576
Subtitle A, Part 1
Act for the electronic coordination of
benefits.
(b) ADDITIONAL RULES RELATING TO INDI-
VIDUALS ENROLLED
IN MEDICAREPLUS PROD-
UCTS.—Section 1882 (42 U.S.C. 1395ss) is fur-
ther amended by adding at the end the follow-
ing new subsection:
‘‘(u)(1) Notwithstanding the previous pro-
visions of this section, the following provi-
sions shall not apply to a health insurance
policy (other than a medicare supplemental
policy) provided to an individual who has
elected the MedicarePlus option under sec-
tion 1805:
‘‘(A) 
Subsections 
(o)(1), 
(o)(2),
(p)(1)(A)(i), (p)(2), (p)(3), (p)(8), and (p)(9)
(insofar as they relate to limitations on
benefits or groups of benefits that may be
offered).
‘‘(B) Subsection (r) (relating to loss-
ratios).
‘‘(2)(A) It is unlawful for a person to sell
or issue a policy described in subparagraph
(B) to an individual with knowledge that the
individual has in effect under section 1805 an
577
Subtitle A, Part 1
election of a high deductible/medisave prod-
uct.
‘‘(B) A policy described in this subpara-
graph is a health insurance policy that pro-
vides for coverage of expenses that are other-
wise required to be counted toward meeting
the annual deductible amount provided under
the high deductible/medisave product.’’.
SEC. 15004. TRANSITIONAL RULES FOR CURRENT MEDI-
CARE HMO PROGRAM.
(a) 
TRANSITION
FROM
CURRENT
CON-
TRACTS.—
(1) LIMITATION ON NEW CONTRACTS.—
(A) NO
NEW
RISK-SHARING
CON-
TRACTS
AFTER
NEW
STANDARDS
ESTAB-
LISHED.—The Secretary of Health and
Human Services (in this section re-
ferred to as the ‘‘Secretary’’) shall not
enter into any risk-sharing contract
under section 1876 of the Social Secu-
rity Act with an eligible organization
for any contract year beginning on or
after 
the 
date 
standards 
for
MedicarePlus 
organizations 
and
products are first established under
578
Subtitle A, Part 1
section 1856(a) of such Act with re-
spect to MedicarePlus organizations
that are insurers or health mainte-
nance organizations unless such a
contract had been in effect under sec-
tion 1876 of such Act for the organiza-
tion for the previous contract year.
(B) NO NEW COST REIMBURSEMENT
CONTRACTS.—The Secretary shall not
enter into any cost reimbursement
contract under section 1876 of the So-
cial Security Act beginning for any
contract year beginning on or after
the date of the enactment of this Act.
(2) TERMINATION
OF
CURRENT
CON-
TRACTS.—
(A) 
RISK-SHARING
CONTRACTS.—
Notwithstanding any other provision
of law, the Secretary shall not extend
or continue any risk-sharing contract
with an eligible organization under
section 1876 of the Social Security Act
(for which a contract was entered
into consistent with paragraph (1)(A))
for any contract year beginning on or
579
Subtitle A, Part 1
after 1 year after the date standards
described in paragraph (1)(A) are es-
tablished.
(B) 
COST
REIMBURSEMENT
CON-
TRACTS.—The Secretary shall not ex-
tend or continue any reasonable cost
reimbursement contract with an eligi-
ble organization under section 1876
of the Social Security Act for any con-
tract year beginning on or after Janu-
ary 1, 1998.
(b) CONFORMING PAYMENT RATES.—
(1) 
RISK-SHARING
CONTRACTS.—Not-
withstanding any other provision of law,
the Secretary shall provide that payment
amounts under risk-sharing contracts
under section 1876(a) of the Social Secu-
rity Act for months in a year (beginning
with January 1996) shall be computed—
(A) with respect to individuals en-
titled to benefits under both parts A
and B of title XVIII of such Act, by
substituting payment rates under sec-
tion 1855(a) of such Act for the pay-
580
Subtitle A, Part 1
ment 
rates 
otherwise 
established
under section 1876(a) of such Act, and
(B) with respect to individuals
only entitled to benefits under part B
of such title, by substituting an ap-
propriate proportion of such rates
(reflecting the relative proportion of
payments under such title attrib-
utable to such part) for the payment
rates otherwise established under
section 1876(a) of such Act.
For purposes of carrying out this para-
graph for payment for months in 1996,
the Secretary shall compute, announce,
and apply the payment rates under sec-
tion 1855(a) of such Act (notwithstanding
any deadlines specified in such section)
in as timely a manner as possible and
may (to the extent necessary) provide for
retroactive adjustment in payments made
not in accordance with such rates.
(2) COST
CONTRACTS.—Notwithstand-
ing any other provision of law, the Sec-
retary 
shall 
provide 
that 
payment
amounts under cost reimbursement con-
581
Subtitle A, Part 1
tracts under section 1876(a) of the Social
Security Act shall take into account ad-
justments in payment amounts made in
parts A and B of title XVIII of such Act
pursuant to the amendments made by
this title.
(c) ELIMINATION OF 50:50 RULE.—
(1) IN
GENERAL.—Section 1876 (42
U.S.C. 1395mm) is amended by striking
subsection (f).
(2) 
CONFORMING
AMENDMENTS.—Sec-
tion 1876 is further amended—
(A) in subsection (c)(3)(A)(i), by
striking ‘‘would result in failure to
meet the requirements of subsection
(f)’’, and
(B) in subsection (i)(1)(C), by
striking ‘‘(e), and (f)’’ and inserting
‘‘and (e)’’.
(3) EFFECTIVE DATE.—The amendments
made by this section shall apply to con-
tract years beginning on or after January
1, 1996.
582
Subtitle A, Part 2
PART 2—SPECIAL RULES FOR MEDICAREPLUS
MEDICAL SAVINGS ACCOUNTS
SEC. 15011. MEDICAREPLUS MSA’S.
(a) IN GENERAL.—Part III of subchapter B
of chapter 1 of the Internal Revenue Code of
1986 (relating to amounts specifically ex-
cluded from gross income) is amended by re-
designating section 137 as section 138 and by
inserting after section 136 the following new
section:
‘‘SEC. 137. MEDICAREPLUS MSA’S.
‘‘(a) EXCLUSION.—Gross income shall not
include any payment to the MedicarePlus
MSA of an individual by the Secretary of
Health and Human Services under section
1855(f)(1)(B) of the Social Security Act.
‘‘(b) MEDICAREPLUS MSA.—For purposes of
this section—
‘‘(1) MEDICAREPLUS
MSA.—The term
‘MedicarePlus MSA’ means a trust cre-
ated or organized in the United States ex-
clusively for the purpose of paying the
qualified medical expenses of the account
holder, but only if the written governing
instrument creating the trust meets the
following requirements:
583
Subtitle A, Part 2
‘‘(A) Except in the case of a trust-
ee-to-trustee transfer described in
subsection (d)(4), no contribution will
be accepted unless it is made by the
Secretary of Health and Human Serv-
ices under section 1855(f)(1)(B) of the
Social Security Act.
‘‘(B) The trustee is a bank (as de-
fined in section 408(n)), an insurance
company (as defined in section 816),
or another person who demonstrates
to the satisfaction of the Secretary
that the manner in which such per-
son will administer the trust will be
consistent with the requirements of
this section.
‘‘(C) No part of the trust assets
will be invested in life insurance con-
tracts.
‘‘(D) The assets of the trust will
not be commingled with other prop-
erty except in a common trust fund
or common investment fund.
584
Subtitle A, Part 2
‘‘(E) The interest of an individual
in the balance in his account is non-
forfeitable.
‘‘(F) Trustee-to-trustee transfers
described in subsection (d)(4) may be
made to and from the trust.
‘‘(2) QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—The term ‘quali-
fied medical expenses’ means, with
respect 
to 
an 
account 
holder,
amounts paid by such holder—
‘‘(i) for medical care (as de-
fined in section 213(d)) for the ac-
count holder, but only to the ex-
tent such amounts are not com-
pensated for by insurance or oth-
erwise, or
‘‘(ii) for long-term care insur-
ance for the account holder.
‘‘(B) HEALTH
INSURANCE
MAY
NOT
BE
PURCHASED
FROM
ACCOUNT.—Sub-
paragraph (A)(i) shall not apply to
any payment for insurance.
‘‘(3) ACCOUNT HOLDER.—The term ‘ac-
count holder’ means the individual on
585
Subtitle A, Part 2
whose behalf the MedicarePlus MSA is
maintained.
‘‘(4) CERTAIN RULES TO APPLY.—Rules
similar to the rules of subsections (g) and
(h) of section 408 shall apply for purposes
of this section.
‘‘(c) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) 
IN
GENERAL.—A 
MedicarePlus
MSA is exempt from taxation under this
subtitle unless such MSA has ceased to be
a MedicarePlus MSA by reason of para-
graph (2). Notwithstanding the preceding
sentence, any such MSA is subject to the
taxes imposed by section 511 (relating to
imposition of tax on unrelated business
income of charitable, etc. organizations).
‘‘(2) ACCOUNT ASSETS TREATED AS DIS-
TRIBUTED
IN
THE
CASE
OF
PROHIBITED
TRANSACTIONS OR ACCOUNT PLEDGED AS SE-
CURITY
FOR
LOAN.—Rules similar to the
rules of paragraphs (2) and (4) of section
408(e) shall apply to MedicarePlus MSA’s,
and any amount treated as distributed
under such rules shall be treated as not
used to pay qualified medical expenses.
586
Subtitle A, Part 2
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION OF AMOUNTS NOT USED
FOR
QUALIFIED
MEDICAL
EXPENSES.—No
amount shall be included in the gross in-
come of the account holder by reason of
a 
payment 
or 
distribution 
from 
a
MedicarePlus MSA which is used exclu-
sively to pay the qualified medical ex-
penses 
of 
the 
account 
holder. 
Any
amount 
paid 
or 
distributed 
from 
a
MedicarePlus MSA which is not so used
shall be included in the gross income of
such holder.
‘‘(2) PENALTY
FOR
DISTRIBUTIONS
NOT
USED FOR QUALIFIED MEDICAL EXPENSES IF
MINIMUM BALANCE NOT MAINTAINED.—
‘‘(A) IN
GENERAL.—The tax im-
posed by this chapter for any taxable
year in which there is a payment or
distribution 
from 
a 
MedicarePlus
MSA which is not used exclusively to
pay the qualified medical expenses of
the account holder shall be increased
by 50 percent of the excess (if any)
of—
587
Subtitle A, Part 2
‘‘(i) the amount of such pay-
ment or distribution, over
‘‘(ii) the excess (if any) of—
‘‘(I) the fair market value
of 
the 
assets 
in 
the
MedicarePlus MSA as of the
close of the calendar year pre-
ceding the calendar year in
which the taxable year be-
gins, over
‘‘(II) an amount equal to
60 percent of the deductible
under the catastrophic health
plan 
covering 
the 
account
holder as of January 1 of the
calendar year in which the
taxable year begins.
‘‘(B) 
EXCEPTIONS.—Subparagraph
(A) shall not apply if the payment or
distribution is made on or after the
date the account holder—
‘‘(i) becomes disabled within
the meaning of section 72(m)(7),
or
‘‘(ii) dies.
589
Subtitle A, Part 2
any trustee-to-trustee transfer from a
MedicarePlus MSA of an account holder
to another MedicarePlus MSA of such ac-
count holder.
‘‘(5) COORDINATION
WITH
MEDICAL
EX-
PENSE
DEDUCTION.—For purposes of sec-
tion 213, any payment or distribution out
of a MedicarePlus MSA for qualified med-
ical expenses shall not be treated as an
expense paid for medical care.
‘‘(e) TREATMENT OF ACCOUNT AFTER DEATH
OF ACCOUNT HOLDER.—
‘‘(1) TREATMENT
IF
DESIGNATED
BENE-
FICIARY IS SPOUSE.—
‘‘(A) IN
GENERAL.—In the case of
an account holder’s interest in a
MedicarePlus MSA which is payable
to (or for the benefit of) such holder’s
spouse upon the death of such holder,
such MedicarePlus MSA shall be
treated as a MedicarePlus MSA of
such spouse as of the date of such
death.
‘‘(B) SPECIAL RULES IF SPOUSE NOT
MEDICARE ELIGIBLE.—If, as of the date
590
Subtitle A, Part 2
of such death, such spouse is not enti-
tled to benefits under title XVIII of
the Social Security Act, then after the
date of such death—
‘‘(i) the Secretary of Health
and Human Services may not
make 
any 
payments 
to 
such
MedicarePlus MSA, other than
payments attributable to periods
before such date,
‘‘(ii) in applying subsection
(b)(2) 
with 
respect 
to 
such
MedicarePlus MSA, references to
the account holder shall be treat-
ed as including references to any
dependent (as defined in section
152) of such spouse and any sub-
sequent spouse of such spouse,
and
‘‘(iii) in lieu of applying sub-
section (d)(2), the rules of section
220(f)(2) shall apply.
‘‘(2) TREATMENT
IF
DESIGNATED
BENE-
FICIARY IS NOT SPOUSE.—In the case of an
account 
holder’s 
interest 
in 
a
591
Subtitle A, Part 2
MedicarePlus MSA which is payable to
(or for the benefit of) any person other
than such holder’s spouse upon the death
of such holder—
‘‘(A) such account shall cease to
be a MedicarePlus MSA as of the date
of death, and
‘‘(B) an amount equal to the fair
market value of the assets in such ac-
count on such date shall be includ-
ible—
‘‘(i) if such person is not the
estate of such holder, in such per-
son’s gross income for the taxable
year which includes such date, or
‘‘(ii) if such person is the es-
tate of such holder, in such hold-
er’s gross income for last taxable
year of such holder.
‘‘(f) REPORTS.—
‘‘(1) IN
GENERAL.—The trustee of a
MedicarePlus MSA shall make such re-
ports regarding such account to the Sec-
retary and to the account holder with re-
spect to—
592
Subtitle A, Part 2
‘‘(A) the fair market value of the
assets in such MedicarePlus MSA as
of the close of each calendar year,
and
‘‘(B) contributions, distributions,
and other matters,
as the Secretary may require by regula-
tions.
‘‘(2) TIME AND MANNER OF REPORTS.—
The reports required by this subsection—
‘‘(A) shall be filed at such time
and in such manner as the Secretary
prescribes in such regulations, and
‘‘(B) shall be furnished to the ac-
count holder—
‘‘(i) not later than January 31
of the calendar year following the
calendar year to which such re-
ports relate, and
‘‘(ii) in such manner as the
Secretary prescribes in such reg-
ulations.’’
(b) EXCLUSION
OF MEDICAREPLUS MSA’S
FROM ESTATE TAX.—Part IV of subchapter A of
593
Subtitle A, Part 2
chapter 11 of such Code is amended by adding
at the end the following new section:
‘‘SEC. 2057. MEDICAREPLUS MSA’S.
‘‘For purposes of the tax imposed by sec-
tion 2001, the value of the taxable estate shall
be determined by deducting from the value of
the gross estate an amount equal to the value
of any MedicarePlus MSA (as defined in sec-
tion 137(b)) included in the gross estate.’’
(c) TAX ON PROHIBITED TRANSACTIONS.—
(1) Section 4975 of such Code (relat-
ing to tax on prohibited transactions) is
amended by adding at the end of sub-
section (c) the following new paragraph:
‘‘(5) SPECIAL RULE FOR MEDICAREPLUS
MSA’S.—An individual for whose benefit a
MedicarePlus MSA (within the meaning
of section 137(b)) is established shall be
exempt from the tax imposed by this sec-
tion with respect to any transaction con-
cerning such account (which would oth-
erwise be taxable under this section) if,
with respect to such transaction, the ac-
count ceases to be a MedicarePlus MSA
594
Subtitle A, Part 2
by reason of the application of section
137(c)(2) to such account.’’
(2) Paragraph (1) of section 4975(e) of
such Code is amended to read as follows:
‘‘(1) PLAN.—For purposes of this sec-
tion, the term ‘plan’ means—
‘‘(A) a trust described in section
401(a) which forms a part of a plan,
or a plan described in section 403(a),
which trust or plan is exempt from
tax under section 501(a),
‘‘(B) an individual retirement ac-
count described in section 408(a),
‘‘(C) an individual retirement an-
nuity described in section 408(b),
‘‘(D) a medical savings account
described in section 220(d),
‘‘(E) a MedicarePlus MSA de-
scribed in section 137(b), or
‘‘(F) a trust, plan, account, or an-
nuity which, at any time, has been de-
termined by the Secretary to be de-
scribed in any preceding subpara-
graph of this paragraph.’’
595
Subtitle A, Part 2
(d) FAILURE
TO
PROVIDE
REPORTS
ON
MEDICAREPLUS MSA’S.—
(1) Subsection (a) of section 6693 of
such Code (relating to failure to provide
reports 
on 
individual 
retirement 
ac-
counts or annuities) is amended to read
as follows:
‘‘(a) REPORTS.—
‘‘(1) IN GENERAL.—If a person required
to file a report under a provision referred
to in paragraph (2) fails to file such re-
port at the time and in the manner re-
quired by such provision, such person
shall pay a penalty of $50 for each failure
unless it is shown that such failure is due
to reasonable cause.
‘‘(2) PROVISIONS.—The provisions re-
ferred to in this paragraph are—
‘‘(A) subsections (i) and (l) of sec-
tion 408 (relating to individual retire-
ment plans),
‘‘(B) section 220(h) (relating to
medical savings accounts), and
‘‘(C) section 137(f) (relating to
MedicarePlus MSA’s).’’
596
Subtitle A, Part 2
(2) The section heading for section
6693 of such Code is amended to read as
follows:
‘‘SEC. 6693. FAILURE TO FILE REPORTS ON INDIVIDUAL RE-
TIREMENT PLANS AND CERTAIN OTHER TAX-
FAVORED ACCOUNTS; PENALTIES RELATING
TO 
DESIGNATED 
NONDEDUCTIBLE 
CON-
TRIBUTIONS.’’
(e) CLERICAL AMENDMENTS.—
(1) The table of sections for part III of
subchapter B of chapter 1 of such Code is
amended by striking the last item and in-
serting the following:
‘‘Sec. 137. MedicarePlus MSA’s.
‘‘Sec. 138. Cross references to other Acts.’’
(2) The table of sections for sub-
chapter B of chapter 68 of such Code is
amended by striking the item relating to
section 6693 and inserting the following
new item:
‘‘Sec. 6693. Failure to file reports on individual re-
tirement plans and certain other tax-fa-
vored accounts; penalties relating to des-
ignated nondeductible contributions.’’
(3) The table of sections for part IV of
subchapter A of chapter 11 of such Code
597
Subtitle A, Part 2
is amended by adding at the end the fol-
lowing new item:
‘‘Sec. 2057. MedicarePlus MSA’s.’’
(f) EFFECTIVE
DATE.—The amendments
made by this section shall apply to taxable
years beginning after December 31, 1996.
SEC. 15012. CERTAIN REBATES EXCLUDED FROM GROSS IN-
COME.
(a) IN GENERAL.—Section 105 of the Inter-
nal Revenue Code of 1986 (relating to
amounts received under accident and health
plans) is amended by adding at the end the
following new subsection:
‘‘(j) CERTAIN REBATES UNDER SOCIAL SECU-
RITY ACT.—Gross income does not include any
rebate received under section 1852(e)(1)(A) of
the Social Security Act during the taxable
year.’’
(b) EFFECTIVE
DATE.—The amendment
made by subsection (a) shall apply to amounts
received after the date of the enactment of
this Act.
598
Subtitle A, Part 3
PART 3—SPECIAL ANTITRUST RULE FOR
PROVIDER SERVICE NETWORKS
SEC. 15021. APPLICATION OF ANTITRUST RULE OF REASON
TO PROVIDER SERVICE NETWORKS.
(a) RULE OF REASON STANDARD.—In any ac-
tion under the antitrust laws, or under any
State law similar to the antitrust laws—
(1) the conduct of a provider service
network in negotiating, making, or per-
forming a contract (including the estab-
lishment and modification of a fee sched-
ule and the development of a panel of
physicians), to the extent such contract is
for the purpose of providing health care
services to individuals under the terms of
a MedicarePlus PSO product, and
(2) the conduct of any member of
such network for the purpose of provid-
ing such health care services under such
contract to such extent,
shall not be deemed illegal per se. Such con-
duct shall be judged on the basis of its reason-
ableness, taking into account all relevant fac-
tors affecting competition, including the ef-
fects on competition in properly defined mar-
kets.
599
Subtitle A, Part 3
(b) DEFINITIONS.—For purposes of sub-
section (a):
(1) ANTITRUST LAWS.—The term ‘‘anti-
trust laws’’ has the meaning given it in
subsection (a) of the first section of the
Clayton Act (15 U.S.C. 12), except that
such term includes section 5 of the Fed-
eral Trade Commission Act (15 U.S.C. 45)
to the extent that such section 5 applies
to unfair methods of competition.
(2) HEALTH CARE PROVIDER.—The term
‘‘health care provider’’ means any indi-
vidual or entity that is engaged in the de-
livery of health care services in a State
and that is required by State law or regu-
lation to be licensed or certified by the
State to engage in the delivery of such
services in the State.
(3) HEALTH CARE SERVICE.—The term
‘‘health care service’’ means any service
for which payment may be made under a
MedicarePlus 
PSO 
product 
including
services related to the delivery or admin-
istration of such service.
600
Subtitle A, Part 3
(4) 
MEDICAREPLUS
PROGRAM.—The
term ‘‘MedicarePlus program’’ means the
program under part C of title XVIII of the
Social Security Act.
(5) MEDICAREPLUS PSO PRODUCT.—The
term ‘‘MedicarePlus PSO product’’ means
a MedicarePlus product offered by a pro-
vider-sponsored organization under part
C of title XVIII of the Social Security Act.
(6) PROVIDER SERVICE NETWORK.—The
term ‘‘provider service network’’ means
an organization that—
(A) is organized by, operated by,
and composed of members who are
health care providers and for pur-
poses that include providing health
care services,
(B) is funded in part by capital
contributions made by the members
of such organization,
(C) with respect to each contract
made by such organization for the
purpose of providing a type of health
care service to individuals under the
601
Subtitle A, Part 3
terms of a MedicarePlus PSO prod-
uct—
(i) requires all members of
such organization who engage in
providing such type of health
care service to agree to provide
health care services of such type
under such contract,
(ii) receives the compensation
paid for the health care services
of such type provided under such
contract by such members, and
(iii) provides for the distribu-
tion of such compensation,
(D) has established, consistent
with 
the 
requirements 
of 
the
MedicarePlus program for provider-
sponsored organizations, a program
to review, pursuant to written guide-
lines, the quality, efficiency, and ap-
propriateness of treatment methods
and setting of services for all health
care providers and all patients par-
ticipating in such product, along with
internal procedures to correct identi-
602
Subtitle A, Part 3
fied deficiencies relating to such
methods and such services,
(E) has established, consistent
with 
the 
requirements 
of 
the
MedicarePlus program for provider-
sponsored organizations, a program
to monitor and control utilization of
health care services provided under
such product, for the purpose of im-
proving efficient, appropriate care
and eliminating the provision of un-
necessary health care services,
(F) has established a management
program to coordinate the delivery of
health care services for all health
care providers and all patients par-
ticipating in such product, for the
purpose of achieving efficiencies and
enhancing the quality of health care
services provided, and
(G) has established, consistent
with 
the 
requirements 
of 
the
MedicarePlus program for provider-
sponsored organizations, a grievance
and appeal process for such organiza-
603
Subtitle A, Part 3
tion designed to review and promptly
resolve beneficiary or patient griev-
ances and complaints.
Such term may include a provider-spon-
sored organization.
(7) 
PROVIDER-SPONSORED
ORGANIZA-
TION.—The term ‘‘provider-sponsored or-
ganization’’ means a MedicarePlus orga-
nization under the MedicarePlus pro-
gram that is a provider-sponsored organi-
zation (as defined in section ll of the
Social Security Act).
(8) STATE.—The term ‘‘State’’ has the
meaning given it in section 4G(2) of the
Clayton Act (15 U.S.C. 15g(2)).
(c) ISSUANCE
OF
GUIDELINES.—Not later
than 120 days after the date of the enactment
of this Act, the Attorney General and the Fed-
eral Trade Commission shall issue jointly
guidelines specifying the enforcement poli-
cies and analytical principles that will be ap-
plied by the Department of Justice and the
Commission with respect to the operation of
subsection (a).
604
Subtitle A, Part 4
PART 4—COMMISSIONS
SEC. 15031. MEDICARE PAYMENT REVIEW COMMISSION.
(a) IN GENERAL.—Title XVIII, as amended
by section 15001(a), is amended by inserting
after section 1805 the following new section:
‘‘MEDICARE PAYMENT REVIEW COMMISSION
‘‘SEC. 1806. (a) ESTABLISHMENT.—There is
hereby established the Medicare Payment Re-
view Commission (in this section referred to
as the ‘Commission’).
‘‘(b) DUTIES.—
‘‘(1) GENERAL
DUTIES
AND
REPORTS.—
The Commission shall review, and make
recommendations to Congress concern-
ing, payment policies under this title. By
not later than June 1 of each year, the
Commission shall submit a report to Con-
gress containing an examination of issues
affecting the medicare program, includ-
ing the implications of changes in health
care delivery in the United States and in
the market for health care services on
the medicare program. The Commission
may submit to Congress from time to
time such other reports as the Commis-
sion deems appropriate. The Secretary
605
Subtitle A, Part 4
shall respond to recommendations of the
Commission in notices of rulemaking pro-
ceedings under this title.
‘‘(2) 
SPECIFIC
DUTIES
RELATING
TO
MEDICAREPLUS PROGRAM.—Specifically, the
Commission shall review, with respect to
the MedicarePlus program under part
C—
‘‘(A) the appropriateness of the
methodology for making payment to
plans under such program, including
the making of differential payments
and the distribution of differential
updates 
among 
different 
payment
areas,
‘‘(B) the appropriateness of the
mechanisms used to adjust payments
for risk and the need to adjust such
mechanisms to take into account
health status of beneficiaries,
‘‘(C) the implications of risk selec-
tion both among MedicarePlus orga-
nizations 
and 
between 
the
MedicarePlus option and the non-
MedicarePlus option,
606
Subtitle A, Part 4
‘‘(D) in relation to payment under
part C, the development and imple-
mentation of mechanisms to assure
the quality of care for those enrolled
with MedicarePlus organizations,
‘‘(F) 
the 
impact 
of 
the
MedicarePlus program on access to
care for medicare beneficiaries, and
‘‘(G) other major issues in imple-
mentation and further development
of the MedicarePlus program.
‘‘(3) SPECIFIC DUTIES RELATING TO THE
FAILSAFE
BUDGET
MECHANISM.—Specifi-
cally, the Commission shall review, with
respect to the failsafe budget mechanism
described in section 1895—
‘‘(A) the appropriateness of the
expenditure projections by the Sec-
retary under section 1895(c) for each
medicare sector;
‘‘(B) the appropriateness of the
growth factors for each sector and
the ability to take into account sub-
stitution across sectors;
607
Subtitle A, Part 4
‘‘(C) the appropriateness of the
mechanisms for implementing reduc-
tions in payment amounts for dif-
ferent sectors, including any adjust-
ments to reflect changes in volume or
intensity resulting for any payment
reductions;
‘‘(D) the impact of the mechanism
on provider participation in parts A
and B and in the MedicarePlus pro-
gram; and
‘‘(E) the appropriateness of the
medicare benefit budget (under sec-
tion 1895(c)(2)(C) of the Social Secu-
rity Act), particularly for fiscal years
after fiscal year 2002.
‘‘(4) SPECIFIC DUTIES RELATING TO THE
FEE-FOR-SERVICE SYSTEM.—Specifically, the
Commission shall review payment poli-
cies under parts A and B, including—
‘‘(A) the factors affecting expendi-
tures for services in different sectors,
including the process for updating
hospital, physician, and other fees,
‘‘(B) payment methodologies; and
608
Subtitle A, Part 4
‘‘(C) the impact of payment poli-
cies on access and quality of care for
medicare beneficiaries.
‘‘(5) 
SPECIFIC
DUTIES
RELATING
TO
INTERACTION
OF
PAYMENT
POLICIES
WITH
HEALTH
CARE
DELIVERY
GENERALLY.—Spe-
cifically the Commission shall review the
effect of payment policies under this title
on the delivery of health care services
under this title and assess the implica-
tions of changes in the health services
market on the medicare program.
‘‘(c) MEMBERSHIP.—
‘‘(1) NUMBER
AND
APPOINTMENT.—The
Commission shall be composed of 15
members appointed by the Comptroller
General.
‘‘(2) 
QUALIFICATIONS.—The 
member-
ship of the Commission shall include in-
dividuals with national recognition for
their expertise in health finance and eco-
nomics, actuarial science, health facility
management, health plans and integrated
delivery 
systems, 
reimbursement 
of
health facilities, physicians, and other
609
Subtitle A, Part 4
providers of services, and other related
fields, who provide a mix of different pro-
fessionals, broad geographic representa-
tion, and a balance between urban and
rural representatives, including physi-
cians and other health professionals, em-
ployers, third party payors, individuals
skilled in the conduct and interpretation
of biomedical, health services, and health
economics research and expertise in out-
comes and effectiveness research and
technology assessment. Such membership
shall also include representatives of con-
sumers and the elderly.
‘‘(3) CONSIDERATIONS
IN
INITIAL
AP-
POINTMENT.—To the extent possible, in
first appointing members to the Commis-
sion the Comptroller General shall con-
sider appointing individuals who (as of
the date of the enactment of this section)
were serving on the Prospective Payment
Assessment Commission or the Physician
Payment Review Commission.
‘‘(4) TERMS.—
610
Subtitle A, Part 4
‘‘(A) IN
GENERAL.—The terms of
members of the Commission shall be
for 3 years except that the Comptrol-
ler General shall designate staggered
terms for the members first ap-
pointed.
‘‘(B) VACANCIES.—Any member ap-
pointed to fill a vacancy occurring be-
fore the expiration of the term for
which the member’s predecessor was
appointed shall be appointed only for
the remainder of that term. A mem-
ber may serve after the expiration of
that member’s term until a successor
has taken office. A vacancy in the
Commission shall be filled in the
manner in which the original ap-
pointment was made.
‘‘(5) COMPENSATION.—While serving on
the business of the Commission (includ-
ing traveltime), a member of the Commis-
sion shall be entitled to compensation at
the per diem equivalent of the rate pro-
vided for level IV of the Executive Sched-
ule under section 5315 of title 5, United
611
Subtitle A, Part 4
States Code; and while so serving away
from home and member’s regular place of
business, a member may be allowed trav-
el expenses, as authorized by the Chair-
man of the Commission. Physicians serv-
ing as personnel of the Commission may
be provided a physician comparability al-
lowance by the Commission in the same
manner as Government physicians may
be provided such an allowance by an
agency under section 5948 of title 5, Unit-
ed States Code, and for such purpose sub-
section (i) of such section shall apply to
the Commission in the same manner as it
applies to the Tennessee Valley Author-
ity. For purposes of pay (other than pay
of members of the Commission) and em-
ployment benefits, rights, and privileges,
all personnel of the Commission shall be
treated as if they were employees of the
United States Senate.
‘‘(6) CHAIRMAN; VICE
CHAIRMAN.—The
Comptroller General shall designate a
member of the Commission, at the time of
appointment of the member, as Chairman
612
Subtitle A, Part 4
and a member as Vice Chairman for that
term of appointment.
‘‘(7) MEETINGS.—The Commission shall
meet at the call of the Chairman.
‘‘(d) DIRECTOR
AND STAFF; EXPERTS
AND
CONSULTANTS.—Subject to such review as the
Comptroller General deems necessary to as-
sure the efficient administration of the Com-
mission, the Commission may—
‘‘(1) employ and fix the compensation
of an Executive Director (subject to the
approval of the Comptroller General) and
such other personnel as may be nec-
essary to carry out its duties (without re-
gard to the provisions of title 5, United
States Code, governing appointments in
the competitive service);
‘‘(2) seek such assistance and support
as may be required in the performance of
its duties from appropriate Federal de-
partments and agencies;
‘‘(3) enter into contracts or make
other arrangements, as may be necessary
for the conduct of the work of the Com-
613
Subtitle A, Part 4
mission (without regard to section 3709
of the Revised Statutes (41 U.S.C. 5));
‘‘(4) make advance, progress, and
other payments which relate to the work
of the Commission;
‘‘(5) provide transportation and sub-
sistence for persons serving without com-
pensation; and
‘‘(6) prescribe such rules and regula-
tions as it deems necessary with respect
to the internal organization and oper-
ation of the Commission.
‘‘(e) POWERS.—
‘‘(1) OBTAINING
OFFICIAL
DATA.—The
Commission may secure directly from
any department or agency of the United
States information necessary to enable it
to carry out this section. Upon request of
the Chairman, the head of that depart-
ment or agency shall furnish that infor-
mation to the Commission on an agreed
upon schedule.
‘‘(2) DATA
COLLECTION.—In order to
carry out its functions, the Commission
shall collect and assess information.
614
Subtitle A, Part 4
‘‘(A) utilize existing information,
both 
published 
and 
unpublished,
where possible, collected and as-
sessed either by its own staff or
under other arrangements made in
accordance with this section,
‘‘(B) carry out, or award grants or
contracts for, original research and
experimentation, where existing in-
formation is inadequate, and
‘‘(C) adopt procedures allowing
any interested party to submit infor-
mation for the Commission’s use in
making 
reports 
and 
recommenda-
tions.
‘‘(3) ACCESS OF GAO TO INFORMATION.—
The Comptroller General shall have unre-
stricted 
access 
to 
all 
deliberations,
records, and data of the Commission, im-
mediately upon request.
‘‘(4) PERIODIC AUDIT.—The Commission
shall be subject to periodic audit by the
General Accounting Office.
‘‘(f) AUTHORIZATION OF APPROPRIATIONS.—
615
Subtitle A, Part 4
‘‘(1) REQUEST
FOR
APPROPRIATIONS.—
The Commission shall submit requests
for appropriations in the same manner as
the Comptroller General submits re-
quests for appropriations, but amounts
appropriated for the Commission shall be
separate from amounts appropriated for
the Comptroller General.
‘‘(2) AUTHORIZATION.—There are au-
thorized to be appropriated such sums as
may be necessary to carry out the provi-
sions of this section. 60 percent of such
appropriation shall be payable from the
Federal Hospital Insurance Trust Fund,
and 40 percent of such appropriation
shall be payable from the Federal Supple-
mentary Medical Insurance Trust Fund.’’.
(b) ABOLITION OF PROPAC AND PPRC.—
(1) PROPAC.—
(A) IN
GENERAL.—Section 1886(e)
(42 U.S.C. 1395ww(e)) is amended—
(i) by striking paragraphs (2)
and (6); and
616
Subtitle A, Part 4
(ii) in paragraph (3), by strik-
ing ‘‘(A) The Commission’’ and all
that follows through ‘‘(B)’’.
(B) 
CONFORMING
AMENDMENT.—
Section 1862 (42 U.S.C. 1395y) is
amended by striking ‘‘Prospective
Payment 
Assessment 
Commission’’
each place it appears in subsection
(a)(1)(D) and subsection (i) and in-
serting ‘‘Medicare Payment Review
Commission’’.
(2) PPRC.—
(A) IN
GENERAL.—Title XVIII is
amended by striking section 1845 (42
U.S.C. 1395w–1).
(B) CONFORMING AMENDMENTS.—
(i) 
Section 
1834(b)(2) 
(42
U.S.C. 1395m(b)(2)) is amended by
striking ‘‘Physician Payment Re-
view Commission’’ and inserting
‘‘Medicare Payment Review Com-
mission’’.
(ii) Section 1842(b) (42 U.S.C.
1395u(b)) is amended by striking
‘‘Physician Payment Review Com-
617
Subtitle A, Part 4
mission’’ each place it appears in
paragraphs 
(2)(C), 
(9)(D), 
and
(14)(C)(i) and inserting ‘‘Medicare
Payment Review Commission’’.
(iii) Section 1848 (42 U.S.C.
1395w–4) is amended by striking
‘‘Physician Payment Review Com-
mission’’ and inserting ‘‘Medicare
Payment 
Review 
Commission’’
each place it appears in para-
graph (2)(A)(ii), (2)(B)(iii), and (5)
of 
subsection 
(c), 
subsection
(d)(2)(F), paragraphs (1)(B), (3),
and (4)(A) of subsection (f), and
paragraphs (6)(C) and (7)(C) of
subsection (g).
(c) EFFECTIVE DATE; TRANSITION.—
(1) 
IN
GENERAL.—The 
Comptroller
General shall first provide for appoint-
ment of members to the Medicare Pay-
ment Review Commission (in this sub-
section referred to as ‘‘MPRC’’) by not
later than March 31, 1996.
(2) TRANSITION.—Effective on a date
(not later than 30 days after the date a
618
Subtitle A, Part 4
majority of members of the MPRC have
first been appointed, the Prospective
Payment Assessment Commission (in this
subsection referred to as ‘‘ProPAC’’) and
the Physician Payment Review Commis-
sion (in this subsection referred to as
‘‘PPRC’’), and amendments made by sub-
section (b), are terminated. The Comp-
troller General, to the maximum extent
feasible, shall provide for the transfer to
the MPRC of assets and staff of ProPAC
and PPRC, without any loss of benefits or
seniority by virtue of such transfers.
Fund balances available to the ProPAC
or PPRC for any period shall be available
to the MPRC for such period for like pur-
poses.
(3) CONTINUING RESPONSIBILITY FOR RE-
PORTS.—The MPRC shall be responsible
for the preparation and submission of re-
ports required by law to be submitted
(and which have not been submitted by
the date of establishment of the MPRC)
by the ProPAC and PPRC, and, for this
purpose, any reference in law to either
619
Subtitle A, Part 4
such Commission is deemed, after the ap-
pointment of the MPRC, to refer to the
MPRC.
SEC. 15032. COMMISSION ON THE EFFECT OF THE BABY
BOOM GENERATION ON THE MEDICARE PRO-
GRAM.
(a) ESTABLISHMENT.—There is established
a commission to be known as the Commission
on the Effect of the Baby Boom Generation on
the Medicare Program (in this section re-
ferred to as the ‘‘Commission’’).
(b) DUTIES.—
(1) 
IN
GENERAL.—The 
Commission
shall—
(A) examine the financial impact
on the medicare program of the sig-
nificant increase in the number of
medicare eligible individuals which
will occur beginning approximately
during 2010 and lasting for approxi-
mately 25 years, and
(B) make specific recommenda-
tions to the Congress respecting a
comprehensive approach to preserve
the medicare program for the period
620
Subtitle A, Part 4
during which such individuals are el-
igible for medicare.
(2) CONSIDERATIONS
IN
MAKING
REC-
OMMENDATIONS.—In 
making 
its 
rec-
ommendations, the Commission shall con-
sider the following:
(A) The amount and sources of
Federal funds to finance the medi-
care program, including the potential
use of innovative financing methods.
(B) The most efficient and effec-
tive manner of administering the pro-
gram, including the appropriateness
of continuing the application of the
failsafe budget mechanism under sec-
tion 1895 of the Social Security Act
for fiscal years after fiscal year 2002
and 
the 
appropriate 
long-term
growth rates for contributions elect-
ing 
coverage 
under 
MedicarePlus
under part C of title XVIII of such
Act.
(C) Methods used by other na-
tions to respond to comparable demo-
graphic patterns in eligibility for
621
Subtitle A, Part 4
health care benefits for elderly and
disabled individuals.
(D) 
Modifying 
age-based 
eligi-
bility to correspond to changes in
age-based eligibility under the OASDI
program.
(E) Trends in employment-related
health care for retirees, including the
use of medical savings accounts and
similar financing devices.
(c) MEMBERSHIP.—
(1) APPOINTMENT.—The Commission
shall be composed of 15 members ap-
pointed as follows:
(A) The President shall appoint 3
members.
(B) The Majority Leader of the
Senate shall appoint, after consulta-
tion with the minority leader of the
Senate, 6 members, of whom not more
than 4 may be of the same political
party.
(C) The Speaker of the House of
Representatives shall appoint, after
consultation with the minority leader
622
Subtitle A, Part 4
of the House of Representatives, 6
members, of whom not more than 4
may be of the same political party.
(2) CHAIRMAN
AND
VICE
CHAIRMAN.—
The Commission shall elect a Chairman
and Vice Chairman from among its mem-
bers.
(3) VACANCIES.—Any vacancy in the
membership of the Commission shall be
filled in the manner in which the original
appointment was made and shall not af-
fect the power of the remaining members
to execute the duties of the Commission.
(4) QUORUM.—A quorum shall consist
of 8 members of the Commission, except
that 4 members may conduct a hearing
under subsection (e).
(5) MEETINGS.—The Commission shall
meet at the call of its Chairman or a ma-
jority of its members.
(6) COMPENSATION AND REIMBURSEMENT
OF
EXPENSES.—Members of the Commis-
sion are not entitled to receive compensa-
tion for service on the Commission. Mem-
bers may be reimbursed for travel, sub-
623
Subtitle A, Part 4
sistence, and other necessary expenses
incurred in carrying out the duties of the
Commission.
(d) STAFF AND CONSULTANTS.—
(1) STAFF.—The Commission may ap-
point and determine the compensation of
such staff as may be necessary to carry
out the duties of the Commission. Such
appointments and compensation may be
made without regard to the provisions of
title 5, United States Code, that govern
appointments in the competitive services,
and the provisions of chapter 51 and sub-
chapter III of chapter 53 of such title that
relate to classifications and the General
Schedule pay rates.
(2) 
CONSULTANTS.—The 
Commission
may procure such temporary and inter-
mittent services of consultants under sec-
tion 3109(b) of title 5, United States Code,
as the Commission determines to be nec-
essary to carry out the duties of the Com-
mission.
(e) POWERS.—
624
Subtitle A, Part 4
(1) HEARINGS AND OTHER ACTIVITIES.—
For the purpose of carrying out its du-
ties, the Commission may hold such hear-
ings and undertake such other activities
as the Commission determines to be nec-
essary to carry out its duties.
(2) STUDIES BY GAO.—Upon the request
of the Commission, the Comptroller Gen-
eral shall conduct such studies or inves-
tigations as the Commission determines
to be necessary to carry out its duties.
(3) COST ESTIMATES BY CONGRESSIONAL
BUDGET OFFICE.—
(A) Upon the request of the Com-
mission, the Director of the Congres-
sional Budget Office shall provide to
the Commission such cost estimates
as the Commission determines to be
necessary to carry out its duties.
(B) The Commission shall reim-
burse the Director of the Congres-
sional Budget Office for expenses re-
lating to the employment in the office
of the Director of such additional
staff as may be necessary for the Di-
625
Subtitle A, Part 4
rector to comply with requests by the
Commission under subparagraph (A).
(4) DETAIL
OF
FEDERAL
EMPLOYEES.—
Upon the request of the Commission, the
head of any Federal agency is authorized
to detail, without reimbursement, any of
the personnel of such agency to the Com-
mission to assist the Commission in car-
rying out its duties. Any such detail shall
not interrupt or otherwise affect the civil
service status or privileges of the Federal
employee.
(5) TECHNICAL ASSISTANCE.—Upon the
request of the Commission, the head of a
Federal agency shall provide such tech-
nical assistance to the Commission as the
Commission determines to be necessary
to carry out its duties.
(6) USE
OF
MAILS.—The Commission
may use the United States mails in the
same manner and under the same condi-
tions as Federal agencies and shall, for
purposes of the frank, be considered a
commission of Congress as described in
626
Subtitle A, Part 4
section 3215 of title 39, United States
Code.
(7) 
OBTAINING
INFORMATION.—The
Commission may secure directly from
any Federal agency information nec-
essary to enable it to carry out its duties,
if the information may be disclosed under
section 552 of title 5, United States Code.
Upon request of the Chairman of the
Commission, the head of such agency
shall furnish such information to the
Commission.
(8) 
ADMINISTRATIVE
SUPPORT
SERV-
ICES.—Upon the request of the Commis-
sion, the Administrator of General Serv-
ices shall provide to the Commission on a
reimbursable basis such administrative
support services as the Commission may
request.
(9) ACCEPTANCE
OF
DONATIONS.—The
Commission may accept, use, and dispose
of gifts or donations of services or prop-
erty.
(10) PRINTING.—For purposes of costs
relating to printing and binding, includ-
627
Subtitle A, Part 4
ing the cost of personnel detailed from
the Government Printing Office, the Com-
mission shall be deemed to be a commit-
tee of the Congress.
(f) REPORT.—Not later than May 1, 1997,
the Commission shall submit to Congress a re-
port containing its findings and recommenda-
tions regarding how to protect and preserve
the medicare program in a financially solvent
manner until 2030 (or, if later, throughout the
period of projected solvency of the Federal
Old-Age 
and 
Survivors 
Insurance 
Trust
Fund). The report shall include detailed rec-
ommendations for appropriate legislative ini-
tiatives respecting how to accomplish this ob-
jective.
(g) TERMINATION.—The Commission shall
terminate 60 days after the date of submission
of the report required in subsection (f).
(h) AUTHORIZATION
OF APPROPRIATIONS.—
There are authorized to be appropriated
$1,500,000 to carry out this section. Amounts
appropriated to carry out this section shall
remain available until expended.
628
Subtitle B
SEC. 15033. CHANGE IN APPOINTMENT OF ADMINISTRATOR
OF HCFA.
(a) IN GENERAL.—Section 1117 (42 U.S.C.
1317) is amended by striking ‘‘President by
and with the advice and consent of the Sen-
ate’’ and inserting ‘‘Secretary of Health and
Human Services’’.
(b) EFFECTIVE
DATE.—The amendment
made by subsection (a) shall take effect on the
date of the enactment of this Act and shall
apply to Administrators appointed on or after
the date of the enactment of this Act.
Subtitle B—Preventing Fraud and
Abuse
SEC. 15101. INCREASING AWARENESS OF FRAUD AND
ABUSE.
(a) BENEFICIARY OUTREACH EFFORTS.—The
Secretary of Health and Human Services (act-
ing through the Administrator of the Health
Care Financing Administration and the In-
spector General of the Department of Health
and Human Services) shall make ongoing ef-
forts (through public service announcements,
publications, and other appropriate methods)
to alert individuals entitled to benefits under
the medicare program of the existence of
629
Subtitle B
fraud and abuse committed against the pro-
gram and the costs to the program of such
fraud and abuse, and of the existence of the
toll-free telephone line operated by the Sec-
retary to receive information on fraud and
abuse committed against the program.
(b) CLARIFICATION
OF
REQUIREMENT
TO
PROVIDE
EXPLANATION
OF
MEDICARE
BENE-
FITS.—The Secretary shall provide an expla-
nation of benefits under the medicare pro-
gram with respect to each item or service for
which payment may be made under the pro-
gram which is furnished to an individual,
without regard to whether or not a deductible
or coinsurance may be imposed against the
individual with respect to the item or service.
(c) PROVIDER OUTREACH EFFORTS; PUBLICA-
TION OF FRAUD ALERTS.—
(1) SPECIAL FRAUD ALERTS.—
(A) IN GENERAL.—
(i) REQUEST FOR SPECIAL FRAUD
ALERTS.—Any person may present,
at any time, a request to the Sec-
retary to issue and publish a spe-
cial fraud alert.
630
Subtitle B
(ii) SPECIAL
FRAUD
ALERT
DE-
FINED.—In this section, a ‘‘special
fraud alert’’ is a notice which in-
forms the public of practices
which the Secretary considers to
be suspect or of particular con-
cern under the medicare program
or a State health care program
(as defined in section 1128(h) of
the Social Security Act).
(B) ISSUANCE AND PUBLICATION OF
SPECIAL FRAUD ALERTS.—
(i) INVESTIGATION.—Upon re-
ceipt of a request for a special
fraud alert under subparagraph
(A), the Secretary shall inves-
tigate the subject matter of the
request to determine whether a
special fraud alert should be is-
sued. If appropriate, the Sec-
retary (in consultation with the
Attorney General) shall issue a
special fraud alert in response to
the request. All special fraud
alerts issued pursuant to this sub-
631
Subtitle B
paragraph shall be published in
the Federal Register.
(ii) CRITERIA FOR ISSUANCE.—In
determining whether to issue a
special fraud alert upon a request
under subparagraph (A), the Sec-
retary may consider—
(I) whether and to what
extent 
the 
practices 
that
would be identified in the spe-
cial fraud alert may result in
any of the consequences de-
scribed in 15214(b); and
(II) the extent and fre-
quency of the conduct that
would be identified in the spe-
cial fraud alert.
(2) PUBLICATION
OF
ALL
HCFA
FRAUD
ALERTS IN FEDERAL REGISTER.—Each notice
issued by the Health Care Financing Ad-
ministration which informs the public of
practices which the Secretary considers
to be suspect or of particular concern
under the medicare program or a State
health care program (as defined in sec-
632
Subtitle B
tion 1128(h) of the Social Security Act)
shall be published in the Federal Reg-
ister, without regard to whether or not
the notice is issued by a regional office of
the Health Care Financing Administra-
tion.
SEC. 15102. BENEFICIARY INCENTIVE PROGRAMS.
(a) PROGRAM TO COLLECT INFORMATION ON
FRAUD AND ABUSE.—
(1) ESTABLISHMENT OF PROGRAM.—Not
later than 3 months after the date of the
enactment of this Act, the Secretary of
Health and Human Services (hereinafter
in this subtitle referred to as the ‘‘Sec-
retary’’) shall establish a program under
which the Secretary shall encourage indi-
viduals to report to the Secretary infor-
mation on individuals and entities who
are engaging or who have engaged in
acts 
or 
omissions 
which 
constitute
grounds for the imposition of a sanction
under section 1128, section 1128A, or sec-
tion 1128B of the Social Security Act, or
who have otherwise engaged in fraud
and abuse against the medicare program
633
Subtitle B
for which there is a sanction provided
under law. The program shall discourage
provision of, and not consider, informa-
tion which is frivolous or otherwise not
relevant or material to the imposition of
such a sanction.
(2) PAYMENT OF PORTION OF AMOUNTS
COLLECTED.—If an individual reports in-
formation to the Secretary under the pro-
gram established under paragraph (1)
which serves as the basis for the collec-
tion by the Secretary or the Attorney
General of any amount of at least $100
(other than any amount paid as a penalty
under section 1128B of the Social Secu-
rity Act), the Secretary may pay a portion
of the amount collected to the individual
(under procedures similar to those appli-
cable under section 7623 of the Internal
Revenue Code of 1986 to payments to in-
dividuals providing information on viola-
tions of such Code).
(b) PROGRAM TO COLLECT INFORMATION ON
PROGRAM EFFICIENCY.—
634
Subtitle B
(1) ESTABLISHMENT OF PROGRAM.—Not
later than 3 months after the date of the
enactment of this Act, the Secretary shall
establish a program under which the Sec-
retary shall encourage individuals to sub-
mit to the Secretary suggestions on meth-
ods to improve the efficiency of the medi-
care program.
(2) PAYMENT OF PORTION OF PROGRAM
SAVINGS.—If an individual submits a sug-
gestion to the Secretary under the pro-
gram established under paragraph (1)
which is adopted by the Secretary and
which results in savings to the program,
the Secretary may make a payment to the
individual of such amount as the Sec-
retary considers appropriate.
SEC. 15103. INTERMEDIATE SANCTIONS FOR MEDICARE
HEALTH MAINTENANCE ORGANIZATIONS.
(a) APPLICATION
OF INTERMEDIATE SANC-
TIONS FOR ANY PROGRAM VIOLATIONS.—
(1) IN GENERAL.—Section 1876(i)(1) (42
U.S.C. 1395mm(i)(1)) is amended by strik-
ing ‘‘the Secretary may terminate’’ and all
that follows and inserting the following:
635
Subtitle B
‘‘in accordance with procedures estab-
lished under paragraph (9), the Secretary
may at any time terminate any such con-
tract or may impose the intermediate
sanctions described in paragraph (6)(B)
or (6)(C) (whichever is applicable) on the
eligible organization if the Secretary de-
termines that the organization—
‘‘(A) has failed substantially to carry
out the contract;
‘‘(B) is carrying out the contract in a
manner inconsistent with the efficient
and effective administration of this sec-
tion;
‘‘(C) is operating in a manner that is
not in the best interests of the individ-
uals covered under the contract; or
‘‘(D) no longer substantially meets the
applicable conditions of subsections (b),
(c), (e), and (f).’’.
(2) OTHER
INTERMEDIATE
SANCTIONS
FOR
MISCELLANEOUS
PROGRAM
VIOLA-
TIONS.—Section 
1876(i)(6) 
(42 
U.S.C.
1395mm(i)(6)) is amended by adding at
the end the following new subparagraph:
636
Subtitle B
‘‘(C) In the case of an eligible organization
for which the Secretary makes a determina-
tion under paragraph (1) the basis of which
is not described in subparagraph (A), the Sec-
retary may apply the following intermediate
sanctions:
‘‘(i) civil money penalties of not more
than 
$25,000 
for 
each 
determination
under paragraph (1) if the deficiency that
is the basis of the determination has di-
rectly adversely affected (or has the sub-
stantial likelihood of adversely affecting)
an individual covered under the organi-
zation’s contract;
‘‘(ii) civil money penalties of not more
than $10,000 for each week beginning
after the initiation of procedures by the
Secretary under paragraph (9) during
which the deficiency that is the basis of
a determination under paragraph (1) ex-
ists; and
‘‘(iii) suspension of enrollment of indi-
viduals under this section after the date
the Secretary notifies the organization of
a determination under paragraph (1) and
637
Subtitle B
until the Secretary is satisfied that the
deficiency that is the basis for the deter-
mination has been corrected and is not
likely to recur.’’.
(3) PROCEDURES
FOR
IMPOSING
SANC-
TIONS.—Section 
1876(i) 
(42 
U.S.C.
1395mm(i)) is amended by adding at the
end the following new paragraph:
‘‘(9) The Secretary may terminate a con-
tract with an eligible organization under this
section or may impose the intermediate sanc-
tions described in paragraph (6) on the orga-
nization in accordance with formal investiga-
tion and compliance procedures established
by the Secretary under which—
‘‘(A) 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 paragraph (1);
‘‘(B) the Secretary shall impose more
severe sanctions on organizations that
have a history of deficiencies or that
have not taken steps to correct defi-
638
Subtitle B
ciencies the Secretary has brought to
their attention;
‘‘(C) there are no unreasonable or un-
necessary delays between the finding of a
deficiency and the imposition of sanc-
tions; and
‘‘(D) 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.’’.
(4) 
CONFORMING
AMENDMENTS.—(A)
Section 
1876(i)(6)(B) 
(42 
U.S.C.
1395mm(i)(6)(B)) is amended by striking
the second sentence.
(B) 
Section 
1876(i)(6) 
(42 
U.S.C.
1395mm(i)(6)) is further amended by add-
ing at the end the following new subpara-
graph:
‘‘(D) The provisions of section 1128A
(other than subsections (a) and (b)) shall
apply to a civil money penalty under subpara-
graph (A) or (B) in the same manner as they
639
Subtitle B
apply to a civil money penalty or proceeding
under section 1128A(a).’’.
(b) EFFECTIVE
DATE.—The amendments
made by this section shall apply with respect
to contract years beginning on or after Janu-
ary 1, 1996.
SEC. 15104. VOLUNTARY DISCLOSURE PROGRAM.
Title XI (42 U.S.C. 1301 et seq.) is amended
by inserting after section 1128B the following
new section:
‘‘VOLUNTARY DISCLOSURE OF ACTS OR OMISSIONS
‘‘SEC. 1129. (a) ESTABLISHMENT
OF VOL-
UNTARY DISCLOSURE PROGRAM.—Not later than
3 months after the date of the enactment of
this section, the Secretary shall establish a
program to encourage individuals and enti-
ties to voluntarily disclose to the Secretary in-
formation on acts or omissions of the individ-
ual or entity which constitute grounds for the
imposition of a sanction described in section
1128, 1128A, or 1128B.
‘‘(b) EFFECT OF VOLUNTARY DISCLOSURE.—If
an individual or entity voluntarily discloses
information with respect to an act or omis-
sion to the Secretary under subsection (a), the
following rules shall apply:
640
Subtitle B
‘‘(1) The Secretary may waive, reduce,
or otherwise mitigate any sanction which
would otherwise be applicable to the in-
dividual or entity under section 1128,
1128A, or 1128B as a result of the act or
omission involved.
‘‘(2) No qui tam action may be
brought pursuant to chapter 37 of title
31, United States Code, against the indi-
vidual or entity with respect to the act or
omission involved.’’.
SEC. 15105. REVISIONS TO CURRENT SANCTIONS.
(a) DOUBLING THE AMOUNT OF CIVIL MONE-
TARY PENALTIES.—The maximum amount of
civil monetary penalties specified in section
1128A of the Social Security Act or under title
XVIII of such Act (as in effect on the day be-
fore the date of the enactment of this Act)
shall, effective for violations occurring after
the date of the enactment of this Act, be dou-
ble the amount otherwise provided as of such
date.
(b) ESTABLISHMENT OF MINIMUM PERIOD OF
EXCLUSION FOR CERTAIN INDIVIDUALS AND ENTI-
TIES SUBJECT TO PERMISSIVE EXCLUSION.—Sec-
641
Subtitle B
tion 1128(c)(3) (42 U.S.C. 1320a–7(c)(3)) is
amended by adding at the end the following
new subparagraphs:
‘‘(D) In the case of an exclusion of an indi-
vidual or entity under paragraph (1), (2), or
(3) of subsection (b), the period of the exclu-
sion shall be 3 years, unless the Secretary de-
termines in accordance with regulations that
a shorter period is appropriate because of
mitigating circumstances or that a longer pe-
riod is appropriate because of aggravating
circumstances.
‘‘(E) In the case of an exclusion of an indi-
vidual or entity under subsection (b)(4) or
(b)(5), the period of the exclusion shall not be
less than the period during which the individ-
ual’s or entity’s license to provide health care
is revoked, suspended, or surrendered, or the
individual or the entity is excluded or sus-
pended from a Federal or State health care
program.
‘‘(F) In the case of an exclusion of an indi-
vidual or entity under subsection (b)(6)(B),
the period of the exclusion shall be not less
than 1 year.’’.
642
Subtitle B
(c) EFFECTIVE
DATE.—The amendments
made by this section shall apply with respect
to acts or omissions occurring on or after Jan-
uary 1, 1996.
SEC. 15106. CONSOLIDATED FUNDING FOR ANTI-FRAUD
AND ABUSE ACTIVITIES UNDER MEDICARE
INTEGRITY PROGRAM.
(a) ESTABLISHMENT OF MEDICARE INTEGRITY
PROGRAM.—Title XVIII is amended by adding
at the end the following new section:
‘‘MEDICARE INTEGRITY PROGRAM
‘‘SEC. 1893. (a) ESTABLISHMENT
OF PRO-
GRAM.—There is hereby established the Medi-
care Integrity Program (hereafter in this sec-
tion referred to as the ‘Program’) under which
the Secretary shall promote the integrity of
the medicare program by entering into con-
tracts in accordance with this section with el-
igible private entities to carry out the activi-
ties described in subsection (b).
‘‘(b) ACTIVITIES DESCRIBED.—The activities
described in this subsection are as follows:
‘‘(1) Review of activities of providers
of services or other individuals and enti-
ties furnishing items and services for
which payment may be made under this
643
Subtitle B
title (including skilled nursing facilities
and home health agencies), including
medical and utilization review and fraud
review 
(employing 
similar 
standards,
processes, and technologies used by pri-
vate health plans, including equipment
and software technologies which surpass
the capability of the equipment and tech-
nologies used in the review of claims
under this title as of the date of the en-
actment of this section).
‘‘(2) Audit of cost reports.
‘‘(3) Determinations as to whether
payment should not be, or should not
have been, made under this title by rea-
son of section 1862(b), and recovery of
payments that should not have been
made.
‘‘(4) Education of providers of serv-
ices, beneficiaries, and other persons
with respect to payment integrity and
benefit quality assurance issues.
‘‘(c) ELIGIBILITY OF ENTITIES.—An entity is
eligible to enter into a contract under the Pro-
644
Subtitle B
gram to carry out any of the activities de-
scribed in subsection (b) if—
‘‘(1) the entity has demonstrated ca-
pability to carry out such activities;
‘‘(2) in carrying out such activities,
the entity agrees to cooperate with the
Inspector General of the Department of
Health and Human Services, the Attorney
General of the United States, and other
law enforcement agencies, as appro-
priate, in the investigation and deter-
rence of fraud and abuse in relation to
this title and in other cases arising out of
such activities;
‘‘(3) the entity’s financial holdings, in-
terests, or relationships will not interfere
with its ability to perform the functions
to be required by the contract in an effec-
tive and impartial manner; and
‘‘(4) the entity meets such other re-
quirements as the Secretary may impose.
‘‘(d) PROCESS
FOR
ENTERING
INTO
CON-
TRACTS.—The Secretary shall enter into con-
tracts under the Program in accordance with
such procedures as the Secretary may by reg-
645
Subtitle B
ulation establish, except that such procedures
shall include the following:
‘‘(1) The Secretary shall determine
the appropriate number of separate con-
tracts which are necessary to carry out
the Program and the appropriate times
at which the Secretary shall enter into
such contracts.
‘‘(2) 
The 
provisions 
of 
section
1153(e)(1) shall apply to contracts and
contracting authority under this section,
except that competitive procedures must
be used when entering into new con-
tracts under this section, or at any other
time considered appropriate by the Sec-
retary.
‘‘(3) A contract under this section may
be renewed without regard to any provi-
sion of law requiring competition if the
contractor has met or exceeded the per-
formance requirements established in the
current contract.
‘‘(e) LIMITATION
ON CONTRACTOR LIABIL-
ITY.—The Secretary shall by regulation pro-
vide for the limitation of a contractor’s liabil-
646
Subtitle B
ity for actions taken to carry out a contract
under the Program, and such regulation shall,
to the extent the Secretary finds appropriate,
employ the same or comparable standards
and other substantive and procedural provi-
sions as are contained in section 1157.
‘‘(f) TRANSFER OF AMOUNTS TO MEDICARE
ANTI-FRAUD AND ABUSE TRUST FUND.—For each
fiscal year, the Secretary shall transfer from
the Federal Hospital Insurance Trust Fund
and the Federal Supplementary Medical In-
surance Trust Fund to the Medicare Anti-
Fraud and Abuse Trust Fund under sub-
section (g) such amounts as are necessary to
carry out the activities described in sub-
section (b). Such transfer shall be in an alloca-
tion as reasonably reflects the proportion of
such expenditures associated with part A and
part B.
‘‘(g) MEDICARE
ANTI-FRAUD
AND
ABUSE
TRUST FUND.—
‘‘(1) ESTABLISHMENT.—
‘‘(A) IN GENERAL.—There is hereby
established in the Treasury of the
United States the Anti-Fraud and
647
Subtitle B
Abuse Trust Fund (hereafter in this
subsection referred to as the ‘Trust
Fund’). The Trust Fund shall consist
of such gifts and bequests as may be
made as provided in subparagraph
(B) and such amounts as may be de-
posited in the Trust Fund as provided
in subsection (f), paragraph (3), and
title XI.
‘‘(B) 
AUTHORIZATION
TO
ACCEPT
GIFTS AND BEQUESTS.—The Trust Fund
is authorized to accept on behalf of
the United States money gifts and be-
quests made unconditionally to the
Trust Fund, for the benefit of the
Trust Fund or any activity financed
through the Trust Fund.
‘‘(2) INVESTMENT.—
‘‘(A) IN
GENERAL.—The Secretary
of the Treasury shall invest such
amounts of the Fund as such Sec-
retary determines are not required to
meet current withdrawals from the
Fund in government account serial
securities.
648
Subtitle B
‘‘(B) USE OF INCOME.—Any interest
derived from investments under sub-
paragraph (A) shall be credited to the
Fund.
‘‘(3) AMOUNTS
DEPOSITED
INTO
TRUST
FUND.—In addition to amounts trans-
ferred under subsection (f), there shall be
deposited in the Trust Fund—
‘‘(A) that portion of amounts re-
covered in relation to section 1128A
arising out of a claim under title
XVIII as remains after application of
subsection (f)(2) (relating to repay-
ment of the Federal Hospital Insur-
ance Trust Fund or the Federal Sup-
plementary Medical Insurance Trust
Fund) of that section, as may be ap-
plicable,
‘‘(B) fines imposed under section
1128B arising out of a claim under
this title, and
‘‘(C) penalties and damages im-
posed (other than funds awarded to a
relator or for restitution) under sec-
tions 3729 through 3732 of title 31,
649
Subtitle B
United States Code (pertaining to
false claims) in cases involving claims
relating 
to 
programs 
under 
title
XVIII, XIX, or XXI.
‘‘(4) DIRECT
APPROPRIATION
OF
FUNDS
TO CARRY OUT PROGRAM.—
‘‘(A) IN
GENERAL.—There are ap-
propriated from the Trust Fund for
each fiscal year such amounts as are
necessary to carry out the Medicare
Integrity Program under this section,
subject to subparagraph (B).
‘‘(B) 
AMOUNTS
SPECIFIED.—The
amount appropriated under subpara-
graph (A) for a fiscal year is as fol-
lows:
‘‘(i) For fiscal year 1996, such
amount shall be not less than
$430,000,000 and not more than
$440,000,000.
‘‘(ii) For fiscal year 1997, such
amount shall be not less than
$490,000,000 and not more than
$500,000,000.
650
Subtitle B
‘‘(iii) For fiscal year 1998, such
amount shall be not less than
$550,000,000 and not more than
$560,000,000.
‘‘(iv) For fiscal year 1999, such
amount shall be not less than
$620,000,000 and not more than
$630,000,000.
‘‘(v) For fiscal year 2000, such
amount shall be not less than
$670,000,000 and not more than
$680,000,000.
‘‘(vi) For fiscal year 2001, such
amount shall be not less than
$690,000,000 and not more than
$700,000,000.
‘‘(vii) For fiscal year 2002,
such amount shall be not less
than $710,000,000 and not more
than $720,000,000.
‘‘(5) ANNUAL
REPORT.—The Secretary
shall submit an annual report to Con-
gress on the amount of revenue which is
generated and disbursed by the Trust
Fund in each fiscal year.’’.
651
Subtitle B
(b) ELIMINATION
OF FI AND CARRIER RE-
SPONSIBILITY
FOR
CARRYING
OUT
ACTIVITIES
SUBJECT TO PROGRAM.—
(1) 
RESPONSIBILITIES
OF
FISCAL
INTERMEDIARIES
UNDER
PART
A.—Section
1816 (42 U.S.C. 1395h) is amended by add-
ing at the end the following new sub-
section:
‘‘(l) No agency or organization may carry
out (or receive payment for carrying out) any
activity pursuant to an agreement under this
section to the extent that the activity is car-
ried out pursuant to a contract under the
Medicare Integrity Program under section
1893.’’.
(2) 
RESPONSIBILITIES
OF
CARRIERS
UNDER PART B.—Section 1842(c) (42 U.S.C.
1395u(c)) is amended by adding at the
end the following new paragraph:
‘‘(6) No carrier may carry out (or receive
payment for carrying out) any activity pursu-
ant to a contract under this subsection to the
extent that the activity is carried out pursu-
ant to a contract under the Medicare Integ-
rity Program under section 1893.’’.
652
Subtitle B
(c) 
CONFORMING
AMENDMENT.—Section
1128A(f)(3) (42 U.S.C. 1320a–7a(f)(3)) is amend-
ed by striking ‘‘as miscellaneous receipts of
the Treasury of the United States’’ and insert-
ing ‘‘in the Anti-Fraud and Abuse Trust Fund
established under section 1893(g)’’.
SEC. 15107. PERMITTING CARRIERS TO CARRY OUT PRIOR
AUTHORIZATION FOR CERTAIN ITEMS OF DU-
RABLE MEDICAL EQUIPMENT.
(a) IN GENERAL.—Section 1834(a)(15) (42
U.S.C. 1395m(a)(15)), as amended by section
135(b) of the Social Security Act Amendments
of 1994, is amended by adding at the end the
following new subparagraphs:
‘‘(D) APPLICATION BY CARRIERS.—A
carrier may develop (and periodically
update) a list of items under subpara-
graph (A) and a list of suppliers
under subparagraph (B) in the same
manner as the Secretary may develop
(and periodically update) such lists.
‘‘(E) WAIVER
OF
PUBLICATION
RE-
QUIREMENT.—A carrier may make an
advance determination under sub-
paragraph (C) with respect to an item
653
Subtitle B
or supplier on a list developed by the
Secretary or the carrier without re-
gard to whether or not the Secretary
has promulgated a regulation with re-
spect to the list, except that the car-
rier may not make such an advance
determination with respect to an item
or supplier on a list until the expira-
tion of the 30-day period beginning
on the date the Secretary or the car-
rier places the item or supplier on
the list.’’.
(b) EFFECTIVE
DATE.—The amendment
made by subsection (a) shall take effect as if
included in the enactment of the Social Secu-
rity Act Amendments of 1994.
SEC. 15108. ESTABLISHMENT OF HEALTH CARE ANTI-
FRAUD TASK FORCE.
(a) IN GENERAL.—Not later than 120 days
after the date of the enactment of this Act, the
Attorney General shall establish (in consulta-
tion with the Advisory Group described in
subsection (c)) within the Department of Jus-
tice a task force (similar to the Organized
Crime Drug Enforcement Task Force) to be
654
Subtitle B
known as the ‘‘Health Care Anti-Fraud Task
Force’’ (hereafter in this section referred to as
the ‘‘Task Force’’) to prosecute health care
fraud offenses. Nothing in this section may be
construed as affecting the powers of the At-
torney General or any other individual.
(b) OPERATIONS OF TASK FORCE.—The At-
torney General shall establish and operate
the Task Force in a manner such that—
(1) at least one fully staffed oper-
ational segment of the Task Force (in-
cluding at least one Federal representa-
tive engaged in Task Force activities on a
full-time basis) shall operate in each judi-
cial district of the United States; and
(2) the Task Force maintains separate
accounting of its finances, personnel,
case load, and resolution of claims and
actions.
(c) ADVISORY GROUP DESCRIBED.—The Ad-
visory Group described in this subsection is
a group consisting of the following individ-
uals (or their designees):
(1) The Secretary of Health and
Human Services.
655
Subtitle B
(2) The Secretary of the Treasury.
(3) The Secretary of Veterans Affairs.
(4) The Chair of the Board of Gov-
ernors of the United States Postal Serv-
ice.
SEC. 15109. NATIONAL HEALTH CARE ANTI-FRAUD TASK
FORCE.
(a) 
ESTABLISHMENT.—The 
Secretary 
of
Health and Human Services, in consultation
with the Attorney General, shall establish a
national health care anti-fraud task force (in
this section referred to as the ‘‘task force’’).
The Secretary shall establish the task force
within 120 days after the date of the enact-
ment of this Act.
(b) COMPOSITION.—The task force shall in-
clude representatives of Federal agencies in-
volved in the investigation and prosecution of
persons violating laws relating to health care
fraud and abuse, including at least one rep-
resentative from each of the following agen-
cies:
(1) The Department of Justice and the
Federal Bureau of Investigation.
656
Subtitle B
(2) The Department of Health and
Human Services and the Office of the In-
spector General within the Department.
(3) The office in the Department of
Defense responsible for administration of
the CHAMPUS program.
(4) The Department of Veterans Af-
fairs.
(5) The United States Postal Inspec-
tion Service.
(6) The Internal Revenue Service.
The Secretary (or the Secretary’s designee)
shall serve as chair of the task force.
(c) DUTIES.—The task force shall assist in
coordinating Federal law enforcement activi-
ties relating to health care fraud and abuse in
order to better control fraud and abuse in the
delivery of health care in the United States.
Specifically, the task force shall assist in co-
ordinating activities—
(1) in order to assure the effective
targeting and investigation of persons
who organize, direct, finance, or other-
wise knowingly engage in health care
fraud, and
657
Subtitle B
(2) in order to promote full and effec-
tive coordination between Federal and
State agencies involved in health care
fraud investigations.
(d) STAFF.—Each member of the task force
who represents an agency shall be respon-
sible for providing for the detail (from the
agency) of at least one full-time staff person
to staff the task force. Such detail shall be
without change in salary, compensation, ben-
efits, and other employment-related matters.
SEC. 15110. STUDY OF ADEQUACY OF PRIVATE QUALITY AS-
SURANCE PROGRAMS.
(a) IN GENERAL.—The Administrator of the
Health Care Financing Administration (acting
through the Director of the Office of Research
and Demonstrations) shall enter into an
agreement with a private entity to conduct a
study during the 5-year period beginning on
the date of the enactment of this Act of the
adequacy of the quality assurance programs
and 
consumer 
protections 
used 
by 
the
MedicarePlus program under part C of title
XVIII of the Social Security Act (as inserted
by section 15002(a)), and shall include in the
658
Subtitle B
study an analysis of the effectiveness of such
programs in protecting plan enrollees against
the risk of insufficient provision of benefits
which may result from utilization controls.
(b) REPORT.—Not later than 6 months after
the conclusion of the 5-year period described
in subsection (a), the Administrator shall sub-
mit a report to Congress on the study con-
ducted under subsection (a).
SEC. 15111. PENALTY FOR FALSE CERTIFICATION FOR
HOME HEALTH SERVICES.
(a) IN
GENERAL.—Section 1128A(b) (42
U.S.C. 1320a–7a(b)) is amended by adding at
the end the following new paragraph:
‘‘(3)(A) Any physician who executes a doc-
ument described in subparagraph (B) with re-
spect to an individual knowing that all of the
requirements referred to in such subpara-
graph are not met with respect to the individ-
ual shall be subject to a civil monetary pen-
alty of not more than the greater of—
‘‘(i) $5,000, or
‘‘(ii) three times the amount of the
payments under title XVIII for home
659
Subtitle B
health services which are made pursuant
to such certification.
‘‘(B) A document described in this sub-
paragraph is any document that certifies, for
purposes of title XVIII, that an individual
meets 
the 
requirements 
of 
section
1814(a)(2)(C) or 1835(a)(2)(A) in the case of
home health services furnished to the individ-
ual.’’.
(b) EFFECTIVE
DATE.—The amendment
made by subsection (a) shall apply to certifi-
cations made on or after the date of the enact-
ment of this Act.
SEC. 15112. INELIGIBILITY FOR PART B BENEFITS OF INDI-
VIDUALS CONVICTED OF MEDICARE FRAUD.
(a) IN GENERAL.—Section 1838 (42 U.S.C.
1395q) is amended by adding at the end the
following new subsection:
‘‘(f) In no case shall a coverage period for
an individual include, if the individual has
been convicted of a felony relating to the pro-
gram under this title, any month after the
month in which such conviction becomes
final.’’.
660
Subtitle C, Part 1
(b) EFFECTIVE
DATE.—The amendment
made by subsection (a) shall apply to convic-
tions occurring on or after the date of the en-
actment of this Act.
SEC. 15113. PILOT PROJECTS.
The Secretary of Health and Human Serv-
ices shall establish and operate 5 pilot
projects (in various geographic regions of the
United States) under which the Secretary
shall implement innovative approaches to
monitor payment claims under the medicare
program to detect those claims that are
wasteful or fraudulent.
Subtitle C—Regulatory Relief
PART 1—PHYSICIAN OWNERSHIP REFERRAL
REFORM
SEC. 15201. REPEAL OF PROHIBITIONS BASED ON COM-
PENSATION ARRANGEMENTS.
(a) IN
GENERAL.—Section 1877(a)(2) (42
U.S.C. 1395nn(a)(2)) is amended by striking
‘‘is—’’ and all that follows through ‘‘equity,’’
and inserting the following: ‘‘is (except as pro-
vided in subsection (c)) an ownership or in-
vestment interest in the entity through eq-
uity,’’.
661
Subtitle C, Part 1
(b) 
CONFORMING
AMENDMENTS.—Section
1877 (42 U.S.C. 1395nn) is amended as follows:
(1) In subsection (b)—
(A) in the heading, by striking ‘‘TO
BOTH OWNERSHIP
AND COMPENSATION
ARRANGEMENT PROVISIONS’’ and insert-
ing ‘‘WHERE FINANCIAL RELATIONSHIP
EXISTS’’; and
(B) by redesignating paragraph
(4) as paragraph (7).
(2) In subsection (c)—
(A) by amending the heading to
read as follows: ‘‘EXCEPTION FOR OWN-
ERSHIP
OR
INVESTMENT
INTEREST
IN
PUBLICLY TRADED SECURITIES AND MU-
TUAL FUNDS’’; and
(B) in the matter preceding para-
graph (1), by striking ‘‘subsection
(a)(2)(A)’’ and inserting ‘‘subsection
(a)(2)’’.
(3) In subsection (d)—
(A) by striking the matter preced-
ing paragraph (1);
662
Subtitle C, Part 1
(B) in paragraph (3), by striking
‘‘paragraph (1)’’ and inserting ‘‘para-
graph (4)’’; and
(C) by redesignating paragraphs
(1), (2), and (3) as paragraphs (4), (5),
and (6), and by transferring and in-
serting such paragraphs after para-
graph (3) of subsection (b).
(4) By striking subsection (e).
(5) In subsection (f)(2), as amended by
section 152(a) of the Social Security Act
Amendments of 1994—
(A) in the matter preceding para-
graph (1), by striking ‘‘ownership, in-
vestment, and compensation’’ and in-
serting ‘‘ownership and investment’’;
(B) in paragraph (2), by striking
‘‘subsection (a)(2)(A)’’ and all that fol-
lows through ‘‘subsection (a)(2)(B)),’’
and inserting ‘‘subsection (a)(2),’’; and
(C) in paragraph (2), by striking
‘‘or who have such a compensation re-
lationship with the entity’’.
(6) In subsection (h)—
663
Subtitle C, Part 1
(A) by striking paragraphs (1), (2),
and (3);
(B) in paragraph (4)(A), by strik-
ing clauses (iv) and (vi);
(C) in paragraph (4)(B), by strik-
ing ‘‘RULES.—’’ and all that follows
through ‘‘(ii) FACULTY’’ and inserting
‘‘RULES FOR FACULTY; and
(D) by adding at the end of para-
graph (4) the following new subpara-
graph:
‘‘(C) MEMBER OF A GROUP.—A phy-
sician is a ‘member’ of a group if the
physician is an owner or a bona fide
employee, or both, of the group.’’.
SEC. 15202. REVISION OF DESIGNATED HEALTH SERVICES
SUBJECT TO PROHIBITION.
(a) IN GENERAL.—Section 1877(h)(6) (42
U.S.C. 1395nn(h)(6)) is amended by striking
subparagraphs (B) through (K) and inserting
the following:
‘‘(B) Parenteral and enteral nutri-
ents, equipment, and supplies.
664
Subtitle C, Part 1
‘‘(C) Magnetic resonance imaging
and computerized tomography serv-
ices.
‘‘(D) Outpatient physical or occu-
pational therapy services.’’.
(b) CONFORMING AMENDMENTS.—
(1) 
Section 
1877(b)(2) 
(42 
U.S.C.
1395nn(b)(2)) is amended in the matter
preceding subparagraph (A) by striking
‘‘services’’ and all that follows through
‘‘supplies)—’’ and inserting ‘‘services—’’.
(2) Section 1877(h)(5)(C) (42 U.S.C.
1395nn(h)(5)(C)) is amended—
(A) by striking ‘‘, a request by a
radiologist for diagnostic radiology
services, and a request by a radiation
oncologist for radiation therapy,’’ and
inserting ‘‘and a request by a radiolo-
gist for magnetic resonance imaging
or for computerized tomography’’,
and
(B) by striking ‘‘radiologist, or ra-
diation oncologist’’ and inserting ‘‘or
radiologist’’.
665
Subtitle C, Part 1
SEC. 15203. DELAY IN IMPLEMENTATION UNTIL PROMUL-
GATION OF REGULATIONS.
(a) 
IN
GENERAL.—Section 
13562(b) 
of
OBRA–1993 (42 U.S.C. 1395nn note) is amend-
ed—
(1) in paragraph (1), by striking
‘‘paragraph (2)’’ and inserting ‘‘para-
graphs (2) and (3)’’; and
(2) by adding at the end the following
new paragraph:
‘‘(3) PROMULGATION OF REGULATIONS.—
Notwithstanding paragraphs (1) and (2),
the amendments made by this section
shall not apply to any referrals made be-
fore the effective date of final regulations
promulgated by the Secretary of Health
and Human Services to carry out such
amendments.’’.
(b) EFFECTIVE
DATE.—The amendments
made by subsection (a) shall take effect as if
included in the enactment of OBRA–1993.
SEC. 15204. EXCEPTIONS TO PROHIBITION.
(a) REVISIONS TO EXCEPTION FOR IN-OFFICE
ANCILLARY SERVICES.—
666
Subtitle C, Part 1
(1) REPEAL
OF
SITE-OF-SERVICE
RE-
QUIREMENT.—Section 
1877 
(42 
U.S.C.
1395nn) is amended—
(A) by amending subparagraph
(A) of subsection (b)(2) to read as fol-
lows:
‘‘(A) that are furnished personally
by the referring physician, personally
by a physician who is a member of
the same group practice as the refer-
ring physician, or personally by indi-
viduals who are under the general su-
pervision of the physician or of an-
other physician in the group practice,
and’’, and
(B) by adding at the end of sub-
section (h) the following new para-
graph:
‘‘(7) GENERAL
SUPERVISION.—An indi-
vidual is considered to be under the ‘gen-
eral supervision’ of a physician if the
physician (or group practice of which the
physician is a member) is legally respon-
sible for the services performed by the in-
dividual and for ensuring that the indi-
667
Subtitle C, Part 1
vidual meets licensure and certification
requirements, if any, applicable under
other provisions of law, regardless of
whether or not the physician is phys-
ically present when the individual fur-
nishes an item or service.’’.
(2) CLARIFICATION
OF
TREATMENT
OF
PHYSICIAN
OWNERS
OF
GROUP
PRACTICE.—
Section 
1877(b)(2)(B) 
(42 
U.S.C.
1395nn(b)(2)(B)) is amended by striking
‘‘physician or such group practice’’ and
inserting ‘‘physician, such group practice,
or the physician owners of such group
practice’’.
(3) CONFORMING AMENDMENT.—Section
1877(b)(2) 
(42 
U.S.C. 
1395nn(b)(2)) 
is
amended by amending the heading to
read as follows: ‘‘ANCILLARY SERVICES FUR-
NISHED
PERSONALLY
OR
THROUGH
GROUP
PRACTICE.—’’.
(b) CLARIFICATION OF EXCEPTION FOR SERV-
ICES FURNISHED IN A RURAL AREA.—Paragraph
(5) of section 1877(b) (42 U.S.C. 1395nn(b)), as
transferred 
by 
section 
15201(b)(3)(C), 
is
668
Subtitle C, Part 1
amended by striking ‘‘substantially all’’ and
inserting ‘‘not less than 75 percent’’.
(c) REVISION
OF EXCEPTION
FOR CERTAIN
MANAGED
CARE
ARRANGEMENTS.—Section
1877(b)(3) (42 U.S.C. 1395nn(b)(3)) is amend-
ed—
(1) in the heading by inserting ‘‘MAN-
AGED CARE ARRANGEMENTS’’ after ‘‘PREPAID
PLANS’’;
(2) in the matter preceding subpara-
graph (A), by striking ‘‘organization—’’
and inserting ‘‘organization, directly or
through contractual arrangements with
other entities, to individuals enrolled
with the organization—’’;
(3) in subparagraph (A), by inserting
‘‘or part C’’ after ‘‘section 1876’’;
(4) by striking ‘‘or’’ at the end of sub-
paragraph (C);
(5) by striking the period at the end
of subparagraph (D) and inserting a
comma; and
(6) by adding at the end the following
new subparagraphs:
669
Subtitle C, Part 1
‘‘(E) with a contract with a State
to provide services under the State
plan under title XIX (in accordance
with section 1903(m)) or a State
MediGrant plan under title XXI; or
‘‘(F) which is a MedicarePlus or-
ganization under part C or which
provides or arranges for the provi-
sion of health care items or services
pursuant to a written agreement be-
tween the organization and an indi-
vidual or entity if the written agree-
ment places the individual or entity
at substantial financial risk for the
cost or utilization of the items or
services which the individual or en-
tity is obligated to provide, whether
through a withhold, capitation, incen-
tive pool, per diem payment, or any
other similar risk arrangement which
places the individual or entity at sub-
stantial financial risk.’’.
(d) NEW EXCEPTION FOR SHARED FACILITY
SERVICES.—
670
Subtitle C, Part 1
(1) IN
GENERAL.—Section 1877(b) (42
U.S.C. 1395nn(b)), as amended by section
15201(b)(3)(C), is amended—
(A) by redesignating paragraphs
(4) through (7) as paragraphs (5)
through (8); and
(B) by inserting after paragraph
(3) the following new paragraph:
‘‘(4) SHARED FACILITY SERVICES.—In the
case of a designated health service con-
sisting of a shared facility service of a
shared facility—
‘‘(A) that is furnished—
‘‘(i) personally by the refer-
ring physician who is a shared fa-
cility physician or personally by
an individual directly employed
or under the general supervision
of such a physician,
‘‘(ii) by a shared facility in a
building in which the referring
physician furnishes substantially
all of the services of the physician
that are unrelated to the furnish-
ing of shared facility services, and
671
Subtitle C, Part 1
‘‘(iii) to a patient of a shared
facility physician; and
‘‘(B) that is billed by the referring
physician or a group practice of
which the physician is a member.’’.
(2) DEFINITIONS.—Section 1877(h) (42
U.S.C. 1395nn(h)), as amended by section
15201(b)(6), is amended by inserting be-
fore paragraph (4) the following new
paragraph:
‘‘(1) SHARED FACILITY RELATED DEFINI-
TIONS.—
‘‘(A) SHARED
FACILITY
SERVICE.—
The term ‘shared facility service’
means, with respect to a shared facil-
ity, a designated health service fur-
nished by the facility to patients of
shared facility physicians.
‘‘(B) SHARED
FACILITY.—The term
‘shared facility’ means an entity that
furnishes 
shared 
facility 
services
under a shared facility arrangement.
‘‘(C) SHARED FACILITY PHYSICIAN.—
The term ‘shared facility physician’
means, with respect to a shared facil-
672
Subtitle C, Part 1
ity, a physician (or a group practice
of which the physician is a member)
who 
has 
a 
financial 
relationship
under a shared facility arrangement
with the facility.
‘‘(D) SHARED
FACILITY
ARRANGE-
MENT.—The term ‘shared facility ar-
rangement’ means, with respect to
the provision of shared facility serv-
ices in a building, a financial ar-
rangement—
‘‘(i) which is only between
physicians 
who 
are 
providing
services (unrelated to shared fa-
cility services) in the same build-
ing,
‘‘(ii) in which the overhead ex-
penses of the facility are shared,
in accordance with methods pre-
viously determined by the physi-
cians in the arrangement, among
the physicians in the arrange-
ment, and
‘‘(iii) which, in the case of a
corporation, is wholly owned and
673
Subtitle C, Part 1
controlled by shared facility phy-
sicians.’’.
(e) NEW
EXCEPTION
FOR
SERVICES
FUR-
NISHED IN COMMUNITIES WITH NO ALTERNATIVE
PROVIDERS.—Section 
1877(b) 
(42 
U.S.C.
1395nn(b)), 
as 
amended 
by 
section
15201(b)(3)(C) and subsection (d)(1), is amend-
ed—
(1) by redesignating paragraphs (5)
through (8) as paragraphs (6) through (9);
and
(2) by inserting after paragraph (4)
the following new paragraph:
‘‘(5) NO
ALTERNATIVE
PROVIDERS
IN
AREA.—In the case of a designated health
service furnished in any area with re-
spect to which the Secretary determines
that individuals residing in the area do
not have reasonable access to such a des-
ignated health service for which sub-
section (a)(1) does not apply.’’.
(f) NEW
EXCEPTION
FOR
SERVICES
FUR-
NISHED IN AMBULATORY SURGICAL CENTERS.—
Section 1877(b) (42 U.S.C. 1395nn(b)), as
674
Subtitle C, Part 1
amended by section 15201(b)(3)(C), subsection
(d)(1), and subsection (e)(1), is amended—
(1) by redesignating paragraphs (6)
through (9) as paragraphs (7) through
(10); and
(2) by inserting after paragraph (5)
the following new paragraph:
‘‘(6) SERVICES
FURNISHED
IN
AMBULA-
TORY SURGICAL CENTERS.—In the case of a
designated health service furnished in an
ambulatory surgical center described in
section 1832(a)(2)(F)(i).’’.
(g) NEW
EXCEPTION
FOR
SERVICES
FUR-
NISHED IN RENAL DIALYSIS FACILITIES.—Section
1877(b) (42 U.S.C. 1395nn(b)), as amended by
section 15201(b)(3)(C), subsection (d)(1), sub-
section (e)(1), and subsection (f), is amended—
(1) by redesignating paragraphs (7)
through (10) as paragraphs (8) through
(11); and
(2) by inserting after paragraph (6)
the following new paragraph:
‘‘(7) SERVICES FURNISHED IN RENAL DI-
ALYSIS FACILITIES.—In the case of a des-
ignated health service furnished in a
675
Subtitle C, Part 1
renal 
dialysis 
facility 
under 
section
1881.’’.
(h) NEW EXCEPTION
FOR SERVICES FUR-
NISHED
IN
A
HOSPICE.—Section 1877(b) (42
U.S.C. 1395nn(b)), as amended by section
15201(b)(3)(C), subsection (d)(1), subsection
(e)(1), subsection (f), and subsection (g), is
amended—
(1) by redesignating paragraphs (8)
through (11) as paragraphs (9) through
(12); and
(2) by inserting after paragraph (7)
the following new paragraph:
‘‘(8) SERVICES FURNISHED BY A HOSPICE
PROGRAM.—In the case of a designated
health service furnished by a hospice
program under section 1861(dd)(2).’’.
(i) NEW
EXCEPTION
FOR
SERVICES
FUR-
NISHED IN A COMPREHENSIVE OUTPATIENT REHA-
BILITATION
FACILITY.—Section 
1877(b) 
(42
U.S.C. 1395nn(b)), as amended by section
15201(b)(3)(C), subsection (d)(1), subsection
(e)(1), subsection (f), subsection (g), and sub-
section (h), is amended—
676
Subtitle C, Part 1
(1) by redesignating paragraphs (9)
through (12) as paragraphs (10) through
(13); and
(2) by inserting after paragraph (8)
the following new paragraph:
‘‘(9) SERVICES
FURNISHED
IN
A
COM-
PREHENSIVE
OUTPATIENT
REHABILITATION
FACILITY.—In the case of a designated
health service furnished in a comprehen-
sive outpatient rehabilitation facility (as
defined in section 1861(cc)(2)).’’.
(i) 
DEFINITION
OF
REFERRAL.—Section
1877(h)(5)(A) (42 U.S.C. 1395nn(h)(5)(A)) is
amended—
(1) by striking ‘‘an item or service’’
and inserting ‘‘a designated health serv-
ice’’, and
(2) by striking ‘‘the item or service’’
and inserting ‘‘the designated health
service’’.
SEC. 15205. REPEAL OF REPORTING REQUIREMENTS.
Section 1877 (42 U.S.C. 1395nn) is amend-
ed—
(1) by striking subsection (f); and
(2) by striking subsection (g)(5).
677
Subtitle C, Part 2
SEC. 15206. PREEMPTION OF STATE LAW.
Section 1877 (42 U.S.C. 1395nn) is amend-
ed by adding at the end the following new
subsection:
‘‘(i) PREEMPTION OF STATE LAW.—This sec-
tion preempts State law to the extent State
law is inconsistent with this section.’’.
SEC. 15207. EFFECTIVE DATE.
Except as provided in section 15203(b),
the amendments made by this part shall apply
to referrals made on or after August 14, 1995,
regardless of whether or not regulations are
promulgated to carry out such amendments.
PART 2—OTHER MEDICARE REGULATORY
RELIEF
SEC. 15211. REPEAL OF MEDICARE AND MEDICAID COV-
ERAGE DATA BANK.
(a) IN GENERAL.—Section 1144 (42 U.S.C.
1320b–14), as added by section 13581(a) of
OBRA–93, is repealed.
(b) CONFORMING AMENDMENTS.—
(1) MEDICARE.—Section 1862(b)(5) of
such 
Act 
(42 
U.S.C. 
1395y(b)(5)), 
as
amended by section 13581(b)(1) of OBRA–
93, is amended—
678
Subtitle C, Part 2
(A) in subparagraph (B), by strik-
ing the dash and all that follows
through the end and inserting ‘‘sub-
paragraph (A) for purposes of carry-
ing out this subsection.’’, and
(B) in subparagraph (C)(i), by
striking ‘‘subparagraph (B)(i)’’ and in-
serting ‘‘subparagraph (B)’’.
(2) 
MEDICAID.—Section
1902(a)(25)(A)(i) of such Act (42 U.S.C.
1396a(a)(25)(A)(i)), as amended by section
13581(b)(2) of OBRA–93, is amended by
striking ‘‘including the use of’’ and all
that follows through ‘‘any additional
measures’’.
(3) ERISA.—Section 101(f) of the Em-
ployee Retirement Income Security Act of
1974 (29 U.S.C. 1021(f)) is repealed.
(4) 
DATA
MATCHES.—Section
552a(a)(8)(B) of title 5, United States
Code, as amended by section 13581(c) of
OBRA–93, is amended—
(A) by adding ‘‘; or’’ at the end of
clause (v),
679
Subtitle C, Part 2
(B) by striking ‘‘or’’ at the end of
clause (vi), and
(C) by striking clause (vii).
SEC. 15212. CLARIFICATION OF LEVEL OF INTENT RE-
QUIRED FOR IMPOSITION OF SANCTIONS.
(a) CLARIFICATION OF LEVEL OF KNOWLEDGE
REQUIRED FOR IMPOSITION OF CIVIL MONETARY
PENALTIES.—
(1) IN GENERAL.—Section 1128A(a) (42
U.S.C. 1320a–7a(a)) is amended—
(A) in paragraphs (1) and (2), by
inserting ‘‘knowingly’’ before ‘‘pre-
sents’’ each place it appears; and
(B) in paragraph (3), by striking
‘‘gives’’ 
and 
inserting 
‘‘knowingly
gives or causes to be given’’.
(2) DEFINITION OF STANDARD.—Section
1128A(i) (42 U.S.C. 1320a–7a(i)) is amend-
ed by adding at the end the following
new paragraph:
‘‘(6) The term ‘should know’ means
that a person, with respect to informa-
tion—
680
Subtitle C, Part 2
‘‘(A) acts in deliberate ignorance
of the truth or falsity of the informa-
tion; or
‘‘(B) acts in reckless disregard of
the truth or falsity of the information,
and no proof of specific intent to defraud
is required.’’.
(b) CLARIFICATION OF EFFECT AND APPLICA-
TION OF SAFE HARBOR EXCEPTIONS.—For pur-
poses of section 1128B(b)(3) of the Social Se-
curity Act, the specification of any payment
practice in regulations promulgated pursuant
to section 14(a) of the Medicare and Medicaid
Program and Patient Protection Act of 1987
is—
(1) solely for the purpose of adding
additional exceptions to the types of con-
duct which are not subject to an anti-
kickback penalty under such section and
not for the purpose of limiting the scope
of such exceptions; and
(2) for the purpose of prescribing cri-
teria for qualifying for such an exception
notwithstanding the intent of the party
involved.
681
Subtitle C, Part 2
(c) LIMITING IMPOSITION OF ANTI-KICKBACK
PENALTIES TO ACTIONS WITH SIGNIFICANT PUR-
POSE
TO
INDUCE
REFERRALS.—Section
1128B(b)(2) 
(42 
U.S.C. 
1320a–7b(b)(2)) 
is
amended in the matter preceding subpara-
graph (A) by striking ‘‘to induce’’ and insert-
ing ‘‘for the significant purpose of inducing’’.
(d) EFFECTIVE
DATE.—The amendments
made by this section shall apply to acts or
omissions occurring on or after January 1,
1996.
SEC. 15213. ADDITIONAL EXCEPTION TO ANTI-KICKBACK
PENALTIES FOR MANAGED CARE ARRANGE-
MENTS.
(a) IN GENERAL.—Section 1128B(b)(3) (42
U.S.C. 1320a–7b(b)(3)) is amended—
(1) by striking ‘‘and’’ at the end of
subparagraph (D);
(2) by striking the period at the end
of subparagraph (E) and inserting ‘‘;
and’’; and
(3) by adding at the end the following
new subparagraph:
‘‘(F) any remuneration between an or-
ganization and an individual or entity
682
Subtitle C, Part 2
providing services pursuant to a written
agreement between the organization and
the individual or entity if the organiza-
tion 
is 
a 
MedicarePlus 
organization
under part C of title XVIII or if the writ-
ten agreement places the individual or
entity at substantial financial risk for the
cost or utilization of the items or services
which the individual or entity is obli-
gated to provide, whether through a
withhold, capitation, incentive pool, per
diem payment, or any other similar risk
arrangement which places the individual
or entity at substantial financial risk.’’.
(b) EFFECTIVE
DATE.—The amendment
made by subsection (a) shall apply to acts or
omissions occurring on or after January 1,
1996.
SEC. 15214. SOLICITATION AND PUBLICATION OF MODI-
FICATIONS TO EXISTING SAFE HARBORS AND
NEW SAFE HARBORS.
(a) IN GENERAL.—
(1) 
SOLICITATIONS.—Not 
later 
than
January 1, 1996, and not less than annu-
ally thereafter, the Secretary of Health
683
Subtitle C, Part 2
and Human Services shall publish a no-
tice in the Federal Register soliciting
proposals, which will be accepted during
a 60-day period, for—
(A) modifications to existing safe
harbors issued pursuant to section
14(a) of the Medicare and Medicaid
Patient and Program Protection Act
of 1987;
(B) additional safe harbors speci-
fying payment practices that shall not
be treated as a criminal offense under
section 1128B(b) of the Social Secu-
rity Act and shall not serve as the
basis for an exclusion under section
1128(b)(7) of such Act; and
(C) special fraud alerts to be is-
sued pursuant to section 15101(c).
(2) PUBLICATION
OF
PROPOSED
MODI-
FICATIONS AND PROPOSED ADDITIONAL SAFE
HARBORS.—Not later than 120 days after
receiving the proposals described in sub-
paragraphs (A) and (B) of paragraph (1),
the Secretary, after considering such pro-
posals in consultation with the Attorney
684
Subtitle C, Part 2
General, shall publish in the Federal Reg-
ister proposed modifications to existing
safe harbors and proposed additional
safe harbors, if appropriate, with a 60-
day comment period. After considering
any public comments received during
this period, the Secretary shall issue final
rules modifying the existing safe harbors
and establishing new safe harbors, as ap-
propriate.
(3) REPORT.—The Inspector General
shall, in an annual report to Congress or
as part of the year-end semiannual report
required by section 5 of the Inspector
General Act of 1978, describe the propos-
als received under subparagraphs (A)
and (B) of paragraph (1) and explain
which proposals were included in the
publication described in paragraph (2),
which proposals were not included in
that publication, and the reasons for the
rejection of the proposals that were not
included.
(b) CRITERIA
FOR MODIFYING
AND ESTAB-
LISHING SAFE HARBORS.—In modifying and es-
685
Subtitle C, Part 2
tablishing safe harbors under subsection
(a)(2), the Secretary may consider the extent
to which providing a safe harbor for the spec-
ified payment practice may result in any of
the following:
(1) An increase or decrease in access
to health care services.
(2) An increase or decrease in the
quality of health care services.
(3) An increase or decrease in patient
freedom of choice among health care pro-
viders.
(4) An increase or decrease in com-
petition among health care providers.
(5) An increase or decrease in the
cost to health care programs of the Fed-
eral Government.
(6) An increase or decrease in the po-
tential overutilization of health care serv-
ices.
(8) Any other factors the Secretary
deems appropriate in the interest of pre-
venting fraud and abuse in health care
programs of the Federal Government.
686
Subtitle C, Part 2
SEC. 15215. ISSUANCE OF ADVISORY OPINIONS UNDER
TITLE XI.
(a) IN GENERAL.—Title XI (42 U.S.C. 1301 et
seq.), as amended by section 15104(a), is
amended by inserting after section 1129 the
following new section:
‘‘ADVISORY OPINIONS
‘‘SEC. 1130. (a) ISSUANCE OF ADVISORY OPIN-
IONS.—The Secretary shall issue written advi-
sory opinions as provided in this section.
‘‘(b) MATTERS SUBJECT TO ADVISORY OPIN-
IONS.—The Secretary shall issue advisory
opinions as to the following matters:
‘‘(1) What constitutes prohibited re-
muneration within the meaning of sec-
tion 1128B(b).
‘‘(2) Whether an arrangement or pro-
posed arrangement satisfies the criteria
set forth in section 1128B(b)(3) for activi-
ties which do not result in prohibited re-
muneration.
‘‘(3) Whether an arrangement or pro-
posed arrangement satisfies the criteria
which the Secretary has established, or
shall establish by regulation for activities
687
Subtitle C, Part 2
which do not result in prohibited remu-
neration.
‘‘(4) What constitutes an inducement
to reduce or limit services to individuals
entitled to benefits under title XVIII or
title XIX or title XXI within the meaning
of section 1128B(b).
‘‘(5) Whether any activity or proposed
activity constitutes grounds for the impo-
sition of a sanction under section 1128,
1128A, or 1128B.
‘‘(c) MATTERS NOT SUBJECT
TO ADVISORY
OPINIONS.—Such advisory opinions shall not
address the following matters:
‘‘(1) Whether the fair market value
shall be, or was paid or received for any
goods, services or property.
‘‘(2) Whether an individual is a bona
fide employee within the requirements of
section 3121(d)(2) of the Internal Revenue
Code of 1986.
‘‘(d) EFFECT OF ADVISORY OPINIONS.—
‘‘(1) BINDING AS TO SECRETARY AND PAR-
TIES INVOLVED.—Each advisory opinion is-
sued by the Secretary shall be binding as
688
Subtitle C, Part 2
to the Secretary and the party or parties
requesting the opinion.
‘‘(2) FAILURE
TO
SEEK
OPINION.—The
failure of a party to seek an advisory
opinion may not be introduced into evi-
dence to prove that the party intended to
violate the provisions of sections 1128,
1128A, or 1128B.
‘‘(e) REGULATIONS.—
‘‘(1) IN GENERAL.—Not later than 180
days after the date of the enactment of
this section, the Secretary shall issue reg-
ulations to carry out this section. Such
regulations shall provide for—
‘‘(A) the procedure to be followed
by a party applying for an advisory
opinion;
‘‘(B) the procedure to be followed
by the Secretary in responding to a
request for an advisory opinion;
‘‘(C) the interval in which the Sec-
retary shall respond;
‘‘(D) the reasonable fee to be
charged to the party requesting an
advisory opinion; and
689
Subtitle C, Part 2
‘‘(E) the manner in which advi-
sory opinions will be made available
to the public.
‘‘(2) SPECIFIC
CONTENTS.—Under the
regulations 
promulgated 
pursuant 
to
paragraph (1)—
‘‘(A) the Secretary shall be re-
quired to respond to a party request-
ing an advisory opinion by not later
than 30 days after the request is re-
ceived; and
‘‘(B) the fee charged to the party
requesting an advisory opinion shall
be equal to the costs incurred by the
Secretary in responding to the re-
quest.’’.
(b) EFFECTIVE
DATE.—The amendment
made by subsection (a) shall apply to requests
for advisory opinions made on or after Janu-
ary 1, 1996.
SEC. 15216. PRIOR NOTICE OF CHANGES IN BILLING AND
CLAIMS PROCESSING REQUIREMENTS FOR
PHYSICIANS’ SERVICES.
Except as may be specifically provided by
Congress, the Secretary of Health and Human
690
Subtitle C, Part 3
Services may not implement any change in
the requirements imposed on the billing and
processing of claims for payment for physi-
cians’ services under part B of the medicare
program unless the Secretary notifies the in-
dividuals furnishing such services of the
change not later than 120 days before the ef-
fective date of the change.
PART 3—PROMOTING PHYSICIAN SELF-POLICING
SEC. 15221. EXEMPTION FROM ANTITRUST LAWS FOR CER-
TAIN ACTIVITIES OF MEDICAL SELF-REGU-
LATORY ENTITIES.
(a) EXEMPTION DESCRIBED.—An activity re-
lating to the provision of health care services
shall be exempt from the antitrust laws, and
any State law similar to the antitrust laws, if
the activity is within the safe harbor de-
scribed in subsection (b).
(b) SAFE HARBOR FOR ACTIVITIES OF MEDI-
CAL SELF-REGULATORY ENTITIES.—
(1) IN GENERAL.—Subject to paragraph
(2), any activity of a medical self-regu-
latory entity relating to standard setting
or standard enforcement activities that
691
Subtitle C, Part 3
are designed to promote the quality of
health care services provided to patients.
(2) EXCEPTION.—No activity of a medi-
cal self-regulatory entity may be deemed
to fall under the safe harbor established
under paragraph (1) if the activity—
(A) is conducted for purposes of
financial gain, or
(B) interferes with the provision
of health care services by any health
care provider who is not a member of
the specific profession which is sub-
ject to the authority of the medical
self-regulatory entity.
(c) DEFINITIONS.—For purposes of this sec-
tion:
(1) ANTITRUST LAWS.—The term ‘‘anti-
trust laws’’ has the meaning given it in
subsection (a) of the first section of the
Clayton Act (15 U.S.C. 12(a)), except that
such term includes section 5 of the Fed-
eral Trade Commission Act (15 U.S.C. 45)
to the extent such section applies to un-
fair methods of competition.
692
Subtitle C, Part 3
(2) HEALTH BENEFIT PLAN.—The term
‘‘health benefit plan’’ means—
(A) a hospital or medical expense
incurred policy or certificate,
(B) a hospital or medical service
plan contract,
(C) a health maintenance sub-
scriber contract,
(D) a multiple employer welfare
arrangement 
or 
employee 
benefit
plan (as defined under the Employee
Retirement Income Security Act of
1974), or
(E) a MedicarePlus product (of-
fered under part C of title XVIII of
the Social Security Act),
that provides benefits with respect to
health care services.
(3) HEALTH
CARE
SERVICE.—the term
‘‘health care service’’ means any service
for which payment may be made under a
health benefit plan including services re-
lated to the delivery or administration of
such service.
693
Subtitle C, Part 3
(4) 
MEDICAL
SELF-REGULATORY
EN-
TITY.—the term ‘‘medical self-regulatory
entity’’ means a medical society or asso-
ciation, a specialty board, a recognized
accrediting agency, or a hospital medical
staff, and includes the members, officers,
employees, consultants, and volunteers or
committees of such an entity.
(5) HEALTH CARE PROVIDER.—The term
‘‘health care provider’’ means any indi-
vidual or entity that is engaged in the de-
livery of health care services in a State
and that is required by State law or regu-
lation to be licensed or certified by the
State to engage in the delivery of such
services in the State.
(6) STANDARD SETTING OR STANDARD EN-
FORCEMENT ACTIVITIES.— The term ‘‘stand-
ard setting or standard enforcement ac-
tivities’’ means—
(A) accreditation of health care
practitioners, health care providers,
medical 
education 
institutions, 
or
medical education programs,
694
Subtitle D, Part 1
(B) technology assessment and
risk management activities,
(C) the development and imple-
mentation of practice guidelines or
practice parameters, or
(D) official peer review proceed-
ings undertaken by a hospital medi-
cal staff (or committee thereof) or a
medical society or association for
purposes of evaluating the profes-
sional conduct or quality of health
care provided by a medical profes-
sional.
Subtitle D—Medical Liability
Reform
PART 1—GENERAL PROVISIONS
SEC. 15301. FEDERAL REFORM OF HEALTH CARE LIABILITY
ACTIONS.
(a) 
APPLICABILITY.—This 
subtitle 
shall
apply with respect to any health care liability
action brought in any State or Federal court,
except that this subtitle shall not apply to an
action for damages arising from a vaccine-re-
lated injury or death to the extent that title
695
Subtitle D, Part 1
XXI of the Public Health Service Act applies
to the action.
(b) PREEMPTION.—This subtitle shall pre-
empt any State law to the extent such law is
inconsistent with the limitations contained in
this subtitle. This subtitle shall not preempt
any State law that provides for defenses or
places limitations on a person’s liability in ad-
dition to those contained in this subtitle or
otherwise imposes greater restrictions than
those provided in this subtitle.
(c) EFFECT
ON SOVEREIGN IMMUNITY
AND
CHOICE OF LAW OR VENUE.—Nothing in sub-
section (b) shall be construed to—
(1) waive or affect any defense of sov-
ereign immunity asserted by any State
under any provision of law;
(2) waive or affect any defense of sov-
ereign immunity asserted by the United
States;
(3) affect the applicability of any pro-
vision of the Foreign Sovereign Immuni-
ties Act of 1976;
(4) preempt State choice-of-law rules
with respect to claims brought by a for-
696
Subtitle D, Part 1
eign nation or a citizen of a foreign na-
tion; or
(5) affect the right of any court to
transfer venue or to apply the law of a
foreign nation or to dismiss a claim of a
foreign nation or of a citizen of a foreign
nation on the ground of inconvenient
forum.
(d) AMOUNT IN CONTROVERSY.—In an action
to which this subtitle applies and which is
brought under section 1332 of title 28, United
States Code, the amount of noneconomic dam-
ages or punitive damages, and attorneys’ fees
or costs, shall not be included in determining
whether the matter in controversy exceeds
the sum or value of $50,000.
(e) FEDERAL COURT JURISDICTION NOT ES-
TABLISHED ON FEDERAL QUESTION GROUNDS.—
Nothing in this subtitle shall be construed to
establish any jurisdiction in the district
courts of the United States over health care
liability actions on the basis of section 1331 or
1337 of title 28, United States Code.
SEC. 15302. DEFINITIONS.
As used in this subtitle:
697
Subtitle D, Part 1
(1) ACTUAL
DAMAGES.—The term ‘‘ac-
tual damages’’ means damages awarded
to pay for economic loss.
(2) ALTERNATIVE
DISPUTE
RESOLUTION
SYSTEM; ADR.—The term ‘‘alternative dis-
pute resolution system’’ or ‘‘ADR’’ means
a system established under Federal or
State law that provides for the resolution
of health care liability claims in a man-
ner other than through health care liabil-
ity actions.
(3) CLAIMANT.—The term ‘‘claimant’’
means any person who brings a health
care liability action and any person on
whose behalf such an action is brought. If
such action is brought through or on be-
half of an estate, the term includes the
claimant’s decedent. If such action is
brought through or on behalf of a minor
or incompetent, the term includes the
claimant’s legal guardian.
(4) CLEAR AND CONVINCING EVIDENCE.—
The term ‘‘clear and convincing evidence’’
is that measure or degree of proof that
will produce in the mind of the trier of
698
Subtitle D, Part 1
fact a firm belief or conviction as to the
truth of the allegations sought to be es-
tablished, except that such measure or
degree of proof is more than that re-
quired under preponderance of the evi-
dence but less than that required for
proof beyond a reasonable doubt.
(5) COLLATERAL
SOURCE
PAYMENTS.—
The term ‘‘collateral source payments’’
means any amount paid or reasonably
likely to be paid in the future to or on be-
half of a claimant, or any service, prod-
uct, or other benefit provided or reason-
ably likely to be provided in the future to
or on behalf of a claimant, as a result of
an injury or wrongful death, pursuant
to—
(A) any State or Federal health,
sickness, income-disability, accident
or workers’ compensation Act;
(B) any health, sickness, income-
disability, or accident insurance that
provides health benefits or income-
disability coverage;
699
Subtitle D, Part 1
(C) any contract or agreement of
any group, organization, partnership,
or corporation to provide, pay for, or
reimburse the cost of medical, hos-
pital, dental, or income disability ben-
efits; and
(D) any other publicly or pri-
vately funded program.
(6) ECONOMIC
LOSS.—The term ‘‘eco-
nomic loss’’ means any pecuniary loss re-
sulting from harm (including the loss of
earnings, medical expense loss, replace-
ment services loss, loss due to death, and
burial costs), to the extent recovery for
such loss is allowed under applicable
State law.
(7) HARM.—The term ‘‘harm’’ means
any legally cognizable wrong or injury
for which punitive damages may be im-
posed.
(8) HEALTH
CARE
LIABILITY
ACTION.—
The term ‘‘health care liability action’’
means a civil action brought in a State or
Federal court against a health care pro-
vider, an entity which is obligated to pro-
700
Subtitle D, Part 1
vide or pay for health benefits under any
health plan (including any person or en-
tity acting under a contract or arrange-
ment to provide or administer any health
benefit), or the manufacturer, distributor,
supplier, marketer, promoter, or seller of
a medical product, in which the claimant
alleges a claim (including third party
claims, cross claims, counter claims, or
distribution claims) based upon the pro-
vision of (or the failure to provide or pay
for) health care services or the use of a
medical product, regardless of the theory
of liability on which the claim is based or
the number of plaintiffs, or defendants or
causes of action.
(9) HEALTH CARE LIABILITY CLAIM.—The
term ‘‘health care liability claim’’ means a
claim in which the claimant alleges that
injury was caused by the provision of (or
the failure to provide) health care serv-
ices.
(10) 
HEALTH
CARE
PROVIDER.—The
term ‘‘health care provider’’ means any
individual, organization, or institution
701
Subtitle D, Part 1
that is engaged in the delivery of health
care services in a State and that is re-
quired by the laws or regulations of the
State to be licensed or certified by the
State to engage in the delivery of such
services in the State.
(11) 
NONECONOMIC
DAMAGES.—The
term 
‘‘noneconomic 
damages’’ 
means
damages paid to an individual for pain
and suffering, inconvenience, emotional
distress, mental anguish, loss of consor-
tium, injury to reputation, humiliation,
and other nonpecuniary losses.
(12) 
PERSON.—The 
term 
‘‘person’’
means any individual, corporation, com-
pany, association, firm, partnership, soci-
ety, joint stock company, or any other en-
tity, including any governmental entity.
(13) 
PUNITIVE
DAMAGES.—The 
term
‘‘punitive 
damages’’ 
means 
damages
awarded against any person not to com-
pensate for actual injury suffered, but to
punish or deter such person or others
from engaging in similar behavior in the
future.
702
Subtitle D, Part 2
(14) STATE.—The term ‘‘State’’ means
each of the several States, the District of
Columbia, the Commonwealth of Puerto
Rico, the Virgin Islands, Guam, American
Samoa, the Northern Mariana Islands,
the Trust Territories of the Pacific Is-
lands, and any other territory or posses-
sion of the United States.
SEC. 15303. EFFECTIVE DATE.
This subtitle will apply to any health care
liability action brought in a Federal or State
court and to any health care liability claim
subject to an alternative dispute resolution
system, that is initiated on or after the date
of enactment of this subtitle, except that any
health care liability claim or action arising
from an injury occurring prior to the date of
enactment of this subtitle shall be governed
by the applicable statute of limitations provi-
sions in effect at the time the injury occurred.
PART 2—UNIFORM STANDARDS FOR HEALTH
CARE LIABILITY ACTIONS
SEC. 15311. STATUTE OF LIMITATIONS.
A health care liability action may not be
brought after the expiration of the 2-year pe-
703
Subtitle D, Part 2
riod that begins on the date on which the al-
leged injury that is the subject of the action
was discovered or should reasonably have
been discovered, but in no case after the expi-
ration of the 5-year period that begins on the
date the alleged injury occurred.
SEC. 15312. CALCULATION AND PAYMENT OF DAMAGES.
(a) TREATMENT
OF
NONECONOMIC
DAM-
AGES.—
(1) LIMITATION ON NONECONOMIC DAM-
AGES.—The total amount of noneconomic
damages that may be awarded to a claim-
ant for losses resulting from the injury
which is the subject of a health care li-
ability action may not exceed $250,000,
regardless of the number of parties
against whom the action is brought or
the number of actions brought with re-
spect to the injury.
(2) JOINT
AND
SEVERAL
LIABILITY.—In
any health care liability action brought
in State or Federal court, a defendant
shall be liable only for the amount of
noneconomic damages attributable to
such defendant in direct proportion to
704
Subtitle D, Part 2
such defendant’s share of fault or respon-
sibility for the claimant’s actual damages,
as determined by the trier of fact. In all
such cases, the liability of a defendant for
noneconomic damages shall be several
and not joint.
(b) TREATMENT OF PUNITIVE DAMAGES.—
(1) GENERAL RULE.—Punitive damages
may, to the extent permitted by applica-
ble State law, be awarded in any health
care liability action for harm in any Fed-
eral or State court against a defendant if
the claimant establishes by clear and con-
vincing evidence that the harm suffered
was result of conduct—
(A) specifically intended to cause
harm, or
(B) conduct manifesting a con-
scious, flagrant indifference to the
rights or safety of others.
(2) 
PROPORTIONAL
AWARDS.—The
amount of punitive damages that may be
awarded in any health care liability ac-
tion subject to this subtitle shall not ex-
ceed 3 times the amount of damages
705
Subtitle D, Part 2
awarded to the claimant for economic
loss, or $250,000, whichever is greater.
This section shall be applied by the court
and shall not be disclosed to the jury.
(c) 
APPLICABILITY.—This 
section 
shall
apply to any health care liability action
brought in any Federal or State court on any
theory where punitive damages are sought.
This section does not create a cause of action
for punitive damages. This section does not
preempt or supersede any State or Federal
law to the extent that such law would further
limit the award of punitive damages.
(d) BIFURCATION.—At the request of any
party, the trier of fact shall consider in a sepa-
rate proceeding whether punitive damages
are to be awarded and the amount of such
award. If a separate proceeding is requested,
evidence relevant only to the claim of puni-
tive damages, as determined by applicable
State law, shall be inadmissible in any pro-
ceeding to determine whether actual damages
are to be awarded.
(e) DRUGS AND DEVICES.—
706
Subtitle D, Part 2
(1)(A) Punitive damages shall not be
awarded against a manufacturer or prod-
uct seller of a drug (as defined in section
201(g)(1) of the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 321(g)(1)) or med-
ical device (as defined in section 201(h) of
the Federal Food, Drug, and Cosmetic Act
(21 U.S.C. 321(h)) which caused the claim-
ant’s harm where—
(i) such drug or device was sub-
ject to premarket approval by the
Food and Drug Administration with
respect to the safety of the formula-
tion or performance of the aspect of
such drug or device which caused the
claimant’s harm or the adequacy of
the packaging or labeling of such
drug or device, and such drug was
approved by the Food and Drug Ad-
ministration; or
(ii) the drug is generally recog-
nized as safe and effective pursuant
to conditions established by the Food
and Drug Administration and appli-
707
Subtitle D, Part 2
cable regulations, including packag-
ing and labeling regulations.
(B) Subparagraph (A) shall not apply
in any case in which the defendant, be-
fore or after premarket approval of a
drug or device—
(i) intentionally and wrongfully
withheld from or misrepresented to
the Food and Drug Administration in-
formation concerning such drug or
device 
required 
to 
be 
submitted
under the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 301 et seq.) or
section 351 of the Public Health Serv-
ice Act (42 U.S.C. 262) that is material
and relevant to the harm suffered by
the claimant, or
(ii) made an illegal payment to an
official or employee of the Food and
Drug Administration for the purpose
of securing or maintaining approval
of such drug or device.
(2) PACKAGING.—In a health care li-
ability action for harm which is alleged
to relate to the adequacy of the packag-
708
Subtitle D, Part 2
ing (or labeling relating to such packag-
ing) of a drug which is required to have
tamper-resistant packaging under regula-
tions of the Secretary of Health and
Human Services (including labeling regu-
lations related to such packaging), the
manufacturer of the drug shall not be
held liable for punitive damages unless
the drug is found by the court by clear
and convincing evidence to be substan-
tially out of compliance with such regula-
tions.
(f) 
PERIODIC
PAYMENTS
FOR
FUTURE
LOSSES.—
(1) GENERAL RULE.—In any health care
liability action in which the damages
awarded for future economic and non-
economic loss exceeds $50,000, a person
shall not be required to pay such dam-
ages in a single, lump-sum payment, but
shall be permitted to make such pay-
ments periodically based on when the
damages are found likely to occur, as
such payments are determined by the
court.
709
Subtitle D, Part 2
(2) FINALITY OF JUDGMENT.—The judg-
ment of the court awarding periodic pay-
ments under this subsection may not, in
the absence of fraud, be reopened at any
time to contest, amend, or modify the
schedule or amount of the payments.
(3) LUMP-SUM SETTLEMENTS.—This sub-
section shall not be construed to preclude
a settlement providing for a single, lump-
sum payment.
(g) TREATMENT
OF
COLLATERAL
SOURCE
PAYMENTS.—
(1) INTRODUCTION
INTO
EVIDENCE.—In
any health care liability action, any de-
fendant may introduce evidence of collat-
eral source payments. If any defendant
elects to introduce such evidence, the
claimant may introduce evidence of any
amount paid or contributed or reason-
ably likely to be paid or contributed in
the future by or on behalf of the claimant
to secure the right to such collateral
source payments.
(2) NO SUBROGATION.—No provider of
collateral source payments shall recover
710
Subtitle D, Part 2
any amount against the claimant or re-
ceive any lien or credit against the claim-
ant’s recovery or be equitably or legally
subrogated the right of the claimant in a
health care liability action. This sub-
section shall apply to an action that is
settled as well as an action that is re-
solved by a fact finder.
SEC. 15313. ALTERNATIVE DISPUTE RESOLUTION.
Any ADR used to resolve a health care li-
ability action or claim shall contain provi-
sions relating to statute of limitations, non-
economic damages, joint and several liability,
punitive damages, collateral source rule, and
periodic payments which are identical to the
provisions relating to such matters in this
subtitle.
711
Subtitle E, Part 1
Subtitle E—Teaching Hospitals and
Graduate Medical Education
PART 1—TEACHING HOSPITAL AND GRADUATE
MEDICAL EDUCATION TRUST FUND
SEC. 15401. ESTABLISHMENT OF FUND; PAYMENTS TO
TEACHING HOSPITALS.
The Social Security Act (42 U.S.C. 300 et
seq.) is amended by adding after title XXI the
following title:
‘‘TITLE XXII—TEACHING HOSPITAL AND
GRADUATE 
MEDICAL 
EDUCATION
TRUST FUND
‘‘PART A—ESTABLISHMENT OF FUND
‘‘SEC. 2201. ESTABLISHMENT OF FUND.
‘‘(a) IN GENERAL.—There is established in
the Treasury of the United States a fund to be
known as the Teaching Hospital and Grad-
uate Medical Education Trust Fund (in this
title referred to as the ‘Fund’), consisting of
amounts appropriated to the Fund in sub-
section (d) and subsection (e)(3), amounts
transferred to the Fund under section 1886(j),
and such gifts and bequests as may be depos-
ited in the Fund pursuant to subsection (f).
712
Subtitle E, Part 1
Amounts in the Fund are available until ex-
pended.
‘‘(b) EXPENDITURES FROM FUND.—Amounts
in the Fund are available to the Secretary for
making payments under section 2211.
‘‘(c) ACCOUNTS IN FUND.—There are estab-
lished within the Fund the following ac-
counts:
‘‘(1) The Indirect-Costs Medical Edu-
cation Account.
‘‘(2) The Medicare Direct-Costs Medi-
cal Education Account.
‘‘(3) The General Direct-Costs Medical
Education Account.
‘‘(d) GENERAL TRANSFERS TO FUND.—
‘‘(1) IN GENERAL.—For fiscal year 1997
and each subsequent fiscal year, there
are appropriated to the Fund (effective
on the applicable date under paragraph
(2)), out of any money in the Treasury not
otherwise appropriated, the following
amounts (as applicable to the fiscal year
involved):
‘‘(A) 
For 
fiscal 
year 
1997,
$400,000,000.
713
Subtitle E, Part 1
‘‘(B) 
For 
fiscal 
year 
1998,
$600,000,000.
‘‘(C) 
For 
fiscal 
year 
1999,
$2,000,000,000.
‘‘(D) 
For 
fiscal 
year 
2000,
$3,000,000,000.
‘‘(E) 
For 
fiscal 
year 
2001,
$4,000,000,000.
‘‘(F) 
For 
fiscal 
year 
2002,
$5,800,000,000.
‘‘(G) For fiscal year 2003 and each
subsequent fiscal year, the greater of
the amount appropriated for the pre-
ceding fiscal year or an amount equal
to the product of—
‘‘(i) the amount appropriated
for the preceding fiscal year; and
‘‘(ii) 1 plus the percentage in-
crease in the nominal gross do-
mestic product for the one-year
period ending upon July 1 of such
preceding fiscal year.
‘‘(2) EFFECTIVE
DATE
FOR
ANNUAL
AP-
PROPRIATION.—For purposes of paragraph
(1) (and for purposes of section 2221(a)(1),
714
Subtitle E, Part 1
and subsections (b)(1)(A) and (c)(1)(A) of
section 2231)), the applicable date for a
fiscal year is the first day of the fiscal
year, exclusive of Saturdays, Sundays,
and Federal holidays.
‘‘(3) ALLOCATION
AMONG
CERTAIN
AC-
COUNTS.—Of the amount appropriated in
paragraph (1) for a fiscal year—
‘‘(A) there shall be allocated to the
Indirect-Costs Medical Education Ac-
count 
the 
percentage 
determined
under paragraph (4)(B); and
‘‘(B) there shall be allocated to the
General Direct-Costs Medical Edu-
cation Account the percentage deter-
mined under paragraph (4)(C).
‘‘(4) 
DETERMINATION
OF
PERCENT-
AGES.—The 
Secretary 
of 
Health 
and
Human Services, acting through the Ad-
ministrator of the Health Care Financing
Administration, shall determine the fol-
lowing:
‘‘(A) The total amount of pay-
ments that were made under sub-
715
Subtitle E, Part 1
sections (d)(5)(B) and (h) of section
1886 for fiscal year 1994.
‘‘(B) The percentage of such total
that was constituted by payments
under subsection (d)(5)(B) of such
section.
‘‘(C) The percentage of such total
that was constituted by payments
under subsection (h) of such section.
‘‘(e) INVESTMENT.—
‘‘(1) IN GENERAL.—The Secretary of the
Treasury shall invest such amounts of the
Fund as such Secretary determines are
not required to meet current withdrawals
from the Fund. Such investments may be
made only in interest-bearing obligations
of the United States. For such purpose,
such obligations may be acquired on
original issue at the issue price, or by
purchase of outstanding obligations at
the market price.
‘‘(2) SALE
OF
OBLIGATIONS.—Any obli-
gation acquired by the Fund may be sold
by the Secretary of the Treasury at the
market price.
716
Subtitle E, Part 1
‘‘(3) AVAILABILITY OF INCOME.—Any in-
terest derived from obligations acquired
by the Fund, and proceeds from any sale
or redemption of such obligations, are
hereby appropriated to the Fund.
‘‘(f) ACCEPTANCE OF GIFTS AND BEQUESTS.—
The Fund may accept on behalf of the United
States money gifts and bequests made uncon-
ditionally to the Fund for the benefit of the
Fund or any activity financed through the
Fund.
‘‘PART B—PAYMENTS TO TEACHING HOSPITALS
‘‘Subpart 1—Requirement of Payments
‘‘SEC. 2211. FORMULA PAYMENTS TO TEACHING HOS-
PITALS.
‘‘(a) IN GENERAL.—Subject to subsection
(d), in the case of each teaching hospital that
in accordance with subsection (b) submits to
the Secretary a payment document for fiscal
year 1997 or any subsequent fiscal year, the
Secretary shall make payments for the year to
the teaching hospital for the costs of operat-
ing approved medical residency training pro-
grams. Such payments shall be made from the
Fund, and the total of the payments to the
717
Subtitle E, Part 1
hospital for the fiscal year shall equal the sum
of the following:
‘‘(1) An amount determined under
section 2221 (relating to the indirect
costs of graduate medical education).
‘‘(2) An amount determined under
section 2231 (relating to the direct costs
of graduate medical education).
‘‘(b) PAYMENT DOCUMENT.—For purposes of
subsection (a), a payment document is a docu-
ment containing such information as may be
necessary for the Secretary to make payments
under such subsection to a teaching hospital
for a fiscal year. The document is submitted
in accordance with this subsection if the doc-
ument is submitted not later than the date
specified by the Secretary, and the document
is in such form and is made in such manner
as the Secretary may require. The Secretary
may require that information under this sub-
section be submitted to the Secretary in peri-
odic reports.
‘‘(c) ADMINISTRATOR
OF PROGRAMS.—This
part, and the subsequent parts of this title,
shall be carried out by the Secretary acting
718
Subtitle E, Part 1
through the Administrator of the Health Care
Financing Administration.
‘‘(d) SPECIAL RULES.—
‘‘(1) AUTHORITY
REGARDING
PAYMENTS
TO CONSORTIA OF PROVIDERS.—In the case
of payments under subsection (a) that are
determined under section 2231:
‘‘(A) The requirement under such
subsection to make the payments to
teaching hospitals is subject to the
authority of the Secretary under sec-
tion 2233(a) to make payments to
qualifying consortia.
‘‘(B) If the Secretary authorizes
such a consortium for purposes of
section 2233(a), subsections (a) and
(b) of this section apply to the consor-
tium to the same extent and in the
same 
manner 
as 
the 
subsections
apply to teaching hospitals.
‘‘(2) CERTAIN
HOSPITALS.—Paragraph
(1) of subsection (a) is subject to sections
2222 and 2223 of subpart 2. Paragraph (2)
of subsection (a) is subject to sections
2232 through 2234 of subpart 3.
720
Subtitle E, Part 1
tive percentages determined under para-
graph (3) for each fiscal year of the appli-
cable period (as defined in paragraph
(2)), adjusted by the Secretary (upward
or downward, as the case may be) on a
pro rata basis to the extent necessary to
ensure that the sum of the percentages
determined under this paragraph for all
teaching hospitals is equal to 100 percent.
The preceding sentence is subject to sec-
tions 2222 and 2223.
‘‘(2) APPLICABLE
PERIOD
REGARDING
RELEVANT DATA; FISCAL YEARS 1992 THROUGH
1994.—For purposes of this part, the term
‘applicable period’ means the period be-
ginning on the first day of fiscal year
1992 and continuing through the end of
fiscal year 1994.
‘‘(3) RESPECTIVE
DETERMINATIONS
FOR
FISCAL YEARS OF APPLICABLE PERIOD.—For
purposes of paragraph (1), the percentage
determined under this paragraph for a
teaching hospital for a fiscal year of the
applicable period is the percentage con-
stituted by the ratio of—
749
Subtitle E, Part 2
cal Insurance Trust Fund, the Sec-
retary shall, for fiscal year 1997 and
each subsequent fiscal year, transfer
to the Medicare Direct-Costs Medical
Education Account (under section
2201) the sum of—
‘‘(i) an amount determined by
the Secretary in accordance with
subparagraph (B); and
‘‘(ii) as applicable, an amount
determined by the Secretary in
accordance 
with 
subparagraph
(C)(ii).
‘‘(B) 
DETERMINATION
OF
AMOUNTS.—For each hospital (other
than a hospital that is a member of a
qualifying consortium referred to in
subparagraph 
(C)), 
the 
Secretary
shall make an estimate for the fiscal
year involved of the amount that
would have been paid under sub-
section (h) to the hospital during the
fiscal year if such payments had not
been terminated for cost reporting
periods ending on or before Septem-