) a provider of emergency services shall make
a documented good faith effort to contact the managed
care entity in a timely fashion from the point at
which the individual is stabilized to request approval
for medically necessary post-stabilization care,
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‘‘(2) the entity shall respond in a timely fashion
to the initial contact with the entity with a decision
as to whether the services for which approval is re-
quested will be authorized, and
‘‘(3) if a denial of a request is communicated,
the entity shall, upon request from the treating physi-
cian, arrange for a physician who is authorized by
the entity to review the denial to communicate di-
rectly with the treating physician in a timely fashion.
‘‘(c) DEFINITION OF EMERGENCY SERVICES.—In this
section—
‘‘(1) IN GENERAL.—The term ‘emergency serv-
ices’ means, with respect to an individual enrolled
with a managed care entity, covered inpatient and
outpatient services that—
‘‘(A) are furnished by a provider that is
qualified to furnish such services under this title,
and
‘‘(B) are needed to evaluate or stabilize an
emergency medical condition (as defined in sub-
paragraph (B)).
‘‘(2) EMERGENCY MEDICAL CONDITION BASED ON
PRUDENT LAYPERSON.—The term ‘emergency medical
condition’ means a medical condition manifesting it-
self by acute symptoms of sufficient severity (includ-
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ing severe pain) such that a prudent layperson, who
possesses an average knowledge of health and medi-
cine, could reasonably expect the absence of immediate
medical attention to result in—
‘‘(A) placing the health of the individual
(or, with respect to a pregnant woman, the
health of the woman or her unborn child) in seri-
ous jeopardy,
‘‘(B) serious impairment to bodily func-
tions, or
‘‘(C) serious dysfunction of any bodily
organ or part.
‘‘SEC. 1944. OTHER BENEFICIARY PROTECTIONS.
‘‘(a) PROTECTING ENROLLEES AGAINST THE INSOL-
VENCY OF MANAGED CARE ENTITIES AND AGAINST THE
FAILURE OF THE STATE TO PAY SUCH ENTITIES.—Each
managed care entity shall provide that an individual eligi-
ble for medical assistance under the State plan under this
title who is enrolled with the entity may not be held liable—
‘‘(1) for the debts of the managed care entity, in
the event of the entity’s insolvency,
‘‘(2) for services provided to the individual—
‘‘(A) in the event of the entity failing to re-
ceive payment from the State for such services;
or
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‘‘(B) in the event of a health care provider
with a contractual or other arrangement with
the entity failing to receive payment from the
State or the managed care entity for such serv-
ices, or
‘‘(3) for the debts of any health care provider
with a contractual or other arrangement with the en-
tity to provide services to the individual, in the event
of the insolvency of the health care provider.
‘‘(b) PROTECTION OF BENEFICIARIES AGAINST BAL-
ANCE BILLING THROUGH SUBCONTRACTORS.—
‘‘(1) IN
GENERAL.—Any contract between a
managed care entity that has an agreement with a
State under this title and another entity under which
the other entity (or any other entity pursuant to the
contract) provides directly or indirectly for the provi-
sion of services to beneficiaries under the agreement
with the State shall include such provisions as the
Secretary may require in order to assure that the
other entity complies with balance billing limitations
and other requirements of this title (such as limita-
tion on withholding of services) as they would apply
to the managed care entity if such entity provided
such services directly and not through a contract with
another entity.
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‘‘(2) APPLICATION
OF
SANCTIONS
FOR
VIOLA-
TIONS.—The provisions of section 1128A(b)(2)(B) and
1128B(d)(1) shall apply with respect to entities con-
tracting directly or indirectly with a managed care
entity (with a contract with a State under this title)
for the provision of services to beneficiaries under
such a contract in the same manner as such provi-
sions would apply to the managed care entity if it
provided such services directly and not through a con-
tract with another entity.
‘‘SEC. 1945. ASSURING QUALITY CARE.
‘‘(a) EXTERNAL INDEPENDENT REVIEW OF MANAGED
CARE ENTITY ACTIVITIES.—
‘‘(1) REVIEW OF MEDICAID MANAGED CARE OR-
GANIZATION CONTRACT.—
‘‘(A) IN GENERAL.—Except as provided in
paragraph (2), each medicaid managed care or-
ganization shall be subject to an annual external
independent review of the quality outcomes and
timeliness of, and access to, the items and serv-
ices specified in such organization’s contract
with the State under section 1941(a)(1)(B). Such
review shall specifically evaluate the extent to
which the medicaid managed care organization
provides such services in a timely manner.
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‘‘(B) CONTENTS OF REVIEW.—An external
independent review conducted under this sub-
section shall include—
‘‘(i) a review of the entity’s medical
care, through sampling of medical records
or other appropriate methods, for indica-
tions of quality of care and inappropriate
utilization (including overutilization) and
treatment,
‘‘(ii) a review of enrollee inpatient and
ambulatory data, through sampling of med-
ical records or other appropriate methods,
to determine trends in quality and appro-
priateness of care,
‘‘(iii) notification of the entity and the
State when the review under this paragraph
indicates inappropriate care, treatment, or
utilization of services (including overutili-
zation), and
‘‘(iv) other activities as prescribed by
the Secretary or the State.
‘‘(C) USE
OF
PROTOCOLS.—An external
independent review conducted under this sub-
section on and after January 1, 1999, shall use
protocols that have been developed, tested, and
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validated by the Secretary and that are at least
as rigorous as those used by the National Com-
mittee on Quality Assurance as of the date of the
enactment of this section.
‘‘(D) AVAILABILITY OF RESULTS.—The re-
sults of each external independent review con-
ducted under this paragraph shall be available to
participating health care providers, enrollees,
and potential enrollees of the medicaid managed
care organization, except that the results may
not be made available in a manner that discloses
the identity of any individual patient.
‘‘(2) DEEMED COMPLIANCE.—
‘‘(A) MEDICARE ORGANIZATIONS.—The re-
quirements of paragraph (1) shall not apply
with respect to a medicaid managed care organi-
zation if the organization is an eligible organiza-
tion with a contract in effect under section 1876
or under part C of title XVIII.
‘‘(B) PRIVATE ACCREDITATION.—
‘‘(i) IN
GENERAL.—The requirements
of paragraph (1) shall not apply with re-
spect to a medicaid managed care organiza-
tion if—
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‘‘(I) the organization is accredited
by an organization meeting the re-
quirements described in subparagraph
(C)), and
‘‘(II) the standards and process
under which the organization is ac-
credited meet such requirements as are
established under clause (ii), without
regard to whether or not the time re-
quirement of such clause is satisfied.
‘‘(ii) STANDARDS AND PROCESS.—Not
later than 180 days after the date of the en-
actment of this section, the Secretary shall
specify requirements for the standards and
process under which a medicaid managed
care organization is accredited by an orga-
nization meeting the requirements of sub-
paragraph (B).
‘‘(C) ACCREDITING ORGANIZATION.—An ac-
crediting organization meets the requirements of
this subparagraph if the organization—
‘‘(i) is a private, nonprofit organiza-
tion,
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‘‘(ii) exists for the primary purpose of
accrediting managed care organizations or
health care providers, and
‘‘(iii) is independent of health care
providers or associations of health care pro-
viders.
‘‘(3) REVIEW OF PRIMARY CARE CASE MANAGER
CONTRACT.—Each primary care case manager shall
be subject to an annual external independent review
of the quality and timeliness of, and access to, the
items and services specified in the contract entered
into between the State and the primary care case
manager under section 1941(a)(1)(B).
‘‘(4) USE OF VALIDATION SURVEYS.—The Sec-
retary shall conduct surveys each year to validate ex-
ternal reviews of the number of managed care entities
in the year. In conducting such surveys the Secretary
shall use the same protocols as were used in preparing
the external reviews. If an external review finds that
an individual managed care entity meets applicable
requirements, but the Secretary determines that the
entity does not meet such requirements, the Sec-
retary’s determination as to the entity’s noncompli-
ance with such requirements is binding and super-
sedes that of the previous survey.
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‘‘(b) FEDERAL MONITORING RESPONSIBILITIES.—The
Secretary shall review the external independent reviews con-
ducted pursuant to subsection (a) and shall monitor the ef-
fectiveness of the State’s monitoring of managed care enti-
ties and any followup activities required under this part.
If the Secretary determines that a State’s monitoring and
followup activities are not adequate to ensure that the re-
quirements of such section are met, the Secretary shall un-
dertake appropriate followup activities to ensure that the
State improves its monitoring and followup activities.
‘‘(c) PROVIDING INFORMATION ON SERVICES.—
‘‘(1) REQUIREMENTS
FOR
MEDICAID
MANAGED
CARE ORGANIZATIONS.—Each medicaid managed care
organization shall provide to the State complete and
timely information concerning the following:
‘‘(A) The services that the organization pro-
vides to (or arranges to be provided to) individ-
uals eligible for medical assistance under the
State plan under this title.
‘‘(B) The identity, locations, qualifications,
and availability of participating health care
providers.
‘‘(C) The rights and responsibilities of en-
rollees.
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‘‘(D) The services provided by the organiza-
tion which are subject to prior authorization by
the organization as a condition of coverage (in
accordance with subsection (d)).
‘‘(E) The procedures available to an enrollee
and a health care provider to appeal the failure
of the organization to cover a service.
‘‘(F) The performance of the organization in
serving individuals eligible for medical assist-
ance under the State plan under this title.
Such information shall be provided in a form consist-
ent with the reporting of similar information by eligi-
ble organizations under section 1876 or under part C
of title XVIII.
‘‘(2) REQUIREMENTS FOR PRIMARY CARE CASE
MANAGERS.—Each 
primary 
care 
case 
manager
shall—
‘‘(A) provide to the State (at least at such
frequency as the Secretary may require), com-
plete and timely information concerning the
services that the primary care case manager pro-
vides to (or arranges to be provided to) individ-
uals eligible for medical assistance under the
State plan under this title,
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‘‘(B) make available to enrollees and poten-
tial enrollees information concerning services
available to the enrollee for which prior author-
ization by the primary care case manager is re-
quired,
‘‘(C) provide enrollees and potential enroll-
ees information regarding all items and services
that are available to enrollees under the contract
between the State and the primary care case
manager that are covered either directly or
through a method of referral and prior author-
ization, and
‘‘(D) provide assurances that such entities
and their professional personnel are licensed as
required by State law and qualified to provide
case management services, through methods such
as ongoing monitoring of compliance with appli-
cable requirements and providing information
and technical assistance.
‘‘(3) REQUIREMENTS FOR BOTH MEDICAID MAN-
AGED CARE ORGANIZATIONS AND PRIMARY CARE CASE
MANAGERS.—Each managed care entity shall provide
the State with aggregate encounter data for all items
and services, including early and periodic screening,
diagnostic, and treatment services under section
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1905(r) furnished to individuals under 21 years of
age. Any such data provided may be audited by the
State.
‘‘(d) CONDITIONS FOR PRIOR AUTHORIZATION.—Sub-
ject to section 1943, a managed care entity may require
the approval of medical assistance for nonemergency serv-
ices before the assistance is furnished to an enrollee only
if the system providing for such approval provides that such
decisions are made in a timely manner, depending upon
the urgency of the situation.
‘‘(e) PATIENT ENCOUNTER DATA.—Each medicaid
managed care organization shall maintain sufficient pa-
tient encounter data to identify the health care provider
who delivers services to patients and to otherwise enable the
State plan to meet the requirements of section 1902(a)(27)
and shall submit such data to the State or the Secretary
upon request. The medicaid managed care organization
shall incorporate such information in the maintenance of
patient encounter data with respect to such health care pro-
vider.
‘‘(f) INCENTIVES FOR HIGH QUALITY MANAGED CARE
ENTITIES.—The Secretary and the State may establish a
program to reward, through public recognition, incentive
payments, or enrollment of additional individuals (or com-
binations of such rewards), managed care entities that pro-
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vide the highest quality care to individuals eligible for med-
ical assistance under the State plan under this title who
are enrolled with such entities. For purposes of section
1903(a)(7), proper expenses incurred by a State in carrying
out such a program shall be considered to be expenses nec-
essary for the proper and efficient administration of the
State plan under this title.
‘‘(g) QUALITY ASSURANCE STANDARDS.—Any contract
between a State and a managed care entity shall provide—
‘‘(1) that the State agency will develop and im-
plement a State specific quality assessment and im-
provement strategy, consistent with standards that the
Secretary, in consultation with the States, shall estab-
lish and monitor (but that shall not preempt any
State standards that are more stringent than the
standards established under this paragraph), and that
includes—
‘‘(A) standards for access to care so that
covered services are available within reasonable
timeframes and in a manner that ensures con-
tinuity of care and adequate primary care and
specialized services capacity; and
‘‘(B) procedures for monitoring and evalu-
ating the quality and appropriateness of care
and services to beneficiaries that reflect the full
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spectrum of populations enrolled in the plan and
that include—
‘‘(i) requirements for provision of qual-
ity assurance data to the State using the
data and information set that the Sec-
retary, in consultation with the States, shall
specify with respect to entities contracting
under section 1876 or under part C of title
XVIII or alternative data requirements ap-
proved by the Secretary;
‘‘(ii) if necessary, an annual examina-
tion of the scope and content of the quality
improvement strategy; and
‘‘(iii) other aspects of care and service
directly related to the improvement of qual-
ity of care (including grievance procedures
and marketing and information standards),
‘‘(2) that entities entering into such agreements
under which payment is made on a prepaid capitated
or other risk basis shall be required—
‘‘(A) to submit to the State agency informa-
tion that demonstrates significant improvement
in the care delivered to members;
‘‘(B) to maintain an internal quality assur-
ance program consistent with paragraph (1),
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and meeting standards that the Secretary, in
consultation with the States, shall establish in
regulations; and
‘‘(C) to provide effective procedures for hear-
ing and resolving grievances between the entity
and members enrolled with the entity under this
section, and
‘‘(3) that provision is made, consistent with
State law or with regulations under State law, with
respect to the solvency of those entities, financial re-
porting by those entities, and avoidance of waste,
fraud, and abuse.
‘‘(h) ANNUAL REPORT
ON NON-HEALTH EXPENDI-
TURES.—Each medicaid managed care organization shall
annually provide to enrollees a statement disclosing the pro-
portion of the premiums and other revenues received by the
organization that are expended for non-health care items
and services.
‘‘SEC. 1946. PROTECTIONS FOR PROVIDERS.
‘‘(a) TIMELINESS OF PAYMENT.—A medicaid managed
care organization shall make payment to health care pro-
viders for items and services which are subject to the con-
tract under section 1941(a)(1)(B) and which are furnished
to individuals eligible for medical assistance under the
State plan under this title who are enrolled with the entity
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on a timely basis consistent with section 1943 and under
the claims payment procedures described in section
1902(a)(37)(A), unless the health care provider and the
managed care entity agree to an alternate payment sched-
ule.
‘‘(b) PHYSICIAN INCENTIVE PLANS.—Each medicaid
managed care organization shall require that any physi-
cian incentive plan covering physicians who are participat-
ing in the medicaid managed care organization shall meet
the requirements of section 1876(i)(8) and comparable re-
quirements under part C of title XVIII.
‘‘(c) WRITTEN
PROVIDER
PARTICIPATION
AGREE-
MENTS FOR CERTAIN PROVIDERS.—
‘‘(1) IN
GENERAL.—Each medicaid managed
care organization that enters into a written provider
participation agreement with a provider described in
paragraph (2) shall—
‘‘(A) include terms and conditions that are
no more restrictive than the terms and condi-
tions that the medicaid managed care organiza-
tion includes in its agreements with other par-
ticipating providers with respect to—
‘‘(i) the scope of covered services for
which payment is made to the provider;
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‘‘(ii) the assignment of enrollees by the
organization to the provider;
‘‘(iii) the limitation on financial risk
or availability of financial incentives to the
provider;
‘‘(iv) accessibility of care;
‘‘(v) professional credentialing and
recredentialing;
‘‘(vi) licensure;
‘‘(vii) quality and utilization manage-
ment;
‘‘(viii) 
confidentiality 
of 
patient
records;
‘‘(ix) grievance procedures; and
‘‘(x) indemnification arrangements be-
tween the organizations and providers; and
‘‘(B) provide for payment to the provider on
a basis that is comparable to the basis on which
other providers are paid.
‘‘(2) PROVIDERS DESCRIBED.—The providers de-
scribed in this paragraph are the following:
‘‘(A) Rural health clinics, as defined in sec-
tion 1905(l)(1).
‘‘(B) Federally-qualified health centers, as
defined in section 1905(l)(2)(B).
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‘‘(C) Clinics which are eligible to receive
payment for services provided under title X of
the Public Health Service Act.
‘‘(d) PAYMENTS
TO RURAL HEALTH CLINICS
AND
FEDERALLY-QUALIFIED HEALTH CENTERS.—Each medic-
aid managed care organization that has a contract under
this title with respect to the provision of services of a rural
health clinic or a Federally-qualified health center shall
provide, at the election of such clinic or center, that the
organization shall provide payments to such a clinic or cen-
ter for services described in 1905(a)(2)(C) at the rates of
payment specified in section 1902(a)(13)(E).
‘‘(e) ANTIDISCRIMINATION.—A managed care entity
shall not discriminate with respect to participation, reim-
bursement, or indemnification as to any provider who is
acting within the scope of the provider’s license or certifi-
cation under applicable State law, solely on the basis of
such license or certification. This subsection shall not be
construed to prohibit a managed care entity from including
providers only to the extent necessary to meet the needs of
the entity’s enrollees or from establishing any measure de-
signed to maintain quality and control costs consistent with
the responsibilities of the entity.
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‘‘SEC. 1947. ASSURING ADEQUACY OF PAYMENTS TO MEDIC-
AID MANAGED CARE ORGANIZATIONS AND
ENTITIES.
A State shall find, determine, and make assurances
satisfactory to the Secretary that the rates it pays a man-
aged care entity for individuals eligible under the State
plan have been determined by an independent actuary that
meets the standards for qualification and practice estab-
lished by the Actuarial Standards Board, to be sufficient
and not excessive with respect to the estimated costs of the
services provided.
‘‘SEC. 1948. FRAUD AND ABUSE.
‘‘(a) PROVISIONS APPLICABLE TO MANAGED CARE EN-
TITIES.—
‘‘(1) PROHIBITING AFFILIATIONS WITH INDIVID-
UALS DEBARRED BY FEDERAL AGENCIES.—
‘‘(A) IN GENERAL.—A managed care entity
may not knowingly—
‘‘(i) have a person described in sub-
paragraph (C) as a director, officer, part-
ner, or person with beneficial ownership of
more than 5 percent of the entity’s equity,
or
‘‘(ii) have an employment, consulting,
or other agreement with a person described
in such subparagraph for the provision of
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items and services that are significant and
material to the entity’s obligations under its
contract with the State.
‘‘(B) EFFECT
OF
NONCOMPLIANCE.—If a
State finds that a managed care entity is not in
compliance with clause (i) or (ii) of subpara-
graph (A), the State—
‘‘(i) shall notify the Secretary of such
noncompliance,
‘‘(ii) may continue an existing agree-
ment with the entity unless the Secretary
(in consultation with the Inspector General
of the Department of Health and Human
Services) directs otherwise, and
‘‘(iii) may not renew or otherwise ex-
tend the duration of an existing agreement
with the entity unless the Secretary (in con-
sultation with the Inspector General of the
Department of Health and Human Serv-
ices) provides to the State and to the Con-
gress a written statement describing compel-
ling reasons that exist for renewing or ex-
tending the agreement.
‘‘(C) PERSONS
DESCRIBED.—A person is
described in this subparagraph if such person—
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‘‘(i) is debarred, suspended, or other-
wise excluded from participating in pro-
curement activities under any Federal pro-
curement or nonprocurement program or
activity, as provided for in the Federal Ac-
quisition Streamlining Act of 1994 (Public
Law 103–355; 108 Stat. 3243), or
‘‘(ii) is an affiliate (as defined in such
Act) of a person described in clause (i).
‘‘(2) RESTRICTIONS ON MARKETING.—
‘‘(A) DISTRIBUTION OF MATERIALS.—
‘‘(i) IN
GENERAL.—A managed care
entity may not distribute directly or
through any agent or independent contrac-
tor marketing materials within any State—
‘‘(I) without the prior approval of
the State, and
‘‘(II) that contain false or materi-
ally misleading information.
‘‘(ii) CONSULTATION
IN
REVIEW
OF
MARKET MATERIALS.—In the process of re-
viewing and approving such materials, the
State shall provide for consultation with a
medical care advisory committee.
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‘‘(iii) PROHIBITION.—The State may
not enter into or renew a contract with a
managed care entity for the provision of
services to individuals enrolled under the
State plan under this title if the State de-
termines that the entity distributed directly
or through any agent or independent con-
tractor marketing materials in violation of
clause (i).
‘‘(B) SERVICE MARKET.—A managed care
entity shall distribute marketing materials to the
entire service area of such entity.
‘‘(C) PROHIBITION OF TIE-INS.—A managed
care entity, or any agency of such entity, may
not seek to influence an individual’s enrollment
with the entity in conjunction with the sale of
any other insurance.
‘‘(D) PROHIBITING
MARKETING
FRAUD.—
Each managed care entity shall comply with
such procedures and conditions as the Secretary
prescribes in order to ensure that, before an indi-
vidual is enrolled with the entity, the individual
is provided accurate oral and written and suffi-
cient information to make an informed decision
whether or not to enroll.
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‘‘(E) PROHIBITION OF COLD CALL MARKET-
ING.—Each managed care entity shall not, di-
rectly or indirectly, conduct door-to-door, tele-
phonic, or other ‘cold call’ marketing of enroll-
ment under this title.
‘‘(b) PROVISIONS APPLICABLE ONLY
TO MEDICAID
MANAGED CARE ORGANIZATIONS.—
‘‘(1) STATE CONFLICT-OF-INTEREST SAFEGUARDS
IN MEDICAID RISK CONTRACTING.—A medicaid man-
aged care organization may not enter into a contract
with any State under section 1941(a)(1)(B) unless the
State has in effect conflict-of-interest safeguards with
respect to officers and employees of the State with re-
sponsibilities relating to contracts with such organi-
zations or to the default enrollment process described
in section 1941(a)(1)(F) that are at least as effective
as the Federal safeguards provided under section 27
of the Office of Federal Procurement Policy Act (41
U.S.C. 423), against conflicts of interest that apply
with respect to Federal procurement officials with
comparable responsibilities with respect to such con-
tracts.
‘‘(2) REQUIRING DISCLOSURE OF FINANCIAL IN-
FORMATION.—In addition to any requirements appli-
cable under paragraph (27) or (35) of section
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1902(a), a medicaid managed care organization
shall—
‘‘(A) report to the State such financial in-
formation as the State may require to dem-
onstrate that—
‘‘(i) the organization has the ability to
bear the risk of potential financial losses
and otherwise has a fiscally sound oper-
ation;
‘‘(ii) the organization uses the funds
paid to it by the State for activities consist-
ent with the requirements of this title and
the contract between the State and organi-
zation; and
‘‘(iii) the organization does not place
an individual physician, physician group,
or other health care provider at substantial
risk for services not provided by such physi-
cian, group, or health care provider, by pro-
viding adequate protection to limit the li-
ability of such physician, group, or health
care provider, through measures such as
stop loss insurance or appropriate risk cor-
ridors,
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‘‘(B) agree that the Secretary and the State
(or any person or organization designated by ei-
ther) shall have the right to audit and inspect
any books and records of the organization (and
of any subcontractor) relating to the information
reported pursuant to subparagraph (A) and any
information required to be furnished under sec-
tion paragraphs (27) or (35) of section 1902(a),
‘‘(C) make available to the Secretary and
the State a description of each transaction de-
scribed in subparagraphs (A) through (C) of sec-
tion 1318(a)(3) of the Public Health Service Act
between the organization and a party in interest
(as defined in section 1318(b) of such Act),
‘‘(D) agree to make available to its enrollees
upon reasonable request—
‘‘(i) the information reported pursuant
to subparagraph (A); and
‘‘(ii) the information required to be
disclosed under sections 1124 and 1126,
‘‘(E) comply with subsections (a) and (c) of
section 1318 of the Public Health Service Act
(relating to disclosure of certain financial infor-
mation) and with the requirement of section
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1301(c)(8) of such Act (relating to liability ar-
rangements to protect members), and
‘‘(F) notify the State of loans and other spe-
cial financial arrangements which are made be-
tween the organization and subcontractors, affili-
ates, and related parties.
Each State is required to conduct audits on the books
and records of at least 1 percent of the number of
medicaid managed care organizations operating in
the State.
‘‘(3) ADEQUATE PROVISION AGAINST RISK OF IN-
SOLVENCY.—
‘‘(A) ESTABLISHMENT OF STANDARDS.—The
Secretary shall establish standards, including
appropriate equity standards, under which each
medicaid managed care organization shall make
adequate provision against the risk of insolvency.
‘‘(B) CONSIDERATION
OF
OTHER
STAND-
ARDS.—In establishing the standards described
in subparagraph (A), the Secretary shall con-
sider solvency standards applicable to eligible or-
ganizations with a risk-sharing contract under
section 1876 or under part C of title XVIII.
‘‘(C) MODEL CONTRACT ON SOLVENCY.—At
the earliest practicable time after the date of the
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enactment of this section, the Secretary shall
issue guidelines concerning solvency standards
for risk contracting entities and subcontractors
of such risk contracting entities. Such guidelines
shall take into account characteristics that may
differ among risk contracting entities, including
whether such an entity is at risk for inpatient
hospital services.
‘‘(4) REQUIRING REPORT ON NET EARNINGS AND
ADDITIONAL
BENEFITS.—Each medicaid managed
care organization shall submit a report to the State
not later than 12 months after the close of a contract
year containing the most recent audited financial
statement of the organization’s net earnings and con-
sistent with generally accepted accounting principles.
‘‘(c) DISCLOSURE OF OWNERSHIP AND RELATED IN-
FORMATION.—Each medicaid managed care organization
shall provide for disclosure of information in accordance
with section 1124.
‘‘(d) DISCLOSURE OF TRANSACTION INFORMATION.—
‘‘(1) IN
GENERAL.—Each medicaid managed
care organization which is not a qualified health
maintenance organization (as defined in section
1310(d) of the Public Health Service Act) shall report
to the State and, upon request, to the Secretary, the
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Inspector General of the Department of Health and
Human Services, and the Comptroller General, a de-
scription of transactions between the organization
and a party in interest (as defined in section 1318(b)
of such Act), including the following transactions:
‘‘(A) Any sale or exchange, or leasing of
any property between the organization and such
a party.
‘‘(B) Any furnishing for consideration of
goods, services (including management services),
or facilities between the organization and such a
party, but not including salaries paid to employ-
ees for services provided in the normal course of
their employment.
‘‘(C) Any lending of money or other exten-
sion of credit between the organization and such
a party.
The State or Secretary may require that information
reported respecting an organization which controls, or
is controlled by, or is under common control with, an-
other entity be in the form of a consolidated financial
statement for the organization and such entity.
‘‘(2) DISCLOSURE TO ENROLLEES.—Each such
organization shall make the information reported
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pursuant to paragraph (1) available to its enrollees
upon reasonable request.
‘‘(e) CONTRACT OVERSIGHT.—
‘‘(1) IN GENERAL.—The Secretary must provide
prior review and approval for contracts under this
part with a medicaid managed care organization pro-
viding for expenditures under this title in excess of
$1,000,000.
‘‘(2) INSPECTOR GENERAL REVIEW.—As part of
such approval process, the Inspector General in the
Department of Health and Human Services, effective
October 1, 1997, shall make a determination (to the
extent practicable) as to whether persons with an
ownership interest (as defined in section 1124(a)(3))
or an officer, director, agent, or managing employee
(as defined in section 1126(b)) of the organization are
or have been described in subsection (a)(1)(C) based
on a ground relating to fraud, theft, embezzlement,
breach of fiduciary responsibility, or other financial
misconduct or obstruction of an investigation.
‘‘(f) LIMITATION ON AVAILABILITY OF FFP FOR USE
OF ENROLLMENT BROKERS.—Amounts expended by a State
for the use of an enrollment broker in marketing managed
care entities to eligible individuals under this title shall be
considered, for purposes of section 1903(a)(7), to be nec-
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essary for the proper and efficient administration of the
State plan but only if the following conditions are met with
respect to the broker:
‘‘(1) The broker is independent of any such en-
tity and of any health care providers (whether or not
any such provider participates in the State plan
under this title) that provide coverage of services in
the same State in which the broker is conducting en-
rollment activities.
‘‘(2) No person who is an owner, employee, con-
sultant, or has a contract with the broker either has
any direct or indirect financial interest with such an
entity or health care provider or has been excluded
from participation in the program under this title or
title XVIII or debarred by any Federal agency, or
subject to a civil money penalty under this Act.
‘‘(g) USE OF UNIQUE PHYSICIAN IDENTIFIER FOR
PARTICIPATING
PHYSICIANS.—Each medicaid managed
care organization shall require each physician providing
services to enrollees eligible for medical assistance under the
State plan under this title to have a unique identifier in
accordance with the system established under section
1173(b).
‘‘(h) SECRETARIAL RECOVERY OF FFP FOR CAPITA-
TION PAYMENTS FOR INSOLVENT MANAGED CARE ENTI-
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TIES.—The Secretary shall provide for the recovery and off-
set against any amount owed a State under section
1903(a)(1) in an amount equal to the amounts paid to the
State for medical assistance provided under such section,
for expenditures for capitation payments to a managed care
entity that becomes insolvent or for services contracted for
with, but not provided by, such organization.
‘‘SEC. 1949. SANCTIONS FOR NONCOMPLIANCE BY MAN-
AGED CARE ENTITIES.
‘‘(a) USE
OF INTERMEDIATE SANCTIONS
BY
THE
STATE TO ENFORCE REQUIREMENTS.—
‘‘(1) IN GENERAL.—Each State shall establish
intermediate sanctions, which may include any of the
types described in subsection (b) other than the termi-
nation of a contract with a managed care entity,
which the State may impose against a managed care
entity with a contract under section 1941(a)(1)(B) if
the entity—
‘‘(A) fails substantially to provide medically
necessary items and services that are required
(under law or under such entity’s contract with
the State) to be provided to an enrollee covered
under the contract,
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‘‘(B) imposes premiums or charges on en-
rollees in excess of the premiums or charges per-
mitted under this title,
‘‘(C) acts to discriminate among enrollees
on the basis of their health status or require-
ments for health care services, including expul-
sion or refusal to reenroll an individual, except
as permitted by this part, or engaging in any
practice that would reasonably be expected to
have the effect of denying or discouraging enroll-
ment with the entity by eligible individuals
whose medical condition or history indicates a
need for substantial future medical services,
‘‘(D) misrepresents or falsifies information
that is furnished—
‘‘(i) to the Secretary or the State under
this part; or
‘‘(ii) to an enrollee, potential enrollee,
or a health care provider under such sec-
tions, or
‘‘(E) fails to comply with the requirements
of section 1876(i)(8) (or comparable require-
ments under part C of title XVIII) or this part.
‘‘(2) RULE OF CONSTRUCTION.—For purposes of
paragraph (1)(A), the term ‘medically necessary’ shall
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not be construed as requiring an abortion be per-
formed for any individual, except if necessary to save
the life of the mother or if a pregnancy is the result
of an act of rape or incest.
‘‘(b) INTERMEDIATE SANCTIONS.—The sanctions de-
scribed in this subsection are as follows:
‘‘(1) Civil money penalties as follows:
‘‘(A) Except as provided in subparagraph
(B), (C), or (D), not more than $25,000 for each
determination under subsection (a).
‘‘(B) With respect to a determination under
paragraph (3) or (4)(A) of subsection (a), not
more than $100,000 for each such determination.
‘‘(C) With respect to a determination under
subsection (a)(2), double the excess amount
charged in violation of such subsection (and the
excess amount charged shall be deducted from the
penalty and returned to the individual con-
cerned).
‘‘(D) Subject to subparagraph (B), with re-
spect to a determination under subsection (a)(3),
$15,000 for each individual not enrolled as a re-
sult of a practice described in such subsection.
‘‘(2) The appointment of temporary manage-
ment—
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‘‘(A) to oversee the operation of the medic-
aid-only managed care entity upon a finding by
the State that there is continued egregious behav-
ior by the plan, or
‘‘(B) to assure the health of the entity’s en-
rollees, if there is a need for temporary manage-
ment while—
‘‘(i) there is an orderly termination or
reorganization of the managed care entity;
or
‘‘(ii) improvements are made to rem-
edy the violations found under subsection
(a),
except that temporary management under this para-
graph may not be terminated until the State has de-
termined that the managed care entity has the capa-
bility to ensure that the violations shall not recur.
‘‘(3) Permitting individuals enrolled with the
managed care entity to terminate enrollment without
cause, and notifying such individuals of such right to
terminate enrollment.
‘‘(4) Suspension or default of all enrollment of
individuals under this title after the date the Sec-
retary or the State notifies the entity of a determina-
tion of a violation of any requirement of this part.
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‘‘(5) Suspension of payment to the entity under
this title for individuals enrolled after the date the
Secretary or State notifies the entity of such a deter-
mination and until the Secretary or State is satisfied
that the basis for such determination has been cor-
rected and is not likely to recur.
‘‘(c) TREATMENT OF CHRONIC SUBSTANDARD ENTI-
TIES.—In the case of a managed care entity which has re-
peatedly failed to meet the requirements of sections 1942
through 1946, the State shall (regardless of what other sanc-
tions are provided) impose the sanctions described in para-
graphs (2) and (3) of subsection (b).
‘‘(d) AUTHORITY TO TERMINATE CONTRACT.—In the
case of a managed care entity which has failed to meet the
requirements of this part, the State shall have the authority
to terminate its contract with such entity under section
1941(a)(1)(B) and to enroll such entity’s enrollees with
other managed care entities (or to permit such enrollees to
receive medical assistance under the State plan under this
title other than through a managed care entity).
‘‘(e) AVAILABILITY
OF SANCTIONS
TO
THE SEC-
RETARY.—
‘‘(1) INTERMEDIATE SANCTIONS.—In addition to
the sanctions described in paragraph (2) and any
other sanctions available under law, the Secretary
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may provide for any of the sanctions described in
subsection (b) if the Secretary determines that a man-
aged care entity with a contract under section
1941(a)(1)(B) fails to meet any of the requirements of
this part.
‘‘(2) DENIAL OF PAYMENTS TO THE STATE.—The
Secretary may deny payments to the State for medi-
cal assistance furnished under the contract under sec-
tion 1941(a)(1)(B) for individuals enrolled after the
date the Secretary notifies a managed care entity of
a determination under subsection (a) and until the
Secretary is satisfied that the basis for such deter-
mination has been corrected and is not likely to recur.
‘‘(f) DUE PROCESS FOR MANAGED CARE ENTITIES.—
‘‘(1) AVAILABILITY OF HEARING PRIOR TO TER-
MINATION OF CONTRACT.—A State may not terminate
a contract with a managed care entity under section
1941(a)(1)(B) unless the entity is provided with a
hearing prior to the termination.
‘‘(2) NOTICE TO ENROLLEES OF TERMINATION
HEARING.—A State shall notify all individuals en-
rolled with a managed care entity which is the subject
of a hearing to terminate the entity’s contract with
the State of the hearing and that the enrollees may
immediately disenroll with the entity without cause.
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‘‘(3) OTHER PROTECTIONS FOR MANAGED CARE
ENTITIES AGAINST SANCTIONS IMPOSED BY STATE.—
Before imposing any sanction against a managed
care entity other than termination of the entity’s con-
tract, the State shall provide the entity with notice
and such other due process protections as the State
may provide, except that a State may not provide a
managed care entity with a pre-termination hearing
before imposing the sanction described in subsection
(b)(2).
‘‘(4) IMPOSITION OF CIVIL MONETARY PENALTIES
BY
SECRETARY.—The provisions of section 1128A
(other than subsections (a) and (b)) shall apply with
respect to a civil money penalty imposed by the Sec-
retary under subsection (b)(1) in the same manner as
such provisions apply to a penalty or proceeding
under section 1128A.
‘‘SEC. 1950. DEFINITIONS; MISCELLANEOUS PROVISIONS.
‘‘(a) DEFINITIONS.—For purposes of this title:
‘‘(1) MANAGED CARE ENTITY.—The term ‘man-
aged care entity’ means—
‘‘(A) a medicaid managed care organiza-
tion; or
‘‘(B) a primary care case manager.
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‘‘(2) MEDICAID
MANAGED
CARE
ORGANIZA-
TION.—The term ‘medicaid managed care organiza-
tion’ means a health maintenance organization, an
eligible organization with a contract under section
1876 or under part C of title XVIII, a provider spon-
sored network, or any other organization which is or-
ganized under the laws of a State, has made adequate
provision (as determined under standards established
for purposes of eligible organizations under section
1876 or under part C of title XVIII, and through its
capitalization or otherwise) against the risk of insol-
vency, and provides or arranges for the provision of
one or more items and services to individuals eligible
for medical assistance under the State plan under
this title in accordance with a contract with the State
under section 1941(a)(1)(B).
‘‘(3) PRIMARY CARE CASE MANAGER.—
‘‘(A) IN GENERAL.—The term ‘primary care
case manager’ has the meaning given such term
in section 1905(t)(2).’’.
(b) STUDIES AND REPORTS.—
(1) REPORT ON PUBLIC HEALTH SERVICES.—
(A) IN GENERAL.—Not later than January
1, 1998, the Secretary of Health and Human
Services (in this subsection referred to as the
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‘‘Secretary’’) shall report to the Committee on
Finance of the Senate and the Committee on
Commerce of the House of Representatives on the
effect of managed care entities (as defined in sec-
tion 1950(a)(1) of the Social Security Act) on
the delivery of and payment for the services tra-
ditionally provided through providers described
in section 1941(a)(2)(B)(i) of such Act.
(B) CONTENTS OF REPORT.—The report re-
ferred to in subparagraph (A) shall include—
(i) information on the extent to which
enrollees with eligible managed care entities
seek services at local health departments,
public hospitals, and other facilities that
provide care without regard to a patient’s
ability to pay;
(ii) information on the extent to which
the facilities described in clause (i) provide
services to enrollees with eligible managed
care entities without receiving payment;
(iii) information on the effectiveness of
systems implemented by facilities described
in clause (i) for educating such enrollees on
services that are available through eligible
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managed care entities with which such en-
rollees are enrolled;
(iv) to the extent possible, identifica-
tion of the types of services most frequently
sought by such enrollees at such facilities;
and
(v) recommendations about how to en-
sure the timely delivery of the services tra-
ditionally provided through providers de-
scribed in section 1941(a)(2)(B)(i) of the
Social Security Act to enrollees of managed
care entities and how to ensure that local
health departments, public hospitals, and
other facilities are adequately compensated
for the provision of such services to such en-
rollees.
(2) REPORT ON PAYMENTS TO HOSPITALS.—
(A) IN GENERAL.—Not later than October 1
of each year, beginning with October 1, 1998, the
Secretary and the Comptroller General shall
analyze and submit a report to the Committee on
Finance of the Senate and the Committee on
Commerce of the House of Representatives on
rates paid for hospital services under managed
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care entities under contracts under section
1941(a)(1)(B) of the Social Security Act.
(B) CONTENTS OF REPORT.—The informa-
tion in the report described in subparagraph (A)
shall—
(i) be organized by State, type of hos-
pital, type of service; and
(ii) include a comparison of rates paid
for hospital services under managed care
entities with rates paid for hospital services
furnished to individuals who are entitled to
benefits under a State plan under title XIX
of the Social Security Act and are not en-
rolled with such entities.
(3) REPORTS
BY
STATES.—Each State shall
transmit to the Secretary, at such time and in such
manner as the Secretary determines appropriate, the
information on hospital rates submitted to such State
under section 1947(b)(2) of the Social Security Act.
(4) INDEPENDENT STUDY AND REPORT ON QUAL-
ITY ASSURANCE AND ACCREDITATION STANDARDS.—
The Institute of Medicine of the National Academy of
Sciences shall conduct a study and analysis of the
quality assurance programs and accreditation stand-
ards applicable to managed care entities operating in
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the private sector or to such entities that operate
under contracts under the medicare program under
title XVIII of the Social Security Act to determine if
such programs and standards include consideration of
the accessibility and quality of the health care items
and services delivered under such contracts to low-in-
come individuals.
(c) CONFORMING AMENDMENTS.—
(1) REPEAL OF CURRENT REQUIREMENTS.—
(A) IN GENERAL.—Except as provided in
subparagraph (B), section 1903(m) (42 U.S.C.
1396b(m)) is repealed on the date of the enact-
ment of this Act.
(B) EXISTING CONTRACTS.—In the case of
any contract under section 1903(m) of such Act
which is in effect on the day before the date of
the enactment of this Act, the provisions of such
section shall apply to such contract until the ear-
lier of—
(i) the day after the date of the expira-
tion of the contract; or
(ii) the date which is 1 year after the
date of the enactment of this Act.
(2) FEDERAL FINANCIAL PARTICIPATION.—
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(A) CLARIFICATION OF APPLICATION OF FFP
DENIAL RULES TO PAYMENTS MADE PURSUANT
TO MANAGED CARE ENTITIES.—Section 1903(i)
(42 U.S.C. 1396b(i)) is amended by adding at
the end the following new sentence: ‘‘Paragraphs
(1)(A), (1)(B), (2), (5), and (12) shall apply
with respect to items or services furnished and
amounts expended by or through a managed care
entity (as defined in section 1950(a)(1)) in the
same manner as such paragraphs apply to items
or services furnished and amounts expended di-
rectly by the State.’’.
(B) FFP FOR EXTERNAL QUALITY REVIEW
ORGANIZATIONS.—Section 
1903(a)(3)(C) 
(42
U.S.C. 1396b(a)(3)(C)) is amended—
(i) by inserting ‘‘(i)’’ after ‘‘(C)’’, and
(ii) by adding at the end the following
new clause:
‘‘(ii) 75 percent of the sums expended with
respect to costs incurred during such quarter (as
found necessary by the Secretary for the proper
and efficient administration of the State plan)
as are attributable to the performance of inde-
pendent external reviews of managed care enti-
ties (as defined in section 1950(a)(1)) by exter-
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nal quality review organizations, but only if
such organizations conduct such reviews under
protocols approved by the Secretary and only in
the case of such organizations that meet stand-
ards established by the Secretary relating to the
independence of such organizations from agencies
responsible for the administration of this title or
eligible managed care entities; and’’.
(3) EXCLUSION OF CERTAIN INDIVIDUALS AND
ENTITIES FROM PARTICIPATION IN PROGRAM.—Sec-
tion 1128(b)(6)(C) (42 U.S.C. 1320a–7(b)(6)(C)) is
amended—
(A) in clause (i), by striking ‘‘a health
maintenance organization (as defined in section
1903(m))’’ and inserting ‘‘a managed care en-
tity, as defined in section 1950(a)(1),’’; and
(B) in clause (ii), by inserting ‘‘section
1115 or’’ after ‘‘approved under’’.
(4) STATE PLAN REQUIREMENTS.—Section 1902
(42 U.S.C. 1396a) is amended—
(A) in subsection (a)(30)(C), by striking
‘‘section 
1903(m)’’ 
and 
inserting 
‘‘section
1941(a)(1)(B)’’; and
(B) in subsection (a)(57), by striking
‘‘health maintenance organization (as defined in
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section 1903(m)(1)(A))’’ and inserting ‘‘managed
care entity, as defined in section 1950(a)(1)’’;
(C) in subsection (e)(2)(A), by striking ‘‘or
with 
an 
entity 
described 
in 
paragraph
(2)(B)(iii), (2)(E), (2)(G), or (6) of section
1903(m) under a contract described in section
1903(m)(2)(A)’’ and inserting ‘‘or with a man-
aged 
care 
entity, 
as 
defined 
in 
section
1950(a)(1);
(D) in subsection (p)(2)—
(i) by striking ‘‘a health maintenance
organization 
(as 
defined 
in 
section
1903(m))’’ and inserting ‘‘a managed care
entity, as defined in section 1950(a)(1),’’;
(ii) by striking ‘‘an organization’’ and
inserting ‘‘an entity’’; and
(iii) by striking ‘‘any organization’’
and inserting ‘‘any entity’’; and
(E) in subsection (w)(1), by striking ‘‘sec-
tions 1903(m)(1)(A) and’’ and inserting ‘‘sec-
tion’’.
(5) 
PAYMENT
TO
STATES.—Section
1903(w)(7)(A)(viii) (42 U.S.C. 1396b(w)(7)(A)(viii))
is amended to read as follows:
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‘‘(viii) Services of a managed care en-
tity 
with 
a 
contract 
under 
section
1941(a)(1)(B).’’.
(6) USE
OF
ENROLLMENT
FEES
AND
OTHER
CHARGES.—Section 1916 (42 U.S.C. 1396o) is
amended in subsections (a)(2)(D) and (b)(2)(D) by
striking ‘‘a health maintenance organization (as de-
fined in section 1903(m))’’ and inserting ‘‘a managed
care entity, as defined in section 1950(a)(1),’’ each
place it appears.
(7) EXTENSION
OF
ELIGIBILITY
FOR
MEDICAL
ASSISTANCE.—Section 1925(b)(4)(D)(iv) (42 U.S.C.
1396r–6(b)(4)(D)(iv)) is amended to read as follows:
‘‘(iv) ENROLLMENT
WITH
MANAGED
CARE ENTITY.—Enrollment of the caretaker
relative and dependent children with a
managed care entity, as defined in section
1950(a)(1), less than 50 percent of the mem-
bership (enrolled on a prepaid basis) of
which consists of individuals who are eligi-
ble to receive benefits under this title (other
than because of the option offered under this
clause). The option of enrollment under this
clause is in addition to, and not in lieu of,
any enrollment option that the State might
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offer under subparagraph (A)(i) with re-
spect to receiving services through a man-
aged care entity in accordance with part
B.’’.
(8) 
PAYMENT
FOR
COVERED
OUTPATIENT
DRUGS.—Section 1927(j)(1) (42 U.S.C. 1396r–8(j)(1))
is amended by striking ‘‘***Health Maintenance Or-
ganizations, including those organizations that con-
tract under section 1903(m),’’ and inserting ‘‘health
maintenance organizations and medicaid managed
care organizations, as defined in section 1950(a)(2),’’.
(9) APPLICATION OF SANCTIONS FOR BALANCED
BILLING
THROUGH
SUBCONTRACTORS.—(A) Section
1128A(b)(2)(B) (42 U.S.C. 1320a–7a(b)) is amended
by inserting ‘‘, including section 1944(b)’’ after ‘‘title
XIX’’.
(B) Section 1128B(d)(1) (42 U.S.C. 1320a–
7b(d)(1)) is amended by inserting ‘‘or, in the case of
an individual enrolled with a managed care entity
under part B of title XIX, the applicable rates estab-
lished by the entity under the agreement with the
State agency under such part’’ after ‘‘established by
the State’’.
(10) REPEAL OF CERTAIN RESTRICTIONS ON OB-
STETRICAL
AND
PEDIATRIC
PROVIDERS.—Section
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1903(i) (42 U.S.C. 1396b(i)) is amended by striking
paragraph (12).
(11) DEMONSTRATION PROJECTS TO STUDY EF-
FECT OF ALLOWING STATES TO EXTEND MEDICAID
COVERAGE
FOR
CERTAIN
FAMILIES.—Section
4745(a)(5)(A) of the Omnibus Budget Reconciliation
Act of 1990 (42 U.S.C. 1396a note) is amended by
striking ‘‘(except section 1903(m)’’ and inserting
‘‘(except part B)’’.
(12) CONFORMING AMENDMENT FOR DISCLOSURE
REQUIREMENTS FOR MANAGED CARE ENTITIES.—Sec-
tion 1124(a)(2)(A) (42 U.S.C. 1320a–3(a)(2)(A)) is
amended by inserting ‘‘managed care entity under
title XIX,’’ after ‘‘renal dialysis facility,’’.
(13) ELIMINATION
OF
REGULATORY
PAYMENT
CAP.—The Secretary of Health and Human Services
may 
not, 
under 
the 
authority 
of 
section
1902(a)(30)(A) of the Social Security Act or any
other provision of title XIX of such Act, impose a
limit by regulation on the amount of the capitation
payments that a State may make to qualified entities
under such title, and section 447.361 of title 42, Code
of Federal Regulations (relating to upper limits of
payment: risk contracts), is hereby nullified.
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(14) CONTINUATION
OF
ELIGIBILITY.—Section
1902(e)(2) (42 U.S.C. 1396a(e)(2)) is amended to
read as follows:
‘‘(2) For provision providing for extended liability in
the case of certain beneficiaries enrolled with managed care
entities, see section 1941(c).’’.
(15) CONFORMING AMENDMENTS TO FREEDOM-
OF-CHOICE
PROVISIONS.—Section 1902(a)(23) (42
U.S.C. 1396a(a)(23)) is amended—
(A) in the matter preceding subparagraph
(A), by striking ‘‘subsection (g) and in section
1915’’ and inserting ‘‘subsection (g), section
1915, and section 1941,’’; and
(B) in subparagraph (B), by striking ‘‘a
health maintenance organization, or a’’ and in-
serting ‘‘or with a managed care entity, as de-
fined in section 1950(a)(1), or’’.
(d) EFFECTIVE DATE; STATUS OF WAIVERS.—
(1) EFFECTIVE DATE.—Except as provided in
paragraph (2), the amendments made by this section
shall apply to medical assistance furnished—
(A) during quarters beginning on or after
October 1, 1997; or
(B) in the case of assistance furnished
under 
a 
contract 
described 
in 
subsection
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(c)(1)(B), during quarters beginning after the
earlier of—
(i) the date of the expiration of the
contract; or
(ii) the expiration of the 1-year period
which begins on the date of the enactment
of this Act.
(2) APPLICATION TO WAIVERS.—If any waiver
granted to a State under section 1115 or 1915 of the
Social Security Act (42 U.S.C. 1315, 1396n), or oth-
erwise, which relates to the provision of medical as-
sistance under a State plan under title XIX of the
such Act (42 U.S.C. 1396 et seq.), is in effect or ap-
proved by the Secretary of Health and Human Serv-
ices as of the applicable effective date described in
paragraph (1), the amendments made by this section
shall not apply with respect to the State before the ex-
piration (determined without regard to any exten-
sions) of the waiver to the extent such amendments
are inconsistent with the terms of the waiver.
SEC. 5702. PRIMARY CARE CASE MANAGEMENT SERVICES
AS STATE OPTION WITHOUT NEED FOR WAIV-
ER.
(a) OPTIONAL COVERAGE AS PART OF MEDICAL AS-
SISTANCE.—
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(1) IN GENERAL.—Section 1905(a) (42 U.S.C.
1396d(a)) is amended—
(A) by striking ‘‘and’’ at the end of para-
graph (24);
(B) by redesignating paragraph (25) as
paragraph (26); and
(C) by inserting after paragraph (24) the
following new paragraph:
‘‘(25) primary care case management services
(as defined in subsection (t)); and’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 1902(a)(10)(C)(iv) (42 U.S.C.
1396a(a)(10)(C)(iv)) is amended by striking
‘‘through (24)’’ and inserting ‘‘through (25)’’.
(B) Section 1902(j) (42 U.S.C. 1396a(j)) is
amended by striking ‘‘through (25)’’ and insert-
ing ‘‘through (26)’’.
(b) PRIMARY CARE CASE MANAGEMENT SERVICES DE-
FINED.—Section 1905 (42 U.S.C. 1396d)) is amended by
adding at the end the following new subsection:
‘‘(t)(1) The term ‘primary care case management serv-
ices’ means case-management related services (including co-
ordination and monitoring of health care services) provided
by a primary care case manager under a primary care case
management contract.
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‘‘(2)(A) The term ‘primary care case manager’ means,
with respect to a primary care case management contract,
a provider described in subparagraph (B).
‘‘(B) A provider described in this subparagraph is—
‘‘(i) a physician, a physician group practice, or
an entity employing or having other arrangements
with physicians who provide case management serv-
ices; or
‘‘(ii) at State option—
‘‘(I) a nurse practitioner (as described in
section 1905(a)(21));
‘‘(II) a certified nurse-midwife (as defined
in section 1861(gg)(2)); or
‘‘(III) a physician assistant (as defined in
section 1861(aa)(5)).
‘‘(3) The term ‘primary care case management con-
tract’ means a contract with a State agency under which
a primary care case manager undertakes to locate, coordi-
nate, and monitor covered primary care, covered primary
care (and such other covered services as may be specified
under the contract) to all individuals enrolled with the pri-
mary care case manager, and that provides for—
‘‘(A) reasonable and adequate hours of operation,
including 24-hour availability of information, refer-
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ral, and treatment with respect to medical emer-
gencies;
‘‘(B) restriction of enrollment to individuals re-
siding sufficiently near a service delivery site of the
entity to be able to reach that site within a reasonable
time using available and affordable modes of trans-
portation;
‘‘(C) employment of, or contracts or other ar-
rangements with, sufficient numbers of physicians
and other appropriate health care professionals to en-
sure that services under the contract can be furnished
to enrollees promptly and without compromise to
quality of care;
‘‘(D) a prohibition on discrimination on the
basis of health status or requirements for health serv-
ices in the enrollment or disenrollment of individuals
eligible for medical assistance under this title; and
‘‘(E) a right for an enrollee to terminate enroll-
ment without cause during the first month of each en-
rollment period, which period shall not exceed 6
months in duration, and to terminate enrollment at
any time for cause.
‘‘(4) For purposes of this subsection, the term ‘primary
care’ includes all health care services customarily provided
in accordance with State licensure and certification laws
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and regulations, and all laboratory services customarily
provided by or through, a general practitioner, family med-
icine physician, internal medicine physician, obstetrician/
gynecologist, or pediatrician.’’.
(c) CONFORMING AMENDMENT.—Section 1915(b)(1)
(42 U.S.C. 1396n(b)(1)) is repealed.
(d) EFFECTIVE DATE.—The amendments made by this
section apply to primary care case management services
furnished on or after October 1, 1997.
SEC. 5703. ADDITIONAL REFORMS TO EXPAND AND SIM-
PLIFY MANAGED CARE.
(a) ELIMINATION OF 75:25 RESTRICTION ON RISK
CONTRACTS.—
(1) 75 PERCENT LIMIT ON MEDICARE AND MED-
ICAID ENROLLMENT.—
(A) IN
GENERAL.—Section 1903(m)(2)(A)
(42 U.S.C. 1396b(m)(2)(A)) is amended by strik-
ing clause (ii).
(B) CONFORMING AMENDMENTS.—
(i) Section 1903(m)(2) (42 U.S.C.
1396b(m)(2)) is amended—
(I) by striking subparagraphs (C),
(D), and (E); and
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(II) in subparagraph (G), by
striking ‘‘clauses (i) and (ii)’’ and in-
serting ‘‘clause (i)’’.
(ii) Section 1902(e)(2)(A) (42 U.S.C.
1396a(e)(2)(A)) is amended by striking
‘‘(2)(E),’’.
(2) EFFECTIVE DATE.—The amendments made
by paragraph (1) shall apply on and after June 20,
1997.
(b) ELIMINATION OF PROHIBITION ON COPAYMENTS
FOR SERVICES FURNISHED BY HEALTH MAINTENANCE OR-
GANIZATIONS.—Section 1916 (42 U.S.C. 1396o) is amend-
ed—
(1) in subsection (a)(2)(D), by striking ‘‘or serv-
ices furnished’’ and all that follows through ‘‘en-
rolled,’’; and
(2) in subsection (b)(2)(D), by striking ‘‘or (at
the option’’ and all that follows through ‘‘enrolled,’’.
Subchapter B—Management Flexibility
Reforms
SEC. 5711. ELIMINATION OF BOREN AMENDMENT REQUIRE-
MENTS FOR PROVIDER PAYMENT RATES.
(a) PLAN
AMENDMENTS.—Section 1902(a)(13) is
amended—
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(1) by striking all that precedes subparagraph
(D) and inserting the following:
‘‘(13) provide—
‘‘(A) for a public process for determination
of rates of payment under the plan for hospital
services (and which, in the case of hospitals, take
into account the situation of hospitals which
serve a disproportionate number of low income
patients with special needs), nursing facility
services, services provided in intermediate care
facilities for the mentally retarded, and home
and community-based services, under which—
‘‘(i) proposed rates, the methodologies underlying
the establishment of such rates, and a description of
how such methodologies will affect access to services,
quality of services, and safety of beneficiaries are pub-
lished, and providers, beneficiaries and their rep-
resentatives, and other concerned State residents are
given a reasonable opportunity for review and com-
ment on such proposed rates, methodologies, and de-
scription; and
‘‘(ii) final rates, the methodologies underlying
the establishment of such rates, and justifications for
such rates (that may take into account public com-
ments received by the State (if any) are published in
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1 or more daily newspapers of general circulation in
the State or in any publication used by the State to
publish State statutes or rules); and’’;
(2) by redesignating subparagraphs (D) and (E)
as subparagraphs (B) and (C), respectively;
(3) in subparagraph (B), as so redesignated, by
adding ‘‘and’’ at the end; and
(4) by striking subparagraph (F).
(b) STUDY AND REPORT.—
(1) STUDY.—The Secretary of Health and
Human Services shall study the effect on access to
services, the quality of services, and the safety of serv-
ices provided to beneficiaries of the rate-setting meth-
ods used by States pursuant to section 1902(a)(13) of
the Social Security Act (42 U.S.C. 1396a(a)(13), as
amended by subsection (a).
(2) REPORT.—Not later than 4 years after the
date of enactment of this Act, the Secretary of Health
and Human Services shall submit a report to the ap-
propriate committees of Congress on the conclusions of
the study conducted under paragraph (1), together
with any recommendations for legislation as a result
of such conclusions.
(c) CONFORMING AMENDMENTS.—
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(1) 
Section 
1903(m)(2)(A)(ix) 
(42 
U.S.C.
1396b(m)(2)(A)(ix)) 
is 
amended 
by 
striking
‘‘1902(a)(13)(E)’’ each place it appears and inserting
‘‘1902(a)(13)(C)’’.
(2) Section 1905(o)(3) (42 U.S.C. 1396d(o)(3)) is
amended by striking ‘‘amount described in section
1902(a)(13)(D)’’ and inserting ‘‘amount determined
in section 1902(a)(13)(B)’’.
(3) Section 1913(b)(3) (42 U.S.C. 1396l(b)(3)) is
amended by striking ‘‘1902(a)(13)(A)’’ and inserting
‘‘1902(a)(13)’’.
(4) Section 1923 (42 U.S.C. 1396r–4) is amend-
ed in subsections (a)(1) and (e)(1), by striking
‘‘1902(a)(13)(A)’’ each place it appears and inserting
‘‘1902(a)(13)’’.
SEC. 5712. MEDICAID PAYMENT RATES FOR QUALIFIED
MEDICARE BENEFICIARIES.
(a) IN
GENERAL.—Section 1902(n) (42 U.S.C.
1396a(n)) is amended—
(1) by inserting ‘‘(1)’’ after ‘‘(n)’’, and
(2) by adding at the end the following:
‘‘(2) In carrying out paragraph (1), a State is not re-
quired to provide any payment for any expenses incurred
relating to payment for a coinsurance or copayment for
medicare cost-sharing if the amount of the payment under
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title XVIII for the service exceeds the payment amount that
otherwise would be made under the State plan under this
title for such service.
‘‘(3) In the case in which a State’s payment for medi-
care cost-sharing for a qualified medicare beneficiary with
respect to an item or service is reduced or eliminated
through the application of paragraph (1) or (2) of this sub-
section—
‘‘(A) for purposes of applying any limitation
under title XVIII on the amount that the beneficiary
may be billed or charged for the service, the amount
of payment made under title XVIII plus the amount
of payment (if any) under the State plan shall be
considered to be payment in full for the service,
‘‘(B) the beneficiary shall not have any legal li-
ability to make payment to a provider or managed
care entity (as defined in section 1950(a)(1)) for the
service, and
‘‘(C) any lawful sanction that may be imposed
upon a provider or managed care entity (as defined
in section 1950(a)(1)) for excess charges under this
title or title XVIII shall apply to the imposition of
any charge on the individual in such case.
This paragraph shall not be construed as preventing pay-
ment of any medicare cost-sharing by a medicare supple-
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mental policy or an employer retiree health plan on behalf
of an individual.’’.
(b) LIMITATION
IN MEDICARE PROVIDER AGREE-
MENTS.—Section 
1866(a)(1)(A) 
(42 
U.S.C.
1395cc(a)(1)(A)) is amended—
(1) by inserting ‘‘(i)’’ after ‘‘(A)’’, and
(2) by inserting before the comma at the end the
following: ‘‘, and (ii) not to impose any charge that
may not be charged under section 1902(n)(3)’’.
(c) LIMITATION ON NONPARTICIPATING PROVIDERS.—
Section 1848(g)(3)(A) (42 U.S.C. 1395w–4(g)(3)(A)) is
amended by inserting before the period at the end the follow-
ing: ‘‘and the provisions of section 1902(n)(3)(A) apply to
further limit permissible charges under this section’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to payment for items and services fur-
nished on or after the later of—
(1) October 1, 1997; or
(2) the termination date of a provider agreement
under the medicare program under title XVIII or
under a State plan under title XIX that is in effect
on the date of the enactment of this Act.
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Subchapter C—Reduction of Disproportionate
Share Hospital (DSH) Payments
SEC. 5721. DISPROPORTIONATE SHARE HOSPITAL (DSH)
PAYMENTS.
(a) REDUCTION OF PAYMENTS.—Section 1923(f) (42
U.S.C. 1396r–4(f)) is amended to read as follows:
‘‘(f) LIMITATION ON FEDERAL FINANCIAL PARTICIPA-
TION.—
‘‘(1) IN GENERAL.—Beginning with fiscal year
1998, payment under section 1903(a) shall not be
made to a State with respect to any payment adjust-
ment made under this section for hospitals in a State
for quarters in a fiscal year in excess of the dis-
proportionate share hospital (in this subsection re-
ferred to as ‘DSH’) allotment for the State for the fis-
cal year, as specified in paragraphs (2), (3), (4), and
(5).
‘‘(2) DETERMINATION
OF
STATE
DSH
ALLOT-
MENTS FOR FISCAL YEAR 1998.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B) and paragraph (4), the DSH
allotment for a State for fiscal year 1998 is
equal to the State 1995 DSH spending amount.
‘‘(B) HIGH DSH STATES.—In the case of
any State that is a high DSH State, the DSH
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allotment for that State for fiscal year 1998 is
equal to the sum of—
‘‘(i) the Federal share of payment ad-
justments made to hospitals in the State
under subsection (c) that are attributable to
the 1995 DSH allotment for inpatient hos-
pital services provided (based on reporting
data specified by the State on HCFA Form
64 as inpatient DSH, and as approved by
the Secretary); and
‘‘(ii) 70 percent of the Federal share of
payment adjustments made to hospitals in
the State under subsection (c) that are at-
tributable to the 1995 DSH allotment for
payments to institutions for mental diseases
and other mental health facilities (based on
reporting data specified by the State on
HCFA Form 64 as mental health DSH,
and as approved by the Secretary).
‘‘(3) DETERMINATION
OF
STATE
DSH
ALLOT-
MENTS FOR FISCAL YEARS 1999 THROUGH 2002.—
‘‘(A) NON HIGH DSH STATES.—
‘‘(i) IN GENERAL.—Except as provided
in subparagraph (B) and paragraph (4),
the DSH allotment for a State for each of
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fiscal years 1999 through 2002 is equal to
the applicable percentage of the State 1995
DSH spending amount.
‘‘(ii) APPLICABLE
PERCENTAGE.—For
purposes of clause (i), the applicable per-
centage with respect to a State described in
that clause is—
‘‘(I) for fiscal year 1999, 98 per-
cent;
‘‘(II) for fiscal year 2000, 95 per-
cent;
‘‘(III) for fiscal year 2001, 90
percent; and
‘‘(IV) for fiscal year 2002, 85 per-
cent.
‘‘(B) HIGH DSH STATES.—
‘‘(i) IN GENERAL.—In the case of any
State that is a high DSH State, the DSH
allotment for that State for each of fiscal
years 1999 through 2002 is equal to the ap-
plicable reduction percentage of the high
DSH State modified 1995 spending amount
for that fiscal year.
‘‘(ii) HIGH DSH STATE MODIFIED 1995
SPENDING AMOUNT.—
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‘‘(I) IN GENERAL.—For purposes
of clause (i), the high DSH State
modified 
1995 
spending 
amount
means, with respect to a State and a
fiscal year, the sum of—
‘‘(aa) the Federal share of
payment adjustments made to
hospitals in the State under sub-
section (c) that are attributable to
the 1995 DSH allotment for inpa-
tient hospital services provided
(based on reporting data specified
by the State on HCFA Form 64
as inpatient DSH, and as ap-
proved by the Secretary); and
‘‘(bb) the applicable mental
health percentage for such fiscal
year of the Federal share of pay-
ment adjustments made to hos-
pitals in the State under sub-
section (c) that are attributable to
the 1995 DSH allotment for pay-
ments to institutions for mental
diseases and other mental health
facilities (based on reporting data
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specified by the State on HCFA
Form 64 as mental health DSH,
and as approved by the Sec-
retary).
‘‘(II) 
APPLICABLE
MENTAL
HEALTH
PERCENTAGE.—For purposes
of subclause (I)(bb), the applicable
mental health percentage for such fiscal
year is—
‘‘(aa) for fiscal year 1999, 50
percent;
‘‘(bb) for fiscal year 2000, 20
percent; and
‘‘(cc) for fiscal years 2001
and 2002, 0 percent.
‘‘(iii) APPLICABLE
REDUCTION
PER-
CENTAGE.—For purposes of clause (i), the
applicable reduction percentage described in
that clause is—
‘‘(I) for fiscal year 1999, 92 per-
cent;
‘‘(II) for fiscal year 2000, 85 per-
cent; and
‘‘(III) for fiscal years 2001 and
2002, 80 percent.
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‘‘(4) EXCEPTIONS.—
‘‘(A) CERTAIN STATES WITHOUT 1995 MEN-
TAL HEALTH DSH SPENDING.—In the case of any
State with a State 1995 DSH spending amount
that exceeds 12 percent of the Federal medical
assistance percentage of expenditures made under
the State plan under this title for medical assist-
ance during fiscal year 1995 and that, during
such fiscal year, did not make any payment ad-
justments to hospitals in the State under sub-
section (c) that are attributable to the 1995 DSH
allotment for payments to institutions for mental
diseases and other mental health facilities (based
on reporting data specified by the State on
HCFA Form 64 as mental health DSH, and as
approved by the Secretary), the DSH allotment
for that State for each of fiscal years 1998
through 2002 is equal to the average of the State
1995 DSH spending amount and the State 1996
DSH spending amount.
‘‘(B) STATES WITH LOW STATE 1995 DSH
SPENDING AMOUNTS.—In the case of any State
with a State 1995 DSH spending amount that
is less than 3 percent of the Federal medical as-
sistance percentage of expenditures made under
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the State plan under this title for medical assist-
ance during fiscal year 1995, the DSH allotment
for that State for each of fiscal years 1998
through 2002 is equal to the State 1995 DSH
spending amount.
‘‘(C) STATES WITH STATE 1995 DSH SPEND-
ING AMOUNTS ABOVE 3 PERCENT.—In the case of
any State with a State 1995 DSH spending
amount that is more than 3 percent of the Fed-
eral medical assistance percentage of expendi-
tures made under the State plan under this title
for medical assistance during fiscal year 1995,
the DSH allotment for that State for each of fis-
cal years 1999 through 2002 is equal to the
greater of—
‘‘(i) the amount otherwise determined
for such State under paragraph (3); or
‘‘(ii) 50 percent of the State 1995 DSH
spending amount.
‘‘(5) DETERMINATION
OF
STATE
DSH
ALLOT-
MENTS FOR FISCAL YEAR 2003 AND THEREAFTER.—
The DSH allotment for any State for fiscal year 2003
and each fiscal year thereafter is equal to the DSH
allotment for the State for the preceding fiscal year,
increased by the estimated percentage change in the
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consumer price index for medical services (as deter-
mined by the Bureau of Labor Statistics).
‘‘(6) DEFINITIONS.—
‘‘(A) HIGH
DSH
STATE.—The term ‘high
DSH State’ means a State that, with respect to
fiscal year 1997, had a State base allotment
under this section that exceeded 12 percent of the
Federal medical assistance percentage of expend-
itures made under the State plan under this title
for medical assistance during such fiscal year, as
determined using the preliminary State DSH al-
lotment for the State for fiscal year 1997, as
published in the Federal Register on January
31, 1997.
‘‘(B) STATE.—In this subsection, the term
‘State’ means the 50 States and the District of
Columbia.’’.
‘‘(C) STATE 1995 DSH SPENDING AMOUNT.—
The term ‘State 1995 DSH spending amount’
means, with respect to a State, the Federal medi-
cal assistance percentage of payment adjustments
made under subsection (c) under the State plan
that are attributable to the fiscal year 1995
DSH allotment, as reported by the State not
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later than January 1, 1997, on HCFA Form 64,
and as approved by the Secretary.
‘‘(D) STATE 1996 DSH SPENDING AMOUNT.—
The term ‘State 1996 DSH spending amount’
means, with respect to a State, the Federal share
of payment adjustments made under subsection
(c) under the State plan during fiscal year 1996
as reported by the State not later than December
31, 1997, on HCFA Form 64, and as approved
by the Secretary.’’.
(b) LIMITATION ON PAYMENTS TO INSTITUTIONS FOR
MENTAL DISEASES.—Section 1923 of the Social Security
Act (42 U.S.C. 1396r–4) is amended by adding at the end
the following:
‘‘(h) LIMITATION ON CERTAIN STATE DSH EXPENDI-
TURES.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of this section, payment under section
1903(a) shall not be made to a State with respect to
any payment adjustments made under this section for
quarters in a fiscal year to institutions for mental
diseases or other mental health facilities, in excess
of—
‘‘(A) the total State DSH expenditures that
are attributable to fiscal year 1995 for payments
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to institutions for mental diseases and other
mental health facilities (based on reporting data
specified by the State on HCFA Form 64 as
mental health DSH, and as approved by the Sec-
retary); or
‘‘(B) the amount of such payment adjust-
ment which is equal to the applicable percentage
of the Federal share of payment adjustments
made to hospitals in the State under subsection
(c) that are attributable to the 1995 DSH allot-
ment for payments to institutions for mental dis-
eases and other mental health facilities (based on
reporting data specified by the State on HCFA
Form 64 as mental health DSH, and as ap-
proved by the Secretary).
‘‘(2) APPLICABLE PERCENTAGE.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the applicable percentage with respect
to a fiscal year is the lesser of the percentage de-
termined under subparagraph (B) or—
‘‘(i) for fiscal year 2001, 50 percent;
‘‘(ii) for fiscal year 2002, 40 percent;
and
‘‘(iii) for fiscal year 2003 and there-
after, 33 percent.
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‘‘(B) 1995 PERCENTAGE.—The percentage
determined under this subparagraph is the ratio
(determined as a percentage) of the Federal share
of payment adjustments made to hospitals in the
State under subsection (c) that are attributable
to the 1995 DSH allotment for payments to in-
stitutions for mental diseases and other mental
health facilities, to the State 1995 DSH spending
amount, as defined under subsection (f)(6)(C).’’.
(c) TARGETING PAYMENTS.—Section 1923(a)(2) (42
U.S.C. 1396r–4(a)(2)) is amended by adding at the end the
following:
‘‘(D) A State plan under this title shall not be
considered to meet the requirements of section
1902(a)(13)(A) (insofar as it requires payments to
hospitals to take into account the situation of hos-
pitals that serve a disproportionate number of low-in-
come patients with special needs), as of October 1,
1998, unless the State has provided assurances to the
Secretary that the State has developed a methodology
for prioritizing payments to disproportionate share
hospitals, including children’s hospitals, on the basis
of the proportion of low-income and medicaid pa-
tients served by such hospitals. In making such assur-
ances, the State plan shall provide a definition of
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high-volume disproportionate share hospitals and a
detailed description of the specific methodology to be
used to provide disproportionate share payments to
such hospitals. The State shall provide an annual re-
port to the Secretary describing the disproportionate
share payments to such high-volume disproportionate
share hospitals.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section apply on and after October 1, 1997.
CHAPTER 2—EXPANSION OF MEDICAID
ELIGIBILITY
SEC. 5731. STATE OPTION TO PERMIT WORKERS WITH DIS-
ABILITIES TO BUY INTO MEDICAID.
Section 
1902(a)(10)(A)(ii) 
(42 
U.S.C.
1396a(a)(10)(A)(ii)) is amended—
(1) in subclause (XI), by striking ‘‘or’’ at the
end;
(2) in subclause (XII), by adding ‘‘or’’ at the
end; and
(3) by adding at the end the following:
‘‘(XIII) who are in families whose
income is less than 250 percent of the
income official poverty line (as defined
by the Office of Management and
Budget, and revised annually in ac-
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cordance with section 673(2) of the
Omnibus Budget Reconciliation Act of
1981) applicable to a family of the size
involved, and who but for earnings in
excess of the limit established under
section 1619(b), would be considered to
be receiving supplemental security in-
come (subject, notwithstanding section
1916, to payment of premiums or other
charges (set on a sliding scale based on
income) that the State may deter-
mine);’’.
SEC. 5732. 12-MONTH CONTINUOUS ELIGIBILITY FOR CHIL-
DREN.
(a) IN
GENERAL.—Section 1902(e) (42 U.S.C.
1396a(e)) is amended by adding at the end the following:
‘‘(12) At the option of the State, the State plan may
provide that an individual who is under an age specified
by the State (not to exceed 19 years of age) and who is
determined to be eligible for benefits under a State plan
approved under this title under subsection (a)(10)(A) shall
remain eligible for those benefits until the earlier of—
‘‘(A) the end of the 12-month period following
the determination; or
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‘‘(B) the date that the individual exceeds that
age.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to medical assistance for items and
services furnished on or after October 1, 1997.
CHAPTER 3—PROGRAMS OF ALL-INCLU-
SIVE CARE FOR THE ELDERLY (PACE)
SEC. 5741. ESTABLISHMENT OF PACE PROGRAM AS MEDIC-
AID STATE OPTION.
(a) IN GENERAL.—Title XIX is amended—
(1) in section 1905(a) (42 U.S.C. 1396d(a)), as
amended by section 5702(a)(1)—
(A) by striking ‘‘and’’ at the end of para-
graph (25);
(B) by redesignating paragraph (26) as
paragraph (27); and
(C) by inserting after paragraph (25) the
following new paragraph:
‘‘(26) services furnished under a PACE program
under section 1932 to PACE program eligible indi-
viduals enrolled under the program under such sec-
tion; and’’;
(2) by redesignating section 1932 as section
1933; and
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(3) by inserting after section 1931 the following
new section:
‘‘PROGRAM OF ALL-INCLUSIVE CARE FOR THE ELDERLY
(PACE)
‘‘SEC. 1932. (a) STATE OPTION.—
‘‘(1) IN GENERAL.—A State may elect to provide
medical assistance under this section with respect to
PACE program services to PACE program eligible in-
dividuals who are eligible for medical assistance
under the State plan and who are enrolled in a
PACE program under a PACE program agreement.
Such individuals need not be eligible for benefits
under part A, or enrolled under part B, of title XVIII
to be eligible to enroll under this section. In the case
of an individual enrolled with a PACE program pur-
suant to such an election—
‘‘(A) the individual shall receive benefits
under the plan solely through such program, and
‘‘(B) the PACE provider shall receive pay-
ment in accordance with the PACE program
agreement for provision of such benefits.
‘‘(2) PACE PROGRAM DEFINED.—For purposes
of this section and section 1894, the term ‘PACE pro-
gram’ means a program of all-inclusive care for the
elderly that meets the following requirements:
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‘‘(A) OPERATION.—The entity operating the
program is a PACE provider (as defined in
paragraph (3)).
‘‘(B) 
COMPREHENSIVE
BENEFITS.—The
program provides comprehensive health care
services to PACE program eligible individuals in
accordance with the PACE program agreement
and regulations under this section.
‘‘(C) TRANSITION.—In the case of an indi-
vidual who is enrolled under the program under
this section and whose enrollment ceases for any
reason (including that the individual no longer
qualifies as a PACE program eligible individual,
the termination of a PACE program agreement,
or otherwise), the program provides assistance to
the individual in obtaining necessary transi-
tional care through appropriate referrals and
making the individual’s medical records avail-
able to new providers.
‘‘(3) PACE PROVIDER DEFINED.—
‘‘(A) IN
GENERAL.—For purposes of this
section, the term ‘PACE provider’ means an en-
tity that—
‘‘(i) subject to subparagraph (B), is (or
is a distinct part of) a public entity or a
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private, nonprofit entity organized for char-
itable purposes under section 501(c)(3) of
the Internal Revenue Code of 1986, and
‘‘(ii) has entered into a PACE pro-
gram agreement with respect to its oper-
ation of a PACE program.
‘‘(B) TREATMENT OF PRIVATE, FOR-PROFIT
PROVIDERS.—Clause (i) of subparagraph (A)
shall not apply—
‘‘(i) to entities subject to a demonstra-
tion project waiver under subsection (h);
and
‘‘(ii) after the date the report under
section 5743(b) of the Balanced Budget Act
of 1997 is submitted, unless the Secretary
determines that any of the findings de-
scribed in subparagraph (A), (B), (C), or
(D) of paragraph (2) of such section are
true.
‘‘(4) PACE PROGRAM AGREEMENT DEFINED.—
For purposes of this section, the term ‘PACE program
agreement’ means, with respect to a PACE provider,
an agreement, consistent with this section, section
1894 (if applicable), and regulations promulgated to
carry out such sections, among the PACE provider,
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the Secretary, and a State administering agency for
the operation of a PACE program by the provider
under such sections.
‘‘(5) PACE PROGRAM ELIGIBLE INDIVIDUAL DE-
FINED.—For purposes of this section, the term ‘PACE
program eligible individual’ means, with respect to a
PACE program, an individual who—
‘‘(A) is 55 years of age or older;
‘‘(B) subject to subsection (c)(4), is deter-
mined under subsection (c) to require the level of
care required under the State medicaid plan for
coverage of nursing facility services;
‘‘(C) resides in the service area of the PACE
program; and
‘‘(D) meets such other eligibility conditions
as may be imposed under the PACE program
agreement for the program under subsection
(e)(2)(A)(ii).
‘‘(6) PACE PROTOCOL.—For purposes of this
section, the term ‘PACE protocol’ means the Protocol
for the Program of All-inclusive Care for the Elderly
(PACE), as published by On Lok, Inc., as of April 14,
1995, or any successor protocol that may be agreed
upon between the Secretary and On Lok, Inc.
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‘‘(7) PACE DEMONSTRATION WAIVER PROGRAM
DEFINED.—For purposes of this section, the term
‘PACE demonstration waiver program’ means a dem-
onstration program under either of the following sec-
tions (as in effect before the date of their repeal):
‘‘(A) Section 603(c) of the Social Security
Amendments of 1983 (Public Law 98–21), as ex-
tended by section 9220 of the Consolidated Om-
nibus Budget Reconciliation Act of 1985 (Public
Law 99–272).
‘‘(B) Section 9412(b) of the Omnibus Budg-
et Reconciliation Act of 1986 (Public Law 99–
509).
‘‘(8) STATE ADMINISTERING AGENCY DEFINED.—
For purposes of this section, the term ‘State admin-
istering agency’ means, with respect to the operation
of a PACE program in a State, the agency of that
State (which may be the single agency responsible for
administration of the State plan under this title in
the State) responsible for administering PACE pro-
gram agreements under this section and section 1894
in the State.
‘‘(9) TRIAL PERIOD DEFINED.—
‘‘(A) IN
GENERAL.—For purposes of this
section, the term ‘trial period’ means, with re-
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spect to a PACE program operated by a PACE
provider under a PACE program agreement, the
first 3 contract years under such agreement with
respect to such program.
‘‘(B) TREATMENT OF ENTITIES PREVIOUSLY
OPERATING PACE DEMONSTRATION WAIVER PRO-
GRAMS.—Each contract year (including a year
occurring before the effective date of this section)
during which an entity has operated a PACE
demonstration waiver program shall be counted
under subparagraph (A) as a contract year dur-
ing which the entity operated a PACE program
as a PACE provider under a PACE program
agreement.
‘‘(10) REGULATIONS.—For purposes of this sec-
tion, the term ‘regulations’ refers to interim final or
final regulations promulgated under subsection (f) to
carry out this section and section 1894.
‘‘(b) SCOPE
OF
BENEFITS; BENEFICIARY
SAFE-
GUARDS.—
‘‘(1) IN
GENERAL.—Under a PACE program
agreement, a PACE provider shall—
‘‘(A) provide to PACE program eligible in-
dividuals, regardless of source of payment and
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directly or under contracts with other entities, at
a minimum—
‘‘(i) all items and services covered
under title XVIII (for individuals enrolled
under section 1894) and all items and serv-
ices covered under this title, but without
any limitation or condition as to amount,
duration, or scope and without application
of deductibles, copayments, coinsurance, or
other cost-sharing that would otherwise
apply under such title or this title, respec-
tively; and
‘‘(ii) all additional items and services
specified in regulations, based upon those
required under the PACE protocol;
‘‘(B) provide such enrollees access to nec-
essary covered items and services 24 hours per
day, every day of the year;
‘‘(C) provide services to such enrollees
through 
a 
comprehensive, 
multidisciplinary
health and social services delivery system which
integrates acute and long-term care services pur-
suant to regulations; and
‘‘(D) specify the covered items and services
that will not be provided directly by the entity,
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and to arrange for delivery of those items and
services through contracts meeting the require-
ments of regulations.
‘‘(2) 
QUALITY
ASSURANCE; 
PATIENT
SAFE-
GUARDS.—The PACE program agreement shall re-
quire the PACE provider to have in effect at a mini-
mum—
‘‘(A) a written plan of quality assurance
and improvement, and procedures implementing
such plan, in accordance with regulations, and
‘‘(B) written safeguards of the rights of en-
rolled participants (including a patient bill of
rights and procedures for grievances and ap-
peals) in accordance with regulations and with
other requirements of this title and Federal and
State law designed for the protection of patients.
‘‘(c) ELIGIBILITY DETERMINATIONS.—
‘‘(1) IN GENERAL.—The determination of—
‘‘(A) whether an individual is a PACE pro-
gram eligible individual shall be made under
and in accordance with the PACE program
agreement, and
‘‘(B) who is entitled to medical assistance
under this title shall be made (or who is not so
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entitled, may be made) by the State administer-
ing agency.
‘‘(2) CONDITION.—An individual is not a PACE
program eligible individual (with respect to payment
under this section) unless the individual’s health sta-
tus has been determined by the Secretary or the State
administering agency, in accordance with regulations,
to be comparable to the health status of individuals
who have participated in the PACE demonstration
waiver programs. Such determination shall be based
upon information on health status and related indica-
tors (such as medical diagnoses and measures of ac-
tivities of daily living, instrumental activities of
daily living, and cognitive impairment) that are part
of a uniform minimum data set collected by PACE
providers on potential eligible individuals.
‘‘(3) ANNUAL ELIGIBILITY RECERTIFICATIONS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), the determination described in sub-
section (a)(5)(B) for an individual shall be re-
evaluated at least annually.
‘‘(B) EXCEPTION.—The requirement of an-
nual reevaluation under subparagraph (A) may
be waived during a period in accordance with
regulations in those cases in which the State ad-
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ministering agency determines that there is no
reasonable expectation of improvement or signifi-
cant change in an individual’s condition during
the period because of the advanced age, severity
of the advanced age, severity of chronic condi-
tion, or degree of impairment of functional ca-
pacity of the individual involved.
‘‘(4) CONTINUATION OF ELIGIBILITY.—An indi-
vidual who is a PACE program eligible individual
may be deemed to continue to be such an individual
notwithstanding a determination that the individual
no longer meets the requirement of subsection
(a)(5)(B) if, in accordance with regulations, in the
absence of continued coverage under a PACE program
the individual reasonably would be expected to meet
such requirement within the succeeding 6-month pe-
riod.
‘‘(5) ENROLLMENT; DISENROLLMENT.—The en-
rollment and disenrollment of PACE program eligible
individuals in a PACE program shall be pursuant to
regulations and the PACE program agreement and
shall permit enrollees to voluntarily disenroll without
cause at any time. Such regulations and agreement
shall provide that the PACE program may not
disenroll a PACE program eligible individual on the
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ground that the individual has engaged in noncompli-
ant behavior if such behavior is related to a mental
or physical condition of the individual. For purposes
of the preceding sentence, the term ‘noncompliant be-
havior’ includes repeated noncompliance with medical
advice and repeated failure to appear for appoint-
ments.
‘‘(d) 
PAYMENTS
TO
PACE 
PROVIDERS
ON
A
CAPITATED BASIS.—
‘‘(1) IN GENERAL.—In the case of a PACE pro-
vider with a PACE program agreement under this
section, except as provided in this subsection or by
regulations, the State shall make prospective monthly
payments of a capitation amount for each PACE pro-
gram eligible individual enrolled under the agreement
under this section.
‘‘(2) 
CAPITATION
AMOUNT.—The 
capitation
amount to be applied under this subsection for a pro-
vider for a contract year shall be an amount specified
in the PACE program agreement for the year. Such
amount shall be an amount, specified under the
PACE agreement, which is less than the amount that
would otherwise have been made under the State plan
if the individuals were not so enrolled and shall be
adjusted to take into account the comparative frailty
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of PACE enrollees and such other factors as the Sec-
retary determines to be appropriate. The payment
under this section shall be in addition to any pay-
ment made under section 1894 for individuals who
are enrolled in a PACE program under such section.
‘‘(e) PACE PROGRAM AGREEMENT.—
‘‘(1) REQUIREMENT.—
‘‘(A) IN GENERAL.—The Secretary, in close
cooperation with the State administering agency,
shall establish procedures for entering into, ex-
tending, and terminating PACE program agree-
ments for the operation of PACE programs by
entities that meet the requirements for a PACE
provider under this section, section 1894, and
regulations.
‘‘(B) NUMERICAL LIMITATION.—
‘‘(i) IN GENERAL.—The Secretary shall
not permit the number of PACE providers
with which agreements are in effect under
this section or under section 9412(b) of the
Omnibus Budget Reconciliation Act of 1986
to exceed—
‘‘(I) 40 as of the date of the enact-
ment of this section, or
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‘‘(II) as of each succeeding anni-
versary of such date, the numerical
limitation under this subparagraph for
the preceding year plus 20.
Subclause (II) shall apply without regard to
the actual number of agreements in effect as
of a previous anniversary date.
‘‘(ii) TREATMENT
OF
CERTAIN
PRI-
VATE, FOR-PROFIT
PROVIDERS.—The nu-
merical limitation in clause (i) shall not
apply to a PACE provider that—
‘‘(I) is operating under a dem-
onstration project waiver under sub-
section (h), or
‘‘(II) was operating under such a
waiver and subsequently qualifies for
PACE provider status pursuant to sub-
section (a)(3)(B)(ii).
‘‘(2) SERVICE AREA AND ELIGIBILITY.—
‘‘(A) IN
GENERAL.—A PACE program
agreement for a PACE program—
‘‘(i) shall designate the service area of
the program;
‘‘(ii) may provide additional require-
ments for individuals to qualify as PACE
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program eligible individuals with respect to
the program;
‘‘(iii) shall be effective for a contract
year, but may be extended for additional
contract years in the absence of a notice by
a party to terminate, and is subject to ter-
mination by the Secretary and the State
administering agency at any time for cause
(as provided under the agreement);
‘‘(iv) shall require a PACE provider to
meet all applicable State and local laws
and requirements; and
‘‘(v) shall have such additional terms
and conditions as the parties may agree to,
provided that such terms and conditions are
consistent with this section and regulations.
‘‘(B) SERVICE
AREA
OVERLAP.—In des-
ignating a service area under a PACE program
agreement under subparagraph (A)(i), the Sec-
retary (in consultation with the State admin-
istering agency) may exclude from designation
an area that is already covered under another
PACE program agreement, in order to avoid un-
necessary duplication of services and avoid im-
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pairing the financial and service viability of an
existing program.
‘‘(3) DATA COLLECTION; DEVELOPMENT OF OUT-
COME MEASURES.—
‘‘(A) DATA COLLECTION.—
‘‘(i) IN
GENERAL.—Under a PACE
program agreement, the PACE provider
shall—
‘‘(I) collect data;
‘‘(II) maintain, and afford the
Secretary and the State administering
agency access to, the records relating to
the program, including pertinent fi-
nancial, 
medical, 
and 
personnel
records; and
‘‘(III) submit to the Secretary and
the State administering agency such
reports as the Secretary finds (in con-
sultation with State administering
agencies) necessary to monitor the op-
eration, cost, and effectiveness of the
PACE program.
‘‘(ii) REQUIREMENTS
DURING
TRIAL
PERIOD.—During the first 3 years of oper-
ation of a PACE program (either under this
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section or under a PACE demonstration
waiver program), the PACE provider shall
provide such additional data as the Sec-
retary specifies in regulations in order to
perform the oversight required under para-
graph (4)(A).
‘‘(B) DEVELOPMENT
OF
OUTCOME
MEAS-
URES.—Under a PACE program agreement, the
PACE provider, the Secretary, and the State ad-
ministering agency shall jointly cooperate in the
development and implementation of health status
and quality of life outcome measures with respect
to PACE program eligible individuals.
‘‘(4) OVERSIGHT.—
‘‘(A) ANNUAL, CLOSE
OVERSIGHT
DURING
TRIAL PERIOD.—During the trial period (as de-
fined in subsection (a)(9)) with respect to a
PACE program operated by a PACE provider,
the Secretary (in cooperation with the State ad-
ministering agency) shall conduct a comprehen-
sive annual review of the operation of the PACE
program by the provider in order to assure com-
pliance with the requirements of this section and
regulations. Such a review shall include—
‘‘(i) an onsite visit to the program site;
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‘‘(ii) comprehensive assessment of a
provider’s fiscal soundness;
‘‘(iii) comprehensive assessment of the
provider’s capacity to provide all PACE
services to all enrolled participants;
‘‘(iv) detailed analysis of the entity’s
substantial compliance with all significant
requirements of this section and regulations;
and
‘‘(v) any other elements the Secretary
or the State administering agency considers
necessary or appropriate.
‘‘(B) CONTINUING
OVERSIGHT.—After the
trial period, the Secretary (in cooperation with
the State administering agency) shall continue
to conduct such review of the operation of PACE
providers and PACE programs as may be appro-
priate, taking into account the performance level
of a provider and compliance of a provider with
all significant requirements of this section and
regulations.
‘‘(C) DISCLOSURE.—The results of reviews
under this paragraph shall be reported promptly
to the PACE provider, along with any rec-
ommendations for changes to the provider’s pro-
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gram, and shall be made available to the public
upon request.
‘‘(5) TERMINATION OF PACE PROVIDER AGREE-
MENTS.—
‘‘(A) IN GENERAL.—Under regulations—
‘‘(i) the Secretary or a State admin-
istering agency may terminate a PACE
program agreement for cause, and
‘‘(ii) a PACE provider may terminate
such an agreement after appropriate notice
to the Secretary, the State administering
agency, and enrollees.
‘‘(B) CAUSES
FOR
TERMINATION.—In ac-
cordance with regulations establishing procedures
for termination of PACE program agreements,
the Secretary or a State administering agency
may terminate a PACE program agreement with
a PACE provider for, among other reasons, the
fact that—
‘‘(i) the Secretary or State administer-
ing agency determines that—
‘‘(I) there are significant defi-
ciencies in the quality of care provided
to enrolled participants; or
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‘‘(II) the provider has failed to
comply substantially with conditions
for a program or provider under this
section or section 1894; and
‘‘(ii) the entity has failed to develop
and successfully initiate, within 30 days of
the date of the receipt of written notice of
such a determination, a plan to correct the
deficiencies, or has failed to continue imple-
mentation of such a plan.
‘‘(C) TERMINATION AND TRANSITION PROCE-
DURES.—An entity whose PACE provider agree-
ment is terminated under this paragraph shall
implement the transition procedures required
under subsection (a)(2)(C).
‘‘(6) SECRETARY’S
OVERSIGHT; ENFORCEMENT
AUTHORITY.—
‘‘(A) IN
GENERAL.—Under regulations, if
the Secretary determines (after consultation with
the State administering agency) that a PACE
provider is failing substantially to comply with
the requirements of this section and regulations,
the Secretary (and the State administering agen-
cy) may take any or all of the following actions:
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‘‘(i) Condition the continuation of the
PACE program agreement upon timely exe-
cution of a corrective action plan.
‘‘(ii) Withhold some or all further pay-
ments under the PACE program agreement
under this section or section 1894 with re-
spect to PACE program services furnished
by such provider until the deficiencies have
been corrected.
‘‘(iii) Terminate such agreement.
‘‘(B) APPLICATION OF INTERMEDIATE SANC-
TIONS.—Under regulations, the Secretary may
provide for the application against a PACE pro-
vider of remedies described in section 1857(f)(2)
(or, for periods before January 1, 1999, section
1876(i)(6)(B)) or 1903(m)(5)(B) in the case of
violations by the provider of the type described
in section 1857(f)(1) (or 1876(i)(6)(A) for such
periods) or 1903(m)(5)(A), respectively (in rela-
tion to agreements, enrollees, and requirements
under section 1894 or this section, respectively).
‘‘(7) PROCEDURES FOR TERMINATION OR IMPOSI-
TION OF SANCTIONS.—Under regulations, the provi-
sions of section 1857(g) (or for periods before January
1, 1999, section 1876(i)(9)) shall apply to termi-
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nation and sanctions respecting a PACE program
agreement and PACE provider under this subsection
in the same manner as they apply to a termination
and sanctions with respect to a contract and a Medi-
care Choice organization under part C of title XVIII
(or for such periods an eligible organization under
section 1876).
‘‘(8) TIMELY CONSIDERATION OF APPLICATIONS
FOR PACE PROGRAM PROVIDER STATUS.—In consider-
ing an application for PACE provider program sta-
tus, the application shall be deemed approved unless
the Secretary, within 90 days after the date of the
submission of the application to the Secretary, either
denies such request in writing or informs the appli-
cant in writing with respect to any additional infor-
mation that is needed in order to make a final deter-
mination with respect to the application. After the
date the Secretary receives such additional informa-
tion, the application shall be deemed approved unless
the Secretary, within 90 days of such date, denies
such request.
‘‘(f) REGULATIONS.—
‘‘(1) IN GENERAL.—The Secretary shall issue in-
terim final or final regulations to carry out this sec-
tion and section 1894.
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‘‘(2) USE OF PACE PROTOCOL.—
‘‘(A) IN GENERAL.—In issuing such regula-
tions, the Secretary shall, to the extent consistent
with the provisions of this section, incorporate
the requirements applied to PACE demonstra-
tion waiver programs under the PACE protocol.
‘‘(B) FLEXIBILITY.—In order to provide for
reasonable flexibility in adapting the PACE
service delivery model to the needs of particular
organizations (such as those in rural areas or
those that may determine it appropriate to use
nonstaff physicians according to State licensing
law requirements) under this section and section
1894, the Secretary (in close consultation with
State administering agencies) may modify or
waive provisions of the PACE protocol so long as
any such modification or waiver is not inconsist-
ent with and would not impair the essential ele-
ments, objectives, and requirements of this sec-
tion, but may not modify or waive any of the
following provisions:
‘‘(i) The focus on frail elderly qualify-
ing individuals who require the level of care
provided in a nursing facility.
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‘‘(ii) The delivery of comprehensive, in-
tegrated acute and long-term care services.
‘‘(iii) The interdisciplinary team ap-
proach to care management and service de-
livery.
‘‘(iv) Capitated, integrated financing
that allows the provider to pool payments
received from public and private programs
and individuals.
‘‘(v) The assumption by the provider of
full financial risk.
‘‘(3) APPLICATION OF CERTAIN ADDITIONAL BEN-
EFICIARY AND PROGRAM PROTECTIONS.—
‘‘(A) IN GENERAL.—In issuing such regula-
tions and subject to subparagraph (B), the Sec-
retary may apply with respect to PACE pro-
grams, providers, and agreements such require-
ments of part C of title XVIII (or, for periods be-
fore January 1, 1999, section 1876) and section
1903(m) relating to protection of beneficiaries
and program integrity as would apply to Medi-
care Choice organizations under such part C (or
for such periods eligible organizations under
risk-sharing contracts under section 1876) and to
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health maintenance organizations under prepaid
capitation agreements under section 1903(m).
‘‘(B) CONSIDERATIONS.—In issuing such
regulations, the Secretary shall—
‘‘(i) take into account the differences
between populations served and benefits
provided under this section and under part
C of title XVIII (or, for periods before Jan-
uary 1, 1999, section 1876) and section
1903(m);
‘‘(ii) not include any requirement that
conflicts with carrying out PACE programs
under this section; and
‘‘(iii) not include any requirement re-
stricting the proportion of enrollees who are
eligible for benefits under this title or title
XVIII.
‘‘(g) WAIVERS OF REQUIREMENTS.—With respect to
carrying out a PACE program under this section, the fol-
lowing requirements of this title (and regulations relating
to such requirements) shall not apply:
‘‘(1) Section 1902(a)(1), relating to any require-
ment that PACE programs or PACE program serv-
ices be provided in all areas of a State.
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‘‘(2) Section 1902(a)(10), insofar as such section
relates to comparability of services among different
population groups.
‘‘(3) Sections 1902(a)(23) and 1915(b)(4), relat-
ing to freedom of choice of providers under a PACE
program.
‘‘(4) Section 1903(m)(2)(A), insofar as it re-
stricts a PACE provider from receiving prepaid capi-
tation payments.
‘‘(h) DEMONSTRATION PROJECT FOR FOR-PROFIT EN-
TITIES.—
‘‘(1) IN GENERAL.—In order to demonstrate the
operation of a PACE program by a private, for-profit
entity, the Secretary (in close consultation with State
administering agencies) shall grant waivers from the
requirement under subsection (a)(3) that a PACE
provider may not be a for-profit, private entity.
‘‘(2) SIMILAR TERMS AND CONDITIONS.—
‘‘(A) IN
GENERAL.—Except as provided
under subparagraph (B), and paragraph (1), the
terms and conditions for operation of a PACE
program by a provider under this subsection
shall be the same as those for PACE providers
that are nonprofit, private organizations.
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‘‘(B) NUMERICAL LIMITATION.—The number
of programs for which waivers are granted under
this subsection shall not exceed 10. Programs
with waivers granted under this subsection shall
not be counted against the numerical limitation
specified in subsection (e)(1)(B).
‘‘(i) POST-ELIGIBILITY TREATMENT OF INCOME.—A
State may provide for post-eligibility treatment of income
for individuals enrolled in PACE programs under this sec-
tion in the same manner as a State treats post-eligibility
income for individuals receiving services under a waiver
under section 1915(c).
‘‘(j) MISCELLANEOUS PROVISIONS.—Nothing in this
section or 1894 shall be construed as preventing a PACE
provider from entering into contracts with other govern-
mental or nongovernmental payers for the care of PACE
program eligible individuals who are not eligible for bene-
fits under part A, or enrolled under part B, of title XVIII
or eligible for medical assistance under this title.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 1902(j) (42 U.S.C. 1396a(j)), as
amended by section 5702(a)(2)(B), is amended by
striking ‘‘(26)’’ and inserting ‘‘(27)’’.
(2) Section 1924(a)(5) (42 U.S.C. 1396r–
5(a)(5)) is amended—
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(A) in the heading, by striking ‘‘FROM OR-
GANIZATIONS RECEIVING CERTAIN WAIVERS’’ and
inserting ‘‘UNDER PACE PROGRAMS’’; and
(B) by striking ‘‘from any organization’’
and all that follows and inserting ‘‘under a
PACE demonstration waiver program (as de-
fined in section 1932(a)(7)) or under a PACE
program under section 1932 or 1894.’’.
(3) 
Section 
1903(f)(4)(C) 
(42 
U.S.C.
1396b(f)(4)(C)) is amended by inserting ‘‘or who is a
PACE program eligible individual enrolled in a
PACE program under section 1932,’’ after ‘‘section
1902(a)(10)(A),’’.
SEC. 5742. EFFECTIVE DATE; TRANSITION.
(a) TIMELY ISSUANCE OF REGULATIONS; EFFECTIVE
DATE.—The Secretary of Health and Human Services shall
promulgate regulations to carry out this chapter in a timely
manner. Such regulations shall be designed so that entities
may establish and operate PACE programs under sections
1894 and 1932 of the Social Security Act (as added by sec-
tions 5011 and 5741 of this Act) for periods beginning not
later than 1 year after the date of the enactment of this
Act.
(b) EXPANSION AND TRANSITION FOR PACE DEM-
ONSTRATION PROJECT WAIVERS.—
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(1) EXPANSION IN CURRENT NUMBER AND EX-
TENSION
OF
DEMONSTRATION
PROJECTS.—Section
9412(b) of the Omnibus Budget Reconciliation Act of
1986, as amended by section 4118(g) of the Omnibus
Budget Reconciliation Act of 1987, is amended—
(A) in paragraph (1), by inserting before
the period at the end the following: ‘‘, except that
the Secretary shall grant waivers of such require-
ments to up to the applicable numerical limita-
tion specified in section 1933(e)(1)(B) of the So-
cial Security Act’’; and
(B) in paragraph (2)—
(i) in subparagraph (A), by striking ‘‘,
including permitting the organization to as-
sume progressively (over the initial 3-year
period of the waiver) the full financial
risk’’; and
(ii) in subparagraph (C), by adding at
the end the following: ‘‘In granting further
extensions, an organization shall not be re-
quired to provide for reporting of informa-
tion which is only required because of the
demonstration nature of the project.’’.
(2) ELIMINATION
OF
REPLICATION
REQUIRE-
MENT.—Section 9412(b)(2)(B) of such Act, as so
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amended, shall not apply to waivers granted under
such section after the date of the enactment of this
Act.
(3) TIMELY CONSIDERATION OF APPLICATIONS.—
In considering an application for waivers under such
section before the effective date of the repeals under
subsection (d), subject to the numerical limitation
under the amendment made by paragraph (1), the
application shall be deemed approved unless the Sec-
retary of Health and Human Services, within 90
days after the date of its submission to the Secretary,
either denies such request in writing or informs the
applicant in writing with respect to any additional
information which is needed in order to make a final
determination with respect to the application. After
the date the Secretary receives such additional infor-
mation, the application shall be deemed approved un-
less the Secretary, within 90 days of such date, denies
such request.
(c) PRIORITY AND SPECIAL CONSIDERATION IN APPLI-
CATION.—During the 3-year period beginning on the date
of the enactment of this Act:
(1) PROVIDER STATUS.—The Secretary of Health
and Human Services shall give priority in processing
applications of entities to qualify as PACE programs
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under section 1894 or 1932 of the Social Security
Act—
(A) first, to entities that are operating a
PACE demonstration waiver program (as de-
fined in section 1932(a)(7) of such Act), and
(B) then to entities that have applied to op-
erate such a program as of May 1, 1997.
(2) NEW
WAIVERS.—The Secretary shall give
priority, in the awarding of additional waivers under
section 9412(b) of the Omnibus Budget Reconciliation
Act of 1986—
(A) to any entities that have applied for
such waivers under such section as of May 1,
1997; and
(B) to any entity that, as of May 1, 1997,
has formally contracted with a State to provide
services for which payment is made on a
capitated basis with an understanding that the
entity was seeking to become a PACE provider.
(3) SPECIAL
CONSIDERATION.—The Secretary
shall give special consideration, in the processing of
applications described in paragraph (1) and the
awarding of waivers described in paragraph (2), to
an entity which as of May 1, 1997, through formal
activities (such as entering into contracts for feasibil-
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ity studies) has indicated a specific intent to become
a PACE provider.
(d) REPEAL
OF CURRENT PACE DEMONSTRATION
PROJECT WAIVER AUTHORITY.—
(1) IN GENERAL.—Subject to paragraph (2), the
following provisions of law are repealed:
(A) Section 603(c) of the Social Security
Amendments of 1983 (Public Law 98–21).
(B) Section 9220 of the Consolidated Omni-
bus Budget Reconciliation Act of 1985 (Public
Law 99–272).
(C) Section 9412(b) of the Omnibus Budget
Reconciliation Act of 1986 (Public Law 99–509).
(2) DELAY IN APPLICATION.—
(A) IN GENERAL.—Subject to subparagraph
(B), the repeals made by paragraph (1) shall not
apply to waivers granted before the initial effec-
tive date of regulations described in subsection
(a).
(B) APPLICATION TO APPROVED WAIVERS.—
Such repeals shall apply to waivers granted be-
fore such date only after allowing such organiza-
tions a transition period (of up to 24 months) in
order to permit sufficient time for an orderly
transition from demonstration project authority
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to general authority provided under the amend-
ments made by this chapter.
SEC. 5743. STUDY AND REPORTS.
(a) STUDY.—
(1) IN GENERAL.—The Secretary of Health and
Human Services (in close consultation with State ad-
ministering agencies, as defined in section 1932(a)(8)
of the Social Security Act) shall conduct a study of
the quality and cost of providing PACE program
services under the medicare and medicaid programs
under the amendments made by this chapter.
(2) STUDY
OF
PRIVATE, FOR-PROFIT
PROVID-
ERS.—Such study shall specifically compare the costs,
quality, and access to services by entities that are pri-
vate, for-profit entities operating under demonstra-
tion projects waivers granted under section 1932(h) of
the Social Security Act with the costs, quality, and
access to services of other PACE providers.
(b) REPORT.—
(1) IN GENERAL.—Not later than 4 years after
the date of the enactment of this Act, the Secretary
shall provide for a report to Congress on the impact
of such amendments on quality and cost of services.
The Secretary shall include in such report such rec-
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ommendations for changes in the operation of such
amendments as the Secretary deems appropriate.
(2) TREATMENT OF PRIVATE, FOR-PROFIT PRO-
VIDERS.—The report shall include specific findings on
whether any of the following findings is true:
(A) The number of covered lives enrolled
with entities operating under demonstration
project waivers under section 1932(h) of the So-
cial Security Act is fewer than 800 (or such less-
er number as the Secretary may find statis-
tically sufficient to make determinations respect-
ing findings described in the succeeding subpara-
graphs).
(B) The population enrolled with such enti-
ties is less frail than the population enrolled
with other PACE providers.
(C) Access to or quality of care for individ-
uals enrolled with such entities is lower than
such access or quality for individuals enrolled
with other PACE providers.
(D) The application of such section has re-
sulted in an increase in expenditures under the
medicare or medicaid programs above the ex-
penditures that would have been made if such
section did not apply.