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‘‘(2) MATCHING REQUIREMENT.—At least half
of the projects funded in a year must receive at least
50 percent of their funding from State or local
sources. The remaining projects funded during the
year could be financed up to 90 percent with a com-
bination of Federal grants and loans.
‘‘(3) RESERVATION FOR RURAL APPLICANTS.—
No less than 10 percent of the grant funds in any
given year would be reserved for rural applicants,
provided that a sufficient number of applications are
approved.
‘‘(b) PLANNING GRANTS.—Applicants who can dem-
onstrate general qualification for the direct matching loan,
loan guarantee, or interest subsidy programs under this
title or eligibility for mortgage insurance under section
242 of the National Housing Act will be eligible for a
grant of up to $500,000 to assist in implementation of
key budgetary and financial systems as well as manage-
ment and governance restructuring.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect October 1, 1998.
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SEC. 212. ADJUSTMENT TO PAYMENTS FOR CAPITAL-RE-
LATED COSTS UNDER MEDICARE.
(a) IN GENERAL.—Section 1886(g)(1)(B) of the So-
cial Security Act (42 U.S.C. 1395ww(g)(1)(B)) is amend-
ed—
(1) by striking ‘‘and’’ at the end of clause (iii);
(2) by striking the period at the end of clause
(iv) and inserting ‘‘, and’’; and
(3) by adding at the end the following new
clause:
‘‘(v) shall provide for adjustments to take into
account the extent to which capital-related costs in-
curred by a hospital are costs with respect to which
the hospital received financial assistance under title
XXI.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to cost reporting periods begin-
ning on or after October 1, 1999.
SEC. 213. TAX EXEMPT STATUS OF FEDERALLY GUARAN-
TEED STATE OR LOCAL BONDS.
(a) IN GENERAL.—Section 149(b)(3)(A) of the Inter-
nal Revenue Code of 1986 is amended—
(1) in clause (ii), by striking ‘‘or’’;
(2) in clause (iii) by striking the period at the
end and inserting ‘‘, or’’; and
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(3) by adding at the end the following new
clause: ‘‘(iv) any guarantee by the Capital Financing
Trust Fund pursuant to title XXI of the Social Se-
curity Act.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall take effect on October 1, 1998.
TITLE III—CAPITAL
ALLOCATION PLANS
SEC. 301. REQUIRING STATE REVIEW MECHANISMS AS A
CONDITION OF PAYMENT FOR CAPITAL-RE-
LATED COSTS UNDER MEDICARE.
(a) IN GENERAL.—Section 1862(a) of the Social Se-
curity Act (42 U.S.C. 1395y(a)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph (15);
(2) by striking the period at the end of paragraph
(16) and inserting ‘‘; or’’ and
(3) by inserting after paragraph (16) the following
new paragraph:
‘‘(17) with respect to expenses for capital-related
costs (as defined in section 1886(g)(1)(C)) incurred dur-
ing a year (beginning with 1998) where—
‘‘(A) such expenses are incurred in a State
that does not have a capital allocation plan ap-
proved by the Secretary under section 1890, or
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‘‘(B) the State notifies the Secretary that
such expenses were incurred in violation of the
State’s capital allocation plan under such sec-
tion.’’.
(b) CAPITAL ALLOCATION PLANS DESCRIBED.—Title
XVIII of the Social Security Act (42 U.S.C. 1395 et seq.)
is amended by inserting after section 1889 the following
new section:
‘‘CAPITAL ALLOCATION PLANS
‘‘SEC. 1890. (a) APPROVAL BY SECRETARY.—
‘‘(1) IN
GENERAL.—For purposes of section
1862(a)(17), the Secretary shall approve the capital
allocation plan of a State for a fiscal year if the
Governor of the State provides the Secretary with
information and assurances necessary for the Sec-
retary to find that the plan meets the requirements
of this section.
‘‘(2) TERMINATION
OR
EXTENSION
OF
AP-
PROVAL
PERMITTED.—Notwithstanding paragraph
(1), the Secretary may—
‘‘(A) terminate the approval of a plan
under this section for a fiscal year if the Sec-
retary determines during the year that the plan
is not substantially in compliance with this sec-
tion; or
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‘‘(B) extend the approval of a plan under
this section (on a conditional basis) for an addi-
tional period not to exceed 12 months.
‘‘(b) REQUIREMENTS.—
‘‘(1) IN GENERAL.—A State’s capital allocation
plan meets the requirements of this section if—
‘‘(A) except as provided in paragraph (2),
the Governor designates a single agency of the
State government as the State review agency
for the development of the plan;
‘‘(B) the Governor designates a single
agency of the State government as the State re-
view agency for the enforcement of the plan;
‘‘(C) all capital expenditures of health care
services in the State (except as provided in
paragraph (4)) are subject to review and ap-
proval under the plan (in accordance with sub-
section (c));
‘‘(D) the State review agency determines
whether capital expenditures are in accordance
with the plan using the criteria specified in sub-
section (c) and notifies the Secretary if it deter-
mines that any capital expenditures subject to
the plan are not in accordance with the plan;
and
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‘‘(E) the State review agency provides the
Secretary with assurances that the agency is
enforcing the plan.
‘‘(2) PERMITTING USE OF REGIONAL REVIEW
AGENCIES.—Notwithstanding paragraph (1)(A), a
Governor may designate a regional review agency to
develop the capital allocation plan for capital ex-
penditures of health care services in a geographic re-
gion in the State, but only if—
‘‘(A) each such geographic region has a
population of at least 500,000;
‘‘(B) if the region includes any portion of
a metropolitan statistical area, the region in-
cludes all of such metropolitan statistical area;
and
‘‘(C) each such regional review agency in
the State—
‘‘(i) is a nonprofit corporation or a
public regional planning body or single
unit of local government,
‘‘(ii) is governed by a board a major-
ity of the members of which are consumers
or purchasers of health care services in the
region, and
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‘‘(iii) has resource allocation and plan-
ning in the region as its primary purpose.
‘‘(3) PERMITTING USE OF MULTISTATE REVIEW
AGENCIES.—The Governors of 2 or more contiguous
States may designate a single review agency to carry
out the requirements of this section with respect to
capital expenditures of health care services in such
States, but only if such agency meets the require-
ments described in paragraph (2) for regional review
agencies.
‘‘(4) SPECIAL
TREATMENT
OF
SERVICES
IN
RURAL AREAS PERMITTED.—
‘‘(A) IN
GENERAL.—A capital allocation
plan need not provide for review of expenditures
for services provided in rural areas in a State
if the State has developed a rural health plan
that meets the requirements of this paragraph.
‘‘(B) REQUIREMENTS FOR RURAL HEALTH
PLAN.—A rural health plan must—
‘‘(i) meet criteria developed by the
Secretary;
‘‘(ii) have as its major focus the as-
surance of access to health care services by
low density rural populations in the State;
and
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‘‘(iii) address at least—
‘‘(I) the regionalization of serv-
ices,
‘‘(II) alternatives to traditional
facilities,
‘‘(III) the development of new or-
ganizational forms, and
‘‘(IV) the needs for special emer-
gency and other health-services-re-
lated transportation needs.
‘‘(c) CONTENTS OF PLAN DESCRIBED.—
‘‘(1) REQUIREMENTS
RELATING
TO
ALLOCA-
TION OF CAPITAL.—
‘‘(A) IN
GENERAL.—Each capital alloca-
tion plan under this subsection shall—
‘‘(i) be developed consistent with cri-
teria developed by the Secretary;
‘‘(ii) be designed to assure that the
needs of the State’s residents for health
care services are met;
‘‘(iii) include occupancy targets for in-
patient hospital facilities;
‘‘(iv) include utilization targets for
services subject to review under the plan;
and
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‘‘(v) provide an opportunity for formal
review and comment before becoming final.
‘‘(B) SPECIFICS.—Each capital allocation
plan must—
‘‘(i) assure access to hospital facilities;
‘‘(ii) identify which facilities (and
parts of facilities) would be closed in order
to reach the occupancy and utilization tar-
gets for health care services;
‘‘(iii) provide for regionalization of
services, where appropriate; and
‘‘(iv) address—
‘‘(I) the special needs and cir-
cumstances of hospitals receiving an
additional 
payment 
under 
section
1886(d)(5)(F), 
Federally-qualified
health centers, and other institutions
and facilities that receive special as-
sistance for providing services to low-
income individuals and other individ-
uals in medically underserved commu-
nities (as defined in section 799(6) of
the Public Health Service Act), and
‘‘(II) the provision of trauma
care.
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‘‘(2) REQUIREMENTS RELATING TO REVIEW.—
‘‘(A) IN GENERAL.—The capital allocation
plan shall—
‘‘(i) require the review of any pro-
posed expenditures for capital expenditures
in excess of $1,000,000 in the area covered
by the plan;
‘‘(ii) permit the review of expenditures
in the area covered by the plan that are
not described in clause (i); and
‘‘(iii) provide that a review shall take
into consideration at least the following
criteria:
‘‘(I) The relationship of the pro-
posed capital expenditure to the plan.
‘‘(II) The need that the popu-
lation to be served has for the pro-
posed services, equipment, or facility
provided by the capital expenditure.
‘‘(III) The availability of alter-
native, less costly, or more effective
methods for providing such services.
‘‘(IV) The impact of the proposed
expenditure on the quality of care and
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the costs of health care services pro-
vided to such population.
‘‘(V) The impact of the proposed
expenditure on the utilization of the
applicant’s other capital resources.
‘‘(VI) The extent to which the
proposed services, equipment, or facil-
ity shall eliminate unnecessary or du-
plicative services.
‘‘(VII) The extent to which the
proposed services, equipment, or facil-
ity will be available to all residents of
the area, regardless of their ability to
pay for the use of such services,
equipment, or facility.
‘‘(B) SPECIAL RULES FOR DETERMINING
AMOUNT
OF
EXPENDITURES.—In determining
the amount of proposed expenditures for a cap-
ital project for purposes of subparagraph (A)(i),
there shall be included—
‘‘(i) the cost of any studies, surveys,
designs, plans, working drawings, specifica-
tions, and other activities essential to the
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acquisition, improvement, expansion, or re-
placement of the capital project with re-
spect to which the expenditure is made;
and
‘‘(ii) any proposed expenditures for
other capital projects which are found by
the review agency to be fundamentally re-
lated to the capital project in question (in
accordance with criteria developed by the
State using guidelines established by the
Secretary).
‘‘(C) 
PROCEDUREAL
REQUIREMENTS.—
The capital allocation plan shall meet require-
ments relating to procedures for review as fol-
lows:
‘‘(i) Reviews must be performed under
a regular schedule that provides that appli-
cations relating to expenditures for similar
capital projects will be considered at the
same time, and that provides an oppor-
tunity for additional applicants to seek ap-
proval for carrying out a capital project if
the review agency determines (based on the
application of an initial sponsor of such a
project) that an expenditure for such a