I
106TH CONGRESS
1ST SESSION
H. R. 2115
To establish a demonstration project to authorize the Secretary of Health
and Human Services to selectively contract for the provision of medical
care to Medicare beneficiaries.
IN THE HOUSE OF REPRESENTATIVES
JUNE 9, 1999
Mr. STARK introduced the following bill; which was referred to the Committee
on Ways and Means, and in addition to the Committee on Commerce,
for a period to be subsequently determined by the Speaker, in each case
for consideration of such provisions as fall within the jurisdiction of the
committee concerned
A BILL
To establish a demonstration project to authorize the Sec-
retary of Health and Human Services to selectively con-
tract for the provision of medical care to Medicare bene-
ficiaries.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Medicare Purchasing
Flexibility Act of 1999’’.
SEC. 2. AUTHORITY TO SELECTIVELY CONTRACT UNDER
THE MEDICARE PROGRAM.
(a) DEMONSTRATION PROJECTS.—
(1) IN GENERAL.—The Secretary of Health and
Human Services (in this section referred to as the
‘‘Secretary’’) shall conduct demonstration projects
under which the Secretary may use any or all of the
additional authorities described in subsection (b)
that—
(A) improves the quality of items and serv-
ices furnished under the medicare program; and
(B) reduces expenditures under the medi-
care program for such items and services.
(2) DURATION OF PROJECTS.—A demonstration
project under this section shall be carried out for a
period of five years. The Secretary may provide for
the project to be carried out for additional five-year
periods.
(3) PUBLICATION OF NOTICE OF DEMONSTRA-
TION PROJECTS.—By not later than 90 days after
the date of the enactment of this Act and annually
thereafter, the Secretary shall publish notice in the
Federal Register of the demonstration projects to be
carried out under this section. The Secretary shall
specify the process for—
(A) the consideration of comments of inter-
ested parties and the public;
(B) the process for applications by pro-
viders of services, physicians, and suppliers of
items and services to participate in such a dem-
onstration project;
(C) the particular additional authorities
under subsection (b) that the Secretary con-
siders the highest priority;
(D) determination of priorities for approval
of demonstration projects based on the poten-
tial of the proposed innovations under the dem-
onstration project to improve health outcomes
and be cost effective relative to those services
otherwise available under parts A and B of the
medicare program.
(b) ADDITIONAL AUTHORITIES.—For the purposes of
carrying out a demonstration project under subsection (a),
the Secretary may employ any of the following new au-
thorities:
(1) CASE MANAGEMENT AUTHORITY.—In order
to promote cost effective delivery of items and serv-
ices under the medicare program, the Secretary may
provide for case management with respect to types
of conditions or illnesses identified by the Secretary
as appropriate for case management. The case man-
agement authority under this paragraph may be
used alone or in conjunction with the authority
under paragraph (2) to bundle payments for items
and services furnished under the program.
(2) BUNDLED PAYMENTS.—
(A) IN
GENERAL.—Subject to subpara-
graph (B), in order to promote cost effective
delivery of items and services furnished under
the medicare program, the Secretary may pro-
vide for bundled payments for the treatment of
types of conditions or illnesses identified by the
Secretary as appropriate for bundled payments.
(B) The authority under subparagraph (A)
shall not apply if the Secretary determines that
the use of that authority with respect to such
condition or illness would substantially impair a
medicare beneficiary’s access to items and serv-
ices of adequate quality when medically nec-
essary.
(3) CONTRACTING AUTHORITY.—
(A) COST EFFECTIVE DELIVERY OF SERV-
ICES.—
(i) IN GENERAL.—In order to promote
the cost effective delivery of items and
services, the Secretary may enter into con-
tracts with providers of services, suppliers,
and physicians furnishing items or services
under the medicare program for the provi-
sion of certain items and services (identi-
fied by the Secretary) at a rate of payment
that is less than rate otherwise applicable
to that item or service under the medicare
program.
(ii) 
MAINTAINING
QUALITY.—The
Secretary shall take such steps as are nec-
essary to ensure the standards and condi-
tions of quality applicable under the medi-
care program to such item or service apply
under any contract entered into under
clause (i).
(iii) PASSING ON SAVINGS TO BENE-
FICIARIES.—In the case of any savings to
the medicare program by reason of a con-
tract entered into under clause (i), the Sec-
retary may provide for such reduction, as
the Secretary determines appropriate, in
the amount of coinsurance payable by
medicare beneficiaries under the medicare
program receiving items and services under
such contract.
(B) IMPROVING COORDINATION OF SERV-
ICES.—In order to promote better coordination
of services available, the Secretary may contract
with any of the following:
(i) MEDICAID.—The Secretary may
enter into contracts for the provision of
items and services under the medicare pro-
gram with a State or local government, or
with a person who is not a governmental
entity, to coordinate the provision of such
items and services by such governments or
persons with the provision of items and
services furnished under the medicare pro-
gram. In determining whether to enter into
a contract under this clause, the Secretary
shall give priority to coordination of items
and services for individuals who are enti-
tled to benefits both under the medicare
program and under a State plan under
title XIX of such Act.
(ii) LOCAL
MARKETS.—In order to
promote better coordination of utilization
of items and services furnished under the
medicare program, the Secretary may
enter into contracts, directly or through a
third party, for the provision of items and
services furnished within a local market.
(C) IMPROVING
BENEFICIARY
HEALTH
EDUCATION.—In order to improve knowledge of
medicare beneficiaries with respect to health
care and to provide for increased control of
health care utilization by such beneficiaries, the
Secretary may contract with entities or organi-
zations to provide prevention services and man-
agement of demand for particular conditions
and illnesses identified by the Secretary as ap-
propriate for such purpose.
(D) 
QUALITY
AND
COST
EFFECTIVE
CARE.—In order to promote access to high
quality, cost effective care, the Secretary may
do the following:
(i) INCENTIVES TO BENEFICIARIES.—
The Secretary may provide incentives to
medicare beneficiaries who utilize providers
that demonstrate quality medical outcomes
while maintaining cost effectiveness, and
who have entered into a contract with the
Secretary to provide items and services
under the medicare program to medicare
beneficiaries.
(ii) SHARING OF PATIENT OUTCOMES
INFORMATION.—The Secretary may estab-
lish a mechanism by which information on
patient outcomes and patient unitization of
services is made available as appropriate,
in a manner that protects patient privacy,
to all providers of services, physicians, and
suppliers of items and services under the
medicare program.
(c) PROVISION OF ADDITIONAL ITEMS AND SERV-
ICES.—To the extent that a demonstration project carried
out under this section utilizing the additional authorities
described in subsection (b) results in the provision of items
or services not otherwise provided for under the medicare
program, such items and services shall be deemed to be
covered under such program for purposes of the dem-
onstration project if the provision of such items and serv-
ices conforms with the standards and requirements under
such program.
(d) LIMITATIONS ON DEMONSTRATION PROJECTS.—
(1) NO
REDUCTION
IN
CURRENT
MEDICARE
BENEFITS.—No demonstration project may be estab-
lished under this section if the establishment of the
demonstration project would result in a reduction in
the type or amount of items and services provided
for under the medicare program.
(2) FREEDOM OF CHOICE OF PROVIDERS.—
(A) 
IN
GENERAL.—No 
demonstration
project may be established under this section if
the establishment of the demonstration project
mandates a greater limitation on the ability of
a medicare beneficiary to choose a provider of
services, physician, or supplier than those in ef-
fect under the medicare program.
(B) BENEFICIARY
ELECTION.—Notwith-
standing subparagraph (A), the Secretary may
provide for limitation on the ability of a medi-
care beneficiary if the beneficiary makes an
election to participate in a demonstration
project under such greater limitations, under
such conditions established prescribed the Sec-
retary in regulations.
(3) 
LIMITATION
ON
QUANTITY
OF
PRO-
VIDERS.—Notwithstanding paragraph (2), the Sec-
retary may establish a demonstration project under
this section under which the Secretary, in a limited
geographic area (as determined by the Secretary),
limits the quantity of providers or services, physi-
cians, or suppliers of items and services furnishing
items and services to medicare beneficiaries under
a contract. In establishing such a demonstration
project, the Secretary shall consider the following
factors:
(A) The need to maintain medicare bene-
ficiaries’ access to a broad range of providers of
services, physicians, and suppliers.
(B) The need to maintain enough viable
providers of services, physicians, and suppliers
in the geographic area to assure an effective
procurement process.
(e) AUTHORITY TO COLLECT DATA.—The Secretary
may require providers of services, physicians, and sup-
pliers of items and services furnishing services to medicare
beneficiaries under a demonstration project under this sec-
tion to submit such information that the Secretary con-
siders necessary for—
(1) the evaluation of demonstration projects
carried out under this section;
(2) the improvement of such demonstration
projects;
(3) the establishment of additional demonstra-
tion projects under this section; and
(4) the feasibility of integrating components of
such demonstration projects into the medicare pro-
gram.
(f) IMPLEMENTATION OF DEMONSTRATION PROJECT
RESULTS.—The Secretary may issue regulations to imple-
ment, on a permanent basis, the components of a dem-
onstration project that is beneficial to the medicare pro-
gram if a report under subsection (g)(2)(F) contains an
evaluation that a demonstration project under this
section—
(1) reduces expenditures under the medicare
program; or
(2) does not increase expenditures under the
medicare program and increases the quality of
health care services furnished to medicare bene-
ficiaries and satisfaction of beneficiaries and health
care providers.
(g) REPORT TO CONGRESS.—
(1) IN GENERAL.—Not less frequently than an-
nually after the Secretary implements demonstration
projects under this section, the Secretary shall sub-
mit to Congress a report regarding the demonstra-
tion projects conducted under this section.
(2) CONTENTS
OF
REPORT.—The report in
paragraph (1) shall include the following:
(A) A description of the demonstration
projects conducted under this section.
(B) A description of any demonstration
project under consideration by the Secretary for
approval.
(C) A description of the methods by which
any demonstration project meets the applicable
standards for additional authority under sub-
section (b).
(D) A description of the measures imple-
mented under the demonstration project to pro-
tect the health and welfare of medicare bene-
ficiaries participating in or to whom items and
services are furnished under the demonstration
project. Such description shall include informa-
tion with respect to standards for participation
of providers or services, physicians, and sup-
pliers of items and services applicable under the
demonstration project.
(E) A description of the methods by which
the Secretary shall assure the financial account-
ability of funds expended under the demonstra-
tion projects with respect to items and services
furnished under the project.
(F) An evaluation of—
(i) the cost-effectiveness of the dem-
onstration projects;
(ii) the quality of the health care serv-
ices provided to target individuals under
the demonstration projects; and
(iii) beneficiary and health care pro-
vider satisfaction under the demonstration
project.
(G) Any other information regarding the
demonstration projects conducted under this
section that the Secretary determines to be ap-
propriate.
(3) MEDPAC REVIEW.—The Medicare Payment
Advisory Commission shall review such report and
submit to Congress its comments on such report not
later than 60 days after the date of the report is
submitted to Congress. Such comments shall include
the effectiveness and appropriateness of the ap-
proved and proposed demonstration projects, and
recommendations to Congress with respect to modi-
fications to the authority under this section that the
commission determines appropriate.
(h) WAIVER AUTHORITY.—The Secretary shall waive
compliance with the requirements of the medicare pro-
gram to such extent and for such period as the Secretary
determines is necessary to conduct demonstration projects.
(i) FUNDING.—
(1) IN GENERAL.—The Secretary shall provide
for the transfer from the Federal Hospital Insurance
Trust Fund and the Federal Supplementary Insur-
ance Trust Fund under title XVIII of the Social Se-
curity Act (42 U.S.C. 1395i, 1395t), in such propor-
tions as the Secretary determines to be appropriate,
of such funds as are necessary for the costs of car-
rying out the demonstration projects under this sec-
tion.
(2) LIMITATION.—In conducting demonstration
projects under this section, the Secretary shall en-
sure that the aggregate payments made by the Sec-
retary do not exceed the amount which the Secretary
would have paid if the demonstration projects under
this section were not implemented.
(j) DEFINITIONS.—In this section:
(1) 
MEDICARE
BENEFICIARY.—The 
term
‘‘medicare beneficiary’’ means an individual entitled
to benefits under part A of the medicare program,
and enrolled under part B of such program, or a
person enrolled only under part B of such program.
(2) MEDICARE PROGRAM.—The term ‘‘medicare
program’’ means the program established under title
XVIII of the Social Security Act (42 U.S.C. 1395 et
seq.).
(3) PROVIDER OF SERVICES.—The term ‘‘pro-
vider of services’’ has the meaning given that term
under section 1861(u) of the Social Security Act (42
U.S.C. 1395x(u)).
(4) PHYSICIAN.—The term ‘‘physician’’ has the
meaning given that term under section 1861(r) of
such Act (42 U.S.C. 1395x(r)).
SEC. 3. LEGISLATIVE PROPOSALS TO CHANGE PAYMENT
METHODOLOGY FOR CERTAIN SERVICES.
(a) PROPOSAL TO IMPOSE SUSTAINABLE GROWTH
RATE LIMITATIONS ON PAYMENT FOR CERTAIN MEDI-
CARE ITEMS AND SERVICES.—In the case of unusual in-
creases in costs to the medicare program (as determined
by the Secretary of Health and Human Services) attrib-
utable to unjustified increases in the amount or intensity
of items and services furnished under the program, the
Secretary shall modify the payment update and/or meth-
odology with respect to such items and services from the
update and/or methodology which resulted in such unusual
increases in costs to an update and/or methodology that
imposes a sustainable growth rate for such items and serv-
ices similar to the sustainable growth rate applied with
respect to payment for physicians services under section
1848(f) of the Social Security Act (42 U.S.C. 1395w–
4(f)).
(b) AUTHORITY TO VARY BY REGION.—Any sustain-
able growth rate recommended by the Secretary may pro-
vide for the determination of such rate on a uniform na-
tional basis, by Metropolitan Statistical Area, by State,
or by any other region that the Secretary determines ap-
propriate.
SECTION 4. AUTHORITY TO NEGOTIATE PAYMENT RATES
IN CERTAIN AREAS.
(a) AUTHORITY TO NEGOTIATE.—In the case of a
service area (as determined by the Secretary of Health
and Human Services) in which payments made by the Sec-
retary to a health care provider during a fiscal year for
items and services furnished under the medicare program
represent the largest single source of payment to the
health care provider for such items and services in that
area, the Secretary may negotiate a preferred customer
rate with such health care provider for such items and
services under the medicare program.
(b) MANDATE TO NEGOTIATE.—In the case of a
service area described in subsection (a) where payment
rates under the medicare program for items and services
furnished exceed the rates charged by such health care
provider for such items and services for which payment
is made other than under the medicare program, the Sec-
retary shall negotiate a preferred customer rate with such
health care provider for such items and services under the
medicare program.
(c) ADJUSTMENT.—In negotiating a preferred cus-
tomer rate under subsection (a), the Secretary shall take
into account costs uniquely associated with the provision
of items and services under the medicare program.
(d) 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 this
Act.
(e) DEFINITIONS.—In this section:
(1) MEDICARE PROGRAM.—The term ‘‘medicare
program’’ means the program established under title
XVIII of the Social Security Act (42 U.S.C. 1395 et
seq.).
(2) PREFERRED CUSTOMER RATE.—The term
‘‘preferred customer rate’’ means, with respect to
payment to a provider of services, physician, or sup-
plier for an item or service furnished under the
medicare program, a rate lower than the rate gen-
erally charged in the service area for such item or
service.
(3) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means a provider of services,
a physician, or a supplier who furnishes items or
services for which payment is made under the medi-
care program.
(4) PROVIDER OF SERVICES.—The term ‘‘pro-
vider of services’’ has the meaning given that term
under section 1861(u) of the Social Security Act (42
U.S.C. 1395x(u)).
(5) PHYSICIAN.—The term ‘‘physician’’ has the
meaning given that term under section 1861(r) of
such Act (42 U.S.C. 1395x(r)).
(f) Section 1842(b)(8) is amended to strike ‘‘15 per-
cent’’ each place it appears and substitute ‘‘30 percent’’.
SEC. 5. BASING MEDICARE PAYMENT FOR HOSPITAL OUT-
PATIENT DEPARTMENT SERVICES ON PAY-
MENT RATES FOR SIMILAR SERVICES PRO-
VIDED OUTSIDE THE HOSPITAL SETTING.
(a) IN GENERAL.—Section 1833(t)(1) of the Social
Security Act (42 U.S.C. 1395l(t)(1)) is amended—
(1) in subparagraph (A), by inserting
‘‘subject to subparagraph (C),’’ after ‘‘1999,’’,
and
(2) by adding at the end the following new
subparagraph:
‘‘(C) USE
OF
RATES
IN
NON-HOSPITAL
SETTINGS.—With respect to covered OPD serv-
ices furnished on or after January 1, 2001, if
payment may be made under this part for simi-
lar services (such as physicians’ services) fur-
nished outside the hospital setting, in accord-
ance with regulations of the Secretary, the total
amount of payment under this part for such
covered OPD services (including any facility-re-
lated component to such services) shall be de-
termined on the same basis on which payment
may be made for such similar services furnished
outside the hospital setting.’’.
(b) CONFORMING AMENDMENT.—The fifth sentence
of section 1866(a)(2)(A) of such Act (42 U.S.C.
1395cc(a)(2)(A)) is amended by inserting ‘‘, or in the case
described in section 1833(t)(1)(C), the coinsurance
amount that would otherwise apply with respect to the
provision of the similar services referred to in such sec-
tion’’ before the period at the end.
SEC. 6. MEDICARE PAYMENTS FOR INPATIENT HOSPITAL
SERVICES INVOLVING EMERGENCY CARE.
(a) MEDPAC REPORT ON DRG WEIGHTING FAC-
TORS.—The Medicare Payment Advisory Commission
shall submit a report to Congress and the Secretary of
Health and Human Services, by January 1, 2000, on
whether the DRG weighting factors under section
1886(d)(4)(B) of the Social Security Act for diagnosis-re-
lated groups associated with emergency care are adequate
to cover the costs of emergency room use within discharges
classified within such groups.
(b) ADJUSTMENT OF WEIGHTING FACTORS.—Taking
into account the report submitted under subsection (a),
the Secretary of Health and Human Services shall make
appropriate adjustments in the DRG weighting factors de-
scribed in subsection (a) for discharges occurring on or
after January 1, 2001, as may be appropriate to ensure
that hospital emergency room costs attributable to medi-
care patients are appropriately covered.
SEC. 7. PROMOTING THE USE OF COST EFFECTIVE MEDI-
CARE 
NONINSTITUTIONAL 
SERVICES
THROUGH 
WAIVER 
OF 
BENEFIT 
LIMITA-
TIONS.
(a) IN GENERAL.—If the Secretary of Health and
Human Services estimates that treatment in a non-hos-
pital or non-institutional setting under the medicare pro-
gram under title XVIII of the Social Security Act is likely
to provide similar or better quality care and outcomes at
a lower cost to the program, the Secretary of Health and
Human Services may waive requirements described in sub-
section (b) which discourage or prevent treatment in such
a setting.
(b) REQUIREMENTS WAIVABLE.—
(1) IN GENERAL.—Subject to paragraph (2),
the requirements that may be waived include the fol-
lowing:
(A) The requirement, for the receipt of
benefits for extended care services, that the
services be post-hospital extended care services.
(B) Cost sharing (including deductibles,
coinsurance, and copayments) that may be ap-
plicable.
(2) NONWAIVABLE PROVISIONS.—The Secretary
of Health and Human Services may not under this
section provide for coverage of services for which no
payment is otherwise provided under the medicare
program.
(c) LIMITATION.—The Secretary may not provide for
such a waiver in the case of an individual unless there
are satisfactory assurances that the medicare beneficiary
has not received (and is not likely to receive) medicare