party restricts or limits a patient’s freedom 
of choice. 
(iii) Whether the arrangement be-
tween the health center entity and the 
other party protects a health care profes-
sional’s independent medical judgment re-
garding medically appropriate treatment. 
The Secretary may also include other standards 
and criteria that are consistent with the intent 
of Congress in enacting the exception estab-
lished under this section. 
(2) INTERIM
FINAL
EFFECT.—No later than 
180 days after the date of enactment of this Act, the 
Secretary shall publish a rule in the Federal Reg-
ister consistent with the factors under paragraph 
(1)(B). Such rule shall be effective and final imme-
diately on an interim basis, subject to such change 
and revision, after public notice and opportunity (for 
a period of not more than 60 days) for public com-
ment, as is consistent with this subsection.
SEC. 311. RELIEF FOR CERTAIN NON-TEACHING HOS-
PITALS. 
(a) IN GENERAL.—In the case of a non-teaching hos-
pital that meets the condition of subsection (b), in each 
of fiscal years 2003, 2004, and 2005 the amount of pay-
ment made to the hospital under section 1886(d) of the 
Social Security Act for discharges occurring during such 
fiscal year only shall be increased as though the applicable 
percentage increase (otherwise applicable to discharges oc-
curring 
during 
such 
fiscal 
year 
under 
section 
1886(b)(3)(B)(i) of the Social Security Act (42 U.S.C. 
1395ww(b)(3)(B)(i)) had been increased by 5 percentage 
points. The previous sentence shall be applied for each 
such fiscal year separately without regard to its applica-
tion in a previous fiscal year and shall not affect payment 
for discharges for any hospital occurring during a fiscal 
year after fiscal year 2005. 
(b) CONDITION.—A non-teaching hospital meets the 
condition of this subsection if—
(1) it is located in a rural area and the amount 
of the aggregate payments under subsection (d) of 
section 1886 of the Social Security Act for hospitals 
located in rural areas in the State for their cost re-
porting periods beginning during fiscal year 1999 is 
less than the aggregate allowable operating costs of 
inpatient hospital services (as defined in subsection 
(a)(4) of such section) for all subsection (d) hos-
pitals in such areas in such State with respect to 
such cost reporting periods; or
(2) it is located in an urban area and the 
amount of the aggregate payments under subsection 
(d) of such section for hospitals located in urban 
areas in the State for their cost reporting periods 
beginning during fiscal year 1999 is less than 103 
percent of the aggregate allowable operating costs of 
inpatient hospital services (as defined in subsection 
(a)(4) of such section) for all subsection (d) hos-
pitals in such areas in such State with respect to 
such cost reporting periods. 
The amounts under paragraphs (1) and (2) shall be deter-
mined by the Secretary of Health and Human Services 
based on data of the Medicare Payment Advisory Commis-
sion. 
(c) DEFINITIONS.—For purposes of this section: 
(1) 
NON-TEACHING
HOSPITAL.—The 
term 
‘‘non-teaching hospital’’ means, for a cost reporting 
period, a subsection (d) hospital (as defined in sub-
section (d)(1)(B) of section 1886 of the Social Secu-
rity Act, 42 U.S.C. 1395ww)) that is not receiving 
any additional payment under subsection (d)(5)(B) 
of such section or a payment under subsection (h) 
of such section for discharges occurring during the 
period. A subsection (d) hospital that receives addi-
tional payments under subsection (d)(5)(B) or (h) of
such section shall, for purposes of this section, also 
be treated as a non-teaching hospital unless a chair-
man of a department in the medical school with 
which the hospital is affiliated is serving or has been 
appointed as a clinical chief of service in the hos-
pital. 
(2) RURAL; URBAN.—The terms ‘‘rural’’ and 
‘‘urban’’ have the meanings given such terms for 
purposes of section 1886(d) of the Social Security 
Act (42 U.S.C. 1395ww(d)).
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 (IX) 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, or for 
which priority review has been provided under section 
515(d)(5) 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. 
SEC. 409. GAO STUDY ON IMPROVING THE HOSPITAL WAGE 
INDEX. 
(a) STUDY.—
(1) IN GENERAL.—The Comptroller General of 
the United States shall conduct a study on the im-
provements that can be made in the measurement of 
regional differences in hospital wages reflected in the 
hospital wage index under section 1886(d) of the So-
cial Security Act (42 U.S.C. 1395ww(d)). 
(2) EXAMINATION OF USE OF METROPOLITAN 
STATISTICAL AREAS (MSAS).—The study shall spe-
cifically examine the use of metropolitan statistical 
areas for purposes of computing and applying the 
wage index and whether the boundaries of such 
areas accurately reflect local labor markets. In addi-
tion, the study shall examine whether regional in-
equities are created as a result of infrequent updates 
of such boundaries and policies of the Bureau of the 
Census relating to commuting criteria. 
(3) WAGE DATA.—The study shall specifically 
examine the portions of the hospital cost reports re-
lating to wages, and methods for improving the ac-
curacy of the wage data and for reducing inequities 
resulting from differences among hospitals in the re-
porting of wage data. 
(b) CONSULTATION WITH OMB.—The Comptroller 
General shall consult with the Director of Office of Man-
agement and Budget in conducting the study under sub-
section (a)(2). 
(c) REPORT.—Not later than May 1, 2003, the 
Comptroller General shall submit to Congress a report on 
the study conducted under subsection (a) and shall include 
in the report such recommendations as may be appropriate 
on—
(1) changes in the definition of labor market 
areas used for purposes of the area wage index 
under section 1886 of the Social Security Act; and 
(2) improvements in methods for the collection 
of wage data. 
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 12, 10, and 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 Ad-
ministration on July 31, 2000 (65 Fed. Reg. 46770) and 
as subsequently updated under section 1888(e)(4)(E)(ii) 
of 
the 
Social 
Security 
Act 
(42 
U.S.C. 
1395yy(e)(4)(E)(ii)), effective for services furnished dur-
ing fiscal years 2003, 2004, and 2005, respectively.’’. 
(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 amend-
ed—
(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 previously received services under this
paragraph, services that are furnished by a physi-
cian who is either the medical director or an em-
ployee 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 underpayments and overpayments 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 
inaccurate payments 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. 
(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.
TITLE V—PROVISIONS 
RELATING TO PART B 
Subtitle A—Physicians’ Services 
SEC. 501. REVISION OF UPDATES FOR PHYSICIANS’ SERV-
ICES. 
(a) UPDATE FOR 2003 THROUGH 2005.—
(1) IN GENERAL.—Section 1848(d) (42 U.S.C. 
1395w–4(d)) is amended by adding at the end the 
following new paragraphs: 
‘‘(5) UPDATE
FOR
2003.—The update to the 
single conversion factor established in paragraph 
(1)(C) for 2003 is 3 percent. 
‘‘(6) SPECIAL
RULES
FOR
UPDATE
FOR
2004 
AND 2005.—The following rules apply in determining 
the update adjustment factors under paragraph 
(4)(B) for 2004 and 2005: 
‘‘(A) USE OF 2002 DATA IN DETERMINING 
ALLOWABLE COSTS.—
‘‘(i) The reference in clause (ii)(I) of 
such paragraph to April 1, 1996, is 
deemed to be a reference to January 1, 
2002. 
‘‘(ii) The allowed expenditures for 
2002 is deemed to be equal to the actual 
expenditures for physicians’ services fur-
nished during 2002, as estimated by the 
Secretary. 
‘‘(B) 1 PERCENTAGE POINT INCREASE IN 
GDP UNDER SGR.—The annual average percent-
age growth in real gross domestic product per 
capita under subsection (f)(2)(C) for each of
2003, 2004, and 2005 is deemed to be in-
creased by 1 percentage point.’’. 
(2) 
CONFORMING
AMENDMENT.—Paragraph 
(4)(B) of such section is amended, in the matter be-
fore clause (i), by inserting ‘‘and paragraph (6)’’ 
after ‘‘subparagraph (D)’’. 
(3) NOT TREATED AS CHANGE IN LAW AND 
REGULATION IN SUSTAINABLE GROWTH RATE DE-
TERMINATION.—The amendments made by this sub-
section shall not be treated as a change in law for 
purposes of applying section 1848(f)(2)(D) of the 
Social Security Act (42 U.S.C. 1395w–4(f)(2)(D)). 
(b) USE OF 10-YEAR ROLLING AVERAGE IN COM-
PUTING GROSS DOMESTIC PRODUCT.—
(1) IN
GENERAL.—Section 1848(f)(2)(C) (42 
U.S.C. 1395w–4(f)(2)(C)) is amended—
(A) by striking ‘‘projected’’ and inserting 
‘‘annual average’’; and 
(B) by striking ‘‘from the previous applica-
ble period to the applicable period involved’’ 
and inserting ‘‘during the 10-year period ending 
with the applicable period involved’’.
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to computations of the
sustainable growth rate for years beginning with 
2002. 
(c) ELIMINATION OF TRANSITIONAL ADJUSTMENT.—
Section 1848(d)(4)(F) (42 U.S.C. 1395w–4(d)(4)(F)) is 
amended by striking ‘‘subparagraph (A)’’ and all that fol-
lows and inserting ‘‘subparagraph (A), for each of 2001 
and 2002, of ¥0.2 percent.’’. 
(d) GAO STUDY OF MEDICARE PAYMENT FOR INHA-
LATION THERAPY.—
(1) STUDY.—The Comptroller General of the 
United States shall conduct a study to examine the 
adequacy of current reimbursements for inhalation 
therapy under the medicare program. 
(2) REPORT.—Not later than May 1, 2003, the 
Comptroller General shall submit to Congress a re-
port on the study conducted under paragraph (1). 
SEC. 502. STUDIES ON ACCESS TO PHYSICIANS’ SERVICES. 
(a) GAO STUDY ON BENEFICIARY ACCESS TO PHYSI-
CIANS’ SERVICES.—
(1) STUDY.—The Comptroller General of the 
United States shall conduct a study on access of 
medicare beneficiaries to physicians’ services under 
the medicare program. The study shall include—
(A) an assessment of the use by bene-
ficiaries of such services through an analysis of
claims submitted by physicians for such services 
under part B of the medicare program; 
(B) an examination of changes in the use 
by beneficiaries of physicians’ services over 
time; 
(C) an examination of the extent to which 
physicians are not accepting new medicare 
beneficiaries as patients. 
(2) REPORT.—Not later than 18 months after 
the date of the enactment of this Act, the Comp-
troller General shall submit to Congress a report on 
the study conducted under paragraph (1). The re-
port shall include a determination whether—
(A) data from claims submitted by physi-
cians under part B of the medicare program in-
dicate potential access problems for medicare 
beneficiaries in certain geographic areas; and 
(B) access by medicare beneficiaries to 
physicians’ services may have improved, re-
mained constant, or deteriorated over time.
(b) STUDY
AND REPORT
ON SUPPLY
OF PHYSI-
CIANS.—
(1) STUDY.—The Secretary shall request the 
Institute of Medicine of the National Academy of 
Sciences to conduct a study on the adequacy of the
supply of physicians (including specialists) in the 
United States and the factors that affect such sup-
ply. 
(2) REPORT TO CONGRESS.—Not later than 2 
years after the date of enactment of this section, the 
Secretary shall submit to Congress a report on the 
results of the study described in paragraph (1), in-
cluding any recommendations for legislation. 
SEC. 503. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS’ 
SERVICES. 
Not later than 1 year after the date of the enactment 
of this Act, the Medicare Payment Advisory Commission 
shall submit to Congress a report on the effect of refine-
ments to the practice expense component of payments for 
physicians’ services, after the transition to a full resource-
based payment system in 2002, under section 1848 of the 
Social Security Act (42 U.S.C. 1395w–4). Such report 
shall examine the following matters by physician specialty: 
(1) The effect of such refinements on payment 
for physicians’ services. 
(2) The interaction of the practice expense com-
ponent with other components of and adjustments to 
payment for physicians’ services under such section. 
(3) The appropriateness of the amount of com-
pensation by reason of such refinements.
(4) The effect of such refinements on access to 
care by medicare beneficiaries to physicians’ serv-
ices. 
(5) The effect of such refinements on physician 
participation under the medicare program.
SEC. 504. 1-YEAR EXTENSION OF TREATMENT OF CERTAIN 
PHYSICIAN PATHOLOGY SERVICES UNDER 
MEDICARE. 
Section 542(c) of BIPA is amended by striking ‘‘2-
year period’’ and inserting ‘‘3-year period’’.
SEC. 505. PHYSICIAN FEE SCHEDULE WAGE INDEX REVI-
SION. 
(a) INDEX REVISION.—
(1) IN GENERAL.—Subject to paragraph (2), 
notwithstanding any other provision of law, for pur-
poses of payment under the physician fee schedule 
under section 1848 of the Social Security Act (42 
U.S.C. 1395w–4) for physicians’ services furnished 
during 2004, in no case may the work geographic 
index 
otherwise 
calculated 
under 
subsection 
(e)(1)(A)(iii) of such section be less than 0.985. 
(2) SECRETARIAL DISCRETION.—Paragraph (1) 
shall not take effect or be in force if the Secretary 
determines, taking into account the report of the 
Comptroller General under subsection (b)(2), that
there is no sound economic rationale for the imple-
mentation of such paragraph. 
(3) EXEMPTION FROM LIMITATION ON ANNUAL 
ADJUSTMENTS.—Any increase in expenditures at-
tributable to paragraph (1) during 2004 shall not be 
taken 
into 
account 
in 
applying 
section 
1848(c)(2)(B)(ii)(II) of the Social Security Act (42 
U.S.C. 1395w–4(c)(2)(B)(ii)(II)) for that year. 
(b) GAO REPORT.—
(1) EVALUATION.—As part of the study on geo-
graphic differences in payments for physicians’ serv-
ices conducted under section 309, the Comptroller 
General shall evaluate the following: 
(A) Whether there is a sound economic 
basis for the implementation of the adjustment 
under subsection (a)(1) in those areas in which 
the adjustment applies. 
(B) The effect of such adjustment on phy-
sician location and retention in areas affected 
by such adjustment, taking into account—
(i) differences in recruitment costs 
and retention rates for physicians, includ-
ing specialists, between large urban areas 
and other areas; and
(ii) the mobility of physicians, includ-
ing specialists, over the last decade. 
(C) The appropriateness of establishing a 
floor of 1.0 for the work geographic index. 
(2) REPORT.—By not later than September 1, 
2003, the Comptroller General shall submit to Con-
gress and to the Secretary a report on the evaluation 
conducted under paragraph (1). 
Subtitle B—Other Services
SEC. 511. PAYMENT FOR AMBULANCE SERVICES. 
(a) PHASE-IN PROVIDING FLOOR USING BLEND OF 
FEE SCHEDULE AND REGIONAL FEE SCHEDULES.—Sec-
tion 1834(l) (42 U.S.C. 1395m(l)) is amended—
(1) in paragraph (2)(E), by inserting ‘‘con-
sistent with paragraph (10)’’ after ‘‘in an efficient 
and fair manner’’; 
(2) by redesignating the paragraph (8) added 
by section 221(a) of BIPA as paragraph (9); and 
(3) by adding at the end the following new 
paragraph: 
‘‘(10) PHASE-IN
PROVIDING
FLOOR
USING 
BLEND
OF
FEE
SCHEDULE
AND
REGIONAL
FEE 
SCHEDULES.—In carrying out the phase-in under 
paragraph (2)(E) for each level of service furnished 
in a year before January 1, 2007, the portion of the
payment amount that is based on the fee schedule 
shall not be less than the following blended rate of 
the fee schedule under paragraph (1) and of a re-
gional fee schedule for the region involved: 
‘‘(A) For 2003, the blended rate shall be 
based 20 percent on the fee schedule under 
paragraph (1) and 80 percent on the regional 
fee schedule. 
‘‘(B) For 2004, the blended rate shall be 
based 40 percent on the fee schedule under 
paragraph (1) and 60 percent on the regional 
fee schedule. 
‘‘(C) For 2005, the blended rate shall be 
based 60 percent on the fee schedule under 
paragraph (1) and 40 percent on the regional 
fee schedule. 
‘‘(D) For 2006, the blended rate shall be 
based 80 percent on the fee schedule under 
paragraph (1) and 20 percent on the regional 
fee schedule. 
For purposes of this paragraph, the Secretary shall 
establish a regional fee schedule for each of the 9 
Census divisions using the methodology (used in es-
tablishing the fee schedule under paragraph (1)) to 
calculate a regional conversion factor and a regional
mileage payment rate and using the same payment 
adjustments and the same relative value units as 
used in the fee schedule under such paragraph.’’. 
(b) ADJUSTMENT IN PAYMENT FOR CERTAIN LONG 
TRIPS.—Section 1834(l), as amended by subsection (a), 
is further amended by adding at the end the following new 
paragraph: 
‘‘(11) ADJUSTMENT IN PAYMENT FOR CERTAIN 
LONG
TRIPS.—In the case of ground ambulance 
services furnished on or after January 1, 2003, and 
before January 1, 2008, regardless of where the 
transportation originates, the fee schedule estab-
lished under this subsection shall provide that, with 
respect to the payment rate for mileage for a trip 
above 50 miles the per mile rate otherwise estab-
lished shall be increased by 1⁄4 of the payment per 
mile otherwise applicable to such miles.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to ambulance services furnished 
on or after January 1, 2003. 
SEC. 512. 2-YEAR EXTENSION OF MORATORIUM ON THER-
APY CAPS; PROVISIONS RELATING TO RE-
PORTS. 
(a) 2-YEAR EXTENSION OF MORATORIUM ON THER-
APY CAPS.—Section 1833(g)(4) (42 U.S.C. 1395l(g)(4))
is amended by striking ‘‘and 2002’’ and inserting ‘‘2002, 
2003, and 2004’’. 
(b) PROMPT SUBMISSION OF OVERDUE REPORTS ON 
PAYMENT AND UTILIZATION OF OUTPATIENT THERAPY 
SERVICES.—Not later than December 31, 2002, the Sec-
retary shall submit to Congress the reports required under 
section 4541(d)(2) of the Balanced Budget Act of 1997 
(relating to alternatives to a single annual dollar cap on 
outpatient therapy) and under section 221(d) of the Medi-
care, Medicaid, and SCHIP Balanced Budget Refinement 
Act of 1999 (relating to utilization patterns for outpatient 
therapy).
(c) IDENTIFICATION OF CONDITIONS AND DISEASES 
JUSTIFYING WAIVER OF THERAPY CAP.—
(1) STUDY.—The Secretary shall request the 
Institute of Medicine of the National Academy of 
Sciences to identify conditions or diseases that 
should justify conducting an assessment of the need 
to waive the therapy caps under section 1833(g)(4) 
of the Social Security Act (42 U.S.C. 1395l(g)(4)). 
(2) REPORTS TO CONGRESS.—Not later than 
September 1, 2003, the Secretary shall submit to 
Congress a preliminary report on the conditions and 
diseases identified under paragraph (1) and not later
than December 31, 2003, a final report on the con-
ditions and diseases so identified. 
(d) GAO STUDY OF PATIENT ACCESS TO PHYSICAL 
THERAPIST SERVICES.—
(1) STUDY.—The Comptroller General of the 
United States shall conduct a study on access to 
physical therapist services in States authorizing such 
services without a physician referral and in States 
that require such a physician referral. The study 
shall—
(A) examine the use of and referral pat-
terns for physical therapist services for patients 
age 50 and older in States that authorize such 
services without a physician referral and in 
States that require such a physician referral;
(B) examine the use of and referral pat-
terns for physical therapist services for patients 
who are medicare beneficiaries; 
(C) examine the potential effect of prohib-
iting a physician from referring patients to 
physical therapy services owned by the physi-
cian and provided in the physician’s office; 
(D) examine the delivery of physical thera-
pists’ services within the facilities of Depart-
ment of Defense; and
(E) analyze the potential impact on medi-
care beneficiaries and on expenditures under 
the medicare program of eliminating the need 
for a physician referral and physician certifi-
cation for physical therapist services under the 
medicare program. 
(2) REPORT.—The Comptroller General shall 
submit to Congress a report on the study conducted 
under paragraph (1) by not later than 1 year after 
the date of the enactment of this Act.
SEC. 513. COVERAGE OF AN INITIAL PREVENTIVE PHYS-
ICAL EXAMINATION. 
(a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 
1395x(s)(2)) is amended—
(1) in subparagraph (U), by striking ‘‘and’’ at 
the end; 
(2) in subparagraph (V), by inserting ‘‘and’’ at 
the end; and 
(3) by adding at the end the following new sub-
paragraph: 
‘‘(W) an initial preventive physical examination 
(as defined in subsection (ww));’’. 
(b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 
1395x) is amended by adding at the end the following new 
subsection:
‘‘Initial Preventive Physical Examination 
‘‘(ww) The term ‘initial preventive physical examina-
tion’ means physicians’ services consisting of a physical 
examination with the goal of health promotion and disease 
detection and includes items and services (excluding clin-
ical laboratory tests), as determined by the Secretary, con-
sistent with the recommendations of the United States 
Preventive Services Task Force.’’. 
(c) WAIVER OF DEDUCTIBLE AND COINSURANCE.—
(1) DEDUCTIBLE.—The first sentence of sec-
tion 1833(b) (42 U.S.C. 1395l(b)) is amended—
(A) by striking ‘‘and’’ before ‘‘(6)’’, and 
(B) by inserting before the period at the 
end the following: ‘‘, and (7) such deductible 
shall not apply with respect to an initial preven-
tive physical examination (as defined in section 
1861(ww))’’. 
(2) COINSURANCE.—Section 1833(a)(1) (42 
U.S.C. 1395l(a)(1)) is amended—
(A) in clause (N), by inserting ‘‘(or 100 
percent in the case of an initial preventive phys-
ical 
examination, 
as 
defined 
in 
section 
1861(ww))’’ after ‘‘80 percent’’; and 
(B) in clause (O), by inserting ‘‘(or 100 
percent in the case of an initial preventive phys-
ical 
examination, 
as 
defined 
in 
section 
1861(ww))’’ after ‘‘80 percent’’. 
(d) PAYMENT AS PHYSICIANS’ SERVICES.—Section 
1848(j)(3) (42 U.S.C. 1395w–4(j)(3)) is amended by in-
serting ‘‘(2)(W),’’ after ‘‘(2)(S),’’. 
(e) OTHER CONFORMING AMENDMENTS.—Section 
1862(a) (42 U.S.C. 1395y(a)) is amended—
(1) in paragraph (1)—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (H); 
(B) by striking the semicolon at the end of 
subparagraph (I) and inserting ‘‘, and’’; and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(J) in the case of an initial preventive physical 
examination, which is performed not later than 6 
months after the date the individual’s first coverage 
period begins under part B;’’; and 
(2) in paragraph (7), by striking ‘‘or (H)’’ and 
inserting ‘‘(H), or (J)’’. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to services furnished on or after 
January 1, 2004, but only for individuals whose coverage 
period begins on or after such date.
SEC. 514. RENAL DIALYSIS SERVICES. 
(a) REPORT ON DIFFERENCES IN COSTS IN DIF-
FERENT SETTINGS.—Not later than 1 year after the date 
of the enactment of this Act, the Comptroller General of 
the United States shall submit to Congress a report con-
taining—
(1) an analysis of the differences in costs of 
providing renal dialysis services under the medicare 
program in home settings and in facility settings; 
(2) an assessment of the percentage of overhead 
costs in home settings and in facility settings; and 
(3) an evaluation of whether the charges for 
home dialysis supplies and equipment are reasonable 
and necessary. 
(b) RESTORING COMPOSITE RATE EXCEPTIONS FOR 
PEDIATRIC FACILITIES.—
(1) IN GENERAL.—Section 422(a)(2) of BIPA 
is amended—
(A) in subparagraph (A), by striking ‘‘and 
(C)’’ and inserting ‘‘, (C), and (D)’’; 
(B) in subparagraph (B), by striking ‘‘In 
the case’’ and inserting ‘‘Subject to subpara-
graph (D), in the case’’; and 
(C) by adding at the end the following new 
subparagraph:
‘‘(D) INAPPLICABILITY TO PEDIATRIC FA-
CILITIES.—Subparagraphs (A) and (B) shall 
not apply, as of October 1, 2002, to pediatric 
facilities that do not have an exception rate de-
scribed in subparagraph (C) in effect on such 
date. For purposes of this subparagraph, the 
term ‘pediatric facility’ means a renal facility 
at least 50 percent of whose patients are indi-
viduals under 18 years of age.’’. 
(2) CONFORMING
AMENDMENT.—The fourth 
sentence 
of 
section 
1881(b)(7) 
(42 
U.S.C. 
1395rr(b)(7)) is amended by striking ‘‘The Sec-
retary’’ and inserting ‘‘Subject to section 422(a)(2) 
of the Medicare, Medicaid, and SCHIP Benefits Im-
provement and Protection Act of 2000, the Sec-
retary’’. 
(c) INCREASE IN RENAL DIALYSIS COMPOSITE RATE 
FOR SERVICES FURNISHED IN 2004.—Notwithstanding 
any other provision of law, with respect to payment under 
part B of title XVIII of the Social Security Act for renal 
dialysis services furnished in 2004, the composite payment 
rate otherwise established under section 1881(b)(7) of 
such Act (42 U.S.C. 1395rr(b)(7)) shall be increased by 
1.2 percent.
SEC. 515. IMPROVED PAYMENT FOR CERTAIN MAMMOG-
RAPHY SERVICES. 
(a) EXCLUSION FROM OPD FEE SCHEDULE.—Sec-
tion 1833(t)(1)(B)(iv) (42 U.S.C. 1395l(t)(1)(B)(iv)) is 
amended by inserting before the period at the end the fol-
lowing: ‘‘and does not include screening mammography (as 
defined in section 1861(jj)) and unilateral and bilateral 
diagnostic mammography’’. 
(b) ADJUSTMENT TO TECHNICAL COMPONENT.—For 
diagnostic mammography performed on or after January 
1, 2004, for which payment is made under the physician 
fee schedule under section 1848 of the Social Security Act 
(42 U.S.C. 1395w–4), the Secretary, based on the most 
recent cost data available, shall provide for an appropriate 
adjustment in the payment amount for the technical com-
ponent of the diagnostic mammography. 
(c) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to mammography performed on 
or after January 1, 2004.
SEC. 516. WAIVER OF PART B LATE ENROLLMENT PENALTY 
FOR CERTAIN MILITARY RETIREES; SPECIAL 
ENROLLMENT PERIOD. 
(a) WAIVER OF PENALTY.—
(1) IN GENERAL.—Section 1839(b) (42 U.S.C. 
1395r(b)) is amended by adding at the end the fol-
lowing new sentence: ‘‘No increase in the premium
100
shall be effected for a month in the case of an indi-
vidual who is 65 years of age or older, who enrolls 
under this part during 2001, 2002, or 2003, and 
who demonstrates to the Secretary before December 
31, 2003, that the individual is a covered beneficiary 
(as defined in section 1072(5) of title 10, United 
States Code). The Secretary of Health and Human 
Services shall consult with the Secretary of Defense 
in identifying individuals described in the previous 
sentence.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to premiums for 
months beginning with January 2003. The Secretary 
of Health and Human Services shall establish a 
method for providing rebates of premium penalties 
paid for months on or after January 2003 for which 
a penalty does not apply under such amendment but 
for which a penalty was previously collected. 
(b) MEDICARE PART B SPECIAL ENROLLMENT PE-
RIOD.—
(1) IN GENERAL.—In the case of any individual 
who, as of the date of the enactment of this Act, is 
65 years of age or older, is eligible to enroll but is 
not enrolled under part B of title XVIII of the So-
cial Security Act, and is a covered beneficiary (as
101
defined in section 1072(5) of title 10, United States 
Code), the Secretary of Health and Human Services 
shall provide for a special enrollment period during 
which the individual may enroll under such part. 
Such period shall begin as soon as possible after the 
date of the enactment of this Act and shall end on 
December 31, 2003. 
(2) COVERAGE PERIOD.—In the case of an indi-
vidual who enrolls during the special enrollment pe-
riod provided under paragraph (1), the coverage pe-
riod under part B of title XVIII of the Social Secu-
rity Act shall begin on the first day of the month 
following the month in which the individual enrolls. 
SEC. 517. COVERAGE OF CHOLESTEROL AND BLOOD LIPID 
SCREENING. 
(a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 
1395x(s)(2)), as amended by section 513(a), is amended—
(1) in subparagraph (V), by striking ‘‘and’’ at 
the end; 
(2) in subparagraph (W), by inserting ‘‘and’’ at 
the end; and 
(3) by adding at the end the following new sub-
paragraph:
102
‘‘(X) cholesterol and other blood lipid 
screening tests (as defined in subsection 
(XX));’’. 
(b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 
1395x), as amended by section 513(b), is amended by add-
ing at the end the following new subsection: 
‘‘Cholesterol and Other Blood Lipid Screening Test 
‘‘(xx)(1) The term ‘cholesterol and other blood lipid 
screening test’ means diagnostic testing of cholesterol and 
other lipid levels of the blood for the purpose of early de-
tection of abnormal cholesterol and other lipid levels. 
‘‘(2) The Secretary shall establish standards, in con-
sultation with appropriate organizations, regarding the 
frequency and type of cholesterol and other blood lipid 
screening tests, except that such frequency may not be 
more often than once every 2 years.’’. 
(c) FREQUENCY.—Section 1862(a)(1) (42 U.S.C. 
1395y(a)(1)), as amended by section 513(e), is amend-
ed—
(1) by striking ‘‘and’’ at the end of subpara-
graph (I); 
(2) by striking the semicolon at the end of sub-
paragraph (J) and inserting ‘‘; and’’; and 
(3) by adding at the end the following new sub-
paragraph:
103
‘‘(K) in the case of a cholesterol and other 
blood lipid screening test (as defined in section 
1861(xx)(1)), which is performed more frequently 
than is covered under section 1861(xx)(2).’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to tests furnished on or after Janu-
ary 1, 2004. 
TITLE VI—PROVISIONS 
RELATING TO PARTS A AND B 
Subtitle A—Home Health Services 
SEC. 601. ELIMINATION OF 15 PERCENT REDUCTION IN 
PAYMENT RATES UNDER THE PROSPECTIVE 
PAYMENT SYSTEM. 
(a) IN GENERAL.—Section 1895(b)(3)(A) (42 U.S.C. 
1395fff(b)(3)(A)) is amended to read as follows: 
‘‘(A) INITIAL BASIS.—Under such system 
the Secretary shall provide for computation of 
a standard prospective payment amount (or 
amounts) as follows: 
‘‘(i) Such amount (or amounts) shall 
initially be based on the most current au-
dited cost report data available to the Sec-
retary and shall be computed in a manner 
so that the total amounts payable under 
the system for fiscal year 2001 shall be
104
equal to the total amount that would have 
been made if the system had not been in 
effect and if section 1861(v)(1)(L)(ix) had 
not been enacted. 
‘‘(ii) For fiscal year 2002 and for the 
first quarter of fiscal year 2003, such 
amount (or amounts) shall be equal to the 
amount (or amounts) determined under 
this paragraph for the previous fiscal year, 
updated under subparagraph (B). 
‘‘(iii) For 2003, such amount (or 
amounts) shall be equal to the amount (or 
amounts) determined under this paragraph 
for fiscal year 2002, updated under sub-
paragraph (B) for 2003. 
‘‘(iv) For 2004 and each subsequent 
year, such amount (or amounts) shall be 
equal to the amount (or amounts) deter-
mined under this paragraph for the pre-
vious year, updated under subparagraph 
(B). 
Each such amount shall be standardized in a 
manner that eliminates the effect of variations 
in relative case mix and area wage adjustments 
among different home health agencies in a
105
budget neutral manner consistent with the case 
mix and wage level adjustments provided under 
paragraph (4)(A). Under the system, the Sec-
retary may recognize regional differences or dif-
ferences based upon whether or not the services 
or agency are in an urbanized area.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall take effect as if included in the 
amendments made by section 501 of the Medicare, Med-
icaid, and SCHIP Benefits Improvement and Protection 
Act of 2000 (as enacted into law by section 1(a)(6) of 
Public Law 106–554). 
SEC. 602. UPDATE IN HOME HEALTH SERVICES. 
(a) CHANGE TO CALENDAR YEAR UPDATE.—
(1) IN GENERAL.—Section 1895(b) (42 U.S.C. 
1395fff(b)(3)) is amended—
(A) in paragraph (3)(B)(i)—
(i) by striking ‘‘each fiscal year (be-
ginning with fiscal year 2002)’’ and insert-
ing ‘‘fiscal year 2002 and for each subse-
quent year (beginning with 2003)’’; and 
(ii) by inserting ‘‘or year’’ after ‘‘the 
fiscal year’’; 
(B) in paragraph (3)(B)(ii)—
106
(i) in subclause (II), by striking ‘‘fis-
cal year’’ and inserting ‘‘year’’ and by re-
designating such subclause as subclause 
(III); and 
(ii) in subclause (I), by striking ‘‘each 
of fiscal years 2002 and 2003’’ and insert-
ing the following: ‘‘fiscal year 2002, the 
home health market basket percentage in-
crease (as defined in clause (iii)) minus 1.1 
percentage points; 
‘‘(II) 2003’’; 
(C) in paragraph (3)(B)(iii), by inserting 
‘‘or year’’ after ‘‘fiscal year’’ each place it ap-
pears; 
(D) in paragraph (3)(B)(iv)—
(i) by inserting ‘‘or year’’ after ‘‘fiscal 
year’’ each place it appears; and 
(ii) by inserting ‘‘or years’’ after ‘‘fis-
cal years’’; and 
(E) in paragraph (5), by inserting ‘‘or 
year’’ after ‘‘fiscal year’’. 
(2) TRANSITION RULE.—The standard prospec-
tive payment amount (or amounts) under section 
1895(b)(3) of the Social Security Act for the cal-
endar quarter beginning on October 1, 2002, shall
107
be such amount (or amounts) for the previous cal-
endar quarter. 
(b) CHANGES IN UPDATES FOR 2003, 2004, AND 
2005.—Section 
1895(b)(3)(B)(ii) 
(42 
U.S.C. 
1395fff(b)(3)(B)(ii)), as amended by subsection (a)(1)(B), 
is amended—
(1) in subclause (II), by striking ‘‘the home 
health market basket percentage increase (as defined 
in clause (iii)) minus 1.1 percentage points’’ and in-
serting ‘‘2.0 percentage points’’; 
(2) by striking ‘‘or’’ at the end of subclause 
(II); 
(3) by redesignating subclause (III) as sub-
clause (V); and 
(4) by inserting after subclause (II) the fol-
lowing new subclause: 
‘‘(III) 
2004, 
1.1 
percentage 
points; 
‘‘(IV) 
2005, 
2.7 
percentage 
points; or’’. 
(c) PAYMENT ADJUSTMENT.—
(1) IN
GENERAL.—Section 1895(b)(5) (42 
U.S.C. 1395fff(b)(5)) is amended by striking ‘‘5 per-
cent’’ and inserting ‘‘3 percent’’.
108
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to years beginning with 
2003.
SEC. 603. OASIS TASK FORCE; SUSPENSION OF CERTAIN 
OASIS DATA COLLECTION REQUIREMENTS 
PENDING TASK FORCE SUBMITTAL OF RE-
PORT. 
(a) ESTABLISHMENT.—The Secretary of Health and 
Human Services shall establish and appoint a task force 
(to be known as the ‘‘OASIS Task Force’’) to examine 
the data collection and reporting requirements under 
OASIS. For purposes of this section, the term ‘‘OASIS’’ 
means the Outcome and Assessment Information Set re-
quired by reason of section 4602(e) of Balanced Budget 
Act of 1997 (42 U.S.C. 1395fff note). 
(b) COMPOSITION.—The OASIS Task Force shall be 
composed of the following: 
(1) Staff of the Centers for Medicare & Med-
icaid Services with expertise in post-acute care. 
(2) Representatives of home health agencies. 
(3) Health care professionals and research and 
health care quality experts outside the Federal Gov-
ernment with expertise in post-acute care. 
(4) Advocates for individuals requiring home 
health services.
109
(c) DUTIES.—
(1) REVIEW
AND
RECOMMENDATIONS.—The 
OASIS Task Force shall review and make rec-
ommendations to the Secretary regarding changes in 
OASIS to improve and simplify data collection for 
purposes of—
(A) assessing the quality of home health 
services; and 
(B) providing consistency in classification 
of patients into home health resource groups 
(HHRGs) for payment under section 1895 of 
the Social Security Act (42 U.S.C. 1395fff). 
(2) SPECIFIC ITEMS.—In conducting the review 
under paragraph (1), the OASIS Task Force shall 
specifically examine—
(A) the 41 outcome measures currently in 
use; 
(B) the timing and frequency of data col-
lection; and 
(C) the collection of information on 
comorbidities and clinical indicators. 
(3) REPORT.—The OASIS Task Force shall 
submit a report to the Secretary containing its find-
ings and recommendations for changes in OASIS by
110
not later than 18 months after the date of the enact-
ment of this Act. 
(d) SUNSET.—The OASIS Task Force shall termi-
nate 60 days after the date on which the report is sub-
mitted under subsection (c)(2). 
(e) NONAPPLICATION OF FACA.—The provisions of 
the Federal Advisory Committee Act shall not apply to 
the OASIS Task Force. 
(f) SUSPENSION OF OASIS REQUIREMENT FOR COL-
LECTION OF DATA ON NON-MEDICARE AND NON-MED-
ICAID PATIENTS PENDING TASK FORCE REPORT.—
(1) IN GENERAL.—During the period described 
in paragraph (2), the Secretary of Health and 
Human Services may not require, under section 
4602(e) of the Balanced Budget Act of 1997 or oth-
erwise under OASIS, a home health agency to gath-
er or submit information that relates to an indi-
vidual who is not eligible for benefits under either 
title XVIII or title XIX of the Social Security Act. 
(2) PERIOD OF SUSPENSION.—The period de-
scribed in this paragraph—
(A) begins on January 1, 2003, and 
(B) ends on the last day of the 2nd month 
beginning after the date the report is submitted 
under subsection (c)(2).
111
SEC. 604. MEDPAC STUDY ON MEDICARE MARGINS OF 
HOME HEALTH AGENCIES. 
(a) STUDY.—The Medicare Payment Advisory Com-
mission shall conduct a study of payment margins of home 
health agencies under the home health prospective pay-
ment system under section 1895 of the Social Security Act 
(42 U.S.C. 1395fff). Such study shall examine whether 
systematic differences in payment margins are related to 
differences in case mix (as measured by home health re-
source groups (HHRGs)) among such agencies. The study 
shall use the partial or full-year cost reports filed by home 
health agencies. 
(b) REPORT.—Not later than 2 years after the date 
of the enactment of this Act, the Commission shall submit 
to Congress a report on the study under subsection (a). 
SEC. 605. CLARIFICATION OF TREATMENT OF OCCASIONAL 
ABSENCES IN DETERMINING WHETHER AN 
INDIVIDUAL IS CONFINED TO THE HOME. 
(a) IN GENERAL.—The penultimate sentence of sec-
tion 1814(a) (42 U.S.C. 1395f(a) and the penultimate 
sentence of section 1835(a) (42 U.S.C. 1395n(a)) are each 
amended to read as follows: ‘‘Any other absence of an indi-
vidual from the home shall not so disqualify the individual 
if the absence is infrequent or of relatively short duration, 
such as an occasional trip to the barber or a walk around 
the block, and is not inconsistent with the assessment un-
112
derlying the individual’s plan of care for home health serv-
ices.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall take effect on the date of the enact-
ment of this Act. 
Subtitle B—Direct Graduate 
Medical Education 
SEC. 611. EXTENSION OF UPDATE LIMITATION ON HIGH 
COST PROGRAMS. 
Section 
1886(h)(2)(D)(iv) 
(42 
U.S.C. 
1395ww(h)(2)(D)(iv)) is amended—
(1) in subclause (I)—
(A) by striking ‘‘AND 2002’’ and inserting 
‘‘THROUGH 2012’’; 
(B) by striking ‘‘during fiscal year 2001 or 
fiscal year 2002’’ and inserting ‘‘during the pe-
riod beginning with fiscal year 2001 and ending 
with fiscal year 2012’’; and
(C) by striking ‘‘subject to subclause 
(III),’’; 
(2) by striking subclause (II); and 
(3) in subclause (III)—
(A) by redesignating such subclause as 
subclause (II); and 
(B) by striking ‘‘or (II)’’.
113
SEC. 612. REDISTRIBUTION OF UNUSED RESIDENT POSI-
TIONS. 
(a) IN GENERAL.—Section 1886(h)(4) (42 U.S.C. 
1395ww(h)(4)) is amended—
(1) in subparagraph (F)(i), by inserting ‘‘sub-
ject to subparagraph (I),’’ after ‘‘October 1, 1997,’’; 
(2) in subparagraph (H)(i), by inserting ‘‘sub-
ject to subparagraph (I),’’ after ‘‘subparagraphs (F) 
and (G),’’; and 
(3) by adding at the end the following new sub-
paragraph: 
‘‘(I) REDISTRIBUTION
OF
UNUSED
RESI-
DENT POSITIONS.—
‘‘(i) REDUCTION IN LIMIT BASED ON 
UNUSED POSITIONS.—
‘‘(I) IN
GENERAL.—If a hos-
pital’s resident level (as defined in 
clause (iii)(I)) is less than the other-
wise applicable resident limit (as de-
fined in clause (iii)(II)) for each of 
the reference periods (as defined in 
subclause (II)), effective for cost re-
porting periods beginning on or after 
January 1, 2003, the otherwise appli-
cable resident limit shall be reduced 
by 75 percent of the difference be-
114
tween such limit and the reference 
resident level specified in subclause 
(III) (or subclause (IV) if applicable). 
‘‘(II) REFERENCE PERIODS DE-
FINED.—In this clause, the term ‘ref-
erence periods’ means, for a hospital, 
the 3 most recent consecutive cost re-
porting periods of the hospital for 
which cost reports have been settled 
(or, if not, submitted) on or before 
September 30, 2001. 
‘‘(III) 
REFERENCE
RESIDENT 
LEVEL.—Subject to subclause (IV), 
the reference resident level specified in 
this subclause for a hospital is the 
highest resident level for the hospital 
during any of the reference periods. 
‘‘(IV) ADJUSTMENT PROCESS.—
Upon the timely request of a hospital, 
the Secretary may adjust the ref-
erence resident level for a hospital to 
be the resident level for the hospital 
for the cost reporting period that in-
cludes July 1, 2002. 
‘‘(ii) REDISTRIBUTION.—
115
‘‘(I) IN
GENERAL.—The Sec-
retary is authorized to increase the 
otherwise applicable resident limits for 
hospitals by an aggregate number es-
timated by the Secretary that does 
not exceed the aggregate reduction in 
such limits attributable to clause (i) 
(without taking into account any ad-
justment under subclause (IV) of such 
clause). 
‘‘(II) EFFECTIVE DATE.—No in-
crease under subclause (I) shall be 
permitted or taken into account for a 
hospital for any portion of a cost re-
porting period that occurs before July 
1, 2003, or before the date of the hos-
pital’s application for an increase 
under this clause. No such increase 
shall be permitted for a hospital un-
less the hospital has applied to the 
Secretary for such increase by Decem-
ber 31, 2004. 
‘‘(III) CONSIDERATIONS
IN
RE-
DISTRIBUTION.—In determining for 
which hospitals the increase in the
116
otherwise applicable resident limit is 
provided under subclause (I), the Sec-
retary shall take into account the 
need for such an increase by specialty 
and location involved, consistent with 
subclause (IV). 
‘‘(IV) PRIORITY FOR RURAL AND 
SMALL
URBAN
AREAS.—In 
deter-
mining for which hospitals and resi-
dency training programs an increase 
in the otherwise applicable resident 
limit is provided under subclause (I), 
the Secretary shall first distribute the 
increase to programs of hospitals lo-
cated in rural areas or in urban areas 
that are not large urban areas (as de-
fined for purposes of subsection (d)) 
on a first-come-first-served basis (as 
determined by the Secretary) based on 
a demonstration that the hospital will 
fill the positions made available under 
this clause and not to exceed an in-
crease of 25 full-time equivalent posi-
tions with respect to any hospital.
117
‘‘(V) APPLICATION OF LOCALITY 
ADJUSTED
NATIONAL
AVERAGE
PER 
RESIDENT AMOUNT.—With respect to 
additional residency positions in a 
hospital attributable to the increase 
provided under this clause, notwith-
standing any other provision of this 
subsection, the approved FTE resi-
dent amount is deemed to be equal to 
the locality adjusted national average 
per resident amount computed under 
subparagraph (E) for that hospital. 
‘‘(VI) CONSTRUCTION.—Nothing 
in this clause shall be construed as 
permitting the redistribution of reduc-
tions in residency positions attrib-
utable to voluntary reduction pro-
grams under paragraph (6) or as af-
fecting the ability of a hospital to es-
tablish new medical residency training 
programs under subparagraph (H). 
‘‘(iii) RESIDENT
LEVEL
AND
LIMIT 
DEFINED.—In this subparagraph:
‘‘(I) 
RESIDENT
LEVEL.—The 
term ‘resident level’ means, with re-
118
spect to a hospital, the total number 
of full-time equivalent residents, be-
fore the application of weighting fac-
tors (as determined under this para-
graph), in the fields of allopathic and 
osteopathic medicine for the hospital. 
‘‘(II) OTHERWISE
APPLICABLE 
RESIDENT
LIMIT.—The term ‘other-
wise applicable resident limit’ means, 
with respect to a hospital, the limit 
otherwise applicable under subpara-
graphs (F)(i) and (H) on the resident 
level for the hospital determined with-
out regard to this subparagraph.’’. 
(b) NO APPLICATION OF INCREASE TO IME.—Sec-
tion 1886(d)(5)(B)(v) (42 U.S.C. 1395ww(d)(5)(B)(v)) is 
amended by adding at the end the following: ‘‘The provi-
sions of clause (i) of subparagraph (I) of subsection (h)(4) 
shall apply with respect to the first sentence of this clause 
in the same manner as it applies with respect to subpara-
graph (F) of such subsection, but the provisions of clause 
(ii) of such subparagraph shall not apply.’’. 
(c) REPORT
ON
EXTENSION
OF
APPLICATIONS 
UNDER REDISTRIBUTION PROGRAM.—Not later than July 
1, 2004, the Secretary shall submit to Congress a report
119
containing recommendations regarding whether to extend 
the deadline for applications for an increase in resident 
limits under section 1886(h)(4)(I)(ii)(II) of the Social Se-
curity Act (as added by subsection (a)). 
Subtitle C—Other Provisions 
SEC. 621. MODIFICATIONS TO MEDICARE PAYMENT ADVI-
SORY COMMISSION (MEDPAC). 
(a) EXAMINATION OF BUDGET CONSEQUENCES.—
Section 1805(b) (42 U.S.C. 1395b–6(b)) is amended by 
adding at the end the following new paragraph: 
‘‘(8) 
EXAMINATION
OF
BUDGET
CON-
SEQUENCES.—Before making any recommendations, 
the Commission shall examine the budget con-
sequences of such recommendations, directly or 
through consultation with appropriate expert enti-
ties.’’. 
(b) CONSIDERATION OF EFFICIENT PROVISION OF 
SERVICES.—Section 1805(b)(2)(B)(i) (42 U.S.C. 1395b–
6(b)(2)(B)(i)) is amended by inserting ‘‘the efficient provi-
sion of’’ after ‘‘expenditures for’’. 
(c) ADDITIONAL REPORTS.—
(1) DATA NEEDS AND SOURCES.—The Medicare 
Payment Advisory Commission shall conduct a 
study, and submit a report to Congress by not later 
than June 1, 2003, on the need for current data,
120
and sources of current data available, to determine 
the solvency and financial circumstances of hospitals 
and other medicare providers of services. The Com-
mission shall examine data on uncompensated care, 
as well as the share of uncompensated care ac-
counted for by the expenses for treating illegal 
aliens. 
(2) USE
OF
TAX-RELATED
RETURNS.—Using 
return information provided under Form 990 of the 
Internal Revenue Service, the Commission shall sub-
mit to Congress, by not later than June 1, 2003, a 
report on the following: 
(A) Investments and capital financing of 
hospitals participating under the medicare pro-
gram and related foundations. 
(B) Access to capital financing for private 
and for not-for-profit hospitals. 
SEC. 622. DEMONSTRATION PROJECT FOR DISEASE MAN-
AGEMENT FOR CERTAIN MEDICARE BENE-
FICIARIES WITH DIABETES. 
(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 impact on costs and health 
outcomes of applying disease management to certain medi-
121
care beneficiaries with diagnosed diabetes. In no case may 
the number of participants in the project exceed 30,000 
at any time. 
(b) VOLUNTARY PARTICIPATION.—
(1) ELIGIBILITY.—Medicare beneficiaries are 
eligible to participate in the project only if—
(A) they are a member of a health dis-
parity 
population 
(as 
defined 
in 
section 
485E(d) of the Public Health Service Act), 
such as Hispanics; 
(B) they meet specific medical criteria 
demonstrating the appropriate diagnosis and 
the advanced nature of their disease; 
(C) their physicians approve of participa-
tion in the project; and 
(D) 
they 
are 
not 
enrolled 
in 
a 
Medicare+Choice plan. 
(2) BENEFITS.—A medicare beneficiary who is 
enrolled in the project shall be eligible—
(A) for disease management services re-
lated to their diabetes; and 
(B) for payment for all costs for prescrip-
tion drugs without regard to whether or not 
they relate to the diabetes, except that the
122
project may provide for modest cost-sharing 
with respect to prescription drug coverage. 
(c) CONTRACTS WITH DISEASE MANAGEMENT ORGA-
NIZATIONS.—
(1) IN GENERAL.—The Secretary of Health and 
Human Services shall carry out the project through 
contracts with up to three disease management orga-
nizations. The Secretary shall not enter into such a 
contract with an organization unless the organiza-
tion demonstrates that it can produce improved 
health outcomes and reduce aggregate medicare ex-
penditures consistent with paragraph (2). 
(2) CONTRACT PROVISIONS.—Under such con-
tracts—
(A) such an organization shall be required 
to provide for prescription drug coverage de-
scribed in subsection (b)(2)(B); 
(B) such an organization shall be paid a 
fee negotiated and established by the Secretary 
in a manner so that (taking into account sav-
ings in expenditures under parts A and B of 
the medicare program under title XVIII of the 
Social Security Act) there will be no net in-
crease, and to the extent practicable, there will 
be a net reduction in expenditures under the
123
medicare program as a result of the project; 
and 
(C) such an organization shall guarantee, 
through an appropriate arrangement with a re-
insurance company or otherwise, the prohibition 
on net increases in expenditures described in 
subparagraph (B). 
(3) PAYMENTS.—Payments to such organiza-
tions shall be made in appropriate proportion from 
the Trust Funds established under title XVIII of the 
Social Security Act. 
(d) APPLICATION
OF MEDIGAP PROTECTIONS
TO 
DEMONSTRATION PROJECT ENROLLEES.—(1) Subject to 
paragraph (2), the provisions of section 1882(s)(3) (other 
than clauses (i) through (iv) of subparagraph (B)) and 
1882(s)(4) of the Social Security Act shall apply to enroll-
ment (and termination of enrollment) in the demonstra-
tion project under this section, in the same manner as they 
apply to enrollment (and termination of enrollment) with 
a Medicare+Choice organization in a Medicare+Choice 
plan. 
(2) In applying paragraph (1)—
(A) any reference in clause (v) or (vi) of section 
1882(s)(3)(B) of such Act to 12 months is deemed
124
a reference to the period of the demonstration 
project; and 
(B) the notification required under section 
1882(s)(3)(D) of such Act shall be provided in a 
manner specified by the Secretary of Health and 
Human Services. 
(e) DURATION.—The project shall last for not longer 
than 3 years. 
(f) 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 (c)(3). 
(g) REPORT.—The Secretary of Health and Human 
Services shall submit to Congress an interim report on the 
project not later than 2 years after the date it is first im-
plemented and a final 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 
costs and health outcomes and recommendations on the 
cost-effectiveness of extending or expanding the project. 
(h) WORKING GROUP ON MEDICARE DISEASE MAN-
AGEMENT
PROGRAMS.—The Secretary shall establish 
within the Department of Health and Human Services a
125
working group consisting of employees of the Department 
to carry out the following: 
(1) To oversee the project. 
(2) To establish policy and criteria for medicare 
disease management programs within the Depart-
ment, including the establishment of policy and cri-
teria for such programs. 
(3) To identify targeted medical conditions and 
targeted individuals. 
(4) To select areas in which such programs are 
carried out. 
(5) To monitor health outcomes under such 
programs. 
(6) To measure the effectiveness of such pro-
grams in meeting any budget neutrality require-
ments. 
(7) Otherwise to serve as a central focal point 
within the Department for dissemination of informa-
tion on medicare disease management programs. 
(i) GAO STUDY ON DISEASE MANAGEMENT PRO-
GRAMS.—The Comptroller General of the United States 
shall conduct a study that compares disease management 
programs under title XVIII of the Social Security Act with 
such programs conducted in the private sector, including 
the prevalence of such programs and programs for case
126
management. The study shall identify the cost-effective-
ness of such programs and any savings achieved by such 
programs. The Comptroller General shall submit a report 
on such study to Congress by not later than 18 months 
after the date of the enactment of this Act. 
SEC. 623. DEMONSTRATION PROJECT FOR MEDICAL ADULT 
DAY CARE SERVICES. 
(a) ESTABLISHMENT.—Subject to the succeeding 
provisions of this section, the Secretary of Health and 
Human Services shall establish a demonstration project 
(in this section referred to as the ‘‘demonstration project’’) 
under which the Secretary shall, as part of a plan of an 
episode of care for home health services established for 
a medicare beneficiary, permit a home health agency, di-
rectly or under arrangements with a medical adult day 
care facility, to provide medical adult day care services as 
a substitute for a portion of home health services that 
would otherwise be provided in the beneficiary’s home. 
(b) PAYMENT.—
(1) IN GENERAL.—The amount of payment for 
an episode of care for home health services, a por-
tion of which consists of substitute medical adult 
day care services, under the demonstration project 
shall be made at a rate equal to 95 percent of the 
amount that would otherwise apply for such home
127
health services under section 1895 of the Social Se-
curity Act (42 U.S.C. 1395fff). In no case may a 
home health agency, or a medical adult day care fa-
cility under arrangements with a home health agen-
cy, separately charge a beneficiary for medical adult 
day care services furnished under the plan of care. 
(2) BUDGET
NEUTRALITY
FOR
DEMONSTRA-
TION PROJECT.—Notwithstanding any other provi-
sion of law, the Secretary shall provide for an appro-
priate reduction in the aggregate amount of addi-
tional payments made under section 1895 of the So-
cial Security Act (42 U.S.C. 1395fff) to reflect any 
increase in amounts expended from the Trust Funds 
as a result of the demonstration project conducted 
under this section. 
(c) DEMONSTRATION PROJECT SITES.—The project 
established under this section shall be conducted in not 
more than 5 States selected by the Secretary that license 
or certify providers of services that furnish medical adult 
day care services.
(d) DURATION.—The Secretary shall conduct the 
demonstration project for a period of 3 years. 
(e) VOLUNTARY PARTICIPATION.—Participation of 
medicare beneficiaries in the demonstration project shall 
be voluntary. The total number of such beneficiaries that
128
may participate in the project at any given time may not 
exceed 15,000. 
(f) PREFERENCE IN SELECTING AGENCIES.—In se-
lecting home health agencies to participate under the dem-
onstration project, the Secretary shall give preference to 
those agencies that are currently licensed or certified 
through common ownership and control to furnish medical 
adult day care services. 
(g) WAIVER AUTHORITY.—The Secretary may waive 
such requirements of title XVIII of the Social Security Act 
as may be necessary for the purposes of carrying out the 
demonstration project, other than waiving the requirement 
that an individual be homebound in order to be eligible 
for benefits for home health services. 
(h) EVALUATION AND REPORT.—The Secretary shall 
conduct an evaluation of the clinical and cost effectiveness 
of the demonstration project. Not later 30 months after 
the commencement of the project, the Secretary shall sub-
mit to Congress a report on the evaluation, and shall in-
clude in the report the following: 
(1) An analysis of the patient outcomes and 
costs of furnishing care to the medicare beneficiaries 
participating in the project as compared to such out-
comes and costs to beneficiaries receiving only home 
health services for the same health conditions.
129
(2) Such recommendations regarding the exten-
sion, expansion, or termination of the project as the 
Secretary determines appropriate. 
(i) DEFINITIONS.—In this section: 
(1) HOME HEALTH AGENCY.—The term ‘‘home 
health agency’’ has the meaning given such term in 
section 1861(o) of the Social Security Act (42 
U.S.C. 1395x(o)). 
(2) MEDICAL ADULT DAY CARE FACILITY.—The 
term ‘‘medical adult day care facility’’ means a facil-
ity that—
(A) has been licensed or certified by a 
State to furnish medical adult day care services 
in the State for a continuous 2-year period; 
(B) is engaged in providing skilled nursing 
services and other therapeutic services directly 
or under arrangement with a home health agen-
cy; 
(C) meets such standards established by 
the Secretary to assure quality of care and such 
other requirements as the Secretary finds nec-
essary in the interest of the health and safety 
of individuals who are furnished services in the 
facility; and
130
(D) provides medical adult day care serv-
ices. 
(3) MEDICAL
ADULT
DAY
CARE
SERVICES.—
The term ‘‘medical adult day care services’’ means—
(A) home health service items and services 
described in paragraphs (1) through (7) of sec-
tion 1861(m) furnished in a medical adult day 
care facility; 
(B) a program of supervised activities fur-
nished in a group setting in the facility that—
(i) meet such criteria as the Secretary 
determines appropriate; and 
(ii) is designed to promote physical 
and mental health of the individuals; and 
(C) such other services as the Secretary 
may specify. 
(4) 
MEDICARE
BENEFICIARY.—The 
term 
‘‘medicare beneficiary’’ means an individual entitled 
to benefits under part A of this title, enrolled under 
part B of this title, or both.
131
SEC. 624. PUBLICATION ON FINAL WRITTEN GUIDANCE 
CONCERNING PROHIBITIONS AGAINST DIS-
CRIMINATION BY NATIONAL ORIGIN WITH 
RESPECT TO HEALTH CARE SERVICES. 
Not later than January 1, 2003, the Secretary shall 
issue final written guidance concerning the application of 
the prohibition in title VI of the Civil Rights Act of 1964 
against national origin discrimination as it affects persons 
with limited English proficiency with respect to access to 
health care services under the medicare program.
TITLE VII—MEDICARE BENEFITS 
ADMINISTRATION
SEC. 701. ESTABLISHMENT OF MEDICARE BENEFITS AD-
MINISTRATION. 
(a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et 
seq.) is amended by inserting after 1806 the following new 
section: 
‘‘MEDICARE BENEFITS ADMINISTRATION 
‘‘SEC. 1807. (a) ESTABLISHMENT.—There is estab-
lished within the Department of Health and Human Serv-
ices an agency to be known as the Medicare Benefits Ad-
ministration. 
‘‘(b) ADMINISTRATOR; DEPUTY
ADMINISTRATOR; 
CHIEF ACTUARY.—
‘‘(1) ADMINISTRATOR.—
136
under section 5382(b) of title 5, United States 
Code. 
‘‘(C) DUTIES.—The Chief Actuary shall 
exercise such duties as are appropriate for the 
office of the Chief Actuary and in accordance 
with professional standards of actuarial inde-
pendence. 
‘‘(4) SECRETARIAL COORDINATION OF PROGRAM 
ADMINISTRATION.—The Secretary shall ensure ap-
propriate coordination between the Administrator 
and the Administrator of the Centers for Medicare 
& Medicaid Services in carrying out the programs 
under this title. 
‘‘(c) DUTIES; ADMINISTRATIVE PROVISIONS.—
‘‘(1) DUTIES.—
‘‘(A) GENERAL
DUTIES.—The Adminis-
trator shall carry out part C, including negoti-
ating, entering into, and enforcing, contracts 
with plans for the offering of Medicare+Choice 
plans under part C. 
‘‘(B) OTHER DUTIES.—The Administrator 
shall carry out any duty provided for under 
part C, including demonstration projects carried 
out in part or in whole under such parts, the 
programs of all-inclusive care for the elderly
137
(PACE program) under section 1894, the social 
health maintenance organization (SHMO) dem-
onstration projects (referred to in section 
4104(c) of the Balanced Budget Act of 1997), 
and through a Medicare+Choice project that 
demonstrates the application of capitation pay-
ment rates for frail elderly medicare bene-
ficiaries through the use of a interdisciplinary 
team and through the provision of primary care 
services to such beneficiaries by means of such 
a team at the nursing facility involved). 
‘‘(C) ANNUAL REPORTS.—Not later March 
31 of each year, the Administrator shall submit 
to Congress and the President a report on the 
administration of part C during the previous 
fiscal year. 
‘‘(2) STAFF.—
‘‘(A) IN
GENERAL.—The Administrator, 
with the approval of the Secretary, may employ, 
without regard to chapter 31 of title 5, United 
States Code, other than sections 3110 and 
3112, such officers and employees as are nec-
essary to administer the activities to be carried 
out through the Medicare Benefits Administra-
tion. The Administrator shall employ staff with
138
appropriate and necessary expertise in negoti-
ating contracts in the private sector. 
‘‘(B) FLEXIBILITY WITH RESPECT TO COM-
PENSATION.—
‘‘(i) IN GENERAL.—The staff of the 
Medicare Benefits Administration shall, 
subject to clause (ii), be paid without re-
gard to the provisions of chapter 51 (other 
than section 5101) and chapter 53 (other 
than section 5301) of such title (relating to 
classification and schedule pay rates). 
‘‘(ii) MAXIMUM
RATE.—In no case 
may the rate of compensation determined 
under clause (i) exceed the rate of basic 
pay payable for level IV of the Executive 
Schedule under section 5315 of title 5, 
United States Code. 
‘‘(C) LIMITATION ON FULL-TIME EQUIVA-
LENT STAFFING FOR CURRENT CMS FUNCTIONS 
BEING TRANSFERRED.—The Administrator may 
not employ under this paragraph a number of 
full-time equivalent employees, to carry out 
functions that were previously conducted by the 
Centers for Medicare & Medicaid Services and 
that are conducted by the Administrator by rea-
139
son of this section, that exceeds the number of 
such full-time equivalent employees authorized 
to be employed by the Centers for Medicare & 
Medicaid Services to conduct such functions as 
of the date of the enactment of this Act. 
‘‘(3) REDELEGATION OF CERTAIN FUNCTIONS 
OF THE CENTERS FOR MEDICARE & MEDICAID SERV-
ICES.—
‘‘(A) IN
GENERAL.—The Secretary, the 
Administrator, and the Administrator of the 
Centers for Medicare & Medicaid Services shall 
establish an appropriate transition of responsi-
bility in order to redelegate the administration 
of part C from the Secretary and the Adminis-
trator of the Centers for Medicare & Medicaid 
Services to the Administrator as is appropriate 
to carry out the purposes of this section. 
‘‘(B) TRANSFER OF DATA AND INFORMA-
TION.—The Secretary shall ensure that the Ad-
ministrator of the Centers for Medicare & Med-
icaid Services transfers to the Administrator of 
the Medicare Benefits Administration such in-
formation and data in the possession of the Ad-
ministrator of the Centers for Medicare & Med-
icaid Services as the Administrator of the Medi-
140
care Benefits Administration requires to carry 
out the duties described in paragraph (1). 
‘‘(C) CONSTRUCTION.—Insofar as a re-
sponsibility of the Secretary or the Adminis-
trator of the Centers for Medicare & Medicaid 
Services is redelegated to the Administrator 
under this section, any reference to the Sec-
retary or the Administrator of the Centers for 
Medicare & Medicaid Services in this title or 
title XI with respect to such responsibility is 
deemed to be a reference to the Administrator.
‘‘(d) OFFICE OF BENEFICIARY ASSISTANCE.—
‘‘(1) ESTABLISHMENT.—The Secretary shall es-
tablish within the Medicare Benefits Administration 
an Office of Beneficiary Assistance to coordinate 
functions relating to outreach and education of 
medicare beneficiaries under this title, including the 
functions described in paragraph (2). The Office 
shall be separate operating division within the Ad-
ministration. 
‘‘(2) DISSEMINATION
OF
INFORMATION
ON 
BENEFITS AND APPEALS RIGHTS.—
‘‘(A) DISSEMINATION OF BENEFITS INFOR-
MATION.—The Office of Beneficiary Assistance 
shall disseminate, directly or through contract,
141
to medicare beneficiaries, by mail, by posting on 
the Internet site of the Medicare Benefits Ad-
ministration and through a toll-free telephone 
number, information with respect to the fol-
lowing: 
‘‘(i) Benefits, and limitations on pay-
ment (including cost-sharing, stop-loss pro-
visions, and formulary restrictions) under 
parts C and D. 
‘‘(ii) Benefits, and limitations on pay-
ment under parts A and B, including in-
formation on medicare supplemental poli-
cies under section 1882. 
Such information shall be presented in a man-
ner so that medicare beneficiaries may compare 
benefits under parts A, B, D, and medicare 
supplemental 
policies 
with 
benefits 
under 
Medicare+Choice plans under part C. 
‘‘(B) DISSEMINATION OF APPEALS RIGHTS 
INFORMATION.—The Office of Beneficiary As-
sistance shall disseminate to medicare bene-
ficiaries in the manner provided under subpara-
graph (A) a description of procedural rights (in-
cluding grievance and appeals procedures) of 
beneficiaries under the original medicare fee-
142
for-service program under parts A and B, the 
Medicare+Choice program under part C. 
‘‘(e) MEDICARE POLICY ADVISORY BOARD.—
‘‘(1) ESTABLISHMENT.—There is established 
within the Medicare Benefits Administration the 
Medicare Policy Advisory Board (in this section re-
ferred to the ‘Board’). The Board shall advise, con-
sult with, and make recommendations to the Admin-
istrator of the Medicare Benefits Administration 
with respect to the administration of parts C and D, 
including the review of payment policies under such 
parts. 
‘‘(2) REPORTS.—
‘‘(A) IN GENERAL.—With respect to mat-
ters of the administration of parts C and D, the 
Board shall submit to Congress and to the Ad-
ministrator of the Medicare Benefits Adminis-
tration such reports as the Board determines 
appropriate. Each such report may contain such 
recommendations as the Board determines ap-
propriate 
for 
legislative 
or 
administrative 
changes to improve the administration of such 
parts, including the topics described in subpara-
graph (B). Each such report shall be published 
in the Federal Register.
143
‘‘(B) TOPICS
DESCRIBED.—Reports re-
quired under subparagraph (A) may include the 
following topics: 
‘‘(i) FOSTERING COMPETITION.—Rec-
ommendations or proposals to increase 
competition under parts C and D for serv-
ices furnished to medicare beneficiaries. 
‘‘(ii) 
EDUCATION
AND
ENROLL-
MENT.—Recommendations for the im-
provement to efforts to provide medicare 
beneficiaries information and education on 
the program under this title, and specifi-
cally parts C and D, and the program for 
enrollment under the title. 
‘‘(iii) IMPLEMENTATION OF RISK-AD-
JUSTMENT.—Evaluation of the implemen-
tation under section 1853(a)(3)(C) of the 
risk adjustment methodology to payment 
rates 
under 
that 
section 
to 
Medicare+Choice organizations offering 
Medicare+Choice plans that accounts for 
variations in per capita costs based on 
health status and other demographic fac-
tors.
144
‘‘(iv) DISEASE
MANAGEMENT
PRO-
GRAMS.—Recommendations on the incor-
poration of disease management programs 
under parts C and D. 
‘‘(v) RURAL
ACCESS.—Recommenda-
tions to improve competition and access to 
plans under parts C and D in rural areas. 
‘‘(C) MAINTAINING
INDEPENDENCE
OF 
BOARD.—The Board shall directly submit to 
Congress reports required under subparagraph 
(A). No officer or agency of the United States 
may require the Board to submit to any officer 
or agency of the United States for approval, 
comments, or review, prior to the submission to 
Congress of such reports. 
‘‘(3) DUTY OF ADMINISTRATOR OF MEDICARE 
BENEFITS ADMINISTRATION.—With respect to any 
report submitted by the Board under paragraph 
(2)(A), not later than 90 days after the report is 
submitted, the Administrator of the Medicare Bene-
fits Administration shall submit to Congress and the 
President an analysis of recommendations made by 
the Board in such report. Each such analysis shall 
be published in the Federal Register. 
‘‘(4) MEMBERSHIP.—
145
‘‘(A) APPOINTMENT.—Subject to the suc-
ceeding provisions of this paragraph, the Board 
shall consist of seven members to be appointed 
as follows: 
‘‘(i) Three members shall be ap-
pointed by the President. 
‘‘(ii) Two members shall be appointed 
by the Speaker of the House of Represent-
atives, with the advice of the chairmen and 
the ranking minority members of the Com-
mittees on Ways and Means and on En-
ergy and Commerce of the House of Rep-
resentatives. 
‘‘(iii) Two members shall be appointed 
by the President pro tempore of the Senate 
with the advice of the chairman and the 
ranking minority member of the Senate 
Committee on Finance. 
‘‘(B) 
QUALIFICATIONS.—The 
members 
shall be chosen on the basis of their integrity, 
impartiality, and good judgment, and shall be 
individuals who are, by reason of their edu-
cation and experience in health care benefits 
management, exceptionally qualified to perform 
the duties of members of the Board.
146
‘‘(C) PROHIBITION ON INCLUSION OF FED-
ERAL EMPLOYEES.—No officer or employee of 
the United States may serve as a member of 
the Board. 
‘‘(5) COMPENSATION.—Members of the Board 
shall receive, for each day (including travel time) 
they are engaged in the performance of the functions 
of the board, compensation at rates not to exceed 
the daily equivalent to the annual rate in effect for 
level IV of the Executive Schedule under section 
5315 of title 5, United States Code. 
‘‘(6) TERMS OF OFFICE.—
‘‘(A) IN GENERAL.—The term of office of 
members of the Board shall be 3 years. 
‘‘(B) TERMS OF INITIAL APPOINTEES.—As 
designated by the President at the time of ap-
pointment, of the members first appointed—
‘‘(i) one shall be appointed for a term 
of 1 year; 
‘‘(ii) three shall be appointed for 
terms of 2 years; and 
‘‘(iii) three shall be appointed for 
terms of 3 years.
147
‘‘(C) REAPPOINTMENTS.—Any person ap-
pointed as a member of the Board may not 
serve for more than 8 years. 
‘‘(D) VACANCY.—Any member appointed 
to fill a vacancy occurring before the expiration 
of the term for which the member’s predecessor 
was appointed shall be appointed only for the 
remainder of that term. A member may serve 
after the expiration of that member’s term until 
a successor has taken office. A vacancy in the 
Board shall be filled in the manner in which the 
original appointment was made. 
‘‘(7) CHAIR.—The Chair of the Board shall be 
elected by the members. The term of office of the 
Chair shall be 3 years. 
‘‘(8) MEETINGS.—The Board shall meet at the 
call of the Chair, but in no event less than three 
times during each fiscal year. 
‘‘(9) DIRECTOR AND STAFF.—
‘‘(A) APPOINTMENT
OF
DIRECTOR.—The 
Board shall have a Director who shall be ap-
pointed by the Chair. 
‘‘(B) IN GENERAL.—With the approval of 
the Board, the Director may appoint, without 
regard to chapter 31 of title 5, United States
148
Code, such additional personnel as the Director 
considers appropriate.
‘‘(C) FLEXIBILITY WITH RESPECT TO COM-
PENSATION.—
‘‘(i) IN GENERAL.—The Director and 
staff of the Board shall, subject to clause 
(ii), be paid without regard to the provi-
sions of chapter 51 and chapter 53 of such 
title (relating to classification and schedule 
pay rates). 
‘‘(ii) MAXIMUM
RATE.—In no case 
may the rate of compensation determined 
under clause (i) exceed the rate of basic 
pay payable for level IV of the Executive 
Schedule under section 5315 of title 5, 
United States Code. 
‘‘(D) ASSISTANCE
FROM
THE
ADMINIS-
TRATOR OF THE MEDICARE BENEFITS ADMINIS-
TRATION.—The Administrator of the Medicare 
Benefits Administration shall make available to 
the Board such information and other assist-
ance as it may require to carry out its func-
tions. 
‘‘(10) CONTRACT AUTHORITY.—The Board may 
contract with and compensate government and pri-
149
vate agencies or persons to carry out its duties 
under this subsection, without regard to section 
3709 of the Revised Statutes (41 U.S.C. 5). 
‘‘(f) FUNDING.—There is authorized to be appro-
priated, in appropriate part from the Federal Hospital In-
surance Trust Fund and from the Federal Supplementary 
Medical Insurance Trust Fund, such sums as are nec-
essary to carry out this section.’’. 
(b) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendment made by 
subsection (a) shall take effect on the date of the en-
actment of this Act. 
(2) TIMING OF INITIAL APPOINTMENTS.—The 
Administrator and Deputy Administrator of the 
Medicare Benefits Administration may not be ap-
pointed before March 1, 2003. 
(3) DUTIES WITH RESPECT TO ELIGIBILITY DE-
TERMINATIONS
AND
ENROLLMENT.—The Adminis-
trator of the Medicare Benefits Administration shall 
carry out enrollment under title XVIII of the Social 
Security Act, make eligibility determinations under 
such title, and carry out part C of such title for 
years beginning or after January 1, 2005. 
(4) TRANSITION.—Before the date the Adminis-
trator of the Medicare Benefits Administration is
150
appointed and assumes responsibilities under this 
section and section 1807 of the Social Security Act, 
the Secretary of Health and Human Services shall 
provide for the conduct of any responsibilities of 
such Administrator that are otherwise provided 
under law. 
(c) 
MISCELLANEOUS
ADMINISTRATIVE
PROVI-
SIONS.—
(1) ADMINISTRATOR
AS
MEMBER
OF
THE 
BOARD
OF
TRUSTEES
OF
THE
MEDICARE
TRUST 
FUNDS.—Section 1817(b) and section 1841(b) (42 
U.S.C. 1395i(b), 1395t(b)) are each amended by 
striking ‘‘and the Secretary of Health and Human 
Services, all ex officio,’’ and inserting ‘‘the Secretary 
of Health and Human Services, and the Adminis-
trator of the Medicare Benefits Administration, all 
ex officio,’’. 
(2) INCREASE IN GRADE TO EXECUTIVE LEVEL 
III FOR THE ADMINISTRATOR OF THE CENTERS FOR 
MEDICARE & MEDICAID SERVICES; LEVEL FOR MEDI-
CARE BENEFITS ADMINISTRATOR.—
(A) IN GENERAL.—Section 5314 of title 5, 
United States Code, by adding at the end the 
following:
151
‘‘Administrator of the Centers for Medicare & 
Medicaid Services. 
‘‘Administrator of the Medicare Benefits Ad-
ministration.’’. 
(B) CONFORMING
AMENDMENT.—Section 
5315 of such title is amended by striking ‘‘Ad-
ministrator of the Health Care Financing Ad-
ministration.’’. 
(C) EFFECTIVE DATE.—The amendments 
made by this paragraph take effect on January 
1, 2003. 
TITLE 
VIII—REGULATORY 
RE-
DUCTION AND CONTRACTING 
REFORM 
Subtitle A—Regulatory Reform 
SEC. 801. CONSTRUCTION; DEFINITION OF SUPPLIER. 
(a) CONSTRUCTION.—Nothing in this title shall be 
construed—
(1) to compromise or affect existing legal rem-
edies for addressing fraud or abuse, whether it be 
criminal prosecution, civil enforcement, or adminis-
trative remedies, including under sections 3729 
through 3733 of title 31, United States Code 
(known as the False Claims Act); or
152
(2) to prevent or impede the Department of 
Health and Human Services in any way from its on-
going efforts to eliminate waste, fraud, and abuse in 
the medicare program. 
Furthermore, the consolidation of medicare administrative 
contracting set forth in this Act does not constitute con-
solidation of the Federal Hospital Insurance Trust Fund 
and the Federal Supplementary Medical Insurance Trust 
Fund or reflect any position on that issue. 
(b) DEFINITION OF SUPPLIER.—Section 1861 (42 
U.S.C. 1395x) is amended by inserting after subsection 
(c) the following new subsection: 
‘‘Supplier 
‘‘(d) The term ‘supplier’ means, unless the context 
otherwise requires, a physician or other practitioner, a fa-
cility, or other entity (other than a provider of services) 
that furnishes items or services under this title.’’. 
SEC. 802. ISSUANCE OF REGULATIONS. 
(a) CONSOLIDATION OF PROMULGATION TO ONCE A 
MONTH.—
(1) IN
GENERAL.—Section 1871 (42 U.S.C. 
1395hh) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(d)(1) Subject to paragraph (2), the Secretary shall 
issue proposed or final (including interim final) regula-
153
tions to carry out this title only on one business day of 
every month. 
‘‘(2) The Secretary may issue a proposed or final reg-
ulation described in paragraph (1) on any other day than 
the day described in paragraph (1) if the Secretary—
‘‘(A) finds that issuance of such regulation on 
another day is necessary to comply with require-
ments under law; or 
‘‘(B) finds that with respect to that regulation 
the limitation of issuance on the date described in 
paragraph (1) is contrary to the public interest. 
If the Secretary makes a finding under this paragraph, 
the Secretary shall include such finding, and brief state-
ment of the reasons for such finding, in the issuance of 
such regulation. 
‘‘(3) The Secretary shall coordinate issuance of new 
regulations described in paragraph (1) relating to a cat-
egory of provider of services or suppliers based on an anal-
ysis of the collective impact of regulatory changes on that 
category of providers or suppliers.’’. 
(2) GAO REPORT ON PUBLICATION OF REGULA-
TIONS ON A QUARTERLY BASIS.—Not later than 3 
years after the date of the enactment of this Act, the 
Comptroller General of the United States shall sub-
mit to Congress a report on the feasibility of requir-
154
ing that regulations described in section 1871(d) of 
the Social Security Act be promulgated on a quar-
terly basis rather than on a monthly basis. 
(3) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to regulations promul-
gated on or after the date that is 30 days after the 
date of the enactment of this Act. 
(b) REGULAR
TIMELINE
FOR
PUBLICATION
OF 
FINAL RULES.—
(1) IN GENERAL.—Section 1871(a) (42 U.S.C. 
1395hh(a)) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(3)(A) The Secretary, in consultation with the Di-
rector of the Office of Management and Budget, shall es-
tablish and publish a regular timeline for the publication 
of final regulations based on the previous publication of 
a proposed regulation or an interim final regulation. 
‘‘(B) Such timeline may vary among different regula-
tions based on differences in the complexity of the regula-
tion, the number and scope of comments received, and 
other relevant factors, but shall not be longer than 3 years 
except under exceptional circumstances. If the Secretary 
intends to vary such timeline with respect to the publica-
tion of a final regulation, the Secretary shall cause to have 
published in the Federal Register notice of the different
155
timeline by not later than the timeline previously estab-
lished with respect to such regulation. Such notice shall 
include a brief explanation of the justification for such 
variation. 
‘‘(C) In the case of interim final regulations, upon 
the expiration of the regular timeline established under 
this paragraph for the publication of a final regulation 
after opportunity for public comment, the interim final 
regulation shall not continue in effect unless the Secretary 
publishes (at the end of the regular timeline and, if appli-
cable, at the end of each succeeding 1-year period) a notice 
of continuation of the regulation that includes an expla-
nation of why the regular timeline (and any subsequent 
1-year extension) was not complied with. If such a notice 
is published, the regular timeline (or such timeline as pre-
viously extended under this paragraph) for publication of 
the final regulation shall be treated as having been ex-
tended for 1 additional year. 
‘‘(D) The Secretary shall annually submit to Con-
gress a report that describes the instances in which the 
Secretary failed to publish a final regulation within the 
applicable regular timeline under this paragraph and that 
provides an explanation for such failures.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall take effect on the date of the
156
enactment of this Act. The Secretary shall provide 
for an appropriate transition to take into account 
the backlog of previously published interim final reg-
ulations. 
(c) LIMITATIONS ON NEW MATTER IN FINAL REGU-
LATIONS.—
(1) IN GENERAL.—Section 1871(a) (42 U.S.C. 
1395hh(a)), as amended by subsection (b), is further 
amended by adding at the end the following new 
paragraph: 
‘‘(4) If the Secretary publishes notice of proposed 
rulemaking relating to a regulation (including an interim 
final regulation), insofar as such final regulation includes 
a provision that is not a logical outgrowth of such notice 
of proposed rulemaking, that provision shall be treated as 
a proposed regulation and shall not take effect until there 
is the further opportunity for public comment and a publi-
cation of the provision again as a final regulation.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to final regulations 
published on or after the date of the enactment of 
this Act.
157
SEC. 803. COMPLIANCE WITH CHANGES IN REGULATIONS 
AND POLICIES. 
(a) NO
RETROACTIVE
APPLICATION
OF
SUB-
STANTIVE CHANGES.—
(1) IN
GENERAL.—Section 1871 (42 U.S.C. 
1395hh), as amended by section 802(a), is amended 
by adding at the end the following new subsection: 
‘‘(e)(1)(A) A substantive change in regulations, man-
ual instructions, interpretative rules, statements of policy, 
or guidelines of general applicability under this title shall 
not be applied (by extrapolation or otherwise) retroactively 
to items and services furnished before the effective date 
of the change, unless the Secretary determines that—
‘‘(i) such retroactive application is necessary to 
comply with statutory requirements; or
‘‘(ii) failure to apply the change retroactively 
would be contrary to the public interest.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to substantive changes 
issued on or after the date of the enactment of this 
Act. 
(b) TIMELINE FOR COMPLIANCE WITH SUBSTANTIVE 
CHANGES AFTER NOTICE.—
(1) IN
GENERAL.—Section 1871(e)(1), as 
added by subsection (a), is amended by adding at 
the end the following:
158
‘‘(B)(i) Except as provided in clause (ii), a sub-
stantive change referred to in subparagraph (A) shall not 
become effective before the end of the 30-day period that 
begins on the date that the Secretary has issued or pub-
lished, as the case may be, the substantive change. 
‘‘(ii) The Secretary may provide for such a sub-
stantive change to take effect on a date that precedes the 
end of the 30-day period under clause (i) if the Secretary 
finds that waiver of such 30-day period is necessary to 
comply with statutory requirements or that the application 
of such 30-day period is contrary to the public interest. 
If the Secretary provides for an earlier effective date pur-
suant to this clause, the Secretary shall include in the 
issuance or publication of the substantive change a finding 
described in the first sentence, and a brief statement of 
the reasons for such finding. 
‘‘(C) No action shall be taken against a provider of 
services or supplier with respect to noncompliance with 
such a substantive change for items and services furnished 
before the effective date of such a change.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to compliance actions 
undertaken on or after the date of the enactment of 
this Act. 
(c) RELIANCE ON GUIDANCE.—
159
(1) IN GENERAL.—Section 1871(e), as added 
by subsection (a), is further amended by adding at 
the end the following new paragraph: 
‘‘(2)(A) If—
‘‘(i) a provider of services or supplier follows 
the written guidance (which may be transmitted 
electronically) provided by the Secretary or by a 
medicare contractor (as defined in section 1889(g)) 
acting within the scope of the contractor’s contract 
authority, with respect to the furnishing of items or 
services and submission of a claim for benefits for 
such items or services with respect to such provider 
or supplier; 
‘‘(ii) the Secretary determines that the provider 
of services or supplier has accurately presented the 
circumstances relating to such items, services, and 
claim to the contractor in writing; and 
‘‘(iii) the guidance was in error; 
the provider of services or supplier shall not be subject 
to any sanction (including any penalty or requirement for 
repayment of any amount) if the provider of services or 
supplier reasonably relied on such guidance. 
‘‘(B) Subparagraph (A) shall not be construed as pre-
venting the recoupment or repayment (without any addi-
tional penalty) relating to an overpayment insofar as the
160
overpayment was solely the result of a clerical or technical 
operational error.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall take effect on the date of the 
enactment of this Act but shall not apply to any 
sanction for which notice was provided on or before 
the date of the enactment of this Act. 
SEC. 804. REPORTS AND STUDIES RELATING TO REGU-
LATORY REFORM. 
(a) GAO STUDY ON ADVISORY OPINION AUTHOR-
ITY.—
(1) STUDY.—The Comptroller General of the 
United States shall conduct a study to determine the 
feasibility and appropriateness of establishing in the 
Secretary authority to provide legally binding advi-
sory opinions on appropriate interpretation and ap-
plication of regulations to carry out the medicare 
program under title XVIII of the Social Security 
Act. Such study shall examine the appropriate time-
frame for issuing such advisory opinions, as well as 
the need for additional staff and funding to provide 
such opinions. 
(2) REPORT.—The Comptroller General shall 
submit to Congress a report on the study conducted
161
under paragraph (1) by not later than January 1, 
2004. 
(b) REPORT ON LEGAL AND REGULATORY INCON-
SISTENCIES.—Section 1871 (42 U.S.C. 1395hh), as 
amended by section 803(a), is amended by adding at the 
end the following new subsection: 
‘‘(f)(1) Not later than 2 years after the date of the 
enactment of this subsection, and every 2 years thereafter, 
the Secretary shall submit to Congress a report with re-
spect to the administration of this title and areas of incon-
sistency or conflict among the various provisions under 
law and regulation. 
‘‘(2) In preparing a report under paragraph (1), the 
Secretary shall collect—
‘‘(A) information from individuals entitled to 
benefits under part A or enrolled under part B, or 
both, providers of services, and suppliers and from 
the Medicare Beneficiary Ombudsman and the Medi-
care Provider Ombudsman with respect to such 
areas of inconsistency and conflict; and 
‘‘(B) information from medicare contractors 
that tracks the nature of written and telephone in-
quiries. 
‘‘(3) A report under paragraph (1) shall include a de-
scription of efforts by the Secretary to reduce such incon-
162
sistency or conflicts, and recommendations for legislation 
or administrative action that the Secretary determines ap-
propriate to further reduce such inconsistency or con-
flicts.’’. 
Subtitle B—Contracting Reform 
SEC. 811. INCREASED FLEXIBILITY IN MEDICARE ADMINIS-
TRATION. 
(a) CONSOLIDATION AND FLEXIBILITY IN MEDICARE 
ADMINISTRATION.—
(1) IN GENERAL.—Title XVIII is amended by 
inserting after section 1874 the following new sec-
tion:
‘‘CONTRACTS WITH MEDICARE ADMINISTRATIVE 
CONTRACTORS 
‘‘SEC. 1874A. (a) AUTHORITY.—
‘‘(1) 
AUTHORITY
TO
ENTER
INTO
CON-
TRACTS.—The Secretary may enter into contracts 
with any eligible entity to serve as a medicare ad-
ministrative contractor with respect to the perform-
ance of any or all of the functions described in para-
graph (4) or parts of those functions (or, to the ex-
tent provided in a contract, to secure performance 
thereof by other entities). 
‘‘(2) ELIGIBILITY OF ENTITIES.—An entity is 
eligible to enter into a contract with respect to the
163
performance of a particular function described in 
paragraph (4) only if—
‘‘(A) the entity has demonstrated capa-
bility to carry out such function; 
‘‘(B) the entity complies with such conflict 
of interest standards as are generally applicable 
to Federal acquisition and procurement; 
‘‘(C) the entity has sufficient assets to fi-
nancially support the performance of such func-
tion; and 
‘‘(D) the entity meets such other require-
ments as the Secretary may impose. 
‘‘(3) MEDICARE ADMINISTRATIVE CONTRACTOR 
DEFINED.—For purposes of this title and title XI—
‘‘(A) IN
GENERAL.—The term ‘medicare 
administrative contractor’ means an agency, or-
ganization, or other person with a contract 
under this section. 
‘‘(B) APPROPRIATE
MEDICARE
ADMINIS-
TRATIVE
CONTRACTOR.—With respect to the 
performance of a particular function in relation 
to an individual entitled to benefits under part 
A or enrolled under part B, or both, a specific 
provider of services or supplier (or class of such 
providers of services or suppliers), the ‘appro-
164
priate’ medicare administrative contractor is the 
medicare administrative contractor that has a 
contract under this section with respect to the 
performance of that function in relation to that 
individual, provider of services or supplier or 
class of provider of services or supplier. 
‘‘(4) FUNCTIONS
DESCRIBED.—The functions 
referred to in paragraphs (1) and (2) are payment 
functions, provider services functions, and functions 
relating to services furnished to individuals entitled 
to benefits under part A or enrolled under part B, 
or both, as follows: 
‘‘(A) 
DETERMINATION
OF
PAYMENT 
AMOUNTS.—Determining (subject to the provi-
sions of section 1878 and to such review by the 
Secretary as may be provided for by the con-
tracts) the amount of the payments required 
pursuant to this title to be made to providers 
of services, suppliers and individuals. 
‘‘(B) MAKING
PAYMENTS.—Making pay-
ments described in subparagraph (A) (including 
receipt, disbursement, and accounting for funds 
in making such payments). 
‘‘(C) BENEFICIARY
EDUCATION
AND
AS-
SISTANCE.—Providing education and outreach
165
to individuals entitled to benefits under part A 
or enrolled under part B, or both, and pro-
viding assistance to those individuals with spe-
cific issues, concerns or problems. 
‘‘(D) PROVIDER
CONSULTATIVE
SERV-
ICES.—Providing consultative services to insti-
tutions, agencies, and other persons to enable 
them to establish and maintain fiscal records 
necessary for purposes of this title and other-
wise to qualify as providers of services or sup-
pliers. 
‘‘(E) 
COMMUNICATION
WITH
PRO-
VIDERS.—Communicating to providers of serv-
ices and suppliers any information or instruc-
tions furnished to the medicare administrative 
contractor by the Secretary, and facilitating 
communication between such providers and sup-
pliers and the Secretary. 
‘‘(F) PROVIDER
EDUCATION
AND
TECH-
NICAL ASSISTANCE.—Performing the functions 
relating to provider education, training, and 
technical assistance. 
‘‘(G) 
ADDITIONAL
FUNCTIONS.—Per-
forming such other functions as are necessary 
to carry out the purposes of this title.
166
‘‘(5) RELATIONSHIP TO MIP CONTRACTS.—
‘‘(A) NONDUPLICATION
OF
DUTIES.—In 
entering into contracts under this section, the 
Secretary shall assure that functions of medi-
care administrative contractors in carrying out 
activities under parts A and B do not duplicate 
activities carried out under the Medicare Integ-
rity Program under section 1893. The previous 
sentence shall not apply with respect to the ac-
tivity described in section 1893(b)(5) (relating 
to prior authorization of certain items of dura-
ble 
medical 
equipment 
under 
section 
1834(a)(15)). 
‘‘(B) CONSTRUCTION.—An entity shall not 
be treated as a medicare administrative con-
tractor merely by reason of having entered into 
a contract with the Secretary under section 
1893. 
‘‘(6) APPLICATION
OF
FEDERAL
ACQUISITION 
REGULATION.—Except to the extent inconsistent 
with a specific requirement of this title, the Federal 
Acquisition Regulation applies to contracts under 
this title. 
‘‘(b) CONTRACTING REQUIREMENTS.—
‘‘(1) USE OF COMPETITIVE PROCEDURES.—
167
‘‘(A) IN GENERAL.—Except as provided in 
laws with general applicability to Federal acqui-
sition and procurement or in subparagraph (B), 
the Secretary shall use competitive procedures 
when entering into contracts with medicare ad-
ministrative contractors under this section, tak-
ing into account performance quality as well as 
price and other factors. 
‘‘(B) RENEWAL OF CONTRACTS.—The Sec-
retary may renew a contract with a medicare 
administrative contractor under this section 
from term to term without regard to section 5 
of title 41, United States Code, or any other 
provision of law requiring competition, if the 
medicare administrative contractor has met or
exceeded the performance requirements applica-
ble with respect to the contract and contractor, 
except that the Secretary shall provide for the 
application of competitive procedures under 
such a contract not less frequently than once 
every five years. 
‘‘(C) TRANSFER
OF
FUNCTIONS.—The 
Secretary may transfer functions among medi-
care administrative contractors consistent with 
the provisions of this paragraph. The Secretary
168
shall ensure that performance quality is consid-
ered in such transfers. The Secretary shall pro-
vide public notice (whether in the Federal Reg-
ister or otherwise) of any such transfer (includ-
ing a description of the functions so trans-
ferred, a description of the providers of services 
and suppliers affected by such transfer, and 
contact information for the contractors in-
volved). 
‘‘(D) INCENTIVES
FOR
QUALITY.—The 
Secretary shall provide incentives for medicare 
administrative contractors to provide quality 
service and to promote efficiency. 
‘‘(2) COMPLIANCE WITH REQUIREMENTS.—No 
contract under this section shall be entered into with 
any medicare administrative contractor unless the 
Secretary finds that such medicare administrative 
contractor will perform its obligations under the con-
tract efficiently and effectively and will meet such 
requirements as to financial responsibility, legal au-
thority, quality of services provided, and other mat-
ters as the Secretary finds pertinent. 
‘‘(3) PERFORMANCE REQUIREMENTS.—
‘‘(A) DEVELOPMENT
OF
SPECIFIC
PER-
FORMANCE
REQUIREMENTS.—In 
developing
169
contract performance requirements, the Sec-
retary shall develop performance requirements 
applicable to functions described in subsection 
(a)(4). 
‘‘(B) CONSULTATION.— In developing such 
requirements, the Secretary may consult with 
providers of services and suppliers, organiza-
tions representing individuals entitled to bene-
fits under part A or enrolled under part B, or 
both, and organizations and agencies per-
forming functions necessary to carry out the 
purposes of this section with respect to such 
performance requirements. 
‘‘(C) INCLUSION IN CONTRACTS.—All con-
tractor performance requirements shall be set 
forth in the contract between the Secretary and 
the appropriate medicare administrative con-
tractor. Such performance requirements—
‘‘(i) shall reflect the performance re-
quirements developed under subparagraph 
(A), but may include additional perform-
ance requirements; 
‘‘(ii) shall be used for evaluating con-
tractor performance under the contract; 
and
170
‘‘(iii) shall be consistent with the writ-
ten statement of work provided under the 
contract. 
‘‘(4) INFORMATION REQUIREMENTS.—The Sec-
retary shall not enter into a contract with a medi-
care administrative contractor under this section un-
less the contractor agrees—
‘‘(A) to furnish to the Secretary such time-
ly information and reports as the Secretary may 
find necessary in performing his functions 
under this title; and 
‘‘(B) to maintain such records and afford 
such access thereto as the Secretary finds nec-
essary to assure the correctness and verification 
of the information and reports under subpara-
graph (A) and otherwise to carry out the pur-
poses of this title. 
‘‘(5) SURETY BOND.—A contract with a medi-
care administrative contractor under this section 
may require the medicare administrative contractor, 
and any of its officers or employees certifying pay-
ments or disbursing funds pursuant to the contract, 
or otherwise participating in carrying out the con-
tract, to give surety bond to the United States in
171
such amount as the Secretary may deem appro-
priate. 
‘‘(c) TERMS AND CONDITIONS.—
‘‘(1) IN GENERAL.—A contract with any medi-
care administrative contractor under this section 
may contain such terms and conditions as the Sec-
retary finds necessary or appropriate and may pro-
vide for advances of funds to the medicare adminis-
trative contractor for the making of payments by it 
under subsection (a)(4)(B). 
‘‘(2) PROHIBITION ON MANDATES FOR CERTAIN 
DATA COLLECTION.—The Secretary may not require, 
as a condition of entering into, or renewing, a con-
tract under this section, that the medicare adminis-
trative contractor match data obtained other than in 
its activities under this title with data used in the 
administration of this title for purposes of identi-
fying situations in which the provisions of section 
1862(b) may apply. 
‘‘(d) LIMITATION ON LIABILITY OF MEDICARE AD-
MINISTRATIVE CONTRACTORS AND CERTAIN OFFICERS.—
‘‘(1) CERTIFYING OFFICER.—No individual des-
ignated pursuant to a contract under this section as 
a certifying officer shall, in the absence of gross neg-
ligence or intent to defraud the United States, be
172
liable with respect to any payments certified by the 
individual under this section. 
‘‘(2) DISBURSING OFFICER.—No disbursing of-
ficer shall, in the absence of gross negligence or in-
tent to defraud the United States, be liable with re-
spect to any payment by such officer under this sec-
tion if it was based upon an authorization (which 
meets the applicable requirements for such internal 
controls established by the Comptroller General) of 
a certifying officer designated as provided in para-
graph (1) of this subsection. 
‘‘(3) LIABILITY OF MEDICARE ADMINISTRATIVE 
CONTRACTOR.—No medicare administrative con-
tractor shall be liable to the United States for a pay-
ment by a certifying or disbursing officer unless in 
connection with such payment or in the supervision 
of or selection of such officer the medicare adminis-
trative contractor acted with gross negligence. 
‘‘(4) INDEMNIFICATION BY SECRETARY.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graphs (B) and (D), in the case of a medicare 
administrative contractor (or a person who is a 
director, officer, or employee of such a con-
tractor or who is engaged by the contractor to 
participate directly in the claims administration
173
process) who is made a party to any judicial or 
administrative proceeding arising from or relat-
ing directly to the claims administration process 
under this title, the Secretary may, to the ex-
tent the Secretary determines to be appropriate 
and as specified in the contract with the con-
tractor, indemnify the contractor and such per-
sons. 
‘‘(B) CONDITIONS.—The Secretary may 
not provide indemnification under subparagraph 
(A) insofar as the liability for such costs arises 
directly from conduct that is determined by the 
judicial proceeding or by the Secretary to be 
criminal in nature, fraudulent, or grossly neg-
ligent. If indemnification is provided by the Sec-
retary with respect to a contractor before a de-
termination that such costs arose directly from 
such conduct, the contractor shall reimburse the 
Secretary for costs of indemnification. 
‘‘(C) SCOPE
OF
INDEMNIFICATION.—In-
demnification by the Secretary under subpara-
graph (A) may include payment of judgments, 
settlements (subject to subparagraph (D)), 
awards, and costs (including reasonable legal 
expenses).
174
‘‘(D) WRITTEN
APPROVAL
FOR
SETTLE-
MENTS.—A contractor or other person de-
scribed in subparagraph (A) may not propose to 
negotiate a settlement or compromise of a pro-
ceeding described in such subparagraph without 
the prior written approval of the Secretary to 
negotiate such settlement or compromise. Any 
indemnification under subparagraph (A) with 
respect to amounts paid under a settlement or 
compromise of a proceeding described in such 
subparagraph are conditioned upon prior writ-
ten approval by the Secretary of the final settle-
ment or compromise. 
‘‘(E) CONSTRUCTION.—Nothing in this 
paragraph shall be construed—
‘‘(i) to change any common law immu-
nity that may be available to a medicare 
administrative contractor or person de-
scribed in subparagraph (A); or 
‘‘(ii) to permit the payment of costs 
not otherwise allowable, reasonable, or allo-
cable under the Federal Acquisition Regu-
lations.’’. 
(2) CONSIDERATION
OF
INCORPORATION
OF 
CURRENT LAW STANDARDS.—In developing contract
175
performance requirements under section 1874A(b) 
of the Social Security Act, as inserted by paragraph 
(1), the Secretary shall consider inclusion of the per-
formance standards described in sections 1816(f)(2) 
of such Act (relating to timely processing of recon-
siderations and applications for exemptions) and sec-
tion 1842(b)(2)(B) of such Act (relating to timely 
review of determinations and fair hearing requests), 
as such sections were in effect before the date of the 
enactment of this Act. 
(b) CONFORMING AMENDMENTS TO SECTION 1816 
(RELATING TO FISCAL INTERMEDIARIES).—Section 1816 
(42 U.S.C. 1395h) is amended as follows: 
(1) The heading is amended to read as follows: 
‘‘PROVISIONS RELATING TO THE ADMINISTRATION OF 
PART A’’. 
(2) Subsection (a) is amended to read as fol-
lows: 
‘‘(a) The administration of this part shall be con-
ducted through contracts with medicare administrative 
contractors under section 1874A.’’. 
(3) Subsection (b) is repealed. 
(4) Subsection (c) is amended—
(A) by striking paragraph (1); and 
(B) in each of paragraphs (2)(A) and 
(3)(A), by striking ‘‘agreement under this sec-
176
tion’’ and inserting ‘‘contract under section 
1874A that provides for making payments 
under this part’’. 
(5) Subsections (d) through (i) are repealed. 
(6) Subsections (j) and (k) are each amended—
(A) by striking ‘‘An agreement with an 
agency or organization under this section’’ and 
inserting ‘‘A contract with a medicare adminis-
trative contractor under section 1874A with re-
spect to the administration of this part’’; and 
(B) by striking ‘‘such agency or organiza-
tion’’ and inserting ‘‘such medicare administra-
tive contractor’’ each place it appears. 
(7) Subsection (l) is repealed. 
(c) CONFORMING AMENDMENTS TO SECTION 1842 
(RELATING
TO CARRIERS).—Section 1842 (42 U.S.C. 
1395u) is amended as follows: 
(1) The heading is amended to read as follows: 
‘‘PROVISIONS RELATING TO THE ADMINISTRATION OF 
PART B’’. 
(2) Subsection (a) is amended to read as fol-
lows: 
‘‘(a) The administration of this part shall be con-
ducted through contracts with medicare administrative 
contractors under section 1874A.’’. 
(3) Subsection (b) is amended—
177
(A) by striking paragraph (1); 
(B) in paragraph (2)—
(i) by striking subparagraphs (A) and 
(B); 
(ii) in subparagraph (C), by striking 
‘‘carriers’’ and inserting ‘‘medicare admin-
istrative contractors’’; and 
(iii) by striking subparagraphs (D) 
and (E); 
(C) in paragraph (3)—
(i) in the matter before subparagraph 
(A), by striking ‘‘Each such contract shall 
provide that the carrier’’ and inserting 
‘‘The Secretary’’; 
(ii) by striking ‘‘will’’ the first place it 
appears in each of subparagraphs (A), (B), 
(F), (G), (H), and (L) and inserting 
‘‘shall’’; 
(iii) in subparagraph (B), in the mat-
ter before clause (i), by striking ‘‘to the 
policyholders and subscribers of the car-
rier’’ and inserting ‘‘to the policyholders 
and subscribers of the medicare adminis-
trative contractor’’;
178
(iv) by striking subparagraphs (C), 
(D), and (E); 
(v) in subparagraph (H)—
(I) by striking ‘‘if it makes deter-
minations or payments with respect to 
physicians’ services,’’ in the matter 
preceding clause (i); and 
(II) by striking ‘‘carrier’’ and in-
serting ‘‘medicare administrative con-
tractor’’ in clause (i); 
(vi) by striking subparagraph (I); 
(vii) in subparagraph (L), by striking 
the semicolon and inserting a period; 
(viii) in the first sentence, after sub-
paragraph (L), by striking ‘‘and shall con-
tain’’ and all that follows through the pe-
riod; and 
(ix) in the seventh sentence, by insert-
ing ‘‘medicare administrative contractor,’’ 
after ‘‘carrier,’’; and 
(D) by striking paragraph (5); 
(E) in paragraph (6)(D)(iv), by striking 
‘‘carrier’’ and inserting ‘‘medicare administra-
tive contractor’’; and
179
(F) in paragraph (7), by striking ‘‘the car-
rier’’ and inserting ‘‘the Secretary’’ each place 
it appears. 
(4) Subsection (c) is amended—
(A) by striking paragraph (1); 
(B) in paragraph (2)(A), by striking ‘‘con-
tract under this section which provides for the 
disbursement of funds, as described in sub-
section (a)(1)(B),’’ and inserting ‘‘contract 
under section 1874A that provides for making 
payments under this part’’; 
(C) in paragraph (3)(A), by striking ‘‘sub-
section 
(a)(1)(B)’’ 
and 
inserting 
‘‘section 
1874A(a)(3)(B)’’; 
(D) in paragraph (4), in the matter pre-
ceding subparagraph (A), by striking ‘‘carrier’’ 
and inserting ‘‘medicare administrative con-
tractor’’; and 
(E) by striking paragraphs (5) and (6). 
(5) Subsections (d), (e), and (f) are repealed. 
(6) Subsection (g) is amended by striking ‘‘car-
rier or carriers’’ and inserting ‘‘medicare administra-
tive contractor or contractors’’. 
(7) Subsection (h) is amended—
(A) in paragraph (2)—
180
(i) by striking ‘‘Each carrier having 
an agreement with the Secretary under 
subsection (a)’’ and inserting ‘‘The Sec-
retary’’; and 
(ii) by striking ‘‘Each such carrier’’ 
and inserting ‘‘The Secretary’’; 
(B) in paragraph (3)(A)—
(i) by striking ‘‘a carrier having an 
agreement with the Secretary under sub-
section (a)’’ and inserting ‘‘medicare ad-
ministrative contractor having a contract 
under section 1874A that provides for 
making payments under this part’’; and 
(ii) by striking ‘‘such carrier’’ and in-
serting ‘‘such contractor’’; 
(C) in paragraph (3)(B)—
(i) by striking ‘‘a carrier’’ and insert-
ing ‘‘a medicare administrative contractor’’ 
each place it appears; and 
(ii) by striking ‘‘the carrier’’ and in-
serting ‘‘the contractor’’ each place it ap-
pears; and 
(D) in paragraphs (5)(A) and (5)(B)(iii), 
by striking ‘‘carriers’’ and inserting ‘‘medicare
181
administrative contractors’’ each place it ap-
pears. 
(8) Subsection (l) is amended—
(A) in paragraph (1)(A)(iii), by striking 
‘‘carrier’’ and inserting ‘‘medicare administra-
tive contractor’’; and 
(B) in paragraph (2), by striking ‘‘carrier’’ 
and inserting ‘‘medicare administrative con-
tractor’’. 
(9) Subsection (p)(3)(A) is amended by striking 
‘‘carrier’’ and inserting ‘‘medicare administrative 
contractor’’. 
(10) Subsection (q)(1)(A) is amended by strik-
ing ‘‘carrier’’. 
(d) EFFECTIVE DATE; TRANSITION RULE.—
(1) EFFECTIVE DATE.—
(A) IN
GENERAL.—Except as otherwise 
provided in this subsection, the amendments 
made by this section shall take effect on Octo-
ber 1, 2004, and the Secretary is authorized to 
take such steps before such date as may be nec-
essary to implement such amendments on a 
timely basis. 
(B) CONSTRUCTION
FOR
CURRENT
CON-
TRACTS.—Such amendments shall not apply to
182
contracts in effect before the date specified 
under subparagraph (A) that continue to retain 
the terms and conditions in effect on such date 
(except as otherwise provided under this Act, 
other than under this section) until such date 
as the contract is let out for competitive bid-
ding under such amendments. 
(C) DEADLINE
FOR
COMPETITIVE
BID-
DING.—The Secretary shall provide for the let-
ting by competitive bidding of all contracts for 
functions of medicare administrative contrac-
tors for annual contract periods that begin on 
or after October 1, 2009. 
(D) WAIVER
OF
PROVIDER
NOMINATION 
PROVISIONS DURING TRANSITION.—During the 
period beginning on the date of the enactment 
of this Act and before the date specified under 
subparagraph (A), the Secretary may enter into 
new agreements under section 1816 of the So-
cial Security Act (42 U.S.C. 1395h) without re-
gard to any of the provider nomination provi-
sions of such section. 
(2) GENERAL
TRANSITION
RULES.—The Sec-
retary shall take such steps, consistent with para-
graph (1)(B) and (1)(C), as are necessary to provide
183
for an appropriate transition from contracts under 
section 1816 and section 1842 of the Social Security 
Act (42 U.S.C. 1395h, 1395u) to contracts under 
section 1874A, as added by subsection (a)(1). 
(3) AUTHORIZING
CONTINUATION
OF
MIP 
FUNCTIONS
UNDER
CURRENT
CONTRACTS
AND 
AGREEMENTS AND UNDER ROLLOVER CONTRACTS.—
The provisions contained in the exception in section 
1893(d)(2) of the Social Security Act (42 U.S.C. 
1395ddd(d)(2)) shall continue to apply notwith-
standing the amendments made by this section, and 
any reference in such provisions to an agreement or 
contract shall be deemed to include a contract under 
section 1874A of such Act, as inserted by subsection 
(a)(1), that continues the activities referred to in 
such provisions. 
(e) REFERENCES.—On and after the effective date 
provided under subsection (d)(1), any reference to a fiscal 
intermediary or carrier under title XI or XVIII of the So-
cial Security Act (or any regulation, manual instruction, 
interpretative rule, statement of policy, or guideline issued 
to carry out such titles) shall be deemed a reference to 
an appropriate medicare administrative contractor (as 
provided under section 1874A of the Social Security Act). 
(f) REPORTS ON IMPLEMENTATION.—
184
(1) PLAN FOR IMPLEMENTATION.—By not later 
than October 1, 2003, the Secretary shall submit a 
report to Congress and the Comptroller General of 
the United States that describes the plan for imple-
mentation of the amendments made by this section. 
The Comptroller General shall conduct an evaluation 
of such plan and shall submit to Congress, not later 
than 6 months after the date the report is received, 
a report on such evaluation and shall include in such 
report such recommendations as the Comptroller 
General deems appropriate. 
(2) STATUS OF IMPLEMENTATION.—The Sec-
retary shall submit a report to Congress not later 
than October 1, 2007, that describes the status of 
implementation of such amendments and that in-
cludes a description of the following: 
(A) The number of contracts that have 
been competitively bid as of such date. 
(B) The distribution of functions among 
contracts and contractors. 
(C) A timeline for complete transition to 
full competition. 
(D) A detailed description of how the Sec-
retary has modified oversight and management
185
of medicare contractors to adapt to full com-
petition. 
SEC. 812. REQUIREMENTS FOR INFORMATION SECURITY 
FOR MEDICARE ADMINISTRATIVE CONTRAC-
TORS. 
(a) IN GENERAL.—Section 1874A, as added by sec-
tion 811(a)(1), is amended by adding at the end the fol-
lowing new subsection: 
‘‘(e) REQUIREMENTS
FOR
INFORMATION
SECU-
RITY.—
‘‘(1) DEVELOPMENT
OF
INFORMATION
SECU-
RITY
PROGRAM.—A medicare administrative con-
tractor that performs the functions referred to in 
subparagraphs (A) and (B) of subsection (a)(4) (re-
lating to determining and making payments) shall 
implement a contractor-wide information security 
program to provide information security for the op-
eration and assets of the contractor with respect to 
such functions under this title. An information secu-
rity program under this paragraph shall meet the re-
quirements for information security programs im-
posed on Federal agencies under section 3534(b)(2) 
of title 44, United States Code (other than require-
ments under subparagraphs (B)(ii), (F)(iii), and 
(F)(iv) of such section).
186
‘‘(2) INDEPENDENT AUDITS.—
‘‘(A) PERFORMANCE OF ANNUAL EVALUA-
TIONS.—Each year a medicare administrative 
contractor that performs the functions referred 
to in subparagraphs (A) and (B) of subsection 
(a)(4) (relating to determining and making pay-
ments) shall undergo an evaluation of the infor-
mation security of the contractor with respect 
to such functions under this title. The evalua-
tion shall—
‘‘(i) be performed by an entity that 
meets such requirements for independence 
as the Inspector General of the Depart-
ment of Health and Human Services may 
establish; and 
‘‘(ii) test the effectiveness of informa-
tion security control techniques for an ap-
propriate subset of the contractor’s infor-
mation systems (as defined in section 
3502(8) of title 44, United States Code) 
relating to such functions under this title 
and an assessment of compliance with the 
requirements of this subsection and related 
information security policies, procedures, 
standards and guidelines.
187
‘‘(B) DEADLINE
FOR
INITIAL
EVALUA-
TION.—
‘‘(i) NEW CONTRACTORS.—In the case 
of a medicare administrative contractor 
covered by this subsection that has not 
previously performed the functions referred 
to in subparagraphs (A) and (B) of sub-
section (a)(4) (relating to determining and 
making payments) as a fiscal intermediary 
or carrier under section 1816 or 1842, the 
first independent evaluation conducted 
pursuant subparagraph (A) shall be com-
pleted prior to commencing such functions. 
‘‘(ii) OTHER
CONTRACTORS.—In the 
case of a medicare administrative con-
tractor covered by this subsection that is 
not described in clause (i), the first inde-
pendent evaluation conducted pursuant 
subparagraph (A) shall be completed with-
in 1 year after the date the contractor 
commences functions referred to in clause 
(i) under this section. 
‘‘(C) REPORTS ON EVALUATIONS.—
‘‘(i) TO THE INSPECTOR GENERAL.—
The results of independent evaluations
188
under subparagraph (A) shall be submitted 
promptly to the Inspector General of the 
Department of Health and Human Serv-
ices. 
‘‘(ii) TO
CONGRESS.—The Inspector 
General of Department of Health and 
Human Services shall submit to Congress 
annual reports on the results of such eval-
uations.’’. 
(b) APPLICATION
OF REQUIREMENTS
TO FISCAL 
INTERMEDIARIES AND CARRIERS.—
(1) IN
GENERAL.—The provisions of section 
1874A(e)(2) of the Social Security Act (other than 
subparagraph (B)), as added by subsection (a), shall 
apply to each fiscal intermediary under section 1816 
of the Social Security Act (42 U.S.C. 1395h) and 
each carrier under section 1842 of such Act (42 
U.S.C. 1395u) in the same manner as they apply to 
medicare administrative contractors under such pro-
visions. 
(2) DEADLINE FOR INITIAL EVALUATION.—In 
the case of such a fiscal intermediary or carrier with 
an agreement or contract under such respective sec-
tion in effect as of the date of the enactment of this 
Act, 
the 
first 
evaluation 
under 
section
189
1874A(e)(2)(A) of the Social Security Act (as added 
by subsection (a)), pursuant to paragraph (1), shall 
be completed (and a report on the evaluation sub-
mitted to the Secretary) by not later than 1 year 
after such date. 
Subtitle C—Education and 
Outreach 
SEC. 821. PROVIDER EDUCATION AND TECHNICAL ASSIST-
ANCE. 
(a) COORDINATION OF EDUCATION FUNDING.—
(1) IN GENERAL.—The Social Security Act is 
amended by inserting after section 1888 the fol-
lowing new section: 
‘‘PROVIDER EDUCATION AND TECHNICAL ASSISTANCE 
‘‘SEC. 1889. (a) COORDINATION
OF EDUCATION 
FUNDING.—The Secretary shall coordinate the edu-
cational activities provided through medicare contractors 
(as defined in subsection (g), including under section 
1893) in order to maximize the effectiveness of Federal 
education efforts for providers of services and suppliers.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall take effect on the date of the 
enactment of this Act. 
(3) REPORT.—Not later than October 1, 2003, 
the Secretary shall submit to Congress a report that 
includes a description and evaluation of the steps
190
taken to coordinate the funding of provider edu-
cation under section 1889(a) of the Social Security 
Act, as added by paragraph (1). 
(b) INCENTIVES TO IMPROVE CONTRACTOR PER-
FORMANCE.—
(1) IN GENERAL.—Section 1874A, as added by 
section 811(a)(1) and as amended by section 812(a), 
is amended by adding at the end the following new 
subsection: 
‘‘(f) INCENTIVES TO IMPROVE CONTRACTOR PER-
FORMANCE IN PROVIDER EDUCATION AND OUTREACH.—
In order to give medicare administrative contractors an 
incentive to implement effective education and outreach 
programs for providers of services and suppliers, the Sec-
retary shall develop and implement a methodology to 
measure the specific claims payment error rates of such 
contractors in the processing or reviewing of medicare 
claims.’’. 
(2) APPLICATION TO FISCAL INTERMEDIARIES 
AND CARRIERS.—The provisions of section 1874A(f) 
of the Social Security Act, as added by paragraph 
(1), shall apply to each fiscal intermediary under 
section 1816 of the Social Security Act (42 U.S.C. 
1395h) and each carrier under section 1842 of such 
Act (42 U.S.C. 1395u) in the same manner as they
191
apply to medicare administrative contractors under 
such provisions. 
(3) GAO REPORT ON ADEQUACY OF METHOD-
OLOGY.—Not later than October 1, 2003, the Comp-
troller General of the United States shall submit to 
Congress and to the Secretary a report on the ade-
quacy of the methodology under section 1874A(f) of 
the Social Security Act, as added by paragraph (1), 
and shall include in the report such recommenda-
tions as the Comptroller General determines appro-
priate with respect to the methodology. 
(4) REPORT ON USE OF METHODOLOGY IN AS-
SESSING
CONTRACTOR
PERFORMANCE.—Not later 
than October 1, 2003, the Secretary shall submit to 
Congress a report that describes how the Secretary 
intends to use such methodology in assessing medi-
care contractor performance in implementing effec-
tive education and outreach programs, including 
whether to use such methodology as a basis for per-
formance bonuses. The report shall include an anal-
ysis of the sources of identified errors and potential 
changes in systems of contractors and rules of the 
Secretary that could reduce claims error rates.
192
(c) PROVISION OF ACCESS TO AND PROMPT RE-
SPONSES FROM MEDICARE ADMINISTRATIVE CONTRAC-
TORS.—
(1) IN GENERAL.—Section 1874A, as added by 
section 811(a)(1) and as amended by section 812(a) 
and subsection (b), is further amended by adding at 
the end the following new subsection: 
‘‘(g) COMMUNICATIONS WITH BENEFICIARIES, PRO-
VIDERS OF SERVICES AND SUPPLIERS.—
‘‘(1) COMMUNICATION
STRATEGY.—The Sec-
retary shall develop a strategy for communications 
with individuals entitled to benefits under part A or 
enrolled under part B, or both, and with providers 
of services and suppliers under this title. 
‘‘(2) RESPONSE TO WRITTEN INQUIRIES.—Each 
medicare administrative contractor shall, for those 
providers of services and suppliers which submit 
claims to the contractor for claims processing and 
for those individuals entitled to benefits under part 
A or enrolled under part B, or both, with respect to 
whom claims are submitted for claims processing, 
provide general written responses (which may be 
through electronic transmission) in a clear, concise, 
and accurate manner to inquiries of providers of 
services, suppliers and individuals entitled to bene-
193
fits under part A or enrolled under part B, or both, 
concerning the programs under this title within 45 
business days of the date of receipt of such inquiries. 
‘‘(3) RESPONSE
TO
TOLL-FREE
LINES.—The 
Secretary shall ensure that each medicare adminis-
trative contractor shall provide, for those providers 
of services and suppliers which submit claims to the 
contractor for claims processing and for those indi-
viduals entitled to benefits under part A or enrolled 
under part B, or both, with respect to whom claims 
are submitted for claims processing, a toll-free tele-
phone number at which such individuals, providers 
of services and suppliers may obtain information re-
garding billing, coding, claims, coverage, and other 
appropriate information under this title. 
‘‘(4) 
MONITORING
OF
CONTRACTOR
RE-
SPONSES.—
‘‘(A) IN GENERAL.—Each medicare admin-
istrative contractor shall, consistent with stand-
ards developed by the Secretary under subpara-
graph (B)—
‘‘(i) maintain a system for identifying 
who provides the information referred to in 
paragraphs (2) and (3); and
194
‘‘(ii) monitor the accuracy, consist-
ency, and timeliness of the information so 
provided. 
‘‘(B) DEVELOPMENT OF STANDARDS.—
‘‘(i) IN
GENERAL.—The Secretary 
shall establish and make public standards 
to monitor the accuracy, consistency, and 
timeliness of the information provided in 
response to written and telephone inquiries 
under this subsection. Such standards shall 
be consistent with the performance require-
ments established under subsection (b)(3). 
‘‘(ii) 
EVALUATION.—In 
conducting 
evaluations of individual medicare adminis-
trative contractors, the Secretary shall 
take into account the results of the moni-
toring conducted under subparagraph (A) 
taking into account as performance re-
quirements 
the 
standards 
established 
under clause (i). The Secretary shall, in 
consultation 
with 
organizations 
rep-
resenting providers of services, suppliers, 
and individuals entitled to benefits under 
part A or enrolled under part B, or both, 
establish standards relating to the accu-
201
tems of the full range of providers of services and sup-
pliers to provide the technical assistance. In awarding such 
contracts, the Secretary shall consider any prior investiga-
tions of the entity’s work by the Inspector General of De-
partment of Health and Human Services or the Comp-
troller General of the United States. 
(c) DESCRIPTION OF TECHNICAL ASSISTANCE.—The 
technical assistance provided under the demonstration 
program shall include a direct and in-person examination 
of billing systems and internal controls of small providers 
of services or suppliers to determine program compliance 
and to suggest more efficient or effective means of achiev-
ing such compliance. 
(d) AVOIDANCE OF RECOVERY ACTIONS FOR PROB-
LEMS IDENTIFIED AS CORRECTED.—The Secretary shall 
provide that, absent evidence of fraud and notwith-
standing any other provision of law, any errors found in 
a compliance review for a small provider of services or sup-
plier that participates in the demonstration program shall 
not be subject to recovery action if the technical assistance 
personnel under the program determine that—
(1) the problem that is the subject of the com-
pliance review has been corrected to their satisfac-
tion within 30 days of the date of the visit by such