499
Subtitle A, Part 1
‘‘(A) health care items and serv-
ices furnished in the emergency de-
partment of a hospital (including a
trauma center), and
‘‘(B) ancillary services routinely
available to such department,
to the extent they are required to evalu-
ate and treat an emergency medical con-
dition (as defined in paragraph (6)) until
the condition is stabilized.
‘‘(6) EMERGENCY MEDICAL CONDITION.—
In paragraph (5), the term ‘emergency
medical condition’ means a medical con-
dition, the onset of which is sudden, that
manifests itself by symptoms of sufficient
severity, including severe pain, that a
prudent layperson, who possesses an av-
erage knowledge of health and medicine,
could reasonably expect the absence of
immediate medical attention to result
in—
‘‘(A) placing the person’s health in
serious jeopardy,
‘‘(B) serious impairment to bodily
functions, or
500
Subtitle A, Part 1
‘‘(C) serious dysfunction of any
bodily organ or part.
‘‘(c) CONFIDENTIALITY AND ACCURACY OF EN-
ROLLEE RECORDS.—Each MedicarePlus organi-
zation shall establish procedures—
‘‘(1) to safeguard the privacy of indi-
vidually identifiable enrollee informa-
tion, and
‘‘(2) to maintain accurate and timely
medical records for enrollees.
‘‘(d) QUALITY ASSURANCE PROGRAM.—
‘‘(1) IN GENERAL.—Each MedicarePlus
organization must have arrangements, es-
tablished in accordance with regulations
of the Secretary, for an ongoing quality
assurance program for health care serv-
ices it provides to such individuals.
‘‘(2) 
ELEMENTS
OF
PROGRAM.—The
quality assurance program shall—
‘‘(A) stress health outcomes;
‘‘(B) provide for the establishment
of written protocols for utilization re-
view, based on current standards of
medical practice;
501
Subtitle A, Part 1
‘‘(C) provide review by physicians
and other health care professionals of
the process followed in the provision
of such health care services;
‘‘(D) monitors and evaluates high
volume and high risk services and the
care of acute and chronic conditions;
‘‘(E) evaluates the continuity and
coordination of care that enrollees re-
ceive;
‘‘(F) has mechanisms to detect
both 
underutilization 
and
overutilization of services;
‘‘(G) after identifying areas for
improvement, establishes or alters
practice parameters;
‘‘(H) takes action to improve qual-
ity and assesses the effectiveness of
such action through systematic fol-
low-up;
‘‘(I) makes available information
on quality and outcomes measures to
facilitate beneficiary comparison and
choice of health coverage options (in
such form and on such quality and
502
Subtitle A, Part 1
outcomes measures as the Secretary
determines to be appropriate);
‘‘(J) is evaluated on an ongoing
basis as to its effectiveness; and
‘‘(K) provide for external accredi-
tation or review, by a utilization and
quality control peer review organiza-
tion under part B of title XI or other
qualified independent review organi-
zation, of the quality of services fur-
nished by the organization meets pro-
fessionally recognized standards of
health care (including providing ade-
quate access of enrollees to services).
‘‘(3) EXCEPTION FOR CERTAIN FEE-FOR-
SERVICE
PLANS.—Paragraph (1) and sub-
section (c)(2) shall not apply in the case
of a MedicarePlus organization in rela-
tion to a MedicarePlus product to the ex-
tent the organization provides for cov-
erage of benefits without restrictions re-
lating to utilization and without regard
to whether the provider has a contract or
other arrangement with the plan for the
provision of such benefits.
503
Subtitle A, Part 1
‘‘(4) TREATMENT
OF
ACCREDITATION.—
The 
Secretary 
shall 
provide 
that 
a
MedicarePlus organization is deemed to
meet the requirements of paragraphs (1)
and (2) of this subsection and subsection
(c) if the organization is accredited (and
periodically reaccredited) by a private
organization under a process that the
Secretary has determined assures that
the organization meets standards that
are no less stringent than the standards
established under section 1856 to carry
out this subsection and subsection (c).
‘‘(e) COVERAGE DETERMINATIONS.—
‘‘(1) 
DECISIONS
ON
NONEMERGENCY
CARE.—A MedicarePlus organization shall
make determinations regarding author-
ization requests for nonemergency care
on a timely basis, depending on the ur-
gency of the situation.
‘‘(2) DETERMINATIONS
OF
MEDICAL
NE-
CESSITY
BY
PHYSICIANS.—A MedicarePlus
organization shall provide for all deter-
minations denying coverage based on a
504
Subtitle A, Part 1
lack of medical necessity to be made only
by a physician.
‘‘(3) APPEALS.—
‘‘(A) IN GENERAL.—Appeals from a
determination of an organization de-
nying coverage shall be decided with-
in 30 days of the date of receipt of
medical information, but not later
than 60 days after the date of the de-
cision.
‘‘(B) PHYSICIAN
DECISION
ON
CER-
TAIN APPEALS.—Appeal decisions relat-
ing to a determination to deny cov-
erage based on a lack of medical ne-
cessity shall be made only by a physi-
cian.
‘‘(C) EMERGENCY
CASES.—Appeals
from such a determination involving
a life-threatening or emergency situa-
tion shall be decided on an expedited
basis.
‘‘(f) GRIEVANCES AND APPEALS.—
‘‘(1) 
GRIEVANCE
MECHANISM.—Each
MedicarePlus organization must provide
meaningful procedures for hearing and
505
Subtitle A, Part 1
resolving grievances between the organi-
zation (including any entity or individual
through which the organization provides
health care services) and enrollees under
this part.
‘‘(2) APPEALS.—An enrollee with an or-
ganization under this part who is dissat-
isfied by reason of the enrollee’s failure
to receive any health service to which the
enrollee believes the enrollee is entitled
and at no greater charge than the en-
rollee believes the enrollee is required to
pay is entitled, if the amount in con-
troversy is $100 or more, to a hearing be-
fore the Secretary to the same extent as
is provided in section 205(b), and in any
such hearing the Secretary shall make
the organization a party. If the amount in
controversy is $1,000 or more, the indi-
vidual or organization shall, upon notify-
ing the other party, be entitled to judicial
review of the Secretary’s final decision as
provided in section 205(g), and both the
individual and the organization shall be
entitled to be parties to that judicial re-
506
Subtitle A, Part 1
view. In applying sections 205(b) and
205(g) as provided in this subparagraph,
and in applying section 205(l) thereto,
any reference therein to the Commis-
sioner of Social Security or the Social Se-
curity Administration shall be considered
a reference to the Secretary or the De-
partment of Health and Human Services,
respectively.
‘‘(3) COORDINATION WITH SECRETARY OF
LABOR.—The Secretary shall consult with
the Secretary of Labor so as to ensure
that the requirements of this subsection,
as they apply in the case of grievances re-
ferred to in paragraph (1) to which sec-
tion 503 of the Employee Retirement In-
come Security Act of 1974 applies, are ap-
plied in a manner consistent with the re-
quirements of such section 503.
‘‘(g) INFORMATION
ON
ADVANCE
DIREC-
TIVES.—Each MedicarePlus organization shall
meet the requirement of section 1866(f) (relat-
ing to maintaining written policies and proce-
dures respecting advance directives).
‘‘(h) APPROVAL OF MARKETING MATERIALS.—
507
Subtitle A, Part 1
‘‘(1) SUBMISSION.—Each MedicarePlus
organization may not distribute market-
ing materials unless—
‘‘(A) at least 45 days before the
date of distribution the organization
has submitted the material to the Sec-
retary for review, and
‘‘(B) the Secretary has not dis-
approved the distribution of such ma-
terial.
‘‘(2) REVIEW.—The standards estab-
lished under section 1856 shall include
guidelines for the review of all such ma-
terial submitted and under such guide-
lines the Secretary shall disapprove such
material if the material is materially in-
accurate 
or 
misleading 
or 
otherwise
makes a material misrepresentation.
‘‘(3) DEEMED
APPROVAL
(1-STOP
SHOP-
PING).—In the case of material that is sub-
mitted under paragraph (1)(A) to the Sec-
retary or a regional office of the Depart-
ment of Health and Human Services and
the Secretary or the office has not dis-
approved the distribution of marketing
508
Subtitle A, Part 1
materials under paragraph (1)(B) with re-
spect to a MedicarePlus product in an
area, the Secretary is deemed not to have
disapproved such distribution in all other
areas covered by the product and organi-
zation.
‘‘(4) PROHIBITION OF CERTAIN MARKET-
ING PRACTICES.—Each MedicarePlus orga-
nization shall conform to fair marketing
standards in relation to MedicarePlus
products offered under this part, in-
cluded 
in 
the 
standards 
established
under section 1856. Such standards shall
include a prohibition against an organi-
zation (or agent of such an organization)
completing any portion of any election
form under section 1805 on behalf of any
individual.
‘‘PROVIDER-SPONSORED ORGANIZATIONS
‘‘SEC. 1854. (a) PROVIDER-SPONSORED ORGA-
NIZATION DEFINED.—
‘‘(1) IN
GENERAL.—In this part, the
term 
‘provider-sponsored 
organization’
means a public or private entity that (in
accordance with standards established
under subsection (b)) is a provider, or
509
Subtitle A, Part 1
group of affiliated providers, that pro-
vides a substantial proportion (as defined
by the Secretary under such standards)
of the health care items and services
under the contract under this part di-
rectly through the provider or affiliated
group of providers.
‘‘(2) SUBSTANTIAL PROPORTION.—In de-
fining what is a ‘substantial proportion’
for purposes of paragraph (1), the Sec-
retary—
‘‘(A) shall take into account the
need for such an organization to as-
sume responsibility for a substantial
proportion of services in order to as-
sure financial stability and the prac-
tical difficulties in such an organiza-
tion integrating a very wide range of
service providers; and
‘‘(B) may vary such proportion
based 
upon 
relevant 
differences
among organizations, such as their lo-
cation in an urban or rural area.
‘‘(3) AFFILIATION.—For purposes of
this subsection, a provider is ‘affiliated’
510
Subtitle A, Part 1
with another provider if, through con-
tract, ownership, or otherwise—
‘‘(A) one provider, directly or indi-
rectly, controls, is controlled by, or is
under 
common 
control 
with 
the
other,
‘‘(B) each provider is a partici-
pant in a lawful combination under
which each provider shares, directly
or indirectly, substantial financial
risk in connection with their oper-
ations,
‘‘(C) both providers are part of a
controlled 
group 
of 
corporations
under section 1563 of the Internal
Revenue Code of 1986, or
‘‘(D) both providers are part of an
affiliated service group under section
414 of such Code.
‘‘(4) CONTROL.—For purposes of para-
graph (3), control is presumed to exist if
one party, directly or indirectly, owns,
controls, or holds the power to vote, or
proxies for, not less than 51 percent of
511
Subtitle A, Part 1
the voting rights or governance rights of
another.
‘‘(b) PROCESS FOR ESTABLISHING STANDARDS
FOR
PROVIDER-SPONSORED
ORGANIZATIONS.—
For process of establishing of standards for
provider-sponsored organizations, see section
1856(c).
‘‘(c) PROCESS FOR STATE CERTIFICATION OF
PROVIDER-SPONSORED
ORGANIZATIONS.—For
process of State certification of provider-
sponsored organizations, see section 1857(c).
‘‘(d) PREEMPTION OF STATE INSURANCE LI-
CENSING REQUIREMENTS.—
‘‘(1) IN GENERAL.—This section super-
sedes any State law which—
‘‘(A) requires that a provider-
sponsored organization meet require-
ments for insurers of health services
or health maintenance organizations
doing business in the State with re-
spect to initial capitalization and es-
tablishment 
of 
financial 
reserves
against insolvency, or
‘‘(B) imposes requirements that
would have the effect of prohibiting
512
Subtitle A, Part 1
the organization from complying with
the applicable requirements of this
part,
insofar as such the law applies to individ-
uals enrolled with the organization under
this part.
‘‘(2) EXCEPTION.—Paragraph (1) shall
not apply with respect to any State law to
the extent that such law provides stand-
ards or requirements, or provides for en-
forcement thereof, so as to meet the re-
quirements of section 1857(c)(2) with re-
spect to approval by the Secretary of
State certification requirements there-
under.
‘‘(3) CONSTRUCTION.—Nothing in this
subsection shall be construed as affecting
the operation of section 514 of the Em-
ployee Retirement Income Security Act of
1974.
‘‘PAYMENTS TO MEDICAREPLUS ORGANIZATIONS
‘‘SEC. 1855. (a) PAYMENTS.—
‘‘(1) IN
GENERAL.—Under a contract
under section 1858 the Secretary shall
pay to each MedicarePlus organization,
with respect to coverage of an individual
513
Subtitle A, Part 1
under this part in a payment area for a
month, an amount equal to the monthly
adjusted MedicarePlus capitation rate (as
provided under subsection (b)) with re-
spect to that individual for that area.
‘‘(2) ANNUAL ANNOUNCEMENT.—The Sec-
retary shall annually determine, and
shall announce (in a manner intended to
provide notice to interested parties) not
later than September 7 before the cal-
endar year concerned—
‘‘(A) 
the 
annual 
MedicarePlus
capitation rate for each payment area
for the year, and
‘‘(B) the factors to be used in ad-
justing such rates under subsection
(b) for payments for months in that
year.
‘‘(3) ADVANCE NOTICE OF METHODOLOGI-
CAL
CHANGES.—At least 45 days before
making the announcement under para-
graph (2) for a year, the Secretary shall
provide for notice to MedicarePlus orga-
nizations of proposed changes to be made
in the methodology or benefit coverage
514
Subtitle A, Part 1
assumptions from the methodology and
assumptions used in the previous an-
nouncement and shall provide such orga-
nizations an opportunity to comment on
such proposed changes.
‘‘(4) EXPLANATION OF ASSUMPTIONS.—In
each announcement made under para-
graph (2) for a year, the Secretary shall
include an explanation of the assump-
tions (including any benefit coverage as-
sumptions) and changes in methodology
used in the announcement in sufficient
detail so that MedicarePlus organizations
can 
compute 
monthly 
adjusted
MedicarePlus capitation rates for classes
of individuals located in each payment
area which is in whole or in part within
the service area of such an organization.
‘‘(b) MONTHLY
ADJUSTED
MEDICAREPLUS
CAPITATION RATE.—
‘‘(1) IN GENERAL.—For purposes of this
section, 
the 
‘monthly 
adjusted
MedicarePlus capitation rate’ under this
subsection, for a month in a year for an
individual in a payment area (specified
515
Subtitle A, Part 1
under paragraph (3)) and in a class (es-
tablished under paragraph (4)), is 1⁄12 of
the annual MedicarePlus capitation rate
specified in paragraph (2) for that area
for the year, adjusted to reflect the actu-
arial value of benefits under this title
with respect to individuals in such class
compared to the national average for in-
dividuals in all classes.
‘‘(2) ANNUAL MEDICAREPLUS CAPITATION
RATES.—For purposes of this section, the
annual MedicarePlus capitation rate for
a payment area for a year is equal to the
annual MedicarePlus capitation rate for
the area for the previous year (or, in the
case of 1996, the average annual per cap-
ita rate of payment described in section
1876(a)(1)(C) for the area for 1995) in-
creased by the per capita growth rate for
that area and year (as determined under
subsection (c)).
‘‘(3) PAYMENT
AREA
DEFINED.—In this
section, the term ‘payment area’ means a
county (or equivalent area specified by
the Secretary), except that in the case of
516
Subtitle A, Part 1
the population group described in para-
graph (5)(C), the payment area shall be
each State.
‘‘(4) CLASSES.—
‘‘(A) IN GENERAL.—For purposes of
this section, the Secretary shall de-
fine appropriate classes of enrollees,
consistent with paragraph (5), based
on age, gender, welfare status, insti-
tutionalization, and such other fac-
tors as the Secretary determines to be
appropriate, so as to ensure actuarial
equivalence. The Secretary may add
to, modify, or substitute for such
classes, if such changes will improve
the 
determination 
of 
actuarial
equivalence.
‘‘(B) 
RESEARCH.—The 
Secretary
shall conduct such research as may
be necessary to provide for greater
accuracy in the adjustment of capita-
tion rates under this subsection. Such
research may include research into
the addition or modification of class-
es under subparagraph (A). The Sec-
517
Subtitle A, Part 1
retary shall submit to Congress a re-
port on such research by not later
than January 1, 1997.
‘‘(5) 
DIVISION
OF
MEDICARE
POPU-
LATION.—In carrying out paragraph (4)
and this section, the Secretary shall rec-
ognize the following separate population
groups:
‘‘(A) AGED.—Individuals 65 years
of age or older who are not described
in subparagraph (C).
‘‘(B) DISABLED.—Disabled individ-
uals who are under 65 years of age
and not described in subparagraph
(C).
‘‘(C) INDIVIDUALS WITH END STAGE
RENAL DISEASE.—Individuals who are
determined to have end stage renal
disease.
‘‘(c) PER CAPITA GROWTH RATES.—
‘‘(1) FOR 1996.—
‘‘(A) IN GENERAL.—For purposes of
this section and subject to subpara-
graph (B), the per capita growth rates
for 1996, for a payment area assigned
518
Subtitle A, Part 1
to a service utilization cohort under
subsection (d), shall be the following:
‘‘(i) LOWEST
SERVICE
UTILIZA-
TION COHORT.—For areas assigned
to the lowest service utilization
cohort, 9.7 percent.
‘‘(ii) LOWER
SERVICE
UTILIZA-
TION COHORT.—For areas assigned
to the lower service utilization co-
hort, 8.0 percent.
‘‘(iii) MEDIAN SERVICE UTILIZA-
TION COHORT.—For areas assigned
to the median service utilization
cohort, 5.3 percent.
‘‘(iv) HIGHER
SERVICE
UTILIZA-
TION COHORT.—For areas assigned
to the higher service utilization
cohort, 4.7 percent.
‘‘(v) HIGHEST SERVICE UTILIZA-
TION COHORT.—For areas assigned
to the highest service utilization
cohort, 4.0 percent.
‘‘(B) 
BUDGET
NEUTRAL
ADJUST-
MENT.—The Secretary shall adjust the
per capita growth rates specified in
519
Subtitle A, Part 1
subparagraph (A) for all the areas by
such uniform factor as may be nec-
essary to assure that the total capita-
tion payments under this section dur-
ing 1996 are the same as the amount
such payments would have been if
the per capita growth rate for all
such areas for 1996 were equal to the
national average per capita growth
rate, specified in paragraph (3) for
1996.
‘‘(2) FOR SUBSEQUENT YEARS.—
‘‘(A) IN GENERAL.—For purposes of
this section and subject to subpara-
graph (B), the Secretary shall com-
pute a per capita growth rate for
each year after 1996, for each pay-
ment area as assigned to a service
utilization cohort under subsection
(d), consistent with the following
rules:
‘‘(i) MEDIAN
SERVICE
UTILIZA-
TION COHORT SET AT NATIONAL AV-
ERAGE PER CAPITA GROWTH RATE.—
The per capita growth rate for
520
Subtitle A, Part 1
areas assigned to the median
service utilization cohort for the
year shall be the national average
per capita growth rate for the
year (as specified under para-
graph (3)).
‘‘(ii) HIGHEST SERVICE UTILIZA-
TION COHORT SET AT 75 PERCENT OF
NATIONAL
AVERAGE
PER
CAPITA
GROWTH
RATE.—The per capita
growth rate for areas assigned to
the highest service utilization co-
hort for the year shall be 75 per-
cent of the national average per
capita growth rate for the year.
‘‘(iii) LOWEST SERVICE UTILIZA-
TION COHORT SET AT 187.5 PERCENT
OF NATIONAL AVERAGE PER CAPITA
GROWTH
RATE.—The per capita
growth rate for areas assigned to
the lowest service utilization co-
hort for the year shall be 187.5
percent of the national average
per capita growth rate for the
year.
521
Subtitle A, Part 1
‘‘(iv) LOWER
SERVICE
UTILIZA-
TION COHORT SET AT 150 PERCENT OF
NATIONAL
AVERAGE
PER
CAPITA
GROWTH RATE.—
‘‘(I) IN
GENERAL.—Subject
to subclause (II), the per cap-
ita growth rate for areas as-
signed to the lower service
utilization cohort for the year
shall be 150 percent of the na-
tional 
average 
per 
capita
growth rate for the year.
‘‘(II) ADJUSTMENT.—If the
Secretary 
has 
established
under clause (v) the per cap-
ita growth rate for areas as-
signed to the higher service
utilization cohort for the year
at 75 percent of the national
average per capita growth
rate, the Secretary may pro-
vide for a reduced per capita
growth rate under subclause
(I) to the extent necessary to
522
Subtitle A, Part 1
comply 
with 
subparagraph
(B).
‘‘(v) HIGHER
SERVICE
UTILIZA-
TION
COHORT.—The 
per 
capita
growth rate for areas assigned to
the higher service utilization co-
hort for the year shall be such
percent (not less than 75 percent)
of the national average per capita
growth rate, as the Secretary may
determine consistent with sub-
paragraph (B).
‘‘(B) AVERAGE PER CAPITA GROWTH
RATE AT NATIONAL AVERAGE TO ASSURE
BUDGET
NEUTRALITY.—The Secretary
shall compute per capita growth
rates for a year under subparagraph
(A) in a manner so that the weighted
average per capita growth rate for all
areas for the year (weighted to reflect
the number of medicare beneficiaries
in each area) is equal to the national
average per capita growth rate under
paragraph (3) for the year.
523
Subtitle A, Part 1
‘‘(3) NATIONAL
AVERAGE
PER
CAPITA
GROWTH
RATES.—In this subsection, the
‘national average per capita growth rate’
for—
‘‘(A) 1996 is 5.3 percent,
‘‘(B) 1997 is 3.8 percent,
‘‘(C) 1998 is 4.6 percent,
‘‘(D) 1999 is 4.3 percent,
‘‘(E) 2000 is 3.8 percent,
‘‘(F) 2001 is 5.5 percent,
‘‘(G) 2002 is 5.6 percent, and
‘‘(H) each subsequent year is 5.0
percent.
‘‘(d) ASSIGNMENT
OF PAYMENT AREAS
TO
SERVICE UTILIZATION COHORTS.—
‘‘(1) IN GENERAL.—For purposes of de-
termining per capita growth rates under
subsection (c) for areas for a year, the
Secretary shall assign each payment area
to a service utilization cohort (based on
the service utilization index value for
that area determined under paragraph
(2)) as follows:
‘‘(A) LOWEST
SERVICE
UTILIZATION
COHORT.—Areas with a service utiliza-
524
Subtitle A, Part 1
tion index value of less than .80 shall
be assigned to the lowest service uti-
lization cohort.
‘‘(B) LOWER
SERVICE
UTILIZATION
COHORT.—Areas with a service utiliza-
tion index value of at least .80 but
less than .90 shall be assigned to the
lower service utilization cohort.
‘‘(C) MEDIAN
SERVICE
UTILIZATION
COHORT.—Areas with a service utiliza-
tion index value of at least .90 but
less than 1.10 shall be assigned to the
median service utilization cohort.
‘‘(D) HIGHER
SERVICE
UTILIZATION
COHORT.—Areas with a service utiliza-
tion index value of at least 1.10 but
less than 1.20 shall be assigned to the
higher service utilization cohort.
‘‘(E) HIGHEST SERVICE UTILIZATION
COHORT.—Areas with a service utiliza-
tion index value of at least 1.20 shall
be assigned to the highest service uti-
lization cohort.
‘‘(2) DETERMINATION OF SERVICE UTILI-
ZATION INDEX VALUES.—In order to deter-
525
Subtitle A, Part 1
mine the per capita growth rate for a
payment area for each year (beginning
with 1996), the Secretary shall determine
for such area and year a service utiliza-
tion index value, which is equal to—
‘‘(A) 
the 
annual 
MedicarePlus
capitation rate under this section for
the area for the year in which the de-
termination is made (or, in the case
of 1996, the average annual per capita
rate of payment (described in section
1876(a)(1)(C)) for the area for 1995);
divided by
‘‘(B) the input-price-adjusted an-
nual national MedicarePlus capita-
tion rate (as determined under para-
graph (3)) for that area for the year
in which the determination is made.
‘‘(3) DETERMINATION
OF
INPUT-PRICE-
ADJUSTED RATES.—
‘‘(A) IN GENERAL.—For purposes of
paragraph (2), the ‘input-price-ad-
justed annual national MedicarePlus
capitation rate’ for a payment area
for a year is equal to the sum, for all
526
Subtitle A, Part 1
the types of medicare services (as
classified by the Secretary), of the
product (for each such type) of—
‘‘(i) the national standardized
MedicarePlus capitation rate (de-
termined 
under 
subparagraph
(B)) for the year,
‘‘(ii) the proportion of such
rate for the year which is attrib-
utable to such type of services,
and
‘‘(iii) an index that reflects
(for that year and that type of
services) the relative input price
of such services in the area com-
pared to the national average
input price of such services.
In applying clause (iii), the Secretary
shall, subject to subparagraph (C),
apply those indices under this title
that are used in applying (or updat-
ing) national payment rates for spe-
cific areas and localities.
‘‘(B) 
NATIONAL
STANDARDIZED
MEDICAREPLUS
CAPITATION
RATE.—In
527
Subtitle A, Part 1
this paragraph, the ‘national stand-
ardized MedicarePlus capitation rate’
for a year is equal to—
‘‘(i) the sum (for all payment
areas) of the product of (I) the an-
nual MedicarePlus capitation rate
for that year for the area under
subsection (b)(2), and (II) the av-
erage number of medicare bene-
ficiaries residing in that area in
the year; divided by
‘‘(ii) the total average number
of medicare beneficiaries residing
in all the payment areas for that
year.
‘‘(C) SPECIAL
RULES
FOR
1996.—In
applying this paragraph for 1996—
‘‘(i) medicare services shall be
divided into 2 types of services:
part A services and part B serv-
ices;
‘‘(ii) the proportions described
in subparagraph (A)(ii) for such
types of services shall be—
528
Subtitle A, Part 1
‘‘(I) for part A services,
the ratio (expressed as a per-
centage) of the average an-
nual per capita rate of pay-
ment for the area for part A
for 1995 to the total average
annual per capita rate of pay-
ment for the area for parts A
and B for 1995, and
‘‘(II) for part B services,
100 percent minus the ratio
described in subclause (I);
‘‘(iii) for the part A services,
70 percent of payments attrib-
utable to such services shall be
adjusted by the index used under
section 
1886(d)(3)(E) 
to 
adjust
payment rates for relative hos-
pital wage levels for hospitals lo-
cated in the payment area in-
volved;
‘‘(iv) for part B services—
‘‘(I) 66 percent of pay-
ments attributable to such
services shall be adjusted by
529
Subtitle A, Part 1
the index of the geographic
area factors under section
1848(e) used to adjust pay-
ment 
rates 
for 
physicians’
services furnished in the pay-
ment area, and
‘‘(II) of the remaining 34
percent of the amount of such
payments, 70 percent shall be
adjusted by the index de-
scribed in clause (iii);
‘‘(v) the index values shall be
computed based only on the bene-
ficiary population described in
subsection (b)(5)(A).
The Secretary may continue to apply
the rules described in this subpara-
graph (or similar rules) for 1997.
‘‘(e) PAYMENT PROCESS.—
‘‘(1) IN
GENERAL.—Subject to sub-
section (f), the Secretary shall make
monthly payments under this section in
advance and in accordance with the rate
determined under subsection (a) to the
plan for each individual enrolled with a
530
Subtitle A, Part 1
MedicarePlus organization under this
part.
‘‘(2) ADJUSTMENT TO REFLECT NUMBER
OF ENROLLEES.—
‘‘(A) IN GENERAL.—The amount of
payment under this subsection may
be retroactively adjusted to take into
account any difference between the
actual number of individuals enrolled
with an organization under this part
and the number of such individuals
estimated to be so enrolled in deter-
mining the amount of the advance
payment.
‘‘(B) SPECIAL RULE FOR CERTAIN EN-
ROLLEES.—
‘‘(i) IN
GENERAL.—Subject to
clause (ii), the Secretary may
make 
retroactive 
adjustments
under subparagraph (A) to take
into account individuals enrolled
during the period beginning on
the date on which the individual
enrolls with a MedicarePlus orga-
nization under a product oper-
531
Subtitle A, Part 1
ated, sponsored, or contributed to
by the individual’s employer or
former employer (or the employer
or former employer of the individ-
ual’s spouse) and ending on the
date on which the individual is
enrolled 
in 
the 
organization
under this part, except that for
purposes of making such retro-
active 
adjustments 
under 
this
subparagraph, such period may
not exceed 90 days.
‘‘(ii) 
EXCEPTION.—No 
adjust-
ment may be made under clause
(i) with respect to any individual
who does not certify that the or-
ganization provided the individ-
ual with the disclosure statement
described in section 1853(a) at the
time the individual enrolled with
the organization.
‘‘(f) SPECIAL RULES FOR INDIVIDUALS ELECT-
ING HIGH DEDUCTIBLE/MEDISAVE PRODUCT.—
‘‘(1) IN GENERAL.—In the case of an in-
dividual who has elected a high deduct-
532
Subtitle A, Part 1
ible/medisave product, notwithstanding
the preceding provisions of this section—
‘‘(A) the amount of the payment to
the MedicarePlus organization offer-
ing 
the 
high 
deductible/medisave
product shall not exceed the premium
for the product, and
‘‘(B) subject to paragraph (2), the
difference between the amount of
payment that would otherwise be
made and the amount of payment to
such organization shall be made di-
rectly into a MedicarePlus MSA es-
tablished (and, if applicable, des-
ignated) by the individual under
paragraph (2).
‘‘(2) ESTABLISHMENT
AND
DESIGNATION
OF
MEDICAREPLUS
MEDICAL
SAVINGS
AC-
COUNT
AS
REQUIREMENT
FOR
PAYMENT
OF
CONTRIBUTION.—In the case of an individ-
ual who has elected coverage under a
high 
deductible/medisave 
product, 
no
payment shall be made under paragraph
(1)(B) on behalf of an individual for a
month unless the individual—
533
Subtitle A, Part 1
‘‘(A) has established before the be-
ginning of the month (or by such
other deadline as the Secretary may
specify) a MedicarePlus MSA (as de-
fined in section 137(b) of the Internal
Revenue Code of 1986), and
‘‘(B) if the individual has estab-
lished more than one MedicarePlus
MSA, has designated one of such ac-
counts 
as 
the 
individual’s
MedicarePlus MSA for purposes of
this part.
Under rules under this section, such an
individual may change the designation of
such account under subparagraph (B) for
purposes of this part.
‘‘(3) LUMP
SUM
DEPOSIT
OF
MEDICAL
SAVINGS
ACCOUNT
CONTRIBUTION.—In the
case of an individual electing a high de-
ductible/medisave product effective be-
ginning with a month in a year, the
amount 
of 
the 
contribution 
to 
the
MedicarePlus MSA on behalf of the indi-
vidual for that month and all successive
months in the year shall be deposited
534
Subtitle A, Part 1
during that first month. In the case of a
termination of such an election as of a
month before the end of a year, the Sec-
retary shall provide for a procedure for
the recovery of deposits attributable to
the remaining months in the year.
‘‘(g) PAYMENTS FROM TRUST FUND.—The
payment to a MedicarePlus organization
under this section for individuals enrolled
under this part with the organization, and
payments to a MedicarePlus MSA under sub-
section (f)(1)(B), shall be made from the Fed-
eral Hospital Insurance Trust Fund and the
Federal Supplementary Medical Insurance
Trust Fund in such proportion as the Sec-
retary determines reflects the relative weight
that benefits under part A and under part B
represents of the actuarial value of the total
benefits under this title.
‘‘(h) SPECIAL RULE FOR CERTAIN INPATIENT
HOSPITAL STAYS.—In the case of an individual
who is receiving inpatient hospital services
from a subsection (d) hospital (as defined in
section 1886(d)(1)(B)) as of the effective date
of the individual’s—
535
Subtitle A, Part 1
‘‘(1) election under this part of a
MedicarePlus 
product 
offered 
by 
a
MedicarePlus organization—
‘‘(A) payment for such services
until the date of the individual’s dis-
charge shall be made under this title
through the MedicarePlus product or
Non-MedicarePlus option (as the case
may be) elected before the election
with such organization,
‘‘(B) the elected organization shall
not be financially responsible for pay-
ment for such services until the date
after the date of the individual’s dis-
charge, and
‘‘(C) the organization shall none-
theless be paid the full amount other-
wise payable to the organization
under this part; or
‘‘(2) termination of election with re-
spect to a MedicarePlus organization
under this part—
‘‘(A) the organization shall be fi-
nancially responsible for payment for
such services after such date and
536
Subtitle A, Part 1
until the date of the individual’s dis-
charge,
‘‘(B) payment for such services
during the stay shall not be made
under section 1886(d) or by any suc-
ceeding MedicarePlus organization,
and
‘‘(C) the terminated organization
shall not receive any payment with
respect to the individual under this
part during the period the individual
is not enrolled.
‘‘ESTABLISHMENT OF STANDARDS FOR MEDICARE-
PLUS ORGANIZATIONS AND PRODUCTS
‘‘SEC. 1856. (a) STANDARDS APPLICABLE TO
STATE-REGULATED ORGANIZATIONS
AND PROD-
UCTS.—
‘‘(1) RECOMMENDATIONS OF NAIC.—The
Secretary shall request the National As-
sociation of Insurance Commissioners to
develop and submit to the Secretary, not
later than 12 months after the date of the
enactment of the Medicare Preservation
Act of 1995, proposed standards consist-
ent with the requirements of this part for
MedicarePlus organizations (other than
537
Subtitle A, Part 1
Taft-Hartley sponsors and provider-spon-
sored organizations) and MedicarePlus
products offered by such organizations,
except that such proposed standards may
relate to MedicarePlus organizations that
are qualified associations only with re-
spect to MedicarePlus products offered
by them and only if such products are is-
sued by organizations to which section
1851(b)(1) applies.
‘‘(2) REVIEW.—If the Association sub-
mits such standards on a timely basis, the
Secretary shall review such standards to
determine if the standards meet the re-
quirements of the part. The Secretary
shall complete the review of the stand-
ards not later than 90 days after the date
of their submission. The Secretary shall
promulgate such proposed standards to
apply to organizations and products de-
scribed in paragraph (1) except to the ex-
tent that the Secretary modifies such pro-
posed standards because they do not
meet such requirements.
538
Subtitle A, Part 1
‘‘(3) FAILURE TO SUBMIT.—If the Asso-
ciation does not submit such standards
on a timely basis, the Secretary shall pro-
mulgate such standards by not later than
the date the Secretary would otherwise
have been required to promulgate stand-
ards under paragraph (2).
‘‘(4) USE OF INTERIM RULES.—For the
period in which this part is in effect and
standards are being developed and estab-
lished under the preceding provisions of
this subsection, the Secretary shall pro-
vide by not later than June 1, 1996, for
the application of such interim standards
(without regard to any requirements for
notice and public comment) as may be
appropriate to provide for the expedited
implementation of this part. Such interim
standards shall not apply after the date
standards are established under the pre-
ceding provisions of this subsection.
‘‘(b) TAFT-HARTLEY SPONSORS, QUALIFIED
ASSOCIATIONS, AND PRODUCTS.—
‘‘(1) IN GENERAL.—The Secretary shall
develop and promulgate by regulation
539
Subtitle A, Part 1
standards consistent with the require-
ments of this part for Taft-Hartley spon-
sors, for qualified associations, and for
MedicarePlus products offered by such
organizations (other than MedicarePlus
products offered by qualified associations
that are issued by organizations to which
section 1851(b)(1) applies).
‘‘(2) CONSULTATION
WITH
LABOR.—The
Secretary shall consult with the Sec-
retary of Labor with respect to such
standards for such sponsors and prod-
ucts.
‘‘(3) TIMING.—Standards under this
subsection shall be promulgated at or
about the time standards are promul-
gated under subsection (a).
‘‘(c) ESTABLISHMENT
OF
STANDARDS
FOR
PROVIDER-SPONSORED ORGANIZATIONS.—
‘‘(1) IN GENERAL.—The Secretary shall
establish, on an expedited basis and
using a negotiated rulemaking process
under subchapter 3 of chapter 5 of title 5,
United States Code, standards that enti-
540
Subtitle A, Part 1
ties must meet to qualify as provider-
sponsored organizations under this part.
‘‘(2) PUBLICATION OF NOTICE.—In carry-
ing out the rulemaking process under
this subsection, the Secretary, after con-
sultation with the National Association of
Insurance Commissioners, the American
Academy of Actuaries, organizations rep-
resentative 
of 
medicare 
beneficiaries,
and other interested parties, shall pub-
lish the notice provided for under section
564(a) of title 5, United States Code, by
not later than 45 days after the date of
the enactment of Medicare Preservation
Act of 1995.
‘‘(3) TARGET DATE FOR PUBLICATION OF
RULE.—As part of the notice under para-
graph (2), and for purposes of this sub-
section, the ‘target date for publication’
(referred to in section 564(a)(5) of such
title) shall be September 1, 1996.
‘‘(4) ABBREVIATED PERIOD FOR SUBMIS-
SION
OF
COMMENTS.—In applying section
564(c) of such title under this subsection,
‘15 days’ shall be substituted for ‘30 days’.
541
Subtitle A, Part 1
‘‘(5) 
APPOINTMENT
OF
NEGOTIATED
RULEMAKING
COMMITTEE
AND
FACILI-
TATOR.—The Secretary shall provide for—
‘‘(A) the appointment of a nego-
tiated rulemaking committee under
section 565(a) of such title by not
later than 30 days after the end of the
comment period provided for under
section 564(c) of such title (as short-
ened under paragraph (4)), and
‘‘(B) 
the 
nomination 
of 
a
facilitator under section 566(c) of
such title by not later than 10 days
after the date of appointment of the
committee.
‘‘(6) 
PRELIMINARY
COMMITTEE
RE-
PORT.—The negotiated rulemaking com-
mittee appointed under paragraph (5)
shall report to the Secretary, by not later
than June 1, 1996, regarding the commit-
tee’s progress on achieving a concensus
with regard to the rulemaking proceed-
ing and whether such consensus is likely
to occur before one month before the tar-
get date for publication of the rule. If the
542
Subtitle A, Part 1
committee reports that the committee
has failed to make significant progress
towards such consensus or is unlikely to
reach such consensus by the target date,
the Secretary may terminate such proc-
ess and provide for the publication of a
rule under this subsection through such
other methods as the Secretary may pro-
vide.
‘‘(7) FINAL COMMITTEE REPORT.—If the
committee is not terminated under para-
graph (6), the rulemaking committee
shall submit a report containing a pro-
posed rule by not later than one month
before the target publication date.
‘‘(8) INTERIM, FINAL EFFECT.—The Sec-
retary shall publish a rule under this sub-
section in the Federal Register by not
later than the target publication date.
Such rule shall be effective and final im-
mediately on an interim basis, but is sub-
ject to change and revision after public
notice and opportunity for a period (of
not less than 60 days) for public com-
ment. In connection with such rule, the
543
Subtitle A, Part 1
Secretary shall specify the process for
the timely review and approval of appli-
cations of entities to be certified as pro-
vider-sponsored organizations pursuant
to such rules and consistent with this
subsection.
‘‘(9) PUBLICATION OF RULE AFTER PUB-
LIC
COMMENT.—The Secretary shall pro-
vide for consideration of such comments
and republication of such rule by not
later than 1 year after the target publica-
tion date.
‘‘(10) PROCESS FOR APPROVAL OF APPLI-
CATIONS FOR CERTIFICATION.—
‘‘(A) IN
GENERAL.—The Secretary
shall establish a process for the re-
ceipt and approval of applications of
entities for certification as provider-
sponsored organizations under this
part. Under such process, the Sec-
retary shall act upon a complete ap-
plication submitted within 60 days
after the date it is received.
‘‘(B) CIRCULATION OF PROPOSED AP-
PLICATION
FORM.—By March 1, 1996,
544
Subtitle A, Part 1
the Secretary, after consultation with
the negotiated rulemaking commit-
tee, shall circulate a proposed appli-
cation form that could be used by en-
tities considering becoming certified
as a provider-sponsored organization
under this part.
‘‘(d) COORDINATION AMONG FINAL STAND-
ARDS.—In establishing standards (other than
on an interim basis) under the previous provi-
sions of this section, the Secretary shall seek
to provide for consistency (as appropriate)
across the different types of MedicarePlus or-
ganizations, in order to promote equitable
treatment of different types of organizations
and consistent protection for individuals who
elect products offered by the different types
of MedicarePlus organizations.
‘‘(e) USE OF CURRENT STANDARDS FOR IN-
TERIM STANDARDS.—To the extent practicable
and consistent with the requirements of this
part, standards established on an interim
basis to carry out requirements of this part
may be based on currently applicable stand-
ards, such as the rules established under sec-
545
Subtitle A, Part 1
tion 1876 (as in effect as of the date of the en-
actment of this section) to carry out analo-
gous provisions of such section or standards
established or developed for application in
the private health insurance market.
‘‘(f) APPLICATION OF NEW STANDARDS TO EN-
TITIES WITH
A CONTRACT.—In the case of a
MedicarePlus organization with a contract in
effect under this part at the time standards
applicable to the organization under this sec-
tion are changed, the organization may elect
not to have such changes apply to the organi-
zation until the end of the current contract
year (or, if there is less than 6 months remain-
ing in the contract year, until 1 year after the
end of the current contract year).
‘‘(g) RELATION TO STATE LAWS.—The stand-
ards established under this section shall su-
persede any State law or regulation with re-
spect to MedicarePlus products which are of-
fered by MedicarePlus organizations and are
issued by organizations to which section
1851(b)(1) applies, to the extent such law or
regulation is inconsistent with such stand-
ards.
546
Subtitle A, Part 1
‘‘MEDICARE-PLUS CERTIFICATION
‘‘SEC. 1857. (a) STATE CERTIFICATION PROC-
ESS FOR STATE-REGULATED ORGANIZATIONS.—
‘‘(1) APPROVAL OF STATE PROCESS.—The
Secretary shall approve a MedicarePlus
certification and enforcement program
established by a State for applying the
standards established under section 1856
to 
MedicarePlus 
organizations 
(other
than Taft-Hartley sponsors and provider-
sponsored 
organizations) 
and
MedicarePlus products offered by such
organizations if the Secretary determines
that the program effectively provides for
the application and enforcement of such
standards in the State with respect to
such organizations and products. Such
program shall provide for certification of
compliance of MedicarePlus organiza-
tions and products with the applicable
requirements of this part not less often
than once every 3 years.
‘‘(2) EFFECT
OF
CERTIFICATION
UNDER
STATE
PROCESS.—A MedicarePlus organi-
zation and MedicarePlus product offered
547
Subtitle A, Part 1
by such an organization that is certified
under such program is considered to
have been certified under this subsection
with respect to the offering of the prod-
uct to individuals residing in the State.
‘‘(3) USER
FEES.—The State may im-
pose user fees on organizations seeking
certification under this subsection in
such amounts as the State deems suffi-
cient to finance the costs of such certifi-
cation. Nothing in this paragraph shall be
construed as restricting a State’s author-
ity to impose premium taxes, other taxes,
or other levies.
‘‘(4) REVIEW.—The Secretary periodi-
cally shall review State programs ap-
proved under paragraph (1) to determine
if they continue to provide for certifi-
cation and enforcement described in such
paragraph. If the Secretary finds that a
State program no longer so provides, be-
fore making a final determination, the
Secretary shall provide the State an op-
portunity to adopt such a plan of correc-
tion as would permit the State program
548
Subtitle A, Part 1
to meet the requirements of paragraph
(1). If the Secretary makes a final deter-
mination that the State program, after
such an opportunity, fails to meet such
requirements, 
the 
provisions 
of 
sub-
section (b) shall apply to MedicarePlus
organizations and products in the State.
‘‘(5) EFFECT OF NO STATE PROGRAM.—
Beginning on the date standards are es-
tablished under section 1856, in the case
of organizations and products in States
in which a certification program has not
been approved and in operation under
paragraph (1), the Secretary shall estab-
lish a process for the certification of
MedicarePlus organizations (other than
Taft-Hartley sponsors and provider-spon-
sored organizations) and products of
such 
organizations 
as 
meeting 
such
standards.
‘‘(6) PUBLICATION OF LIST OF APPROVED
STATE
PROGRAMS.—The Secretary shall
publish (and periodically update) a list of
those State programs which are approved
for purposes of this subsection.
549
Subtitle A, Part 1
‘‘(b) FEDERAL CERTIFICATION PROCESS FOR
TAFT-HARTLEY SPONSORS AND PROVIDER-SPON-
SORED ORGANIZATIONS.—
‘‘(1) ESTABLISHMENT.—The Secretary
shall establish a process for the certifi-
cation of Taft-Hartley sponsors and pro-
vider-sponsored 
organizations 
and
MedicarePlus products offered by such
sponsors and organizations as meeting
the 
applicable 
standards 
established
under section 1856.
‘‘(2) INVOLVEMENT
OF
SECRETARY
OF
LABOR.—Such process shall be established
and operated in cooperation with the
Secretary of Labor with respect to Taft-
Hartley sponsors.
‘‘(3) USE OF STATE LICENSING AND PRI-
VATE ACCREDITATION PROCESSES.—
‘‘(A) 
IN
GENERAL.—The 
process
under this subsection shall, to the
maximum extent practicable, provide
that MedicarePlus organizations and
products that are licensed or certified
through a qualified private accredita-
tion process that the Secretary finds
550
Subtitle A, Part 1
applies standards that are no less
stringent than the requirements of
this part are deemed to meet the cor-
responding requirements of this part
for such an organization or product.
‘‘(B) 
PERIODIC
ACCREDITATION.—
The use of an accreditation under
subparagraph (A) shall be valid only
for such period as the Secretary
specifies.
‘‘(4) USER
FEES.—The Secretary may
impose user fees on entities seeking cer-
tification under this subsection in such
amounts as the Secretary deems suffi-
cient to finance the costs of such certifi-
cation.
‘‘(c) 
CERTIFICATION
OF
PROVIDER-SPON-
SORED ORGANIZATIONS BY STATES.—
‘‘(1) IN GENERAL.—The Secretary shall
establish a process under which a State
may propose to provide for certification
of entities as meeting the requirements of
this part to be provider-sponsored orga-
nizations.
551
Subtitle A, Part 1
‘‘(2) CONDITIONS
FOR
APPROVAL.—The
Secretary may not approve a State pro-
gram for certification under paragraph
(1) unless the Secretary determines that
the certification program applies stand-
ards and requirements that are identical
to the standards and requirements of this
part and the applicable provisions for en-
forcement of such standards and require-
ments do not result in a lower level or
quality of enforcement than that which is
otherwise applicable under this title.
‘‘(d) NOTICE TO ENROLLEES IN CASE OF DE-
CERTIFICATION.—If a MedicarePlus organiza-
tion or product is decertified under this sec-
tion, the organization shall notify each en-
rollee with the organization and product
under this part of such decertification.
‘‘(e) QUALIFIED ASSOCIATIONS.—In the case
of 
MedicarePlus 
products 
offered 
by 
a
MedicarePlus organization that is a qualified
association 
(as 
defined 
in 
section
1854(c)(4)(C)) and issued by an organization
to which section 1851(b)(1) applies or by a
provider-sponsored organization (as defined
552
Subtitle A, Part 1
in section 1854(a)), nothing in this section
shall be construed as limiting the authority of
States to regulate such products.
‘‘CONTRACTS WITH MEDICAREPLUS
ORGANIZATIONS
‘‘SEC. 1858. (a) IN GENERAL.—The Secretary
shall not permit the election under section
1805 of a MedicarePlus product offered by a
MedicarePlus organization under this part,
and no payment shall be made under section
1856 to an organization, unless the Secretary
has entered into a contract under this section
with an organization with respect to the offer-
ing of such product. Such a contract with an
organization may cover more than one
MedicarePlus product. Such contract shall
provide that the organization agrees to com-
ply with the applicable requirements and
standards of this part and the terms and con-
ditions of payment as provided for in this
part.
‘‘(b) 
MINIMUM
ENROLLMENT
REQUIRE-
MENTS.—
‘‘(1) IN
GENERAL.—Subject to para-
graphs (1) and (2), the Secretary may not
enter into a contract under this section
553
Subtitle A, Part 1
with a MedicarePlus organization (other
than a Taft-Hartley sponsor) unless the
organization has at least 5,000 individ-
uals (or 1,500 individuals in the case of
an organization that is a provider-spon-
sored organization) who are receiving
health benefits through the organization,
except that the standards under section
1856 may permit the organization to have
a lesser number of beneficiaries (but not
less than 500 in the case of an organiza-
tion that is a provider-sponsored organi-
zation) if the organization primarily
serves individuals residing outside of ur-
banized areas.
‘‘(2) EXCEPTION FOR HIGH DEDUCTIBLE/
MEDISAVE
PRODUCT.—Paragraph (1) shall
not apply with respect to a contract that
relates 
only 
to 
a 
high 
deductible/
medisave product.
‘‘(3) ALLOWING
TRANSITION.—The Sec-
retary may waive the requirement of
paragraph (1) during the first 3 contract
years with respect to an organization.
554
Subtitle A, Part 1
‘‘(c) CONTRACT
PERIOD
AND
EFFECTIVE-
NESS.—
‘‘(1) PERIOD.—Each contract under
this section shall be for a term of at least
one year, as determined by the Secretary,
and may be made automatically renew-
able from term to term in the absence of
notice by either party of intention to ter-
minate at the end of the current term.
‘‘(2) TERMINATION
AUTHORITY.—In ac-
cordance with procedures established
under subsection (h), the Secretary may
at any time terminate any such contract
or may impose the intermediate sanc-
tions described in an applicable para-
graph 
of 
subsection 
(g) 
on 
the
MedicarePlus organization if the Sec-
retary determines that the organization—
‘‘(A) has failed substantially to
carry out the contract;
‘‘(B) is carrying out the contract
in a manner inconsistent with the ef-
ficient and effective administration of
this part;
555
Subtitle A, Part 1
‘‘(C) is operating in a manner that
is not in the best interests of the indi-
viduals covered under the contract;
or
‘‘(D) no longer substantially meets
the applicable conditions of this part.
‘‘(3) EFFECTIVE DATE OF CONTRACTS.—
The effective date of any contract exe-
cuted pursuant to this section shall be
specified in the contract, except that in
no case shall a contract under this sec-
tion which provides for coverage under a
high deductible/medisave account be ef-
fective before January 1997 with respect
to such coverage.
‘‘(4) 
PREVIOUS
TERMINATIONS.—The
Secretary may not enter into a contract
with a MedicarePlus organization if a
previous contract with that organization
under this section was terminated at the
request of the organization within the
preceding five-year period, except in cir-
cumstances which warrant special con-
sideration, as determined by the Sec-
retary.
556
Subtitle A, Part 1
‘‘(5) NO CONTRACTING AUTHORITY.—The
authority vested in the Secretary by this
part may be performed without regard to
such provisions of law or regulations re-
lating 
to 
the 
making, 
performance,
amendment, or modification of contracts
of the United States as the Secretary may
determine to be inconsistent with the fur-
therance of the purpose of this title.
‘‘(d) PROTECTIONS AGAINST FRAUD AND BEN-
EFICIARY PROTECTIONS.—
‘‘(1) INSPECTION AND AUDIT.—Each con-
tract under this section shall provide
that the Secretary, or any person or orga-
nization designated by the Secretary—
‘‘(A) shall have the right to in-
spect or otherwise evaluate (i) the
quality, appropriateness, and timeli-
ness of services performed under the
contract and (ii) the facilities of the
organization when there is reason-
able evidence of some need for such
inspection, and
‘‘(B) shall have the right to audit
and inspect any books and records of
557
Subtitle A, Part 1
the MedicarePlus organization that
pertain (i) to the ability of the organi-
zation to bear the risk of potential fi-
nancial losses, or (ii) to services per-
formed or determinations of amounts
payable under the contract.
‘‘(2) ENROLLEE NOTICE AT TIME OF TER-
MINATION.—Each contract under this sec-
tion shall require the organization to pro-
vide (and pay for) written notice in ad-
vance of the contract’s termination, as
well as a description of alternatives for
obtaining benefits under this title, to
each individual enrolled with the organi-
zation under this part.
‘‘(3) DISCLOSURE.—
‘‘(A) 
IN
GENERAL.—Each
MedicarePlus organization shall, in
accordance with regulations of the
Secretary, report to the Secretary fi-
nancial information which shall in-
clude the following:
‘‘(i) Such information as the
Secretary 
may 
require 
dem-
558
Subtitle A, Part 1
onstrating that the organization
has a fiscally sound operation.
‘‘(ii) A copy of the report, if
any, filed with the Health Care Fi-
nancing Administration contain-
ing the information required to
be reported under section 1124 by
disclosing entities.
‘‘(iii) A description of trans-
actions, as specified by the Sec-
retary, between the organization
and a party in interest. Such
transactions shall include—
‘‘(I) any sale or exchange,
or leasing of any property be-
tween the organization and a
party in interest;
‘‘(II) any furnishing for
consideration of goods, serv-
ices (including management
services), or facilities between
the organization and a party
in interest, but not including
salaries paid to employees for
services provided in the nor-
559
Subtitle A, Part 1
mal course of their employ-
ment and health services pro-
vided to members by hospitals
and other providers and by
staff, 
medical 
group 
(or
groups), individual practice
association (or associations),
or any combination thereof;
and
‘‘(III) 
any 
lending 
of
money or other extension of
credit between an organiza-
tion and a party in interest.
The Secretary may require that infor-
mation reported respecting an orga-
nization which controls, is controlled
by, or is under common control with,
another entity be in the form of a
consolidated financial statement for
the organization and such entity.
‘‘(B) PARTY IN INTEREST DEFINED.—
For the purposes of this paragraph,
the term ‘party in interest’ means—
‘‘(i) any director, officer, part-
ner, or employee responsible for
560
Subtitle A, Part 1
management or administration of
a MedicarePlus organization, any
person who is directly or indi-
rectly the beneficial owner of
more than 5 percent of the equity
of the organization, any person
who is the beneficial owner of a
mortgage, deed of trust, note, or
other interest secured by, and
valuing more than 5 percent of
the organization, and, in the case
of a MedicarePlus organization
organized as a nonprofit corpora-
tion, an incorporator or member
of such corporation under appli-
cable State corporation law;
‘‘(ii) any entity in which a per-
son described in clause (i)—
‘‘(I) is an officer or direc-
tor;
‘‘(II) is a partner (if such
entity is organized as a part-
nership);
‘‘(III) has directly or indi-
rectly a beneficial interest of
561
Subtitle A, Part 1
more than 5 percent of the eq-
uity; or
‘‘(IV) has a mortgage, deed
of trust, note, or other inter-
est valuing more than 5 per-
cent of the assets of such en-
tity;
‘‘(iii) any person directly or
indirectly controlling, controlled
by, or under common control with
an organization; and
‘‘(iv) any spouse, child, or par-
ent of an individual described in
clause (i).
‘‘(C) ACCESS
TO
INFORMATION.—
Each MedicarePlus organization shall
make the information reported pur-
suant to subparagraph (A) available
to its enrollees upon reasonable re-
quest.
‘‘(4) LOAN INFORMATION.—The contract
shall require the organization to notify
the Secretary of loans and other special
financial arrangements which are made
between 
the 
organization 
and 
sub-
562
Subtitle A, Part 1
contractors, affiliates, and related par-
ties.
‘‘(f) ADDITIONAL
CONTRACT
TERMS.—The
contract shall contain such other terms and
conditions not inconsistent with this part (in-
cluding requiring the organization to provide
the Secretary with such information) as the
Secretary may find necessary and appro-
priate.
‘‘(g) INTERMEDIATE SANCTIONS.—
‘‘(1) IN GENERAL.—If the Secretary de-
termines that a MedicarePlus organiza-
tion with a contract under this section—
‘‘(A) fails substantially to provide
medically necessary items and serv-
ices that are required (under law or
under the contract) to be provided to
an individual covered under the con-
tract, if the failure has adversely af-
fected (or has substantial likelihood
of adversely affecting) the individual;
‘‘(B) imposes premiums on indi-
viduals enrolled under this part in
excess of the premiums permitted;
563
Subtitle A, Part 1
‘‘(C) acts to expel or to refuse to
re-enroll an individual in violation of
the provisions of this part;
‘‘(D) engages in any practice that
would reasonably be expected to have
the effect of denying or discouraging
enrollment (except as permitted by
this part) by eligible individuals with
the organization whose medical con-
dition or history indicates a need for
substantial future medical services;
‘‘(E) misrepresents or falsifies in-
formation that is furnished—
‘‘(i) to the Secretary under
this part, or
‘‘(ii) to an individual or to any
other entity under this part;
‘‘(F) fails to comply with the re-
quirements of section 1852(f)(3); or
‘‘(G) employs or contracts with
any individual or entity that is ex-
cluded from participation under this
title under section 1128 or 1128A for
the provision of health care, utiliza-
tion review, medical social work, or
564
Subtitle A, Part 1
administrative services or employs or
contracts with any entity for the pro-
vision (directly or indirectly) through
such an excluded individual or entity
of such services;
the Secretary may provide, in addition to
any other remedies authorized by law,
for any of the remedies described in
paragraph (2).
‘‘(2) 
REMEDIES.—The 
remedies 
de-
scribed in this paragraph are—
‘‘(A) civil money penalties of not
more than $25,000 for each deter-
mination under paragraph (1) or,
with 
respect 
to 
a 
determination
under subparagraph (D) or (E)(i) of
such paragraph, of not more than
$100,000 for each such determination,
plus, with respect to a determination
under paragraph (1)(B), double the
excess amount charged in violation of
such 
paragraph 
(and 
the 
excess
amount charged shall be deducted
from the penalty and returned to the
individual concerned), and plus, with
565
Subtitle A, Part 1
respect to a determination under
paragraph (1)(D), $15,000 for each in-
dividual not enrolled as a result of
the practice involved,
‘‘(B) suspension of enrollment of
individuals under this part after the
date the Secretary notifies the orga-
nization of a determination under
paragraph (1) and until the Secretary
is satisfied that the basis for such de-
termination has been corrected and is
not likely to recur, or
‘‘(C) suspension of payment to the
organization under this part for indi-
viduals enrolled after the date the
Secretary notifies the organization of
a determination under paragraph (1)
and until the Secretary is satisfied
that the basis for such determination
has been corrected and is not likely
to recur.
‘‘(3) OTHER INTERMEDIATE SANCTIONS.—
In the case of a MedicarePlus organiza-
tion for which the Secretary makes a de-
termination under subsection (c)(2) the
566
Subtitle A, Part 1
basis of which is not described in para-
graph (1), the Secretary may apply the
following intermediate sanctions:
‘‘(A) civil money penalties of not
more than $25,000 for each deter-
mination under subsection (c)(2) if
the deficiency that is the basis of the
determination has directly adversely
affected (or has the substantial likeli-
hood of adversely affecting) an indi-
vidual covered under the organiza-
tion’s contract;
‘‘(B) civil money penalties of not
more than $10,000 for each week be-
ginning after the initiation of proce-
dures by the Secretary under sub-
section (h) during which the defi-
ciency that is the basis of a deter-
mination under subsection (c)(2) ex-
ists; and
‘‘(C) suspension of enrollment of
individuals under this part after the
date the Secretary notifies the orga-
nization of a determination under
subsection (c)(2) and until the Sec-
567
Subtitle A, Part 1
retary is satisfied that the deficiency
that is the basis for the determination
has been corrected and is not likely
to recur.
‘‘(4) PROCEDURES FOR IMPOSING SANC-
TIONS.—The provisions of section 1128A
(other than subsections (a) and (b)) shall
apply to a civil money penalty under
paragraph (1) or (2) in the same manner
as they apply to a civil money penalty or
proceeding under section 1128A(a).
‘‘(h) PROCEDURES
FOR
IMPOSING
SANC-
TIONS.—The Secretary may terminate a con-
tract with a MedicarePlus organization under
this section or may impose the intermediate
sanctions described in subsection (g) on the
organization in accordance with formal inves-
tigation and compliance procedures estab-
lished by the Secretary under which—
‘‘(1) the Secretary provides the orga-
nization with the opportunity to develop
and implement a corrective action plan
to correct the deficiencies that were the
basis of the Secretary’s determination
under subsection (c)(2);
568
Subtitle A, Part 1
‘‘(2) the Secretary shall impose more
severe sanctions on organizations that
have a history of deficiencies or that
have not taken steps to correct defi-
ciencies the Secretary has brought to
their attention;
‘‘(3) there are no unreasonable or un-
necessary delays between the finding of a
deficiency and the imposition of sanc-
tions; and
‘‘(4) the Secretary provides the orga-
nization with reasonable notice and op-
portunity for hearing (including the right
to appeal an initial decision) before im-
posing any sanction or terminating the
contract.’’.
(b) CONFORMING REFERENCES TO PREVIOUS
PART C.—Any reference in law (in effect be-
fore the date of the enactment of this Act) to
part C of title XVIII of the Social Security Act
is deemed a reference to part D of such title
(as in effect after such date).
(c) USE OF INTERIM, FINAL REGULATIONS.—
In order to carry out the amendment made by
subsection (a) in a timely manner, the Sec-
569
Subtitle A, Part 1
retary of Health and Human Services may
promulgate regulations that take effect on an
interim basis, after notice and pending oppor-
tunity for public comment.
(d) 
ADVANCE
DIRECTIVES.—Section
1866(f)(1) (42 U.S.C. 1395cc(f)(1)) is amended—
(1) in paragraph (1)—
(A) by inserting ‘‘1853(g),’’ after
‘‘1833(s),’’, and
(B) by inserting ‘‘, MedicarePlus
organization,’’ after ‘‘provider of serv-
ices’’, and
(2) by adding at the end the following
new paragraph:
‘‘(4) Nothing in this subsection shall be
construed to require the provision of informa-
tion regarding assisted suicide, euthanasia, or
mercy killing.’’.
(e) 
CONFORMING
AMENDMENT.—Section
1866(a)(1)(O) (42 U.S.C. 1395cc(a)(1)(O)) is
amended by inserting before the semicolon at
the end the following: ‘‘and in the case of hos-
pitals to accept as payment in full for inpa-
tient hospital services that are emergency
services (as defined in section 1853(b)(4)) that
570
Subtitle A, Part 1
are covered under this title and are furnished
to any individual enrolled under part C with
a MedicarePlus organization which does not
have 
a 
contract 
establishing 
payment
amounts for services furnished to members of
the organization the amounts that would be
made as a payment in full under this title if
the individuals were not so enrolled’’.
SEC. 15003. DUPLICATION AND COORDINATION OF MEDI-
CARE-RELATED PRODUCTS.
(a) TREATMENT OF CERTAIN HEALTH INSUR-
ANCE POLICIES AS NONDUPLICATIVE.—
(1) IN
GENERAL.—Effective as if in-
cluded in the enactment of section 4354
of the Omnibus Budget Reconciliation
Act of 1990, section 1882(d)(3)(A) (42
U.S.C. 1395ss(d)(3)(A)) is amended—
(A) by amending clause (i) to read
as follows:
‘‘(i) It is unlawful for a person to sell or
issue to an individual entitled to benefits
under part A or enrolled under part B of this
title or electing a MedicarePlus product
under section 1805—
571
Subtitle A, Part 1
‘‘(I) a health insurance policy (other
than a medicare supplemental policy)
with knowledge that the policy dupli-
cates health benefits to which the indi-
vidual is otherwise entitled under this
title or title XIX,
‘‘(II) in the case of an individual not
electing a MedicarePlus product, a medi-
care supplemental policy with knowledge
that the individual is entitled to benefits
under another medicare supplemental
policy, or
‘‘(III) in the case of an individual
electing a MedicarePlus product, a medi-
care supplemental policy with knowledge
that the policy duplicates health benefits
to which the individual is otherwise enti-
tled under this title or under another
medicare supplemental policy.’’;
(B) in clause (iii), by striking
‘‘clause (i)’’ and inserting ‘‘clause
(i)(II)’’; and
(C) by adding at the end the fol-
lowing new clauses:
572
Subtitle A, Part 1
‘‘(iv) For purposes of this subparagraph a
health insurance policy shall be considered to
‘duplicate’ benefits under this title only when,
under its terms, the policy provides specific
reimbursement for identical items and serv-
ices to the extent paid for under this title, and
a health insurance policy providing for bene-
fits which are payable to or on behalf of an
individual without regard to other health
benefit coverage of such individual is not con-
sidered to ‘duplicate’ any health benefits
under this title.
‘‘(v) For purposes of this subparagraph, a
health insurance policy (or a rider to an in-
surance contract which is not a health insur-
ance policy), including a policy (such as a
long-term care insurance contract described
in section 7702B(b) of the Internal Revenue
Code of 1986, as added by the Contract with
America Tax Relief Act of 1995 (H.R. 1215))
providing benefits for long-term care, nursing
home care, home health care, or community-
based care, that coordinates against or ex-
cludes items and services available or paid for
under this title and (for policies sold or issued
573
Subtitle A, Part 1
after January 1, 1996) that discloses such co-
ordination or exclusion in the policy’s outline
of coverage, is not considered to ‘duplicate’
health benefits under this title. For purposes
of this clause, the terms ‘coordinates’ and ‘co-
ordination’ mean, with respect to a policy in
relation to health benefits under this title,
that the policy under its terms is secondary
to, or excludes from payment, items and serv-
ices to the extent available or paid for under
this title.
‘‘(vi) Notwithstanding any other provision
of law, no criminal or civil penalty may be im-
posed at any time under this subparagraph
and no legal action may be brought or contin-
ued at any time in any Federal or State court
if the penalty or action is based on an act or
omission that occurred after November 5,
1991, and before the date of the enactment of
this clause, and relates to the sale, issuance,
or renewal of any health insurance policy
during such period, if such policy meets the
requirements of clause (iv) or (v).
‘‘(vii) A State may not impose, with re-
spect to the sale or issuance of a policy (or
574
Subtitle A, Part 1
rider) that meets the requirements of this title
pursuant to clause (iv) or (v) to an individual
entitled to benefits under part A or enrolled
under 
part 
B 
or 
enrolled 
under 
a
MedicarePlus product under part C, any re-
quirement based on the premise that such a
policy or rider duplicates health benefits to
which the individual is otherwise entitled
under this title.’’.
(2) 
CONFORMING
AMENDMENTS.—Sec-
tion 1882(d)(3) (42 U.S.C. 1395ss(d)(3)) is
amended—
(A) in subparagraph (B), by in-
serting ‘‘(including any MedicarePlus
product)’’ 
after 
‘‘health 
insurance
policies’’;
(B) in subparagraph (C)—
(i) by striking ‘‘with respect to
(i)’’ and inserting ‘‘with respect
to’’, and
(ii) by striking ‘‘, (ii) the sale’’
and all that follows up to the pe-
riod at the end; and
(C) by striking subparagraph (D).
575
Subtitle A, Part 1
(3) 
MEDICAREPLUS
PRODUCTS
NOT
TREATED
AS
MEDICARE
SUPPLEMENTARY
POLICIES.—Section 
1882(g) 
(42 
U.S.C.
1395ss(g)) is amended by inserting ‘‘a
MedicarePlus product or’’ after ‘‘and does
not include’’
(4) REPORT
ON
DUPLICATION
AND
CO-
ORDINATION OF HEALTH INSURANCE POLICIES
THAT
ARE
NOT
MEDICARE
SUPPLEMENTAL
POLICIES.—Not later than 3 years after the
date of the enactment of this Act, the Sec-
retary of Health and Human Services
shall prepare and submit to Congress a
report on the advisability and feasibility
of restricting the sale to medicare bene-
ficiaries of health insurance policies that
duplicate (within the meaning of section
1882(d)(3)(A) of the Social Security Act)
other health insurance policies that such
a beneficiary may have. In preparing
such report, the Secretary shall seek the
advice of the National Association of In-
surance Commissioners and shall take
into account the standards established
under section 1807 of the Social Security
588
Subtitle A, Part 2
‘‘(C) SPECIAL RULES.—For purposes
of subparagraph (A)—
‘‘(i) all MedicarePlus MSA’s of
the account holder shall be treat-
ed as 1 account,
‘‘(ii) all payments and dis-
tributions not used exclusively to
pay the qualified medical ex-
penses of the account holder dur-
ing any taxable year shall be
treated as 1 distribution, and
‘‘(iii) any distribution of prop-
erty shall be taken into account
at its fair market value on the
date of the distribution.
‘‘(3) WITHDRAWAL OF ERRONEOUS CON-
TRIBUTIONS.—Paragraphs (1) and (2) shall
not apply to any payment or distribution
from a MedicarePlus MSA to the Sec-
retary of Health and Human Services of
an erroneous contribution to such MSA
and of the net income attributable to
such contribution.
‘‘(4) TRUSTEE-TO-TRUSTEE TRANSFERS.—
Paragraphs (1) and (2) shall not apply to