‘‘(vi) a statement that the Secretary
shall have access to all data of the Depart-
ment of Veterans Affairs that the Sec-
retary determines is necessary to conduct
independent estimates and audits of the
maintenance of effort requirement under
subsection (l), the annual reconciliation
under subsection (m), and related matters
required under the demonstration project;
‘‘(vii) a statement that the Comp-
troller General of the United States shall
have access to all data of the Department
of Veterans Affairs that the Comptroller
General determines is necessary to carry
out the reporting requirements under sub-
sections (m) or (n).
‘‘(viii) a description of any require-
ment that the Secretary waives pursuant
to subsection (c)(4) or (d)(4); and
‘‘(ix) a certification, provided after re-
view by the administering Secretaries, that
any facility or entity described in sub-
section (a)(3)(A) that is receiving pay-
ments by reason of the demonstration
project has sufficient—
‘‘(I) resources and expertise to
provide, consistent with payment re-
quirements under subsection (k), the
health care benefits required to be
provided to beneficiaries under the
demonstration project (as established
under subsections (c)(3) and (d)(2));
and
‘‘(II) information and billing sys-
tems in place to ensure—
‘‘(aa) accurate and timely
submission of claims for health
care benefits to the Secretary;
and
‘‘(bb) 
that 
providers 
of
health care services that are not
affiliated with the Department of
Veterans Affairs are reimbursed
by the Secretary of Veterans Af-
fairs in a timely and accurate
manner.
‘‘(C) SEPARATE
AGREEMENTS
FOR
CO-
ORDINATED CARE AND FEE-FOR-SERVICE.—The
administering Secretaries shall enter into sepa-
rate agreements with regard to demonstration
sites operating under a coordinated care health
plan model and a fee-for-service model, and
shall include in each agreement only such infor-
mation that is applicable to that model.
‘‘(2) NUMBER OF DEMONSTRATION SITES.—
‘‘(A) IN
GENERAL.—Subject to the suc-
ceeding provisions of this paragraph, the dem-
onstration project established under this section
shall be conducted in not more than 10 dem-
onstration sites, designated jointly by the ad-
ministering Secretaries.
‘‘(B) EQUAL
NUMBER
OF
COORDINATED
CARE AND FEE-FOR-SERVICE SITES.—The ad-
ministrating Secretaries shall—
‘‘(i) ensure that the number of dem-
onstration sites operated under a coordi-
nated care health plan model equals the
number of demonstration sites operated
under a fee-for-service model; and
‘‘(ii) attempt to ensure that the vol-
ume of medicare health care services pro-
vided under the demonstration project at
demonstration sites operated under a co-
ordinated care health plan model is the
same as the volume of such services pro-
vided at demonstration sites operated
under a fee-for-service model.
‘‘(C) RESTRICTION.—A demonstration site
may not operate under both a coordinated care
health plan model and a fee-for-service model.
‘‘(D) DEMONSTRATION
SITES
IN
RURAL
AREAS.—At least 1 of each of the following
demonstration sites shall be selected for inclu-
sion in the demonstration project:
‘‘(i) A demonstration site that is oper-
ated under a coordinated care health plan
model and that serves a predominantly
rural area.
‘‘(ii) A demonstration site that is op-
erated under a fee-for-service model and
that serves a predominantly rural area.
‘‘(3) RESTRICTION ON NEW OR EXPANDED FA-
CILITIES.—No new Veterans Affairs medical facili-
ties may be built or expanded with funds from the
demonstration project.
‘‘(4) DURATION.—
‘‘(A) COORDINATED CARE HEALTH PLAN
MODEL.—The authority of the administering
Secretaries 
to 
conduct 
the 
demonstration
project under a coordinated care health plan
model shall—
‘‘(i) begin on January 1, 2003; and
‘‘(ii) terminate on the earlier of—
‘‘(I) the date which is 3 years
after the date enrollment in a coordi-
nated care health plan begins at any
demonstration site using such a
model; or
‘‘(II) December 31, 2006.
‘‘(B) FEE-FOR-SERVICE MODEL.—The au-
thority of the administering Secretaries to con-
duct the demonstration under a fee-for-service
model shall—
‘‘(i) begin on January 1, 2004; and
‘‘(ii) terminate on the earlier of—
‘‘(I) the date which is 3 years
after the date that health care bene-
fits begin to be provided at any dem-
onstration site using such a model; or
‘‘(II) December 31, 2007.
‘‘(c) COORDINATED CARE HEALTH PLAN MODEL.—
‘‘(1) IN GENERAL.—The Secretary of Veterans
Affairs shall establish and operate coordinated care
health plans in order to provide the health care ben-
efits prescribed in paragraph (3) to targeted medi-
care-eligible veterans enrolled in the demonstration
project consistent with part C of this title.
‘‘(2) OPERATION
BY
OR
THROUGH
A
DEM-
ONSTRATION
SITE.—Any coordinated care health
plan established in accordance with paragraph (1)
shall be operated by or through a demonstration
site.
‘‘(3) HEALTH CARE BENEFITS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), the Secretary of Veterans Affairs
shall prescribe the health care benefits to be
provided to a targeted medicare-eligible veteran
enrolled in a coordinated care health plan under
the demonstration project.
‘‘(B) MINIMUM
BENEFITS.—The benefits
prescribed by the Secretary of Veterans Affairs
pursuant to subparagraph (A) shall include at
least all medicare health care services that are
required to be provided by a Medicare+Choice
organization under part C.
‘‘(4) MEDICARE REQUIREMENTS.—
‘‘(A) IN GENERAL.—
‘‘(i) REQUIREMENTS.—Except as pro-
vided under clause (ii), a coordinated care
health plan operating under the dem-
onstration project shall meet all require-
ments applicable to a Medicare+Choice
plan under part C of this title and regula-
tions pertaining thereto, and any other re-
quirements for receiving payments under
this title, except that the prohibition of
payments to Federal providers of services
under sections 1814(c) and 1835(d), and
paragraphs (2) and (3) of section 1862(a),
shall not apply.
‘‘(ii) WAIVER.—Except with respect to
any requirement described in subparagraph
(B), the Secretary is authorized to waive
any requirement described in clause (i), or
approve equivalent or alternative ways of
meeting such a requirement, but only if
such waiver or approval—
‘‘(I) reflects the unique status of
the Department of Veterans Affairs as
an agency of the Federal Government;
and
‘‘(II) is necessary to carry out, or
improve the efficiency of, the dem-
onstration project.
‘‘(B) BENEFICIARY
PROTECTIONS
AND
OTHER MATTERS.—A coordinated care health
plan shall comply with the requirements of part
C of this title that relate to beneficiary protec-
tions and other related matters, including such
requirements relating to the following areas:
‘‘(i) Enrollment and disenrollment.
‘‘(ii) Nondiscrimination.
‘‘(iii) Information provided to bene-
ficiaries.
‘‘(iv) Cost-sharing limitations.
‘‘(v) Appeal and grievance procedures.
‘‘(vi) Provider participation.
‘‘(vii) Access to services.
‘‘(viii) Quality assurance and external
review.
‘‘(ix) Advance directives.
‘‘(x) Other areas of beneficiary protec-
tions that the Secretary determines are ap-
plicable to a coordinated health care plan
operating under the demonstration project.
‘‘(d) FEE-FOR-SERVICE MODEL.—
‘‘(1) IN GENERAL.—The Secretary of Veterans
Affairs shall establish and operate a demonstration
site in order to provide, on a fee-for-service basis,
the medicare health care services prescribed in para-
graph (2) to targeted medicare-eligible veterans
under the demonstration project in a manner con-
sistent with this title.
‘‘(2) HEALTH
CARE
BENEFITS.—The admin-
istering Secretaries shall prescribe the medicare
health care services available to a targeted medicare-
eligible veteran at a demonstration site operating
under a fee-for-service model.
‘‘(3) COST-SHARING.—The Secretary of Vet-
erans Affairs shall establish cost-sharing require-
ments for targeted medicare-eligible veterans that
receive medicare health care services under a fee-for-
service model at a demonstration site. Such cost-
sharing requirements shall be the same as those re-
quired under this title.
‘‘(4) MEDICARE REQUIREMENTS.—
‘‘(A) IN
GENERAL.—Except as provided
under subparagraph (B), any entity or health
care provider that provides medicare health care
services under the demonstration project on a
fee-for-service basis shall meet all of the re-
quirements under this title, except that the pro-
hibition of payments to Federal providers of
services under sections 1814(c) and 1835(d),
and paragraphs (2) and (3) of section 1862(a),
shall not apply.
‘‘(B) WAIVER.—The Secretary is author-
ized to waive any requirement described under
subparagraph (A), or approve equivalent or al-
ternative ways of meeting such a requirement,
but only if such waiver or approval—
‘‘(i) reflects the unique status of the
Department of Veterans Affairs as an
agency of the Federal Government; and
‘‘(ii) is necessary to carry out, or im-
prove the efficiency of, the demonstration
project.
‘‘(5) VERIFICATION OF ELIGIBILITY.—
‘‘(A) IN GENERAL.—The Secretary of Vet-
erans Affairs shall establish procedures for de-
termining whether an individual is eligible to re-
ceive medicare health care services on a fee-for-
service basis under the demonstration project.
‘‘(B) RESTRICTION.—No payments shall
be made under this section for any medicare
health care service provided to an individual on
a fee-for-service basis under the demonstration
project unless the individual has been deter-
mined to be eligible for the service pursuant to
the procedures established under subparagraph
(A).
‘‘(e) DEMONSTRATION SITE REQUIREMENTS.—The
Secretary of Veterans Affairs may operate a coordinated
care health plan at a demonstration site, may provide
medicare health care services using the fee-for-service
model at a demonstration site, and may authorize a dem-
onstration site to submit claims for payment under the
demonstration project only after the Secretary of Veterans
Affairs submits to the committees of jurisdiction of Con-
gress a report setting forth a plan for the establishment
of such demonstration site and for the oversight by the
Secretary of Veterans Affairs of the demonstration project
conducted at such demonstration site. The administering
Secretaries may not implement the plan until the Sec-
retary of Veterans Affairs has received from the Inspector
General of the Department of Health and Human Serv-
ices, and has forwarded to Congress, certification that—
‘‘(1) the—
‘‘(A) cost accounting and related trans-
action systems of the Veterans Health Adminis-
tration provide cost information and encounter
data regarding health care delivered at each
demonstration site (or delivered by any entity
or health care provider with which the Sec-
retary of Veterans Affairs has a contract or
sharing agreement) on an inpatient and out-
patient basis; and
‘‘(B) cost information and encounter data
provided by such systems is accurate, reliable,
and consistent across all the demonstration
sites;
‘‘(2) the Secretary of Veterans Affairs has
minimized the risk that any amount appropriated to
the Department of Veterans Affairs will be required
to meet any obligation of the demonstration sites
under the demonstration project to a targeted medi-
care-eligible veteran by developing a credible plan—
‘‘(A) based on market surveys, data from
the Decision Support System, actuarial anal-
ysis, and other appropriate methods; and
‘‘(B) taking into account the level of pay-
ment under subsection (k) and the costs of
health care benefits provided at the demonstra-
tion sites with regard to each demonstration
site;
‘‘(3) each demonstration site has the capacity
to provide to a sufficient number of targeted medi-
care-eligible veterans, at a minimum—
‘‘(A) under the coordinated care health
plan model, the health care benefits prescribed
in subsection (c)(3); or
‘‘(B) under the fee-for-service model, the
health care benefits prescribed in subsection
(d)(2); and
‘‘(4) the Veterans Affairs medical facility ad-
ministering the demonstration site has sufficient sys-
tems and safeguards in place to minimize any risk
that instituting the coordinated care health plan
model or the fee-for-service model will result in
reducing—
‘‘(A) the quality of care delivered to par-
ticipants in the demonstration project; or
‘‘(B) the quality of, or the access to, care
to veterans not participating in the demonstra-
tion project.
‘‘(f) VOLUNTARY PARTICIPATION.—Participation of a
targeted medicare-eligible veteran in the demonstration
project shall be voluntary, subject to the capacity of par-
ticipating demonstration sites and the annual limitations
on medicare payments specified in subsection (k)(4), and
shall be subject to such terms and conditions as the ad-
ministering Secretaries may establish.
‘‘(g) CREDITING
OF PAYMENTS.—A payment re-
ceived by the Secretary of Veterans Affairs under the dem-
onstration project shall be credited to the applicable De-
partment of Veterans Affairs medical appropriation unless
the Secretary of Veterans Affairs has a compelling reason
to do otherwise. Any such payment received during a fiscal
year for services provided during a prior fiscal year may
be obligated by the Secretary of Veterans Affairs during
the fiscal year during which the payment is received.
‘‘(h) WAIVER OF CERTAIN VA REQUIREMENTS.—
Notwithstanding any other provision of law, the Secretary
of Veterans Affairs shall furnish medicare health care
services to targeted medicare-eligible veterans pursuant to
the demonstration project.
‘‘(i) INSPECTOR GENERAL.—Nothing in any agree-
ment entered into under subsection (b) shall limit the In-
spector General of the Department of Health and Human
Services from investigating any matters regarding the ex-
penditure of funds under this title for the demonstration
project, including compliance with the provisions of this
title and all other relevant laws.
‘‘(j) REPORT.—
‘‘(1) IN GENERAL.—At least 30 days prior to
the commencement of the demonstration project (for
both the coordinated care health plan model and the
fee-for-service model), the administering Secretaries
shall submit a copy of any agreement entered into
under subsection (b) to the committees of jurisdic-
tion of Congress.
‘‘(2) SUBSEQUENT WAIVER OF MEDICARE RE-
QUIREMENTS.—If the Secretary waives any require-
ment under subsection (c)(4) or (d)(4) that was not
described in any agreement submitted to the com-
mittees of jurisdiction of Congress under paragraph
(1), the Secretary shall submit a report to such com-
mittees describing such waiver.
‘‘(k) PAYMENTS BASED
ON REGULAR MEDICARE
PAYMENT RATES.—
‘‘(1) AMOUNT.—Subject to the succeeding pro-
visions of this subsection and subsection (m), the
Secretary shall reimburse the Secretary of Veterans
Affairs for health care benefits provided under the
demonstration project at the following rates:
‘‘(A) 
COORDINATED
CARE
HEALTH
PLANS.—In the case of health care benefits pro-
vided under the demonstration project to a tar-
geted medicare-eligible veteran enrolled in a co-
ordinated care health plan, at a rate equal to
percent 
of 
the 
amount 
paid 
to 
a
Medicare+Choice organization under part C for
an enrollee in a Medicare+Choice plan offered
by such organization (as risk adjusted under
section 1853(a)(1)(B)).
‘‘(B) FEE-FOR-SERVICE
MODEL.—In the
case of a medicare health care service pre-
scribed in subsection (d)(2) that is provided at
a demonstration site operating under a fee-for-
service model, at a rate equal to 95 percent of
the amounts that otherwise would be payable
under this title on a noncapitated basis for such
service if the demonstration site was not part of
this demonstration project, was participating in
the medicare program, and imposed charges for
such service.
‘‘(2) EXCLUSION
OF
CERTAIN
AMOUNTS.—In
computing the amount of payment under paragraph
(1), the following amounts shall be excluded:
‘‘(A) DISPROPORTIONATE
SHARE
HOS-
PITAL ADJUSTMENT.—Any amount attributable
to an adjustment under section 1886(d)(5)(F).
‘‘(B) DIRECT
GRADUATE
MEDICAL
EDU-
CATION PAYMENTS.—Any amount attributable
to a payment under section 1886(h).
‘‘(C) INDIRECT MEDICAL EDUCATION AD-
JUSTMENT.—Any amount attributable to the
adjustment under section 1886(d)(5)(B).
‘‘(D) PERCENTAGE
OF
CAPITAL
PAY-
MENTS.—67 percent of any amounts attrib-
utable to payments for capital-related costs
under medicare payment policies under section
1886(g).
‘‘(3) PERIODIC
PAYMENTS
FROM
MEDICARE
TRUST
FUNDS.—Payments under this subsection
shall be made—
‘‘(A) on a periodic basis consistent with
the periodicity of payments under this title; and
‘‘(B) in appropriate part, as determined by
the Secretary, from the trust funds.
‘‘(4) ANNUAL
LIMIT
ON
MEDICARE
PAY-
MENTS.—
‘‘(A) COORDINATED CARE HEALTH PLAN
MODEL.—Subject to subparagraphs (C) and
(D), the total amount paid to the Department
of Veterans Affairs under this subsection for
enrollees in coordinated care health plans for
any of the 3 consecutive 12-month periods (the
first of which begins on the date that enroll-
ment in such a plan begins at any demonstra-
tion site) shall be equal to an amount deter-
mined appropriate by the administering Secre-
taries.
‘‘(B) FEE-FOR-SERVICE
MODEL.—Subject
to subparagraphs (C) and (D), the total
amount paid to the Department of Veterans Af-
fairs under this subsection for health care bene-
fits provided on a fee-for-service basis at a dem-
onstration site for any of the 3 consecutive 12-
month periods (the first of which begins on the
date that benefits begin to be provided at any
demonstration site using the fee-for-service
model) shall be equal to an amount determined
appropriate by the administering Secretaries.
‘‘(C) NO PAYMENTS FOR BENEFITS PRO-
VIDED
AFTER
TERMINATION
DATE.—No
amounts shall be paid to the Department of
Veterans Affairs under this section for health
care benefits provided under the demonstration
project after the date that the project termi-
nates pursuant to subparagraph (A)(ii) or
(B)(ii) of subsection (b)(4).
‘‘(D) CAP.—The sum of the amounts paid
to the Department of Veterans Affairs under
this section during each of the 12-month peri-
ods described in subparagraph (A) shall not ex-
ceed $50,000,000.
‘‘(l) MAINTENANCE OF EFFORT.—
‘‘(1) IN GENERAL.—The Secretary may not re-
imburse the Secretary of Veterans Affairs, from the
trust funds, for medicare health care services fur-
nished under the demonstration project to targeted
medicare-eligible veterans at a demonstration site in
a year until the expenditures during that year by the
Department of Veterans Affairs for such services
provided at that site to individuals that meet the
definition of a targeted medicare-eligible veteran
under subsection (a)(4) (without regard to subpara-
graph (D) of such subsection) exceeds such expendi-
tures at the site for such services provided to such
individuals during a baseline period determined by
the administering Secretaries.
‘‘(2) RULE
OF
CONSTRUCTION.—The criteria
for eligiblity for health care benefits furnished to
veterans by the Secretary of Veterans Affairs is es-
tablished under chapter 17 of title 38, United States
Code, and nothing in this section shall be construed
to add additional criteria for such eligiblity.
‘‘(m) ANNUAL RECONCILIATION TO ASSURE NO IN-
CREASE IN COSTS TO MEDICARE PROGRAM.—
‘‘(1) MONITORING EFFECT OF DEMONSTRATION
PROGRAM ON COSTS TO MEDICARE PROGRAM.—
‘‘(A) IN
GENERAL.—The administering
Secretaries, in consultation with the Comp-
troller General of the United States, shall close-
ly monitor the expenditures made under the
medicare program under this title for targeted
medicare-eligible veterans at each demonstra-
tion site during the period of the demonstration
project compared to the expenditures that
would have been made for such veterans during
that period if the demonstration project had not
been conducted.
‘‘(B) ANNUAL
REPORTS
BY
THE
COMP-
TROLLER GENERAL.—
‘‘(i) COORDINATED
CARE
HEALTH
PLAN MODEL.—Not later than 6 months
after the end of each of the 3 consecutive
12-month periods referred to in subsection
(j)(4)(A), the Comptroller General of the
United States shall submit to the admin-
istering Secretaries and the appropriate
committees of Congress a report on the ex-
tent, if any, to which the costs of the Sec-
retary under the medicare program under
this title for each demonstration site oper-
ating under such a model increased as a
result of the demonstration project during
the 12-month period to which the report
applies.
‘‘(ii) FEE-FOR-SERVICE MODEL.—Not
later than 6 months after the end of each
of the 3 consecutive 12-month periods re-
ferred to in subsection (j)(4)(B), the
Comptroller General of the United States
shall submit to the administering Secre-
taries and the appropriate committees of
jurisdiction of Congress a report described
in clause (i) with respect to such a model.
‘‘(2) REQUIRED
RESPONSE
IN
CASE
OF
IN-
CREASE IN COSTS.—
‘‘(A) IN GENERAL.—If the administering
Secretaries find, based on paragraph (1), that
the expenditures under the medicare program
under this title for each demonstration site in-
creased (or are expected to increase) during a
fiscal year because of the demonstration
project, the administering Secretaries shall take
such steps as may be needed—
‘‘(i) to recoup for the medicare pro-
gram the amount of such increase in ex-
penditures; and
‘‘(ii) to prevent any such increase in
any succeeding fiscal year.
‘‘(B) STEPS.—Such steps—
‘‘(i) under subparagraph (A)(i), shall
include payment of an amount equal to the
amount of such increased expenditures by
the Secretary of Veterans Affairs from the
current medical care appropriation of the
Department of Veterans Affairs to the
trust funds; and
‘‘(ii) under subparagraph (A)(ii), shall
include suspending or terminating the
demonstration project (in whole or in part)
or reducing the amount of payment under
subsection (k).
‘‘(n) EVALUATION AND REPORTS.—
‘‘(1) INDEPENDENT EVALUATION.—
‘‘(A) IN GENERAL.—The Comptroller Gen-
eral of the United States shall conduct an eval-
uation 
of 
the 
demonstration 
project,
including—
‘‘(i) an evaluation of demonstration
sites operating under a coordinated care
health plan model and under a fee-for-serv-
ice model; and
‘‘(ii) where appropriate, a comparison
of such models.
‘‘(B) CONTENTS.—Any evaluation con-
ducted under subparagraph (A) shall include an
assessment, based on the agreement entered
into under subsection (b), of the following:
‘‘(i) Any savings or costs to the medi-
care program under this title resulting
from the demonstration project.
‘‘(ii) Compliance of participating dem-
onstration sites with applicable measures
of quality of care, compared to such com-
pliance by other entities that participate in
the medicare program and are not Vet-
erans Affairs medical facilities.
‘‘(iii) Compliance by the Department
of Veterans Affairs with the requirements
under this title.
‘‘(iv) The number of targeted medi-
care-eligible veterans opting to receive
health care benefits under the demonstra-