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‘‘(A) an additional payment to take into ac-
count indirect costs of medical education and the
special circumstances of hospitals that serve a
significantly disproportionate number of low-in-
come patients in a manner similar to that pro-
vided under subparagraphs (B) and (F), respec-
tively, of subsection (d)(5); and
‘‘(B) such other exceptions and adjustments
to payment amounts under this subsection in a
manner similar to that provided under sub-
section (d)(5)(I) in relation to payments under
subsection (d).
‘‘(8) LIMITATION ON REVIEW.—There shall be no
administrative or judicial review under section 1869,
1878, or otherwise of the establishment of—
‘‘(A) case mix groups, of the methodology
for the classification of patients within such
groups, and of the appropriate weighting factors
thereof under paragraph (2),
‘‘(B) the prospective payment rates under
paragraph (3),
‘‘(C) outlier and special payments under
paragraph (4),
‘‘(D) area wage adjustments under para-
graph (6), and
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‘‘(E) additional adjustments under para-
graph (7).’’.
(b) CONFORMING AMENDMENTS.—Section 1886(b) (42
U.S.C. 1395ww(b)) is amended—
(1) in paragraph (1), by inserting ‘‘and other
than a rehabilitation facility described in subsection
(j)(1)’’ after ‘‘subsection (d)(1)(B)’’, and
(2) in paragraph (3)(B)(i), by inserting ‘‘and
subsection (j)’’ after ‘‘For purposes of subsection (d)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to cost reporting periods beginning on
or after October 1, 2000, except that the Secretary of Health
and Human Services may require the submission of data
under section 1886(j)(2)(D) of the Social Security Act (as
added by subsection (a)) on and after the date of the enact-
ment of this section.
SEC. 5302. STUDY AND REPORT ON PAYMENTS FOR LONG-
TERM CARE HOSPITALS.
(a) STUDY.—The Secretary of Health and Human
Services shall—
(1) collect data to develop, establish, administer
and evaluate a case-mix adjusted prospective payment
system 
for 
hospitals 
described 
in 
section
1886(d)(1)(B)(iv) (42 U.S.C. 1395ww(d)(1)(B)(iv));
and
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(2) develop a legislative proposal for establishing
and administering such a payment system that in-
cludes an adequate patient classification system that
reflects the differences in patient resource use and
costs among such hospitals.
(b) REPORT.—Not later than October 1, 1999, the Sec-
retary of Health and Human Services shall submit the pro-
posal described in subsection (a)(2) to the appropriate com-
mittees of Congress.
CHAPTER 2—PROVISIONS RELATING TO
PART B
Subchapter A—Payment for Hospital
Outpatient Department Services
SEC. 5311. ELIMINATION OF FORMULA-DRIVEN OVERPAY-
MENTS (FDO) FOR CERTAIN OUTPATIENT
HOSPITAL SERVICES.
(a) ELIMINATION OF FDO FOR AMBULATORY SUR-
GICAL
CENTER
PROCEDURES.—Section
1833(i)(3)(B)(i)(II) (42 U.S.C. 1395l(i)(3)(B)(i)(II)) is
amended—
(1) by striking ‘‘of 80 percent’’; and
(2) by striking the period at the end and insert-
ing the following: ‘‘, less the amount a provider may
charge as described in clause (ii) of section
1866(a)(2)(A).’’.
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(b) ELIMINATION OF FDO FOR RADIOLOGY SERVICES
AND DIAGNOSTIC PROCEDURES.—Section 1833(n)(1)(B)(i)
(42 U.S.C. 1395l(n)(1)(B)(i)) is amended—
(1) by striking ‘‘of 80 percent’’, and
(2) by inserting before the period at the end the
following: ‘‘, less the amount a provider may charge
as described in clause (ii) of section 1866(a)(2)(A)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to services furnished during portions of
cost reporting periods occurring on or after October 1, 1997.
SEC. 5312. EXTENSION OF REDUCTIONS IN PAYMENTS FOR
COSTS OF HOSPITAL OUTPATIENT SERVICES.
(a) REDUCTION IN PAYMENTS FOR CAPITAL-RELATED
COSTS.—Section 
1861(v)(1)(S)(ii)(I) 
(42 
U.S.C.
1395x(v)(1)(S)(ii)(I)) is amended by striking ‘‘through
1998’’ and inserting ‘‘through 1999 and during fiscal year
2000 before January 1, 2000’’.
(b) REDUCTION IN PAYMENTS FOR OTHER COSTS.—
Section 
1861(v)(1)(S)(ii)(II) 
(42 
U.S.C.
1395x(v)(1)(S)(ii)(II)) is amended by striking ‘‘through
1998’’ and inserting ‘‘through 1999 and during fiscal year
2000 before January 1, 2000’’.
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SEC. 5313. PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL
OUTPATIENT DEPARTMENT SERVICES.
(a) IN GENERAL.—Section 1833 (42 U.S.C. 1395l) is
amended by adding at the end the following:
‘‘(t) PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL
OUTPATIENT DEPARTMENT SERVICES.—
‘‘(1) IN GENERAL.—With respect to hospital out-
patient services designated by the Secretary (in this
section referred to as ‘covered OPD services’) and fur-
nished during a year beginning with 1999, the
amount of payment under this part shall be deter-
mined under a prospective payment system estab-
lished by the Secretary in accordance with this sub-
section.
‘‘(2) SYSTEM REQUIREMENTS.—Under the pay-
ment system—
‘‘(A) the Secretary shall develop a classifica-
tion system for covered OPD services;
‘‘(B) the Secretary may establish groups of
covered OPD services, within the classification
system described in subparagraph (A), so that
services classified within each group are com-
parable clinically and with respect to the use of
resources;
‘‘(C) the Secretary shall, using data on
claims from 1997 and using data from the most
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recent available cost reports, establish relative
payment weights for covered OPD services (and
any groups of such services described in subpara-
graph (B)) based on median hospital costs and
shall determine projections of the frequency of
utilization of each such service (or group of serv-
ices) in 1999;
‘‘(D) the Secretary shall determine a wage
adjustment factor to adjust the portion of pay-
ment and coinsurance attributable to labor-relat-
ed costs for relative differences in labor and
labor-related costs across geographic regions in a
budget neutral manner;
‘‘(E) the Secretary shall establish other ad-
justments as determined to be necessary to ensure
equitable payments, such as outlier adjustments
or adjustments for certain classes of hospitals;
and
‘‘(F) the Secretary shall develop a method
for controlling unnecessary increases in the vol-
ume of covered OPD services.
‘‘(3) CALCULATION OF BASE AMOUNTS.—
‘‘(A) AGGREGATE
AMOUNTS
THAT
WOULD
BE
PAYABLE
IF
DEDUCTIBLES
WERE
DIS-
REGARDED.—The Secretary shall estimate the
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total amounts that would be payable from the
Trust Fund under this part for covered OPD
services in 1999, determined without regard to
this subsection, as though the deductible under
section 1833(b) did not apply, and as though the
coinsurance 
described 
in 
section
1866(a)(2)(A)(ii) (as in effect before the date of
the enactment of this subsection) continued to
apply.
‘‘(B) UNADJUSTED COPAYMENT AMOUNT.—
‘‘(i) IN
GENERAL.—For purposes of
this subsection, subject to clause (ii), the
‘unadjusted copayment amount’ applicable
to a covered OPD service (or group of such
services) is 20 percent of the national me-
dian of the charges for the service (or serv-
ices within the group) furnished during
1997, updated to 1999 using the Secretary’s
estimate of charge growth during the period.
‘‘(ii) 
ADJUSTMENTS
WHEN
FULLY
PHASED IN.—If the pre-deductible payment
percentage for a covered OPD service (or
group of such services) furnished in a year
would be equal to or exceed 80 percent, then
the unadjusted copayment amount shall be
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25 percent of amount determined under sub-
paragraph (D)(i).
‘‘(iii) RULES
FOR
NEW
SERVICES.—
The Secretary shall establish rules for estab-
lishment 
of 
an 
unadjusted 
copayment
amount for a covered OPD service not fur-
nished during 1997, based upon its classi-
fication within a group of such services.
‘‘(C) CALCULATION
OF
CONVERSION
FAC-
TORS.—
‘‘(i) FOR 1999.—
‘‘(I) IN GENERAL.—The Secretary
shall establish a 1999 conversion factor
for determining the medicare pre-de-
ductible OPD fee payment amounts for
each covered OPD service (or group of
such services) furnished in 1999. Such
conversion factor shall be established—
‘‘(aa) on the basis of the
weights and frequencies described
in paragraph (2)(C), and
‘‘(bb) in such manner that
the sum of the products deter-
mined under subclause (II) for
each service or group equals the
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total project amount described in
subparagraph (A).
‘‘(II) PRODUCT.—The Secretary
shall determine for each service or
group the product of the medicare pre-
deductible OPD fee payment amount
(taking into account appropriate ad-
justments 
described 
in 
paragraphs
(2)(D) and (2)(E)) and the frequencies
for such service or group.
‘‘(ii) SUBSEQUENT YEARS.—Subject to
paragraph (8)(B), the Secretary shall estab-
lish a conversion factor for covered OPD
services furnished in subsequent years in an
amount equal to the conversion factor estab-
lished under this subparagraph and appli-
cable to such services furnished in the pre-
vious year increased by the OPD payment
increase factor specified under clause (iii)
for the year involved.
‘‘(iii) OPD PAYMENT INCREASE FAC-
TOR.—For purposes of this subparagraph,
the ‘OPD payment increase factor’ for serv-
ices furnished in a year is equal to the sum
of—
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‘‘(I) the market basket percentage
increase 
applicable 
under 
section
1886(b)(3)(B)(iii) 
to 
hospital 
dis-
charges occurring during the fiscal
year ending in such year, plus
‘‘(II) in the case of a covered OPD
service (or group of such services) fur-
nished in a year in which the pre-de-
ductible payment percentage would not
exceed 80 percent, 3.5 percentage
points.
In applying the previous sentence for years
beginning with 2000, the Secretary may
substitute for the market basket percentage
increase under subclause (I) an annual per-
centage increase that is computed and ap-
plied with respect to covered OPD services
furnished in a year in the same manner as
the market basket percentage increase is de-
termined and applied to inpatient hospital
services for discharges occurring in a fiscal
year.
‘‘(D) PRE-DEDUCTIBLE PAYMENT PERCENT-
AGE.—The pre-deductible payment percentage
for a covered OPD service (or group of such serv-
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ices) furnished in a year is equal to the ratio
of—
‘‘(i) the conversion factor established
under subparagraph (C) for the year, multi-
plied by the weighting factor established
under paragraph (2)(C) for the service (or
group), to
‘‘(ii) the sum of the amount determined
under clause (i) and the unadjusted copay-
ment amount determined under subpara-
graph (B) for such service or group.
‘‘(E) CALCULATION OF MEDICARE OPD FEE
SCHEDULE AMOUNTS.—The Secretary shall com-
pute a medicare OPD fee schedule amount for
each covered OPD service (or group of such serv-
ices) furnished in a year, in an amount equal to
the product of—
‘‘(i) the conversion factor computed
under subparagraph (C) for the year, and
‘‘(ii) the relative payment weight (de-
termined under paragraph (2)(C)) for the
service or group.
‘‘(4) 
MEDICARE
PAYMENT
AMOUNT.—The
amount of payment made from the Trust Fund under
this part for a covered OPD service (and such services
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classified within a group) furnished in a year is de-
termined as follows:
‘‘(A) FEE
SCHEDULE
AND
COPAYMENT
AMOUNT.—Add (i) the medicare OPD fee sched-
ule amount (computed under paragraph (3)(E))
for the service or group and year, and (ii) the
unadjusted 
copayment 
amount 
(determined
under paragraph (3)(B)) for the service or
group.
‘‘(B) 
SUBTRACT
APPLICABLE
DEDUCT-
IBLE.—Reduce the sum under subparagraph (A)
by the amount of the deductible under section
1833(b), to the extent applicable.
‘‘(C) APPLY PAYMENT PROPORTION TO RE-
MAINDER.—Multiply the amount determined
under subparagraph (B) by the pre-deductible
payment percentage (as determined under para-
graph (3)(D)) for the service or group and year
involved.
‘‘(D) LABOR-RELATED
ADJUSTMENT.—The
amount of payment is the product determined
under subparagraph (C) with the labor-related
portion of such product adjusted for relative dif-
ferences in the cost of labor and other factors de-
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termined by the Secretary, as computed under
paragraph (2)(D).
‘‘(5) COPAYMENT AMOUNT.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the copayment amount under
this subsection is determined as follows:
‘‘(i) UNADJUSTED COPAYMENT.—Com-
pute the amount by which the amount de-
scribed in paragraph (4)(B) exceeds the
amount of payment determined under para-
graph (4)(C).
‘‘(ii) LABOR
ADJUSTMENT.—The co-
payment amount is the difference deter-
mined under clause (i) with the labor-relat-
ed portion of such difference adjusted for
relative differences in the cost of labor and
other factors determined by the Secretary,
as computed under paragraphs (2)(D). The
adjustment under this clause shall be made
in a manner that does not result in any
change in the aggregate copayments made
in any year if the adjustment had not been
made.
‘‘(B) ELECTION TO OFFER REDUCED COPAY-
MENT AMOUNT.—The Secretary shall establish a
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procedure under which a hospital, before the be-
ginning of a year (beginning with 1999), may
elect to reduce the copayment amount otherwise
established under subparagraph (A) for some or
all covered OPD services to an amount that is
not less than 25 percent of the medicare OPD fee
schedule amount (computed under paragraph
(3)(E)) for the service involved, adjusted for rel-
ative differences in the cost of labor and other
factors determined by the Secretary, as computed
under subparagraphs (D) and (E) of paragraph
(2). Under such procedures, such reduced copay-
ment amount may not be further reduced or in-
creased during the year involved and the hospital
may disseminate information on the reduction of
copayment amount effected under this subpara-
graph.
‘‘(C) NO IMPACT ON DEDUCTIBLES.—Noth-
ing in this paragraph shall be construed as af-
fecting a hospital’s authority to waive the charg-
ing of a deductible under section 1833(b).
‘‘(6) PERIODIC REVIEW AND ADJUSTMENTS COM-
PONENTS OF PROSPECTIVE PAYMENT SYSTEM.—
‘‘(A) PERIODIC
REVIEW.—The Secretary
may periodically review and revise the groups,
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the relative payment weights, and the wage and
other adjustments described in paragraph (2) to
take into account changes in medical practice,
changes in technology, the addition of new serv-
ices, new cost data, and other relevant informa-
tion and factors.
‘‘(B) BUDGET NEUTRALITY ADJUSTMENT.—
If the Secretary makes adjustments under sub-
paragraph (A), then the adjustments for a year
may not cause the estimated amount of expendi-
tures under this part for the year to increase or
decrease from the estimated amount of expendi-
tures under this part that would have been made
if the adjustments had not been made.
‘‘(C) UPDATE FACTOR.—If the Secretary de-
termines under methodologies described in sub-
paragraph (2)(F) that the volume of services
paid for under this subsection increased beyond
amounts established through those methodologies,
the Secretary may appropriately adjust the up-
date to the conversion factor otherwise applicable
in a subsequent year.
‘‘(7) SPECIAL
RULE
FOR
AMBULANCE
SERV-
ICES.—The Secretary shall pay for hospital out-
patient services that are ambulance services on the
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basis described in the matter in subsection (a)(1) pre-
ceding subparagraph (A).
‘‘(8) 
SPECIAL
RULES
FOR
CERTAIN
HOS-
PITALS.—In the case of hospitals described in section
1886(d)(1)(B)(v)—
‘‘(A) the system under this subsection shall
not apply to covered OPD services furnished be-
fore January 1, 2000; and
‘‘(B) the Secretary may establish a separate
conversion factor for such services in a manner
that specifically takes into account the unique
costs incurred by such hospitals by virtue of
their patient population and service intensity.
‘‘(9) LIMITATION ON REVIEW.—There shall be no
administrative or judicial review under section 1869,
1878, or otherwise of—
‘‘(A) the development of the classification
system under paragraph (2), including the estab-
lishment of groups and relative payment weights
for covered OPD services, of wage adjustment
factors, other adjustments, and methods described
in paragraph (2)(F);
‘‘(B) the calculation of base amounts under
paragraph (3);
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‘‘(C) periodic adjustments made under
paragraph (6); and
‘‘(D) the establishment of a separate conver-
sion factor under paragraph (8)(B).’’.
(b) COINSURANCE.—Section 1866(a)(2)(A)(ii) (42
U.S.C. 1395cc(a)(2)(A)(ii)) is amended by adding at the
end the following: ‘‘In the case of items and services for
which payment is made under part B under the prospective
payment system established under section 1833(t), clause
(ii) of the first sentence shall be applied by substituting for
20 percent of the reasonable charge, the applicable copay-
ment amount established under section 1833(t)(5).’’.
(c) TREATMENT
OF
REDUCTION
IN
COPAYMENT
AMOUNT.—Section 1128A(i)(6) (42 U.S.C. 1320a–7a(i)(6))
is amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(B),
(2) by striking the period at the end of subpara-
graph (C) and inserting ‘‘; or’’, and
(3) by adding at the end the following new sub-
paragraph:
‘‘(D) a reduction in the copayment amount for
covered OPD services under section 1833(t)(5)(B).’’.
(d) CONFORMING AMENDMENTS.—