management. The study shall identify the cost-effective-
ness of such programs and any savings achieved by such 
programs. The Comptroller General shall submit a report 
on such study to Congress by not later than 18 months 
after the date of the enactment of this Act. 
SEC. 423. DEMONSTRATION PROJECT FOR MEDICAL ADULT 
DAY CARE SERVICES. 
(a) ESTABLISHMENT.—Subject to the succeeding 
provisions of this section, the Secretary of Health and 
Human Services shall establish a demonstration project 
(in this section referred to as the ‘‘demonstration project’’) 
under which the Secretary shall, as part of a plan of an 
episode of care for home health services established for 
a medicare beneficiary, permit a home health agency, di-
rectly or under arrangements with a medical adult day 
care facility, to provide medical adult day care services as 
a substitute for a portion of home health services that 
would otherwise be provided in the beneficiary’s home. 
(b) PAYMENT.—
(1) IN GENERAL.—The amount of payment for 
an episode of care for home health services, a por-
tion of which consists of substitute medical adult 
day care services, under the demonstration project 
shall be made at a rate equal to 95 percent of the 
amount that would otherwise apply for such home
health services under section 1895 of the Social Se-
curity Act (42 U.S.C. 1395fff). In no case may a 
home health agency, or a medical adult day care fa-
cility under arrangements with a home health agen-
cy, separately charge a beneficiary for medical adult 
day care services furnished under the plan of care. 
(2) BUDGET
NEUTRALITY
FOR
DEMONSTRA-
TION PROJECT.—Notwithstanding any other provi-
sion of law, the Secretary shall provide for an appro-
priate reduction in the aggregate amount of addi-
tional payments made under section 1895 of the So-
cial Security Act (42 U.S.C. 1395fff) to reflect any 
increase in amounts expended from the Trust Funds 
as a result of the demonstration project conducted 
under this section. 
(c) DEMONSTRATION PROJECT SITES.—The project 
established under this section shall be conducted in not 
more than 5 States selected by the Secretary that license 
or certify providers of services that furnish medical adult 
day care services. 
(d) DURATION.—The Secretary shall conduct the 
demonstration project for a period of 3 years. 
(e) VOLUNTARY PARTICIPATION.—Participation of 
medicare beneficiaries in the demonstration project shall 
be voluntary. The total number of such beneficiaries that
may participate in the project at any given time may not 
exceed 15,000. 
(f) PREFERENCE IN SELECTING AGENCIES.—In se-
lecting home health agencies to participate under the dem-
onstration project, the Secretary shall give preference to 
those agencies that are currently licensed or certified 
through common ownership and control to furnish medical 
adult day care services. 
(g) WAIVER AUTHORITY.—The Secretary may waive 
such requirements of title XVIII of the Social Security Act 
as may be necessary for the purposes of carrying out the 
demonstration project, other than waiving the requirement 
that an individual be homebound in order to be eligible 
for benefits for home health services. 
(h) EVALUATION AND REPORT.—The Secretary shall 
conduct an evaluation of the clinical and cost effectiveness 
of the demonstration project. Not later 30 months after 
the commencement of the project, the Secretary shall sub-
mit to Congress a report on the evaluation, and shall in-
clude in the report the following: 
(1) An analysis of the patient outcomes and 
costs of furnishing care to the medicare beneficiaries 
participating in the project as compared to such out-
comes and costs to beneficiaries receiving only home 
health services for the same health conditions.
(2) Such recommendations regarding the exten-
sion, expansion, or termination of the project as the 
Secretary determines appropriate. 
(i) DEFINITIONS.—In this section: 
(1) HOME HEALTH AGENCY.—The term ‘‘home 
health agency’’ has the meaning given such term in 
section 1861(o) of the Social Security Act (42 
U.S.C. 1395x(o)). 
(2) MEDICAL ADULT DAY CARE FACILITY.—The 
term ‘‘medical adult day care facility’’ means a facil-
ity that—
(A) has been licensed or certified by a 
State to furnish medical adult day care services 
in the State for a continuous 2-year period; 
(B) is engaged in providing skilled nursing 
services and other therapeutic services directly 
or under arrangement with a home health agen-
cy; 
(C) meets such standards established by 
the Secretary to assure quality of care and such 
other requirements as the Secretary finds nec-
essary in the interest of the health and safety 
of individuals who are furnished services in the 
facility; and
(D) provides medical adult day care serv-
ices. 
(3) MEDICAL
ADULT
DAY
CARE
SERVICES.—
The term ‘‘medical adult day care services’’ means—
(A) home health service items and services 
described in paragraphs (1) through (7) of sec-
tion 1861(m) furnished in a medical adult day 
care facility; 
(B) a program of supervised activities fur-
nished in a group setting in the facility that—
(i) meet such criteria as the Secretary 
determines appropriate; and 
(ii) is designed to promote physical 
and mental health of the individuals; and 
(C) such other services as the Secretary 
may specify. 
(4) 
MEDICARE
BENEFICIARY.—The 
term 
‘‘medicare beneficiary’’ means an individual entitled 
to benefits under part A of this title, enrolled under 
part B of this title, or both.
SEC. 424. PUBLICATION ON FINAL WRITTEN GUIDANCE 
CONCERNING PROHIBITIONS AGAINST DIS-
CRIMINATION BY NATIONAL ORIGIN WITH 
RESPECT TO HEALTH CARE SERVICES. 
Not later than January 1, 2003, the Secretary shall 
issue final written guidance concerning the application of 
the prohibition in title VI of the Civil Rights Act of 1964 
against national origin discrimination as it affects persons 
with limited English proficiency with respect to access to 
health care services under the medicare program. 
TITLE V—MEDICARE+CHOICE 
REVITALIZATION 
SEC. 501. MEDICARE+CHOICE IMPROVEMENTS. 
(a) EQUALIZING PAYMENTS BETWEEN FEE-FOR-
SERVICE AND MEDICARE+CHOICE.—
(1) IN
GENERAL.—Section 1853(c)(1) (42 
U.S.C. 1395w–23(c)(1)) is amended by adding at 
the end the following: 
‘‘(D) BASED
ON
100
PERCENT
OF
FEE-
FOR-SERVICE COSTS.—
‘‘(i) IN
GENERAL.—For 2003 and 
2004, the adjusted average per capita cost 
for the year involved, determined under 
section 
1876(a)(4) 
for 
the 
Medicare+Choice payment area for serv-
ices covered under parts A and B for indi-
viduals entitled to benefits under part A 
and enrolled under part B who are not en-
rolled in a Medicare+Choice plan under 
this part for the year, but adjusted to ex-
clude costs attributable to payments under 
section 1886(h). 
‘‘(ii) INCLUSION OF COSTS OF VA AND 
DOD
MILITARY
FACILITY
SERVICES
TO 
MEDICARE-ELIGIBLE
BENEFICIARIES.—In 
determining the adjusted average per cap-
ita cost under clause (i) for a year, such 
cost shall be adjusted to include the Sec-
retary’s estimate, on a per capita basis, of 
the amount of additional payments that 
would have been made in the area involved 
under this title if individuals entitled to 
benefits under this title had not received 
services from facilities of the Department 
of Veterans Affairs or the Department of 
Defense.’’. 
(2) CONFORMING AMENDMENT.—Such section 
is further amended, in the matter before subpara-
graph (A), by striking ‘‘or (C)’’ and inserting ‘‘(C), 
or (D)’’. 
(b) REVISION OF BLEND.—
(1) REVISION OF NATIONAL AVERAGE USED IN 
CALCULATION
OF
BLEND.—Section 
1853(c)(4)(B)(i)(II) 
(42 
U.S.C. 
1395w–
23(c)(4)(B)(i)(II)) is amended by inserting ‘‘who 
(with respect to determinations for 2003 and for 
2004) are enrolled in a Medicare+Choice plan’’ 
after ‘‘the average number of medicare bene-
ficiaries’’. 
(2) CHANGE IN BUDGET NEUTRALITY.—Section 
1853(c) (42 U.S.C. 1395w–23(c)) is amended—
(A) in paragraph (1)(A), by inserting ‘‘(for 
a year before 2003)’’ after ‘‘multiplied’’; and 
(B) in paragraph (5), by inserting ‘‘(before 
2003)’’ after ‘‘for each year’’. 
(c) REVISION IN MINIMUM PERCENTAGE INCREASE 
FOR 2003 AND 2004.—Section 1853(c)(1)(C) (42 U.S.C. 
1395w–23(c)(1)(C)) is amended by striking clause (iv) 
and inserting the following: 
‘‘(iv) For 2002, 102 percent of the 
annual Medicare+Choice capitation rate 
under this paragraph for the area for 
2001. 
‘‘(v) For 2003 and 2004, 103 percent 
of the annual Medicare+Choice capitation
rate under this paragraph for the area for 
the previous year. 
‘‘(vi) For 2005 and each succeeding 
year, 
102 
percent 
of 
the 
annual 
Medicare+Choice capitation rate under 
this paragraph for the area for the pre-
vious year.’’. 
(d) INCLUSION OF COSTS OF DOD AND VA MILI-
TARY
FACILITY
SERVICES
TO
MEDICARE-ELIGIBLE 
BENEFICIARIES IN CALCULATION OF MEDICARE+CHOICE 
PAYMENT
RATES.—Section 
1853(c)(3) 
(42 
U.S.C. 
1395w–23(c)(3)) is amended—
(1) 
in 
subparagraph 
(A), 
by 
striking 
‘‘subparagraph (B)’’ and inserting ‘‘subparagraphs 
(B) and (E)’’, and 
(2) by adding at the end the following new sub-
paragraph: 
‘‘(E) INCLUSION OF COSTS OF DOD AND 
VA MILITARY FACILITY SERVICES TO MEDICARE-
ELIGIBLE BENEFICIARIES.—In determining the 
area-specific Medicare+Choice capitation rate 
under subparagraph (A) for a year (beginning 
with 2003), the annual per capita rate of pay-
ment for 1997 determined under section 
1876(a)(1)(C) shall be adjusted to include in
the rate the Secretary’s estimate, on a per cap-
ita basis, of the amount of additional payments 
that would have been made in the area involved 
under this title if individuals entitled to benefits 
under this title had not received services from 
facilities of the Department of Defense or the 
Department of Veterans Affairs.’’. 
(e) 
ANNOUNCEMENT
OF
REVISED 
MEDICARE+CHOICE PAYMENT RATES.—Within 4 weeks 
after the date of the enactment of this Act, the Secretary 
shall determine, and shall announce (in a manner intended 
to provide notice to interested parties) Medicare+Choice 
capitation rates under section 1853 of the Social Security 
Act (42 U.S.C. 1395w–23) for 2003, revised in accordance 
with the provisions of this section. 
(f) MEDPAC STUDY OF AAPCC.—
(1) STUDY.—The Medicare Payment Advisory 
Commission shall conduct a study that assesses the 
method used for determining the adjusted average 
per capita cost (AAPCC) under section 1876(a)(4) 
of 
the 
Social 
Security 
Act 
(42 
U.S.C. 
1395mm(a)(4)). Such study shall examine—
(A) the bases for variation in such costs 
between different areas, including differences in 
input prices, utilization, and practice patterns;
(B) the appropriate geographic area for 
payment under the Medicare+Choice program 
under part C of title XVIII of such Act; and 
(C) the accuracy of risk adjustment meth-
ods in reflecting differences in costs of pro-
viding care to different groups of beneficiaries 
served under such program. 
(2) REPORT.—Not later than 9 months after 
the date of the enactment of this Act, the Commis-
sion shall submit to Congress a report on the study 
conducted under paragraph (1). Such report shall 
include recommendations regarding changes in the 
methods for computing the adjusted average per 
capita cost among different areas. 
(g) REPORT ON IMPACT OF INCREASED FINANCIAL 
ASSISTANCE TO MEDICARE+CHOICE PLANS.—Not later 
than July 1, 2003, the Secretary of Health and Human 
Services shall submit to Congress a report that describes 
the impact of additional financing provided under this Act 
and other Acts (including the Medicare, Medicaid, and 
SCHIP Balanced Budget Refinement Act of 1999 and 
BIPA) on the availability of Medicare+Choice plans in 
different areas and its impact on lowering premiums and 
increasing benefits under such plans.
SEC. 
502. 
MAKING 
PERMANENT 
CHANGE 
IN 
MEDICARE+CHOICE REPORTING DEADLINES 
AND ANNUAL, COORDINATED ELECTION PE-
RIOD. 
(a) CHANGE
IN REPORTING DEADLINE.—Section 
1854(a)(1) (42 U.S.C. 1395w–24(a)(1)), as amended by 
section 532(b)(1) of the Public Health Security and Bio-
terrorism Preparedness and Response Act of 2002, is 
amended by striking ‘‘2002, 2003, and 2004 (or July 1 
of each other year)’’ and inserting ‘‘2002 and each subse-
quent year (or July 1 of each year before 2002)’’. 
(b) DELAY IN ANNUAL, COORDINATED ELECTION 
PERIOD.—Section 1851(e)(3)(B) (42 U.S.C. 1395w–
21(e)(3)(B)), as amended by section 532(c)(1)(A) of the 
Public Health Security and Bioterrorism Preparedness 
and Response Act of 2002, is amended by striking ‘‘and 
after 2005, the month of November before such year and 
with respect to 2003, 2004, and 2005’’ and inserting ‘‘, 
the month of November before such year and with respect 
to 2003 and any subsequent year’’. 
(c) 
ANNUAL
ANNOUNCEMENT
OF
PAYMENT 
RATES.—Section 
1853(b)(1) 
(42 
U.S.C. 
1395w–
23(b)(1)), as amended by section 532(d)(1) of the Public 
Health Security and Bioterrorism Preparedness and Re-
sponse Act of 2002, is amended by striking ‘‘and after 
2005 not later than March 1 before the calendar year con-
cerned and for 2004 and 2005’’ and inserting ‘‘not later 
than March 1 before the calendar year concerned and for 
2004 and each subsequent year’’. 
(d) REQUIRING PROVISION OF AVAILABLE INFORMA-
TION COMPARING PLAN OPTIONS.—The first sentence of 
section 
1851(d)(2)(A)(ii) 
(42 
U.S.C. 
1395w–
21(d)(2)(A)(ii)) is amended by inserting before the period 
the following: ‘‘to the extent such information is available 
at the time of preparation of materials for the mailing’’. 
SEC. 503. SPECIALIZED MEDICARE+CHOICE PLANS FOR 
SPECIAL NEEDS BENEFICIARIES. 
(a) TREATMENT AS COORDINATED CARE PLAN.—
Section 1851(a)(2)(A) (42 U.S.C. 1395w–21(a)(2)(A)) is 
amended by adding at the end the following new sentence: 
‘‘Specialized Medicare+Choice plans for special needs 
beneficiaries (as defined in section 1859(b)(4)) may be 
any type of coordinated care plan.’’. 
(b) SPECIALIZED MEDICARE+CHOICE PLAN
FOR 
SPECIAL
NEEDS
BENEFICIARIES
DEFINED.—Section 
1859(b) (42 U.S.C. 1395w–29(b)) is amended by adding 
at the end the following new paragraph: 
‘‘(4) SPECIALIZED
MEDICARE+CHOICE
PLANS 
FOR SPECIAL NEEDS BENEFICIARIES.—
‘‘(A) IN GENERAL.—The term ‘specialized 
Medicare+Choice plan for special needs bene-
ficiaries’ means a Medicare+Choice plan that 
exclusively serves special needs beneficiaries (as 
defined in subparagraph (B)). 
‘‘(B) SPECIAL NEEDS BENEFICIARY.—The 
term ‘special needs beneficiary’ means a 
Medicare+Choice eligible individual who—
‘‘(i) is institutionalized (as defined by 
the Secretary); 
‘‘(ii) is entitled to medical assistance 
under a State plan under title XIX; or 
‘‘(iii) meets such requirements as the 
Secretary may determine would benefit 
from enrollment in such a specialized 
Medicare+Choice plan described in sub-
paragraph (A) for individuals with severe 
or disabling chronic conditions.’’. 
(c) RESTRICTION ON ENROLLMENT PERMITTED.—
Section 1859 (42 U.S.C. 1395w–29) is amended by add-
ing at the end the following new subsection: 
‘‘(f) RESTRICTION ON ENROLLMENT FOR SPECIAL-
IZED MEDICARE+CHOICE PLANS FOR SPECIAL NEEDS 
BENEFICIARIES.—In 
the 
case 
of 
a 
specialized 
Medicare+Choice plan (as defined in subsection (b)(4)), 
notwithstanding any other provision of this part and in 
accordance with regulations of the Secretary and for peri-
ods before January 1, 2007, the plan may restrict the en-
rollment of individuals under the plan to individuals who 
are within one or more classes of special needs bene-
ficiaries.’’. 
(d) REPORT TO CONGRESS.—Not later than Decem-
ber 31, 2005, the Medicare Benefits Administrator shall 
submit to Congress a report that assesses the impact of 
specialized Medicare+Choice plans for special needs bene-
ficiaries on the cost and quality of services provided to 
enrollees. Such report shall include an assessment of the 
costs and savings to the medicare program as a result of 
amendments made by subsections (a), (b), and (c). 
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by 
subsections (a), (b), and (c) shall take effect upon 
the date of the enactment of this Act. 
(2) DEADLINE
FOR
ISSUANCE
OF
REQUIRE-
MENTS FOR SPECIAL NEEDS BENEFICIARIES; TRAN-
SITION.—No later than 6 months after the date of 
the enactment of this Act, the Secretary of Health 
and Human Services shall issue final regulations to 
establish requirements for special needs beneficiaries 
under section 1859(b)(4)(B)(iii) of the Social Secu-
rity Act, as added by subsection (b).
SEC. 504. EXTENSION OF REASONABLE COST AND SHMO 
CONTRACTS. 
(a) REASONABLE COST CONTRACTS.—
(1) IN GENERAL.—Section 1876(h)(5)(C) (42 
U.S.C. 1395mm(h)(5)(C)) is amended—
(A) by inserting ‘‘(i)’’ after ‘‘(C)’’; 
(B) by inserting before the period the fol-
lowing: ‘‘, except (subject to clause (ii)) in the 
case of a contract for an area which is not cov-
ered in the service area of 1 or more coordi-
nated care Medicare+Choice plans under part 
C’’; and 
(C) by adding at the end the following new 
clause: 
‘‘(ii) In the case in which—
‘‘(I) a reasonable cost reimbursement contract 
includes an area in its service area as of a date that 
is after December 31, 2003; 
‘‘(II) such area is no longer included in such 
service area after such date by reason of the oper-
ation of clause (i) because of the inclusion of such 
area within the service area of a Medicare+Choice 
plan; and 
‘‘(III) all Medicare+Choice plans subsequently 
terminate coverage in such area; such reasonable 
cost reimbursement contract may be extended and
renewed to cover such area (so long as it is not in-
cluded in the service area of any Medicare+Choice 
plan).’’. 
(2) STUDY.—The Medicare Benefits Adminis-
trator shall conduct a study of an appropriate tran-
sition for plans offered under reasonable cost con-
tracts under section 1876 of the Social Security Act 
on and after January 1, 2005. Such a transition 
may take into account whether there are one or 
more coordinated care Medicare+Choice plans being 
offered in the areas involved. Not later than Feb-
ruary 1, 2004, the Administrator shall submit to 
Congress a report on such study and shall include 
recommendations regarding any changes in the 
amendment made by paragraph (1) as the Adminis-
trator determines to be appropriate. 
(b) EXTENSION OF SOCIAL HEALTH MAINTENANCE 
ORGANIZATION (SHMO) DEMONSTRATION PROJECT.—
(1) IN GENERAL.—Section 4018(b)(1) of the 
Omnibus Budget Reconciliation Act of 1987 is 
amended by striking ‘‘the date that is 30 months 
after the date that the Secretary submits to Con-
gress the report described in section 4014(c) of the 
Balanced Budget Act of 1997’’ and inserting 
‘‘December 31, 2004’’.
(2) SHMOS
OFFERING
MEDICARE+CHOICE 
PLANS.—Nothing in such section 4018 shall be con-
strued as preventing a social health maintenance or-
ganization from offering a Medicare+Choice plan 
under part C of title XVIII of the Social Security 
Act. 
TITLE 
VI—MEDICAID 
DIS-
PROPORTIONATE 
SHARE 
HOSPITAL (DSH) PAYMENTS 
SEC. 601. DISPROPORTIONATE SHARE HOSPITAL (DSH) 
PAYMENTS. 
Section 1923(f)(3) (42 U.S.C. 1396r–4(f)(3)) is 
amended—
(1) in subparagraph (A), by amending subpara-
graph (A) to read as follows: 
‘‘(A) IN GENERAL.—The DSH allotment 
for any State—
‘‘(i) for fiscal year 2003 is equal to 
the DSH allotment for the State for fiscal 
year 2001 under the table in paragraph 
(2), without regard to paragraph (4), in-
creased, subject to subparagraph (B) and 
paragraph (5), by the percentage change in 
the consumer price index for all urban con-