I
107TH CONGRESS
2D SESSION
H. R. 4985
To amend title XVIII of the Social Security Act to revitalize the
Medicare+Choice Program, establish a Medicare+Choice competition
program, and to improve payments to hospitals and other providers
under part A of the Medicare Program.
IN THE HOUSE OF REPRESENTATIVES
JUNE 21, 2002
Mr. TAUZIN introduced the following bill; which was referred to the Committee
on Ways and Means, and in addition to the Committee on Energy and
Commerce, for a period to be subsequently determined by the Speaker,
in each case for consideration of such provisions as fall within the juris-
diction of the committee concerned
A BILL
To amend title XVIII of the Social Security Act to revitalize
the 
Medicare+Choice 
Program, 
establish 
a
Medicare+Choice competition program, and to improve
payments to hospitals and other providers under part
A of the Medicare Program.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
TITLE 
II—MEDICARE+CHOICE
REVITALIZATION 
AND
MEDICARE+CHOICE 
COM-
PETITION PROGRAM
Subtitle A—Medicare+Choice
Revitalization
SEC. 201. 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 ‘‘subpara-
graph (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 2 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.
SEC. 
202. 
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. 203. AVOIDING DUPLICATIVE STATE REGULATION.
(a) IN GENERAL.—Section 1856(b)(3) (42 U.S.C.
1395w–26(b)(3)) is amended to read as follows:
‘‘(3) RELATION TO STATE LAWS.—The stand-
ards established under this subsection shall super-
sede any State law or regulation (other than State
licensing laws or State laws relating to plan sol-
vency) with respect to Medicare+Choice plans which
are offered by Medicare+Choice organizations under
this part.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on the date of the enact-
ment of this Act.
SEC. 204. 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. 205. MEDICARE MSAS.
(a) EXEMPTION FROM QUALITY ASSURANCE PRO-
GRAM REQUIREMENT.—
(1) IN
GENERAL.—Section 1852(e)(1) (42
U.S.C. 1395w–22(e)(1)) is amended by inserting
‘‘(other than MSA plans)’’ after ‘‘Medicare+Choice
plans’’.
(2) CONFORMING AMENDMENTS.—Section 1852
(42 U.S.C. 1395w–22) is amended—
(A) in subsection (c)(1)(I), by inserting be-
fore the period at the end the following: ‘‘if re-
quired under such section’’; and
(B) in subparagraphs (A) and (B) of sub-
section (e)(2), by striking ‘‘, a non-network
MSA 
plan,’’ 
and 
‘‘, 
NON-NETWORK
MSA
PLANS,’’ each place it appears.
(b) MAKING PROGRAM PERMANENT
AND ELIMI-
NATING CAP.—Section 1851(b)(4) (42 U.S.C. 1395w–
21(b)(4)) is amended—
(1) in the heading of subparagraph (A), by
striking ‘‘ON A DEMONSTRATION BASIS’’;
(2) by striking the first sentence of subpara-
graph (A); and
(3) by striking the second sentence of subpara-
graph (C).
(c) APPLYING LIMITATIONS
ON BALANCE BILL-
ING.—Section 1852(k)(1) (42 U.S.C. 1395w–22(k)(1)) is
amended by inserting ‘‘or with an organization offering
a MSA plan’’ after ‘‘section 1851(a)(2)(A)’’.
(d) 
ADDITIONAL
AMENDMENT.—Section
1851(e)(5)(A) 
(42 
U.S.C. 
1395w–21(e)(5)(A)) 
is
amended—
(1) by adding ‘‘or’’ at the end of clause (i);
(2) by striking ‘‘, or’’ at the end of clause (ii)
and inserting a semicolon; and
(3) by striking clause (iii).
SEC. 206. 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 ex-
tended and renewed to cover such area (so long as it is
not included 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 ‘‘De-
cember 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.
Subtitle B—Medicare+Choice
Competition Program
SEC. 211. MEDICARE+CHOICE COMPETITION PROGRAM.
(a) SUBMISSION OF BID AMOUNTS.—Section 1854
(42 U.S.C. 1395w–24) is amended—
(1) by amending the heading to read as follows:
‘‘SUBMISSION OF BID AMOUNTS’’;
(2) in subsection (a)(1)(A)—
(A) by striking ‘‘(A)’’ and inserting ‘‘(A)(i)
if the following year is before 2005,’’; and
(B) by inserting before the semicolon at
the end the following: ‘‘ or (ii) if the following
year is 2005 or later, the information described
in paragraph (6)(A)’’; and
(3) by adding at the end of subsection (a) the
following:
‘‘(6) 
SUBMISSION
OF
BID
AMOUNTS
BY
MEDICARE+CHOICE ORGANIZATIONS.—
‘‘(A) INFORMATION TO BE SUBMITTED.—
The information described in this subparagraph
is as follows:
‘‘(i) 
The 
monthly 
aggregate 
bid
amount for provision of all items and serv-
ices under this part and the actuarial basis
for determining such amount.
‘‘(ii) The proportions of such bid
amount that are attributable to—
‘‘(I) the provision of statutory
non-drug benefits (such portion re-
ferred 
to 
in 
this 
part 
as 
the
‘unadjusted non-drug monthly bid
amount’);
‘‘(II) the provision of statutory
prescription drug benefits; and
‘‘(III) the provision of non-statu-
tory benefits;
and the actuarial basis for determining
such proportions.
‘‘(iii) Such additional information as
the Administrator may require to verify
the actuarial bases described in clauses (i)
and (ii).
‘‘(B) STATUTORY
BENEFITS
DEFINED.—
For purposes of this part:
‘‘(i) The term ‘statutory non-drug
benefits’ means benefits under parts A and
B.
‘‘(ii) The term ‘statutory prescription
drug benefits’ means benefits under part
D.
‘‘(iii) The term ‘statutory benefits’
means statutory prescription drug benefits
and statutory non-drug benefits.
‘‘(C) ACCEPTANCE AND NEGOTIATION OF
BID AMOUNTS.—The Administrator has the au-
thority to negotiate regarding monthly bid
amounts submitted under subparagraph (A)
(and the proportion described in subparagraph
(A)(ii)). The Administrator may reject such a
bid amount or proportion if the Administrator
determines that such amount or proportion is
not supported by the actuarial bases provided
under subparagraph (A).’’.
(b) PROVIDING
FOR BENEFICIARY SAVINGS
FOR
CERTAIN PLANS.—
(1) IN GENERAL.—Section 1854(b) (42 U.S.C.
1395w–24(b)) is amended—
(A) by adding at the end of paragraph (1)
the following new subparagraph:
‘‘(C) BENEFICIARY REBATE RULE.—
‘‘(i) 
REQUIREMENT.—The
Medicare+Choice plan shall provide to the
enrollee a monthly rebate equal to 75
percent of the average per capita savings
(if any) described in paragraph (3) appli-
cable to the plan and year involved.
‘‘(ii) FORM OF REBATE.—A rebate re-
quired under this subparagraph shall be
provided—
‘‘(I) through the crediting of the
amount of the rebate towards the
Medicare+Choice 
monthly 
supple-
mentary beneficiary premium or the
premium imposed for prescription
drug coverage under part D;
‘‘(II) through a direct monthly
payment (through electronic funds
transfer or otherwise); or
‘‘(III) through other means ap-
proved by the Medicare Benefits Ad-
ministrator,
or any combination thereof.’’; and
(B) by adding at the end the following new
paragraph:
‘‘(3) COMPUTATION OF AVERAGE PER CAPITA
MONTHLY
SAVINGS.—For purposes of paragraph
(1)(C)(i), the average per capita monthly savings re-
ferred to in such paragraph for a Medicare+Choice
plan and year is computed as follows:
‘‘(A) DETERMINATION OF STATE-WIDE AV-
ERAGE RISK ADJUSTMENT.—
‘‘(i) IN
GENERAL.—The Medicare
Benefits Administrator shall determine, at
the same time rates are promulgated under
section 1853(b)(1) (beginning with 2005),
for each State the average of the risk ad-
justment factors to be applied to enrollees
under section 1853(a)(1)(A) in that State.
In the case of a State in which a
Medicare+Choice plan was offered in the
previous year, the Administrator may com-
pute such average based upon risk adjust-
ment factors applied in that State in a pre-
vious year.
‘‘(ii) TREATMENT OF NEW STATES.—
In the case of a State in which no
Medicare+Choice plan was offered in the
previous year, the Administrator shall esti-
mate such average. In making such esti-
mate, the Administrator may use average
risk adjustment factors applied to com-
parable States or applied on a national
basis.
‘‘(B) DETERMINATION OF RISK ADJUSTED
BENCHMARK
AND
RISK-ADJUSTED
BID.—For
each Medicare+Choice plan offered in a State,
the Administrator shall—
‘‘(i) adjust the fee-for-service area-
specific non-drug benchmark amount by
the applicable average risk adjustment fac-
tor computed under subparagraph (A); and
‘‘(ii) adjust the unadjusted non-drug
monthly bid amount by such applicable av-
erage risk adjustment factor.
‘‘(C) DETERMINATION
OF
AVERAGE
PER
CAPITA MONTHLY SAVINGS.—The average per
capita monthly savings described in this sub-
paragraph is equal to the amount (if any) by
which—
‘‘(i) 
the 
risk-adjusted 
benchmark
amount computed under subparagraph
(B)(i), exceeds
‘‘(ii) the risk-adjusted bid computed
under subparagraph (B)(ii).
‘‘(D) AUTHORITY TO DETERMINE RISK AD-
JUSTMENT FOR AREAS OTHER THAN STATES.—
The Administrator may provide for the deter-
mination and application of risk adjustment
factors under this paragraph on the basis of
areas other than States.’’.
(2) COMPUTATION OF FEE-FOR-SERVICE AREA-
SPECIFIC
NON-DRUG
BENCHMARK.—Section 1853
(42 U.S.C. 1395w–23) is amended by adding at the
end the following new subsection:
‘‘(j) COMPUTATION OF FEE-FOR-SERVICE AREA-SPE-
CIFIC NON-DRUG BENCHMARK AMOUNT.—For purposes
of this part, the term ‘fee-for-service area-specific non-
drug benchmark amount’ means, with respect to a
Medicare+Choice payment area for a month in a year,
an amount equal to the greater of the following (but in
no case less than 1⁄12 of the rate computed under sub-
section (c)(1), without regard to subparagraph (A), for the
year):
‘‘(1) BASED
ON
100
PERCENT
OF
FEE-FOR-
SERVICE COSTS IN THE AREA.—An amount equal to
1⁄12 of 100 percent (for 2005 through 2007, or 95
percent for 2008 and years thereafter) of the ad-
justed average per capita cost for the year involved,
determined under section 1876(a)(4) for the
Medicare+Choice payment area, for the area and
the year involved, for services covered under parts A
and B for individuals entitled to benefits under part
A and enrolled under part B who are not enrolled
in a Medicare+Choice plan under this part for the
year, and adjusted to exclude from such cost the
amount the Medicare Benefits Administrator esti-
mates is payable for costs described in subclauses (I)
and (II) of subsection (c)(3)(C)(i) for the year in-
volved and also adjusted in the manner described in
subsection (c)(1)(D)(ii) (relating to inclusion of
costs of VA and DOD military facility services to
medicare-eligible beneficiaries).
‘‘(2) MINIMUM MONTHLY AMOUNT.—The min-
imum amount specified in this paragraph is the
amount specified in subsection (c)(1)(B)(iv) for the
year involved.’’.
(c) PAYMENT OF PLANS BASED ON BID AMOUNTS.—
(1) IN GENERAL.—Section 1853(a)(1)(A) (42
U.S.C. 1395w–23) is amended by striking ‘‘in an
amount’’ and all that follows and inserting the fol-
lowing: ‘‘in an amount determined as follows:
‘‘(i) PAYMENT
BEFORE
2005.—For
years before 2005, the payment amount
shall be equal to 
1⁄12
of the annual
Medicare+Choice capitation rate (as cal-
culated under subsection (c)) with respect
to that individual for that area, reduced by
the amount of any reduction elected under
section 1854(f )(1)(E) and adjusted under
clause (iii).
‘‘(ii) PAYMENT FOR STATUTORY NON-
DRUG BENEFITS BEGINNING WITH 2005.—
For years beginning with 2005—
‘‘(I) PLANS
WITH
BIDS
BELOW
BENCHMARK.—In the case of a plan
for which there are average per capita
monthly savings described in section
1854(b)(3)(C), the payment under
this 
subsection 
is 
equal 
to 
the
unadjusted non-drug monthly bid
amount, adjusted under clause (iii),
plus the amount of the monthly rebate
computed 
under 
section
1854(b)(1)(C)(i) for that plan and
year.
‘‘(II) PLANS WITH BIDS AT OR
ABOVE BENCHMARK.—In the case of a
plan for which there are no average
per capita monthly savings described
in section 1854(b)(3)(C), the payment
amount under this subsection is equal
to the fee-for-service area-specific non-
drug benchmark amount, adjusted
under clause (iii).
‘‘(iii) DEMOGRAPHIC
ADJUSTMENT,
INCLUDING
ADJUSTMENT
FOR
HEALTH
STATUS.—The Administrator shall adjust
the payment amount under clause (i), the
unadjusted non-drug monthly bid amount
under clause (ii)(I), and the fee-for-service
area-specific non-drug benchmark amount
under clause (ii)(II) for such risk factors
as age, disability status, gender, institu-
tional status, and such other factors as the
Administrator determines to be appro-
priate, including adjustment for health sta-
tus under paragraph (3), so as to ensure
actuarial equivalence. The Administrator
may add to, modify, or substitute for such
adjustment factors if such changes will im-
prove 
the 
determination 
of 
actuarial
equivalence.
‘‘(iv) REFERENCE TO SUBSIDY PAY-
MENT FOR STATUTORY DRUG BENEFITS.—
In the case in which an enrollee is enrolled
under part D, the Medicare+Choice orga-
nization also is entitled to a subsidy pay-
ment amount under section 1860H.’’.
(d) CONFORMING AMENDMENTS.—
(1) PROTECTION AGAINST BENEFICIARY SELEC-
TION.—Section 1852(b)(1)(A) (42 U.S.C. 1395w–
22(b)(1)(A)) is amended by adding at the end the
following: ‘‘The Administrator shall not approve a
plan of an organization if the Administrator deter-
mines that the benefits are designed to substantially
discourage enrollment by certain Medicare+Choice
eligible individuals with the organization.’’.
(2) CONFORMING
AMENDMENT
TO
PREMIUM
TERMINOLOGY.—Subparagraphs (A) and (B) of sec-
tion 1854(b)(2) (42 U.S.C. 1395w–24(b)(2)) are
amended to read as follows:
‘‘(A) MEDICARE+CHOICE MONTHLY BASIC
BENEFICIARY
PREMIUM.—The 
term
‘Medicare+Choice monthly basic beneficiary
premium’ 
means, 
with 
respect 
to 
a
Medicare+Choice plan—
‘‘(i) 
described 
in 
section
1853(a)(1)(A)(ii)(I) (relating to plans pro-
viding rebates), zero; or
‘‘(ii) 
described 
in 
section
1853(a)(1)(A)(ii)(II), the amount (if any)
by which the unadjusted non-drug monthly
bid amount exceeds the fee-for-service
area-specific non-drug benchmark amount.
‘‘(B) MEDICARE+CHOICE MONTHLY SUP-
PLEMENTAL
BENEFICIARY
PREMIUM.—The
term ‘Medicare+Choice monthly supplemental
beneficiary premium’ means, with respect to a
Medicare+Choice plan, the portion of the ag-
gregate monthly bid amount submitted under
clause (i) of subsection (a)(6)(A) for the year
that is attributable under such section to the
provision of nonstatutory benefits.’’.
(3) 
REQUIREMENT
FOR
UNIFORM
BID
AMOUNTS.—Section 1854(c) (42 U.S.C. 1395w–
24(c)) is amended to read as follows:
‘‘(c) 
UNIFORM
BID
AMOUNTS.—The
Medicare+Choice monthly bid amount submitted under
subsection (a)(6) of a Medicare+Choice organization
under this part may not vary among individuals enrolled
in the plan.’’.
(4) PERMITTING BENEFICIARY REBATES.—
(A) Section 1851(h)(4)(A) (42 U.S.C.
1395w–21(h)(4)(A)) is amended by inserting
‘‘except 
as 
provided 
under 
section
1854(b)(1)(C)’’ after ‘‘or otherwise’’.
(B) Section 1854(d) (42 U.S.C. 1395w–
24(d)) is amended by inserting ‘‘, except as pro-
vided under subsection (b)(1)(C),’’ after ‘‘and
may not provide’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to payments and premiums for
months beginning with January 2005.
SEC. 212. DEMONSTRATION PROGRAM FOR COMPETITIVE-
DEMONSTRATION AREAS.
(a) IDENTIFICATION OF COMPETITIVE-DEMONSTRA-
TION AREAS FOR DEMONSTRATION PROGRAM; COMPUTA-
TION
OF CHOICE NON-DRUG BENCHMARKS.—Section
1853, as amended by section 211(b)(2), is amended by
adding at the end the following new subsection:
‘‘(k) ESTABLISHMENT
OF
COMPETITIVE
DEM-
ONSTRATION PROGRAM.—
‘‘(1) 
DESIGNATION
OF
COMPETITIVE-DEM-
ONSTRATION AREAS AS PART OF PROGRAM.—
‘‘(A) IN GENERAL.—For purposes of this
part, the Administrator shall establish a dem-
onstration program under which the Adminis-
trator designates Medicare+Choice areas as
competitive-demonstration areas consistent with
the following limitations:
‘‘(i) LIMITATION
ON
NUMBER
OF
AREAS THAT MAY BE DESIGNATED.—The
Administrator may not designate more
than 4 areas as competitive-demonstration
areas.
‘‘(ii) LIMITATION ON PERIOD OF DES-
IGNATION
OF
ANY
AREA.—The Adminis-
trator may not designate any area as a
competitive-demonstration area for a pe-
riod of more than 2 years.
The Administrator has the discretion to decide
whether or not to designate as a competitive-
demonstration area an area that qualifies for
such designation.
‘‘(B) 
QUALIFICATIONS
FOR
DESIGNA-
TION.—For 
purposes 
of 
this 
title, 
a
Medicare+Choice area (which is a metropolitan
statistical area or other area with a substantial
number of Medicare+Choice enrollees) may not
be designated as a ‘competitive-demonstration
area’ for a 2-year period beginning with a year
unless the Administrator determines, by such
date before the beginning of the year as the Ad-
ministrator determines appropriate, that—
‘‘(i) there will be offered during the
open enrollment period under this part be-
fore the beginning of the year at least 2
Medicare+Choice plans (in addition to the
fee-for-service program under parts A and
B), 
each 
offered 
by 
a 
different
Medicare+Choice organization; and
‘‘(ii) during March of the previous
year at least 50 percent of the number of
Medicare+Choice eligible individuals who
reside in the area were enrolled in a
Medicare+Choice plan.
‘‘(2) 
CHOICE
NON-DRUG
BENCHMARK
AMOUNT.—For purposes of this part, the term
‘choice non-drug benchmark amount’ means, with
respect to a Medicare+Choice payment area for a
month in a year, the sum of the 2 components de-
scribed in paragraph (3) for the area and year. The
Administrator 
shall 
compute 
such 
benchmark
amount for each competitive-demonstration area be-
fore the beginning of each annual, coordinated elec-
tion period under section 1851(e)(3)(B) for each
year (beginning with 2005) in which it is designated
as such an area.
‘‘(3) 2 COMPONENTS.—For purposes of para-
graph (2), the 2 components described in this para-
graph for an area and a year are the following:
‘‘(A) 
FEE-FOR-SERVICE
COMPONENT
WEIGHTED
BY
NATIONAL
FEE-FOR-SERVICE
MARKET SHARE.—The product of the following:
‘‘(i) 
NATIONAL
FEE-FOR-SERVICE
MARKET
SHARE.—The national fee-for-
service market share percentage (deter-
mined under paragraph (5)) for the year.
‘‘(ii) 
FEE-FOR-SERVICE
AREA-SPE-
CIFIC NON-DRUG BID.—The fee-for-service
area-specific non-drug bid (as defined in
paragraph (6)) for the area and year.
‘‘(B) M+C COMPONENT WEIGHTED BY NA-
TIONAL MEDICARE+CHOICE MARKET SHARE.—
The product of the following:
‘‘(i) NATIONAL
MEDICARE+CHOICE
MARKET
SHARE.—1 minus the national
fee-for-service market share percentage for
the year.
‘‘(ii) WEIGHTED
AVERAGE
OF
PLAN
BIDS IN AREA.—The weighted average of
the plan bids for the area and year (as de-
termined under paragraph (4)(A)).
‘‘(4) DETERMINATION OF WEIGHTED AVERAGE
BIDS FOR AN AREA.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (3)(B)(ii), the weighted average of plan
bids for an area and a year is the sum of the
following products for Medicare+Choice plans
described in subparagraph (C) in the area and
year:
‘‘(i) PROPORTION
OF
EACH
PLAN’S
ENROLLEES IN THE AREA.—The number
of individuals described in subparagraph
(B), divided by the total number of such
individuals for all Medicare+Choice plans
described in subparagraph (C) for that
area and year.
‘‘(ii) 
MONTHLY
NON-DRUG
BID
AMOUNT.—The 
unadjusted 
non-drug
monthly bid amount.
‘‘(B) COUNTING
OF
INDIVIDUALS.—The
Administrator 
shall 
count, 
for 
each
Medicare+Choice plan described in subpara-
graph (C) for an area and year, the number of
individuals who reside in the area and who were
enrolled under such plan under this part during
March of the previous year.
‘‘(C) EXCLUSION OF PLANS NOT OFFERED
IN PREVIOUS YEAR.—For an area and year, the
Medicare+Choice plans described in this sub-
paragraph are plans that are offered in the area
and year and were offered in the area in March
of the previous year.
‘‘(5) COMPUTATION
OF
NATIONAL
FEE-FOR-
SERVICE
MARKET
SHARE
PERCENTAGE.—The Ad-
ministrator shall determine, for a year, the propor-
tion (in this subsection referred to as the ‘national
fee-for-service 
market 
share 
percentage’) 
of
Medicare+Choice eligible individuals who during
March of the previous year were not enrolled in a
Medicare+Choice plan.
‘‘(6) FEE-FOR-SERVICE
AREA-SPECIFIC
NON-
DRUG
BID.—For purposes of this part, the term
‘fee-for-service area-specific non-drug bid’ means, for
an area and year, the amount described in section
1853(j)(1) for the area and year, except that any
reference to a percent of less than 100 percent shall
be deemed a reference to 100 percent.’’.
(b) APPLICATION OF CHOICE NON-DRUG BENCH-
MARK IN COMPETITIVE-DEMONSTRATION AREAS.—
(1) IN GENERAL.—Section 1854 is amended—
(A) in subsection (b)(1)(C)(i), as added by
section 211(b)(1)(A), by striking ‘‘(i) REQUIRE-
MENT.—If’’ and inserting ‘‘(i) REQUIREMENT
FOR
NON-COMPETITIVE-DEMONSTRATION
AREAS.—In the case of a Medicare+Choice
payment area that is not a competitive-dem-
onstration 
area 
designated 
under 
section
1853(k)(1), if’’;
(B) in subsection (b)(1)(C), as so added,
by inserting after clause (i) the following new
clause:
‘‘(ii) REQUIREMENT
FOR
COMPETI-
TIVE-DEMONSTRATION
AREAS.—In 
the
case of a Medicare+Choice payment area
that is designated as a competitive-dem-
onstration area under section 1853(k)(1),
if there are average per capita monthly
savings described in paragraph (4) for a
Medicare+Choice plan and year, the
Medicare+Choice plan shall provide to the
enrollee a monthly rebate equal to 75 per-
cent of such savings.’’;
(C) by adding at the end of subsection (b),
as amended by section 211(b)(1), the following
new paragraph:
‘‘(4) COMPUTATION OF AVERAGE PER CAPITA
MONTHLY SAVINGS FOR COMPETITIVE-DEMONSTRA-
TION AREAS.—For purposes of paragraph (1)(C)(ii),
the average per capita monthly savings referred to
in such paragraph for a Medicare+Choice plan and
year shall be computed in the same manner as the
average per capita monthly savings is computed
under paragraph (3) except that the reference to the
fee-for-service area-specific non-drug benchmark in
paragraph (3)(B)(i) (or to the benchmark amount as
adjusted under paragraph (3)(C)(i)) is deemed to be
a reference to the choice non-drug benchmark
amount (or such amount as adjusted in the manner
described in paragraph (3)(B)(i)).’’; and
(D) in subsection (d), as amended by sec-
tion 211(d)(4), by inserting ‘‘and subsection
(b)(1)(D)’’ after ‘‘subsection (b)(1)(C),’’.
(2) CONFORMING AMENDMENTS.—
(A) 
PAYMENT
OF
PLANS.—Section
1853(a)(1)(A)(ii), 
as 
amended 
by 
section
211(c)(1), is amended—
(i) in subclause (I), by inserting ‘‘(or,
in the case of a competitive-demonstration
area, the choice non-drug benchmark
amount)’’ after ‘‘benchmark amount’’; and
(ii) in subclauses (I) and (II), by in-
serting ‘‘(or, in the case of a competitive-
demonstration area, described in section
1854(b)(4))’’ 
after 
‘‘section
1854(b)(1)(C)’’.
(B) DEFINITION OF MONTHLY BASIC PRE-
MIUM.—Section 1854(b)(2)(A)(ii), as amended
by section 211(d)(2), is amended by inserting
‘‘(or, in the case of a competitive-demonstration
area, the choice non-drug benchmark amount)’’
after ‘‘benchmark amount’’.
(c) PREMIUM
ADJUSTMENT.—Section 1839 (42
U.S.C. 1395r) is amended by adding at the end the fol-
lowing new subsection:
‘‘(h)(1) In the case of an individual who resides in
a competitive-demonstration area designated under section
1851(k)(1) and who is not enrolled in a Medicare+Choice
plan under part C, the monthly premium otherwise applied
under this part (determined without regard to subsections
(b) and (f) or any adjustment under this subsection) shall
be adjusted as follows: If the fee-for-service area-specific
non-drug bid (as defined in section 1853(k)(6)) for the
Medicare+Choice area in which the individual resides for
a month—
‘‘(A) does not exceed the choice non-drug
benchmark 
(as 
determined 
under 
section
1853(k)(2)) for such area, the amount of the pre-
mium for the individual for the month shall be re-
duced by an amount equal to 75 percent of the
amount by which such benchmark exceeds such fee-
for-service bid; or
‘‘(B) exceeds such choice non-drug benchmark,
the amount of the premium for the individual for the
month shall be adjusted to ensure that—
‘‘(i) the sum of the amount of the adjusted
premium and the choice non-drug benchmark
for the area, is equal to
‘‘(ii) the sum of the unadjusted premium
plus amount of the fee-for-service area-specific
non-drug bid for the area.
‘‘(2) Nothing in this subsection shall be construed as
preventing a reduction under paragraph (1)(A) in the pre-
mium otherwise applicable under this part to zero or from
requiring the provision of a rebate to the extent such pre-
mium would otherwise be required to be less than zero.
‘‘(3) The adjustment in the premium under this sub-
section shall be effected in such manner as the Medicare
Benefits Administrator determines appropriate.
‘‘(4) In order to carry out this subsection (insofar as
it is effected through the manner of collection of premiums
under 1840(a)), the Medicare Benefits Administrator shall
transmit to the Commissioner of Social Security—
‘‘(A) at the beginning of each year, the name,
social security account number, and the amount of
the adjustment (if any) under this subsection for
each individual enrolled under this part for each
month during the year; and
‘‘(B) periodically throughout the year, informa-
tion to update the information previously trans-
mitted under this paragraph for the year.’’.
(d) CONFORMING AMENDMENT.—Section 1844(c)
(42 U.S.C. 1395w(c)) is amended by inserting ‘‘and with-
out regard to any premium adjustment effected under sec-
tion 1839(h)’’ before the period at the end.
(e) REPORT ON DEMONSTRATION PROGRAM.—Not
later than 6 months after the date on which the designa-
tion of the 4th competitive-demonstration area under sec-
tion 1851(k)(1) of the Social Security Act ends, the Medi-
care Payment Advisory Commission shall submit to Con-
gress a report on the impact of the demonstration pro-
gram under the amendments made by this section, includ-
ing such impact on premiums of medicare beneficiaries,
savings to the medicare program, and on adverse selection.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to payments and premiums for pe-
riods beginning on or after January 1, 2005.
SEC. 213. CONFORMING AMENDMENTS.
(a) CONFORMING
AMENDMENTS
RELATING
TO
BIDS.—
(1) Section 1854 (42 U.S.C. 1395w–24) is
amended—
(A) in the heading by inserting ‘‘AND BID
AMOUNTS’’ after ‘‘PREMIUMS’’;
(B) in the heading of subsection (a), by in-
serting ‘‘AND
BID
AMOUNTS’’ after ‘‘PRE-
MIUMS’’; and
(C) in subsection (a)(5)(A), by inserting
‘‘paragraphs (2), (3), and (4) of’’ after ‘‘filed
under’’.
(b) ADDITIONAL CONFORMING AMENDMENTS.—
(1) ANNUAL DETERMINATION AND ANNOUNCE-
MENT OF CERTAIN FACTORS.—Section 1853(b) (42
U.S.C. 1395w–23(b)) is amended—
(A) in paragraph (1), by striking ‘‘the cal-
endar year concerned’’ and all that follows and
inserting the following: ‘‘the calendar year con-
cerned with respect to each Medicare+Choice
payment area, the following:
‘‘(A) PRE-COMPETITION
INFORMATION.—
For years before 2005, the following:
‘‘(i) MEDICARE+CHOICE
CAPITATION
RATES.—The 
annual 
Medicare+Choice
capitation rate for each Medicare+Choice
payment area for the year.
‘‘(ii) ADJUSTMENT
FACTORS.—The
risk and other factors to be used in adjust-
ing such rates under subsection (a)(1)(A)
for payments for months in that year.
‘‘(B) COMPETITION
INFORMATION.—For
years beginning with 2005, the following:
‘‘(i) BENCHMARKS.—The fee-for-serv-
ice 
area-specific 
non-drug 
benchmark
under section 1853(j) and, if applicable,
the choice non-drug benchmark under sec-
tion 1853(k)(2), for the year involved and,
if applicable, the national fee-for-service
market share percentage.
‘‘(ii) ADJUSTMENT
FACTORS.—The
adjustment factors applied under section
1853(a)(1)(A)(iii) (relating to demographic
adjustment), section 1853(a)(1)(B) (relat-
ing to adjustment for end-stage renal dis-
ease), and section 1853(a)(3) (relating to
health status adjustment).
‘‘(iii) PROJECTED
FEE-FOR-SERVICE
BID.—In the case of a competitive area,
the projected fee-for-service area-specific
non-drug bid (as determined under sub-
section (k)(6)) for the area.
‘‘(iv) INDIVIDUALS.—The number of
individuals 
counted 
under 
subsection
(k)(4)(B) 
and 
enrolled 
in 
each
Medicare+Choice plan in the area.’’; and
(B) in paragraph (3), by striking ‘‘in suffi-
cient detail’’ and all that follows up to the pe-
riod at the end.
(2) REPEAL OF PROVISIONS RELATING TO AD-
JUSTED COMMUNITY RATE (ACR).—
(A) IN GENERAL.—Subsections (e) and (f)
of section 1854 (42 U.S.C. 1395w–24) are re-
pealed.
(B) CONFORMING
AMENDMENT.—Section
1839(a)(2) (42 U.S.C. 1395r(a)(2)) is amended
by striking ‘‘, and to reflect’’ and all that fol-
lows and inserting a period.
(3) PROSPECTIVE
IMPLEMENTATION
OF
NA-
TIONAL
COVERAGE
DETERMINATIONS.—Section
1852(a)(5) (42 U.S.C. 1395w–22(a)(5)) is amended
to read as follows:
‘‘(5) PROSPECTIVE
IMPLEMENTATION
OF
NA-
TIONAL
COVERAGE
DETERMINATIONS.—The Sec-
retary shall only implement a national coverage de-
termination that will result in a significant change
in the costs to a Medicare+Choice organization in a
prospective manner that applies to announcements
made under section 1853(b) after the date of the
implementation of the determination.’’.
(4) PERMITTING GEOGRAPHIC ADJUSTMENT TO
CONSOLIDATE
MULTIPLE
MEDICARE+CHOICE
PAY-
MENT AREAS IN A STATE INTO A SINGLE STATEWIDE
MEDICARE+CHOICE
PAYMENT
AREA.—Section
1853(d)(3) 
(42 
U.S.C. 
1395w–23(e)(3)) 
is
amended—
(A) by amending clause (i) of subpara-
graph (A) to read as follows:
‘‘(i) 
to 
a 
single 
statewide
Medicare+Choice payment area,’’; and
(B) by amending subparagraph (B) to read
as follows:
‘‘(B) 
BUDGET
NEUTRALITY
ADJUST-
MENT.—In the case of a State requesting an
adjustment under this paragraph, the Medicare
Benefits Administrator shall initially (and an-
nually thereafter) adjust the payment rates oth-
erwise established under this section for
Medicare+Choice payment areas in the State in
a manner so that the aggregate of the pay-
ments under this section in the State shall not
exceed the aggregate payments that would have
been 
made 
under 
this 
section 
for
Medicare+Choice payment areas in the State in
the absence of the adjustment under this para-
graph.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to payments and premiums for pe-
riods beginning on or after January 1, 2005.
TITLE IV—PROVISIONS
RELATING TO PART A
Subtitle A—Inpatient Hospital
Services
SEC. 401. REVISION OF ACUTE CARE HOSPITAL PAYMENT
UPDATES.
Subclause (XVIII) of section 1886(b)(3)(B)(i) (42
U.S.C. 1395ww(b)(3)(B)(i)) is amended to read as fol-
lows:
‘‘(XVIII) for fiscal year 2003, the market bas-
ket percentage increase for sole community hospitals
and such increase minus 0.25 percentage points for
other hospitals, and’’.
SEC. 402. 2-YEAR INCREASE IN LEVEL OF ADJUSTMENT FOR
INDIRECT COSTS OF MEDICAL EDUCATION
(IME).
Section 
1886(d)(5)(B)(ii) 
(42 
U.S.C.
1395ww(d)(5)(B)(ii)) is amended—
(1) in subclause (VI) by striking ‘‘and’’ at the
end;
(2) by redesignating subclause (VII) as sub-
clause (IX);
(3) in subclause (VIII) as so redesignated, by
striking ‘‘2002’’ and inserting ‘‘2004’’; and
(4) by inserting after subclause (VI) the fol-
lowing new subclause:
‘‘(VII) during fiscal year 2003, ‘c’ is equal
to 1.47;
‘‘(VIII) during fiscal year 2004, ‘c’ is
equal to 1.45; and’’.
SEC. 403. RECOGNITION OF NEW MEDICAL TECHNOLOGIES
UNDER INPATIENT HOSPITAL PPS.
(a) IMPROVING TIMELINESS
OF DATA COLLEC-
TION.—Section 
1886(d)(5)(K) 
(42 
U.S.C.
1395ww(d)(5)(K)) is amended by adding at the end the
following new clause:
‘‘(vii) Under the mechanism under this subpara-
graph, the Secretary shall provide for the addition of new
diagnosis and procedure codes in April 1 of each year, but
the addition of such codes shall not require the Secretary
to adjust the payment (or diagnosis-related group classi-
fication) under this subsection until the fiscal year that
begins after such date.’’.
(b) ELIGIBILITY STANDARD.—
(1) MINIMUM
PERIOD
FOR
RECOGNITION
OF
NEW
TECHNOLOGIES.—Section 
1886(d)(5)(K)(vi)
(42 U.S.C. 1395ww(d)(5)(K)(vi)) is amended—
(A) by inserting ‘‘(I)’’ after ‘‘(vi)’’; and
(B) by adding at the end the following new
subclause:
‘‘(II) Under such criteria, a service or technology
shall not be denied treatment as a new service or tech-
nology on the basis of the period of time in which the serv-
ice or technology has been in use if such period ends before
the end of the 2-to-3-year period that begins on the effec-
tive date of implementation of a code under ICD–9–CM
(or a successor coding methodology) that enables the iden-
tification of a significant sample of specific discharges in
which the service or technology has been used.’’.
(2) ADJUSTMENT
OF
THRESHOLD.—Section
1886(d)(5)(K)(ii)(I) 
(42 
U.S.C.
1395ww(d)(5)(K)(ii)(I)) is amended by inserting
‘‘(applying a threshold specified by the Secretary
that is the lesser of 50 percent of the national aver-
age standardized amount for operating costs of inpa-
tient hospital services for all hospitals and all diag-
nosis-related groups or one standard deviation for
the diagnosis-related group involved)’’ after ‘‘is inad-
equate’’.
(3) CRITERION
FOR
SUBSTANTIAL
IMPROVE-
MENT.—Section 
1886(d)(5)(K)(vi) 
(42 
U.S.C.
1395ww(d)(5)(K)(vi)), as amended by paragraph
(1), is further amended by adding at the end the fol-
lowing subclause:
‘‘(III) The Secretary shall by regulation provide for
further clarification of the criteria applied to determine
whether a new service or technology represents an advance
in medical technology that substantially improves the diag-
nosis or treatment of beneficiaries. Under such criteria,
in determining whether a new service or technology rep-
resents an advance in medical technology that substan-
tially improves the diagnosis or treatment of beneficiaries,
the Secretary shall deem a service or technology as meet-
ing such requirement if the service or technology is a drug
or biological that is designated under section 506 or 526
of the Federal Food, Drug, and Cosmetic Act, approved
under section 314.510 or 601.41 of title 21, Code of Fed-
eral Regulations, or designated for priority review when
the marketing application for such drug or biological was
filed or is a medical device for which an exemption has
been granted under section 520(m) of such Act, for which
priority review has been provided under section 515(d)(5)
of such Act, or is a substantially equivalent device for
which an expedited review is provided under section 513(f)
of such Act.’’.
(4) PROCESS
FOR
PUBLIC
INPUT.—Section
1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)), as
amended by paragraph (1), is amended—
(A) in clause (i), by adding at the end the
following: ‘‘Such mechanism shall be modified
to meet the requirements of clause (viii).’’; and
(B) by adding at the end the following new
clause:
‘‘(viii) The mechanism established pursuant to clause
(i) shall be adjusted to provide, before publication of a
proposed rule, for public input regarding whether a new
service or technology not described in the second sentence
of clause (vi)(III) represents an advance in medical tech-
nology that substantially improves the diagnosis or treat-
ment of beneficiaries as follows:
‘‘(I) The Secretary shall make public and peri-
odically update a list of all the services and tech-
nologies for which an application for additional pay-
ment under this subparagraph is pending.
‘‘(II) The Secretary shall accept comments, rec-
ommendations, and data from the public regarding
whether the service or technology represents a sub-
stantial improvement.
‘‘(III) The Secretary shall provide for a meeting
at which organizations representing hospitals, physi-
cians, medicare beneficiaries, manufacturers, and
any other interested party may present comments,
recommendations, and data to the clinical staff of
the Centers for Medicare & Medicaid Services before
publication of a notice of proposed rulemaking re-
garding whether service or technology represents a
substantial improvement.’’.
(c) PREFERENCE FOR USE OF DRG ADJUSTMENT.—
Section 1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is
further amended by adding at the end the following new
clause:
‘‘(ix) Before establishing any add-on payment under
this subparagraph with respect to a new technology, the
Secretary shall seek to identify one or more diagnosis-re-
lated groups associated with such technology, based on
similar clinical or anatomical characteristics and the cost
of the technology. Within such groups the Secretary shall
assign an eligible new technology into a diagnosis-related
group where the average costs of care most closely approx-
imate the costs of care of using the new technology. In
such case, no add-on payment under this subparagraph
shall be made with respect to such new technology and
this clause shall not affect the application of paragraph
(4)(C)(iii).’’.
(d) IMPROVEMENT IN PAYMENT FOR NEW TECH-
NOLOGY.—Section 
1886(d)(5)(K)(ii)(III) 
(42 
U.S.C.
1395ww(d)(5)(K)(ii)(III)) is amended by inserting after
‘‘the estimated average cost of such service or technology’’
the following: ‘‘(based on the marginal rate applied to
costs under subparagraph (A))’’.
(e) EFFECTIVE DATE.—
(1) IN GENERAL.—The Secretary shall imple-
ment the amendments made by this section so that
they apply to classification for fiscal years beginning
with fiscal year 2004.
(2) RECONSIDERATIONS OF APPLICATIONS FOR
FISCAL YEAR 2003 THAT ARE DENIED.—In the case
of an application for a classification of a medical
service or technology as a new medical service or
technology under section 1886(d)(5)(K) of the Social
Security Act (42 U.S.C. 1395ww(d)(5)(K)) that was
filed for fiscal year 2003 and that is denied—
(A) the Secretary shall automatically re-
consider the application as an application for
fiscal year 2004 under the amendments made
by this section; and
(B) the maximum time period otherwise
permitted for such classification of the service
or technology shall be extended by 12 months.
SEC. 404. PHASE-IN OF FEDERAL RATE FOR HOSPITALS IN
PUERTO RICO.
Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is
amended—
(1) in subparagraph (A)—
(A) in clause (i), by striking ‘‘for dis-
charges beginning on or after October 1, 1997,
50 percent (and for discharges between October
1, 1987, and September 30, 1997, 75 percent)’’
and inserting ‘‘the applicable Puerto Rico per-
centage (specified in subparagraph (E))’’; and
(B) in clause (ii), by striking ‘‘for dis-
charges beginning in a fiscal year beginning on
or after October 1, 1997, 50 percent (and for
discharges between October 1, 1987, and Sep-
tember 30, 1997, 25 percent)’’ and inserting
‘‘the applicable Federal percentage (specified in
subparagraph (E))’’; and
(2) by adding at the end the following new sub-
paragraph:
‘‘(E) For purposes of subparagraph (A), for dis-
charges occurring—
‘‘(i) between October 1, 1987, and September
30, 1997, the applicable Puerto Rico percentage is
75 percent and the applicable Federal percentage is
25 percent;
‘‘(ii) on or after October 1, 1997, and before
October 1, 2003, the applicable Puerto Rico percent-
age is 50 percent and the applicable Federal per-
centage is 50 percent;
‘‘(iii) during fiscal year 2004, the applicable
Puerto Rico percentage is 45 percent and the appli-
cable Federal percentage is 55 percent;
‘‘(iv) during fiscal year 2005, the applicable
Puerto Rico percentage is 40 percent and the appli-
cable Federal percentage is 60 percent;
‘‘(v) during fiscal year 2006, the applicable
Puerto Rico percentage is 35 percent and the appli-
cable Federal percentage is 65 percent;
‘‘(vi) during fiscal year 2007, the applicable
Puerto Rico percentage is 30 percent and the appli-
cable Federal percentage is 70 percent; and
‘‘(vii) on or after October 1, 2007, the applica-
ble Puerto Rico percentage is 25 percent and the ap-
plicable Federal percentage is 75 percent.’’.
SEC. 405. REFERENCE TO PROVISION RELATING TO EN-
HANCED DISPROPORTIONATE SHARE HOS-
PITAL (DSH) PAYMENTS FOR RURAL HOS-
PITALS AND URBAN HOSPITALS WITH FEWER
THAN 100 BEDS.
For provision enhancing disproportionate share hos-
pital (DSH) treatment for rural hospitals and urban hos-
pitals with fewer than 100 beds, see section 302.
SEC. 406. REFERENCE TO PROVISION RELATING TO 2-YEAR
PHASED-IN INCREASE IN THE STANDARDIZED
AMOUNT 
IN 
RURAL 
AND 
SMALL 
URBAN
AREAS TO ACHIEVE A SINGLE, UNIFORM
STANDARDIZED AMOUNT.
For provision phasing in over a 2-year period an in-
crease in the standardized amount for rural and small
urban areas to achieve a single, uniform, standardized
amount, see section 303.
SEC. 407. REFERENCE TO PROVISION FOR MORE FRE-
QUENT UPDATES IN THE WEIGHTS USED IN
HOSPITAL MARKET BASKET.
For provision providing for more frequent updates in
the weights used in hospital market basket, see section
304.
SEC. 408. REFERENCE TO PROVISION MAKING IMPROVE-
MENTS TO CRITICAL ACCESS HOSPITAL PRO-
GRAM.
For provision providing making improvements to crit-
ical access hospital program, see section 305.
Subtitle B—Skilled Nursing
Facility Services
SEC. 411. PAYMENT FOR COVERED SKILLED NURSING FA-
CILITY SERVICES.
(a) TEMPORARY INCREASE IN NURSING COMPONENT
OF PPS FEDERAL RATE.—Section 312(a) of BIPA is
amended by adding at the end the following new sentence:
‘‘The Secretary of Health and Human Services shall in-
crease by 8 percent the nursing component of the case-
mix adjusted Federal prospective payment rate specified
in Tables 3 and 4 of the final rule published in the Federal
Register by the Health Care Financing Administration on
July 31, 2000 (65 Fed. Reg. 46770) and as subsequently
updated under section 1888(e)(4)(E)(ii) of the Social Se-
curity Act (42 U.S.C. 1395yy(e)(4)(E)(ii)), effective for
services furnished on or after October 1, 2002, and before
October 1, 2005.’’.
(b) ADJUSTMENT
TO
RUGS
FOR
AIDS RESI-
DENTS.—
(1) IN GENERAL.—Paragraph (12) of section
1888(e) (42 U.S.C. 1395yy(e)) is amended to read
as follows:
‘‘(12) ADJUSTMENT
FOR
RESIDENTS
WITH
AIDS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), in the case of a resident of a skilled
nursing facility who is afflicted with acquired
immune deficiency syndrome (AIDS), the per
diem amount of payment otherwise applicable
shall be increased by 128 percent to reflect in-
creased costs associated with such residents.
‘‘(B) SUNSET.—Subparagraph (A) shall
not apply on and after such date as the Sec-
retary certifies that there is an appropriate ad-
justment in the case mix under paragraph
(4)(G)(i) to compensate for the increased costs
associated with residents described in such sub-
paragraph.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to services furnished on
or after October 1, 2003.
Subtitle C—Hospice
SEC. 421. COVERAGE OF HOSPICE CONSULTATION SERV-
ICES.
(a) COVERAGE OF HOSPICE CONSULTATION SERV-
ICES.—Section 
1812(a) 
(42 
U.S.C. 
1395d(a)) 
is
amended—
(1) by striking ‘‘and’’ at the end of paragraph
(3);
(2) by striking the period at the end of para-
graph (4) and inserting ‘‘; and’’; and
(3) by inserting after paragraph (4) the fol-
lowing new paragraph:
‘‘(5) for individuals who are terminally ill, have
not made an election under subsection (d)(1), and
have not have previously received services under this
paragraph, services that are furnished by a physi-
cian who is the medical director or an employee of
a hospice program and that consist of—
‘‘(A) an evaluation of the individual’s need
for pain and symptom management;
‘‘(B) counseling the individual with respect
to end-of-life issues and care options; and
‘‘(C) advising the individual regarding ad-
vanced care planning.’’.
(b) PAYMENT.—Section 1814(i) (42 U.S.C. l395f(i))
is amended by adding at the end the following new para-
graph:
‘‘(4) The amount paid to a hospice program with re-
spect to the services under section 1812(a)(5) for which
payment may be made under this part shall be equal to
an amount equivalent to the amount established for an
office or other outpatient visit for evaluation and manage-
ment associated with presenting problems of moderate se-
verity under the fee schedule established under section
1848(b), other than the portion of such amount attrib-
utable to the practice expense component.’’.
(c) 
CONFORMING
AMENDMENT.—Section
1861(dd)(2)(A)(i) (42 U.S.C. 1395x(dd)(2)(A)(i)) is
amended by inserting before the comma at the end the
following: ‘‘and services described in section 1812(a)(5)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to services provided by a hospice
program on or after January 1, 2004.
SEC. 422. 10 PERCENT INCREASE IN PAYMENT FOR HOS-
PICE CARE FURNISHED IN A FRONTIER AREA.
(a) IN GENERAL.—Section 1814(i)(1) (42 U.S.C.
1395f(i)(1)) is amended by adding at the end the following
new subparagraph:
‘‘(D) With respect to hospice care furnished in a fron-
tier area on or after January 1, 2003, and before January
1, 2008, the payment rates otherwise established for such
care shall be increased by 10 percent. For purposes of this
subparagraph, the term ‘frontier area’ means a county in
which the population density is less than 7 persons per
square mile.’’.
(b) REPORT ON COSTS.—Not later than January 1,
2007, the Comptroller General of the United States shall
submit to Congress a report on the costs of furnishing
hospice care in frontier areas. Such report shall include
recommendations regarding the appropriateness of extend-
ing, and modifying, the payment increase provided under
the amendment made by subsection (a).
SEC. 423. RURAL HOSPICE DEMONSTRATION PROJECT.
(a) IN GENERAL.—The Secretary shall conduct a
demonstration project for the delivery of hospice care to
medicare beneficiaries in rural areas. Under the project
medicare beneficiaries who are unable to receive hospice
care in the home for lack of an appropriate caregiver are
provided such care in a facility of 20 or fewer beds which
offers, within its walls, the full range of services provided
by hospice programs under section 1861(dd) of the Social
Security Act (42 U.S.C. 1395x(dd)).
(b) SCOPE OF PROJECT.—The Secretary shall con-
duct the project under this section with respect to no more
than 3 hospice programs over a period of not longer than
5 years each.
(c) COMPLIANCE WITH CONDITIONS.—Under the
demonstration project—
(1) the hospice program shall comply with oth-
erwise applicable requirements, except that it shall
not be required to offer services outside of the home
or 
to 
meet 
the 
requirements 
of 
section
1861(dd)(2)(A)(iii) of the Social Security Act; and
(2) payments for hospice care shall be made at
the rates otherwise applicable to such care under
title XVIII of such Act.
The Secretary may require the program to comply with
such additional quality assurance standards for its provi-
sion of services in its facility as the Secretary deems ap-
propriate.
(d) REPORT.—Upon completion of the project, the
Secretary shall submit a report to Congress on the project
and shall include in the report recommendations regarding
extension of such project to hospice programs serving
rural areas.
Subtitle D—Other Provisions
SEC. 431. DEMONSTRATION PROJECT FOR USE OF RECOV-
ERY AUDIT CONTRACTORS.
(a) IN GENERAL.—The Secretary of Health and
Human Services shall conduct a demonstration project
under this section (in this section referred to as the
‘‘project’’) to demonstrate the use of recovery audit con-
tractors under the Medicare Integrity Program in identi-
fying and recouping overpayments under the medicare
program for services for which payment is made under
part A of title XVIII of the Social Security Act. Under
the project—
(1) payment may be made to such a contractor
on a contingent basis;
(2) a percentage of the amount recovered may
be retained by the Secretary and shall be available
to the program management account of the Centers
for Medicare & Medicaid Services; and
(3) the Secretary shall examine the efficacy of
such use with respect to duplicative payments, accu-
racy of coding, and other payment policies in which
overpayments arise.
(b) SCOPE AND DURATION.—The project shall cover
at least 2 States and at least 3 contractors and shall last
for not longer than 3 years.
(c) WAIVER.—The Secretary of Health and Human
Services shall waive such provisions of title XVIII of the
Social Security Act as may be necessary to provide for
payment for services under the project in accordance with
subsection (a).
(d) QUALIFICATIONS OF CONTRACTORS.—
(1) IN
GENERAL.—The Secretary shall enter
into a recovery audit contract under this section
with an entity only if the entity has staff that has
knowledge of and experience with the payment rules
and regulations under the medicare program or the
entity has or will contract with another entity that
has such knowledgeable and experienced staff.
(2) INELIGIBILITY
OF
CERTAIN
CONTRAC-
TORS.—The Secretary may not enter into a recovery
audit contract under this section with an entity to
the extent that the entity is a fiscal intermediary
under section 1816 of the Social Security Act (42
U.S.C. 1395h), a carrier under section 1842 of such
Act (42 U.S.C. 1395u), or a Medicare Administra-
tive Contractor under section 1874A of such Act, or
any other entity that carries out the type of activi-
ties with respect to providers of services under part
A that would constitute a conflict of interest, as de-
termined by the Secretary.
(3) PREFERENCE
FOR
ENTITIES
WITH
DEM-
ONSTRATED
PROFICIENCY
WITH
PRIVATE
INSUR-
ERS.—In awarding contracts to recovery audit con-
tractors under this section, the Secretary shall give
preference to those entities that the Secretary deter-
mines have demonstrated proficiency in recovery au-
dits with private insurers or under the medicaid pro-
gram under title XIX of such Act.
(e) REPORT.—The Secretary of Health and Human
Services shall submit to Congress a report on the project
not later than 6 months after the date of its completion.
Such reports shall include information on the impact of
the project on savings to the medicare program and rec-
ommendations on the cost-effectiveness of extending or ex-
panding the project.
Æ