199
State base outlay allotment under this
subsection for fiscal year 1999, and
‘‘(V) for each of fiscal years 2001
and 2002, 102 percent of the amount
of the State base outlay allotment
under this subsection for the previous
fiscal year.
‘‘(iii) FLOOR BASED ON OUTLAY AL-
LOTMENT
GROWTH
RATE
IN
FIRST
YEAR.—Beginning with fiscal year 1998,
in the case of a State for which the outlay
allotment under this subsection for fiscal
year 1997 exceeded its outlay allotment
under this subsection for the previous fis-
cal year by more than 95 percent of the
national growth percentage for fiscal year
1997, 90 percent of the national growth
percentage for the fiscal year involved.
‘‘(B) CEILINGS.—
‘‘(i) IN GENERAL.—Subject to clause
(ii), in no case shall the amount of the
State base outlay allotment under para-
graph (2) for a fiscal year be greater than
the product of—
200
‘‘(I) the State base outlay allot-
ment under this subsection for the
State for the preceding fiscal year,
and
‘‘(II) 
the 
applicable 
percent
(specified in clause (ii) or (iii)) for the
fiscal year involved.
‘‘(ii) GENERAL
RULE
FOR
APPLICA-
BLE
PERCENT.—For purposes of clause
(i), subject to clause (iii), the ‘applicable
percent’ for fiscal year 1997 is 126.98 per-
cent and for a subsequent fiscal year is
133 percent of the national growth per-
centage for the fiscal year.
‘‘(iii) SPECIAL
RULE.—For a fiscal
year after fiscal year 1997, in the case of
a State (among the 50 States and the Dis-
trict of Columbia) that is one of the 10
States with the lowest Federal spending
per resident-in-poverty rates (as deter-
mined under clause (iv)) for the fiscal
year, the ‘applicable percent’ is 150 per-
cent of the national growth percentage for
the fiscal year.
201
‘‘(iv) DETERMINATION
OF
FEDERAL
SPENDING
PER
RESIDENT-IN-POVERTY
RATE.—For purposes of clause (iii), the
‘Federal spending per resident-in-poverty
rate’ for a State for a fiscal year is equal
to—
‘‘(I) the State’s outlay allotment
under this subsection for the previous
fiscal year (determined without regard
to paragraph (4)), divided by
‘‘(II) the average annual number
of residents of the State in poverty
(as defined in subsection (d)(2)) with
respect to the fiscal year.
‘‘(C) SPECIAL RULE.—
‘‘(i) IN
GENERAL.—Notwithstanding
the preceding subparagraphs of this para-
graph, the State base outlay allotment
for—
‘‘(I) Louisiana, subject to sub-
clause (II), for each of the fiscal years
1997 
through 
2000, 
is
$2,622,000,000,
‘‘(II) Louisiana for fiscal year
1997 only, as otherwise determined,
202
shall be increased by $37,048,207,
and
‘‘(III) Nevada for each of fiscal
years 1997, 1998, and 1999, as other-
wise determined, shall be increased by
$90,000,000.
‘‘(ii) EXCEPTION.—A State described
in subclause (I) of clause (i) may apply to
the Secretary for use of the State base out-
lay allotment otherwise determined under
this subsection for any fiscal year, if such
State notifies the Secretary not later than
March 1 preceding such fiscal year that
such State will be able to expend sufficient
State funds in such fiscal year to qualify
for such allotment.
‘‘(iii) TREATMENT
OF
INCREASE
AS
SUPPLEMENTAL
ALLOTMENT.—Any 
in-
crease in an outlay allotment under clause
(i)(II) or (i)(III) shall not be taken into ac-
count for purposes of determining—
‘‘(I) the adjustment factor under
paragraph (2) for fiscal year 1997,
203
‘‘(II) any State base outlay allot-
ment for a fiscal year after fiscal year
1997,
‘‘(III) the base pool amount for a
fiscal year after fiscal year 1997, or
‘‘(IV) determination of the na-
tional growth percentage for any fiscal
year.
‘‘(4) ELECTION
OF
ALTERNATIVE
GROWTH
FORMULA.—
‘‘(A) ELECTION.—In order to reduce vari-
ations in increases in outlay allotments over
time, any of the 50 States or the District of Co-
lumbia may elect (by notice provided to the Sec-
retary by not later than April 1, 1997) to adopt
an alternative growth rate formula under this
paragraph for the determination of the State’s
base outlay allotment in fiscal year 1997 and
for the increase in the amount of such allot-
ment in subsequent fiscal years.
‘‘(B) FORMULA.—The alternative growth
formula under this paragraph may be any for-
mula under which a portion of the State base
outlay allotment for fiscal year 1997 under
paragraph (1) is deferred and applied to in-
204
crease the amount of its base outlay allotment
for one or more subsequent fiscal years, so long
as the total amount of such increases for all
such subsequent fiscal years does not exceed the
amount of the base outlay allotment deferred
from fiscal year 1997.
‘‘(5) COMMONWEALTHS AND TERRITORIES.—
‘‘(A) IN GENERAL.—The base outlay allot-
ment for each of the Commonwealths and Ter-
ritories for a fiscal year is the maximum
amount that could have been certified under
section 1108(c) (as in effect on the day before
the date of the enactment of this title) with re-
spect to the Commonwealth or Territory for the
fiscal year with respect to title XIX, if the na-
tional growth percentage (as determined under
subsection (b)(2)) for the fiscal year had been
substituted (beginning with fiscal year 1997)
for the percentage increase referred to in sec-
tion 1108(c)(1)(B) (as so in effect).
‘‘(B) DISREGARD OF ROUNDING REQUIRE-
MENTS.—For purposes of subparagraph (A),
the 
rounding 
requirements 
under 
section
1108(c) shall not apply.
205
‘‘(C) LIMITATION ON TOTAL AMOUNT FOR
FISCAL YEAR 1996.—Notwithstanding the provi-
sions of subparagraph (A), the total amount of
the base outlay allotments for the Common-
wealths and Territories for fiscal year 1996
may not exceed $139,950,000.
‘‘(d) STATE AGGREGATE EXPENDITURE NEED DE-
TERMINED.—
‘‘(1) IN GENERAL.—For purposes of subsection
(c), the ‘State aggregate expenditure need’ for a
State or the District of Columbia for a fiscal year
is equal to the product of the following 4 factors:
‘‘(A) PROGRAM NEED.—The program need
for the State for the fiscal year, as determined
under paragraph (2).
‘‘(B) HEALTH
CARE
COST
INDEX.—The
health care cost index for the State (as deter-
mined under paragraph (3)) for the most recent
fiscal year for which data are available.
‘‘(C) PROJECTED
INFLATION.—The CPI
increase factor for the fiscal year (as defined in
subsection (g)(4)(C)).
‘‘(D) NATIONAL AVERAGE SPENDING PER
RESIDENT IN POVERTY.—The national average
206
spending per resident in poverty (as determined
under paragraph (4)).
‘‘(2) PROGRAM NEED.—
‘‘(A) IN GENERAL.—In this subsection and
subject to subparagraph (D), the ‘program
need’ of a State for a fiscal year is equal to the
sum, for each of the population groups de-
scribed in subparagraph (B), of the product de-
scribed in subparagraph (C) for that population
group.
‘‘(B) POPULATION GROUPS DESCRIBED.—
The population groups described in this sub-
paragraph are as follows:
‘‘(i) INDIVIDUALS BETWEEN 60 AND
85.—Individuals who are least 60, but less
than 85, years of age.
‘‘(ii) INDIVIDUALS 85 OR OLDER.—In-
dividuals who are 85 years of age or older.
‘‘(iii) DISABLED INDIVIDUALS.—Indi-
viduals who are eligible for medical assist-
ance because such individuals are blind or
disabled and are not described in clause (i)
or (ii).
‘‘(iv) 
CHILDREN.—Individuals 
de-
scribed in subsection (g)(2)(B).
207
‘‘(v) OTHER
INDIVIDUALS.—Individ-
uals not described in a previous clause of
this subparagraph.
‘‘(C) PRODUCT DESCRIBED.—The product
described in this subparagraph, with respect to
a population group for a fiscal year for a State
(or District), is the product of the following 2
factors for that group, year, and State (or Dis-
trict):
‘‘(i) WEIGHTING FACTOR REFLECTING
RELATIVE NEED FOR THE GROUP.—For all
States, the national average per recipient
expenditures under this title in the 50
States and the District of Columbia for in-
dividuals in such group, as determined
under subparagraph (E), divided by the
national average of such averages for all
such groups (weighted by the number of
recipients in each group).
‘‘(ii) NUMBER OF NEEDY IN GROUP.—
The product of—
‘‘(I) for all groups, the average
annual number of residents in poverty
in such State or District (based on
data made generally available by the
208
Bureau of the Census from the Cur-
rent Population Survey) for the most
recent 3-calendar-year period (ending
before the fiscal year) for which such
data are available; and
‘‘(II) the proportion, of all indi-
viduals who received medical assist-
ance under this title in such State or
District, that were individuals in such
group.
In clause (ii)(II), the term ‘resident in pov-
erty’ means an individual whose family in-
come does not exceed the poverty threshold
(as such terms are defined by the Office of
Management and Budget and are generally
interpreted and applied by the Bureau of
the Census for the year involved).
‘‘(D) FLOORS AND CEILINGS ON PROGRAM
NEED.—
‘‘(i) IN GENERAL.—In no case shall
the value of the program need for a State
for a fiscal year be less than 90 percent,
or be more than 115 percent, of the pro-
gram need based on national averages (de-
209
termined under clause (ii)) for that State
for the fiscal year.
‘‘(ii) PROGRAM NEED BASED ON NA-
TIONAL
AVERAGES.—For 
purposes 
of
clause (i), the ‘program need based on na-
tional average’ for a fiscal year is equal to
the sum of the product (for each of the
population groups) of the following 3 fac-
tors (for that group, year, and State or
District):
‘‘(I) WEIGHTING
FACTOR
FOR
GROUP.—The weighting factor for the
group (described in subparagraph
(C)(i)).
‘‘(II) TOTAL NUMBER OF NEEDY
IN STATE.—For all groups, the aver-
age annual number of residents in
poverty in such State or District (as
defined in subparagraph (C)(ii)(I)).
‘‘(III) NATIONAL
PROPORTION
OF
NEEDY
IN
GROUP.—The propor-
tion, of all individuals who received
medical assistance under this title in
all of the States and the District in all
210
such groups, that were individuals in
such group.
‘‘(E) 
DETERMINATION
OF
NATIONAL
AVERAGES
AND
PROPORTIONS.—The national
averages per recipient and the proportions re-
ferred to in subparagraph (C)(ii) and (C)(iii),
respectively, shall be determined by the Sec-
retary using the most recent data available.
‘‘(F) EXPENDITURE DEFINED.—For pur-
poses of this paragraph, the term ‘expenditure’
means medical vendor payments by basis of eli-
gibility as reported by HCFA Form 2082.
‘‘(3) HEALTH CARE COST INDEX.—
‘‘(A) IN
GENERAL.—In this section, the
‘health care cost index’ for a State or the Dis-
trict of Columbia for a fiscal year is the sum
of—
‘‘(i) 0.15, and
‘‘(ii) 0.85 multiplied by the ratio of
(I) the annual average wages for hospital
employees in such State or District for the
fiscal year (as determined under subpara-
graph (B)), to (II) the annual average
wages for hospital employees in the 50
States and the District of Columbia for
211
such year (as determined under such sub-
paragraph).
‘‘(B) DETERMINATION OF ANNUAL AVER-
AGE
WAGES
OF
HOSPITAL
EMPLOYEES.—The
Secretary shall provide for the determination of
annual average wages for hospital employees in
a State or the District of Columbia and, collec-
tively, in the 50 States and the District of Co-
lumbia for a fiscal year based on the area wage
data applicable to hospitals under section
1886(d)(2)(E) (or, if such data no longer ex-
ists, comparable data of hospital wages) for dis-
charges occurring during the fiscal year in-
volved.
‘‘(4) NATIONAL AVERAGE SPENDING PER RESI-
DENT
IN
POVERTY.—For purposes of this sub-
section, the ‘national average spending per resident
in poverty’—
‘‘(A) for fiscal year 1997 is equal to—
‘‘(i) the sum (for each of the 50
States and the District of Columbia) of the
total of the Federal and State expenditures
under title XIX for calendar quarters in
fiscal year 1994, increased by the percent-
age by which (I) the base pool amount for
212
fiscal 
year 
1997, 
exceeds 
(II)
$83,213,431,458 (which represents Fed-
eral medicaid expenditures for such States
and District for fiscal year 1994); divided
by
‘‘(ii) the sum of the number of resi-
dents in poverty (as defined in paragraph
(2)(C)(ii)(I)) for all of the 50 States and
the District of Columbia for fiscal year
1994; and
‘‘(B) for a succeeding fiscal year is equal
to the national average spending per resident in
poverty under this paragraph for the preceding
fiscal year increased by the national growth
percentage (as defined in subsection (b)(2)) for
the fiscal year involved.
‘‘(e) PUBLICATION OF OBLIGATION AND OUTLAY AL-
LOTMENTS.—
‘‘(1) NOTICE OF PRELIMINARY ALLOTMENTS.—
Not later than April 1 before the beginning of each
fiscal year (beginning with fiscal year 1997), the
Secretary shall initially compute, after consultation
with the Comptroller General, and publish in the
Federal Register notice of the proposed base obliga-
tion allotment, base outlay allotment, and supple-
213
mental allotments under subsections (f) and (h) for
each State under this section (not taking into ac-
count subsection (a)(2)(B)) for the fiscal year. The
Secretary shall include in the notice a description of
the methodology and data used in deriving such al-
lotments for the year.
‘‘(2) REVIEW BY GAO.—The Comptroller Gen-
eral shall submit to Congress by not later than May
15 of each such fiscal year, a report analyzing such
allotments and the extent to which they comply with
the precise requirements of this section.
‘‘(3) NOTICE
OF
FINAL
ALLOTMENTS.—Not
later than July 1 before the beginning of each such
fiscal year, the Secretary, taking into consideration
the analysis contained in the report of the Comptrol-
ler General under paragraph (2), shall compute and
publish in the Federal Register notice of the final al-
lotments under this section (both taking into ac-
count and not taking into account subsection
(a)(2)(B)) for the fiscal year. The Secretary shall in-
clude in the notice a description of any changes in
such allotments from the initial allotments published
under paragraph (1) for the fiscal year and the rea-
sons for such changes. Once published under this
214
paragraph, the Secretary is not authorized to change
such allotments.
‘‘(4) GAO REPORT ON FINAL ALLOTMENTS.—
The Comptroller General shall submit to Congress
by not later than August 1 of each such fiscal year,
a report analyzing the final allotments under para-
graph (3) and the extent to which they comply with
the precise requirements of this section.
‘‘(5) TRANSITIONAL
RULE
FOR
FISCAL
YEAR
1997.—With respect to fiscal year 1997, the dead-
lines under the previous provisions of this subsection
shall be extended by a number of days equal to the
number of days between May 1, 1996, and the date
of the enactment of this title.
‘‘(f) SUPPLEMENTAL
ALLOTMENT
FOR
CERTAIN
HEALTH CARE SERVICES TO CERTAIN ALIENS.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion for each of fiscal years 1998 through 2002 in
the case of a subsection (f) supplemental allotment
eligible State, the amount of the supplemental allot-
ment under this subsection is the amount provided
under paragraph (2) for the State for that year.
Such amount may only be used for the purpose of
providing medical assistance for care and services
for aliens described in paragraph (1) of section
215
1513(f) and for which the exception described in
paragraph (2) of such section applies. Section
1512(f)(4) shall apply to such assistance in the same
manner as it applies to medical assistance described
in such section.
‘‘(2) SUPPLEMENTAL AMOUNT.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the supplemental amount for a sub-
section (f) supplemental allotment eligible State
for a fiscal year is equal to the subsection (f)
supplemental allotment ratio (as defined in sub-
paragraph (C)) multiplied by the subsection (f)
supplemental pool amount (specified in sub-
paragraph (D)) for the fiscal year.
‘‘(B) SUBSECTION (f) SUPPLEMENTAL AL-
LOTMENT ELIGIBLE STATE.—In this subsection,
the term ‘subsection (f) supplemental allotment
eligible State’ means one of the 15 States with
the highest number of undocumented alien resi-
dents of all the States.
‘‘(C) SUBSECTION (f) SUPPLEMENTAL AL-
LOTMENT RATIO.—In this paragraph, the ‘sub-
section (f) supplemental allotment ratio’ for a
State is the ratio of—
216
‘‘(i) the number of undocumented
aliens residing in the State, to
‘‘(ii) the sum of such numbers for all
subsection (f) supplemental allotment eligi-
ble States.
‘‘(D) SUBSECTION (f) supplemental pool
amount.—In this paragraph, the ‘subsection (f)
supplemental pool amount’—
‘‘(i) 
for 
fiscal 
year 
1998 
is
$500,000,000,
‘‘(ii) 
for 
fiscal 
year 
1999 
is
$600,000,000,
‘‘(iii) 
for 
fiscal 
year 
2000 
is
$700,000,000,
‘‘(iv) 
for 
fiscal 
year 
2001 
is
$800,000,000, and
‘‘(v) 
for 
fiscal 
year 
2002 
is
$900,000,000.
‘‘(E) DETERMINATION OF NUMBER.—
‘‘(i) IN
GENERAL.—The number of
undocumented aliens residing in a State
under this paragraph—
‘‘(I) for fiscal year 1998 shall be
determined based on estimates of the
resident illegal alien population resid-
217
ing in each State prepared by the Sta-
tistics Division of the Immigration
and Naturalization Service as of Octo-
ber 1992, and
‘‘(II) for a subsequent fiscal year
shall be determined based on the most
recent updated estimate made under
clause (ii).
‘‘(ii) UPDATING ESTIMATE.—For each
fiscal year beginning with fiscal year 1999,
the Secretary, in consultation with the
Commission of the Immigration and Natu-
ralization Service, States, and outside ex-
perts, shall estimate the number of un-
documented aliens residing in each of the
50 States and the District of Columbia.
‘‘(g) SUPPLEMENTAL PER BENEFICIARY UMBRELLA
ALLOTMENT FOR STATES WITH EXCESS GROWTH IN CER-
TAIN POPULATION GROUPS.—
‘‘(1) IN GENERAL.—Subject to paragraphs (5)
through (7), for purposes of this section the amount
of the supplemental allotment under this subsection
for a State for a fiscal year (beginning with fiscal
year 1997) is the sum, for each supplemental allot-
218
ment population group described in paragraph (2),
of the product of the following:
‘‘(A) EXCESS NUMBER OF INDIVIDUALS.—
The excess number of individuals (if any, deter-
mined under paragraph (3)) for State and the
fiscal year who are in the population group.
‘‘(B) 
APPLICABLE
PER
BENEFICIARY
AMOUNT.—The 
applicable 
per 
beneficiary
amount (determined under paragraph (4)) for
the State and fiscal year for the population
group.
‘‘(C) FMAP.—The old Federal medical as-
sistance percentage (as defined in section
1512(d)) for the State and fiscal year.
‘‘(2) SUPPLEMENTAL ALLOTMENT POPULATION
GROUP.—In this subsection, each of the following
shall be considered to be a separate ‘supplemental
allotment population group’:
‘‘(A) POOR PREGNANT WOMEN.—Individ-
uals described in section 1501(a)(1)(A).
‘‘(B) POOR
CHILDREN.—Individuals (not
described in subparagraph (C))—
‘‘(i) described in subparagraph (B) or
(C) of section 1501(a)(1), or
219
‘‘(ii) described in subparagraph (F) or
(G) of section 1501(a)(1) who are under
21 years of age and who are not pregnant
women.
‘‘(C) POOR DISABLED INDIVIDUALS.—Only
in the case of a State that has elected the op-
tion (of guaranteeing coverage of disabled indi-
viduals) described in section 1501(a)(1)(D)(ii)
for the fiscal year (and, in the case of a fiscal
year after fiscal year 1997, for the previous fis-
cal year), individuals—
‘‘(i) who are described in such section;
or
‘‘(ii) who are described in section
1502(a) under paragraph (1) of that sec-
tion.
‘‘(D) POOR ELDERLY INDIVIDUALS.—Indi-
viduals who are—
‘‘(i) 
described 
in 
section
1501(a)(1)(E); or
‘‘(ii) described in section 1502(a)
under paragraph (2) of that section.
‘‘(E) 
QUALIFIED
MEDICARE
BENE-
FICIARIES.—Individuals described in section
220
1501(b)(1)(A) who are not described in sub-
paragraph (D).
‘‘(F) QUALIFIED DISABLED AND WORKING
INDIVIDUALS.—Individuals described in section
1501(b)(1)(B) who are not described in sub-
paragraph (D).
‘‘(G) CERTAIN
OTHER
MEDICARE
BENE-
FICIARIES.—Individuals described in section
1501(b)(1)(C) who are not described in sub-
paragraph (D).
‘‘(H) OTHER POOR ADULTS.—Individuals
described in section 1501(a)(1)(G) who are not
within a population group described in a pre-
vious subparagraph.
‘‘(3) EXCESS NUMBER OF INDIVIDUALS.—
‘‘(A) IN GENERAL.—In this subsection, the
‘excess number of individuals’, for a State for
a fiscal year with respect to a supplemental al-
lotment population group, is equal to the
amount (if any) by which—
‘‘(i) the number of full-year equivalent
individuals in the population group for the
State and fiscal year, exceeds
‘‘(ii) the anticipated number of such
individuals (as determined under subpara-
221
graph (B)) for the State and fiscal year in
such group.
‘‘(B) ANTICIPATED NUMBER.—
‘‘(i) IN GENERAL.—In subparagraph
(A)(ii), the ‘anticipated number’ of individ-
uals for a State in a supplemental allot-
ment population group for—
‘‘(I) fiscal year 1997 is equal to
the number of full-year equivalent in-
dividuals in such group enrolled in the
State medicaid plan under title XIX
in fiscal year 1996 increased by the
percentage increase factor (described
in clause (ii)) for fiscal year 1997; or
‘‘(II) a subsequent fiscal year is
equal to the number of full-year equiv-
alent individuals in the population
group for the State for the previous
fiscal year increased by the percentage
increase factor (described in clause
(ii)) for that subsequent fiscal year.
‘‘(ii) PERCENTAGE
INCREASE
FAC-
TOR.—For purposes of this subparagraph,
the ‘percentage increase factor’ for a fiscal
year is equal to zero or, if greater, the
222
number of percentage points by which (I)
the State percentage growth factor (as de-
fined in subparagraph (C)) for the fiscal
year, exceeds (II) the percentage increase
in the consumer price index for all urban
consumers (U.S. city average) during the
12-month period beginning with July be-
fore the beginning of the fiscal year.
‘‘(C) STATE
PERCENTAGE
GROWTH
FAC-
TOR.—In this paragraph, the term ‘State per-
centage growth factor’ means, for a State for a
fiscal year, the percentage by which (i) the
State outlay allotment for the State for the fis-
cal year (determined under this section without
regard to this subsection or subsection (f) or
(h)), exceeds (ii) such outlay allotment for such
State for the preceding fiscal year (as so deter-
mined).
‘‘(D) INDIVIDUALS COUNT ONLY ONCE.—
An individual may at any time not be counted
in more than one supplemental allotment popu-
lation group.
‘‘(4) 
APPLICABLE
PER
BENEFICIARY
AMOUNT.—
223
‘‘(A) IN
GENERAL.—In this subsection,
subject to subparagraph (D), the ‘applicable per
beneficiary amount’, for a State for a fiscal
year for a supplemental allotment population
group, is equal to the base per beneficiary
amount (determined under subparagraph (B))
for the State for the group, increased by the
Secretary’s estimate of the increase in the per
beneficiary expenditures under this title (and
title XIX) for States between fiscal year 1995
and fiscal year 1996, and further increased (for
each subsequent fiscal year up to the fiscal year
involved and in a compounded manner) by the
CPI increase factor (as defined in subparagraph
(C)) for each such fiscal year.
‘‘(B) BASE PER BENEFICIARY AMOUNT.—
‘‘(i) IN
GENERAL.—The Secretary
shall determine for each State a base per
beneficiary amount for each supplemental
allotment population group equal to—
‘‘(I) the sum of the total expendi-
ture amounts described in clauses (ii)
and (iii), divided by
‘‘(II) the full-year equivalent
number of such individuals in such
224
group enrolled under the State plan
under title XIX for fiscal year 1995.
‘‘(ii) MEDICAL ASSISTANCE EXPENDI-
TURES.—The total expenditure amount de-
scribed in this clause, with respect to a
supplemental allotment population group,
is the total amount of expenditures for
which Federal financial participation was
provided to the State under paragraphs (1)
and (5) of section 1903(a) for fiscal year
1995 with respect to medical assistance
furnished with respect to individuals in-
cluded in such group. Such amount shall
not include expenditures attributable to
payment adjustments under section 1923.
‘‘(iii) 
ADMINISTRATIVE
EXPENDI-
TURES.—The total expenditure amount de-
scribed in this clause, with respect to a
supplemental allotment population group,
is the product of—
‘‘(I) the total amount of adminis-
trative expenditures for which Federal
financial participation was provided to
the State under section 1903(a)
225
(other than paragraphs (1) and (5) of
such section) for fiscal year 1995, and
‘‘(II) the ratio described in clause
(iv) for the population group.
‘‘(iv) RATIO
DESCRIBED.—The ratio
described in this clause for a group is the
ratio of—
‘‘(I) the total amount of expendi-
tures described in clause (ii) for the
group, to
‘‘(II) the total amount of expend-
itures described in such clause for all
individuals under the State plan
under title XIX in the base fiscal
year.
‘‘(C) CPI INCREASE FACTOR.—In subpara-
graph (A), the ‘CPI increase factor’ for a fiscal
year is the percentage by which—
‘‘(i) the Secretary’s estimate of the
average value of the consumer price index
for all urban consumers (all items, U.S.
city average) for months in the fiscal year,
exceeds
‘‘(ii) the average value of such index
for months in the previous fiscal year.
226
‘‘(D) SPECIAL RULES FOR CERTAIN MEDI-
CARE BENEFICIARIES.—
‘‘(i) 
QUALIFIED
DISABLED
AND
WORKING
INDIVIDUALS.—In the case of
the supplemental allotment population
group described in paragraph (2)(F), the
‘applicable per beneficiary amount’, for all
States for a fiscal year is the sum of the
medicare premiums applied under section
1818A for months in the fiscal year.
‘‘(ii) 
OTHER
MEDICARE
BENE-
FICIARIES.—In the case of the supple-
mental allotment population group de-
scribed in paragraph (2)(G), the ‘applica-
ble per beneficiary amount’, for all States
for a fiscal year is the sum of the medicare
premiums applied under section 1839 for
months in the fiscal year.
‘‘(5) CONDITIONS FOR ACCESS TO UMBRELLA
SUPPLEMENTAL ALLOTMENT.—
‘‘(A) IN GENERAL.—A State may receive a
supplemental umbrella allotment under this
subsection for a fiscal year only if the following
conditions are met:
227
‘‘(i) The State provides assurances
satisfactory to the Secretary that it will ob-
ligate during the fiscal year the full
amount of the allotment otherwise provided
under this section for the fiscal year.
‘‘(ii) The State provides assurances
satisfactory to the Secretary that any
amount attributable to a carryover from a
previous fiscal year under subsection
(a)(2)(B) shall also be obligated under the
plan by the end of the fiscal year.
‘‘(iii) The State submits to the Sec-
retary on a periodic basis such reports on
numbers of individuals within each supple-
mental allotment population group as the
Secretary may determine necessary to as-
sure the accuracy of the supplemental um-
brella allotments under this subsection.
The Secretary may not require the submis-
sion of such reports more frequently than
quarterly.
‘‘(iv) The State provides assurances
satisfactory to the Secretary that it has in
effect such data collection procedures as
228
may be necessary to provide for the reports
described in clause (iii).
‘‘(B) ESTIMATE.—The amount of any sup-
plemental allotment under this subsection shall
be estimated in advance of the fiscal year in-
volved, based on data required to be reported
under subparagraph (A)(iii). The Secretary is
authorized to adjust such data on a preliminary
basis if the Secretary determines that the esti-
mates do not reasonably reflect the actual ex-
cess number of individuals in the supplemental
allotment population groups for the fiscal year
involved. Section 1512(b)(6) provides for ad-
justment of payments of the supplemental allot-
ment under this subsection based on a final de-
termination using data on actual numbers of in-
dividual in each supplemental allotment popu-
lation group.
‘‘(6) ADJUSTMENT
IN
ALLOTMENT
FOR
SAV-
INGS FROM SLOWER POPULATION GROWTH.—
‘‘(A) IN
GENERAL.—The amount of the
supplemental umbrella allotment to a State
under this subsection for a fiscal year shall be
reduced (but not below zero) by the sum, for
each supplemental allotment population group
229
described in paragraph (2), of the product of
the following:
‘‘(i) LESS-THAN-ANTICIPATED
NUM-
BER OF INDIVIDUALS.—The less-than-an-
ticipated number of individuals (if any, de-
termined under subparagraph (B)) for
State and the fiscal year who are in the
population group.
‘‘(ii) APPLICABLE
PER
BENEFICIARY
AMOUNT.—The applicable per beneficiary
amount (determined under paragraph (4))
for the State and fiscal year for the popu-
lation group.
‘‘(iii) FMAP.—The old Federal medi-
cal assistance percentage (as defined in
section 1512(d)) for the State and fiscal
year.
‘‘(B) LESS-THAN-ANTICIPATED
NUMBER
OF INDIVIDUALS.—In this paragraph, the ‘less-
than-anticipated number of individuals’, for a
State for a fiscal year with respect to a supple-
mental allotment population group, is equal to
the amount (if any) by which—
‘‘(i) the anticipated number of such
individuals (as determined under para-
230
graph (3)(B)) for the State and fiscal year
in such group, exceeds
‘‘(ii) the number of full-year equiva-
lent individuals in the population group for
the State and fiscal year.
‘‘(7) SPECIAL RULE FOR FISCAL YEAR 1997.—
In applying this subsection to fiscal year 1997—
‘‘(A) in determining the excess number of
individuals under paragraph (3)—
‘‘(i) the number of full-year equivalent
individuals shall only be determined based
on the portion of fiscal year 1997 in which
the State plan is in effect under this title,
and
‘‘(ii) the anticipated number of such
individuals (referred to in paragraph
(3)(A)(ii)) shall be the anticipated number
otherwise determined multiplied by the
proportion of fiscal year 1997 in which
such State plan will be in effect; and
‘‘(B) if the State plan is effective before
April 1, 1997, the amount of the supplemental
allotment otherwise determined under this sub-
section shall be multiplied by the ratio of the
portion of fiscal year 1997 that occurs on or
231
after April 1, 1997, to the total portion of such
fiscal year in which the State plan is in effect.
‘‘(h) ALLOTMENT FOR MEDICAL ASSISTANCE FOR
SERVICES PROVIDED IN INDIAN HEALTH SERVICE AND
RELATED FACILITIES.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion for each of fiscal years 1998 through 2002 in
the case of a subsection (h) supplemental allotment
eligible State, the amount of the supplemental allot-
ment under this subsection is the amount provided
under paragraph (2) for the State for that year.
Such amount may only be used for the purpose of
providing medical assistance described in section
1512(f)(3) (relating to services provided by the In-
dian Health Service and related facilities).
‘‘(2) SUPPLEMENTAL OUTLAY ALLOTMENT.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the amount under this paragraph for
a subsection (h) supplemental allotment eligible
State for a fiscal year is equal to the subsection
(h) supplemental allotment ratio (as defined in
subparagraph (C)) multiplied by the subsection
(h) supplemental pool amount (specified in sub-
paragraph (D)) for the fiscal year.
232
‘‘(B) SUBSECTION (h) SUPPLEMENTAL AL-
LOTMENT ELIGIBLE STATE.—In this subsection,
the term ‘subsection (h) supplemental allotment
eligible State’ means a State that has one or
more 
facilities 
described 
in 
section
1512(f)(3)(A).
‘‘(C) SUBSECTION (h) supplemental allot-
ment ratio.—In this paragraph, the ‘subsection
(h) supplemental allotment ratio’ for a State is
the ratio of—
‘‘(i) the number of Indians residing in
the State, to
‘‘(ii) the sum of such numbers for all
subsection (h) supplemental allotment eli-
gible States.
‘‘(D) SUBSECTION
(h) 
SUPPLEMENTAL
POOL AMOUNT.—In this paragraph, the ‘sub-
section (h) supplemental pool amount’, for—
‘‘(i) fiscal year 1998 is $89,090,082,
‘‘(ii) fiscal year 1999 is $94,238,788,
‘‘(iii) fiscal year 2000 is $99,685,050,
‘‘(iv) 
fiscal 
year 
2001 
is
$105,446,063, and
‘‘(v) fiscal year 2002 is $111,540,017.
233
‘‘(E) DETERMINATION OF NUMBER.—The
number of Indians residing in a State under
this paragraph for a fiscal year shall be based
on the most recent available estimate of the
Secretary of the Interior.
‘‘(3) INDIAN DEFINED.—The term ‘Indian’ has
the meaning given such term in section 4(d) of the
Indian Self-Determination and Education Assistance
Act (25 U.S.C. 450b(d)).
‘‘SEC. 1512. PAYMENTS TO STATES.
‘‘(a) AMOUNT OF PAYMENT.—From the allotment of
a State under section 1511 for a fiscal year, subject to
the succeeding provisions of this title, the Secretary shall
pay to each State which has a State plan approved under
part C, for each quarter in the fiscal year—
‘‘(1) an amount equal to the applicable Federal
medical assistance percentage (as defined in sub-
section (c)) of the total amount expended during
such quarter as medical assistance under the plan;
plus
‘‘(2) an amount equal to the applicable Federal
medical assistance percentage of the total amount
expended during such quarter for medically-related
services (as defined in section 1571(g)); plus
‘‘(3) subject to section 1513(c)—
234
‘‘(A) an amount equal to 90 percent of the
amounts expended during such quarter for the
design, development, and installation of infor-
mation systems and for providing incentives to
promote the enforcement of medical support or-
ders, plus
‘‘(B) an amount equal to 75 percent of the
amounts expended during such quarter for
medical personnel, administrative support of
medical personnel, operation and maintenance
of information systems, modification of infor-
mation systems, quality assurance activities,
utilization review, medical and peer review,
anti-fraud activities, independent evaluations,
coordination of benefits, and meeting reporting
requirements under this title, plus
‘‘(C) an amount equal to 50 percent of so
much of the remainder of the amounts ex-
pended during such quarter as are expended by
the State in the administration of the State
plan.
‘‘(b) PAYMENT PROCESS.—
‘‘(1) QUARTERLY ESTIMATES.—Prior to the be-
ginning of each quarter, the Secretary shall estimate
the amount to which a State will be entitled under
235
subsection (a) for such quarter, such estimates to be
based on (A) a report filed by the State containing
its estimate of the total sum to be expended in such
quarter in accordance with the provisions of such
subsections, and stating the amount appropriated or
made available by the State and its political subdivi-
sions for such expenditures in such quarter, and if
such amount is less than the State’s proportionate
share of the total sum of such estimated expendi-
tures, the source or sources from which the dif-
ference is expected to be derived, and (B) such other
investigation as the Secretary may find necessary.
‘‘(2) PAYMENT.—
‘‘(A) IN
GENERAL.—The Secretary shall
then pay to the State, in such installments as
the Secretary may determine and in accordance
with section 6503(a) of title 31, United States
Code, the amount so estimated, reduced or in-
creased to the extent of any overpayment or
underpayment which the Secretary determines
was made under this section (or section 1903)
to such State for any prior quarter and with re-
spect to which adjustment has not already been
made under this subsection (or under section
1903(d)).
236
‘‘(B) TREATMENT
AS
OVERPAYMENTS.—
Expenditures for which payments were made to
the State under subsection (a) shall be treated
as an overpayment to the extent that the State
or local agency administering such plan has
been reimbursed for such expenditures by a
third party pursuant to the provisions of its
plan in compliance with section 1555.
‘‘(C) RECOVERY OF OVERPAYMENTS.—For
purposes of this subsection, when an overpay-
ment is discovered, which was made by a State
to a person or other entity, the State shall have
a period of 60 days in which to recover or at-
tempt to recover such overpayment before ad-
justment is made in the Federal payment to
such State on account of such overpayment.
Except as otherwise provided in subparagraph
(D), the adjustment in the Federal payment
shall be made at the end of the 60 days, wheth-
er or not recovery was made.
‘‘(D) 
NO
ADJUSTMENT
FOR
UNCOLLECTABLES.—In any case where the
State is unable to recover a debt which rep-
resents an overpayment (or any portion thereof)
made to a person or other entity on account of
237
such debt having been discharged in bankruptcy
or otherwise being uncollectable, no adjustment
shall be made in the Federal payment to such
State on account of such overpayment (or por-
tion thereof).
‘‘(3) FEDERAL SHARE OF RECOVERIES.—The
pro rata share to which the United States is equi-
tably entitled, as determined by the Secretary, of the
net amount recovered during any quarter by the
State or any political subdivision thereof with re-
spect to medical assistance furnished under the
State plan shall be considered an overpayment to be
adjusted under this subsection.
‘‘(4) TIMING
OF
OBLIGATION
OF
FUNDS.—
Upon the making of any estimate by the Secretary
under this subsection, any appropriations available
for payments under this section shall be deemed ob-
ligated.
‘‘(5) DISALLOWANCES.—In any case in which
the Secretary estimates that there has been an over-
payment under this section to a State on the basis
of a claim by such State that has been disallowed by
the Secretary under section 1116(d) or in the case
described in paragraph (6)(C), and such State dis-
putes such disallowance or an adjustment under
238
such paragraph, the amount of the Federal payment
in controversy shall, at the option of the State, be
retained by such State or recovered by the Secretary
pending a final determination with respect to such
payment amount. If such final determination is to
the effect that any amount was properly disallowed,
and the State chose to retain payment of the
amount in controversy, the Secretary shall offset,
from any subsequent payments made to such State
under this title, an amount equal to the proper
amount of the disallowance plus interest on such
amount disallowed for the period beginning on the
date such amount was disallowed and ending on the
date of such final determination at a rate (deter-
mined by the Secretary) based on the average of the
bond equivalent of the weekly 90-day treasury bill
auction rates during such period.
‘‘(6) ADJUSTMENTS IN PAYMENTS REFLECTING
OVER- AND UNDER-ESTIMATIONS OF SUPPLEMENTAL
UMBRELLA ALLOTMENT.—
‘‘(A) IN
GENERAL.—Based on data re-
ported under section 1511(g)(5)(A)(iii) and an-
nual audits provided for under section 1551(a)
on the actual excess number of individuals in
each population group for a fiscal year, the Sec-
239
retary shall determine the final amount of the
supplemental umbrella allotment for each State
for the fiscal year and whether, based on such
final amount, the amount of payment made for
the fiscal year was greater, or less, than the
amount that should have been paid if payments
had been made based on such final amount.
‘‘(B) PAYMENT IN CASE OF UNDERESTI-
MATION.—If the Secretary determines under
subparagraph (A) there was an underpayment
to a State, the Secretary shall increase the
amount of the next quarterly payment under
this section to the State by the amount of such
underpayment.
‘‘(C) OFFSETTING OF PAYMENTS IN CASE
OF OVERESTIMATION.—If the Secretary deter-
mines under subparagraph (A) there was an
overpayment to a State, the Secretary shall,
subject to the procedures provided under para-
graph (5), decrease the amount of the payment
for the next quarter (or, at the discretion of the
Secretary, over a period of not more than 4 cal-
endar quarters) by the amount of such overpay-
ment. In the case in which a State seeks review
of such a determination in accordance with the
240
procedures under paragraph (5), the Secretary
shall provide for completion of such review
process within 1 year after the date the State
requests such review.
‘‘(c) APPLICABLE FEDERAL MEDICAL ASSISTANCE
PERCENTAGE DEFINED.—In this section, except as pro-
vided in subsection (f), the term ‘applicable Federal medi-
cal assistance percentage’ means, with respect to one of
the 50 States or the District of Columbia, at the State’s
or District’s option—
‘‘(1) the old Federal medical assistance percent-
age (as determined in subsection (d));
‘‘(2) the lesser of—
‘‘(A) new Federal medical assistance per-
centage (as determined under subsection (e)) or
‘‘(B) the old Federal medical assistance
percentage plus 10 percentage points; or
‘‘(3) 60 percent.
‘‘(d) OLD FEDERAL MEDICAL ASSISTANCE PER-
CENTAGE.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2) and subsection (f), the term ‘old Federal
medical assistance percentage’ for any State is 100
percent less the State percentage; and the State per-
centage is that percentage which bears the same
241
ratio to 45 percent as the square of the per capita
income of such State bears to the square of the per
capita income of the continental United States (in-
cluding Alaska) and Hawaii.
‘‘(2) LIMITATION ON RANGE.—In no case shall
the old Federal medical assistance percentage be less
than 50 percent or more than 83 percent.
‘‘(3) PROMULGATION.—The old Federal medical
assistance percentage for any State shall be deter-
mined and promulgated in accordance with the pro-
visions of section 1101(a)(8)(B).
‘‘(e) NEW FEDERAL MEDICAL ASSISTANCE PER-
CENTAGE DEFINED.—
‘‘(1) IN GENERAL.—
‘‘(A) TERM DEFINED.—Except as provided
in paragraph (3) and subsection (f), the term
‘new Federal medical assistance percentage’
means, for each of the 50 States and the Dis-
trict of Columbia, 100 percent reduced by the
product 0.39 and the ratio of—
‘‘(i)(I) for each of the 50 States, the
total taxable resources (TTR) ratio of the
State specified in subparagraph (B), or
242
‘‘(II) for the District of Columbia, the
per capita income ratio specified in sub-
paragraph (C),
to—
‘‘(ii) the aggregate expenditure need
ratio of the State or District, as described
in subparagraph (D).
‘‘(B) TOTAL
TAXABLE
RESOURCES
(TTR)
RATIO.—For 
purposes 
of 
subparagraph
(A)(i)(I), the total taxable resources (TTR)
ratio for each of the 50 States is—
‘‘(i) an amount equal to the most re-
cent 3-year average of the total taxable re-
sources (TTR) of the State, as determined
by the Secretary of the Treasury, divided
by
‘‘(ii) an amount equal to the sum of
the 3-year averages determined under
clause (i) for each of the 50 States.
‘‘(C) PER
CAPITA
INCOME
RATIO.—For
purposes of subparagraph (A)(i)(II), the per
capita income ratio of the District of Columbia
is—
‘‘(i) an amount equal to the most re-
cent 3-year average of the total personal
243
income of the District of Columbia, as de-
termined in accordance with the provisions
of section 1101(a)(8)(B), divided by
‘‘(ii) an amount equal to the total per-
sonal income of the continental United
States (including Alaska) and Hawaii, as
determined under section 1101(a)(8)(B).
‘‘(D) AGGREGATE
EXPENDITURE
NEED
RATIO.—For purposes of subparagraph (A),
with respect to each of the 50 States and the
District of Columbia for a fiscal year, the ag-
gregate expenditure need ratio is—
‘‘(i) the State aggregate expenditure
need (as defined in section 1511(d)) for
the State for the fiscal year, divided by
‘‘(ii) the sum of such State aggregate
expenditure needs for the 50 States and
the District of Columbia for the fiscal year.
‘‘(2) LIMITATION ON RANGE.—Except as pro-
vided in subsection (f), the new Federal medical as-
sistance percentage shall in no case be less than 40
percent or greater than 83 percent.
‘‘(3) PROMULGATION.—The new Federal medi-
cal assistance percentage for any State shall be pro-
mulgated in a timely manner consistent with the
244
promulgation of the old Federal medical assistance
percentage under section 1101(a)(8)(B).
‘‘(f) SPECIAL RULES.—For purposes of this title:
‘‘(1) COMMONWEALTHS AND TERRITORIES.—In
the case of Puerto Rico, the Virgin Islands, Guam,
the Northern Mariana Islands, and American
Samoa, the old and new Federal medical assistance
percentages are 50 percent.
‘‘(2) ALASKA.—In the case of Alaska, the old
Federal medical assistance percentage is that per-
centage which bears the same ratio to 45 percent as
the square of the adjusted per capita income of such
State bears to the square of the per capita income
of the continental United States. For purposes of
the preceding sentence, the adjusted per capita in-
come for Alaska shall be determined by dividing the
State’s most recent 3-year average per capita by the
health care cost index for such State (as determined
under section 1511(d)(3)).
‘‘(3) INDIAN HEALTH SERVICE AND RELATED
FACILITIES.—The old and new Federal medical as-
sistance percentages shall be 100 percent with re-
spect to the amounts expended as medical assistance
for services provided by—
‘‘(A) an Indian Health Service facility;
245
‘‘(B) an Indian health program operated
by an Indian tribe or tribal organization (as de-
fined in section 4 of the Indian Health Care
Improvement Act) pursuant to a contract,
grant, cooperative agreement, or compact with
the Indian Health Service under the Indian
Self-Determination Act; or
‘‘(C) an urban Indian health program op-
erated by an urban Indian organization pursu-
ant to a grant or contract with the Indian
Health Service under title V of the Indian
Health Care Improvement Act.
‘‘(4) NO STATE MATCHING REQUIRED FOR CER-
TAIN EXPENDITURES.—In applying subsection (a)(1)
with respect to medical assistance provided to unlaw-
ful aliens pursuant to the exception specified in sec-
tion 1513(f)(2), payment shall be made for the
amount of such assistance without regard to any
need for a State match.
‘‘(5) SPECIAL TRANSITIONAL RULE.—
‘‘(A) IN GENERAL.—Notwithstanding sub-
section (a), in order to receive the full State
outlay 
allotment 
described 
in 
section
1511(c)(3)(C)(i), a State described in subpara-
graph (C) shall expend State funds in a fiscal
246
year (before fiscal year 2000) under a State
plan under this title in an amount not less than
the adjusted base year State expenditures, plus
the applicable percentage of the difference be-
tween such expenditures and the amount nec-
essary to qualify for the full State outlay allot-
ment so described in such fiscal year as deter-
mined under this section without regard to this
paragraph.
‘‘(B) REDUCTION IN ALLOTMENT IF EX-
PENDITURE NOT MET.—In the event a State
described in subparagraph (C) fails to expend
State funds in an amount required by subpara-
graph (A) for a fiscal year, the outlay allotment
described in section 1511(c)(3)(C)(i) for such
year for such State shall be reduced by an
amount which bears the same ratio to such out-
lay allotment as the State funds expended in
such fiscal year bears to the amount required
by subparagraph (A).
‘‘(C) ADJUSTED
BASE
YEAR
STATE
EX-
PENDITURES.—For purposes of this paragraph,
the term ‘adjusted base year State expendi-
tures’ means, for Louisiana, $355,000,000.
247
‘‘(D) 
APPLICABLE
PERCENTAGE.—For
purposes of this paragraph, the applicable per-
centage for a fiscal year is specified in the fol-
lowing table:
Applicable
‘‘Fiscal year:
Percentage:
1996 .........................................................................................
1997 .........................................................................................
1998 .........................................................................................
1999 .........................................................................................
80.
‘‘(6) TREATMENT OF EXPENDITURES ATTRIB-
UTABLE TO UMBRELLA FUND.—The ‘applicable Fed-
eral medical assistance percentage’ with respect to
amounts attributable to supplemental amounts de-
scribed in section 1511(g), is the old Federal medi-
cal assistance percentage.
‘‘(g) USE OF LOCAL FUNDS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), a
State may use local funds to meet the non-Federal
share of the expenditures under the State plan with
respect to which payments may be made under this
section.
‘‘(2) LIMITATION.—For any fiscal year local
funds may not exceed 40 percent of the total of the
non-Federal share of such expenditures for the fiscal
year.
‘‘(h) PERMITTING INTER-GOVERNMENTAL FUNDS
TRANSFERS.—
248
‘‘(1) IN GENERAL.—Public funds, as defined in
paragraph (2), may be considered as the State’s
share in determining State financial participation
under this title.
‘‘(2) PUBLIC FUNDS DEFINED.—For purposes
of this subsection, the term ‘public funds’ means
funds—
‘‘(A) that are—
‘‘(i) appropriated directly to the State
or to the local agency administering the
State plan under this title, or transferred
from other public agencies (including In-
dian tribes) to the State or local agency
and under its administrative control, or
‘‘(ii) certified by the contributing pub-
lic agency as representing expenditures eli-
gible for Federal financial participation
under this title; and
‘‘(B) that—
‘‘(i) are not Federal funds, or
‘‘(ii) are Federal funds authorized by
Federal law to be used to match other
Federal funds.
‘‘(i) APPLICATION OF PROVIDER TAX AND DONATION
RESTRICTIONS.—
249
‘‘(1) IN GENERAL.—Subject to paragraph (2),
the provisions of section 1903(w) (as in effect on
June 1, 1996) shall apply under this title in the
same manner as they applied under title XIX (as of
such date).
‘‘(2) WAIVER AUTHORITY.—Beginning 2 years
after the date of the enactment of this title, the Sec-
retary, taking into account the report submitted
under section 1513(j)(2), may waive, upon the appli-
cation of a State, paragraph (1) as it applies in that
State if the Secretary determines that the waiver
would not financially undermine the program under
this title and would not otherwise be abusive.
‘‘SEC. 1513. LIMITATION ON USE OF FUNDS; DISALLOW-
ANCE.
‘‘(a) IN GENERAL.—Funds provided to a State under
this title shall only be used to carry out the purposes of
this title.
‘‘(b) DISALLOWANCES
FOR
EXCLUDED
PROVID-
ERS.—
‘‘(1) IN GENERAL.—Payment shall not be made
to a State under this part for expenditures for items
and services furnished—
‘‘(A) by a provider who was excluded from
participation under title V, XVIII, or XX or
250
under this title pursuant to section 1128,
1128A, 1156, or 1842(j)(2), or
‘‘(B) under the medical direction or on the
prescription of a physician who was so excluded,
if the provider of the services knew or had rea-
son to know of the exclusion.
‘‘(2) EXCEPTION FOR EMERGENCY SERVICES.—
Paragraph (1) shall not apply to emergency items or
services, not including hospital emergency room serv-
ices.
‘‘(c) LIMITATIONS ON PAYMENTS FOR MEDICALLY-
RELATED SERVICES AND ADMINISTRATIVE EXPENSES.—
‘‘(1) IN GENERAL.—No Federal financial assist-
ance is available for expenditures under the State
plan for—
‘‘(A) medically-related services for a quar-
ter to the extent such expenditures exceed 5
percent of the total expenditures under the plan
for the quarter, or
‘‘(B) total administrative expenses (other
than expenses described in paragraph (2) dur-
ing the first 8 quarters in which the plan is in
effect under this title) for quarters in a fiscal
year to the extent such expenditures exceed the
251
sum of $20,000,000 plus 10 percent of the total
expenditures under the plan for the year.
‘‘(2) ADMINISTRATIVE EXPENSES NOT SUBJECT
TO
LIMITATION.—The administrative expenses re-
ferred to in this paragraph are expenditures under
the State plan for the following activities:
‘‘(A) Quality assurance.
‘‘(B) The development and operation of the
certification program for nursing facilities and
intermediate care facilities for the mentally re-
tarded under section 1557.
‘‘(C) Utilization review activities, including
medical activities and activities of peer review
organizations.
‘‘(D) Inspection and oversight of providers
and capitated health care organizations.
‘‘(E) Anti-fraud activities.
‘‘(F) Independent evaluations.
‘‘(G) Activities required to meet reporting
requirements under this title.
‘‘(d) TREATMENT OF THIRD PARTY LIABILITY.—No
payment shall be made to a State under this part for ex-
penditures for medical assistance provided for an individ-
ual under its State plan to the extent that a private in-
surer (as defined by the Secretary by regulation and in-
252
cluding a group health plan (as defined in section 607(1)
of the Employee Retirement Income Security Act of
1974), a service benefit plan, and a health maintenance
organization) would have been obligated to provide such
assistance but for a provision of its insurance contract
which has the effect of limiting or excluding such obliga-
tion because the individual is eligible for or is provided
medical assistance under the plan.
‘‘(e) SECONDARY PAYER PROVISIONS.—Except as
otherwise provided by law, no payment shall be made to
a State under this part for expenditures for medical assist-
ance provided for an individual under its State plan to
the extent that payment has been made or can reasonably
be expected to be made promptly (as determined in accord-
ance with regulations) under any other federally operated
or financed health care insurance program, other than an
insurance program operated or financed by the Indian
Health Service, as identified by the Secretary. For pur-
poses of this subsection, rules similar to the rules for over-
payments under section 1512(b) shall apply.
‘‘(f) LIMITATION ON PAYMENTS FOR SERVICES TO
NONLAWFUL ALIENS.—
‘‘(1) IN GENERAL.—Notwithstanding the pre-
ceding provisions of this section, except as provided
in paragraph (2), no payment may be made to a
253
State under this part for medical assistance fur-
nished to an alien who is not lawfully admitted for
permanent residence or otherwise permanently resid-
ing in the United States under color of law.
‘‘(2) EXCEPTION.—Payment may be made
under this section for care and services that are fur-
nished to an alien described in paragraph (1) only
if—
‘‘(A) such care and services are necessary
for the treatment of an emergency medical con-
dition of the alien (or, at the option of the
State, for prenatal care),
‘‘(B) such alien otherwise meets the eligi-
bility requirements for medical assistance under
the State plan (other than a requirement of the
receipt of aid or assistance under title IV, sup-
plemental security income benefits under title
XVI, or a State supplementary payment), and
‘‘(C) such care and services are not related
to an organ transplant procedure.
‘‘(3) EMERGENCY
MEDICAL
CONDITION
DE-
FINED.—For purposes of this subsection, the term
‘emergency medical condition’ means a medical con-
dition (including emergency labor and delivery)
manifesting itself by acute symptoms of sufficient
254
severity (including severe pain) such that the ab-
sence of immediate medical attention could reason-
ably be expected to result in—
‘‘(A) placing the patient’s health in serious
jeopardy,
‘‘(B) serious impairment to bodily func-
tions, or
‘‘(C) serious dysfunction of any bodily
organ or part.
‘‘(g) LIMITATION ON PAYMENT FOR CERTAIN OUT-
PATIENT PRESCRIPTION DRUGS.—
‘‘(1) IN GENERAL.—No payment may be made
to a State under this part for medical assistance for
covered outpatient drugs (as defined in section
1575(i)(2)) of a manufacturer provided under the
State plan unless the manufacturer (as defined in
section 1575(i)(4)) of the drug—
‘‘(A) has entered into a master rebate
agreement with the Secretary under section
1575,
‘‘(B) is otherwise complying with the provi-
sions of such section,
‘‘(C) subject to paragraph (4), is comply-
ing with the provisions of section 8126 of title
38, United States Code, including the require-
255
ment of entering into a master agreement with
the Secretary of Veterans Affairs under such
section, and
‘‘(D) subject to paragraph (4), is comply-
ing with the provisions of section 340B of the
Public Health Service Act, including the re-
quirement of entering into an agreement with
the Secretary under such section.
‘‘(2) CONSTRUCTION.—Nothing in this sub-
section shall be construed as requiring a State to
participate in the master rebate agreement under
section 1575.
‘‘(3) 
EFFECT
OF
SUBSEQUENT
AMEND-
MENTS.—For purposes of subparagraphs (C) and
(D) of paragraph (1), in determining whether a
manufacturer is in compliance with the requirements
of section 8126 of title 38, United States Code, or
section 340B of the Public Health Service Act—
‘‘(A) the Secretary shall not take into ac-
count any amendments to such sections that
are enacted after the enactment of title VI of
the Veterans Health Care Act of 1992, and
‘‘(B) a manufacturer is deemed to meet
such requirements if the manufacturer estab-
lishes to the satisfaction of the Secretary that
256
the manufacturer would comply (and has of-
fered to comply) with the provisions of such
sections (as in effect immediately after the en-
actment of the Veterans Health Care Act of
1992) and would have entered into an agree-
ment under such section (as such section was in
effect at such time), but for a legislative change
in such section after the date of the enactment
of the Veterans Health Care Act of 1992.
‘‘(4) EFFECT OF ESTABLISHMENT OF ALTER-
NATIVE MECHANISM UNDER PUBLIC HEALTH SERV-
ICE
ACT.—If the Secretary does not establish a
mechanism to ensure against duplicate discounts or
rebates under section 340B(a)(5)(A) of the Public
Health Service Act within 12 months of the date of
the enactment of such section, the following require-
ments shall apply:
‘‘(A) Each covered entity under such sec-
tion shall inform the State when it is seeking
reimbursement from the State plan for medical
assistance with respect to a unit of any covered
outpatient drug which is subject to an agree-
ment under section 340B(a) of such Act.
‘‘(B) Each such State shall provide a
means by which such an entity shall indicate on
257
any drug reimbursement claims form (or for-
mat, where electronic claims management is
used) that a unit of the drug that is the subject
of the form is subject to an agreement under
section 340B of such Act, and not submit to
any manufacturer a claim for a rebate payment
with respect to such a drug.
‘‘(h) LIMITATION ON PAYMENT FOR ABORTIONS.—
‘‘(1) IN GENERAL.—Payment shall not be made
to a State under this part for any amount expended
under the State plan to pay for any abortion or to
assist in the purchase, in whole or in part, of health
benefit coverage that includes coverage of abortion.
‘‘(2) EXCEPTION.—Paragraph (1) shall not
apply to an abortion—
‘‘(A) if the pregnancy is the result of an
act of rape or incest, or
‘‘(B) in the case where a woman suffers
from a physical disorder, illness, or injury that
would, as certified by a physician, place the
woman in danger of death unless an abortion is
performed.
‘‘(i) LIMITATION
ON
PAYMENT
FOR
ASSISTING
DEATHS.—Payment shall not be made to a State under
this part for amounts expended under the State plan to
258
pay for, or to assist in the purchase, in whole or in part,
of health benefit coverage that includes payment for any
drug, biological product, or service which was furnished
for the purpose of causing, or assisting in causing, the
death, suicide, euthanasia, or mercy killing of a person.
‘‘(j) STUDY AND REPORT ON STATE FUNDING.—
‘‘(1) STUDY.—The Comptroller General shall
provide for a study of the methods by which States
provide for financing their share of expenditures
under this title. Such study shall include an exam-
ination of the use of provider taxes and donations,
as well as intergovernmental transfers.
‘‘(2) REPORT.—Not later than 2 years after the
date of the enactment of this title, the Comptroller
General shall submit to Congress a report on such
study. The report shall include such recommenda-
tions as the Comptroller General deems appropriate.
‘‘PART C—ESTABLISHMENT AND AMENDMENT OF
STATE PLANS
‘‘SEC. 1521. DESCRIPTION OF STRATEGIC OBJECTIVES AND
PERFORMANCE GOALS.
‘‘(a) DESCRIPTION.—A State plan shall include a de-
scription of the strategic objectives and performance goals
the State has established for providing health care services
to low-income populations under this title, including a gen-
259
eral description of the manner in which the plan is de-
signed to meet these objectives and goals.
‘‘(b) 
CERTAIN
OBJECTIVES
AND
GOALS
RE-
QUIRED.—A State plan shall include strategic objectives
and performance goals relating to rates of childhood im-
munizations, reductions in infant mortality and morbidity,
and access to services for children with special health care
needs (as defined by the State).
‘‘(c) CONSIDERATIONS.—In specifying these objec-
tives and goals the State may consider factors such as the
following:
‘‘(1) The State’s priorities with respect to pro-
viding assistance to low-income populations.
‘‘(2) The State’s priorities with respect to the
general public health and the health status of indi-
viduals eligible for assistance under the State plan.
‘‘(3) The State’s financial resources, the par-
ticular economic conditions in the State, and relative
adequacy of the health care infrastructure in dif-
ferent regions of the State.
‘‘(d) PERFORMANCE
MEASURES.—To the extent
practicable—
‘‘(1) one or more performance goals shall be es-
tablished by the State for each strategic objective
identified in the State plan; and
260
‘‘(2) the State plan shall describe, how program
performance will be—
‘‘(A) measured through objective, inde-
pendently verifiable means, and
‘‘(B) compared against performance goals,
in order to determine the State’s performance
under this title.
‘‘(e) PERIOD COVERED.—
‘‘(1) STRATEGIC
OBJECTIVES.—The strategic
objectives shall cover a period of not less than 5
years and shall be updated and revised at least every
3 years.
‘‘(2) PERFORMANCE GOALS.—The performance
goals shall be established for dates that are not more
than 3 years apart.
‘‘SEC. 1522. ANNUAL REPORTS.
‘‘(a) IN GENERAL.—In the case of a State with a
State plan that is in effect for part or all of a fiscal year,
no later than March 31 following such fiscal year the State
shall prepare and submit to the Secretary and the Con-
gress a report on program activities and performance
under this title for such fiscal year.
‘‘(b) CONTENTS.—Each annual report under this sec-
tion for a fiscal year shall include the following:
261
‘‘(1) EXPENDITURE
AND
BENEFICIARY
SUM-
MARY.—
‘‘(A) INITIAL SUMMARY.—For the report
for fiscal year 1997, a summary of all expendi-
tures under the State plan during the fiscal
year as follows:
‘‘(i) Aggregate medical assistance ex-
penditures, disaggregated to the extent re-
quired to determine compliance with the
set-aside requirement of section 1502(c)
and to determine the program need of the
State under section 1511(d)(2).
‘‘(ii) For each general category of eli-
gible individuals (specified in subsection
(c)(1)), aggregate medical assistance ex-
penditures and the total and average num-
ber of eligible individuals under the State
plan.
‘‘(iii) By each general category of eli-
gible individuals, total expenditures for
each of the categories of health care items
and services (specified in subsection (c)(2))
which are covered under the State plan
and provided on a fee-for-service basis.
262
‘‘(iv) By each general category of eli-
gible individuals, total expenditures for
payments to capitated health care organi-
zations (as defined in section 1504(c)(1)).
‘‘(v) Total administrative expendi-
tures.
‘‘(B) SUBSEQUENT SUMMARIES.—For re-
ports for each succeeding fiscal year, a sum-
mary of—
‘‘(i) all expenditures under the State
plan, and
‘‘(ii) the total and average number of
eligible individuals under the State plan for
each general category of eligible individ-
uals.
‘‘(2) UTILIZATION SUMMARY.—
‘‘(A) INITIAL SUMMARY.—For the report
for fiscal year 1997, summary statistics on the
utilization of health care services under the
State plan during the year as follows:
‘‘(i) For each general category of eli-
gible individuals and for each of the cat-
egories of health care items and services
which are covered under the State plan
and provided on a fee-for-service basis, the
263
number and percentage of persons who re-
ceived such a type of service or item dur-
ing the period covered by the report.
‘‘(ii) Summary of health care utiliza-
tion data reported to the State by
capitated health care organizations.
‘‘(B) SUBSEQUENT SUMMARIES.—For re-
ports for each succeeding fiscal year, summary
statistics on the utilization of health care serv-
ices under the State plan.
‘‘(3) 
ACHIEVEMENT
OF
PERFORMANCE
GOALS.—With respect to each performance goal es-
tablished under section 1521 and applicable to the
year involved—
‘‘(A) a brief description of the goal;
‘‘(B) a description of the methods to be
used to measure the attainment of such goal;
‘‘(C) data on the actual performance with
respect to the goal;
‘‘(D) a review of the extent to which the
goal was achieved, based on such data; and
‘‘(E) if a performance goal has not been
met—
‘‘(i) why the goal was not met, and
264
‘‘(ii) actions to be taken in response
to such performance, including adjust-
ments in performance goals or program ac-
tivities for subsequent years.
‘‘(4) PROGRAM EVALUATIONS.—A summary of
the findings of evaluations under section 1523 com-
pleted during the fiscal year covered by the report.
‘‘(5) FRAUD AND ABUSE AND QUALITY CON-
TROL
ACTIVITIES.—A general description of the
State’s activities under part D to detect and deter
fraud and abuse and to assure quality of services
provided under the program.
‘‘(6) PLAN ADMINISTRATION.—
‘‘(A) A description of the administrative
roles and responsibilities of entities in the State
responsible for administration of this title.
‘‘(B) Organizational charts for each entity
in the State primarily responsible for activities
under this title.
‘‘(C) A brief description of each interstate
compact (if any) the State has entered into
with other States with respect to activities
under this title.
265
‘‘(D) General citations to the State stat-
utes and administrative rules governing the
State’s activities under this title.
‘‘(c) DESCRIPTION OF CATEGORIES.—In this section:
‘‘(1) GENERAL CATEGORIES OF ELIGIBLE INDI-
VIDUALS.—Each of the following is a general cat-
egory of eligible individuals:
‘‘(A) Pregnant women.
‘‘(B) Children.
‘‘(C) Blind or disabled adults who are not
elderly individuals.
‘‘(D) Elderly individuals.
‘‘(E) Other adults.
‘‘(2) CATEGORIES OF HEALTH CARE ITEMS AND
SERVICES.—The health care items and services de-
scribed in each paragraph of section 1571(a) shall
be considered a separate category of health care
items and services.
‘‘SEC. 1523. PERIODIC, INDEPENDENT EVALUATIONS.
‘‘(a) IN GENERAL.—During fiscal year 1999 and
every third fiscal year thereafter, each State shall provide
for an evaluation of the operation of its State plan under
this title.
‘‘(b) INDEPENDENT.—Each such evaluation with re-
spect to an activity under the State plan shall be con-
266
ducted by an entity that is neither responsible under State
law for the submission of the State plan (or part thereof)
nor responsible for administering (or supervising the ad-
ministration of) the activity. If consistent with the pre-
vious sentence, such an entity may be a college or univer-
sity, a State agency, a legislative branch agency in a State,
or an independent contractor.
‘‘(c) RESEARCH
DESIGN.—Each such evaluation
shall be conducted in accordance with a research design
that is based on generally accepted models of survey de-
sign and sampling and statistical analysis.
‘‘SEC. 1524. DESCRIPTION OF PROCESS FOR STATE PLAN
DEVELOPMENT.
‘‘Each State plan shall include a description of the
process under which the plan shall be developed and imple-
mented in the State (consistent with section 1525).
‘‘SEC. 1525. CONSULTATION IN STATE PLAN DEVELOPMENT.
‘‘(a) PUBLIC NOTICE PROCESS.—Before submitting
a State plan or a plan amendment described in subsection
(c) to the Secretary under this part, a State shall pro-
vide—
‘‘(1) public notice respecting the submittal of
the proposed plan or amendment, including a gen-
eral description of the plan or amendment,
267
‘‘(2) a means for the public to inspect or obtain
a copy (at reasonable charge) of the proposed plan
or amendment,
‘‘(3) an opportunity for submittal and consider-
ation of public comments on the proposed plan or
amendment, and
‘‘(4) for consultation with one or more advisory
committees established and maintained by the State.
The previous sentence shall not apply to a revision of a
State plan (or revision of an amendment to a plan) made
by a State under section 1529(c)(1) or to a plan amend-
ment withdrawal described in section 1529(c)(4).
‘‘(b) CONTENTS OF NOTICE.—A notice under sub-
section (a)(1) for a proposed plan or amendment shall in-
clude a description of—
‘‘(1) the general purpose of the proposed plan
or amendment (including applicable effective dates),
‘‘(2) where the public may inspect the proposed
plan or amendment,
‘‘(3) how the public may obtain a copy of the
proposed plan or amendment and the applicable
charge (if any) for the copy, and
‘‘(4) how the public may submit comments on
the proposed plan or amendment, including any
268
deadlines applicable to consideration of such com-
ments.
‘‘(c) AMENDMENTS DESCRIBED.—An amendment to
a State plan described in this subsection is an amendment
which makes a material and substantial change in eligi-
bility under the State plan or the benefits provided under
the plan.
‘‘(d) PUBLICATION.—Notices under this section may
be published (as selected by the State) in one or more daily
newspapers of general circulation in the State or in any
publication used by the State to publish State statutes or
rules.
‘‘(e) COMPARABLE PROCESS.—A separate notice, or
notices, shall not be required under this section for a State
if notice of the State plan or an amendment to the plan
will be provided under a process specified in State law that
is substantially equivalent to the notice process specified
in this section.
‘‘SEC. 1526. SUBMITTAL AND APPROVAL OF STATE PLANS.
‘‘(a) SUBMITTAL.—As a condition of receiving fund-
ing under part B, each State shall submit to the Secretary
a State plan that meets the applicable requirements of this
title.
‘‘(b) APPROVAL.—Except as the Secretary may pro-
vide under section 1529 (including subsection (b) relating
269
to noncompliance with required guarantees), a State plan
submitted under subsection (a)—
‘‘(1) shall be approved for purposes of this title,
and
‘‘(2) shall be effective beginning on a date that
is specified in the plan, but in no case earlier than
60 days after the date the plan is submitted.
‘‘(c) CONSTRUCTION.—Nothing in this section shall
be construed as prohibiting a State from submitting a
State plan that includes the coverage and benefits (includ-
ing those provided under a waiver granted under section
1115) of its State plan under title XIX (as in effect as
of the date of the enactment of the Medicaid Restructur-
ing Act of 1996), so long as such plan complies with the
applicable requirements of this title, including the guaran-
tees under section 1501, and remains subject to the fund-
ing provisions of section 1511.
‘‘SEC. 1527. SUBMITTAL AND APPROVAL OF PLAN AMEND-
MENTS.
‘‘(a) SUBMITTAL OF AMENDMENTS.—A State may
amend, in whole or in part, its State plan at any time
through transmittal of a plan amendment under this sec-
tion.
‘‘(b) APPROVAL.—Except as the Secretary may pro-
vide under section 1529 (including subsection (b) relating
270
to noncompliance with required guarantees), an amend-
ment to a State plan submitted under subsection (a)—
‘‘(1) shall be approved for purposes of this title,
and
‘‘(2) shall be effective as provided in subsection
(c).
‘‘(c) EFFECTIVE DATES FOR AMENDMENTS.—
‘‘(1) IN GENERAL.—Subject to the succeeding
provisions of this subsection, an amendment to a
State plan shall take effect on one or more effective
dates specified in the amendment.
‘‘(2) AMENDMENTS RELATING TO ELIGIBILITY
OR
BENEFITS.—Except as provided in paragraph
(4)—
‘‘(A) NOTICE
REQUIREMENT.—Any plan
amendment that eliminates or restricts eligi-
bility or benefits under the plan may not take
effect unless the State certifies that it has pro-
vided prior or contemporaneous public notice of
the change, in a form and manner provided
under applicable State law.
‘‘(B) TIMELY
TRANSMITTAL.—Any plan
amendment that eliminates or restricts eligi-
bility or benefits under the plan shall not be ef-
fective for longer than a 60-day period unless
271
the amendment has been transmitted to the
Secretary before the end of such period.
‘‘(3) OTHER AMENDMENTS.—Subject to para-
graph (4), any plan amendment that is not described
in paragraph (2) which becomes effective in a State
fiscal year may not remain in effect after the end of
such fiscal year (or, if later, the end of the 90-day
period on which it becomes effective) unless the
amendment has been transmitted to the Secretary.
‘‘(4) EXCEPTION.—The requirements of para-
graphs (2) and (3) shall not apply to a plan amend-
ment that is submitted on a timely basis pursuant
to a court order or an order of the Secretary.
‘‘SEC. 1528. PROCESS FOR STATE WITHDRAWAL FROM PRO-
GRAM.
‘‘(a) IN GENERAL.—A State may rescind its State
plan and discontinue participation in the program under
this title at any time after providing—
‘‘(1) the public with 90 days prior notice in a
publication in one or more daily newspapers of gen-
eral circulation in the State or in any publication
used by the State to publish State statutes or rules,
and
‘‘(2) the Secretary with 90 days prior written
notice.
272
‘‘(b) EFFECTIVE DATE.—Such discontinuation shall
not apply to payments under part B for expenditures
made for items and services furnished under the State
plan before the effective date of the discontinuation.
‘‘(c) PRORATION OF ALLOTMENTS.—In the case of
any withdrawal under this section other than at the end
of a Federal fiscal year, notwithstanding any provision of
section 1511 to the contrary, the Secretary shall provide
for such appropriate proration of the application of allot-
ments under section 1511 as is appropriate.
‘‘SEC. 1529. SANCTIONS FOR NONCOMPLIANCE.
‘‘(a) PROMPT REVIEW OF PLAN SUBMITTALS.—The
Secretary shall promptly review State plans and plan
amendments submitted under this part to determine if
they substantially comply with the requirements of this
title.
‘‘(b) DETERMINATIONS OF NONCOMPLIANCE WITH
CERTAIN GUARANTEES.—
‘‘(1) AT TIME OF PLAN OR AMENDMENT SUB-
MITTAL.—If the Secretary determines that a State
plan or plan amendment submitted under this part
violates the guarantees of coverage and benefits
under subsections (a) and (b) of section 1501, the
Secretary shall notify the State in writing of such
determination and shall issue an order specifying
273
that the plan or amendment, insofar as it is in viola-
tion with such requirement, shall not be effective,
except as provided in subsection (d), as of the date
specified in the order.
‘‘(2) VIOLATIONS
IN
ADMINISTRATION
OF
PLAN.—If the Secretary determines, after reasonable
notice and opportunity for a hearing for the State,
that in the administration of a State plan there is
a violation of guarantee of coverage and benefits
under subsection (a) or (b) of section 1501, the Sec-
retary shall provide the State with written notice of
the determination and with an order to remedy such
violation. Such an order shall become effective pro-
spectively, as specified in the order, after the date of
receipt of such written notice. Such an order may in-
clude the withholding of funds, consistent with sub-
section (g), for parts of the State plan affected by
such violation, until the Secretary is satisfied that
the violation has been corrected.
‘‘(3) CONSULTATION
WITH
STATE.—Before
making a determination adverse to a State under
this section, the Secretary shall—
‘‘(A) reasonably consult with the State in-
volved,
274
‘‘(B) offer the State a reasonable oppor-
tunity to clarify the submission and submit fur-
ther information to substantiate compliance
with the requirements of subsections (a) and
(b) of section 1501, and
‘‘(C) reasonably consider any such clari-
fications and information submitted.
‘‘(4) JUSTIFICATION OF ANY INCONSISTENCIES
IN DETERMINATIONS.—If the Secretary makes a de-
termination under this section that is, in whole or in
part, inconsistent with any previous determination
issued by the Secretary under this title, the Sec-
retary shall include in the determination a detailed
explanation and justification for any such difference.
‘‘(c) DETERMINATIONS
OF OTHER SUBSTANTIAL
NONCOMPLIANCE.—
‘‘(1) AT TIME OF PLAN OR AMENDMENT SUB-
MITTAL.—
‘‘(A) IN GENERAL.—If the Secretary, dur-
ing the 30-day period beginning on the date of
submittal of a State plan or plan amendment—
‘‘(i) determines that the plan or
amendment substantially violates (within
the meaning of paragraph (5)) a require-
ment of this title, and
275
‘‘(ii) provides written notice of such
determination to the State,
the Secretary shall issue an order specifying
that the plan or amendment, insofar as it is in
substantial violation of such a requirement,
shall not be effective, except as provided in sub-
section (d), beginning at the end of a period of
not less than 30 days (or 120 days in the case
of the initial submission of the State plan) spec-
ified in the order beginning on the date of the
notice of the determination.
‘‘(B) EXTENSION OF TIME PERIODS.—The
time periods specified in subparagraph (A) may
be extended by written agreement of the Sec-
retary and the State involved.
‘‘(2) VIOLATIONS
IN
ADMINISTRATION
OF
PLAN.—
‘‘(A) IN GENERAL.—If the Secretary deter-
mines, after reasonable notice and opportunity
for a hearing for the State, that in the adminis-
tration of a State plan there is a substantial
violation of a requirement of this title, the Sec-
retary shall provide the State with written no-
tice of the determination and with an order to
remedy such violation. Such an order shall be-
276
come effective prospectively, as specified in the
order, after the date of receipt of such written
notice. Such an order may include the withhold-
ing of funds, consistent with subsection (g), for
parts of the State plan affected by such viola-
tion, until the Secretary is satisfied that the
violation has been corrected.
‘‘(B) EFFECTIVENESS.—If the Secretary
issues an order under paragraph (1), the order
shall become effective, except as provided in
subsection (d), beginning at the end of a period
(of not less than 30 days) specified in the order
beginning on the date of the notice of the deter-
mination to the State.
‘‘(C) TIMELINESS
OF
DETERMINATIONS
RELATING
TO
REPORT-BASED
COMPLIANCE.—
The Secretary shall make determinations under
this paragraph respecting violations relating to
information contained in an annual report
under section 1522, an independent evaluation
under section 1523, or an audit report under
section 1551 not later than 30 days after the
date of transmittal of the report or evaluation
to the Secretary.
277
‘‘(3) CONSULTATION
WITH
STATE.—Before
making a determination adverse to a State under
this section, the Secretary shall (within any time pe-
riods provided under this section)—
‘‘(A) reasonably consult with the State in-
volved,
‘‘(B) offer the State a reasonable oppor-
tunity to clarify the submission and submit fur-
ther information to substantiate compliance
with the requirements of this title, and
‘‘(C) reasonably consider any such clari-
fications and information submitted.
‘‘(4) JUSTIFICATION OF ANY INCONSISTENCIES
IN DETERMINATIONS.—If the Secretary makes a de-
termination under this section that is, in whole or in
part, inconsistent with any previous determination
issued by the Secretary under this title, the Sec-
retary shall include in the determination a detailed
explanation and justification for any such difference.
‘‘(5) SUBSTANTIAL VIOLATION DEFINED.—For
purposes of this title, a State plan (or amendment
to such a plan) or the administration of the State
plan is considered to ‘substantially violate’ a require-
ment of this title if a provision of the plan or
278
amendment (or an omission from the plan or amend-
ment) or the administration of the plan—
‘‘(A) is material and substantial in nature
and effect, and
‘‘(B) is inconsistent with an express re-
quirement of this title.
A failure to meet a strategic objective or perform-
ance goal (as described in section 1521) shall not be
considered to substantially violate a requirement of
this title.
‘‘(6) RELATION
TO
OTHER
PROVISION.—This
subsection shall not apply to violation of a require-
ment of subsection (a) or (b) of section 1501.
‘‘(d) STATE RESPONSE TO ORDERS.—
‘‘(1) STATE RESPONSE BY REVISING PLAN.—
‘‘(A) IN GENERAL.—Insofar as an order
under subsection (b)(1) or (c)(1) relates to a
violation by a State plan or plan amendment, a
State may respond (before the date the order
becomes effective) to such an order by submit-
ting a written revision of the State plan or plan
amendment to comply with the requirements of
this title.
‘‘(B) REVIEW OF REVISION.—In the case
of submission of such a revision, the Secretary
279
shall promptly review the submission and shall,
in the case of an order under subsection (c)(1),
withhold any action on the order during the pe-
riod of such review.
‘‘(C) SECRETARIAL RESPONSE.—
‘‘(i) ORDERS RELATING TO GUARAN-
TEES.—In the case of a revision submitted
in response to an order under subsection
(b)(1), the revision shall not be considered
to have corrected the deficiency unless the
Secretary determines and notifies the State
that the State plan or amendment, as pro-
posed to be revised complies with the re-
quirements of subsections (a) and (b) of
section 1501. If the Secretary determines
that the revision does not correct the defi-
ciency, the Secretary shall notify the State
in writing of such determination and the
State may respond by seeking reconsider-
ation or a hearing under paragraph (2).
‘‘(ii) OTHER ORDERS.—In the case of
a revision submitted in response to an
order under subsection (c)(1), the revision
shall be considered to have corrected the
deficiency (and the order rescinded insofar
280
as it relates to such deficiency) unless the
Secretary determines and notifies the State
in writing, within 15 days after the date
the Secretary receives the revision, that the
State plan or amendment, as proposed to
be revised, still substantially violates a re-
quirement of this title. In such case the
State may respond by seeking reconsider-
ation or a hearing under paragraph (2).
‘‘(D) REVISION RETROACTIVE.—If the re-
vision provides for compliance (in the case of an
order under subsection (b)(1)) or substantial
compliance (in the case of an order under sub-
section (c)(1)), the revision may be treated, at
the option of the State, as being effective either
as of the effective date of the provision to which
it relates or such later date as the State and
Secretary may agree.
‘‘(2) STATE RESPONSE BY SEEKING RECONSID-
ERATION
OR
AN
ADMINISTRATIVE
HEARING.—A
State may respond to an order under subsection (b)
or (c) by filing a request with the Secretary for—
‘‘(A) a reconsideration of the determina-
tion, pursuant to subsection (e)(1), or
281
‘‘(B) a review of the determination through
an administrative hearing, pursuant to sub-
section (e)(2).
In such case for an order under subsection (c), the
order shall not take effect before the completion of
the reconsideration or hearing.
‘‘(3) STATE RESPONSE BY CORRECTIVE ACTION
PLAN.—
‘‘(A) IN
GENERAL.—In the case of an
order described in subsection (b)(2) or (c)(2)
that relates to a violation in the administration
of the State plan, a State may respond to such
an order by submitting a corrective action plan
with the Secretary to correct deficiencies in the
administration of the plan which are the subject
of the order.
‘‘(B) REVIEW
OF
CORRECTIVE
ACTION
PLAN.—In the case of a corrective action plan
submitted in response to an order under sub-
section (c)(2), the Secretary shall withhold any
action on the order for a period (not to exceed
30 days) during which the Secretary reviews
the corrective action plan.
‘‘(C) SECRETARIAL RESPONSE.—
282
‘‘(i) ORDERS RELATING TO GUARAN-
TEES.—In the case of a corrective action
plan submitted in response to an order
under subsection (b)(2), the plan shall not
be considered to have corrected the defi-
ciency unless the Secretary determines and
notifies the State that the State’s adminis-
tration of the State plan, as proposed to be
corrected in the plan, will not violate a re-
quirement of subsection (a) or (b) of sec-
tion 1501. If the Secretary determines that
the plan does not correct the deficiency,
the Secretary shall notify the State in writ-
ing of such determination and the State
may respond by seeking reconsideration or
a hearing under paragraph (2).
‘‘(ii) OTHER ORDERS.—In the case of
a corrective action plan submitted in re-
sponse to an order under subsection (c)(2),
the corrective action plan shall be consid-
ered to have corrected the deficiency (and
the order rescinded insofar as it relates to
such deficiency) unless the Secretary deter-
mines and notifies the State in writing,
within 15 days after the date the Secretary
283
receives the corrective action plan, that the
State’s administration of the State plan, as
proposed to be corrected in the plan, will
still substantially violate a requirement of
this title. In such case the State may re-
spond by seeking reconsideration or a
hearing under paragraph (2).
‘‘(4) STATE
RESPONSE
BY
WITHDRAWAL
OF
PLAN AMENDMENT; FAILURE TO RESPOND.—Insofar
as an order relates to a violation in a plan amend-
ment submitted, a State may respond to such an
order by withdrawing the plan amendment and the
State plan shall be treated as though the amend-
ment had not been made.
‘‘(e) ADMINISTRATIVE REVIEW AND HEARING.—
‘‘(1) RECONSIDERATION.—Within 30 days after
the date of receipt of a request under subsection
(d)(2)(A), the Secretary shall notify the State of the
time and place at which a hearing will be held for
the purpose of reconsidering the Secretary’s deter-
mination. The hearing shall be held not less than 20
days nor more than 60 days after the date notice of
the hearing is furnished to the State, unless the Sec-
retary and the State agree in writing to holding the
hearing at another time. The Secretary shall affirm,
284
modify, or reverse the original determination within
60 days of the conclusion of the hearing.
‘‘(2) ADMINISTRATIVE
HEARING.—Within 30
days after the date of receipt of a request under
subsection (d)(2)(B), an administrative law judge
shall schedule a hearing for the purpose of reviewing
the Secretary’s determination. The hearing shall be
held not less than 20 days nor more than 60 days
after the date notice of the hearing is furnished to
the State, unless the Secretary and the State agree
in writing to holding the hearing at another time.
The administrative law judge shall affirm, modify, or
reverse the determination within 60 days of the con-
clusion of the hearing.
‘‘(f) JUDICIAL REVIEW.—
‘‘(1) IN GENERAL.—A State which is dissatis-
fied with a final determination made by the Sec-
retary under subsection (e)(1) or a final determina-
tion of an administrative law judge under subsection
(e)(2) may, within 60 days after it has been notified
of such determination, file with the United States
court of appeals for the circuit in which the State
is located a petition for review of such determina-
tion. A copy of the petition shall be forthwith trans-
mitted by the clerk of the court to the Secretary
285
and, in the case of a determination under subsection
(e)(2), to the administrative law judge involved. The
Secretary (or judge involved) thereupon shall file in
the court the record of the proceedings on which the
final determination was based, as provided in section
1502 of title 28, United States Code. Except as pro-
vided in section 1508, only the Secretary, in accord-
ance with this title, may compel a State under Fed-
eral law to comply with the provisions of this title
or a State plan, or otherwise enforce a provision of
this title against a State, and no action may be filed
under Federal law against a State in relation to the
State’s compliance, or failure to comply, with the
provisions of this title or of a State plan except
under section 1508 or by the Secretary as provided
under this subsection.
‘‘(2) STANDARD FOR REVIEW.—The findings of
fact by the Secretary or administrative law judge, if
supported by substantial evidence, shall be conclu-
sive, but the court, for good cause shown, may re-
mand the case to the Secretary or judge to take fur-
ther evidence, and the Secretary or judge may there-
upon make new or modified findings of fact and may
modify a previous determination, and shall certify to
the court the transcript and record of the further
286
proceedings. Such new or modified findings of fact
shall likewise be conclusive if supported by substan-
tial evidence.
‘‘(3) JURISDICTION
OF
APPELLATE
COURT.—
The court shall have jurisdiction to affirm the action
of the Secretary or judge or to set it aside, in whole
or in part. The judgment of the court shall be sub-
ject to review by the Supreme Court of the United
States upon certiorari or certification as provided in
section 1254 of title 28, United States Code.
‘‘(g) WITHHOLDING OF FUNDS.—
‘‘(1) IN GENERAL.—Any order under this sec-
tion relating to the withholding of funds shall be ef-
fective not earlier than the effective date of the
order and shall only relate to the portions of a State
plan or administration thereof which violate a re-
quirement of subsection (a) or (b) of section 1501
or substantially violate another requirement of this
title. In the case of a failure to meet a set-aside re-
quirement under section 1502(c), any withholding
shall only apply to the extent of such failure.
‘‘(2) SUSPENSION OF WITHHOLDING.—The Sec-
retary may suspend withholding of funds under
paragraph (1) during the period reconsideration or
287
administrative and judicial review is pending under
subsection (e) or (f).
‘‘(3) RESTORATION
OF
FUNDS.—Any funds
withheld under this subsection under an order shall
be immediately restored to a State—
‘‘(A) to the extent and at the time the
order is—
‘‘(i) modified or withdrawn by the
Secretary upon reconsideration,
‘‘(ii) modified or reversed by an ad-
ministrative law judge, or
‘‘(iii) set aside (in whole or in part) by
an appellate court; or
‘‘(B) when the Secretary determines that
the deficiency which was the basis for the order
is corrected;
‘‘(C) when the Secretary determines that
violation which was the basis for the order is
resolved or the amendment which was the basis
for the order is withdrawn; or
‘‘(D) at any time upon the initiative of the
Secretary.
‘‘(h) INDIVIDUAL COMPLAINT PROCESS.—The Sec-
retary shall provide for a process under which an individ-
ual may notify the Secretary concerning a State’s failure
288
to provide medical assistance as required under the State
plan or otherwise comply with the requirements of this
title or such plan, including any failure to comply with
a requirement of subsection (a) or (b) of section 1501.
If the Secretary finds that there is a pattern of complaints
with respect to a State or that a particular failure or find-
ing of noncompliance is egregious, the Secretary shall no-
tify the chief executive officer of the State of such finding
and shall notify the Congress if the State fails to respond
to such notification within a reasonable period of time.
‘‘SEC. 1530. SECRETARIAL AUTHORITY.
‘‘(a) NEGOTIATED AGREEMENT AND DISPUTE RESO-
LUTION.—
‘‘(1) NEGOTIATIONS.—Nothing in this part
shall be construed as preventing the Secretary and
a State from at any time negotiating a satisfactory
resolution to any dispute concerning the approval of
a State plan (or amendments to a State plan) or the
compliance of a State plan (including its administra-
tion) with requirements of this title.
‘‘(2) COOPERATION.—The Secretary shall act in
a cooperative manner with the States in carrying out
this title. In the event of a dispute between a State
and the Secretary, the Secretary shall, whenever
practicable, engage in informal dispute resolution ac-
289
tivities in lieu of formal enforcement or sanctions
under section 1529.
‘‘(b) LIMITATIONS ON DELEGATION OF DECISION-
MAKING AUTHORITY.—The Secretary may not delegate
(other than to the Administrator of the Health Care Fi-
nancing Administration) the authority to make determina-
tions or reconsiderations respecting the approval of State
plans (or amendments to such plans) or the compliance
of a State plan (including its administration) with require-
ments of this title. Such Administrator may not further
delegate such authority to any individual, including any
regional official of such Administration.
‘‘(c) 
REQUIRING
FORMAL
RULEMAKING
FOR
CHANGES IN SECRETARIAL ADMINISTRATION.—The Sec-
retary shall carry out the administration of the program
under this title only through a prospective formal rule-
making process, including issuing notices of proposed rule-
making, publishing proposed rules or modifications to
rules in the Federal Register, and soliciting public com-
ment.
‘‘PART D—PROGRAM INTEGRITY AND QUALITY
‘‘SEC. 1551. USE OF AUDITS TO ACHIEVE FISCAL INTEGRITY.
‘‘(a) FINANCIAL AUDITS OF PROGRAM.—
‘‘(1) IN GENERAL.—Each State plan shall pro-
vide for an annual audit of the State’s expenditures
290
from amounts received under this title, in compli-
ance with chapter 75 of title 31, United States
Code.
‘‘(2) VERIFICATION AUDITS.—If, after consulta-
tion with the State and the Comptroller General and
after a fair hearing, the Secretary determines that
a State’s audit under paragraph (1) was performed
in substantial violation of chapter 75 of title 31,
United States Code, the Secretary may—
‘‘(A) require that the State provide for a
verification audit in compliance with such chap-
ter, or
‘‘(B) conduct such a verification audit.
‘‘(3) AVAILABILITY OF AUDIT REPORTS.—With-
in 30 days after completion of each audit or verifica-
tion audit under this subsection, the State shall—
‘‘(A) provide the Secretary with a copy of
the audit report, including the State’s response
to any recommendations of the auditor, and
‘‘(B) make the audit report available for
public inspection in the same manner as pro-
posed State plan amendments are made avail-
able under section 1525.
‘‘(b) FISCAL CONTROLS.—
291
‘‘(1) IN
GENERAL.—With respect to the ac-
counting and expenditure of funds under this title,
each State shall adopt and maintain such fiscal con-
trols, accounting procedures, and data processing
safeguards as the State deems reasonably necessary
to assure the fiscal integrity of the State’s activities
under this title.
‘‘(2) CONSISTENCY WITH GENERALLY ACCEPT-
ED
ACCOUNTING
PRINCIPLES.—Such controls and
procedures shall be generally consistent with gen-
erally accepted accounting principles as recognized
by the Governmental Accounting Standards Board
or the Comptroller General.
‘‘(c) AUDITS OF PROVIDERS.—Each State plan shall
provide that the records of any entity providing items or
services for which payment may be made under the plan
may be audited as necessary to ensure that proper pay-
ments are made under the plan.
‘‘SEC. 1552. FRAUD PREVENTION PROGRAM.
‘‘(a) ESTABLISHMENT.—Each State plan shall pro-
vide for the establishment and maintenance of an effective
program for the detection and prevention of fraud and
abuse by beneficiaries, providers, and others in connection
with the operation of the program.
292
‘‘(b) PROGRAM REQUIREMENTS.—The program es-
tablished pursuant to subsection (a) shall include at least
the following requirements:
‘‘(1) DISCLOSURE OF INFORMATION.—Any dis-
closing entity (as defined in section 1124(a)) receiv-
ing payments under the State plan shall comply with
the requirements of section 1124.
‘‘(2) SUPPLY
OF
INFORMATION.—An entity
(other than an individual practitioner or a group of
practitioners) that furnishes, or arranges for the fur-
nishing of, an item or service under the State plan
shall supply upon request specifically addressed to
the entity by the Secretary or the State agency the
information described in section 1128(b)(9).
‘‘(3) EXCLUSION.—
‘‘(A) IN GENERAL.—The State plan shall
exclude any specified individual or entity from
participation in the plan for the period specified
by the Secretary when required by the Sec-
retary to do so pursuant to section 1128 or sec-
tion 1128A, and provide that no payment may
be made under the plan with respect to any
item or service furnished by such individual or
entity during such period.
293
‘‘(B) AUTHORITY.—In addition to any
other authority, a State may exclude any indi-
vidual or entity for purposes of participating
under the State plan for any reason for which
the Secretary could exclude the individual or
entity from participation in a program under
title XVIII or under section 1128, 1128A, or
1866(b)(2).
‘‘(4) NOTICE.—The State plan shall provide
that whenever a provider of services or any other
person is terminated, suspended, or otherwise sanc-
tioned or prohibited from participating under the
plan, the State agency responsible for administering
the plan shall promptly notify the Secretary and, in
the case of a physician, the State medical licensing
board of such action.
‘‘(5) ACCESS
TO
INFORMATION.—The State
plan shall provide that the State will provide infor-
mation and access to certain information respecting
sanctions taken against health care practitioners and
providers by State licensing authorities in accord-
ance with section 1553.
294
‘‘SEC. 1553. INFORMATION CONCERNING SANCTIONS TAKEN
BY STATE LICENSING AUTHORITIES AGAINST
HEALTH CARE PRACTITIONERS AND PROVID-
ERS.
‘‘(a) INFORMATION REPORTING REQUIREMENT.—
The requirement referred to in section 1552(b)(5) is that
the State must provide for the following:
‘‘(1) INFORMATION REPORTING SYSTEM.—The
State must have in effect a system of reporting the
following information with respect to formal proceed-
ings (as defined by the Secretary in regulations)
concluded against a health care practitioner or entity
by any authority of the State (or of a political sub-
division thereof) responsible for the licensing of
health care practitioners (or any peer review organi-
zation or private accreditation entity reviewing the
services provided by health care practitioners) or en-
tities:
‘‘(A) Any adverse action taken by such li-
censing authority as a result of the proceeding,
including any revocation or suspension of a li-
cense (and the length of any such suspension),
reprimand, censure, or probation.
‘‘(B) Any dismissal or closure of the pro-
ceedings by reason of the practitioner or entity
295
surrendering the license or leaving the State or
jurisdiction.
‘‘(C) Any other loss of the license of the
practitioner or entity, whether by operation of
law, voluntary surrender, or otherwise.
‘‘(D) Any negative action or finding by
such authority, organization, or entity regard-
ing the practitioner or entity.
‘‘(2) ACCESS TO DOCUMENTS.—The State must
provide the Secretary (or an entity designated by the
Secretary) with access to such documents of the au-
thority described in paragraph (1) as may be nec-
essary for the Secretary to determine the facts and
circumstances concerning the actions and determina-
tions described in such paragraph for the purpose of
carrying out this Act.
‘‘(b) FORM OF INFORMATION.—The information de-
scribed in subsection (a)(1) shall be provided to the Sec-
retary (or to an appropriate private or public agency,
under suitable arrangements made by the Secretary with
respect to receipt, storage, protection of confidentiality,
and dissemination of information) in such a form and
manner as the Secretary determines to be appropriate in
order to provide for activities of the Secretary under this
296
Act and in order to provide, directly or through suitable
arrangements made by the Secretary, information—
‘‘(1) to agencies administering Federal health
care programs, including private entities administer-
ing such programs under contract,
‘‘(2) to licensing authorities described in sub-
section (a)(1),
‘‘(3) to State agencies administering or super-
vising the administration of State health care pro-
grams (as defined in section 1128(h)),
‘‘(4) to utilization and quality control peer re-
view organizations described in part B of title XI
and to appropriate entities with contracts under sec-
tion 1154(a)(4)(C) with respect to eligible organiza-
tions reviewed under the contracts,
‘‘(5) to State fraud control units (as defined in
section 1534),
‘‘(6) to hospitals and other health care entities
(as defined in section 431 of the Health Care Qual-
ity Improvement Act of 1986), with respect to physi-
cians or other licensed health care practitioners that
have entered (or may be entering) into an employ-
ment or affiliation relationship with, or have applied
for clinical privileges or appointments to the medical
staff of, such hospitals or other health care entities
297
(and such information shall be deemed to be dis-
closed pursuant to section 427 of, and be subject to
the provisions of, that Act),
‘‘(7) to the Attorney General and such other
law enforcement officials as the Secretary deems ap-
propriate, and
‘‘(8) upon request, to the Comptroller General,
in order for such authorities to determine the fitness
of individuals to provide health care services, to pro-
tect the health and safety of individuals receiving
health care through such programs, and to protect
the fiscal integrity of such programs.
‘‘(c) CONFIDENTIALITY
OF
INFORMATION
PRO-
VIDED.—The Secretary shall provide for suitable safe-
guards for the confidentiality of the information furnished
under subsection (a). Nothing in this subsection shall pre-
vent the disclosure of such information by a party which
is otherwise authorized, under applicable State law, to
make such disclosure.
‘‘(d) APPROPRIATE COORDINATION.—The Secretary
shall provide for the maximum appropriate coordination
in the implementation of subsection (a) of this section and
section 422 of the Health Care Quality Improvement Act
of 1986 and section 1128E.
298
‘‘SEC. 1554. STATE FRAUD CONTROL UNITS.
‘‘(a) IN GENERAL.—Each State plan shall provide for
a State fraud control unit described in subsection (b) that
effectively carries out the functions and requirements de-
scribed in such subsection, unless the State demonstrates
to the satisfaction of the Secretary that the effective oper-
ation of such a unit in the State would not be cost-effective
because minimal fraud exists in connection with the provi-
sion of covered services to eligible individuals under the
plan, and that beneficiaries under the plan will be pro-
tected from abuse and neglect in connection with the pro-
vision of medical assistance under the plan without the
existence of such a unit.
‘‘(b) UNITS DESCRIBED.—For purposes of this sec-
tion, the term ‘State fraud control unit’ means a single
identifiable entity of the State government which meets
the following requirements:
‘‘(1) ORGANIZATION.—The entity—
‘‘(A) is a unit of the office of the State At-
torney General or of another department of
State government which possesses statewide au-
thority to prosecute individuals for criminal vio-
lations;
‘‘(B) is in a State the constitution of which
does not provide for the criminal prosecution of
299
individuals by a statewide authority and has
formal procedures that—
‘‘(i) assure its referral of suspected
criminal violations relating to the program
under this title to the appropriate author-
ity or authorities in the State for prosecu-
tion, and
‘‘(ii) assure its assistance of, and co-
ordination with, such authority or authori-
ties in such prosecutions; or
‘‘(C) has a formal working relationship
with the office of the State Attorney General
and has formal procedures (including proce-
dures for its referral of suspected criminal vio-
lations to such office) which provide effective
coordination of activities between the entity and
such office with respect to the detection, inves-
tigation, and prosecution of suspected criminal
violations relating to the program under this
title.
‘‘(2) INDEPENDENCE.—The entity is separate
and distinct from any State agency that has prin-
cipal responsibilities for administering or supervising
the administration of the State plan.
300
‘‘(3) FUNCTION.—The entity’s function is con-
ducting a statewide program for the investigation
and prosecution of violations of all applicable State
laws regarding any and all aspects of fraud in con-
nection with any aspect of the provision of medical
assistance and the activities of providers of such as-
sistance under the State plan.
‘‘(4) REVIEW OF COMPLAINTS.—The entity has
procedures for reviewing complaints of the abuse
and neglect of patients of health care facilities which
receive payments under the State plan under this
title, and, where appropriate, for acting upon such
complaints under the criminal laws of the State or
for referring them to other State agencies for action.
‘‘(5) OVERPAYMENTS.—
‘‘(A) IN
GENERAL.—The entity provides
for the collection, or referral for collection to a
single State agency, of overpayments that are
made under the State plan to health care pro-
viders and that are discovered by the entity in
carrying out its activities.
‘‘(B) TREATMENT OF CERTAIN OVERPAY-
MENTS.—If an overpayment is the direct result
of the failure of the provider (or the provider’s
billing agent) to adhere to a change in the
301
State’s billing instructions, the entity may re-
cover the overpayment only if the entity dem-
onstrates that the provider (or the provider’s
billing agent) received prior written or elec-
tronic notice of the change in the billing in-
structions before the submission of the claims
on which the overpayment is based.
‘‘(6) PERSONNEL.—The entity employs such
auditors, attorneys, investigators, and other nec-
essary personnel and is organized in such a manner
as is necessary to promote the effective and efficient
conduct of the entity’s activities.
‘‘SEC. 1555. RECOVERIES FROM THIRD PARTIES AND OTH-
ERS.
‘‘(a) THIRD PARTY LIABILITY.—Each State plan
shall provide for reasonable steps—
‘‘(1) to ascertain the legal liability of third par-
ties to pay for care and services available under the
plan, including the collection of sufficient informa-
tion to enable States to pursue claims against third
parties, and
‘‘(2) to seek reimbursement for medical assist-
ance provided to the extent legal liability is estab-
lished where the amount expected to be recovered ex-
ceeds the costs of the recovery.
302
‘‘(b) BENEFICIARY PROTECTION.—
‘‘(1) IN GENERAL.—Each State plan shall pro-
vide that in the case of a person furnishing services
under the plan for which a third party may be liable
for payment—
‘‘(A) the person may not seek to collect
from the individual (or financially responsible
relative) payment of an amount for the service
more than could be collected under the plan in
the absence of such third party liability, and
‘‘(B) may not refuse to furnish services to
such an individual because of a third party’s
potential liability for payment for the service.
‘‘(2) PENALTY.—A State plan may provide for
a reduction of any payment amount otherwise due
with respect to a person who furnishes services
under the plan in an amount equal to up to 3 times
the amount of any payment sought to be collected by
that person in violation of paragraph (1)(A).
‘‘(c) GENERAL LIABILITY.—The State shall prohibit
any health insurer, including a group health plan as de-
fined in section 607 of the Employee Retirement Income
Security Act of 1974, a service benefit plan, or a health
maintenance organization, in enrolling an individual or in
making any payments for benefits to the individual or on
303
the individual’s behalf, from taking into account that the
individual is eligible for or is provided medical assistance
under a State plan for any State.
‘‘(d) ACQUISITION OF RIGHTS OF BENEFICIARIES.—
To the extent that payment has been made under a State
plan in any case where a third party has a legal liability
to make payment for such assistance, the State shall have
in effect laws under which, to the extent that payment
has been made under the plan for health care items or
services furnished to an individual, the State is considered
to have acquired the rights of such individual to payment
by any other party for such health care items or services.
‘‘(e) ASSIGNMENT OF MEDICAL SUPPORT RIGHTS.—
The State plan shall provide for mandatory assignment
of rights of payment for medical support and other medi-
cal care owed to recipients in accordance with section
1556.
‘‘(f) REQUIRED LAWS RELATING TO MEDICAL CHILD
SUPPORT.—
‘‘(1) IN GENERAL.—Each State with a State
plan under this title shall have in effect the following
laws:
‘‘(A) A law that prohibits an insurer from
denying enrollment of a child under the health
304
coverage of the child’s parent on the ground
that—
‘‘(i) the child was born out of wedlock,
‘‘(ii) the child is not claimed as a de-
pendent on the parent’s Federal income
tax return, or
‘‘(iii) the child does not reside with
the parent or in the insurer’s service area.
‘‘(B) In any case in which a parent is re-
quired by a court or administrative order to
provide health coverage for a child and the par-
ent is eligible for family health coverage
through an insurer, a law that requires such in-
surer—
‘‘(i) to permit such parent to enroll
under such family coverage any such child
who is otherwise eligible for such coverage
(without regard to any enrollment season
restrictions);
‘‘(ii) if such a parent is enrolled but
fails to make application to obtain cov-
erage of such child, to enroll such child
under such family coverage upon applica-
tion by the child’s other parent or by the
305
State agency administering the program
under this title or part D of title IV; and
‘‘(iii) not to disenroll, or eliminate
coverage of, such a child unless the insurer
is provided satisfactory written evidence
that—
‘‘(I) such court or administrative
order is no longer in effect, or
‘‘(II) the child is or will be en-
rolled in comparable health coverage
through another insurer which will
take effect not later than the effective
date of such disenrollment.
‘‘(C) In any case in which a parent is re-
quired by a court or administrative order to
provide health coverage for a child and the par-
ent is eligible for family health coverage
through an employer doing business in the
State, a law that requires such employer—
‘‘(i) to permit such parent to enroll
under such family coverage any such child
who is otherwise eligible for such coverage
(without regard to any enrollment season
restrictions);
306
‘‘(ii) if such a parent is enrolled but
fails to make application to obtain cov-
erage of such child, to enroll such child
under such family coverage upon applica-
tion by the child’s other parent or by the
State agency administering the program
under this title or part D of title IV; and
‘‘(iii) not to disenroll (or eliminate
coverage of) any such child unless—
‘‘(I) the employer is provided sat-
isfactory written evidence that such
court or administrative order is no
longer in effect, or the child is or will
be enrolled in comparable health cov-
erage which will take effect not later
than the effective date of such
disenrollment, or
‘‘(II) the employer has eliminated
family health coverage for all of its
employees; and
‘‘(iv) to withhold from such employ-
ee’s compensation the employee’s share (if
any) of premiums for health coverage (ex-
cept that the amount so withheld may not
exceed the maximum amount permitted to
307
be withheld under section 303(b) of the
Consumer Credit Protection Act), and to
pay such share of premiums to the insurer,
except that the Secretary may provide by
regulation for appropriate circumstances
under which an employer may withhold
less than such employee’s share of such
premiums.
‘‘(D) A law that prohibits an insurer from
imposing requirements on a State agency,
which has been assigned the rights of an indi-
vidual eligible for medical assistance under this
title and covered for health benefits from the
insurer, that are different from requirements
applicable to an agent or assignee of any other
individual so covered.
‘‘(E) A law that requires an insurer, in
any case in which a child has health coverage
through the insurer of a noncustodial parent—
‘‘(i) to provide such information to the
custodial parent as may be necessary for
the child to obtain benefits through such
coverage,
‘‘(ii) to permit the custodial parent
(or provider, with the custodial parent’s
308
approval) to submit claims for covered
services without the approval of the non-
custodial parent, and
‘‘(iii) to make payment on claims sub-
mitted in accordance with clause (ii) di-
rectly to such custodial parent, the pro-
vider, or the State agency.
‘‘(F) A law that permits the State agency
under this title to garnish the wages, salary, or
other employment income of, and requires with-
holding amounts from State tax refunds to, any
person who—
‘‘(i) is required by court or adminis-
trative order to provide coverage of the
costs of health services to a child who is el-
igible for medical assistance under this
title,
‘‘(ii) has received payment from a
third party for the costs of such services to
such child, but
‘‘(iii) has not used such payments to
reimburse, as appropriate, either the other
parent or guardian of such child or the
provider of such services,
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to the extent necessary to reimburse the State
agency for expenditures for such costs under its
plan under this title, but any claims for current
or past-due child support shall take priority
over any such claims for the costs of such serv-
ices.
‘‘(2) DEFINITION.—For purposes of this sub-
section, the term ‘insurer’ includes a group health
plan, as defined in section 607(1) of the Employee
Retirement Income Security Act of 1974, a health
maintenance organization, and an entity offering a
service benefit plan.
‘‘(g) 
ESTATE
RECOVERIES
AND
LIENS
PER-
MITTED.—A State may take such actions as it considers
appropriate to adjust or recover from the individual or the
individual’s estate any amounts paid as medical assistance
to or on behalf of the individual under the State plan, in-
cluding through the imposition of liens against the prop-
erty or estate of the individual to the extent consistent
with section 1506.
‘‘SEC. 1556. ASSIGNMENT OF RIGHTS OF PAYMENT.
‘‘(a) IN GENERAL.—For the purpose of assisting in
the collection of medical support payments and other pay-
ments for medical care owed to recipients of medical as-
sistance under the State plan, each State plan shall—
310
‘‘(1) provide that, as a condition of eligibility
for medical assistance under the plan to an individ-
ual who has the legal capacity to execute an assign-
ment for himself, the individual is required—
‘‘(A) to assign the State any rights, of the
individual or of any other person who is eligible
for medical assistance under the plan and on
whose behalf the individual has the legal au-
thority to execute an assignment of such rights,
to support (specified as support for the purpose
of medical care by a court or administrative
order) and to payment for medical care from
any third party,
‘‘(B) to cooperate with the State (i) in es-
tablishing the paternity of such person (referred
to in subparagraph (A)) if the person is a child
born out of wedlock, and (ii) in obtaining sup-
port and payments (described in subparagraph
(A)) for himself and for such person, unless (in
either case) the individual is a pregnant woman
or the individual is found to have good cause
for refusing to cooperate as determined by the
State, and
‘‘(C) to cooperate with the State in identi-
fying, and providing information to assist the