427
(2) AUTHORIZATION
FOR
APPROPRIATIONS.—
Section 1820(j) (42 U.S.C. 1395i–4(j)) is amended 
to read as follows: 
‘‘(j) AUTHORIZATION OF APPROPRIATIONS.—
‘‘(1) HI TRUST FUND.—There are authorized to 
be appropriated from the Federal Hospital Insur-
ance Trust Fund for making grants to all States 
under—
‘‘(A) subsection (g), $25,000,000 in each 
of the fiscal years 1998 through 2002; and 
‘‘(B) paragraphs (1) and (2) of subsection 
(g), $40,000,000 in each of the fiscal years 
2004 through 2008. 
‘‘(2) GENERAL REVENUES.—There are author-
ized to be appropriated from amounts in the Treas-
ury not otherwise appropriated for making grants to 
all States under subsection (g)(4), $25,000,000 in 
each of the fiscal years 2004 through 2008.’’. 
(3) REQUIREMENT
THAT
STATES
AWARDED 
GRANTS CONSULT WITH THE STATE HOSPITAL ASSO-
CIATION AND RURAL HOSPITALS ON THE MOST AP-
PROPRIATE WAYS TO USE SUCH GRANTS.—
(A) IN
GENERAL.—Section 1820(g) (42 
U.S.C. 1395i–4(g)), as amended by paragraph
428
(1), is amended by adding at the end the fol-
lowing new paragraph:
‘‘(6) REQUIRED
CONSULTATION
FOR
STATES 
AWARDED GRANTS.—A State awarded a grant under 
paragraph (1) or (2) shall consult with the hospital 
association of such State and rural hospitals located 
in such State on the most appropriate ways to use 
the funds under such grant.’’. 
(B) EFFECTIVE
DATE
AND
APPLICA-
TION.—The amendment made by subparagraph 
(A) shall take effect on the date of enactment 
of this Act and shall apply to grants awarded 
on or after such date and to grants awarded 
prior to such date to the extent that funds 
under such grants have not been obligated as of 
such date. 
SEC. 406. AUTHORIZING USE OF ARRANGEMENTS TO PRO-
VIDE CORE HOSPICE SERVICES IN CERTAIN 
CIRCUMSTANCES. 
(a) IN GENERAL.—Section 1861(dd)(5) (42 U.S.C. 
1395x(dd)(5)) is amended by adding at the end the fol-
lowing: 
‘‘(D) In extraordinary, exigent, or other non-routine 
circumstances, such as unanticipated periods of high pa-
tient loads, staffing shortages due to illness or other
429
events, or temporary travel of a patient outside a hospice 
program’s service area, a hospice program may enter into 
arrangements with another hospice program for the provi-
sion by that other program of services described in para-
graph 
(2)(A)(ii)(I). 
The 
provisions 
of 
paragraph 
(2)(A)(ii)(II) shall apply with respect to the services pro-
vided under such arrangements. 
‘‘(E) A hospice program may provide services de-
scribed in paragraph (1)(A) other than directly by the pro-
gram if the services are highly specialized services of a 
registered professional nurse and are provided non-rou-
tinely and so infrequently so that the provision of such 
services directly would be impracticable and prohibitively 
expensive.’’. 
(b) CONFORMING
PAYMENT
PROVISION.—Section 
1814(i) (42 U.S.C. 1395f(i)) is amended by adding at the 
end the following new paragraph:
‘‘(4) In the case of hospice care provided by a hospice 
program 
under 
arrangements 
under 
section 
1861(dd)(5)(D) made by another hospice program, the 
hospice program that made the arrangements shall bill 
and be paid for the hospice care.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to hospice care provided on or after 
October 1, 2003.
430
SEC. 407. SERVICES PROVIDED TO HOSPICE PATIENTS BY 
NURSE PRACTITIONERS, CLINICAL NURSE 
SPECIALISTS, AND PHYSICIAN ASSISTANTS. 
(a) IN GENERAL.—Section 1812(d)(2)(A) (42 U.S.C. 
1395d(d)(2)(A) in the matter following clause (i)(II), is 
amended—
(1) by inserting ‘‘or services described in sec-
tion 1861(s)(2)(K)’’ after ‘‘except that clause (i) 
shall not apply to physicians’ services’’; and 
(2) by inserting ‘‘, or by a physician assistant, 
nurse practitioner, or clinical nurse specialist who is 
not an employee of the hospice program, and who 
the individual identifies as the health care provider 
having the most significant role in the determination 
and delivery of medical care to the individual at the 
time the individual makes an election to receive hos-
pice care,’’ after the ‘‘(if not an employee of the hos-
pice program)’’. 
(b) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall apply to hospice care furnished on or 
after October 1, 2003. 
SEC. 408. AUTHORITY TO INCLUDE COSTS OF TRAINING OF 
PSYCHOLOGISTS 
IN 
PAYMENTS 
TO 
HOS-
PITALS UNDER MEDICARE. 
Effective for cost reporting periods beginning on or 
after October 1, 2004, for purposes of payments to hos-
431
pitals under the medicare program under title XVIII of 
the Social Security Act for costs of approved educational 
activities (as defined in section 413.85 of title 42 of the 
Code of Federal Regulations), such approved educational 
activities shall include professional educational training 
programs, recognized by the Secretary, for psychologists.
SEC. 409. REVISION 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
432
(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, 2004, the applicable Puerto Rico percent-
age is 50 percent and the applicable Federal per-
centage is 50 percent; 
‘‘(iii) on or after October 1, 2004, and before 
October 1, 2009, the applicable Puerto Rico percent-
age is 0 percent and the applicable Federal percent-
age is 100 percent; and 
‘‘(iv) on or after October 1, 2009, the applica-
ble Puerto Rico percentage is 50 percent and the ap-
plicable Federal percentage is 50 percent.’’. 
SEC. 410. AUTHORITY REGARDING GERIATRIC FELLOW-
SHIPS. 
The Secretary shall have the authority to clarify that 
geriatric training programs are eligible for 2 years of fel-
lowship support for purposes of making payments for di-
rect graduate medical education under subsection (h) of
433
section 1886 of the Social Security Act (42 U.S.C. 
1395ww) and indirect medical education under subsection 
(d)(5)(B) of such section on or after October 1, 2003. 
SEC. 411. CLARIFICATION OF CONGRESSIONAL INTENT RE-
GARDING THE COUNTING OF RESIDENTS IN A 
NONPROVIDER SETTING AND A TECHNICAL 
AMENDMENT REGARDING THE 3-YEAR ROLL-
ING AVERAGE AND THE IME RATIO. 
(a) CLARIFICATION OF REQUIREMENTS FOR COUNT-
ING RESIDENTS TRAINING IN NONPROVIDER SETTING.—
(1) 
D-GME.—Section 
1886(h)(4)(E) 
(42 
U.S.C. 1395ww(h)(4)(E)) is amended by adding at 
the end the following new sentence: For purposes of 
the preceding sentence time shall only be counted 
from the effective date of a written agreement be-
tween the hospital and the entity owning or oper-
ating a nonprovider setting. The effective date of 
such written agreement shall be determined in ac-
cordance with generally accepted accounting prin-
ciples. All, or substantially all, of the costs for the 
training program in that setting shall be defined as 
the residents’ stipends and benefits and other costs, 
if any, as determined by the parties.’’. 
(2) 
IME.—Section 
1886(d)(5)(B)(iv) 
(42 
U.S.C. 1395ww(d)(5)(B)(iv)) is amended by adding
434
at the end the following new sentence: For purposes 
of the preceding sentence time shall only be counted 
from the effective date of a written agreement be-
tween the hospital and the entity owning or oper-
ating a nonprovider setting. The effective date of 
such written agreement shall be determined in ac-
cordance with generally accepted accounting prin-
ciples. All, or substantially all, of the costs for the 
training program in that setting shall be defined as 
the residents’ stipends and benefits and other costs, 
if any, as determined by the parties.’’. 
(b) LIMITING ONE-YEAR LAG
IN
THE INDIRECT 
MEDICAL EDUCATION (IME) RATIO AND THREE-YEAR 
ROLLING AVERAGE IN RESIDENT COUNT FOR IME AND 
FOR DIRECT GRADUATE MEDICAL EDUCATION (D-GME) 
TO MEDICAL RESIDENCY PROGRAMS.—
(1) IME RATIO AND IME ROLLING AVERAGE.—
Section 1886(d)(5)(B)(vi) of the Social Security Act 
(42 U.S.C. 1395ww(d)(5)(B)(vi)) is amended by 
adding at the end the following new sentence: ‘‘For 
cost reporting periods beginning during fiscal years 
beginning on or after October 1, 2003, subclauses 
(I) and (II) shall be applied only with respect to a 
hospital’s approved medical residency training pro-
435
grams in the fields of allopathic and osteopathic 
medicine.’’. 
(2) 
D-GME 
ROLLING
AVERAGE.—Section 
1886(h)(4)(G) of the Social Security Act (42 U.S.C. 
1395ww(h)(4)(G)) is amended by adding at the end 
the following new clause: 
‘‘(iv) APPLICATION FOR FISCAL YEAR 
2004 AND SUBSEQUENT YEARS.—For cost 
reporting periods beginning during fiscal 
years beginning on or after October 1, 
2003, clauses (i) through (iii) shall be ap-
plied only with respect to a hospital’s ap-
proved medical residency training program 
in the fields of allopathic and osteopathic 
medicine.’’. 
SEC. 412. LIMITATION ON CHARGES FOR INPATIENT HOS-
PITAL CONTRACT HEALTH SERVICES PRO-
VIDED TO INDIANS BY MEDICARE PARTICI-
PATING HOSPITALS. 
(a) IN GENERAL.—Section 1866(a)(1) (42 U.S.C. 
1395cc(a)(1)) is amended—
(1) in subparagraph (R), by striking ‘‘and’’ at 
the end; 
(2) in subparagraph (S), by striking the period 
and inserting ‘‘, and’’; and
436
(3) by adding at the end the following new sub-
paragraph: 
‘‘(T) in the case of hospitals which furnish 
inpatient hospital services for which payment 
may be made under this title, to be a partici-
pating provider of medical care—
‘‘(i) under the contract health services 
program funded by the Indian Health 
Service and operated by the Indian Health 
Service, an Indian tribe, or tribal organiza-
tion (as those terms are defined in section 
4 of the Indian Health Care Improvement 
Act), with respect to items and services 
that are covered under such program and 
furnished to an individual eligible for such 
items and services under such program; 
and 
‘‘(ii) under a program funded by the 
Indian Health Service and operated by an 
urban Indian organization with respect to 
the purchase of items and services for an 
eligible urban Indian (as those terms are 
defined in such section 4), 
in accordance with regulations promulgated by 
the Secretary regarding admission practices,
437
payment methodology, and rates of payment 
(including the acceptance of no more than such 
payment rate as payment in full for such items 
and services).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply as of a date specified by the Sec-
retary of Health and Human Services (but in no case later 
than 6 months after the date of enactment of this Act) 
to medicare participation agreements in effect (or entered 
into) on or after such date. 
SEC. 413. GAO STUDY AND REPORT ON APPROPRIATENESS 
OF PAYMENTS UNDER THE PROSPECTIVE 
PAYMENT SYSTEM FOR INPATIENT HOSPITAL 
SERVICES. 
(a) STUDY.—The Comptroller General of the United 
States, using the most current data available, shall con-
duct a study to determine—
(1) the appropriate level and distribution of 
payments in relation to costs under the prospective 
payment system under section 1886 of the Social 
Security Act (42 U.S.C. 1395ww) for inpatient hos-
pital services furnished by subsection (d) hospitals 
(as defined in subsection (d)(1)(B) of such section); 
and
438
(2) whether there is a need to adjust such pay-
ments under such system to reflect legitimate dif-
ferences in costs across different geographic areas, 
kinds of hospitals, and types of cases. 
(b) REPORT.—Not later than 24 months after the 
date of enactment of this Act, the Comptroller General 
of the United States shall submit to Congress a report 
on the study conducted under subsection (a) together with 
such recommendations for legislative and administrative 
action as the Comptroller General determines appropriate. 
Subtitle B—Provisions Relating to 
Part B 
SEC. 421. ESTABLISHMENT OF FLOOR ON GEOGRAPHIC AD-
JUSTMENTS OF PAYMENTS FOR PHYSICIANS’ 
SERVICES. 
Section 1848(e)(1) (42 U.S.C. 1395w–4(e)(1)) is 
amended—
(1) in subparagraph (A), by striking ‘‘subpara-
graphs (B) and (C)’’ and inserting ‘‘subparagraphs 
(B), (C), (E), and (F)’’; and 
(2) by adding at the end the following new sub-
paragraphs: 
‘‘(E) FLOOR FOR WORK GEOGRAPHIC INDI-
CES.—
439
‘‘(i) IN
GENERAL.—For purposes of 
payment for services furnished on or after 
January 1, 2004, and before January 1, 
2008, after calculating the work geo-
graphic indices in subparagraph (A)(iii), 
the Secretary shall increase the work geo-
graphic index to the work floor index for 
any locality for which such geographic 
index is less than the work floor index. 
‘‘(ii) WORK FLOOR INDEX.—For pur-
poses of clause (i), the term ‘applicable 
floor index’ means—
‘‘(I) 0.980 with respect to serv-
ices furnished during 2004; and 
‘‘(II) 1.000 for services furnished 
during 2005, 2006, and 2007. 
‘‘(F) FLOOR FOR PRACTICE EXPENSE AND 
MALPRACTICE GEOGRAPHIC INDICES.—For pur-
poses of payment for services furnished on or 
after January 1, 2005, and before January 1, 
2008, after calculating the practice expense and 
malpractice indices in clauses (i) and (ii) of 
subparagraph (A) and in subparagraph (B), the 
Secretary shall increase any such index to 1.00
440
for any locality for which such index is less 
than 1.00.’’. 
SEC. 422. MEDICARE INCENTIVE PAYMENT PROGRAM IM-
PROVEMENTS. 
(a) PROCEDURES FOR SECRETARY, AND NOT PHYSI-
CIANS, TO DETERMINE WHEN BONUS PAYMENTS UNDER 
MEDICARE INCENTIVE PAYMENT PROGRAM SHOULD BE 
MADE.—Section 1833(m) (42 U.S.C. 1395l(m)) is amend-
ed—
(1) by inserting ‘‘(1)’’ after ‘‘(m)’’; and 
(2) by adding at the end the following new 
paragraph: 
‘‘(2) The Secretary shall establish procedures under 
which the Secretary, and not the physician furnishing the 
service, is responsible for determining when a payment is 
required to be made under paragraph (1).’’. 
(b) EDUCATIONAL PROGRAM REGARDING THE MEDI-
CARE INCENTIVE PAYMENT PROGRAM.—The Secretary 
shall establish and implement an ongoing educational pro-
gram to provide education to physicians under the medi-
care program on the medicare incentive payment program 
under section 1833(m) of the Social Security Act (42 
U.S.C. 1395l(m)). 
(c) ONGOING GAO STUDY AND ANNUAL REPORT ON 
THE MEDICARE INCENTIVE PAYMENT PROGRAM.—
441
(1) ONGOING
STUDY.—The Comptroller Gen-
eral of the United States shall conduct an ongoing 
study on the medicare incentive payment program 
under section 1833(m) of the Social Security Act 
(42 U.S.C. 1395l(m)). Such study shall focus on 
whether such program increases the access of medi-
care beneficiaries who reside in an area that is des-
ignated (under section 332(a)(1)(A) of the Public 
Health Service Act (42 U.S.C. 254e(a)(1)(A))) as a 
health professional shortage area to physicians’ serv-
ices under the medicare program. 
(2) ANNUAL REPORTS.—Not later than 1 year 
after the date of enactment of this Act, and annually 
thereafter, the Comptroller General of the United 
States shall submit to Congress a report on the 
study conducted under paragraph (1), together with 
recommendations as the Comptroller General con-
siders appropriate.
SEC. 423. INCREASE IN RENAL DIALYSIS COMPOSITE RATE. 
Notwithstanding any other provision of law, with re-
spect to payment under part B of title XVIII of the Social 
Security Act for renal dialysis services furnished in 2005 
and 2006, the composite rate for such services shall be 
increased by 1.6 percent under section 1881(b)(12) of
442
such Act (42 U.S.C. 1395rr(b)(7)), as added by section 
433(b)(5). 
SEC. 424. EXTENSION OF HOLD HARMLESS PROVISIONS 
FOR SMALL RURAL HOSPITALS AND TREAT-
MENT OF CERTAIN SOLE COMMUNITY HOS-
PITALS TO LIMIT DECLINE IN PAYMENT 
UNDER THE OPD PPS. 
(a) 
SMALL
RURAL
HOSPITALS.—Section 
1833(t)(7)(D)(i) (42 U.S.C. 1395l(t)(7)(D)(i)) is amend-
ed by striking ‘‘2004’’ and inserting ‘‘2006’’. 
(b) 
SOLE
COMMUNITY
HOSPITALS.—Section 
1833(t)(7)(D) (42 U.S.C. 1395l(t)(7)(D)) is amended by 
adding at the end the following: 
‘‘(iii) TEMPORARY
TREATMENT
FOR 
SOLE
COMMUNITY
HOSPITALS.—In the 
case of a sole community hospital (as de-
fined in section 1886(d)(5)(D)(iii)) located 
in a rural area, for covered OPD services 
furnished in 2004, 2005, or 2006, for 
which the PPS amount is less than the 
pre-BBA amount, the amount of payment 
under this subsection shall be increased by 
the amount of such difference.’’.
443
SEC. 425. INCREASE IN PAYMENTS FOR CERTAIN SERVICES 
FURNISHED BY SMALL RURAL AND SOLE 
COMMUNITY HOSPITALS UNDER MEDICARE 
PROSPECTIVE PAYMENT SYSTEM FOR HOS-
PITAL OUTPATIENT DEPARTMENT SERVICES. 
(a) INCREASE.—
(1) IN GENERAL.—In the case of an applicable 
covered OPD service (as defined in paragraph (2)) 
that is furnished by a hospital described in clause (i) 
or (iii) of paragraph (7)(D) of section 1833(t) of the 
Social Security Act (42 U.S.C. 1395l(t)), as amend-
ed by section 424, on or after January 1, 2004, and 
before January 1, 2008, the Secretary shall increase 
the medicare OPD fee schedule amount (as deter-
mined under paragraph (4)(A) of such section) that 
is applicable for such service in that year (deter-
mined without regard to any increase under this sec-
tion in a previous year) by 5 percent. 
(2) APPLICABLE COVERED OPD SERVICES DE-
FINED.—For purposes of this section, the term ‘‘ap-
plicable covered OPD service’’ means a covered clinic 
or emergency room visit that is classified within the 
groups of covered OPD services (as defined in para-
graph (1)(B) of section 1833(t) of the Social Secu-
rity Act (42 U.S.C. 1395l(t))) established under 
paragraph (2)(B) of such section.
445
(f) 
TECHNICAL
AMENDMENT.—Section 
1833(t)(2)(B) (42 U.S.C. 1395l(t)(2)(B)) is amended by 
inserting ‘‘(and periodically revise such groups pursuant 
to paragraph (9)(A))’’ after ‘‘establish groups’’. 
SEC. 426. INCREASE FOR GROUND AMBULANCE SERVICES 
FURNISHED IN A RURAL AREA. 
Section 1834(l) (42 U.S.C. 1395m(l)), as amended 
by section 405(b)(2), is amended by adding at the end 
the following new paragraph: 
‘‘(10) TEMPORARY INCREASE FOR GROUND AM-
BULANCE
SERVICES
FURNISHED
IN
A
RURAL 
AREA.—
‘‘(A) IN GENERAL.—Notwithstanding any 
other provision of this subsection, in the case of 
ground ambulance services furnished on or 
after January 1, 2004, and before January 1, 
2008, for which the transportation originates in 
a rural area described in paragraph (9) or in a 
rural census tract described in such paragraph, 
the fee schedule established under this section, 
with respect to both the payment rate for serv-
ice and the payment rate for mileage, shall pro-
vide that such rates otherwise established, after 
application of any increase under such para-
graph, shall be increased by 5 percent.
446
‘‘(B) APPLICATION
OF
INCREASED
PAY-
MENTS AFTER 2007.—The increased payments 
under subparagraph (A) shall not be taken into 
account in calculating payments for services 
furnished on or after the period specified in 
such subparagraph.’’. 
SEC. 427. ENSURING APPROPRIATE COVERAGE OF AIR AM-
BULANCE SERVICES UNDER AMBULANCE FEE 
SCHEDULE. 
(a) 
COVERAGE.—Section 
1834(l) 
(42 
U.S.C. 
1395m(l)), as amended by section 426, is amended by 
adding at the end the following new paragraph: 
‘‘(11) ENSURING APPROPRIATE COVERAGE OF 
AIR AMBULANCE SERVICES.—
‘‘(A) IN
GENERAL.—The regulations de-
scribed in section 1861(s)(7) shall ensure that 
air ambulance services (as defined in subpara-
graph (C)) are reimbursed under this sub-
section at the air ambulance rate if the air am-
bulance service— 
‘‘(i) is medically necessary based on 
the health condition of the individual being
transported at or immediately prior to the 
time of the transport; and
447
‘‘(ii) complies with equipment and 
crew requirements established by the Sec-
retary. 
‘‘(B) MEDICALLY
NECESSARY.—An air 
ambulance service shall be considered to be 
medically necessary for purposes of subpara-
graph (A)(i) if such service is requested—
‘‘(i) by a physician or a hospital in ac-
cordance with the physician’s or hospital’s 
responsibilities under section 1867 (com-
monly known as the Emergency Medical 
Treatment and Active Labor Act); 
‘‘(ii) as a result of a protocol estab-
lished by a State or regional emergency 
medical service (EMS) agency; 
‘‘(iii) by a physician, nurse practi-
tioner, 
physician 
assistant, 
registered 
nurse, or emergency medical responder 
who reasonably determines or certifies that 
the patient’s condition is such that the 
time needed to transport the individual by 
land or the lack of an appropriate ground 
ambulance, significantly increases the med-
ical risks for the individual; or
448
‘‘(iv) by a Federal or State agency to 
relocate patients following a natural dis-
aster, an act of war, or a terrorist attack. 
‘‘(C) AIR
AMBULANCE
SERVICES
DE-
FINED.—For purposes of this paragraph, the 
term ‘air ambulance service’ means fixed wing 
and rotary wing air ambulance services.’’. 
(b) CONFORMING AMENDMENT.—Section 1861(s)(7) 
(42 U.S.C. 1395x(s)(7)) is amended by inserting ‘‘, sub-
ject to section 1834(l)(11),’’ after ‘‘but’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to services furnished on or after 
January 1, 2004. 
SEC. 428. TREATMENT OF CERTAIN CLINICAL DIAGNOSTIC 
LABORATORY TESTS FURNISHED BY A SOLE 
COMMUNITY HOSPITAL. 
Notwithstanding subsections (a), (b), and (h) of sec-
tion 1833 of the Social Security Act (42 U.S.C. 1395l) 
and section 1834(d)(1) of such Act (42 U.S.C. 
1395m(d)(1)), in the case of a clinical diagnostic labora-
tory test covered under part B of title XVIII of such Act 
that is furnished in 2004 or 2005 by a sole community 
hospital (as defined in section 1886(d)(5)(D)(iii) of such 
Act (42 U.S.C. 1395ww(d)(5)(D)(iii))) as part of services
449
furnished to patients of the hospital, the following rules 
shall apply: 
(1) PAYMENT BASED ON REASONABLE COSTS.—
The amount of payment for such test shall be 100 
percent of the reasonable costs of the hospital in fur-
nishing such test. 
(2) NO BENEFICIARY COST-SHARING.—Notwith-
standing section 432, no coinsurance, deductible, co-
payment, or other cost-sharing otherwise applicable 
under such part B shall apply with respect to such 
test. 
SEC. 429. IMPROVEMENT IN RURAL HEALTH CLINIC REIM-
BURSEMENT. 
Section 1833(f) (42 U.S.C. 1395l(f)) is amended—
(1) in paragraph (1), by striking ‘‘, and’’ at the 
end and inserting a semicolon; 
(2) in paragraph (2)—
(A) by striking ‘‘in a subsequent year’’ and 
inserting ‘‘in 1989 through 2003’’; and 
(B) by striking the period at the end and 
inserting a semicolon; and 
(3) by adding at the end the following new 
paragraphs: 
‘‘(3) in 2004, at $80 per visit; and
450
‘‘(4) in a subsequent year, at the limit estab-
lished under this subsection for the previous year in-
creased by the percentage increase in the MEI (as 
so defined) applicable to primary care services (as so 
defined) furnished as of the first day of that year.’’. 
SEC. 430. ELIMINATION OF CONSOLIDATED BILLING FOR 
CERTAIN SERVICES UNDER THE MEDICARE 
PPS FOR SKILLED NURSING FACILITY SERV-
ICES. 
(a) CERTAIN RURAL HEALTH CLINIC AND FEDER-
ALLY QUALIFIED HEALTH CENTER SERVICES.—Section 
1888(e) (42 U.S.C. 1395yy(e)) is amended—
(1) in paragraph (2)(A)(i)(II), by striking 
‘‘clauses (ii) and (iii)’’ and inserting ‘‘clauses (ii), 
(iii), and (iv)’’; and 
(2) by adding at the end of paragraph (2)(A) 
the following new clause: 
‘‘(iv) EXCLUSION OF CERTAIN RURAL 
HEALTH CLINIC AND FEDERALLY QUALI-
FIED
HEALTH
CENTER
SERVICES.—Serv-
ices described in this clause are—
‘‘(I) rural health clinic services 
(as defined in paragraph (1) of sec-
tion 1861(aa)); and
451
‘‘(II) Federally qualified health 
center services (as defined in para-
graph (3) of such section);
that would be described in clause (ii) if such 
services were furnished by a physician or practi-
tioner not affiliated with a rural health clinic or 
a Federally qualified health center.’’. 
(b) CERTAIN SERVICES FURNISHED BY AN ENTITY 
JOINTLY OWNED BY HOSPITALS AND CRITICAL ACCESS 
HOSPITALS.—For 
purposes 
of 
applying 
section 
411.15(p)–(3)(iii) of title 42 of the Code of Federal Regu-
lations, the Secretary shall treat an entity that is 100 per-
cent owned as a joint venture by 2 Medicare-participating 
hospitals or critical access hospitals as a Medicare-partici-
pating hospital or a critical access hospital. 
(c) 
TECHNICAL
AMENDMENTS.—Sections 
1842(b)(6)(E) 
and 
1866(a)(1)(H)(ii) 
(42 
U.S.C. 
1395u(b)(6)(E); 1395cc(a)(1)(H)(ii)) are each amended 
by striking ‘‘section 1888(e)(2)(A)(ii)’’ and inserting 
‘‘clauses (ii), (iii), and (iv) of section 1888(e)(2)(A)’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section and the provision of subsection (b) shall apply 
to services furnished on or after January 1, 2004.
452
SEC. 431. FREEZE IN PAYMENTS FOR CERTAIN ITEMS OF 
DURABLE MEDICAL EQUIPMENT AND CER-
TAIN ORTHOTICS; ESTABLISHMENT OF QUAL-
ITY STANDARDS AND ACCREDITATION RE-
QUIREMENTS FOR DME PROVIDERS. 
(a) FREEZE FOR DME.—Section 1834(a)(14) (42 
U.S.C. 1395m(a)(14)) is amended—
(1) in subparagraph (E), by striking ‘‘and’’ at 
the end; 
(2) in subparagraph (F)—
(A) by striking ‘‘a subsequent year’’ and 
inserting ‘‘2003’’; and 
(B) by striking ‘‘the previous year.’’ and 
inserting ‘‘2002;’’; and 
(3) by adding at the end the following new sub-
paragraphs: 
‘‘(G) for each of the years 2004 through 
2010—
‘‘(i) in the case of class III medical 
devices described in section 513(a)(1)(C) 
of the Federal Food, Drug, and Cosmetic 
Act (21 U.S.C. 360(c)(1)(C)), the percent-
age increase described in subparagraph 
(B) for the year involved; and
453
‘‘(ii) in the case of covered items not 
described in clause (i), 0 percentage points; 
and 
‘‘(H) for a subsequent year, the percentage 
increase described in subparagraph (B) for the 
year involved.’’. 
(b) FREEZE
FOR OFF-THE-SHELF ORTHOTICS.—
Section 1834(h)(4)(A) of the Social Security Act (42 
U.S.C. 1395m(h)(4)(A)) is amended—
(1) in clause (vii), by striking ‘‘and’’ at the end; 
(2) in clause (viii), by striking ‘‘a subsequent 
year’’ and inserting ‘‘2003’’; and 
(3) by adding at the end the following new 
clauses: 
‘‘(ix) for each of the years 2004 
through 2010—
‘‘(I) in the case of orthotics that 
have not been custom-fabricated, 0 
percent; and 
‘‘(II) in the case of prosthetics, 
prosthetic devices, and custom-fab-
ricated orthotics, the percentage in-
crease described in clause (viii) for the 
year involved; and
454
‘‘(x) for 2011 and each subsequent 
year, the percentage increase described in 
clause (viii) for the year involved;’’. 
(c) ESTABLISHMENT OF QUALITY STANDARDS AND 
ACCREDITATION REQUIREMENTS
FOR DURABLE MED-
ICAL
EQUIPMENT
PROVIDERS.—Section 1834(a) (42 
U.S.C. 1395m(a)) is amended—
(1) by redesignating paragraph (17), as added 
by section 4551(c)(1) of the Balanced Budget Act of 
1997 (111 Stat. 458), as paragraph (19); and 
(2) by adding at the end the following new 
paragraph: 
‘‘(20) IDENTIFICATION
OF
QUALITY
STAND-
ARDS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (C), the Secretary shall establish and im-
plement quality standards for providers of dura-
ble medical equipment throughout the United 
States that are developed by recognized inde-
pendent accreditation organizations (as des-
ignated under subparagraph (B)(i)) and with 
which such providers shall be required to com-
ply in order to—
‘‘(i) participate in the program under 
this title;
455
‘‘(ii) furnish any item or service de-
scribed in subparagraph (D) for which 
payment is made under this part; and 
‘‘(iii) receive or retain a provider or 
supplier number used to submit claims for 
reimbursement for any item or service de-
scribed in subparagraph (D) for which 
payment may be made under this title. 
‘‘(B) DESIGNATION OF INDEPENDENT AC-
CREDITATION ORGANIZATIONS.—
‘‘(i) IN GENERAL.—Not later that the 
date that is 6 months after the date of en-
actment of the Prescription Drug and 
Medicare Improvement Act of 2003, the 
Secretary shall designate independent ac-
creditation organizations for purposes of 
subparagraph (A). 
‘‘(ii) CONSULTATION.—In determining 
which independent accreditation organiza-
tions to designate under clause (i), the 
Secretary shall consult with an expert out-
side advisory panel composed of an appro-
priate selection of representatives of physi-
cians, practitioners, suppliers, and manu-
facturers to review (and advise the Sec-
456
retary concerning) selection of accrediting 
organizations and the quality standards of 
such organizations. 
‘‘(C) QUALITY
STANDARDS.—The quality 
standards described in subparagraph (A) may 
not be less stringent than the quality standards 
that would otherwise apply if this paragraph 
did not apply and shall include consumer serv-
ices standards. 
‘‘(D) ITEMS AND SERVICES DESCRIBED.—
The items and services described in this sub-
paragraph are covered items (as defined in 
paragraph (13)) for which payment may other-
wise be made under this subsection, other than 
items used in infusion, and inhalation drugs 
used in conjunction with durable medical equip-
ment. 
‘‘(E) PHASED-IN IMPLEMENTATION.—The 
application of the quality standards described in 
subparagraph (A) shall be phased-in over a pe-
riod that does not exceed 3 years.’’. 
SEC. 432. APPLICATION OF COINSURANCE AND DEDUCT-
IBLE FOR CLINICAL DIAGNOSTIC LABORA-
TORY TESTS. 
(a) COINSURANCE.—
457
(1) IN GENERAL.—Section 1833(a) (42 U.S.C. 
1395l(a)) is amended—
(A) in paragraph (1)(D)(i), by striking 
‘‘(or 100 percent, in the case of such tests for 
which payment is made on an assignment-re-
lated basis)’’; and 
(B) in paragraph (2)(D)(i), by striking 
‘‘(or 100 percent, in the case of such tests for 
which payment is made on an assignment-re-
lated basis or to a provider having an agree-
ment under section 1866)’’. 
(2) CONFORMING AMENDMENT.—The third sen-
tence of section 1866(a)(2)(A) of the Social Security 
Act (42 U.S.C. 1395cc(a)(2)(A) is amended by 
striking ‘‘and with respect to clinical diagnostic lab-
oratory tests for which payment is made under part 
B’’. 
(b) DEDUCTIBLE.—Section 1833(b) of the Social Se-
curity Act (42 U.S.C. 1395l(b)) is amended—
(1) by striking paragraph (3); and 
(2) by redesignating paragraphs (4), (5), and 
(6) as paragraphs (3), (4), and (5), respectively.
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to tests furnished on or after Janu-
ary 1, 2004.
458
SEC. 433. BASING MEDICARE PAYMENTS FOR COVERED 
OUTPATIENT DRUGS ON MARKET PRICES. 
(a) 
MEDICARE
MARKET
BASED
PAYMENT 
AMOUNT.—Section 1842(o) (42 U.S.C. 1395u(o)) is 
amended—
(1) in paragraph (1), by striking ‘‘equal to 95 
percent of the average wholesale price.’’ and insert-
ing ‘‘equal to—
‘‘(A) in the case of a drug or biological fur-
nished prior to January 1, 2004, 95 percent of the 
average wholesale price; and 
‘‘(B) in the case of a drug or biological fur-
nished on or after January 1, 2004, the payment 
amount specified in—
‘‘(i) in the case of such a drug or biological 
that is first available for payment under this 
part on or before April 1, 2003, paragraph (4); 
and 
‘‘(ii) in the case of such a drug or biologi-
cal that is first available for payment under this 
part after such date, paragraph (5).’’; and 
(2) by adding at the end the following new 
paragraphs: 
‘‘(4)(A) Subject to subparagraph (C), the payment 
amount specified in this paragraph for a year for a drug 
or biological is an amount equal to the lesser of—
459
‘‘(i) the average wholesale price for the drug or 
biological; or 
‘‘(ii) the amount determined under subpara-
graph (B) 
‘‘(B)(i) Subject to clause (ii), the amount determined 
under this subparagraph is an amount equal to—
‘‘(I) in the case of a drug or biological fur-
nished in 2004, 85 percent of the average wholesale 
price for the drug or biological (determined as of 
April 1, 2003); and 
‘‘(II) in the case of a drug or biological fur-
nished in 2005 or a subsequent year, the amount de-
termined under this subparagraph for the previous 
year increased by the percentage increase in the con-
sumer price index for medical care for the 12-month 
period ending with June of the previous year. 
‘‘(ii) In the case of a vaccine described in subpara-
graph (A) or (B) of section 1861(s)(10), the amount de-
termined under this subparagraph is an amount equal to 
the average wholesale price for the drug or biological. 
‘‘(C)(i) The Secretary shall establish a process under 
which the Secretary determines, for such drugs or 
biologicals as the Secretary determines appropriate, 
whether the widely available market price to physicians or 
suppliers for the drug or biological furnished in a year
460
is different from the payment amount established under 
subparagraph (B) for the year. Such determination shall 
be based on the information described in clause (ii) as the 
Secretary determines appropriate. 
‘‘(ii) The information described in this clause is the 
following information: 
‘‘(I) Any report on drug or biological market 
prices by the Inspector General of the Department 
of Health and Human Services or the Comptroller 
General of the United States that is made available 
after December 31, 1999. 
‘‘(II) A review of drug or biological market 
prices by the Secretary, which may include informa-
tion on such market prices from insurers, private 
health plans, manufacturers, wholesalers, distribu-
tors, physician supply houses, specialty pharmacies, 
group purchasing arrangements, physicians, sup-
pliers, or any other source the Secretary determines 
appropriate. 
‘‘(III) Data and information submitted by the 
manufacturer of the drug or biological or by another 
entity. 
‘‘(IV) Other data and information as deter-
mined appropriate by the Secretary.
461
‘‘(iii) If the Secretary makes a determination under 
clause (i) with respect to the widely available market price 
for a drug or biological for a year, the following provisions 
shall apply: 
‘‘(I) Subject to clause (iv), the amount deter-
mined under this subparagraph shall be substituted 
for the amount determined under subparagraph (B) 
for purposes of applying subparagraph (A)(ii)(I) for 
the year and all subsequent years. 
‘‘(II) The Secretary may make subsequent de-
terminations under clause (i) with respect to the 
widely available market price for the drug or biologi-
cal. 
‘‘(III) If the Secretary does not make a subse-
quent determination under clause (i) with respect to 
the widely available market price for the drug or bio-
logical for a year, the amount determined under this 
subparagraph shall be an amount equal to the 
amount determined under this subparagraph for the 
previous year increased by the percentage increase 
described in subparagraph (B)(i)(II) for the year in-
volved. 
‘‘(iv) If the first determination made under clause (i) 
with respect to the widely available market price for a 
drug or biological would result in a payment amount in
462
a year that is more than 15 percent less than the amount 
determined under subparagraph (B) for the drug or bio-
logical for the previous year (or, for 2004, the payment 
amount determined under paragraph (1)(A), determined 
as of April 1, 2003), the Secretary shall provide for a tran-
sition to the amount determined under clause (i) so that 
the payment amount is reduced in annual increments 
equal to 15 percent of the payment amount in such pre-
vious year until the payment amount is equal to the 
amount determined under clause (i), as increased each 
year by the percentage increase described in subparagraph 
(B)(i)(II) for the year. The preceding sentence shall not 
apply to a drug or biological where a generic version of 
the drug or biological first enters the market on or after 
January 1, 2004 (even if the generic version of the drug 
or biological is not marketed under the chemical name of 
such drug or biological). 
‘‘(5) In the case of a drug or biological that is first 
available for payment under this part after April 1, 2003, 
the following rules shall apply: 
‘‘(A) As a condition of obtaining a code to re-
port such new drug or biological and to receive pay-
ment under this part, a manufacturer shall provide 
the Secretary (in a time, manner, and form ap-
proved by the Secretary) with data and information
463
on prices at which the manufacturer estimates phy-
sicians and suppliers will be able to routinely obtain 
the drug or biological in the market during the first 
year that the drug or biological is available for pay-
ment under this part and such additional informa-
tion that the manufacturer determines appropriate. 
‘‘(B) During the year that the drug or biologi-
cal is first available for payment under this part, the 
manufacturer of the drug or biological shall provide 
the Secretary (in a time, manner, and form ap-
proved by the Secretary) with updated information 
on the actual market prices paid by such physicians 
or suppliers for the drug or biological in the year. 
‘‘(C) The amount specified in this paragraph 
for a drug or biological for the year described in 
subparagraph (B) is equal to an amount determined 
by the Secretary based on the information provided 
under subparagraph (A) and other information that 
the Secretary determines appropriate. 
‘‘(D) The amount specified in this paragraph 
for a drug or biological for the year after the year 
described in subparagraph (B) is equal to an 
amount determined by the Secretary based on the 
information provided under subparagraph (B) and
464
other information that the Secretary determines ap-
propriate. 
‘‘(E) The amount specified in this paragraph 
for a drug or biological for the year beginning after 
the year described in subparagraph (D) and each 
subsequent year is equal to the lesser of—
‘‘(i) the average wholesale price for the 
drug or biological; or 
‘‘(ii) the amount determined—
‘‘(I) by the Secretary under paragraph 
(4)(C)(i) with respect to the widely avail-
able market price for the drug or biological 
for the year, if such paragraph was applied 
by substituting ‘the payment determined 
under paragraph (5)(E)(ii)(II) for the 
year’ for ‘established under subparagraph 
(B) for the year’; and 
‘‘(II) if no determination described in 
subclause (I) is made for the drug or bio-
logical for the year, under this subpara-
graph with respect to the drug or biological 
for the previous year increased by the per-
centage increase described in paragraph 
(4)(B)(i)(II) for the year involved.’’.
465
(b) ADJUSTMENTS TO PAYMENT AMOUNTS FOR AD-
MINISTRATION OF DRUGS AND BIOLOGICALS.—
(1) ADJUSTMENT IN PHYSICIAN PRACTICE EX-
PENSE
RELATIVE
VALUE
UNITS.—Section 
1848(c)(2) (42 U.S.C. 1395w–4(c)(2)) is amended—
(A) in subparagraph (B)—
(i) in clause (ii)(II), by striking ‘‘The 
adjustments’’ and inserting ‘‘Subject to 
clause (iv), the adjustments’’; and 
(ii) by adding at the end the following 
new clause: 
‘‘(iv) 
EXEMPTION
FROM
BUDGET 
NEUTRALITY IN 2004.—Any additional ex-
penditures under this part that are attrib-
utable to subparagraph (H) shall not be 
taken into account in applying clause 
(ii)(II) for 2004.’’; and 
(B) by adding at the end the following new 
subparagraph: 
‘‘(H) ADJUSTMENTS
IN
PRACTICE
EX-
PENSE RELATIVE VALUE UNITS FOR DRUG AD-
MINISTRATION SERVICES FOR 2004.—In estab-
lishing the physician fee schedule under sub-
section (b) with respect to payments for services 
furnished in 2004, the Secretary shall, in deter-
466
mining practice expense relative value units 
under this subsection, utilize a survey sub-
mitted to the Secretary as of January 1, 2003, 
by a physician specialty organization pursuant 
to section 212 of the Medicare, Medicaid, and 
SCHIP Balanced Budget Refinement Act of 
1999 if the survey—
‘‘(i) covers practice expenses for on-
cology administration services; and 
‘‘(ii) meets criteria established by the 
Secretary for acceptance of such surveys.’’. 
(2) PAYMENT FOR MULTIPLE CHEMOTHERAPY 
AGENTS FURNISHED ON A SINGLE DAY THROUGH 
THE PUSH TECHNIQUE.—
(A) REVIEW
OF
POLICY.—The Secretary 
shall review the policy, as in effect on the date 
of enactment of this Act, with respect to pay-
ment under section 1848 of the Social Security 
Act (42 U.S.C. 1395w–4) for the administra-
tion 
of 
more 
than 
anticancer 
chemotherapeutic agent to an individual on a 
single day through the push technique. 
(B) MODIFICATION
OF
POLICY.—After 
conducting the review under subparagraph (A), 
the Secretary shall modify such payment policy
467
if the Secretary determines such modification to 
be appropriate. 
(C) EXEMPTION
FROM
BUDGET
NEU-
TRALITY UNDER PHYSICIAN FEE SCHEDULE.—
If the Secretary modifies such payment policy 
pursuant to subparagraph (B), any increased 
expenditures under title XVIII of the Social Se-
curity Act resulting from such modification 
shall be treated as additional expenditures at-
tributable to subparagraph (H) of section 
1848(c)(2) of the Social Security Act (42 
U.S.C. 1395w–4(c)(2)), as added by paragraph 
(1)(B), for purposes of applying the exemption 
to 
budget 
neutrality 
under 
subparagraph 
(B)(iv) of such section, as added by paragraph 
(1)(A). 
(3) TREATMENT
OF
OTHER
SERVICES
CUR-
RENTLY IN THE NONPHYSICIAN WORK POOL.—The 
Secretary shall make adjustments to the nonphysi-
cian work pool methodology (as such term is used in 
the final rule promulgated by the Secretary in the 
Federal Register on December 31, 2002 (67 Fed. 
Reg. 251)), for the determination of practice ex-
pense relative value units under the physician fee 
schedule under section 1848(c)(2)(C)(ii) of the So-
468
cial Security Act (42 U.S.C. 1395w–4(c)(2)(C)(ii)), 
so that the practice expense relative value units for 
services determined under such methodology are not 
disproportionately reduced relative to the practice 
expense relative value units of services not deter-
mined under such methodology, as a result of the 
amendments to such Act made by paragraph (1). 
(4) ADMINISTRATION OF BLOOD CLOTTING FAC-
TORS.—Section 1842(o) (42 U.S.C. 1395u(o)), as 
amended by subsection (a)(2), is amended by adding 
at the end the following new paragraph: 
‘‘(6)(A) Subject to subparagraph (B), in the case of 
clotting factors furnished on or after January 1, 2004, 
the Secretary shall, after reviewing the January 2003 re-
port to Congress by the Comptroller General of the United 
States entitled ‘Payment for Blood Clotting Factor Ex-
ceeds Providers Acquisition Cost’ (GAO–03–184), provide 
for a separate payment for the administration of such 
blood clotting factors in an amount that the Secretary de-
termines to be appropriate. 
‘‘(B) In determining the separate payment amount 
under subparagraph (A) for blood clotting factors fur-
nished in 2004, the Secretary shall ensure that the total 
amount of payments under this part (as estimated by the 
Secretary) for such factors under paragraphs (4) and (5)
469
and such separate payments for such factors does not ex-
ceed the total amount of payments that would have been 
made for such factors under this part (as estimated by 
the Secretary) if the amendments made by section 433 
of the Prescription Drug and Medicare Improvement Act 
of 2003 had not been enacted. 
‘‘(C) The separate payment amount under this sub-
paragraph for blood clotting factors furnished in 2005 or 
a subsequent year shall be equal to the separate payment 
amount determined under this paragraph for the previous 
year increased by the percentage increase described in 
paragraph (4)(B)(i)(II) for the year involved.’’.
(5) INCREASE IN COMPOSITE RATE FOR END 
STAGE
RENAL
DISEASE
FACILITIES.—Section 
1881(b) (42 U.S.C. 1395rr(b) is amended—
(A) in paragraph (7), by adding at the end 
the following new sentence: ‘‘In the case of di-
alysis services furnished in 2004 or a subse-
quent year, the composite rate for such services 
shall be determined under paragraph (12).’’; 
and 
(B) by adding at the end the following new 
paragraph: 
‘‘(12)(A) In the case of dialysis services furnished 
during 2004, the composite rate for such services shall be
470
the composite rate that would otherwise apply under para-
graph (7) for the year increased by an amount to ensure 
(as estimated by the Secretary) that—
‘‘(i) the sum of the total amount of—
‘‘(I) the composite rate payments for such 
services for the year, as increased under this 
paragraph; and 
‘‘(II) 
the 
payments 
for 
drugs 
and 
biologicals (other than erythropoetin) furnished 
in connection with the furnishing of renal dialy-
sis services and separately billed by renal dialy-
sis facilities under paragraphs (4) and (5) of 
section 1842(o) for the year; is equal to 
‘‘(ii) the sum of the total amount of the com-
posite rate payments under paragraph (7) for the 
year and the payments for the separately billed 
drugs and biologicals described in clause (i)(II) that 
would have been made if the amendments made by 
section 433 of the Prescription Drug and Medicare 
Improvement Act of 2003 had not been enacted. 
‘‘(B) Subject to subparagraph (E), in the case of di-
alysis services furnished in 2005, the composite rate for 
such services shall be an amount equal to the composite 
rate established under subparagraph (A), increased by 
0.05 percent and further increased pursuant to section
471
423 of the Prescription Drug and Medicare Improvement 
Act of 2003. 
‘‘(C) Subject to subparagraph (E), in the case of di-
alysis services furnished in 2006, the composite rate for 
such services shall be an amount equal to the composite 
rate established under subparagraph (B), increased by 
0.05 percent. 
‘‘(D) Subject to subparagraph (E), in the case of di-
alysis services furnished in 2007 or a subsequent year, the 
composite rate for such services shall be an amount equal 
to the composite rate established under this paragraph for 
the previous year (determined as if such section 423 had 
not been enacted), increased by 0.05 percent. 
‘‘(E) If the Secretary implements a reduction in the 
payment amount under paragraph (4)(C) or (5) for a drug 
or biological described in subparagraph (A)(i)(II) for a 
year after 2004, the Secretary shall, as estimated by the 
Secretary—
‘‘(i) increase the composite rate for dialysis 
services furnished in such year in the same manner 
that the composite rate for such services for 2004 
was increased under subparagraph (A); and 
‘‘(ii) increase the percentage increase under 
subparagraph (C) or (D) (as applicable) for years 
after the year described in clause (i) to ensure that
472
such increased percentage would result in expendi-
tures equal to the sum of the total composite rate 
payments for such services for such years and the 
total payments for drugs and biologicals described in 
subparagraph (A)(i)(II) is equal to the sum of the 
total amount of the composite rate payments under 
this paragraph for such years and the payments for 
the drugs and biologicals described in subparagraph 
(A)(i)(II) that would have been made if the reduc-
tion in payment amount described in subparagraph 
had not been made. 
‘‘(F) There shall be no administrative or judicial re-
view under section 1869, section 1878, or otherwise, of 
determinations of payment amounts, methods, or adjust-
ments under this paragraph.’’. 
(6) HOME INFUSION DRUGS.—Section 1842(o) 
(42 U.S.C. 1395u(o)), as amended by subsection 
(a)(2) and paragraph (4), is amended by adding at 
the end the following new paragraph: 
‘‘(7)(A) Subject to subparagraph (B), in the case of 
infusion drugs and biologicals furnished through an item 
of durable medical equipment covered under section 
1861(n) on or after January 1, 2004, the Secretary may 
make separate payments for furnishing such drugs and 
biologicals in an amount determined by the Secretary if
473
the Secretary determines such separate payment to be ap-
propriate. 
‘‘(B) In determining the amount of any separate pay-
ment under subparagraph (A) for a year, the Secretary 
shall ensure that the total amount of payments under this 
part for such infusion drugs and biologicals for the year 
and such separate payments for the year does not exceed 
the total amount of payments that would have been made 
under this part for the year for such infusion drugs and 
biologicals if section 433 of the Prescription Drug and 
Medicare Improvement Act of 2003 had not been en-
acted.’’. 
(7) INHALATION DRUGS.—Section 1842(o) (42 
U.S.C. 1395u(o)), as amended by subsection (a)(2) 
and paragraphs (4) and (6), is amended by adding 
at the end the following new paragraph: 
‘‘(8)(A) Subject to subparagraph (B), in the case of 
inhalation drugs and biologicals furnished through durable 
medical equipment covered under section 1861(n) on or 
after January 1, 2004, the Secretary may increase pay-
ments for such equipment under section 1834(a) and may 
make separate payments for furnishing such drugs and 
biologicals if the Secretary determines such increased or 
separate payments are necessary to appropriately furnish 
such equipment and drugs and biologicals to beneficiaries.
474
‘‘(B) The total amount of any increased payments 
and separate payments under subparagraph (A) for a year 
may not exceed an amount equal to 10 percent of the 
amount (as estimated by the Secretary) by which—
‘‘(i) the total amount of payments that would 
have been made for such drugs and biologicals for 
the year if section 433 of the Prescription Drug and 
Medicare Improvement Act of 2003 had not been en-
acted; exceeds 
‘‘(ii) the total amount of payments for such 
drugs and biologicals under paragraphs (4) and 
(5).’’. 
(8) PHARMACY DISPENSING FEE FOR CERTAIN 
DRUGS AND BIOLOGICALS.—Section 1842(o)(2) (42 
U.S.C. 1395u(o)(2)) is amended to read as follows: 
‘‘(2) If payment for a drug or biological is made to 
a licensed pharmacy approved to dispense drugs or 
biologicals under this part, the Secretary—
‘‘(A) in the case of an immunosuppressive drug 
described in subparagraph (J) of section 1861(s)(2) 
and an oral drug described in subparagraph (Q) or 
(T) of such section, shall pay a dispensing fee deter-
mined appropriate by the Secretary (less the applica-
ble deductible and coinsurance amounts) to the 
pharmacy; and
475
‘‘(B) in the case of a drug or biological not de-
scribed in subparagraph (A), may pay a dispensing 
fee determined appropriate by the Secretary (less 
the applicable deductible and coinsurance amounts) 
to the pharmacy.’’.
(9) PAYMENT
FOR
CHEMOTHERAPY
DRUGS 
PURCHASED
BUT
NOT ADMINISTERED
BY PHYSI-
CIANS.—Section 1842(o) (42 U.S.C. 1395u(o)), as 
amended by subsection (a)(2) and paragraphs (4), 
(6) and (7), is amended by adding at the end the 
following new paragraph: 
‘‘(9)(A) Subject to subparagraph (B), the Sec-
retary may increase (in an amount determined ap-
propriate) the amount of payments to physicians for 
anticancer chemotherapeutic drugs or biologicals 
that would otherwise be made under this part in 
order to compensate such physicians for anticancer 
chemotherapeutic drugs or biologicals that are pur-
chased by physicians with a reasonable intent to ad-
minister to an individual enrolled under this part 
but which cannot be administered to such individual 
despite the reasonable efforts of the physician. 
‘‘(B) The total amount of increased payments 
made under subparagraph (A) in a year (as esti-
mated by the Secretary) may not exceed an amount
476
equal to 1 percent of the total amount of payments 
made under paragraphs (4) and (5) for such 
anticancer chemotherapeutic drugs or biologicals fur-
nished by physicians in such year (as estimated by 
the Secretary).’’. 
(c) LINKAGE OF REVISED DRUG PAYMENTS AND IN-
CREASES FOR DRUG ADMINISTRATION.—The Secretary 
shall not implement the revisions in payment amounts for 
a category of drug or biological as a result of the amend-
ments made by subsection (a) unless the Secretary concur-
rently implements the adjustments to payment amounts 
for administration of such category of drug or biological 
for which the Secretary is required to make an adjust-
ment, as specified in the amendments made by, and provi-
sions of, subsection (b). 
(d) PROHIBITION OF ADMINISTRATIVE AND JUDI-
CIAL REVIEW.—
(1) DRUGS.—Section 1842(o) (42 U.S.C. 
1395u(o)), as amended by subsection (a)(2) and 
paragraphs (4), (6), (7), and (9) of subsection (b), 
is amended by adding at the end the following new 
paragraph: 
‘‘(10) There shall be no administrative or judicial re-
view under section 1869, section 1878, or otherwise, of 
determinations of payment amounts, methods, or adjust-
477
ments under paragraph (2) or paragraphs (4) through 
(9).’’. 
(2) 
PHYSICIAN
FEE
SCHEDULE.—Section 
1848(i)(1) (42 U.S.C. 1395w–4(i)(1)) is amended—
(A) in subparagraph (D), by striking 
‘‘and’’ at the end; 
(B) in subparagraph (E), by striking the 
period at the end and inserting ‘‘, and’’; and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(F) adjustments in practice expense rel-
ative value units under subsection (c)(2)(H).’’. 
(3) MULTIPLE
CHEMOTHERAPY
AGENTS
AND 
OTHER SERVICES CURRENTLY ON THE NON-PHYSI-
CIAN WORK POOL.—There shall be no administrative 
or judicial review under section 1869, section 1878, 
or otherwise, of determinations of payment amounts, 
methods, or adjustments under paragraphs (2) and 
(3) of subsection (b). 
(e) STUDIES AND REPORTS.—
(1) GAO STUDY AND REPORT ON BENEFICIARY 
ACCESS TO DRUGS AND BIOLOGICALS.—
(A) STUDY.—The Comptroller General of 
the United States shall conduct a study that ex-
amines the impact the provisions of, and the
478
amendments made by, this section have on ac-
cess by medicare beneficiaries to drugs and 
biologicals covered under the medicare program. 
(B) REPORT.—Not later than January 1, 
2006, the Comptroller General shall submit a 
report to Congress on the study conducted 
under subparagraph (A) together with such rec-
ommendations as the Comptroller General de-
termines to be appropriate. 
(2) STUDY AND REPORT BY THE HHS INSPEC-
TOR GENERAL ON MARKET PRICES OF DRUGS AND 
BIOLOGICALS.—
(A) STUDY.—The Inspector General of the 
Department of Health and Human Services 
shall conduct 1 or more studies that—
(i) examine the market prices that 
drugs and biologicals covered under the 
medicare program are widely available to 
physicians and suppliers; and 
(ii) compare such widely available 
market prices to the payment amount for 
such drugs and biologicals under section 
1842(o) of the Social Security Act (42 
U.S.C. 1395u(o).
479
(B) REQUIREMENT.—In conducting the 
study under subparagraph (A), the Inspector 
General shall focus on those drugs and 
biologicals that represent the largest portions of 
expenditures under the medicare program for 
drugs and biologicals.
(C) REPORT.—The Inspector General shall 
prepare a report on any study conducted under 
subparagraph (A). 
SEC. 434. INDEXING PART B DEDUCTIBLE TO INFLATION. 
The first sentence of section 1833(b) (42 U.S.C. 
1395l(b)) is amended by striking ‘‘and $100 for 1991 and 
subsequent years’’ and inserting the following: ‘‘, $100 for 
1991 through 2005, $125 for 2006, and for 2007 and 
thereafter, the amount in effect for the previous year, in-
crease by the percentage increase in the consumer price 
index for all urban consumers (U.S. city average) for the 
12-month period ending with June of the previous year, 
rounded to the nearest dollar’’. 
SEC. 435. REVISIONS TO REASSIGNMENT PROVISIONS. 
(a) IN GENERAL.—Section 1842(b)(6)(A)(ii) (42 
U.S.C. 1395u(b)(6)(A)(ii)) is amended to read as follows: 
‘‘(ii) where the service was provided under a contractual 
arrangement between such physician or other person and 
an entity (as defined by the Secretary), to the entity if
480
under such arrangement such entity submits the bill for 
such service and such arrangement meets such program 
integrity and other safeguards as the Secretary may deter-
mine to be appropriate,’’. 
(b) CONFORMING AMENDMENT.—The second sen-
tence of section 1842(b)(6) (42 U.S.C. 1395u(b)(6)) is 
amended by striking ‘‘except to an employer or facility as 
described in clause (A)’’ and inserting ‘‘except to an em-
ployer or entity as described in subparagraph (A)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to payments made on or after the 
date of enactment of this Act. 
SEC. 436. EXTENSION OF TREATMENT OF CERTAIN PHYSI-
CIAN PATHOLOGY SERVICES UNDER MEDI-
CARE. 
Section 542(c) of BIPA (114 Stat. 2763A–551) is 
amended by inserting ‘‘, and for services furnished during 
2004 or 2005’’ before the period at the end.
SEC. 437. ADEQUATE REIMBURSEMENT FOR OUTPATIENT 
PHARMACY THERAPY UNDER THE HOSPITAL 
OUTPATIENT PPS. 
(a) 
SPECIAL
RULES
FOR
DRUGS
AND 
BIOLOGICALS.—Section 1833(t) (42 U.S.C. 1395(t)) is 
amended—
481
(1) by redesignating paragraph (13) as para-
graph (14); and 
(2) by inserting after paragraph (12) the fol-
lowing new paragraph: 
‘‘(13) SPECIAL
RULES
FOR
CERTAIN
DRUGS 
AND BIOLOGICALS.—
‘‘(A) BEFORE 2007.—
‘‘(i) IN
GENERAL.—Notwithstanding 
paragraph (6), but subject to clause (ii), 
with respect to a separately payable drug 
or biological described in subparagraph 
(D) furnished on or after January 1, 2005, 
and before January 1, 2007, hospitals 
shall be reimbursed as follows: 
‘‘(I) DRUGS
AND
BIOLOGICALS 
FURNISHED AS PART OF A CURRENT 
OPD SERVICE.—The amount of pay-
ment for a drug or biological de-
scribed in subparagraph (D) provided 
as a part of a service that was a cov-
ered OPD service on May 1, 2003, 
shall be the applicable percentage (as 
defined in subparagraph (C)) of the 
average wholesale price for the drug 
or biological that would have been de-
482
termined under section 1842(o) on 
such date. 
‘‘(II) DRUGS
AND
BIOLOGICALS 
FURNISHED AS PART OF OTHER OPD 
SERVICES.—The amount of payment 
for a drug or biological described in 
subparagraph (D) provided as part of 
any other covered OPD service shall 
be the applicable percentage (as de-
fined in subparagraph (C)) of the av-
erage wholesale price that would have 
been 
determined 
under 
section 
1842(o) on May 1, 2003, if payment 
for such a drug or biological could 
have been made under this part on 
that date. 
‘‘(ii) UPDATE FOR 2006.—For 2006, 
the amounts determined under clauses (i) 
and (ii) shall be the amount established for 
2005 increased by the percentage increase 
in the Consumer Price Index for all urban 
consumers (U.S. urban average) for the 
12-month period ending with June of the 
previous year. 
‘‘(B) AFTER 2007.—
483
‘‘(i) ONGOING
STUDY
AND
REPORTS 
ON ADEQUATE REIMBURSEMENTS.—
‘‘(I) 
STUDY.—The 
Secretary 
shall contract with an eligible organi-
zation (as defined in subclause (IV)) 
to conduct a study to determine the 
hospital 
acquisition 
and 
handling 
costs for each individual drug or bio-
logical described in subparagraph (D). 
‘‘(II) STUDY
REQUIREMENTS.—
The study conducted under subclause 
(I) shall—
‘‘(aa) be accurate to within 
3 percent of true mean hospital 
acquisition and handling costs for 
each drug and biological at the 
95 percent confidence level; 
‘‘(bb) begin not later than 
January 1, 2005; and 
‘‘(cc) be updated annually 
for changes in hospital costs and 
the addition of newly marketed 
products. 
‘‘(III) REPORTS.—Not later than 
January 1 of each year (beginning
484
with 2006), the Secretary shall submit 
to Congress a report on the study 
conducted under clause (i) together 
with recommendations for such legis-
lative or administrative action as the 
Secretary determines to be appro-
priate.
‘‘(IV) ELIGIBLE
ORGANIZATION 
DEFINED.—In this clause, the term 
‘eligible organization’ means a private, 
nonprofit 
organization 
within 
the 
meaning of section 501(c) of the In-
ternal Revenue Code. 
‘‘(ii) ESTABLISHMENT
OF
PAYMENT 
METHODOLOGY.—Notwithstanding 
para-
graph (6), the Secretary, in establishing a 
payment methodology on or after the date 
of enactment of the Prescription Drug and 
Medicare Improvement Act of 2003, shall 
take into consideration the findings of the 
study conducted under clause (i)(I) in de-
termining payment amounts for each drug 
and biological provided as part of a covered 
OPD service furnished on or after January 
1, 2007.
485
‘‘(C) 
APPLICABLE
PERCENTAGE
DE-
FINED.—In this paragraph, the term ‘applicable 
percentage’ means— 
‘‘(i) with respect to a biological prod-
uct (approved under a biologics license ap-
plication under section 351 of the Public 
Health Service Act), a single source drug 
(as defined in section 1927(k)(7)(A)(iv)), 
or an orphan product designated under 
section 526 of the Food, Drug, and Cos-
metic Act to which the prospective pay-
ment system established under this sub-
section did not apply under the final rule 
for 2003 payments under such system, 94 
percent; 
‘‘(ii) with respect to an innovator mul-
tiple source drug (as defined in section 
1927(k)(7)(A)(ii)), 91 percent; and 
‘‘(iii) with respect to a noninnovator 
multiple source drug (as defined in section 
1927(k)(7)(A)(iii)), 71 percent. 
‘‘(D) 
DRUGS
AND
BIOLOGICALS
DE-
SCRIBED.—A drug or biological described in 
this paragraph is any drug or biological—
486
‘‘(i) for which the amount of payment 
was determined under paragraph (6) prior 
to January 1, 2005; 
‘‘(ii) which is assigned to a drug spe-
cific ambulatory payment classification on 
or after the date of enactment of the Pre-
scription Drug and Medicare Improvement 
Act of 2003; and 
‘‘(iii) that would have been reim-
bursed under paragraph (6) but for the ap-
plication of this paragraph.’’. 
(b) EXCEPTIONS
TO BUDGET NEUTRALITY RE-
QUIREMENT.—Section 
1833(t)(9)(B) 
(42 
U.S.C. 
1395l(t)(9)(B)) is amended by adding at the end the fol-
lowing: ‘‘In determining the budget neutrality adjustment 
required by the preceding sentence for fiscal years 2005 
and 2006, the Secretary shall not take into account any 
expenditures that would not have been made but for the 
application of paragraph (13).’’. 
SEC. 438. LIMITATION OF APPLICATION OF FUNCTIONAL 
EQUIVALENCE STANDARD. 
Section 1833(t)(6) (42 U.S.C. 1395l(t)(6)) is amend-
ed by adding at the end the following new subparagraph: 
‘‘(F) LIMITATION
OF
APPLICATION
OF 
FUNCTIONAL EQUIVALENCE STANDARD.—
487
‘‘(i) IN
GENERAL.—The Secretary 
may not publish regulations that apply a 
functional equivalence standard to a drug 
or biological under this paragraph. 
‘‘(ii) APPLICATION.—Paragraph (1) 
shall apply to the application of a func-
tional equivalence standard to a drug or bi-
ological on or after the date of enactment 
of the Prescription Drug and Medicare Im-
provement Act of 2003 unless—
‘‘(I) such application was being 
made to such drug or biological prior 
to such date of enactment; and 
‘‘(II) the Secretary applies such 
standard to such drug or biological 
only for the purpose of determining 
eligibility of such drug or biological 
for additional payments under this 
paragraph and not for the purpose of 
any other payments under this title. 
‘‘(iii) RULE
OF
CONSTRUCTION.—
Nothing in this subparagraph shall be con-
strued to affect the Secretary’s authority 
to deem a particular drug to be identical to 
another drug if the 2 products are phar-
488
maceutically equivalent and bioequvalent, 
as determined by the Commissioner of 
Food and Drugs.’’. 
SEC. 439. MEDICARE COVERAGE OF ROUTINE COSTS ASSO-
CIATED WITH CERTAIN CLINICAL TRIALS. 
(a) IN GENERAL.—With respect to the coverage of 
routine costs of care for beneficiaries participating in a 
qualifying clinical trial, as set forth on the date of the en-
actment of this Act in National Coverage Determination 
30-1 of the Medicare Coverage Issues Manual, the Sec-
retary shall deem clinical trials conducted in accordance 
with an investigational device exemption approved under 
section 520(g) of the Federal Food, Drug, and Cosmetic 
Act (42 U.S.C. 360j(g)) to be automatically qualified for 
such coverage.
(b) RULE OF CONSTRUCTION.—Nothing in this sec-
tion shall be construed as authorizing or requiring the Sec-
retary to modify the regulations set forth on the date of 
the enactment of this Act at subpart B of part 405 of 
title 42, Code of Federal Regulations, or subpart A of part 
411 of such title, relating to coverage of, and payment 
for, a medical device that is the subject of an investiga-
tional device exemption by the Food and Drug Adminis-
tration (except as may be necessary to implement sub-
section (a)).
489
(c) EFFECTIVE DATE.—This section shall apply to 
clinical trials begun on or after January 1, 2005. 
SEC. 440. 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 
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 2002, 2003, 2004, or 2005 
and who demonstrates to the Secretary before De-
cember 31, 2005, that the individual is a covered 
beneficiary (as defined in section 1072(5) of title 10, 
United States Code). The Secretary shall consult 
with the Secretary of Defense in identifying individ-
uals described in the previous sentence.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to premiums for 
months beginning with January 2005. The Secretary 
shall establish a method for providing rebates of pre-
mium penalties paid for months on or after January 
2005 for which a penalty does not apply under such
490
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 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 Social 
Security Act, and is a covered beneficiary (as de-
fined in section 1072(5) of title 10, United States 
Code), the Secretary shall provide for a special en-
rollment period during which the individual may en-
roll under such part. Such period shall begin 1 year 
after the date of the enactment of this Act and shall 
end on December 31, 2005. 
(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. 441. DEMONSTRATION OF COVERAGE OF CHIRO-
PRACTIC SERVICES UNDER MEDICARE. 
(a) DEFINITIONS.—In this section:
491
(1) 
CHIROPRACTIC
SERVICES.—The 
term 
‘‘chiropractic services’’ has the meaning given that 
term by the Secretary for purposes of the dem-
onstration projects, but shall include, at a min-
imum—
(A) care for neuromusculoskeletal condi-
tions typical among eligible beneficiaries; and 
(B) diagnostic and other services that a 
chiropractor is legally authorized to perform by 
the State or jurisdiction in which such treat-
ment is provided. 
(2) DEMONSTRATION
PROJECT.—The term 
‘‘demonstration project’’ means a demonstration 
project established by the Secretary under sub-
section (b)(1). 
(3) ELIGIBLE BENEFICIARY.—The term ‘‘eligi-
ble beneficiary’’ means an individual who is enrolled 
under part B of the medicare program. 
(4) MEDICARE PROGRAM.—The term ‘‘medicare 
program’’ means the health benefits program under 
title XVIII of the Social Security Act (42 U.S.C. 
1395 et seq.). 
(b) DEMONSTRATION
OF COVERAGE
OF CHIRO-
PRACTIC SERVICES UNDER MEDICARE.—
492
(1) ESTABLISHMENT.—The Secretary shall es-
tablish demonstration projects in accordance with 
the provisions of this section for the purpose of eval-
uating the feasibility and advisability of covering 
chiropractic services under the medicare program (in 
addition to the coverage provided for services con-
sisting of treatment by means of manual manipula-
tion of the spine to correct a subluxation described 
in section 1861(r)(5) of the Social Security Act (42 
U.S.C. 1395x(r)(5))). 
(2) NO PHYSICIAN APPROVAL REQUIRED.—In 
establishing the demonstration projects, the Sec-
retary shall ensure that an eligible beneficiary who 
participates in a demonstration project, including an 
eligible beneficiary who is enrolled for coverage 
under a Medicare+Choice plan (or, on and after 
January 1, 2006, under a MedicareAdvantage plan), 
is not required to receive approval from a physician 
or other health care provider in order to receive a 
chiropractic service under a demonstration project. 
(3) CONSULTATION.—In establishing the dem-
onstration projects, the Secretary shall consult with 
chiropractors, organizations representing chiroprac-
tors, eligible beneficiaries, and organizations rep-
resenting eligible beneficiaries.
493
(4) PARTICIPATION.—Any eligible beneficiary 
may participate in the demonstration projects on a 
voluntary basis. 
(c) CONDUCT OF DEMONSTRATION PROJECTS.—
(1) DEMONSTRATION SITES.—
(A) 
SELECTION
OF
DEMONSTRATION 
SITES.—The Secretary shall conduct dem-
onstration projects at 6 demonstration sites. 
(B) GEOGRAPHIC DIVERSITY.—Of the sites 
described in subparagraph (A)—
(i) 3 shall be in rural areas; and 
(ii) 3 shall be in urban areas. 
(C) SITES LOCATED IN HPSAS.—At least 1 
site described in clause (i) of subparagraph (B) 
and at least 1 site described in clause (ii) of 
such subparagraph shall be located in an area 
that is designated under section 332(a)(1)(A) of 
the Public Health Service Act (42 U.S.C. 
254e(a)(1)(A)) as a health professional short-
age area.
(2) IMPLEMENTATION; DURATION.—
(A) 
IMPLEMENTATION.—The 
Secretary 
shall not implement the demonstration projects 
before October 1, 2004.
494
(B) DURATION.—The Secretary shall com-
plete the demonstration projects by the date 
that is 3 years after the date on which the first 
demonstration project is implemented. 
(d) EVALUATION AND REPORT.—
(1) EVALUATION.—The Secretary shall conduct 
an evaluation of the demonstration projects—
(A) to determine whether eligible bene-
ficiaries who use chiropractic services use a 
lesser overall amount of items and services for 
which payment is made under the medicare pro-
gram than eligible beneficiaries who do not use 
such services; 
(B) to determine the cost of providing pay-
ment for chiropractic services under the medi-
care program; 
(C) to determine the satisfaction of eligible 
beneficiaries participating in the demonstration 
projects and the quality of care received by such 
beneficiaries; and 
(D) to evaluate such other matters as the 
Secretary determines is appropriate. 
(2) REPORT.—Not later than the date that is 
1 year after the date on which the demonstration 
projects conclude, the Secretary shall submit to Con-
495
gress a report on the evaluation conducted under 
paragraph (1) together with such recommendations 
for legislation or administrative action as the Sec-
retary determines is appropriate. 
(e) WAIVER
OF MEDICARE REQUIREMENTS.—The 
Secretary shall waive compliance with such requirements 
of the medicare program to the extent and for the period 
the Secretary finds necessary to conduct the demonstra-
tion projects. 
(f) FUNDING.—
(1) DEMONSTRATION PROJECTS.—
(A) IN
GENERAL.—Subject to subpara-
graph (B) and paragraph (2), the Secretary 
shall provide for the transfer from the Federal 
Supplementary Insurance Trust Fund under 
section 1841 of the Social Security Act (42 
U.S.C. 1395t) of such funds as are necessary 
for the costs of carrying out the demonstration 
projects under this section. 
(B) LIMITATION.—In conducting the dem-
onstration projects under this section, the Sec-
retary shall ensure that the aggregate payments 
made by the Secretary under the medicare pro-
gram do not exceed the amount which the Sec-
retary would have paid under the medicare pro-
496
gram if the demonstration projects under this 
section were not implemented. 
(2) EVALUATION AND REPORT.—There are au-
thorized to be appropriated such sums as are nec-
essary for the purpose of developing and submitting 
the report to Congress under subsection (d). 
SEC. 442. MEDICARE HEALTH CARE QUALITY DEMONSTRA-
TION PROGRAMS. 
Title XVIII (42 U.S.C. 1395 et seq.) is amended by 
inserting after section 1866B the following new section: 
‘‘HEALTH CARE QUALITY DEMONSTRATION PROGRAM 
‘‘SEC. 1866C. (a) DEFINITIONS.—In this section: 
‘‘(1) BENEFICIARY.—The term ‘beneficiary’ 
means a beneficiary who is enrolled in the original 
medicare fee-for-service program under parts A and 
B or a beneficiary in a staff model or dedicated 
group model health maintenance organization under 
the Medicare+Choice program (or, on and after 
January 1, 2006, under the MedicareAdvantage pro-
gram) under part C. 
‘‘(2) HEALTH CARE GROUP.—
‘‘(A) IN GENERAL.—The term ‘health care 
group’ means—
‘‘(i) a group of physicians that is or-
ganized at least in part for the purpose of
497
providing physician’s services under this 
title; 
‘‘(ii) an integrated health care delivery 
system that delivers care through coordi-
nated hospitals, clinics, home health agen-
cies, ambulatory surgery centers, skilled 
nursing facilities, rehabilitation facilities 
and clinics, and employed, independent, or 
contracted physicians; or 
‘‘(iii) an organization representing re-
gional coalitions of groups or systems de-
scribed in clause (i) or (ii). 
‘‘(B) INCLUSION.—As the Secretary deter-
mines appropriate, a health care group may in-
clude a hospital or any other individual or enti-
ty furnishing items or services for which pay-
ment may be made under this title that is affili-
ated with the health care group under an ar-
rangement structured so that such hospital, in-
dividual, or entity participates in a demonstra-
tion project under this section. 
‘‘(3) PHYSICIAN.—Except as otherwise provided 
for by the Secretary, the term ‘physician’ means any 
individual who furnishes services that may be paid 
for as physicians’ services under this title.
498
‘‘(b) DEMONSTRATION PROJECTS.—The Secretary 
shall establish a 5-year demonstration program under 
which the Secretary shall approve demonstration projects 
that examine health delivery factors that encourage the 
delivery of improved quality in patient care, including—
‘‘(1) the provision of incentives to improve the 
safety of care provided to beneficiaries; 
‘‘(2) the appropriate use of best practice guide-
lines by providers and services by beneficiaries; 
‘‘(3) reduced scientific uncertainty in the deliv-
ery of care through the examination of variations in 
the utilization and allocation of services, and out-
comes measurement and research; 
‘‘(4) encourage shared decision making between 
providers and patients; 
‘‘(5) the provision of incentives for improving 
the quality and safety of care and achieving the effi-
cient allocation of resources;
‘‘(6) the appropriate use of culturally and eth-
nically sensitive health care delivery; and 
‘‘(7) the financial effects on the health care 
marketplace of altering the incentives for care deliv-
ery and changing the allocation of resources. 
‘‘(c) ADMINISTRATION BY CONTRACT.—
499
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this section, the Secretary may administer 
the demonstration program established under this 
section in a manner that is similar to the manner in 
which the demonstration program established under 
section 1866A is administered in accordance with 
section 1866B. 
‘‘(2) ALTERNATIVE
PAYMENT
SYSTEMS.—A 
health care group that receives assistance under this 
section may, with respect to the demonstration 
project to be carried out with such assistance, in-
clude proposals for the use of alternative payment 
systems for items and services provided to bene-
ficiaries by the group that are designed to—
‘‘(A) encourage the delivery of high quality 
care while accomplishing the objectives de-
scribed in subsection (b); and 
‘‘(B) streamline documentation and report-
ing requirements otherwise required under this 
title. 
‘‘(3) BENEFITS.—A health care group that re-
ceives assistance under this section may, with re-
spect to the demonstration project to be carried out 
with such assistance, include modifications to the 
package of benefits available under the traditional
500
fee-for-service program under parts A and B or the 
package of benefits available through a staff model 
or a dedicated group model health maintenance or-
ganization under part C. The criteria employed 
under the demonstration program under this section 
to evaluate outcomes and determine best practice 
guidelines and incentives shall not be used as a basis 
for the denial of medicare benefits under the dem-
onstration program to patients against their wishes 
(or if the patient is incompetent, against the wishes 
of the patient’s surrogate) on the basis of the pa-
tient’s age or expected length of life or of the pa-
tient’s present or predicted disability, degree of med-
ical dependency, or quality of life. 
‘‘(d) ELIGIBILITY CRITERIA.—To be eligible to re-
ceive assistance under this section, an entity shall—
‘‘(1) be a health care group; 
‘‘(2) meet quality standards established by the 
Secretary, including—
‘‘(A) the implementation of continuous 
quality improvement mechanisms that are 
aimed at integrating community-based support 
services, primary care, and referral care;
501
‘‘(B) the implementation of activities to in-
crease the delivery of effective care to bene-
ficiaries; 
‘‘(C) encouraging patient participation in 
preference-based decisions; 
‘‘(D) the implementation of activities to 
encourage the coordination and integration of 
medical service delivery; and 
‘‘(E) the implementation of activities to 
measure and document the financial impact on 
the health care marketplace of altering the in-
centives of health care delivery and changing 
the allocation of resources; and 
‘‘(3) meet such other requirements as the Sec-
retary may establish. 
‘‘(e) WAIVER AUTHORITY.—The Secretary may waive 
such requirements of titles XI and XVIII as may be nec-
essary to carry out the purposes of the demonstration pro-
gram established under this section. 
‘‘(f) BUDGET NEUTRALITY.—With respect to the 5-
year period of the demonstration program under sub-
section (b), the aggregate expenditures under this title for 
such period shall not exceed the aggregate expenditures 
that would have been expended under this title if the pro-
502
gram established under this section had not been imple-
mented. 
‘‘(g) NOTICE REQUIREMENTS.—In the case of an in-
dividual that receives health care items or services under 
a demonstration program carried out under this section, 
the Secretary shall ensure that such individual is notified 
of any waivers of coverage or payment rules that are appli-
cable to such individual under this title as a result of the 
participation of the individual in such program. 
‘‘(h) PARTICIPATION
AND SUPPORT
BY FEDERAL 
AGENCIES.—In carrying out the demonstration program 
under this section, the Secretary may direct—
‘‘(1) the Director of the National Institutes of 
Health to expand the efforts of the Institutes to 
evaluate current medical technologies and improve 
the foundation for evidence-based practice; 
‘‘(2) the Administrator of the Agency for 
Healthcare Research and Quality to, where possible 
and appropriate, use the program under this section 
as a laboratory for the study of quality improvement 
strategies and to evaluate, monitor, and disseminate 
information relevant to such program; and 
‘‘(3) the Administrator of the Centers for Medi-
care and Medicaid Services and the Administrator of 
the Center for Medicare Choices to support linkages
503
of relevant medicare data to registry information 
from participating health care groups for the bene-
ficiary populations served by the participating 
groups, for analysis supporting the purposes of the 
demonstration program, consistent with the applica-
ble provisions of the Health Insurance Portability 
and Accountability Act of 1996. 
‘‘(i) IMPLEMENTATION.—The Secretary shall not im-
plement the demonstration program before October 1, 
2004.’’. 
SEC. 443. MEDICARE COMPLEX CLINICAL CARE MANAGE-
MENT PAYMENT DEMONSTRATION. 
(a) ESTABLISHMENT.—
(1) IN GENERAL.—The Secretary shall establish 
a demonstration program to make the medicare pro-
gram more responsive to needs of eligible bene-
ficiaries by promoting continuity of care, helping 
stabilize medical conditions, preventing or mini-
mizing acute exacerbations of chronic conditions, 
and reducing adverse health outcomes, such as ad-
verse drug interactions related to polypharmacy. 
(2) SITES.—The Secretary shall designate 6 
sites at which to conduct the demonstration program 
under this section, of which at least 3 shall be in an 
urban area and at least 1 shall be in a rural area.
504
One of the sites shall be located in the State of Ar-
kansas.
(3) DURATION.—The Secretary shall conduct 
the demonstration program under this section for a 
3-year period. 
(4) IMPLEMENTATION.—The Secretary shall 
not implement the demonstration program before 
October 1, 2004. 
(b) PARTICIPANTS.—Any eligible beneficiary who re-
sides in an area designated by the Secretary as a dem-
onstration site under subsection (a)(2) may participate in 
the demonstration program under this section if such ben-
eficiary identifies a principal care physician who agrees to 
manage the complex clinical care of the eligible beneficiary 
under the demonstration program. 
(c) PRINCIPAL
CARE
PHYSICIAN
RESPONSIBIL-
ITIES.—The Secretary shall enter into an agreement with 
each principal care physician who agrees to manage the 
complex clinical care of an eligible beneficiary under sub-
section (b) under which the principal care physician 
shall—
(1) serve as the primary contact of the eligible 
beneficiary in accessing items and services for which 
payment may be made under the medicare program;
505
(2) maintain medical information related to 
care provided by other health care providers who 
provide health care items and services to the eligible 
beneficiary, including clinical reports, medication 
and treatments prescribed by other physicians, hos-
pital and hospital outpatient services, skilled nursing 
home care, home health care, and medical equipment 
services; 
(3) monitor and advocate for the continuity of 
care of the eligible beneficiary and the use of evi-
dence-based guidelines; 
(4) promote self-care and family caregiver in-
volvement where appropriate; 
(5) have appropriate staffing arrangements to 
conduct patient self-management and other care co-
ordination activities as specified by the Secretary; 
(6) refer the eligible beneficiary to community 
services organizations and coordinate the services of 
such organizations with the care provided by health 
care providers; and 
(7) meet such other complex care management 
requirements as the Secretary may specify. 
(d) COMPLEX CLINICAL CARE MANAGEMENT FEE.—
(1) PAYMENT.—Under an agreement entered 
into under subsection (c), the Secretary shall pay to
506
each principal care physician, on behalf of each eligi-
ble beneficiary under the care of that physician, the 
complex clinical care management fee developed by 
the Secretary under paragraph (2). 
(2) DEVELOPMENT
OF
FEE.—The Secretary 
shall develop a complex care management fee under 
this paragraph that is paid on a monthly basis and 
which shall be payment in full for all the functions 
performed by the principal care physician under the 
demonstration program, including any functions per-
formed by other qualified practitioners acting on be-
half of the physician, appropriate staff under the su-
pervision of the physician, and any other person 
under a contract with the physician, including any 
person who conducts patient self-management and 
caregiver education under subsection (c)(4). 
(e) FUNDING.—
(1) IN GENERAL.—The Secretary shall provide 
for the transfer from the Federal Supplementary In-
surance Trust Fund established under section 1841 
of the Social Security Act (42 U.S.C. 1395t) of such 
funds as are necessary for the costs of carrying out 
the demonstration program under this section. 
(2) BUDGET NEUTRALITY.—In conducting the 
demonstration program under this section, the Sec-
507
retary shall ensure that the aggregate payments 
made by the Secretary do not exceed the amount 
which the Secretary would have paid if the dem-
onstration program under this section was not im-
plemented.
(f) WAIVER AUTHORITY.—The Secretary may waive 
such requirements of titles XI and XVIII of the Social 
Security Act (42 U.S.C. 1301 et seq.; 1395 et seq.) as 
may be necessary for the purpose of carrying out the dem-
onstration program under this section. 
(g) REPORT.—Not later than 6 months after the 
completion of the demonstration program under this sec-
tion, the Secretary shall submit to Congress a report on 
such program, together with recommendations for such 
legislation and administrative action as the Secretary de-
termines to be appropriate. 
(h) DEFINITIONS.—In this section: 
(1) ACTIVITY OF DAILY LIVING.—The term ‘‘ac-
tivity of daily living’’ means eating, toiling, transfer-
ring, bathing, dressing, and continence. 
(2) CHRONIC CONDITION.—The term ‘‘chronic 
condition’’ means a biological, physical, or mental 
condition that is likely to last a year or more, for 
which there is no known cure, for which there is a 
need for ongoing medical care, and which may affect
508
an individual’s ability to carry out activities of daily 
living or instrumental activities of daily living, or 
both. 
(3) ELIGIBLE BENEFICIARY.—The term ‘‘eligi-
ble beneficiary’’ means any individual who—
(A) is enrolled for benefits under part B of 
the medicare program; 
(B) has at least 4 complex medical condi-
tions (one of which may be cognitive impair-
ment); and 
(C) has—
(i) an inability to self-manage their 
care; or 
(ii) a functional limitation defined as 
an impairment in 1 or more activity of 
daily living or instrumental activity of daily 
living. 
(4) INSTRUMENTAL
ACTIVITY
OF
DAILY
LIV-
ING.—The term ‘‘instrumental activity of daily liv-
ing’’ means meal preparation, shopping, house-
keeping, laundry, money management, telephone 
use, and transportation use.
(5) MEDICARE PROGRAM.—The term ‘‘medicare 
program’’ means the health care program under title
509
XVIII of the Social Security Act (42 U.S.C. 1395 et 
seq.). 
(6) PRINCIPAL
CARE
PHYSICIAN.—The term 
‘‘principal care physician’’ means the physician with 
primary responsibility for overall coordination of the 
care of an eligible beneficiary (as specified in a writ-
ten plan of care) who may be a primary care physi-
cian or a specialist. 
SEC. 444. MEDICARE FEE-FOR-SERVICE CARE COORDINA-
TION DEMONSTRATION PROGRAM. 
(a) ESTABLISHMENT.—
(1) IN GENERAL.—The Secretary shall establish 
a demonstration program to contract with qualified 
care management organizations to provide health 
risk assessment and care management services to el-
igible beneficiaries who receive care under the origi-
nal medicare fee-for-service program under parts A 
and B of title XVIII of the Social Security Act to 
eligible beneficiaries. 
(2) SITES.—The Secretary shall designate 6 
sites at which to conduct the demonstration program 
under this section. In selecting sites under this para-
graph, the Secretary shall give preference to sites lo-
cated in rural areas.
510
(3) DURATION.—The Secretary shall conduct 
the demonstration program under this section for a 
5-year period. 
(4) IMPLEMENTATION.—The Secretary shall 
not implement the demonstration program before 
October 1, 2004. 
(b) PARTICIPANTS.—Any eligible beneficiary who re-
sides in an area designated by the Secretary as a dem-
onstration site under subsection (a)(2) may participate in 
the demonstration program under this section if such ben-
eficiary identifies a care management organization who 
agrees to furnish care management services to the eligible 
beneficiary under the demonstration program. 
(c) CONTRACTS WITH CMOS.—
(1) IN
GENERAL.—The Secretary shall enter 
into a contract with care management organizations 
to provide care management services to eligible bene-
ficiaries residing in the area served by the care man-
agement organization. 
(2) CANCELLATION.—The Secretary may cancel 
a contract entered into under paragraph (1) if the 
care management organization does not meet nego-
tiated savings or quality outcomes targets for the 
year.
511
(3) NUMBER
OF
CMOS.—The Secretary may 
contract with more than 1 care management organi-
zation in a geographic area. 
(d) PAYMENT TO CMOS.—
(1) PAYMENT.—Under an contract entered into 
under subsection (c), the Secretary shall pay care 
management organizations a fee for which the care 
management organization is partially at risk based 
on bids submitted by care management organiza-
tions. 
(2) PORTION OF PAYMENT AT RISK.—The Sec-
retary shall establish a benchmark for quality and 
cost against which the results of the care manage-
ment organization are to be measured. The Sec-
retary may not pay a care management organization 
the portion of the fee described in paragraph (1) 
that is at risk unless the Secretary determines that 
the care management organization has met the 
agreed upon savings and outcomes targets for the 
year. 
(e) FUNDING.—
(1) IN GENERAL.—The Secretary shall provide 
for the transfer from the Federal Hospital Insurance 
Trust Fund under section 1817 of the Social Secu-
rity Act (42 U.S.C. 1395i) and the Federal Supple-
513
from participating in the demonstration program 
under this section.
(g) REPORT.—Not later than 6 months after the 
completion of the demonstration program under this sec-
tion, the Secretary shall submit to Congress a report on 
such program, together with recommendations for such 
legislation and administrative action as the Secretary de-
termines to be appropriate. 
(h) DEFINITIONS.—In this section: 
(1) CARE MANAGEMENT SERVICES.—The term 
‘‘care management services’’ means services that are 
furnished to an eligible beneficiary (as defined in 
paragraph (2)) by a care management organization 
(as defined in paragraph (3)) in accordance with 
guidelines established by the Secretary that are con-
sistent with guidelines established by the American 
Geriatrics Society. 
(2) ELIGIBLE BENEFICIARY.—The term ‘‘eligi-
ble beneficiary’’ means an individual who is—
(A) entitled to (or enrolled for) benefits 
under part A and enrolled for benefits under 
part B of the Social Security Act (42 U.S.C. 
1395c et seq.; 1395j et seq.);
514
(B) not enrolled with a Medicare+Choice 
plan or a MedicareAdvantage plan under part 
C; and 
(C) at high-risk (as defined by the Sec-
retary, but including eligible beneficiaries with 
multiple sclerosis or another disabling chronic 
condition, eligible beneficiaries residing in a 
nursing home or at risk for nursing home place-
ment, or eligible beneficiaries eligible for assist-
ance under a State plan under title XIX). 
(3) CARE MANAGEMENT ORGANIZATION.—The 
term ‘‘care management organization’’ means an or-
ganization that meets such qualifications as the Sec-
retary may specify and includes any of the following: 
(A) A physician group practice, hospital, 
home health agency, or hospice program. 
(B) A disease management organization. 
(C) A Medicare+Choice or MedicareAd-
vantage organization. 
(D) Insurance carriers offering medicare 
supplemental policies under section 1882 of the 
Social Security Act (42 U.S.C. 1395ss). 
(E) Such other entity as the Secretary de-
termines to be appropriate.
515
SEC. 445. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN 
PAYMENTS FOR PHYSICIANS’ SERVICES. 
(a) STUDY.—The Comptroller General of the United 
States shall conduct a study of differences in payment 
amounts under the physician fee schedule under section 
1848 of the Social Security Act (42 U.S.C. 1395w–4) for 
physicians’ services in different geographic areas. Such 
study shall include—
(1) an assessment of the validity of the geo-
graphic adjustment factors used for each component 
of the fee schedule; 
(2) an evaluation of the measures used for such 
adjustment, including the frequency of revisions; 
(3) an evaluation of the methods used to deter-
mine professional liability insurance costs used in 
computing the malpractice component, including a 
review of increases in professional liability insurance 
premiums and variation in such increases by State 
and physician specialty and methods used to update 
the geographic cost of practice index and relative 
weights for the malpractice component; 
(4) an evaluation of whether there is a sound 
economic basis for the implementation of the adjust-
ment under subparagraphs (E) and (F) of section 
1848(e)(1) of the Social Security Act (42 U.S.C.
516
1395w–4(e)(1)), as added by section 421, in those 
areas in which the adjustment applies; 
(5) an evaluation of the effect of such adjust-
ment on physician location and retention in areas af-
fected by such adjustment, taking into account—
(A) differences in recruitment costs and re-
tention rates for physicians, including special-
ists, between large urban areas and other areas; 
and 
(B) the mobility of physicians, including 
specialists, over the last decade; and 
(6) an evaluation of appropriateness of extend-
ing such adjustment or making such adjustment per-
manent. 
(b) REPORT.—Not later than 1 year after the date 
of enactment of this Act, the Comptroller General of the 
United States shall submit to Congress a report on the 
study conducted under subsection (a). The report shall in-
clude recommendations regarding the use of more current 
data in computing geographic cost of practice indices as 
well as the use of data directly representative of physi-
cians’ costs (rather than proxy measures of such costs).
517
Subtitle C—Provisions Relating to 
Parts A and B 
SEC. 451. INCREASE FOR HOME HEALTH SERVICES FUR-
NISHED IN A RURAL AREA. 
(a) IN GENERAL.—In the case of home health serv-
ices furnished in a rural area (as defined in section 
1886(d)(2)(D) of the Social Security Act (42 U.S.C. 
1395ww(d)(2)(D))) on or after October 1, 2003, and be-
fore October 1, 2005, the Secretary shall increase the pay-
ment amount otherwise made under section 1895 of such 
Act (42 U.S.C. 1395fff ) for such services by 5 percent. 
(b) WAIVING BUDGET NEUTRALITY.—The Secretary 
shall not reduce the standard prospective payment amount 
(or amounts) under section 1895 of the Social Security 
Act (42 U.S.C. 1395fff ) applicable to home health services 
furnished during a period to offset the increase in pay-
ments resulting from the application of subsection (a). 
(c) NO EFFECT ON SUBSEQUENT PERIODS.—The 
payment increase provided under subsection (a) for a pe-
riod under such subsection—
(1) shall not apply to episodes and visits ending 
after such period; and 
(2) shall not be taken into account in calcu-
lating the payment amounts applicable for episodes 
and visits occurring after such period.
518
SEC. 452. LIMITATION ON REDUCTION IN AREA WAGE AD-
JUSTMENT FACTORS UNDER THE PROSPEC-
TIVE PAYMENT SYSTEM FOR HOME HEALTH 
SERVICES. 
Section 1895(b)(4)(C) (42 U.S.C. 1395fff(b)(4)(C)) 
is amended—
(1) by striking ‘‘FACTORS.—The Secretary’’ and 
inserting ‘‘FACTORS.—
‘‘(i) IN GENERAL.—Subject to clause 
(ii), the Secretary’’; and 
(2) by adding at the end the following new 
clause: 
‘‘(ii) LIMITATION ON REDUCTION IN 
FISCAL YEAR 2005 AND 2006.—For fiscal 
years 2004, 2005, and 2006, the area 
wage adjustment factor applicable to home 
health services furnished in an area in the 
fiscal year may not be more that 3 percent 
less than the area wage adjustment factor 
applicable to home health services for the 
area for the previous year.’’. 
SEC. 453. CLARIFICATIONS TO CERTAIN EXCEPTIONS TO 
MEDICARE LIMITS ON PHYSICIAN REFER-
RALS. 
(a) LIMITS ON PHYSICIAN REFERRALS.—
519
(1) OWNERSHIP AND INVESTMENT INTERESTS 
IN WHOLE HOSPITALS.—
(A) IN GENERAL.—Section 1877(d)(3) (42 
U.S.C. 1395nn(d)(3)) is amended—
(i) by striking ‘‘and’’ at the end of 
subparagraph (A); and 
(ii) by redesignating subparagraph 
(B) as subparagraph (C) and inserting 
after subparagraph (A) the following: 
‘‘(B) the hospital is not a specialty hospital 
(as defined in subsection (h)(7)); and’’. 
(B) DEFINITION.—Section 1877(h) (42 
U.S.C. 1395nn(h)) is amended by adding at the 
end the following: 
‘‘(7) SPECIALTY HOSPITAL.—
‘‘(A) IN GENERAL.—For purposes of this 
section, except as provided in subparagraph 
(B), the term ‘specialty hospital’ means a hos-
pital that is primarily or exclusively engaged in 
the care and treatment of one of the following: 
‘‘(i) patients with a cardiac condition; 
‘‘(ii) patients with an orthopedic con-
dition; 
‘‘(iii) patients receiving a surgical pro-
cedure; or
520
‘‘(iv) any other specialized category of 
patients or cases that the Secretary des-
ignates as inconsistent with the purpose of 
permitting physician ownership and invest-
ment interests in a hospital under this sec-
tion. 
‘‘(B) EXCEPTION.—For purposes of this 
section, the term ‘specialty hospital’ does not 
include any hospital—
‘‘(i) determined by the Secretary—
‘‘(I) to be in operation before 
June 12, 2003; or 
‘‘(II) under development as of 
such date; 
‘‘(ii) for which the number of beds 
and the number of physician investors at 
any time on or after such date is no great-
er than the number of such beds or inves-
tors as of such date; and
‘‘(iii) that meets such other require-
ments as the Secretary may specify.’’. 
(2) OWNERSHIP AND INVESTMENT INTERESTS 
IN
A
RURAL
PROVIDER.—Section 1877(d)(2) (42 
U.S.C. 1395nn(d)(2)) is amended to read as follows:
521
‘‘(2) RURAL PROVIDERS.—In the case of des-
ignated health services furnished in a rural area (as 
defined in section 1886(d)(2)(D)) by an entity, if—
‘‘(A) substantially all of the designated 
health services furnished by the entity are fur-
nished to individuals residing in such a rural 
area; 
‘‘(B) the entity is not a specialty hospital 
(as defined in subsection (h)(7)); and 
‘‘(C) the Secretary determines, with re-
spect to such entity, that such services would 
not be available in such area but for the owner-
ship or investment interest.’’. 
(b) EFFECTIVE DATE.—Subject to paragraph (2), 
the amendments made by this section shall apply to refer-
rals made for designated health services on or after Janu-
ary 1, 2004. 
(c) APPLICATION OF EXCEPTION FOR HOSPITALS 
UNDER
DEVELOPMENT.—For 
purposes 
of 
section 
1877(h)(7)(B)(i)(II) of the Social Security Act, as added 
by subsection (a)(1)(B), in determining whether a hospital 
is under development as of June 12, 2003, the Secretary 
shall consider—
(1) whether architectural plans have been com-
pleted, funding has been received, zoning require-
522
ments have been met, and necessary approvals from 
appropriate State agencies have been received; and 
(2) any other evidence the Secretary determines 
would indicate whether a hospital is under develop-
ment as of such date. 
SEC. 454. DEMONSTRATION PROGRAM FOR SUBSTITUTE 
ADULT DAY SERVICES. 
(a) ESTABLISHMENT.—The Secretary shall establish 
a demonstration program (in this section referred to as 
the ‘‘demonstration program’’) under which the Secretary 
provides eligible medicare beneficiaries with coverage 
under the medicare program of substitute adult day serv-
ices furnished by an adult day services facility. 
(b) PAYMENT RATE FOR SUBSTITUTE ADULT DAY 
SERVICES.—
(1) PAYMENT RATE.—For purposes of making 
payments to an adult day services facility for sub-
stitute adult day services under the demonstration 
program, the following rules shall apply: 
(A) ESTIMATION OF PAYMENT AMOUNT.—
The Secretary shall estimate the amount that 
would otherwise be payable to a home health 
agency under section 1895 of the Social Secu-
rity Act (42 U.S.C. 1395fff) for all home health
523
services described in subsection (i)(4)(B)(i) 
under the plan of care. 
(B) AMOUNT
OF
PAYMENT.—Subject to 
paragraph (3)(B), the total amount payable for 
substitute adult day services under the plan of 
care is equal to 95 percent of the amount esti-
mated to be payable under subparagraph (A). 
(2) LIMITATION ON BALANCE BILLING.—Under 
the demonstration program, an adult day services 
facility shall accept as payment in full for substitute 
adult day services (including those services described 
in clauses (ii) through (iv) of subsection (i)(4)(B)) 
furnished by the facility to an eligible medicare ben-
eficiary the amount of payment provided under the 
demonstration program for home health services 
consisting of substitute adult services. 
(3) ADJUSTMENT
IN
CASE
OF
OVERUTILIZA-
TION OF SUBSTITUTE ADULT DAY SERVICES TO EN-
SURE
BUDGET
NEUTRALITY.—The Secretary shall 
monitor the expenditures under the demonstration 
program and under title XVIII of the Social Secu-
rity Act for home health services. If the Secretary 
estimates that the total expenditures under the dem-
onstration program and under such title XVIII for 
home health services for a period determined by the
524
Secretary exceed expenditures that would have been 
made under such title XVIII for home health serv-
ices for such period if the demonstration program 
had not been conducted, the Secretary shall adjust 
the rate of payment to adult day services facilities 
under paragraph (1)(B) in order to eliminate such 
excess. 
(c) DEMONSTRATION PROGRAM SITES.—The dem-
onstration program shall be conducted in not more than 
3 sites selected by the Secretary. 
(d) DURATION; IMPLEMENTATION.—
(1) DURATION.—The Secretary shall conduct 
the demonstration program for a period of 3 years. 
(2) IMPLEMENTATION.—The Secretary may not 
implement the demonstration program before Octo-
ber 1, 2004. 
(e) VOLUNTARY PARTICIPATION.—Participation of 
eligible medicare beneficiaries in the demonstration pro-
gram shall be voluntary. 
(f) WAIVER AUTHORITY.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the Secretary may waive such require-
ments of titles XI and XVIII of the Social Security 
Act (42 U.S.C. 1301 et seq.; 1395 et seq.) as may
526
(B) Such recommendations regarding the 
extension, expansion, or termination of the pro-
gram as the Secretary determines appropriate. 
(i) DEFINITIONS.—In this section: 
(1) ADULT DAY SERVICES FACILITY.—
(A) IN GENERAL.—Except as provided in 
subparagraphs (B) and (C), the term ‘‘adult 
day services facility’’ means a public agency or 
private organization, or a subdivision of such an 
agency or organization, that—
(i) is engaged in providing skilled 
nursing services and other therapeutic 
services directly or under arrangement 
with a home health agency; 
(ii) provides the items and services de-
scribed in paragraph (4)(B); and 
(iii) meets the requirements of para-
graphs (2) through (8) of subsection (o). 
(B) 
INCLUSION.—Notwithstanding 
sub-
paragraph (A), the term ‘‘adult day services fa-
cility’’ shall include a home health agency in 
which the items and services described in 
clauses (ii) through (iv) of paragraph (4)(B) 
are provided—
527
(i) by an adult day services program 
that is licensed or certified by a State, or 
accredited, to furnish such items and serv-
ices in the State; and 
(ii) under arrangements with that 
program made by such agency. 
(C) WAIVER OF SURETY BOND.—The Sec-
retary may waive the requirement of a surety 
bond under section 1861(o)(7) of the Social Se-
curity Act (42 U.S.C. 1395x(o)(7)) in the case 
of an agency or organization that provides a 
comparable surety bond under State law.
(2) ELIGIBLE
MEDICARE
BENEFICIARY.—The 
term ‘‘eligible medicare beneficiary’’ means an indi-
vidual eligible for home health services under title 
XVIII of the Social Security Act. 
(3) 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)). 
(4) SUBSTITUTE ADULT DAY SERVICES.—
(A) IN GENERAL.—The term ‘‘substitute 
adult day services’’ means the items and serv-
ices described in subparagraph (B) that are fur-
nished to an individual by an adult day services
528
facility as a part of a plan under section 
1861(m) of the Social Security Act (42 U.S.C. 
1395x(m)) that substitutes such services for 
some or all of the items and services described 
in subparagraph (B)(i) furnished by a home 
health agency under the plan, as determined by 
the physician establishing the plan. 
(B) ITEMS AND SERVICES DESCRIBED.—
The items and services described in this sub-
paragraph are the following items and services: 
(i) Items and services described in 
paragraphs (1) through (7) of such section 
1861(m). 
(ii) Meals. 
(iii) A program of supervised activities 
designed to promote physical and mental 
health and furnished to the individual by 
the adult day services facility in a group 
setting for a period of not fewer than 4 
and not greater than 12 hours per day. 
(iv) A medication management pro-
gram (as defined in subparagraph (C)). 
(C) 
MEDICATION
MANAGEMENT
PRO-
GRAM.—For purposes of subparagraph (B)(iv), 
the term ‘‘medication management program’’
529
means a program of services, including medi-
cine screening and patient and health care pro-
vider education programs, that provides services 
to minimize—
(i) unnecessary or inappropriate use 
of prescription drugs; and 
(ii) adverse events due to unintended 
prescription drug-to-drug interactions. 
SEC. 455. MEDICARE SECONDARY PAYOR (MSP) PROVI-
SIONS. 
(a) TECHNICAL AMENDMENT CONCERNING SEC-
RETARY’S AUTHORITY TO MAKE CONDITIONAL PAYMENT 
WHEN CERTAIN PRIMARY PLANS DO NOT PAY PROMPT-
LY.—
(1) IN
GENERAL.—Section 1862(b)(2) (42 
U.S.C. 1395y(b)(2)) is amended—
(A) in subparagraph (A)(ii), by striking 
‘‘promptly (as determined in accordance with 
regulations)’’; 
(B) in subparagraph (B)—
(i) 
by 
redesignating 
clauses 
(i) 
through (iii) as clauses (ii) through (iv), 
respectively; and 
(ii) by inserting before clause (ii), as 
so redesignated, the following new clause:
530
‘‘(i) AUTHORITY
TO
MAKE
CONDI-
TIONAL
PAYMENT.—The Secretary may 
make payment under this title with respect 
to an item or service if a primary plan de-
scribed in subparagraph (A)(ii) has not 
made or cannot reasonably be expected to 
make payment with respect to such item or 
service promptly (as determined in accord-
ance with regulations). Any such payment 
by the Secretary shall be conditioned on 
reimbursement to the appropriate Trust 
Fund in accordance with the succeeding 
provisions of this subsection.’’. 
(2) EFFECTIVE DATE.—The amendments made 
by paragraph (1) shall be effective as if included in 
the enactment of title III of the Medicare and Med-
icaid Budget Reconciliation Amendments of 1984 
(Public Law 98–369).
(b) CLARIFYING AMENDMENTS
TO CONDITIONAL 
PAYMENT PROVISIONS.—Section 1862(b)(2) (42 U.S.C. 
1395y(b)(2)) is further amended—
(1) in subparagraph (A), in the matter fol-
lowing clause (ii), by inserting the following sentence 
at the end: ‘‘An entity that engages in a business, 
trade, or profession shall be deemed to have a self-
531
insured plan if it carries its own risk (whether by a 
failure to obtain insurance, or otherwise) in whole or 
in part.’’; 
(2) in subparagraph (B)(ii), as redesignated by 
subsection (a)(2)(B)—
(A) by striking the first sentence and in-
serting the following: ‘‘A primary plan, and an 
entity that receives payment from a primary 
plan, shall reimburse the appropriate Trust 
Fund for any payment made by the Secretary 
under this title with respect to an item or serv-
ice if it is demonstrated that such primary plan 
has or had a responsibility to make payment 
with respect to such item or service. A primary 
plan’s responsibility for such payment may be 
demonstrated by a judgment, a payment condi-
tioned upon the recipient’s compromise, waiver, 
or release (whether or not there is a determina-
tion or admission of liability) of payment for 
items or services included in a claim against the 
primary plan or the primary plan’s insured, or 
by other means.’’; and 
(B) in the final sentence, by striking ‘‘on 
the date such notice or other information is re-
ceived’’ and inserting ‘‘on the date notice of, or
532
information related to, a primary plan’s respon-
sibility for such payment or other information is 
received’’; and 
(3) in subparagraph (B)(iii), as redesignated by 
subsection (a)(2)(B), by striking the first sentence 
and inserting the following: ‘‘In order to recover 
payment made under this title for an item or service, 
the United States may bring an action against any 
or all entities that are or were required or respon-
sible (directly, as an insurer or self-insurer, as a 
third-party administrator, as an employer that spon-
sors or contributes to a group health plan, or large 
group health plan, or otherwise) to make payment 
with respect to the same item or service (or any por-
tion thereof) under a primary plan. The United 
States may, in accordance with paragraph (3)(A) 
collect double damages against any such entity. In 
addition, the United States may recover under this 
clause from any entity that has received payment 
from a primary plan or from the proceeds of a pri-
mary plan’s payment to any entity.’’. 
(c) CLERICAL AMENDMENTS.—Section 1862(b) (42 
U.S.C. 1395y(b)) is amended—
(1) in paragraph (1)(A), by moving the indenta-
tion of clauses (ii) through (v) 2 ems to the left; and
533
(2) in paragraph (3)(A), by striking ‘‘such’’ be-
fore ‘‘paragraphs’’. 
TITLE V—MEDICARE APPEALS, 
REGULATORY, 
AND 
CON-
TRACTING IMPROVEMENTS 
Subtitle A—Regulatory Reform 
SEC. 501. RULES FOR THE PUBLICATION OF A FINAL REGU-
LATION BASED ON THE PREVIOUS PUBLICA-
TION OF AN INTERIM FINAL REGULATION. 
(a) IN
GENERAL.—Section 1871(a) (42 U.S.C. 
1395hh(a)) is amended by adding at the end the following 
new paragraph: 
‘‘(3)(A) With respect to the publication of a final reg-
ulation based on the previous publication of an interim 
final regulation—
‘‘(i) subject to subparagraph (B), the Secretary 
shall publish the final regulation within the 12-
month period that begins on the date of publication 
of the interim final regulation; 
‘‘(ii) if a final regulation is not published by the 
deadline established under this paragraph, the in-
terim final regulation shall not continue in effect un-
less the Secretary publishes a notice described in 
subparagraph (B) by such deadline; and
534
‘‘(iii) the final regulation shall include responses 
to comments submitted in response to the interim 
final regulation. 
‘‘(B) If the Secretary determines before the deadline 
otherwise established in this paragraph that there is good 
cause, specified in a notice published before such deadline, 
for delaying the deadline otherwise applicable under this 
paragraph, the deadline otherwise established under this 
paragraph shall be extended for such period (not to exceed 
12 months) as the Secretary specifies in such notice.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall take effect on the date of enactment 
of this Act and shall apply to interim final regulations 
published on or after such date. 
(c) STATUS OF PENDING INTERIM FINAL REGULA-
TIONS.—Not later than 6 months after the date of enact-
ment of this Act, the Secretary shall publish a notice in 
the Federal Register that provides the status of each in-
terim final regulation that was published on or before the 
date of enactment of this Act and for which no final regu-
lation has been published. Such notice shall include the 
date by which the Secretary plans to publish the final reg-
ulation that is based on the interim final regulation.
535
SEC. 502. 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) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(d)(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 enactment of this Act. 
(b) TIMELINE FOR COMPLIANCE WITH SUBSTANTIVE 
CHANGES AFTER NOTICE.—
(1) IN
GENERAL.—Section 1871(d)(1), as 
added by subsection (a), is amended by adding at 
the end the following:
536
‘‘(B) A compliance action may be made against a pro-
vider of services, physician, practitioner, or other supplier 
with respect to noncompliance with such a substantive 
change only for items and services furnished on or after 
the effective date of the change. 
‘‘(C)(i) Except as provided in clause (ii), a sub-
stantive change may not take effect before the date that 
is the end of the 30-day period that begins on the date 
that the Secretary has issued or published, as the case 
may be, the substantive change. 
‘‘(ii) The Secretary may provide for a substantive 
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 Sec-
retary provides for an earlier effective date pursuant 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.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to compliance actions 
undertaken on or after the date of enactment of this 
Act.
537
SEC. 503. REPORT ON LEGAL AND REGULATORY INCON-
SISTENCIES. 
Section 1871 (42 U.S.C. 1395hh), as amended by 
section 502(a)(1), is amended by adding at the end the 
following new subsection: 
‘‘(e)(1) Not later than 2 years after the date of enact-
ment of this subsection, and every 3 years thereafter, the 
Secretary shall submit to Congress a report with respect 
to the administration of this title and areas of inconsist-
ency 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 beneficiaries, providers 
of services, physicians, practitioners, and other sup-
pliers with respect to such areas of inconsistency 
and conflict; and 
‘‘(B) information from medicare contractors 
that tracks the nature of all communications and 
correspondence. 
‘‘(3) A report under paragraph (1) shall include a de-
scription of efforts by the Secretary to reduce such incon-
sistency or conflicts, and recommendations for legislation 
or administrative action that the Secretary determines ap-
propriate to further reduce such inconsistency or con-
flicts.’’.
538
Subtitle B—Appeals Process 
Reform 
SEC. 511. SUBMISSION OF PLAN FOR TRANSFER OF RE-
SPONSIBILITY FOR MEDICARE APPEALS. 
(a) SUBMISSION OF TRANSITION PLAN.—
(1) IN
GENERAL.—Not later than April 1, 
2004, the Commissioner of Social Security and the 
Secretary shall develop and transmit to Congress 
and the Comptroller General of the United States a 
plan under which the functions of administrative law 
judges responsible for hearing cases under title 
XVIII of the Social Security Act (and related provi-
sions in title XI of such Act) are transferred from 
the responsibility of the Commissioner and the So-
cial Security Administration to the Secretary and 
the Department of Health and Human Services. 
(2) CONTENTS.—The plan shall include infor-
mation on the following: 
(A) WORKLOAD.—The number of such ad-
ministrative law judges and support staff re-
quired now and in the future to hear and decide 
such cases in a timely manner, taking into ac-
count the current and anticipated claims vol-
ume, appeals, number of beneficiaries, and stat-
utory changes.
539
(B) COST
PROJECTIONS
AND
FINANC-
ING.—Funding levels required for fiscal year 
2005 and subsequent fiscal years to carry out 
the functions transferred under the plan and 
how such transfer should be financed. 
(C) TRANSITION TIMETABLE.—A timetable 
for the transition. 
(D) REGULATIONS.—The establishment of 
specific regulations to govern the appeals proc-
ess. 
(E) CASE TRACKING.—The development of 
a unified case tracking system that will facili-
tate the maintenance and transfer of case spe-
cific data across both the fee-for-service and 
managed care components of the medicare pro-
gram. 
(F) FEASIBILITY OF PRECEDENTIAL AU-
THORITY.—The feasibility of developing a proc-
ess to give decisions of the Departmental Ap-
peals Board in the Department of Health and 
Human Services addressing broad legal issues 
binding, precedential authority. 
(G) ACCESS
TO
ADMINISTRATIVE
LAW 
JUDGES.—The feasibility of—
540
(i) filing appeals with administrative 
law judges electronically; and 
(ii) conducting hearings using tele- or 
video-conference technologies. 
(H) INDEPENDENCE OF ADMINISTRATIVE 
LAW JUDGES.—The steps that should be taken 
to ensure the independence of administrative 
law judges, including ensuring that such judges 
are in an office that is functionally and oper-
ationally separate from the Centers for Medi-
care and Medicaid Services and the Center for 
Medicare Choices. 
(I) 
GEOGRAPHIC
DISTRIBUTION.—The 
steps that should be taken to provide for an ap-
propriate geographic distribution of administra-
tive law judges throughout the United States to 
ensure timely access to such judges. 
(J) HIRING.—The steps that should be 
taken to hire administrative law judges (and 
support staff). 
(K) PERFORMANCE STANDARDS.—The es-
tablishment of performance standards for ad-
ministrative law judges with respect to timelines 
for decisions in cases under title XVIII of the 
Social Security Act.
541
(L) SHARED RESOURCES.—The feasibility 
of the Secretary entering into such arrange-
ments with the Commissioner of Social Security 
as may be appropriate with respect to trans-
ferred functions under the plan to share office 
space, support staff, and other resources, with 
appropriate reimbursement. 
(M) TRAINING.—The training that should 
be provided to administrative law judges with 
respect to laws and regulations under title 
XVIII of the Social Security Act. 
(3) ADDITIONAL INFORMATION.—The plan may 
also include recommendations for further congres-
sional action, including modifications to the require-
ments and deadlines established under section 1869 
of the Social Security Act (as amended by sections 
521 and 522 of BIPA (114 Stat. 2763A–534) and 
this Act). 
(b) GAO EVALUATION.—The Comptroller General of 
the United States shall—
(1) evaluate the plan submitted under sub-
section (a); and 
(2) not later than 6 months after such submis-
sion, submit to Congress, the Commissioner of So-
542
cial Security, and the Secretary a report on such 
evaluation.
(c) SUBMISSION OF GAO REPORT REQUIRED BE-
FORE PLAN IMPLEMENTATION.—The Commissioner of 
Social Security and the Secretary may not implement the 
plan developed under subsection (a) before the date that 
is 6 months after the date the report required under sub-
section (b)(2) is submitted to the Commissioner and the 
Secretary. 
SEC. 512. EXPEDITED ACCESS TO JUDICIAL REVIEW. 
(a) IN
GENERAL.—Section 1869(b) (42 U.S.C. 
1395ff(b)) is amended—
(1) in paragraph (1)(A), by inserting ‘‘, subject 
to paragraph (2),’’ before ‘‘to judicial review of the 
Secretary’s final decision’’; and 
(2) by adding at the end the following new 
paragraph: 
‘‘(2) EXPEDITED
ACCESS
TO
JUDICIAL
RE-
VIEW.—
‘‘(A) IN
GENERAL.—The Secretary shall 
establish a process under which a provider of 
services or supplier that furnishes an item or 
service or a beneficiary who has filed an appeal 
under paragraph (1) (other than an appeal filed 
under paragraph (1)(F)(i)) may obtain access
543
to judicial review when a review entity (de-
scribed in subparagraph (D)), on its own mo-
tion or at the request of the appellant, deter-
mines that the Departmental Appeals Board 
does not have the authority to decide the ques-
tion of law or regulation relevant to the matters 
in controversy and that there is no material 
issue of fact in dispute. The appellant may 
make such request only once with respect to a 
question of law or regulation for a specific mat-
ter in dispute in a case of an appeal. 
‘‘(B) PROMPT DETERMINATIONS.—If, after 
or coincident with appropriately filing a request 
for an administrative hearing, the appellant re-
quests a determination by the appropriate re-
view entity that the Departmental Appeals 
Board does not have the authority to decide the 
question of law or regulations relevant to the 
matters in controversy and that there is no ma-
terial issue of fact in dispute, and if such re-
quest is accompanied by the documents and 
materials as the appropriate review entity shall 
require for purposes of making such determina-
tion, such review entity shall make a determina-
tion on the request in writing within 60 days
544
after the date such review entity receives the re-
quest and such accompanying documents and 
materials. Such a determination by such review 
entity shall be considered a final decision and 
not subject to review by the Secretary. 
‘‘(C) ACCESS TO JUDICIAL REVIEW.—
‘‘(i) IN GENERAL.—If the appropriate 
review entity—
‘‘(I) determines that there are no 
material issues of fact in dispute and 
that the only issues to be adjudicated 
are ones of law or regulation that the 
Departmental Appeals Board does not 
have authority to decide; or 
‘‘(II) fails to make such deter-
mination within the period provided 
under subparagraph (B); 
then the appellant may bring a civil action 
as described in this subparagraph. 
‘‘(ii) DEADLINE
FOR
FILING.—Such 
action shall be filed, in the case described 
in—
‘‘(I) clause (i)(I), within 60 days 
of the date of the determination de-
scribed in such clause; or
545
‘‘(II) clause (i)(II), within 60 
days of the end of the period provided 
under subparagraph (B) for the deter-
mination. 
‘‘(iii) VENUE.—Such action shall be 
brought in the district court of the United 
States for the judicial district in which the 
appellant is located (or, in the case of an 
action brought jointly by more than 1 ap-
plicant, the judicial district in which the 
greatest number of applicants are located) 
or in the District Court for the District of 
Columbia.
‘‘(iv) INTEREST ON ANY AMOUNTS IN 
CONTROVERSY.—Where a provider of serv-
ices or supplier is granted judicial review 
pursuant to this paragraph, the amount in 
controversy (if any) shall be subject to an-
nual interest beginning on the first day of 
the first month beginning after the 60-day 
period as determined pursuant to clause 
(ii) and equal to the rate of interest on ob-
ligations issued for purchase by the Fed-
eral Supplementary Medical Insurance 
Trust Fund for the month in which the
546
civil action authorized under this para-
graph is commenced, to be awarded by the 
reviewing court in favor of the prevailing 
party. No interest awarded pursuant to the 
preceding sentence shall be deemed income 
or cost for the purposes of determining re-
imbursement due providers of services, 
physicians, practitioners, and other sup-
pliers under this Act. 
‘‘(D) REVIEW ENTITY DEFINED.—For pur-
poses of this subsection, a ‘review entity’ is a 
panel of no more than 3 members from the De-
partmental Appeals Board, selected for the pur-
pose of making determinations under this para-
graph.’’. 
(b) APPLICATION TO PROVIDER AGREEMENT DETER-
MINATIONS.—Section 
1866(h)(1) 
(42 
U.S.C. 
1395cc(h)(1)) is amended—
(1) by inserting ‘‘(A)’’ after ‘‘(h)(1)’’; and 
(2) by adding at the end the following new sub-
paragraph: 
‘‘(B) An institution or agency described in subpara-
graph (A) that has filed for a hearing under subparagraph 
(A) shall have expedited access to judicial review under 
this subparagraph in the same manner as providers of
547
services, suppliers, and beneficiaries may obtain expedited 
access to judicial review under the process established 
under section 1869(b)(2). Nothing in this subparagraph 
shall be construed to affect the application of any remedy 
imposed under section 1819 during the pendency of an 
appeal under this subparagraph.’’. 
(c) GAO STUDY AND REPORT ON ACCESS TO JUDI-
CIAL REVIEW.—
(1) STUDY.—The Comptroller General of the 
United States shall conduct a study on the access of 
medicare beneficiaries and health care providers to 
judicial review of actions of the Secretary and the 
Department of Health and Human Services with re-
spect to items and services under title XVIII of the 
Social Security Act subsequent to February 29, 
2000, the date of the decision of Shalala, Secretary 
of Health and Human Services, et al. v. Illinois 
Council on Long Term Care, Inc. (529 U.S. 1 
(2000)). 
(2) REPORT.—Not later than 1 year after the 
date of enactment of this Act, the Comptroller Gen-
eral shall submit to Congress a report on the study 
conducted under paragraph (1) together with such 
recommendations as the Comptroller General deter-
mines to be appropriate.
548
(d) 
CONFORMING
AMENDMENT.—Section 
1869(b)(1)(F)(ii) (42 U.S.C. 1395ff(b)(1)(F)(ii)) is 
amended to read as follows:
‘‘(ii) REFERENCE TO EXPEDITED AC-
CESS TO JUDICIAL REVIEW.—For the pro-
vision relating to expedited access to judi-
cial review, see paragraph (2).’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to appeals filed on or after October 
1, 2004. 
SEC. 513. EXPEDITED REVIEW OF CERTAIN PROVIDER 
AGREEMENT DETERMINATIONS. 
(a) TERMINATION AND CERTAIN OTHER IMMEDIATE 
REMEDIES.—
(1) IN GENERAL.—The Secretary shall develop 
and implement a process to expedite proceedings 
under sections 1866(h) of the Social Security Act 
(42 U.S.C. 1395cc(h)) in which—
(A) the remedy of termination of participa-
tion has been imposed; 
(B) a sanction described in clause (i) or 
(iii) of section 1819(h)(2)(B) of such Act (42 
U.S.C. 1395i–3(h)(2)(B)) has been imposed, 
but only if such sanction has been imposed on 
an immediate basis; or
549
(C) the Secretary has required a skilled 
nursing facility to suspend operations of a 
nurse aide training program. 
(2) PRIORITY FOR CASES OF TERMINATION.—
Under the process described in paragraph (1), pri-
ority shall be provided in cases of termination de-
scribed in subparagraph (A) of such paragraph. 
(b) INCREASED FINANCIAL SUPPORT.—In addition 
to any amounts otherwise appropriated, to reduce by 50 
percent the average time for administrative determina-
tions on appeals under section 1866(h) of the Social Secu-
rity Act (42 U.S.C. 1395cc(h)), there are authorized to 
be appropriated (in appropriate part from the Federal 
Hospital Insurance Trust Fund and the Federal Supple-
mentary Medical Insurance Trust Fund) to the Secretary 
such sums for fiscal year 2004 and each subsequent fiscal 
year as may be necessary to increase the number of ad-
ministrative law judges (and their staffs) at the Depart-
mental Appeals Board of the Department of Health and 
Human Services and to educate such judges and staff on 
long-term care issues. 
SEC. 514. REVISIONS TO MEDICARE APPEALS PROCESS. 
(a) TIMEFRAMES FOR THE COMPLETION OF THE 
RECORD.—Section 1869(b) (42 U.S.C. 1395ff(b)), as
550
amended by section 512(a)(2), is amended by adding at 
the end the following new paragraph: 
‘‘(3) TIMELY COMPLETION OF THE RECORD.—
‘‘(A) DEADLINE.—Subject to subpara-
graph (B), the deadline to complete the record 
in a hearing before an administrative law judge 
or a review by the Departmental Appeals Board 
is 90 days after the date the request for the re-
view or hearing is filed. 
‘‘(B) EXTENSIONS
FOR
GOOD
CAUSE.—
The person filing a request under subparagraph 
(A) may request an extension of such deadline 
for good cause. The administrative law judge, 
in the case of a hearing, and the Departmental 
Appeals Board, in the case of a review, may ex-
tend such deadline based upon a finding of 
good cause to a date specified by the judge or 
Board, as the case may be. 
‘‘(C) DELAY
IN
DECISION
DEADLINES 
UNTIL
COMPLETION
OF
RECORD.—Notwith-
standing any other provision of this section, the 
deadlines otherwise established under sub-
section (d) for the making of determinations in 
hearings or review under this section are 90
551
days after the date on which the record is com-
plete. 
‘‘(D) COMPLETE
RECORD
DESCRIBED.—
For purposes of this paragraph, a record is 
complete when the administrative law judge, in 
the case of a hearing, or the Departmental Ap-
peals Board, in the case of a review, has re-
ceived—
‘‘(i) written or testimonial evidence, or 
both, submitted by the person filing the re-
quest, 
‘‘(ii) written or oral argument, or 
both, 
‘‘(iii) the decision of, and the record 
for, the prior level of appeal, and 
‘‘(iv) such other evidence as such 
judge or Board, as the case may be, deter-
mines is required to make a determination 
on the request.’’. 
(b) USE OF PATIENTS’ MEDICAL RECORDS.—Section 
1869(c)(3)(B)(i) (42 U.S.C. 1395ff(c)(3)(B)(i)) is amend-
ed by inserting ‘‘(including the medical records of the indi-
vidual involved)’’ after ‘‘clinical experience’’. 
(c) NOTICE REQUIREMENTS
FOR MEDICARE AP-
PEALS.—
552
(1) INITIAL DETERMINATIONS AND REDETER-
MINATIONS.—Section 1869(a) (42 U.S.C. 1395ff(a)) 
is amended by adding at the end the following new 
paragraph: 
‘‘(4) REQUIREMENTS
OF
NOTICE
OF
DETER-
MINATIONS
AND
REDETERMINATIONS.—A written 
notice of a determination on an initial determination 
or on a redetermination, insofar as such determina-
tion or redetermination results in a denial of a claim 
for benefits, shall be provided in printed form and 
written in a manner to be understood by the bene-
ficiary and shall include—
‘‘(A) the reasons for the determination, in-
cluding, as appropriate—
‘‘(i) upon request in the case of an 
initial determination, the provision of the 
policy, manual, or regulation that resulted 
in the denial; and 
‘‘(ii) in the case of a redetermination, 
a summary of the clinical or scientific evi-
dence used in making the determination 
(as appropriate); 
‘‘(B) the procedures for obtaining addi-
tional information concerning the determination 
or redetermination; and
553
‘‘(C) notification of the right to seek a re-
determination or otherwise appeal the deter-
mination and instructions on how to initiate 
such a redetermination or appeal under this 
section.’’. 
(2) 
RECONSIDERATIONS.—Section 
1869(c)(3)(E) 
(42 
U.S.C. 
1395ff(c)(3)(E)) 
is 
amended to read as follows: 
‘‘(E) EXPLANATION
OF
DECISION.—Any 
decision with respect to a reconsideration of a 
qualified independent contractor shall be in 
writing in a manner to be understood by the 
beneficiary and shall include—
‘‘(i) to the extent appropriate, a de-
tailed explanation of the decision as well as 
a discussion of the pertinent facts and ap-
plicable regulations applied in making such 
decision; 
‘‘(ii) a notification of the right to ap-
peal such determination and instructions 
on how to initiate such appeal under this 
section; and 
‘‘(iii) in the case of a determination of 
whether an item or service is reasonable 
and necessary for the diagnosis or treat-
554
ment of illness or injury (under section 
1862(a)(1)(A)) an explanation of the med-
ical or scientific rationale for the deci-
sion.’’.
(3) APPEALS.—Section 1869(d) (42 U.S.C. 
1395ff(d)) is amended—
(A) in the heading, by inserting ‘‘; NO-
TICE’’ after ‘‘SECRETARY’’; and 
(B) by adding at the end the following new 
paragraph:
‘‘(4) NOTICE.—Notice of the decision of an ad-
ministrative law judge shall be in writing in a man-
ner to be understood by the beneficiary and shall in-
clude—
‘‘(A) the specific reasons for the deter-
mination (including, to the extent appropriate, 
a summary of the clinical or scientific evidence 
used in making the determination); 
‘‘(B) the procedures for obtaining addi-
tional information concerning the decision; and 
‘‘(C) notification of the right to appeal the 
decision and instructions on how to initiate 
such an appeal under this section.’’. 
(4) PREPARATION OF RECORD FOR APPEAL.—
Section 1869(c)(3)(J) (42 U.S.C. 1395ff(c)(3)(J)) is
555
amended by striking ‘‘such information as is re-
quired for an appeal’’ and inserting ‘‘the record for 
the appeal’’. 
(d) QUALIFIED INDEPENDENT CONTRACTORS.—
(1) ELIGIBILITY REQUIREMENTS OF QUALIFIED 
INDEPENDENT CONTRACTORS.—Section 1869(c) (42 
U.S.C. 1395ff(c)) is amended—
(A) in paragraph (2)—
(i) by inserting ‘‘(except in the case of 
a utilization and quality control peer re-
view organization, as defined in section 
1152)’’ after ‘‘means an entity or organi-
zation that’’; and 
(ii) by striking the period at the end 
and inserting the following: ‘‘and meets the 
following requirements: 
‘‘(A) GENERAL REQUIREMENTS.—
‘‘(i) The entity or organization has 
(directly or through contracts or other ar-
rangements) sufficient medical, legal, and 
other expertise (including knowledge of the 
program under this title) and sufficient 
staffing to carry out duties of a qualified 
independent contractor under this section 
on a timely basis.
556
‘‘(ii) The entity or organization has 
provided assurances that it will conduct ac-
tivities consistent with the applicable re-
quirements of this section, including that it 
will not conduct any activities in a case un-
less the independence requirements of sub-
paragraph (B) are met with respect to the 
case. 
‘‘(iii) The entity or organization meets 
such other requirements as the Secretary 
provides by regulation. 
‘‘(B) INDEPENDENCE REQUIREMENTS.—
‘‘(i) IN GENERAL.—Subject to clause 
(ii), an entity or organization meets the 
independence requirements of this sub-
paragraph with respect to any case if the 
entity—
‘‘(I) is not a related party (as de-
fined in subsection (g)(5)); 
‘‘(II) does not have a material fa-
milial, financial, or professional rela-
tionship with such a party in relation 
to such case; and
557
‘‘(III) does not otherwise have a 
conflict of interest with such a party 
(as determined under regulations). 
‘‘(ii) EXCEPTION
FOR
COMPENSA-
TION.—Nothing in clause (i) shall be con-
strued to prohibit receipt by a qualified 
independent contractor of compensation 
from the Secretary for the conduct of ac-
tivities under this section if the compensa-
tion is provided consistent with clause (iii). 
‘‘(iii) LIMITATIONS ON ENTITY COM-
PENSATION.—Compensation provided by 
the Secretary to a qualified independent 
contractor in connection with reviews 
under this section shall not be contingent 
on any decision rendered by the contractor 
or by any reviewing professional.’’; and 
(B) in paragraph (3)(A), by striking ‘‘, 
and shall have sufficient training and expertise 
in medical science and legal matters to make 
reconsiderations under this subsection’’. 
(2) ELIGIBILITY REQUIREMENTS FOR REVIEW-
ERS.—Section 1869 (42 U.S.C. 1395ff) is amend-
ed—
558
(A) by amending subsection (c)(3)(D) to 
read as follows: 
‘‘(D) QUALIFICATIONS
OF
REVIEWERS.—
The requirements of subsection (g) shall be met 
(relating to qualifications of reviewing profes-
sionals).’’; and 
(B) by adding at the end the following new 
subsection: 
‘‘(g) QUALIFICATIONS OF REVIEWERS.—
‘‘(1) IN
GENERAL.—In reviewing determina-
tions under this section, a qualified independent con-
tractor shall assure that—
‘‘(A) each individual conducting a review 
shall meet the qualifications of paragraph (2); 
‘‘(B) compensation provided by the con-
tractor to each such reviewer is consistent with 
paragraph (3); and 
‘‘(C) in the case of a review by a panel de-
scribed in subsection (c)(3)(B) composed of 
physicians or other health care professionals 
(each in this subsection referred to as a ‘review-
ing professional’), each reviewing professional 
meets the qualifications described in paragraph 
(4). 
‘‘(2) INDEPENDENCE.—
559
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), each individual conducting a review 
in a case shall—
‘‘(i) not be a related party (as defined 
in paragraph (5));
‘‘(ii) not have a material familial, fi-
nancial, or professional relationship with 
such a party in the case under review; and 
‘‘(iii) not otherwise have a conflict of 
interest with such a party (as determined 
under regulations). 
‘‘(B) EXCEPTION.—Nothing in subpara-
graph (A) shall be construed to—
‘‘(i) prohibit an individual, solely on 
the basis of affiliation with a fiscal inter-
mediary, carrier, or other contractor, from 
serving as a reviewing professional if—
‘‘(I) a nonaffiliated individual is 
not reasonably available; 
‘‘(II) the affiliated individual is 
not involved in the provision of items 
or services in the case under review; 
‘‘(III) the fact of such an affili-
ation is disclosed to the Secretary and 
the beneficiary (or authorized rep-
560
resentative) and neither party objects; 
and 
‘‘(IV) the affiliated individual is 
not an employee of the intermediary, 
carrier, or contractor and does not 
provide services exclusively or pri-
marily to or on behalf of such inter-
mediary, carrier, or contractor; 
‘‘(ii) prohibit an individual who has 
staff privileges at the institution where the 
treatment involved takes place from serv-
ing as a reviewer merely on the basis of 
such affiliation if the affiliation is disclosed 
to the Secretary and the beneficiary (or 
authorized representative), and neither 
party objects; or 
‘‘(iii) prohibit receipt of compensation 
by a reviewing professional from a con-
tractor if the compensation is provided 
consistent with paragraph (3). 
‘‘(3) LIMITATIONS
ON
REVIEWER
COMPENSA-
TION.—Compensation provided by a qualified inde-
pendent contractor to a reviewer in connection with 
a review under this section shall not be contingent 
on the decision rendered by the reviewer.
561
‘‘(4) LICENSURE
AND
EXPERTISE.—Each re-
viewing professional shall be a physician (allopathic 
or osteopathic) or health care professional who—
‘‘(A) is appropriately credentialed or li-
censed in 1 or more States to deliver health 
care services; and 
‘‘(B) has medical expertise in the field of 
practice that is appropriate for the items or 
services at issue. 
‘‘(5) RELATED PARTY DEFINED.—For purposes 
of this section, the term ‘related party’ means, with 
respect to a case under this title involving an indi-
vidual beneficiary, any of the following: 
‘‘(A) The Secretary, the medicare adminis-
trative contractor involved, or any fiduciary, of-
ficer, director, or employee of the Department 
of Health and Human Services, or of such con-
tractor. 
‘‘(B) The individual (or authorized rep-
resentative). 
‘‘(C) The health care professional that pro-
vides the items or services involved in the case. 
‘‘(D) The institution at which the items or 
services (or treatment) involved in the case are 
provided.
562
‘‘(E) The manufacturer of any drug or 
other item that is included in the items or serv-
ices involved in the case. 
‘‘(F) Any other party determined under 
any regulations to have a substantial interest in 
the case involved.’’. 
(3) NUMBER
OF
QUALIFIED
INDEPENDENT 
CONTRACTORS.—Section 
1869(c)(4) 
(42 
U.S.C. 
1395ff(c)(4)) is amended by striking ‘‘12’’ and in-
serting ‘‘4’’. 
(e) IMPLEMENTATION
OF
CERTAIN
BIPA RE-
FORMS.—
(1) DELAY IN CERTAIN BIPA REFORMS.—Sec-
tion 521(d) of BIPA (114 Stat. 2763A–543) is 
amended to read as follows: 
‘‘(d) EFFECTIVE DATE.—
‘‘(1) IN
GENERAL.—Except as specified in 
paragraph (2), the amendments made by this section 
shall apply with respect to initial determinations 
made on or after December 1, 2004. 
‘‘(2) EXPEDITED PROCEEDINGS AND RECONSID-
ERATION REQUIREMENTS.—For the following provi-
sions, the amendments made by subsection (a) shall 
apply with respect to initial determinations made on 
or after October 1, 2003:
563
‘‘(A) Subsection (b)(1)(F)(i) of section 
1869 of the Social Security Act. 
‘‘(B) Subsection (c)(3)(C)(iii) of such sec-
tion. 
‘‘(C) Subsection (c)(3)(C)(iv) of such sec-
tion to the extent that it applies to expedited 
reconsiderations under subsection (c)(3)(C)(iii) 
of such section. 
‘‘(3) TRANSITIONAL USE OF PEER REVIEW OR-
GANIZATIONS TO CONDUCT EXPEDITED RECONSID-
ERATIONS UNTIL QICS ARE OPERATIONAL.—Expe-
dited reconsiderations of initial determinations under 
section 1869(c)(3)(C)(iii) of the Social Security Act 
shall be made by peer review organizations until 
qualified independent contractors are available for 
such expedited reconsiderations.’’. 
(2) 
CONFORMING
AMENDMENTS.—Section 
521(c) of BIPA (114 Stat. 2763A–543) and section 
1869(c)(3)(C)(iii)(III) of the Social Security Act (42 
U.S.C. 1395ff(c)(3)(C)(iii)(III)), as added by section 
521 of BIPA, are repealed. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall be effective as if included in the enact-
ment of the respective provisions of subtitle C of title V 
of BIPA, 114 Stat. 2763A–534.
564
(g) TRANSITION.—In applying section 1869(g) of the 
Social Security Act (as added by subsection (d)(2)), any 
reference to a medicare administrative contractor shall be 
deemed to include a reference to a fiscal intermediary 
under section 1816 of the Social Security Act (42 U.S.C. 
1395h) and a carrier under section 1842 of such Act (42 
U.S.C. 1395u).
SEC. 515. HEARING RIGHTS RELATED TO DECISIONS BY 
THE SECRETARY TO DENY OR NOT RENEW A 
MEDICARE ENROLLMENT AGREEMENT; CON-
SULTATION BEFORE CHANGING PROVIDER 
ENROLLMENT FORMS. 
(a) HEARING RIGHTS.—
(1) IN
GENERAL.—Section 1866 (42 U.S.C. 
1395cc) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(j) HEARING RIGHTS
IN CASES
OF DENIAL
OR 
NONRENEWAL.—The Secretary shall establish by regula-
tion procedures under which—
‘‘(1) there are deadlines for actions on applica-
tions for enrollment (and, if applicable, renewal of 
enrollment); and 
‘‘(2) providers of services, physicians, practi-
tioners, and suppliers whose application to enroll 
(or, if applicable, to renew enrollment) are denied
565
are provided a mechanism to appeal such denial and 
a deadline for consideration of such appeals.’’. 
(2) EFFECTIVE
DATE.—The Secretary shall 
provide for the establishment of the procedures 
under the amendment made by paragraph (1) within 
18 months after the date of enactment of this Act. 
(b) CONSULTATION BEFORE CHANGING PROVIDER 
ENROLLMENT
FORMS.—Section 
1871 
(42 
U.S.C. 
1395hh), as amended by sections 502 and 503, is amend-
ed by adding at the end the following new subsection: 
‘‘(f) The Secretary shall consult with providers of 
services, physicians, practitioners, and suppliers before 
making changes in the provider enrollment forms required 
of such providers, physicians, practitioners, and suppliers 
to be eligible to submit claims for which payment may be 
made under this title.’’.
SEC. 516. APPEALS BY PROVIDERS WHEN THERE IS NO 
OTHER PARTY AVAILABLE. 
(a) IN GENERAL.—Section 1870 (42 U.S.C. 1395gg) 
is amended by adding at the end the following new sub-
section: 
‘‘(h) Notwithstanding subsection (f) or any other pro-
vision of law, the Secretary shall permit a provider of serv-
ices, physician, practitioner, or other supplier to appeal 
any determination of the Secretary under this title relating
566
to services rendered under this title to an individual who 
subsequently dies if there is no other party available to 
appeal such determination.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall take effect on the date of enactment 
of this Act and shall apply to items and services furnished 
on or after such date. 
SEC. 517. PROVIDER ACCESS TO REVIEW OF LOCAL COV-
ERAGE DETERMINATIONS. 
(a) PROVIDER ACCESS TO REVIEW OF LOCAL COV-
ERAGE
DETERMINATIONS.—Section 
1869(f)(5) 
(42 
U.S.C. 1395ff(f)(5)) is amended to read as follows: 
‘‘(5) AGGRIEVED PARTY DEFINED.—In this sec-
tion, the term ‘aggrieved party’ means—
‘‘(A) with respect to a national coverage 
determination, an individual entitled to benefits 
under part A, or enrolled under part B, or both, 
who is in need of the items or services that are 
the subject of the coverage determination; and 
‘‘(B) with respect to a local coverage deter-
mination—
‘‘(i) an individual who is entitled to 
benefits under part A, or enrolled under 
part B, or both, who is adversely affected 
by such a determination; or
567
‘‘(ii) a provider of services, physician, 
practitioner, or supplier that is adversely 
affected by such a determination.’’. 
(b) CLARIFICATION OF LOCAL COVERAGE DETER-
MINATION
DEFINITION.—Section 
1869(f)(2)(B) 
(42 
U.S.C. 1395ff(f)(2)(B)) is amended by inserting ‘‘, includ-
ing, where appropriate, the specific requirements and clin-
ical indications relating to the medical necessity of an item 
or service’’ before the period at the end. 
(c) REQUEST FOR LOCAL COVERAGE DETERMINA-
TIONS BY PROVIDERS.—Section 1869 (42 U.S.C. 1395ff), 
as amended by section 514(d)(2)(B), is amended by add-
ing at the end the following new subsection: 
‘‘(h) REQUEST FOR LOCAL COVERAGE DETERMINA-
TIONS BY PROVIDERS.—
‘‘(1) ESTABLISHMENT OF PROCESS.—The Sec-
retary shall establish a process under which a pro-
vider of services, physician, practitioner, or supplier 
who certifies that they meet the requirements estab-
lished in paragraph (3) may request a local coverage 
determination in accordance with the succeeding 
provisions of this subsection. 
‘‘(2) PROVIDER LOCAL COVERAGE DETERMINA-
TION REQUEST DEFINED.—In this subsection, the 
term ‘provider local coverage determination request’
568
means a request, filed with the Secretary, at such 
time and in such form and manner as the Secretary 
may specify, that the Secretary, pursuant to para-
graph (4)(A), require a fiscal intermediary, carrier, 
or program safeguard contractor to make or revise 
a local coverage determination under this section 
with respect to an item or service. 
‘‘(3) REQUEST
REQUIREMENTS.—Under the 
process established under paragraph (1), by not 
later than 30 days after the date on which a pro-
vider local coverage determination request is filed 
under paragraph (1), the Secretary shall determine 
whether such request establishes that—
‘‘(A) there have been at least 5 reversals of 
redeterminations made by a fiscal intermediary 
or carrier after a hearing before an administra-
tive law judge on claims submitted by the pro-
vider in at least 2 different cases before an ad-
ministrative law judge;
‘‘(B) each reversal described in subpara-
graph (A) involves substantially similar mate-
rial facts; 
‘‘(C) each reversal described in subpara-
graph (A) involves the same medical necessity 
issue; and
569
‘‘(D) at least 50 percent of the total num-
ber of claims submitted by such provider within 
the past year involving the substantially similar 
material facts described in subparagraph (B) 
and the same medical necessity issue described 
in subparagraph (C) have been denied and have 
been reversed by an administrative law judge.
‘‘(4) APPROVAL OR REJECTION OF REQUEST.—
‘‘(A) APPROVAL OF REQUEST.—If the Sec-
retary determines that subparagraphs (A) 
through (D) of paragraph (3) have been satis-
fied, the Secretary shall require the fiscal inter-
mediary, carrier, or program safeguard con-
tractor identified in the provider local coverage 
determination request, to make or revise a local 
coverage determination with respect to the item 
or service that is the subject of the request not 
later than the date that is 210 days after the 
date on which the Secretary makes the deter-
mination. Such fiscal intermediary, carrier, or 
program safeguard contractor shall retain the 
discretion to determine whether or not, and/or 
the circumstances under which, to cover the 
item or service for which a local coverage deter-
mination is requested. Nothing in this sub-
570
section shall be construed to require a fiscal 
intermediary, carrier or program safeguard con-
tractor to develop a local coverage determina-
tion that is inconsistent with any national cov-
erage determination, or any coverage provision 
in this title or in regulation, manual, or inter-
pretive guidance of the Secretary. 
‘‘(B) REJECTION
OF
REQUEST.—If the 
Secretary determines that subparagraphs (A) 
through (D) of paragraph (3) have not been 
satisfied, the Secretary shall reject the provider 
local coverage determination request and shall 
notify the provider of services, physician, practi-
tioner, or supplier that filed the request of the 
reason for such rejection and no further pro-
ceedings in relation to such request shall be 
conducted.’’. 
(d) STUDY AND REPORT ON THE USE OF CONTRAC-
TORS TO MONITOR MEDICARE APPEALS.—
(1) STUDY.—The Secretary shall conduct a 
study on the feasibility and advisability of requiring 
fiscal intermediaries and carriers to monitor and 
track—
(A) the subject matter and status of claims 
denied by the fiscal intermediary or carrier (as
571
applicable) that are appealed under section 
1869 of the Social Security Act (42 U.S.C. 
1395ff), as added by section 522 of BIPA (114 
Stat. 2763A–543) and amended by this Act; 
and 
(B) any final determination made with re-
spect to such claims. 
(2) REPORT.—Not later than the date that is 
1 year after the date of enactment of this Act, the 
Secretary shall submit to Congress a report on the 
study conducted under paragraph (1) together with 
such recommendations for legislation and adminis-
trative action as the Commission determines appro-
priate. 
(e) AUTHORIZATION
OF APPROPRIATIONS.—There 
are authorized to be appropriated such sums as are nec-
essary to carry out the amendments made by subsections 
(a), (b), and (c). 
(f) EFFECTIVE DATES.—
(1) PROVIDER ACCESS TO REVIEW OF LOCAL 
COVERAGE
DETERMINATIONS.—The 
amendments 
made by subsections (a) and (b) shall apply to—
(A) any review of any local coverage deter-
mination filed on or after October 1, 2003;
572
(B) any request to make such a determina-
tion made on or after such date; or
(C) any local coverage determination made 
on or after such date. 
(2) PROVIDER LOCAL COVERAGE DETERMINA-
TION
REQUESTS.—The amendment made by sub-
section (c) shall apply with respect to provider local 
coverage determination requests (as defined in sec-
tion 1869(h)(2) of the Social Security Act, as added 
by subsection (c)) filed on or after the date of enact-
ment of this Act. 
Subtitle C—Contracting Reform 
SEC. 521. 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-
573
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 
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.
574
‘‘(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, physician, practitioner, fa-
cility, or supplier (or class of such providers of 
services, physicians, practitioners, facilities, or 
suppliers), the ‘appropriate’ medicare adminis-
trative contractor is the medicare administra-
tive contractor that has a contract under this 
section with respect to the performance of that 
function in relation to that individual, provider 
of services, physician, practitioner, facility, or 
supplier or class of provider of services, physi-
cian, practitioner, facility, or supplier. 
‘‘(4) FUNCTIONS
DESCRIBED.—The functions 
referred to in paragraphs (1) and (2) are payment 
functions (including the function of developing local 
coverage determinations, as defined in section 
1869(f)(2)(B)), provider services functions, and ben-
eficiary services functions as follows: 
‘‘(A) 
DETERMINATION
OF
PAYMENT 
AMOUNTS.—Determining (subject to the provi-
sions of section 1878 and to such review by the
575
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, physicians, practitioners, facilities, 
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.—Serving as a center for, and com-
municating to individuals entitled to benefits 
under part A or enrolled under part B, or both, 
with respect to education and outreach for 
those individuals, and assistance with specific 
issues, concerns, or problems of those individ-
uals. 
‘‘(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, physi-
cians, practitioners, facilities, or suppliers.
576
‘‘(E) 
COMMUNICATION
WITH
PRO-
VIDERS.—Serving as a center for, and commu-
nicating to providers of services, physicians, 
practitioners, facilities, and suppliers, any infor-
mation or instructions furnished to the medi-
care administrative contractor by the Secretary, 
and serving as a channel of communication 
from such providers, physicians, practitioners, 
facilities, and suppliers to the Secretary. 
‘‘(F) PROVIDER
EDUCATION
AND
TECH-
NICAL ASSISTANCE.—Performing the functions 
described in subsections (e) and (f), relating to 
education, training, and technical assistance to 
providers of services, physicians, practitioners, 
facilities, and suppliers. 
‘‘(G) 
ADDITIONAL
FUNCTIONS.—Per-
forming such other functions, including (subject 
to paragraph (5)) functions under the Medicare 
Integrity Program under section 1893, as are 
necessary to carry out the purposes of this title. 
‘‘(5) RELATIONSHIP TO MIP CONTRACTS.—
‘‘(A) NONDUPLICATION OF ACTIVITIES.—
In entering into contracts under this section, 
the Secretary shall assure that activities of 
medicare administrative contractors do not du-
577
plicate activities carried out under contracts en-
tered into under the Medicare Integrity Pro-
gram under section 1893. The previous sen-
tence shall not apply with respect to the activity 
described in section 1893(b)(5) (relating to 
prior authorization of certain items of durable 
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.—
‘‘(A) IN GENERAL.—Except as provided in 
laws with general applicability to Federal acqui-
sition and procurement, the Federal Acquisition 
Regulation, or in subparagraph (B), the Sec-
retary shall use competitive procedures when
578
entering into contracts with medicare adminis-
trative contractors under this section. 
‘‘(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 6 years. 
‘‘(C) TRANSFER
OF
FUNCTIONS.—The 
Secretary may transfer functions among medi-
care administrative contractors without regard 
to any provision of law requiring competition. 
The Secretary shall ensure that performance 
quality is considered in such transfers. The Sec-
retary shall provide notice (whether in the Fed-
eral Register or otherwise) of any such transfer 
(including a description of the functions so 
transferred and contact information for the
579
contractors involved) to providers of services, 
physicians, practitioners, facilities, and sup-
pliers affected by the transfer. 
‘‘(D) INCENTIVES
FOR
QUALITY.—The 
Secretary may 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, and other matters as the Secretary finds 
pertinent. 
‘‘(3) PERFORMANCE REQUIREMENTS.—
‘‘(A) DEVELOPMENT
OF
SPECIFIC
PER-
FORMANCE
REQUIREMENTS.—The 
Secretary 
shall develop contract performance require-
ments to carry out the specific requirements ap-
plicable under this title to a function described 
in subsection (a)(4) and shall develop standards 
for measuring the extent to which a contractor 
has met such requirements. In developing such
580
performance requirements and standards for 
measurement, the Secretary shall consult with 
providers of services, organizations representa-
tive of beneficiaries under this title, and organi-
zations and agencies performing functions nec-
essary to carry out the purposes of this section 
with respect to such performance requirements. 
The Secretary shall make such performance re-
quirements and measurement standards avail-
able to the public. 
‘‘(B) CONSIDERATIONS.—The Secretary 
shall include, as 1 of the standards, provider 
and beneficiary satisfaction levels. 
‘‘(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 published under subparagraph 
(A), but may include additional perform-
ance requirements; 
‘‘(ii) shall be used for evaluating con-
tractor performance under the contract; 
and
581
‘‘(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
582
such amount as the Secretary may deem appro-
priate. 
‘‘(6) RETAINING
DIVERSITY
OF
LOCAL
COV-
ERAGE DETERMINATIONS.—A contract with a medi-
care administrative contractor under this section to 
perform the function of developing local coverage de-
terminations (as defined in section 1869(f)(2)(B)) 
shall provide that the contractor shall—
‘‘(A) designate at least 1 different indi-
vidual to serve as medical director for each 
State for which such contract performs such 
function; 
‘‘(B) utilize such medical director in the 
performance of such function; and 
‘‘(C) appoint a contractor advisory com-
mittee with respect to each such State to pro-
vide a formal mechanism for physicians in the 
State to be informed of, and participate in, the 
development of a local coverage determination 
in an advisory capacity. 
‘‘(c) TERMS AND CONDITIONS.—
‘‘(1) IN
GENERAL.—Subject to subsection 
(a)(6), a contract with any medicare administrative 
contractor under this section may contain such 
terms and conditions as the Secretary finds nec-
583
essary or appropriate and may provide for advances 
of funds to the medicare administrative 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 the reck-
less disregard of the individual’s obligations or the 
intent by that individual to defraud the United 
States, be liable with respect to any payments cer-
tified by the individual under this section. 
‘‘(2) DISBURSING OFFICER.—No disbursing of-
ficer shall, in the absence of the reckless disregard 
of the officer’s obligations or the intent by that offi-
584
cer 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 a payment, the medicare ad-
ministrative contractor acted with reckless disregard 
of its obligations under its medicare administrative 
contract or with intent to defraud the United States. 
‘‘(4) RELATIONSHIP TO FALSE CLAIMS ACT.—
Nothing in this subsection shall be construed to limit 
liability for conduct that would constitute a violation 
of sections 3729 through 3731 of title 31, United 
States Code (commonly known as the ‘‘False Claims 
Act’’). 
‘‘(5) INDEMNIFICATION BY SECRETARY.—
‘‘(A) IN GENERAL.—Notwithstanding any 
other provision of law and subject to the suc-
ceeding provisions of this paragraph, in the case
585
of a medicare administrative contractor (or a 
person who is a director, officer, or employee of 
such a contractor or who is engaged by the con-
tractor to participate directly in the claims ad-
ministration process) who is made a party to 
any judicial or administrative proceeding aris-
ing from, or relating directly to, the claims ad-
ministration process under this title, the Sec-
retary may, to the extent specified in the con-
tract with the contractor, indemnify the con-
tractor (and such persons). 
‘‘(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 
Secretary to be criminal in nature, fraudulent, 
or grossly negligent. 
‘‘(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).
‘‘(D) WRITTEN
APPROVAL
FOR
SETTLE-
MENTS.—A contractor or other person de-
586
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 a settlement. Any indemnification 
under subparagraph (A) with respect to 
amounts paid under a settlement are condi-
tioned upon the Secretary’s prior written ap-
proval of the final settlement. 
‘‘(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 
performance requirements under section 1874A(b) 
of the Social Security Act (as added by paragraph 
(1)) the Secretary shall consider inclusion of the per-
formance standards described in sections 1816(f)(2)
587
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 en-
actment 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-
tion’’ and inserting ‘‘contract under section 
1874A that provides for making payments 
under this part’’. 
(5) Subsections (d) through (i) are repealed.
588
(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—
(A) by striking paragraph (1); 
(B) in paragraph (2)—
(i) by striking subparagraphs (A) and 
(B);
589
(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’’; 
(iv) by striking subparagraphs (C), 
(D), and (E); 
(v) in subparagraph (H)—
590
(I) by striking ‘‘if it makes deter-
minations or payments with respect to 
physicians’ services,’’; and 
(II) by striking ‘‘carrier’’ and in-
serting ‘‘medicare administrative con-
tractor’’; 
(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,’’; 
(D) by striking paragraph (5); 
(E) in paragraph (6)(D)(iv), by striking 
‘‘carrier’’ and inserting ‘‘medicare administra-
tive contractor’’; and 
(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);
591
(B) in paragraph (2), by striking ‘‘contract 
under this section which provides for the dis-
bursement of funds, as described in subsection 
(a)(1)(B),’’ and inserting ‘‘contract under sec-
tion 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), by striking ‘‘carrier’’ 
and inserting ‘‘medicare administrative con-
tractor’’; 
(E) in paragraph (5), by striking ‘‘contract 
under this section which provides for the dis-
bursement of funds, as described in subsection 
(a)(1)(B), shall require the carrier’’ and ‘‘car-
rier responses’’ and inserting ‘‘contract under 
section 1874A that provides for making pay-
ments under this part shall require the medi-
care administrative contractor’’ and ‘‘contractor 
responses’’, respectively; and 
(F) by striking paragraph (6). 
(5) Subsections (d), (e), and (f) are repealed.
592
(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)—
(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
593
(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 
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, 2005, and the Secretary is authorized to
594
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 
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 title, 
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, 2011. 
(2) GENERAL TRANSITION RULES.—
(A) AUTHORITY TO CONTINUE TO ENTER 
INTO NEW AGREEMENTS AND CONTRACTS AND 
WAIVER OF PROVIDER NOMINATION PROVISIONS 
DURING TRANSITION.—Prior to the date speci-
fied in paragraph (1)(A), the Secretary may, 
consistent with subparagraph (B), continue to
595
enter into agreements under section 1816 and 
contracts under section 1842 of the Social Se-
curity Act (42 U.S.C. 1395h, 1395u). The Sec-
retary may enter into new agreements under 
section 1816 during the time period without re-
gard to any of the provider nomination provi-
sions of such section. 
(B) APPROPRIATE TRANSITION.—The Sec-
retary shall take such steps as are necessary to 
provide for an appropriate transition from 
agreements under section 1816 and contracts 
under 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 AC-
TIVITIES UNDER CURRENT CONTRACTS AND AGREE-
MENTS AND UNDER TRANSITION 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 agreements and 
contracts entered into pursuant to paragraph (2)(A).
596
(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) SECRETARIAL SUBMISSION OF LEGISLATIVE PRO-
POSAL.—Not later than 6 months after the date of enact-
ment of this Act, the Secretary shall submit to the appro-
priate committees of Congress a legislative proposal pro-
viding for such technical and conforming amendments in 
the law as are required by the provisions of this section. 
(g) REPORTS ON IMPLEMENTATION.—
(1) PROPOSAL
FOR
IMPLEMENTATION.—At 
least 1 year before the date specified in subsection 
(d)(1)(A), the Secretary shall submit a report to 
Congress and the Comptroller General of the United 
States that describes a plan for an appropriate tran-
sition. The Comptroller General shall conduct an 
evaluation of such plan and shall submit to Con-
gress, not later than 6 months after the date the re-
port is received, a report on such evaluation and
597
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, 2008, 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 
of medicare contractors to adapt to full com-
petition.
Subtitle D—Education and 
Outreach Improvements 
SEC. 531. 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:
598
‘‘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 (e), including under section 
1893) in order to maximize the effectiveness of Federal 
education efforts for providers of services, physicians, 
practitioners, and suppliers.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall take effect on the date of en-
actment of this Act. 
(3) REPORT.—Not later than October 1, 2004, 
the Secretary shall submit to Congress a report that 
includes a description and evaluation of the steps 
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 521(a)(1), is amended by adding at the end 
the following new subsection:
‘‘(e) INCENTIVES TO IMPROVE CONTRACTOR PER-
FORMANCE IN PROVIDER EDUCATION AND OUTREACH.—
599
‘‘(1) METHODOLOGY TO MEASURE CONTRACTOR 
ERROR RATES.—In order to give medicare contrac-
tors (as defined in paragraph (3)) an incentive to 
implement effective education and outreach pro-
grams for providers of services, physicians, practi-
tioners, and suppliers, the Secretary shall develop 
and implement by October 1, 2004, a methodology 
to measure the specific claims payment error rates 
of such contractors in the processing or reviewing of 
medicare claims. 
‘‘(2) GAO REVIEW
OF
METHODOLOGY.—The 
Comptroller General of the United States shall re-
view, and make recommendations to the Secretary, 
regarding the adequacy of such methodology. 
‘‘(3) MEDICARE CONTRACTOR DEFINED.—For 
purposes of this subsection, the term ‘medicare con-
tractor’ includes a medicare administrative con-
tractor, a fiscal intermediary with a contract under 
section 1816, and a carrier with a contract under 
section 1842.’’. 
(2) REPORT.—The Secretary shall submit to 
Congress a report that describes how the Secretary 
intends to use the methodology developed under sec-
tion 1874A(e)(1) of the Social Security Act, as 
added by paragraph (1), in assessing medicare con-
600
tractor performance in implementing effective edu-
cation and outreach programs, including whether to 
use such methodology as a basis for performance bo-
nuses. 
(c) IMPROVED PROVIDER EDUCATION AND TRAIN-
ING.—
(1) INCREASED FUNDING FOR ENHANCED EDU-
CATION AND TRAINING THROUGH MEDICARE INTEG-
RITY
PROGRAM.—Section 1817(k)(4) (42 U.S.C. 
1395i(k)(4)) is amended—
(A) in subparagraph (A), by striking ‘‘sub-
paragraph (B)’’ and inserting ‘‘subparagraphs 
(B) and (C)’’; 
(B) in subparagraph (B), by striking ‘‘The 
amount appropriated’’ and inserting ‘‘Subject 
to subparagraph (C), the amount appro-
priated’’; and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(C) ENHANCED
PROVIDER
EDUCATION 
AND TRAINING.—
‘‘(i) IN GENERAL.—In addition to the 
amount appropriated under subparagraph 
(B), the amount appropriated under sub-
paragraph (A) for a fiscal year (beginning
601
with fiscal year 2004) is increased by 
$35,000,000. 
‘‘(ii) USE.—The funds made available 
under this subparagraph shall be used only 
to increase the conduct by medicare con-
tractors of education and training of pro-
viders of services, physicians, practitioners, 
and suppliers regarding billing, coding, and 
other appropriate items and may also be 
used to improve the accuracy, consistency, 
and timeliness of contractor responses to 
written and phone inquiries from providers 
of services, physicians, practitioners, and 
suppliers.’’. 
(2) TAILORING EDUCATION AND TRAINING FOR 
SMALL PROVIDERS OR SUPPLIERS.—
(A) IN GENERAL.—Section 1889, as added 
by subsection (a), is amended by adding at the 
end the following new subsection: 
‘‘(b) TAILORING EDUCATION AND TRAINING ACTIVI-
TIES FOR SMALL PROVIDERS OR SUPPLIERS.—
‘‘(1) IN GENERAL.—Insofar as a medicare con-
tractor conducts education and training activities, it 
shall take into consideration the special needs of 
small providers of services or suppliers (as defined in
602
paragraph (2)). Such education and training activi-
ties for small providers of services and suppliers may 
include the provision of technical assistance (such as 
review of billing systems and internal controls to de-
termine program compliance and to suggest more ef-
ficient and effective means of achieving such compli-
ance). 
‘‘(2) SMALL PROVIDER OF SERVICES OR SUP-
PLIER.—In this subsection, the term ‘small provider 
of services or supplier’ means—
‘‘(A) an institutional provider of services 
with fewer than 25 full-time-equivalent employ-
ees; or 
‘‘(B) a physician, practitioner, or supplier 
with fewer than 10 full-time-equivalent employ-
ees.’’. 
(B) EFFECTIVE
DATE.—The amendment 
made by subparagraph (A) shall take effect on 
January 1, 2004. 
(d) ADDITIONAL
PROVIDER
EDUCATION
PROVI-
SIONS.—
(1) IN GENERAL.—Section 1889, as added by 
subsection (a) and as amended by subsection (c)(2), 
is amended by adding at the end the following new 
subsections:
603
‘‘(c) ENCOURAGEMENT OF PARTICIPATION IN EDU-
CATION PROGRAM ACTIVITIES.—A medicare contractor 
may not use a record of attendance at (or failure to at-
tend) educational activities or other information gathered 
during an educational program conducted under this sec-
tion or otherwise by the Secretary to select or track pro-
viders of services, physicians, practitioners, or suppliers 
for the purpose of conducting any type of audit or prepay-
ment review. 
‘‘(d) CONSTRUCTION.—Nothing in this section or sec-
tion 1893(g) shall be construed as providing for disclosure 
by a medicare contractor—
‘‘(1) of the screens used for identifying claims 
that will be subject to medical review; or 
‘‘(2) of information that would compromise 
pending law enforcement activities or reveal findings 
of law enforcement-related audits. 
‘‘(e) DEFINITIONS.—For purposes of this section and 
section 1817(k)(4)(C), the term ‘medicare contractor’ in-
cludes the following: 
‘‘(1) A medicare administrative contractor with 
a contract under section 1874A, a fiscal inter-
mediary with a contract under section 1816, and a 
carrier with a contract under section 1842.
604
‘‘(2) An eligible entity with a contract under 
section 1893.
Such term does not include, with respect to activities of 
a specific provider of services, physician, practitioner, or 
supplier an entity that has no authority under this title 
or title XI with respect to such activities and such provider 
of services, physician, practitioner, or supplier.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall take effect on the date of en-
actment of this Act. 
SEC. 532. ACCESS TO AND PROMPT RESPONSES FROM 
MEDICARE CONTRACTORS. 
(a) IN GENERAL.—Section 1874A, as added by sec-
tion 521(a)(1) and as amended by section 531(b)(1), is 
amended by adding at the end the following new sub-
section: 
‘‘(f) COMMUNICATING WITH BENEFICIARIES
AND 
PROVIDERS.—
‘‘(1) COMMUNICATION
PROCESS.—The Sec-
retary shall develop a process for medicare contrac-
tors to communicate with beneficiaries and with pro-
viders of services, physicians, practitioners, and sup-
pliers under this title. 
‘‘(2) RESPONSE TO WRITTEN INQUIRIES.—Each 
medicare contractor (as defined in paragraph (5))
605
shall provide general written responses (which may 
be through electronic transmission) in a clear, con-
cise, and accurate manner to inquiries by bene-
ficiaries, providers of services, physicians, practi-
tioners, and suppliers 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 medicare contractors 
provide a toll-free telephone number at which bene-
ficiaries, providers, physicians, practitioners, and 
suppliers may obtain information regarding billing, 
coding, claims, coverage, and other appropriate in-
formation under this title. 
‘‘(4) 
MONITORING
OF
CONTRACTOR
RE-
SPONSES.—
‘‘(A) IN
GENERAL.—Each medicare con-
tractor shall, consistent with standards devel-
oped by the Secretary under subparagraph 
(B)—
‘‘(i) maintain a system for identifying 
who provides the information referred to in 
paragraphs (2) and (3); and
606
‘‘(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 publish in the Federal 
Register) standards regarding the accu-
racy, consistency, and timeliness of the in-
formation provided in response to 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 contrac-
tors, the Secretary shall consider the re-
sults of the monitoring conducted under 
subparagraph (A) taking into account as 
performance requirements the standards 
established under clause (i). The Secretary 
shall, in consultation with organizations 
representing providers of services, sup-
pliers, and individuals entitled to benefits 
under part A or enrolled under part B, or 
both, establish standards relating to the
607
accuracy, consistency, and timeliness of the 
information so provided. 
‘‘(C) DIRECT
MONITORING.—Nothing in 
this paragraph shall be construed as preventing 
the Secretary from directly monitoring the ac-
curacy, consistency, and timeliness of the infor-
mation so provided. 
‘‘(5) MEDICARE CONTRACTOR DEFINED.—For 
purposes of this subsection, the term ‘medicare con-
tractor’ has the meaning given such term in sub-
section (e)(3).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall take effect October 1, 2004. 
SEC. 533. RELIANCE ON GUIDANCE. 
(a) IN GENERAL.—Section 1871(d), as added by sec-
tion 502(a), is amended by adding at the end the following 
new paragraph: 
‘‘(2) If—
‘‘(A) a provider of services, physician, practi-
tioner, or other supplier follows written guidance 
provided—
‘‘(i) by the Secretary; or 
‘‘(ii) by a medicare contractor (as defined 
in section 1889(e) and whether in the form of 
a written response to a written inquiry under
608
section 1874A(f)(1) or otherwise) acting within 
the scope of the contractor’s contract authority, 
in response to a written inquiry with respect to the 
furnishing of items or services or the submission of 
a claim for benefits for such items or services; 
‘‘(B) the Secretary determines that—
‘‘(i) the provider of services, physician, 
practitioner, or supplier has accurately pre-
sented the circumstances relating to such items, 
services, and claim to the Secretary or the con-
tractor in the written guidance; and 
‘‘(ii) there is no indication of fraud or 
abuse committed by the provider of services, 
physician, practitioner, or supplier against the 
program under this title; and 
‘‘(C) the guidance was in error; 
the provider of services, physician, practitioner, or supplier 
shall not be subject to any penalty or interest under this 
title (or the provisions of title XI insofar as they relate 
to this title) relating to the provision of such items or serv-
ice or such claim if the provider of services, physician, 
practitioner, or supplier reasonably relied on such guid-
ance. In applying this paragraph with respect to guidance 
in the form of general responses to frequently asked ques-
tions, the Secretary retains authority to determine the ex-
609
tent to which such general responses apply to the par-
ticular circumstances of individual claims.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to penalties imposed on or after 
the date of enactment of this Act.
SEC. 534. MEDICARE PROVIDER OMBUDSMAN. 
(a) MEDICARE
PROVIDER
OMBUDSMAN.—Section 
1868 (42 U.S.C. 1395ee) is amended—
(1) by adding at the end of the heading the fol-
lowing: ‘‘; MEDICARE PROVIDER OMBUDSMAN’’; 
(2) by inserting ‘‘PRACTICING PHYSICIANS AD-
VISORY COUNCIL.—(1)’’ after ‘‘(a)’’; 
(3) in paragraph (1), as so redesignated under 
paragraph (2), by striking ‘‘in this section’’ and in-
serting ‘‘in this subsection’’; 
(4) by redesignating subsections (b) and (c) as 
paragraphs (2) and (3), respectively; and 
(5) by adding at the end the following new sub-
section: 
‘‘(b) MEDICARE PROVIDER OMBUDSMAN.—
‘‘(1) IN GENERAL.—By not later than 1 year 
after the date of enactment of the Prescription Drug 
and Medicare Improvement Act of 2003, the Sec-
retary shall appoint a Medicare Provider Ombuds-
man.
610
‘‘(2) DUTIES.—The Medicare Provider Om-
budsman shall—
‘‘(A) provide assistance, on a confidential 
basis, to entities and individuals providing items 
and services, including covered drugs under 
part D, under this title with respect to com-
plaints, grievances, and requests for informa-
tion concerning the programs under this title 
(including provisions of title XI insofar as they 
relate to this title and are not administered by 
the Office of the Inspector General of the De-
partment of Health and Human Services) and 
in the resolution of unclear or conflicting guid-
ance given by the Secretary and medicare con-
tractors to such providers of services and sup-
pliers regarding such programs and provisions 
and requirements under this title and such pro-
visions; and 
‘‘(B) submit recommendations to the Sec-
retary for improvement in the administration of 
this title and such provisions, including—
‘‘(i) recommendations to respond to 
recurring patterns of confusion in this title 
and 
such 
provisions 
(including 
rec-
ommendations regarding suspending impo-
611
sition of sanctions where there is wide-
spread confusion in program administra-
tion), and 
‘‘(ii) recommendations to provide for 
an appropriate and consistent response (in-
cluding not providing for audits) in cases 
of self-identified overpayments by providers 
of services and suppliers. 
‘‘(3) STAFF.—The Secretary shall provide the 
Medicare Provider Ombudsman with appropriate 
staff.’’. 
(b) FUNDING.—There are authorized to be appro-
priated to the Secretary (in appropriate part from the 
Federal Hospital Insurance Trust Fund and the Federal 
Supplementary Medical Insurance Trust Fund (including 
the Prescription Drug Account)) to carry out the provi-
sions of subsection (b) of section 1868 of the Social Secu-
rity Act (42 U.S.C. 1395ee) (relating to the Medicare Pro-
vider Ombudsman), as added by subsection (a)(5), such 
sums as are necessary for fiscal year 2004 and each suc-
ceeding fiscal year. 
SEC. 535. BENEFICIARY OUTREACH DEMONSTRATION PRO-
GRAMS. 
(a) DEMONSTRATION ON THE PROVISION OF ADVICE 
AND
ASSISTANCE
TO
MEDICARE
BENEFICIARIES
AT
612
LOCAL OFFICES OF THE SOCIAL SECURITY ADMINISTRA-
TION.—
(1) ESTABLISHMENT.—The Secretary shall es-
tablish a demonstration program (in this subsection 
referred to as the ‘‘demonstration program’’) under 
which medicare specialists employed by the Depart-
ment of Health and Human Services provide advice 
and assistance to medicare beneficiaries at the loca-
tion of existing local offices of the Social Security 
Administration. 
(2) LOCATIONS.—
(A) IN GENERAL.—The demonstration pro-
gram shall be conducted in at least 6 offices or 
areas. Subject to subparagraph (B), in selecting 
such offices and areas, the Secretary shall pro-
vide preference for offices with a high volume of 
visits by medicare beneficiaries. 
(B) 
ASSISTANCE
FOR
RURAL
BENE-
FICIARIES.—The Secretary shall provide for the 
selection of at least 2 rural areas to participate 
in the demonstration program. In conducting 
the demonstration program in such rural areas, 
the Secretary shall provide for medicare special-
ists to travel among local offices in a rural area 
on a scheduled basis.
613
(3) DURATION.—The demonstration program 
shall be conducted over a 3-year period. 
(4) EVALUATION AND REPORT.—
(A) EVALUATION.—The Secretary shall 
provide for an evaluation of the demonstration 
program. Such evaluation shall include an anal-
ysis of—
(i) utilization of, and beneficiary satis-
faction with, the assistance provided under 
the program; and 
(ii) the cost-effectiveness of providing 
beneficiary assistance through out-sta-
tioning medicare specialists at local social 
security offices. 
(B) REPORT.—The Secretary shall submit 
to Congress a report on such evaluation and 
shall include in such report recommendations 
regarding the feasibility of permanently out-sta-
tioning Medicare specialists at local social secu-
rity offices. 
(b) DEMONSTRATION ON PROVIDING PRIOR DETER-
MINATIONS.—
(1) ESTABLISHMENT.—By not later than 1 
year after the date of enactment of this Act, the 
Secretary shall establish a demonstration project to
614
test the administrative feasibility of providing a 
process for medicare beneficiaries and entities and 
individuals furnishing such beneficiaries with items 
and services under title XVIII of the Social Security 
Act program to make a request for, and receive, a 
determination (after an advance beneficiary notice is 
issued with respect to the item or service involved 
but before such item or service is furnished to the 
beneficiary) as to whether the item or service is cov-
ered under such title consistent with the applicable 
requirements of section 1862(a)(1)(A) of such Act 
(42 U.S.C. 1395y(a)(1)(A)) (relating to medical ne-
cessity). 
(2) EVALUATION AND REPORT.—
(A) EVALUATION.—The Secretary shall 
provide for an evaluation of the demonstration 
program conducted under paragraph (1). 
(B) REPORT.—By not later than January 
1, 2006, the Secretary shall submit to Congress 
a report on such evaluation together with rec-
ommendations for such legislation and adminis-
trative actions as the Secretary considers appro-
priate.
615
Subtitle E—Review, Recovery, and 
Enforcement Reform 
SEC. 541. PREPAYMENT REVIEW. 
(a) IN GENERAL.—Section 1874A, as added by sec-
tion 521(a)(1) and as amended by sections 531(b)(1) and 
532(a), is amended by adding at the end the following new 
subsection: 
‘‘(g) CONDUCT OF PREPAYMENT REVIEW.—
‘‘(1) STANDARDIZATION OF RANDOM PREPAY-
MENT
REVIEW.—A medicare administrative con-
tractor shall conduct random prepayment review 
only in accordance with a standard protocol for ran-
dom prepayment audits developed by the Secretary. 
‘‘(2) LIMITATIONS
ON
INITIATION
OF
NON-
RANDOM PREPAYMENT REVIEW.—A medicare admin-
istrative contractor may not initiate nonrandom pre-
payment review of a provider of services, physician, 
practitioner, or supplier based on the initial identi-
fication by that provider of services, physician, prac-
titioner, or supplier of an improper billing practice 
unless there is a likelihood of sustained or high level 
of payment error (as defined by the Secretary). 
‘‘(3) TERMINATION
OF
NONRANDOM
PREPAY-
MENT REVIEW.—The Secretary shall establish proto-
cols or standards relating to the termination, includ-
616
ing termination dates, of nonrandom prepayment re-
view. Such regulations may vary such a termination 
date based upon the differences in the circumstances 
triggering prepayment review. 
‘‘(4) CONSTRUCTION.—Nothing in this sub-
section shall be construed as preventing the denial of 
payments for claims actually reviewed under a ran-
dom prepayment review. In the case of a provider of 
services, physician, practitioner, or supplier with re-
spect to which amounts were previously overpaid, 
nothing in this subsection shall be construed as lim-
iting the ability of a medicare administrative con-
tractor to request the periodic production of records 
or supporting documentation for a limited sample of 
submitted claims to ensure that the previous prac-
tice is not continuing. 
‘‘(5) 
RANDOM
PREPAYMENT
REVIEW
DE-
FINED.—For purposes of this subsection, the term 
‘random prepayment review’ means a demand for 
the production of records or documentation absent 
cause with respect to a claim.’’. 
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in this 
subsection, the amendment made by subsection (a)
617
shall take effect on the date of enactment of this 
Act. 
(2) DEADLINE
FOR
PROMULGATION
OF
CER-
TAIN REGULATIONS.—The Secretary shall first issue 
regulations under section 1874A(g) of the Social Se-
curity Act, as added by subsection (a), by not later 
than 1 year after the date of enactment of this Act. 
(3) APPLICATION
OF
STANDARD
PROTOCOLS 
FOR
RANDOM
PREPAYMENT
REVIEW.—Section 
1874A(g)(1) of the Social Security Act, as added by 
subsection (a), shall apply to random prepayment re-
views conducted on or after such date (not later 
than 1 year after the date of enactment of this Act) 
as the Secretary shall specify. The Secretary shall 
develop and publish the standard protocol under 
such section by not later than 1 year after the date 
of enactment of this Act. 
SEC. 542. RECOVERY OF OVERPAYMENTS. 
(a) IN GENERAL.—Section 1874A, as added by sec-
tion 521(a)(1) and as amended by sections 531(b)(1), 
532(a), and 541(a), is amended by adding at the end the 
following new subsection: 
‘‘(h) RECOVERY OF OVERPAYMENTS.—
‘‘(1) USE OF REPAYMENT PLANS.—