the item or product that is the subject of the appli-
cation. 
(3) DEFINITION.—In this subsection, the term 
‘‘HCPCS Level II codes’’ means the level II alpha-
numeric codes under the Healthcare Common Proce-
dure Coding System (HCPCS). 
(c) PROCEDURES FOR ISSUANCE OF TEMPORARY NA-
TIONAL HCPCS CODES.—Not later than December 31, 
2003, the Secretary shall implement revised procedures 
for the issuance of temporary national HCPCS codes for 
use in the submission of claims for items and services 
under Part B of title XVIII of the Social Security Act. 
Such procedures shall provide for—
(1) the issuance of a determination with respect 
to a temporary national HCPCS coding request 
within 90 days of receipt of a request from any in-
terested party; 
(2) the implementation of any codes subject to 
a positive determination under paragraph (1) not 
later than 180 days after receipt of the submission 
of the original coding request; 
(3) upon the receipt of a request from a fiscal 
intermediary with an agreement under section 1816 
of the Social Security Act (42 U.S.C. 1395h) or a 
carrier with a contract under section 1842 of such
Act (42 U.S.C. 1395u), the automatic issuance of 
temporary national HCPCS codes for any item or 
service that is the subject of a local medical review 
policy issued by such intermediary or carrier with re-
spect to whether such item or service is covered 
under title XVIII of such Act in a geographic area 
served by such intermediary or carrier; and 
(4) the public posting of, and opportunity for 
public comment on, pending coding requests. 
SEC. 202. PROCESS FOR ADOPTION OF ICD–10–PCS AS DATA 
STANDARD. 
Section 1172(f) (42 U.S.C. 1320d–1(f)) is amended 
by inserting after the first sentence the following: ‘‘Not-
withstanding the preceding sentence, if the National Com-
mittee on Vital and Health Statistics has not made a rec-
ommendation to the Secretary before April 1, 2003, with 
respect to the adoption of the International Classification 
of Diseases, 10th Revision, Procedure Coding System 
(‘ICD–10–PCS’) as a standard under this part for the re-
porting of inpatient hospital services, the Secretary may 
adopt ICD–10–PCS as such a standard on or after such 
date without receiving such a recommendation.’’.
TITLE III—PROVISIONS 
RELATING TO PAYMENT 
SEC. 301. USE OF INTERNAL AND EXTERNAL DATA FOR AN-
NUAL ADJUSTMENTS TO HOSPITAL PAYMENT 
SYSTEMS. 
(a) INPATIENT HOSPITAL PPS.—Section 1886(d)(4) 
(42 U.S.C. 1395ww(d)(4)) is amended by adding at the 
end the following new subparagraphs: 
‘‘(D)(i) In determining annual adjustments under 
subparagraph (C), the Secretary may not—
‘‘(I) decline to use internal data if the data re-
flect a representative sample of cases; or 
‘‘(II) establish a minimum period of time (such 
as one year) from which such data must be drawn. 
‘‘(ii) The Secretary shall establish a reasonable dead-
line for the submission of a request for adjustment based 
on internal data to be used in making the adjustments 
required by subparagraph (C). In no event may the dead-
line established under this clause be more than 8 months 
before the first day of the payment update period for 
which the adjustment or adjustments to which the data 
relate would be effective. 
‘‘(E)(i) Subject to the succeeding provisions of this 
subparagraph, in determining the adjustments under sub-
paragraph (C), the Secretary shall utilize external data if 
such data are based on a representative sample of cases. 
‘‘(ii) In determining the adjustments under subpara-
graph (C), the Secretary may not—
‘‘(I) decline to use external data submitted for 
consideration under the process established under 
clause (iv) if such data enable the Secretary to iden-
tify or refine internal data for use in making such 
an adjustment and such data are based on a rep-
resentative sample of cases; or 
‘‘(II) establish a minimum period of time (such 
as one year) from which such data must be drawn. 
‘‘(iii) Nothing in this clause shall be construed as re-
quiring the Secretary to identify all claims submitted 
under the payment system established under this sub-
section involving the use of a medical technology before 
the Secretary may make the adjustments under subpara-
graph (C) with respect to such technology; or as author-
izing the Secretary to defer action on such an adjustment 
until all such claims are identifiable. 
‘‘(iv) The Secretary shall establish a process for the 
submission of external data by interested parties. Such 
process shall include reasonable deadline for the submis-
sion of external data to be used in making the adjustments 
required by subparagraph (C). In no event may the dead-
line established under this subclause be more than 10 
months before the first day of the payment update period 
for which the adjustment or adjustments to which the data 
relate would be effective. 
‘‘(F) For purposes of subparagraphs (D) and (E)—
‘‘(i) the term ‘external data’ means data from 
sources other than data collected by the Secretary in 
the administration of the program established under 
this title; 
‘‘(ii) the term ‘interested party’ means individ-
uals entitled to benefits under part A, or enrolled 
under part B, or both, who are in need of the items 
or services that are the subject of the coverage de-
termination, providers of services, physicians, practi-
tioners, suppliers, and manufacturers of such items 
or services; and 
‘‘(iii) the term ‘internal data’ means data that 
is collected by the Secretary in the administration of 
the program established under this title.’’. 
(b) 
OUTPATIENT
HOSPITAL
PPS.—Section 
1833(t)(9) (42 U.S.C. 1395l(t)(9)) is amended by adding 
at the end the following new subparagraphs: 
‘‘(D) USE OF INTERNAL DATA COLLECTED 
BY THE SECRETARY.—
‘‘(i) IN
GENERAL.—In determining 
annual adjustments under subparagraph 
(A), the Secretary may not use internal 
data that does not—
‘‘(I) reflect a representative sam-
ple of cases that include the specific 
procedure that is subject to such ad-
justment; and 
‘‘(II) accurately reflect the costs 
of providing the item or service, based 
on all forms of information that is 
available to the Secretary. 
‘‘(ii) DEADLINE FOR SUPPLYING IN-
TERNAL DATA.—The Secretary shall estab-
lish a reasonable deadline for the submis-
sion of a request for adjustment based on 
internal data to be used in making the ad-
justments required by subparagraph (A). 
In no event may the deadline established 
under this paragraph be more than 8 
months before the first day of the payment 
update period for which the adjustment or 
adjustments to which the data relate would 
be effective. 
‘‘(E) EXTERNAL DATA.—
‘‘(i) IN
GENERAL.—Subject to the 
succeeding provisions of this subparagraph, 
in determining the adjustments under sub-
paragraph (A), the Secretary shall utilize 
external data submitted for consideration 
under the process established under clause 
(iv) if such data are based on a representa-
tive sample of cases. 
‘‘(ii) EXTERNAL DATA FACILITATING 
THE USE OF INTERNAL DATA.—In deter-
mining the adjustments under subpara-
graph (A), the Secretary may not—
‘‘(I) decline to use external data 
if such data enable the Secretary to 
identify or refine data so collected for 
use in making such an adjustment 
and such data are based on a rep-
resentative sample of cases; or 
‘‘(II) establish a minimum period 
of time (such as one year) from which 
such data must be drawn. 
‘‘(iii) 
CLARIFICATION.—Nothing 
in 
this subparagraph shall be construed as re-
quiring the Secretary to identify all claims 
submitted under the payment system es-
tablished under this subsection involving 
the use of a medical technology before the 
Secretary may make the adjustments 
under this subparagraph with respect to 
such technology; or as authorizing the Sec-
retary to defer action on such an adjust-
ment until all such claims are identifiable. 
‘‘(iv) DEADLINE FOR SUPPLYING EX-
TERNAL DATA.—The Secretary shall estab-
lish a process for the submission of exter-
nal data by interested parties. Such proc-
ess shall include a reasonable deadline for 
the submission of external data to be used 
in making the adjustments required by 
subparagraph (A). In no event may the 
deadline established under this subclause 
be more than 10 months before the first 
day of the payment update period for 
which the adjustment or adjustments to 
which the data relate would be effective. 
‘‘(F) DEFINITIONS.—For purposes of sub-
paragraphs (D) and (E)—
‘‘(i) the term ‘external data’ means 
data from sources other than data col-
lected by the Secretary in the administra-
tion of the program established under this 
title; 
‘‘(ii) the term ‘interested party’ means 
individuals entitled to benefits under part 
A, or enrolled under part B, or both, who 
are in need of the items or services that 
are the subject of the coverage determina-
tion, providers of services, physicians, 
practitioners, suppliers, and manufacturers 
of such items or services; and 
‘‘(iii) the term ‘internal data’ means 
data that is collected by the Secretary in 
the administration of the program estab-
lished under this title.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply with respect to items and services 
furnished on or after October 1, 2003. 
SEC. 302. LIMITATION ON USE OF FOREIGN PAYER DATA IN 
DETERMINING 
MEDICARE 
PAYMENT 
AMOUNTS. 
(a) IN GENERAL.—Notwithstanding any other provi-
sion of law, the Secretary of Health and Human Services 
may not, in determining the amount to be paid for any 
item or service for which payment is made under title 
XVIII of the Social Security Act (42 U.S.C. 1395b et seq.)
that is furnished in the United States, take into account 
or utilize (or authorize an administrative contractor to 
take into account or utilize) any data or information on 
the amount that is paid by any payer for the same (or 
a similar) item or service provided outside the United 
States. 
(b) DEFINITIONS.—For purposes of this section—
(1) the term ‘‘administrative contractor’’ means 
an entity with an contract under section 1816 of the 
Social Security Act (42 U.S.C. 1395h), section 1842 
of such Act (42 U.S.C. 1395u), or any other provi-
sion of such title to determine the amount to be paid 
for any item or service provided under such title or 
to make payments for such services; and 
(2) the term ‘‘United States’’ has the meaning 
given to such term in section 1862(a)(4) of the So-
cial Security Act (42 U.S.C. 1395y(a)(4)). 
SEC. 303. RECOGNITION OF NEW MEDICAL TECHNOLOGIES 
UNDER INPATIENT HOSPITAL PPS. 
(a) 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 may 
not be denied treatment as a new service or technology 
on the basis that the service or technology has been on 
the market or available for a period of not less than 2 
years and not more than 3 years unless during the entire 
period—
‘‘(aa) the service or technology is available for 
use as a service or technology cleared for marketing 
under section 510(k) of the Federal Food, Drug, 
and Cosmetic Act or approved for market under sec-
tion 515 of such Act; and 
‘‘(bb) a code facilitating data collection is in ef-
fect with respect to the service or technology. 
For purposes of the preceding sentence, a ‘code facilitating 
data collection’ means, with respect to a service or tech-
nology, a code under the ICD–9–CM coding system (or 
a successor coding system) that enables the collection of 
data on the costs of the service or technology in a signifi-
cant sample of specific discharges in which the service or 
technology is 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 computed 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) CRITERIA
FOR
SUBSTANTIAL
IMPROVE-
MENT.—Section 
1886(d)(5)(K)(vi) 
(42 
U.S.C. 
1395ww(d)(5)(K)(vi)), as amended by paragraph 
(1), is further amended by adding at the end the fol-
lowing subclause: 
‘‘(III) The Secretary shall by regulation provide for 
further clarification of the criteria applied to determine 
whether a new service or technology represents an advance 
in medical technology that substantially improves the diag-
nosis or treatment of beneficiaries. Under such criteria, 
in determining whether a new service or technology rep-
resents an advance in medical technology that substan-
tially improves the diagnosis or treatment of beneficiaries, 
the Secretary shall deem a service or technology as meet-
ing such requirement if the service or technology is a drug 
or biological that is designated under section 506 or 526 
of the Federal Food, Drug, and Cosmetic Act, approved 
under section 314.510 or 601.41 of title 21, Code of Fed-
eral Regulations, or designated for priority review when 
the marketing application for such drug or biological was 
filed or is a medical device for which an exemption has 
been granted under section 520(m) of such Act, or for 
which priority review has been provided under section 
515(d)(5) of such Act. Nothing in the preceding sentence 
shall be construed as limiting the application of section 
1862(a)(1) to a new service or technology described in 
such sentence or as limiting the authority of the Secretary 
to make determinations under such section with respect 
to such a service or technology.’’. 
(b) PREFERENCE FOR USE
OF DRG ADJUST-
MENT.—Section 
1886(d)(5)(K) 
(42 
U.S.C. 
1395ww(d)(5)(K)), as amended by section 201, is further 
amended by adding at the end the following new clause: 
‘‘(viii) Before establishing any additional payment 
under this subparagraph with respect to a new technology, 
the Secretary shall seek to identify one or more diagnosis-
related 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, whether the DRG prospective payment rate
that would otherwise be made under this subsection is in-
adequate for purposes of clause (ii)(I) shall be determined 
with respect to the diagnosis-related group to which it is 
assigned under this clause, and any additional expendi-
tures resulting from such assignment shall be taken into 
account in making the determination required by para-
graph (4)(C)(iii) (and not in the application of any annual 
limit on aggregate payments under this subparagraph).’’. 
(c) 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))’’. 
(d) REQUIRED MODIFICATIONS TO MECHANISM.—
The last sentence of section 1886(d)(5)(K)(i) (42 U.S.C. 
1395ww(d)(5)(K)(i)) is amended to read as follows: ‘‘The 
mechanism established pursuant to this clause (as it be-
came effective on October 9, 2001) shall be modified to 
meet the requirements of subclauses (II) and (III) of 
clause (vi), clauses (vii) and (viii), and the parenthetical 
expressions in subclauses (I) and (III) of clause (iii) that 
were added after such date.’’. 
(e) EFFECTIVE DATE.—
(1) IN GENERAL.—The Secretary shall imple-
ment the amendments made by this section by regu-
lations issued on an interim, final basis if the Sec-
retary determines that the issuance of regulations on 
such basis is necessary to ensure that such amend-
ments will apply to classifications for (and payments 
for discharges occurring in) fiscal years beginning 
with fiscal year 2004. 
(2) RECONSIDERATIONS OF APPLICATIONS FOR 
FISCAL YEARS 2003 AND 2004 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 or fiscal year 2004 and that is denied—
(A) the Secretary shall automatically re-
consider the application as an application for 
fiscal year 2005 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. 304. PRESERVATION OF LOCAL MEDICAL REVIEW 
PROCESS UNDER MEDICARE ADMINISTRA-
TIVE CONTRACTOR REFORMS. 
(a) PART A.—Section 1816(c) (42 U.S.C. 1395h(c)) 
is amended by adding at the end the following: 
‘‘(4) An agreement with any agency or organization 
under this section to perform the function of making local 
coverage 
determinations 
(as 
defined 
in 
section 
1869(f)(2)(B)), making determinations of payment 
amounts, or making both such types of determinations, 
shall provide that such contractor or entity shall—
‘‘(A) designate at least one different individual 
to serve as medical director for every two States (or 
portions thereof) for which such agency or organiza-
tion performs such function or functions; 
‘‘(B) utilize such medical director in the per-
formance of such function or functions; and 
‘‘(C) appoint an advisory committee with re-
spect to each such State (or portion thereof) to pro-
vide a formal mechanism for physicians in the State 
to be informed of, and participate in, the develop-
ment of local coverage determinations in an advisory 
capacity.’’. 
(b) PART B.—Section 1842(c) (42 U.S.C. 1395u(c)) 
is amended by adding at the end the following:
‘‘(7) Any contract with a carrier under this section 
to perform the function of making local coverage deter-
minations (as defined in section 1869(f)(2)(B)), making 
determinations of payment amounts, or making both such 
types of determinations, shall provide that such carrier 
shall—
‘‘(A) designate at least one different individual 
to serve as medical director for every two States (or 
portions thereof) for which such carrier performs 
such function or functions; 
‘‘(B) utilize such medical director in the per-
formance of such function or functions; and 
‘‘(C) appoint an advisory committee with re-
spect to each such State (or portion thereof) to pro-
vide a formal mechanism for physicians in the State 
to be informed of, and participate in, the develop-
ment of local coverage determinations in an advisory 
capacity.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to agreements and contracts en-
tered into or renewed on or after the date of the enactment 
of this Act.
SEC. 305. INHERENT REASONABLENESS. 
(a) IN GENERAL.—Section 1842(b)(8)(A) (42 U.S.C. 
1395u(b)(8)(A)) is amended by adding at the end the fol-
lowing: 
‘‘(iii) The Secretary shall ensure adequate notice to 
the public with respect to any determination under this 
paragraph, including—
‘‘(I) before conducting any survey to evaluate 
the factors in subclause (I) or (II) of clause (i), pub-
lication of a notice explaining, and soliciting public 
comment on, the proposed methodology and design 
of such survey, 
‘‘(II) publication of any proposed determina-
tion, together with an explanation of the results of 
any survey and any other relevant factors taken into 
account in making the determination, information on 
how the public may obtain survey data, and an op-
portunity for public comment on the proposed deter-
mination, and 
‘‘(III) publication of a notice of a final deter-
mination under this paragraph. 
‘‘(iv) The requirements of clause (iii) shall apply to 
any determination that is made by—
‘‘(I) two or more carriers, acting concurrently, 
or in concert, with respect to the same particular 
item or service, or
‘‘(II) any regional carrier designated by the 
Secretary under section 1834(a)(12) of this part or 
under section 4554(a)(1)(B) of the Balanced Budget 
Act of 1997.’’. 
(b) APPEALS.—Section 1869(f) (42 U.S.C. 1395ff(f)) 
is amended—
(1) in the matter preceding paragraph (1), by 
inserting ‘‘AND INHERENT REASONABLENESS DE-
TERMINATIONS’’ after ‘‘REVIEW OF COVERAGE DE-
TERMINATIONS’’; 
(2) in paragraph (1)—
(A) in the heading, by inserting ‘‘; NA-
TIONAL
INHERENT
REASONABLENESS
DETER-
MINATIONS’’ after ‘‘NATIONAL COVERAGE DE-
TERMINATIONS’’; 
(B) in the matter preceding clause (i) of 
subparagraph (A) by inserting ‘‘or national in-
herent reasonableness determination’’ after 
‘‘any national coverage determination’’; and 
(C) by adding at the end the following: 
‘‘(C) DEFINITION OF NATIONAL INHERENT 
REASONABLENESS DETERMINATION.—For pur-
poses of this section, the term ‘national inher-
ent reasonableness determination’ means a de-
termination by the Secretary in accordance with 
section 1842(b)(8).’’; 
(3) in paragraph (2)—
(A) in the heading, by inserting ‘‘; LOCAL 
INHERENT
REASONABLENESS
DETERMINA-
TIONS’’ after ‘‘LOCAL COVERAGE DETERMINA-
TIONS’’; 
(B) in the matter preceding clause (i) of 
subparagraph (A), by inserting ‘‘or local inher-
ent reasonableness determination’’ after ‘‘any 
local coverage determination’’; and 
(C) by adding at the end the following: 
‘‘(C) DEFINITION
OF
LOCAL
INHERENT 
REASONABLENESS DETERMINATION.—For pur-
poses of this section, the term ‘local inherent 
reasonableness determination’ means a deter-
mination by a carrier in accordance with section 
1842(b)(8).’’; and 
(4) in paragraph (5)—
(A) by striking ‘‘coverage determination’’ 
the first place it appears; 
(B) by inserting ‘‘and any national or local 
inherent reasonableness determination’’ after 
‘‘local coverage determination’’; and
(C) striking ‘‘of the coverage determina-
tion’’ and inserting ‘‘of the determination’’.
Æ