129
the reference resident level specified in sub-
clause (III) (or subclause (IV) if applicable).
‘‘(II) REFERENCE PERIODS DEFINED.—In
this clause, the term ‘reference periods’ means,
for a hospital, the 3 most recent consecutive
cost reporting periods of the hospital for which
cost reports have been settled (or, if not, sub-
mitted) on or before September 30, 2001.
‘‘(III) REFERENCE
RESIDENT
LEVEL.—
Subject to subclause (IV), the reference resi-
dent level specified in this subclause for a hos-
pital is the highest resident level for the hos-
pital during any of the reference periods.
‘‘(IV) ADJUSTMENT PROCESS.—Upon the
timely request of a hospital, the Secretary may
adjust the reference resident level for a hospital
to be the resident level for the hospital for the
cost reporting period that includes July 1,
2002.
‘‘(ii) REDISTRIBUTION.—
‘‘(I) IN GENERAL.—The Secretary is au-
thorized to increase the otherwise applicable
resident limits for hospitals by an aggregate
number estimated by the Secretary that does
not exceed the aggregate reduction in such lim-
its attributable to clause (i) (without taking
into account any adjustment under subclause
(IV) of such clause).
‘‘(II) EFFECTIVE
DATE.—No increase
under subclause (I) shall be permitted or taken
into account for a hospital for any portion of
a cost reporting period that occurs before July
1, 2003, or before the date of the hospital’s ap-
plication for an increase under this clause. No
such increase shall be permitted for a hospital
unless the hospital has applied to the Secretary
for such increase by December 31, 2004.
130
‘‘(III) CONSIDERATIONS
IN
REDISTRIBU-
TION.—In determining for which hospitals the
increase in the otherwise applicable resident
limit is provided under subclause (I), the Sec-
retary shall take into account the need for such
an increase by specialty and location involved,
consistent with subclause (IV).
‘‘(IV) PRIORITY FOR RURAL AND SMALL
URBAN AREAS.—In determining for which hos-
pitals and residency training programs an in-
crease in the otherwise applicable resident limit
is provided under subclause (I), the Secretary
shall first distribute the increase to programs
of hospitals located in rural areas or in urban
areas that are not large urban areas (as de-
fined for purposes of subsection (d)) on a first-
come-first-served basis (as determined by the
Secretary) based on a demonstration that the
hospital will fill the positions made available
under this clause and not to exceed an increase
of 25 full-time equivalent positions with respect
to any hospital.
‘‘(V) APPLICATION
OF
LOCALITY
AD-
JUSTED
NATIONAL
AVERAGE
PER
RESIDENT
AMOUNT.—With respect to additional residency
positions in a hospital attributable to the in-
crease provided under this clause, notwith-
standing any other provision of this subsection,
the approved FTE resident amount is deemed
to be equal to the locality adjusted national av-
erage per resident amount computed under
subparagraph (E) for that hospital.
‘‘(VI) CONSTRUCTION.—Nothing in this
clause shall be construed as permitting the re-
distribution of reductions in residency positions
attributable to voluntary reduction programs
under paragraph (6) or as affecting the ability
131
of a hospital to establish new medical residency
training programs under subparagraph (H).
‘‘(iii) RESIDENT
LEVEL
AND
LIMIT
DE-
FINED.—In this subparagraph:
‘‘(I) RESIDENT LEVEL.—The term ‘resi-
dent level’ means, with respect to a hospital,
the total number of full-time equivalent resi-
dents, before the application of weighting fac-
tors (as determined under this paragraph), in
the fields of allopathic and osteopathic medi-
cine for the hospital.
‘‘(II) OTHERWISE APPLICABLE RESIDENT
LIMIT.—The term ‘otherwise applicable resi-
dent limit’ means, with respect to a hospital,
the limit otherwise applicable under subpara-
graphs (F)(i) and (H) on the resident level for
the hospital determined without regard to this
subparagraph.’’.
(b) NO APPLICATION
OF INCREASE
TO IME.—Section
1886(d)(5)(B)(v) (42 U.S.C. 1395ww(d)(5)(B)(v)) is amended
by adding at the end the following: ‘‘The provisions of clause
(i) of subparagraph (I) of subsection (h)(4) shall apply with re-
spect to the first sentence of this clause in the same manner
as it applies with respect to subparagraph (F) of such sub-
section, but the provisions of clause (ii) of such subparagraph
shall not apply.’’.
(c) REPORT
ON EXTENSION
OF APPLICATIONS UNDER
REDISTRIBUTION PROGRAM.—Not later than July 1, 2004, the
Secretary shall submit to Congress a report containing rec-
ommendations regarding whether to extend the deadline for ap-
plications for an increase in resident limits under section
1886(h)(4)(I)(ii)(II) of the Social Security Act (as added by
subsection (a)).
132
Subtitle C—Other Provisions
SEC. 621. MODIFICATIONS TO MEDICARE PAYMENT AD-
VISORY COMMISSION (MEDPAC).
(a) EXAMINATION OF BUDGET CONSEQUENCES.—Section
1805(b) (42 U.S.C. 1395b–6(b)) is amended by adding at the
end the following new paragraph:
‘‘(8) EXAMINATION OF BUDGET CONSEQUENCES.—Be-
fore making any recommendations, the Commission shall
examine the budget consequences of such recommendations,
directly or through consultation with appropriate expert en-
tities.’’.
(b) CONSIDERATION OF EFFICIENT PROVISION OF SERV-
ICES.—Section 
1805(b)(2)(B)(i) 
(42 
U.S.C. 
1395b–
6(b)(2)(B)(i)) is amended by inserting ‘‘the efficient provision
of’’ after ‘‘expenditures for’’.
(c) ADDITIONAL REPORTS.—
(1) DATA NEEDS AND SOURCES.—The Medicare Pay-
ment Advisory Commission shall conduct a study, and sub-
mit a report to Congress by not later than June 1, 2003,
on the need for current data, and sources of current data
available, to determine the solvency and financial cir-
cumstances of hospitals and other medicare providers of
services.
(2) USE OF TAX-RELATED RETURNS.—Using return
information provided under Form 990 of the Internal Rev-
enue Service, the Commission shall submit to Congress, by
not later than June 1, 2003, a report on the following:
(A) Investments and capital financing of hospitals
participating under the medicare program and related
foundations.
(B) Access to capital financing for private and for
not-for-profit hospitals.
SEC. 622. DEMONSTRATION PROJECT FOR DISEASE
MANAGEMENT 
FOR 
CERTAIN 
MEDICARE
BENEFICIARIES WITH DIABETES.
(a) IN GENERAL.—The Secretary of Health and Human
Services shall conduct a demonstration project under this sec-
133
tion (in this section referred to as the ‘‘project’’) to dem-
onstrate the impact on costs and health outcomes of applying
disease management to certain medicare beneficiaries with di-
agnosed diabetes. In no case may the number of participants
in the project exceed 30,000 at any time.
(b) VOLUNTARY PARTICIPATION.—
(1) ELIGIBILITY.—Medicare beneficiaries are eligible
to participate in the project only if—
(a) they are Hispanic, as determined by the Sec-
retary;
(A) they meet specific medical criteria dem-
onstrating the appropriate diagnosis and the advanced
nature of their disease;
(B) their physicians approve of participation in the
project; and
(C) they are not enrolled in a Medicare+Choice
plan.
(2) BENEFITS.—A medicare beneficiary who is en-
rolled in the project shall be eligible—
(A) for disease management services related to
their diabetes; and
(B) for payment for all costs for prescription
drugs without regard to whether or not they relate to
the diabetes, except that the project may provide for
modest cost-sharing with respect to prescription drug
coverage.
(c) CONTRACTS WITH DISEASE MANAGEMENT ORGANIZA-
TIONS.—
(1) IN
GENERAL.—The Secretary of Health and
Human Services shall carry out the project through con-
tracts with up to three disease management organizations.
The Secretary shall not enter into such a contract with an
organization unless the organization demonstrates that it
can produce improved health outcomes and reduce aggre-
gate medicare expenditures consistent with paragraph (2).
(2) CONTRACT PROVISIONS.—Under such contracts—
134
(A) such an organization shall be required to pro-
vide for prescription drug coverage described in sub-
section (b)(2)(B);
(B) such an organization shall be paid a fee nego-
tiated and established by the Secretary in a manner so
that (taking into account savings in expenditures under
parts A and B of the medicare program under title
XVIII of the Social Security Act) there will be no net
increase, and to the extent practicable, there will be a
net reduction in expenditures under the medicare pro-
gram as a result of the project; and
(C) such an organization shall guarantee, through
an appropriate arrangement with a reinsurance com-
pany or otherwise, the prohibition on net increases in
expenditures described in subparagraph (B).
(3) PAYMENTS.—Payments to such organizations shall
be made in appropriate proportion from the Trust Funds
established under title XVIII of the Social Security Act.
(4) WORKING GROUP.—The Secretary shall establish
within the Department of Health and Human Services a
working group consisting of employees of the Department
to carry out the following:
(A) To oversee the project.
(B) To establish policy and criteria for medicare
disease management programs within the Department,
including the establishment of policy and criteria for
such programs.
(C) To identify targeted medical conditions and
targeted individuals.
(D) To select areas in which such programs are
carried out.
(E) To monitor health outcomes under such pro-
grams.
(F) To measure the effectiveness of such programs
in meeting any budget neutrality requirements.
135
(G) Otherwise to serve as a central focal point
within the Department for dissemination of information
on medicare disease management programs.
(d) APPLICATION OF MEDIGAP PROTECTIONS TO DEM-
ONSTRATION PROJECT ENROLLEES.—(1) Subject to paragraph
(2), the provisions of section 1882(s)(3) (other than clauses (i)
through (iv) of subparagraph (B)) and 1882(s)(4) of the Social
Security Act shall apply to enrollment (and termination of en-
rollment) in the demonstration project under this section, in
the same manner as they apply to enrollment (and termination
of enrollment) with a Medicare+Choice organization in a
Medicare+Choice plan.
(2) In applying paragraph (1)—
(A) any reference in clause (v) or (vi) of section
1882(s)(3)(B) of such Act to 12 months is deemed a ref-
erence to the period of the demonstration project; and
(B) 
the 
notification 
required 
under 
section
1882(s)(3)(D) of such Act shall be provided in a manner
specified by the Secretary of Health and Human Services.
(e) DURATION.—The project shall last for not longer than
3 years.
(f) WAIVER.—The Secretary of Health and Human Serv-
ices shall waive such provisions of title XVIII of the Social Se-
curity Act as may be necessary to provide for payment for serv-
ices under the project in accordance with subsection (c)(3).
(g) REPORT.—The Secretary of Health and Human Serv-
ices shall submit to Congress an interim report on the project
not later than 2 years after the date it is first implemented and
a final report on the project not later than 6 months after the
date of its completion. Such reports shall include information
on the impact of the project on costs and health outcomes and
recommendations on the cost-effectiveness of extending or ex-
panding the project.
(h) GAO STUDY
ON
DISEASE
MANAGEMENT
PRO-
GRAMS.—The Comptroller General of the United States shall
conduct a study that compares disease management programs
under title XVIII of the Social Security Act with such pro-
136
grams conducted in the private sector, including the prevalence
of such programs and programs for case management. The
study shall identify the cost-effectiveness of such programs and
any savings achieved by such programs. The Comptroller Gen-
eral shall submit a report on such study to Congress by not
later than 18 months after the date of the enactment of this
Act.
SEC. 623. DEMONSTRATION PROJECT FOR MEDICAL
ADULT DAY CARE SERVICES.
(a) ESTABLISHMENT.—Subject to the succeeding provi-
sions of this section, the Secretary of Health and Human Serv-
ices shall establish a demonstration project (in this section re-
ferred to as the ‘‘demonstration project’’) under which the Sec-
retary shall, as part of a plan of an episode of care for home
health services established for a medicare beneficiary, permit a
home health agency, directly or under arrangements with a
medical adult day care facility, to provide medical adult day
care services as a substitute for a portion of home health serv-
ices that would otherwise be provided in the beneficiary’s home.
(b) PAYMENT.—
(1) IN GENERAL.—The amount of payment for an epi-
sode of care for home health services, a portion of which
consists of substitute medical adult day care services, under
the demonstration project shall be made at a rate equal to
95 percent of the amount that would otherwise apply for
such home health services under section 1895 of the Social
Security Act (42 u.s.c. 1395fff). In no case may a home
health agency, or a medical adult day care facility under
arrangements with a home health agency, separately charge
a beneficiary for medical adult day care services furnished
under the plan of care.
(2) BUDGET
NEUTRALITY
FOR
DEMONSTRATION
PROJECT.—Notwithstanding any other provision of law, the
Secretary shall provide for an appropriate reduction in the
aggregate amount of additional payments made under sec-
tion 1895 of the Social Security Act (42 U.S.C. 1395fff)
to reflect any increase in amounts expended from the Trust
137
Funds as a result of the demonstration project conducted
under this section.
(c) DEMONSTRATION PROJECT SITES.—The project estab-
lished under this section shall be conducted in not more than
5 sites in States selected by the Secretary that license or certify
providers of services that furnish medical adult day care serv-
ices.
(d) DURATION.—The Secretary shall conduct the dem-
onstration project for a period of 3 years.
(e) VOLUNTARY PARTICIPATION.—Participation of medi-
care beneficiaries in the demonstration project shall be vol-
untary. The total number of such beneficiaries that may par-
ticipate in the project at any given time may not exceed
15,000.
(f) PREFERENCE IN SELECTING AGENCIES.—In selecting
home health agencies to participate under the demonstration
project, the Secretary shall give preference to those agencies
that—
(1) are currently licensed or certified to furnish med-
ical adult day care services; and
(2) have furnished medical adult day care services to
medicare beneficiaries for a continuous 2-year period before
the beginning of the demonstration project.
(g) WAIVER AUTHORITY.—The Secretary may waive such
requirements of title XVIII of the Social Security Act as may
be necessary for the purposes of carrying out the demonstra-
tion project, other than waiving the requirement that an indi-
vidual be homebound in order to be eligible for benefits for
home health services.
(h) EVALUATION AND REPORT.—The Secretary shall con-
duct an evaluation of the clinical and cost effectiveness of the
demonstration project. Not later 30 months after the com-
mencement of the project, the Secretary shall submit to Con-
gress a report on the evaluation, and shall include in the report
the following:
(1) An analysis of the patient outcomes and costs of
furnishing care to the medicare beneficiaries participating
138
in the project as compared to such outcomes and costs to
beneficiaries receiving only home health services for the
same health conditions.
(2) Such recommendations regarding the extension,
expansion, or termination of the project as the Secretary
determines appropriate.
(i) DEFINITIONS.—In this section:
(1) HOME HEALTH AGENCY.—The term ‘‘home health
agency’’ has the meaning given such term in section
1861(o) of the Social Security Act (42 U.S.C. 1395x(o)).
(2) MEDICAL ADULT DAY CARE FACILITY.—The term
‘‘medical adult day care facility’’ means a facility that—
(A) has been licensed or certified by a State to
furnish medical adult day care services in the State for
a continuous 2-year period;
(B) is engaged in providing skilled nursing serv-
ices and other therapeutic services directly or under ar-
rangement with a home health agency;
(C) meets such standards established by the Sec-
retary to assure quality of care and such other require-
ments as the Secretary finds necessary in the interest
of the health and safety of individuals who are fur-
nished services in the facility; and
(D) provides medical adult day care services.
(3) MEDICAL ADULT DAY CARE SERVICES.—The term
‘‘medical adult day care services’’ means—
(A) home health service items and services de-
scribed in paragraphs (1) through (7) of section
1861(m) furnished in a medical adult day care facility;
(B) a program of supervised activities furnished in
a group setting in the facility that—
(i) meet such criteria as the Secretary deter-
mines appropriate; and
(ii) is designed to promote physical and mental
health of the individuals; and
(C) such other services as the Secretary may
specify.
139
(4) MEDICARE
BENEFICIARY.—The term ‘‘medicare
beneficiary’’ means an individual entitled to benefits under
part A of this title, enrolled under part B of this title, or
both.
TITLE VII—MEDICARE BENEFITS
ADMINISTRATION
SEC. 701. ESTABLISHMENT OF MEDICARE BENEFITS AD-
MINISTRATION.
(a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et seq.),
as amended by section 105, is amended by inserting after 1806
the following new section:
‘‘MEDICARE BENEFITS ADMINISTRATION
‘‘SEC. 1808. (a) ESTABLISHMENT.—There is established
within the Department of Health and Human Services an agen-
cy to be known as the Medicare Benefits Administration.
‘‘(b) ADMINISTRATOR; DEPUTY ADMINISTRATOR; CHIEF
ACTUARY.—
‘‘(1) ADMINISTRATOR.—
‘‘(A) IN GENERAL.—The Medicare Benefits Ad-
ministration shall be headed by an administrator to be
known as the ‘Medicare Benefits Administrator’ (in
this section referred to as the ‘Administrator’) who
shall be appointed by the President, by and with the
advice and consent of the Senate. The Administrator
shall be in direct line of authority to the Secretary.
‘‘(B) COMPENSATION.—The Administrator shall
be paid at the rate of basic pay payable for level III
of the Executive Schedule under section 5314 of title
5, United States Code.
‘‘(C) TERM OF OFFICE.—The Administrator shall
be appointed for a term of 5 years. In any case in
which a successor does not take office at the end of an
Administrator’s term of office, that Administrator may
continue in office until the entry upon office of such a
successor. An Administrator appointed to a term of of-
fice after the commencement of such term may serve