I 
107TH CONGRESS 
2D SESSION 
H. R. 5729
To amend title XVIII of the Social Security Act to revise and improve 
payments to providers of services under the Medicare Program, and 
for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
NOVEMBER 14, 2002
Mr. TANNER (for himself, Mr. BERRY, Mr. MATHESON, Mr. ROSS, Mr. 
STENHOLM, Mr. HILL, Mr. MOORE, Mr. PETERSON of Minnesota, Mr. 
TURNER, and Mr. FORD) introduced the following bill; which was referred 
to the Committee on Ways and Means, and in addition to the Committee 
on Energy and Commerce, for a period to be subsequently determined by 
the Speaker, in each case for consideration of such provisions as fall with-
in the jurisdiction of the committee concerned 
A BILL 
To amend title XVIII of the Social Security Act to revise 
and improve payments to providers of services under 
the Medicare Program, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECU-
RITY ACT; REFERENCES TO BIPA AND SEC-
RETARY; TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Medicare Reimbursement Equity and Benefits Improve-
ment Act of 2002’’. 
(b) AMENDMENTS TO SOCIAL SECURITY ACT.—Ex-
cept as otherwise specifically provided, whenever in this 
Act an amendment is expressed in terms of an amendment 
to or repeal of a section or other provision, the reference 
shall be considered to be made to that section or other 
provision of the Social Security Act. 
(c) BIPA; SECRETARY.—In this Act: 
(1) BIPA.—The term ‘‘BIPA’’ means the 
Medicare, Medicaid, and SCHIP Benefits Improve-
ment and Protection Act of 2000, as enacted into 
law by section 1(a)(6) of Public Law 106–554. 
(2) SECRETARY.—The term ‘‘Secretary’’ means 
the Secretary of Health and Human Services. 
(d) TABLE OF CONTENTS.—The table of contents of 
this Act is as follows:
Sec. 1. Short title; amendments to Social Security Act; references to BIPA and 
Secretary; table of contents. 
TITLE I—RURAL HEALTH CARE IMPROVEMENTS 
Sec. 101. Reference to full market basket increase for sole community hos-
pitals. 
Sec. 102. Enhanced disproportionate share hospital (DSH) treatment for rural 
hospitals and urban hospitals with fewer than 100 beds.
Sec. 103. 2-year phased-in increase in the standardized amount in rural and 
small urban areas to achieve a single, uniform standardized 
amount. 
Sec. 104. More frequent update in weights used in hospital market basket. 
Sec. 105. Improvements to critical access hospital program. 
Sec. 106. Extension of temporary increase for home health services furnished 
in a rural area. 
Sec. 107. Reference to 10 percent increase in payment for hospice care fur-
nished in a frontier area and rural hospice demonstration 
project. 
Sec. 108. Reference to priority for hospitals located in rural or small urban 
areas in redistribution of unused graduate medical education 
residencies. 
Sec. 109. GAO study of geographic differences in payments for physicians’ 
services. 
Sec. 110. Providing safe harbor for certain collaborative efforts that benefit 
medically underserved populations. 
Sec. 111. Relief for certain non-teaching hospitals. 
TITLE II—PROVISIONS RELATING TO PART A 
Subtitle A—Inpatient Hospital Services 
Sec. 201. Revision of acute care hospital payment updates. 
Sec. 202. 2-year increase in level of adjustment for indirect costs of medical 
education (IME). 
Sec. 203. Recognition of new medical technologies under inpatient hospital 
PPS. 
Sec. 204. Phase-in of Federal rate for hospitals in Puerto Rico. 
Sec. 205. Reference to provision relating to enhanced disproportionate share 
hospital (DSH) payments for rural hospitals and urban hos-
pitals with fewer than 100 beds. 
Sec. 206. Reference to provision relating to 2-year phased-in increase in the 
standardized amount in rural and small urban areas to achieve 
a single, uniform standardized amount. 
Sec. 207. Reference to provision for more frequent updates in the weights used 
in hospital market basket. 
Sec. 208. Reference to provision making improvements to critical access hos-
pital program. 
Sec. 209. GAO study on improving the hospital wage index. 
Subtitle B—Skilled Nursing Facility Services 
Sec. 211. Payment for covered skilled nursing facility services. 
Subtitle C—Hospice 
Sec. 221. Coverage of hospice consultation services. 
Sec. 222. 10 percent increase in payment for hospice care furnished in a fron-
tier area. 
Sec. 223. Rural hospice demonstration project. 
TITLE III—PROVISIONS RELATING TO PART B 
Subtitle A—Physicians’ Services 
Sec. 301. Studies on access to physicians’ services.
Sec. 302. MedPAC report on payment for physicians’ services. 
Sec. 303. 1-year extension of treatment of certain physician pathology services 
under medicare. 
Sec. 304. Physician fee schedule wage index revision. 
Subtitle B—Other Services 
Sec. 311. Payment for ambulance services. 
Sec. 312. 2-year extension of moratorium on therapy caps; provisions relating 
to reports. 
Sec. 313. Coverage of an initial preventive physical examination. 
Sec. 314. Renal dialysis services. 
Sec. 315. Improved payment for certain mammography services. 
Sec. 316. Waiver of part B late enrollment penalty for certain military retirees; 
special enrollment period. 
Sec. 317. Coverage of cholesterol and blood lipid screening. 
TITLE IV—PROVISIONS RELATING TO PARTS A AND B 
Subtitle A—Home Health Services 
Sec. 401. Elimination of 15 percent reduction in payment rates under the pro-
spective payment system. 
Sec. 402. Update in home health services. 
Sec. 403. OASIS Task Force; suspension of certain OASIS data collection re-
quirements pending Task Force submittal of report. 
Sec. 404. MedPAC study on medicare margins of home health agencies. 
Sec. 405. Clarification of treatment of occasional absences in determining 
whether an individual is confined to the home. 
Subtitle B—Direct Graduate Medical Education 
Sec. 411. Extension of update limitation on high cost programs. 
Sec. 412. Redistribution of unused resident positions. 
Subtitle C—Other Provisions
Sec. 421. Modifications to Medicare Payment Advisory Commission (MedPAC). 
Sec. 422. Demonstration project for disease management for certain medicare 
beneficiaries with diabetes. 
Sec. 423. Demonstration project for medical adult day care services. 
Sec. 424. Publication on final written guidance concerning prohibitions against 
discrimination by national origin with respect to health care 
services. 
TITLE V—MEDICARE+CHOICE REVITALIZATION 
Sec. 501. Medicare+Choice improvements. 
Sec. 502. Making permanent change in Medicare+Choice reporting deadlines 
and annual, coordinated election period. 
Sec. 503. Specialized Medicare+Choice plans for special needs beneficiaries. 
Sec. 504. Extension of reasonable cost and SHMO contracts. 
TITLE VI—MEDICAID DISPROPORTIONATE SHARE HOSPITAL 
(DSH) PAYMENTS 
Sec. 601. Disproportionate share hospital (DSH) payments.
TITLE I—RURAL HEALTH CARE 
IMPROVEMENTS 
SEC. 101. REFERENCE TO FULL MARKET BASKET INCREASE 
FOR SOLE COMMUNITY HOSPITALS. 
For provision eliminating any reduction from full 
market basket in the update for inpatient hospital services 
for sole community hospitals, see section 201. 
SEC. 102. ENHANCED DISPROPORTIONATE SHARE HOS-
PITAL (DSH) TREATMENT FOR RURAL HOS-
PITALS AND URBAN HOSPITALS WITH FEWER 
THAN 100 BEDS. 
(a) BLENDING OF PAYMENT AMOUNTS.—
(1) IN GENERAL.—Section 1886(d)(5)(F) (42 
U.S.C. 1395ww(d)(5)(F)) is amended by adding at 
the end the following new clause: 
‘‘(xiv)(I) In the case of discharges in a fiscal year 
beginning on or after October 1, 2002, subject to sub-
clause (II), there shall be substituted for the dispropor-
tionate share adjustment percentage otherwise determined 
under clause (iv) (other than subclause (I)) or under 
clause (viii), (x), (xi), (xii), or (xiii), the old blend propor-
tion (specified under subclause (III)) of the dispropor-
tionate share adjustment percentage otherwise determined 
under the respective clause and 100 percent minus such 
old blend proportion of the disproportionate share adjust-
ment percentage determined under clause (vii) (relating 
to large, urban hospitals). 
‘‘(II) Under subclause (I), the disproportionate share 
adjustment percentage shall not exceed 10 percent for a 
hospital that is not classified as a rural referral center 
under subparagraph (C). 
‘‘(III) For purposes of subclause (I), the old blend 
proportion for fiscal year 2003 is 80 percent, for each sub-
sequent year (through 2006) is the old blend proportion 
under this subclause for the previous year minus 20 per-
centage points, and for each year beginning with 2007 is 
0 percent.’’. 
(2) 
CONFORMING
AMENDMENTS.—Section 
1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is 
amended—
(A) in each of subclauses (II), (III), (IV), 
(V), and (VI) of clause (iv), by inserting 
‘‘subject to clause (xiv) and’’ before ‘‘for dis-
charges occurring’’; 
(B) in clause (viii), by striking ‘‘The for-
mula’’ and inserting ‘‘Subject to clause (xiv), 
the formula’’; and 
(C) in each of clauses (x), (xi), (xii), and 
(xiii), by striking ‘‘For purposes’’ and inserting 
‘‘Subject to clause (xiv), for purposes’’.
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply with respect to discharges occur-
ring on or after October 1, 2002.
SEC. 103. 2-YEAR PHASED-IN INCREASE IN THE STANDARD-
IZED AMOUNT IN RURAL AND SMALL URBAN 
AREAS TO ACHIEVE A SINGLE, UNIFORM 
STANDARDIZED AMOUNT. 
Section 
1886(d)(3)(A)(iv) 
(42 
U.S.C. 
1395ww(d)(3)(A)(iv)) is amended—
(1) by striking ‘‘(iv) For discharges’’ and in-
serting ‘‘(iv)(I) Subject to the succeeding provisions 
of this clause, for discharges’’; and 
(2) by adding at the end the following new sub-
clauses: 
‘‘(II) For discharges occurring during fiscal 
year 2003, the average standardized amount for hos-
pitals located other than in a large urban area shall 
be increased by 1⁄2 of the difference between the av-
erage standardized amount determined under sub-
clause (I) for hospitals located in large urban areas 
for such fiscal year and such amount determined 
(without regard to this subclause) for other hospitals 
for such fiscal year. 
‘‘(III) For discharges occurring in a fiscal year 
beginning with fiscal year 2004, the Secretary shall
compute an average standardized amount for hos-
pitals located in any area within the United States 
and within each region equal to the average stand-
ardized amount computed for the previous fiscal 
year under this subparagraph for hospitals located 
in a large urban area (or, beginning with fiscal year 
2005, for hospitals located in any area) increased by 
the applicable percentage increase under subsection 
(b)(3)(B)(i).’’. 
SEC. 104. MORE FREQUENT UPDATE IN WEIGHTS USED IN 
HOSPITAL MARKET BASKET. 
(a) MORE FREQUENT UPDATES IN WEIGHTS.—After 
revising the weights used in the hospital market basket 
under section 1886(b)(3)(B)(iii) of the Social Security Act 
(42 U.S.C. 1395ww(b)(3)(B)(iii)) to reflect the most cur-
rent data available, the Secretary shall establish a fre-
quency for revising such weights in such market basket 
to reflect the most current data available more frequently 
than once every 5 years. 
(b) REPORT.—Not later than October 1, 2003, the 
Secretary shall submit a report to Congress on the fre-
quency established under subsection (a), including an ex-
planation of the reasons for, and options considered, in 
determining such frequency.
SEC. 105. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL 
PROGRAM. 
(a) REINSTATEMENT OF PERIODIC INTERIM PAY-
MENT
(PIP).—Section 
1815(e)(2) 
(42 
U.S.C. 
1395g(e)(2)) is amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (C); 
(2) by adding ‘‘and’’ at the end of subpara-
graph (D); and
(3) by inserting after subparagraph (D) the fol-
lowing new subparagraph: 
‘‘(E) inpatient critical access hospital services;’’. 
(b) CONDITION FOR APPLICATION OF SPECIAL PHY-
SICIAN PAYMENT ADJUSTMENT.—Section 1834(g)(2) (42 
U.S.C. 1395m(g)(2)) is amended by adding after and 
below subparagraph (B) the following: 
‘‘The Secretary may not require, as a condition for 
applying subparagraph (B) with respect to a critical 
access hospital, that each physician providing profes-
sional services in the hospital must assign billing 
rights with respect to such services, except that such 
subparagraph shall not apply to those physicians 
who have not assigned such billing rights.’’. 
(c) FLEXIBILITY
IN BED LIMITATION
FOR HOS-
PITALS.—Section 1820 (42 U.S.C. 1395i–4) is amended—
(1) in subsection (c)(2)(B)(iii), by inserting 
‘‘subject to paragraph (3)’’ after ‘‘(iii) provides’’; 
(2) by adding at the end of subsection (c) the 
following new paragraph: 
‘‘(3) INCREASE IN MAXIMUM NUMBER OF BEDS 
FOR HOSPITALS WITH STRONG SEASONAL CENSUS 
FLUCTUATIONS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (C), in the case of a hospital that dem-
onstrates that it meets the standards estab-
lished under subparagraph (B) and has not 
made the election described in subsection 
(f)(2)(A), the bed limitations otherwise applica-
ble under paragraph (2)(B)(iii) and subsection 
(f) shall be increased by 5 beds. 
‘‘(B) STANDARDS.—The Secretary shall 
specify standards for determining whether a 
critical access hospital has sufficiently strong 
seasonal variations in patient admissions to jus-
tify the increase in bed limitation provided 
under subparagraph (A).’’; and 
(3) in subsection (f)—
(A) by inserting ‘‘(1)’’ after ‘‘(f)’’; and 
(B) by adding at the end the following new 
paragraph:
‘‘(2)(A) A hospital may elect to treat the reference 
in paragraph (1) to ‘15 beds’ as a reference to ‘25 beds’, 
but only if no more than 10 beds in the hospital are at 
any time used for non-acute care services. A hospital that 
makes such an election is not eligible for the increase pro-
vided under subsection (c)(3)(A). 
‘‘(B) The limitations in numbers of beds under the 
first sentence of paragraph (1) are subject to adjustment 
under subsection (c)(3).’’. 
(d) 5-YEAR EXTENSION
OF
THE AUTHORIZATION 
FOR APPROPRIATIONS FOR GRANT PROGRAM.—Section 
1820(j) (42 U.S.C. 1395i–4(j)) is amended by striking 
‘‘through 2002’’ and inserting ‘‘through 2007’’.
(e) PROHIBITION OF RETROACTIVE RECOUPMENT.—
The Secretary shall not recoup (or otherwise seek to re-
cover) overpayments made for outpatient critical access 
hospital services under part B of title XVIII of the Social 
Security Act, for services furnished in cost reporting peri-
ods that began before October 1, 2002, insofar as such 
overpayments are attributable to payment being based on 
80 percent of reasonable costs (instead of 100 percent of 
reasonable costs minus 20 percent of charges). 
(f) EFFECTIVE DATES.—
(1) REINSTATEMENT
OF
PIP.—The amend-
ments made by subsection (a) shall apply to pay-
ments made on or after January 1, 2003. 
(2) PHYSICIAN PAYMENT ADJUSTMENT CONDI-
TION.—The amendment made by subsection (b) 
shall be effective as if included in the enactment of 
section 403(d) of the Medicare, Medicaid, and 
SCHIP Balanced Budget Refinement Act of 1999 
(113 Stat. 1501A–371). 
(3) FLEXIBILITY
IN
BED
LIMITATION.—The 
amendments made by subsection (c) shall apply to 
designations made on or after January 1, 2003, but 
shall not apply to critical access hospitals that were 
designated as of such date. 
SEC. 106. EXTENSION OF TEMPORARY INCREASE FOR 
HOME HEALTH SERVICES FURNISHED IN A 
RURAL AREA. 
(a) IN GENERAL.—Section 508(a) BIPA (114 Stat. 
2763A–533) is amended—
(1) by striking ‘‘24-MONTH INCREASE BEGIN-
NING APRIL 1, 2001’’ and inserting ‘‘IN GENERAL’’; 
and 
(2) by striking ‘‘April 1, 2003’’ and inserting 
‘‘January 1, 2005’’.
(b) CONFORMING AMENDMENT.—Section 547(c)(2) 
of BIPA (114 Stat. 2763A–553) is amended by striking 
‘‘the period beginning on April 1, 2001, and ending on 
September 30, 2002,’’ and inserting ‘‘a period under such 
section’’. 
SEC. 107. REFERENCE TO 10 PERCENT INCREASE IN PAY-
MENT FOR HOSPICE CARE FURNISHED IN A 
FRONTIER AREA AND RURAL HOSPICE DEM-
ONSTRATION PROJECT. 
For—
(1) provision of 10 percent increase in payment 
for hospice care furnished in a frontier area, see sec-
tion 222; and 
(2) provision of a rural hospice demonstration 
project, see section 223. 
SEC. 108. REFERENCE TO PRIORITY FOR HOSPITALS LO-
CATED IN RURAL OR SMALL URBAN AREAS IN 
REDISTRIBUTION 
OF 
UNUSED 
GRADUATE 
MEDICAL EDUCATION RESIDENCIES. 
For provision providing priority for hospitals located 
in rural or small urban areas in redistribution of unused 
graduate medical education residencies, see section 412.
SEC. 109. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN 
PAYMENTS FOR PHYSICIANS’ SERVICES. 
(a) STUDY.—The Comptroller General of the United 
States shall conduct a study of differences in payment 
amounts under the physician fee schedule under section 
1848 of the Social Security Act (42 U.S.C. 1395w–4) for 
physicians’ services in different geographic areas. Such 
study shall include—
(1) an assessment of the validity of the geo-
graphic adjustment factors used for each component 
of the fee schedule; 
(2) an evaluation of the measures used for such 
adjustment, including the frequency of revisions; and 
(3) an evaluation of the methods used to deter-
mine professional liability insurance costs used in 
computing the malpractice component, including a 
review of increases in professional liability insurance 
premiums and variation in such increases by State 
and physician specialty and methods used to update 
the geographic cost of practice index and relative 
weights for the malpractice component. 
(b) REPORT.—Not later than 1 year after the date 
of the enactment of this Act, the Comptroller General shall 
submit to Congress a report on the study conducted under 
subsection (a). The report shall include recommendations 
regarding the use of more current data in computing geo-
graphic cost of practice indices as well as the use of data 
directly representative of physicians’ costs (rather than 
proxy measures of such costs).
SEC. 110. PROVIDING SAFE HARBOR FOR CERTAIN COL-
LABORATIVE EFFORTS THAT BENEFIT MEDI-
CALLY UNDERSERVED POPULATIONS. 
(a) IN GENERAL.—Section 1128B(b)(3) (42 U.S.C. 
1320a–7(b)(3)), as amended by section 101(b)(2), is 
amended—
(1) in subparagraph (F), by striking ‘‘and’’ 
after the semicolon at the end; 
(2) in subparagraph (G), by striking the period 
at the end and inserting ‘‘; and’’; and 
(3) by adding at the end the following new sub-
paragraph: 
‘‘(H) any remuneration between a public 
or nonprofit private health center entity de-
scribed under clause (i) or (ii) of section 
1905(l)(2)(B) and any individual or entity pro-
viding goods, items, services, donations or 
loans, or a combination thereof, to such health 
center entity pursuant to a contract, lease, 
grant, loan, or other agreement, if such agree-
ment contributes to the ability of the health 
center entity to maintain or increase the avail-
ability, or enhance the quality, of services pro-
vided to a medically underserved population 
served by the health center entity.’’. 
(b) RULEMAKING
FOR EXCEPTION
FOR HEALTH 
CENTER ENTITY ARRANGEMENTS.—
(1) ESTABLISHMENT.—
(A) 
IN
GENERAL.—The 
Secretary 
of 
Health and Human Services (in this subsection 
referred to as the ‘‘Secretary’’) shall establish, 
on an expedited basis, standards relating to the 
exception described in section 1128B(b)(3)(H) 
of the Social Security Act, as added by sub-
section (a), for health center entity arrange-
ments to the antikickback penalties. 
(B) FACTORS
TO
CONSIDER.—The Sec-
retary shall consider the following factors, 
among others, in establishing standards relating 
to the exception for health center entity ar-
rangements under subparagraph (A): 
(i) Whether the arrangement between 
the health center entity and the other 
party results in savings of Federal grant 
funds or increased revenues to the health 
center entity.
(ii) Whether the arrangement between 
the health center entity and the other 
party restricts or limits a patient’s freedom 
of choice. 
(iii) Whether the arrangement be-
tween the health center entity and the 
other party protects a health care profes-
sional’s independent medical judgment re-
garding medically appropriate treatment. 
The Secretary may also include other standards 
and criteria that are consistent with the intent 
of Congress in enacting the exception estab-
lished under this section. 
(2) INTERIM
FINAL
EFFECT.—No later than 
180 days after the date of enactment of this Act, the 
Secretary shall publish a rule in the Federal Reg-
ister consistent with the factors under paragraph 
(1)(B). Such rule shall be effective and final imme-
diately on an interim basis, subject to such change 
and revision, after public notice and opportunity (for 
a period of not more than 60 days) for public com-
ment, as is consistent with this subsection.
SEC. 111. RELIEF FOR CERTAIN NON-TEACHING HOS-
PITALS. 
(a) IN GENERAL.—In the case of a non-teaching hos-
pital that meets the condition of subsection (b), in each 
of fiscal years 2003, 2004, and 2005 the amount of pay-
ment made to the hospital under section 1886(d) of the 
Social Security Act for discharges occurring during such 
fiscal year only shall be increased as though the applicable 
percentage increase (otherwise applicable to discharges oc-
curring 
during 
such 
fiscal 
year 
under 
section 
1886(b)(3)(B)(i) of the Social Security Act (42 U.S.C. 
1395ww(b)(3)(B)(i)) had been increased by 5 percentage 
points. The previous sentence shall be applied for each 
such fiscal year separately without regard to its applica-
tion in a previous fiscal year and shall not affect payment 
for discharges for any hospital occurring during a fiscal 
year after fiscal year 2005. 
(b) CONDITION.—A non-teaching hospital meets the 
condition of this subsection if—
(1) it is located in a rural area and the amount 
of the aggregate payments under subsection (d) of 
section 1886 of the Social Security Act for hospitals 
located in rural areas in the State for their cost re-
porting periods beginning during fiscal year 1999 is 
less than the aggregate allowable operating costs of 
inpatient hospital services (as defined in subsection
(a)(4) of such section) for all subsection (d) hos-
pitals in such areas in such State with respect to 
such cost reporting periods; or 
(2) it is located in an urban area and the 
amount of the aggregate payments under subsection 
(d) of such section for hospitals located in urban 
areas in the State for their cost reporting periods 
beginning during fiscal year 1999 is less than 103 
percent of the aggregate allowable operating costs of 
inpatient hospital services (as defined in subsection 
(a)(4) of such section) for all subsection (d) hos-
pitals in such areas in such State with respect to 
such cost reporting periods. 
The amounts under paragraphs (1) and (2) shall be deter-
mined by the Secretary of Health and Human Services 
based on data of the Medicare Payment Advisory Commis-
sion. 
(c) DEFINITIONS.—For purposes of this section: 
(1) 
NON-TEACHING
HOSPITAL.—The 
term 
‘‘non-teaching hospital’’ means, for a cost reporting 
period, a subsection (d) hospital (as defined in sub-
section (d)(1)(B) of section 1886 of the Social Secu-
rity Act, 42 U.S.C. 1395ww)) that is not receiving 
any additional payment under subsection (d)(5)(B) 
of such section or a payment under subsection (h)
of such section for discharges occurring during the 
period. A subsection (d) hospital that receives addi-
tional payments under subsection (d)(5)(B) or (h) of 
such section shall, for purposes of this section, also 
be treated as a non-teaching hospital unless a chair-
man of a department in the medical school with 
which the hospital is affiliated is serving or has been 
appointed as a clinical chief of service in the hos-
pital. 
(2) RURAL; URBAN.—The terms ‘‘rural’’ and 
‘‘urban’’ have the meanings given such terms for 
purposes of section 1886(d) of the Social Security 
Act (42 U.S.C. 1395ww(d)).
TITLE II—PROVISIONS 
RELATING TO PART A 
Subtitle A—Inpatient Hospital 
Services 
SEC. 201. REVISION OF ACUTE CARE HOSPITAL PAYMENT 
UPDATES. 
Subclause (XVIII) of section 1886(b)(3)(B)(i) (42 
U.S.C. 1395ww(b)(3)(B)(i)) is amended to read as fol-
lows: 
‘‘(XVIII) for fiscal year 2003, the market bas-
ket percentage increase for sole community hospitals
and such increase minus 0.25 percentage points for 
other hospitals, and’’. 
SEC. 202. 2-YEAR INCREASE IN LEVEL OF ADJUSTMENT FOR 
INDIRECT COSTS OF MEDICAL EDUCATION 
(IME). 
Section 
1886(d)(5)(B)(ii) 
(42 
U.S.C. 
1395ww(d)(5)(B)(ii)) is amended—
(1) in subclause (VI) by striking ‘‘and’’ at the 
end; 
(2) by redesignating subclause (VII) as sub-
clause (IX); 
(3) in subclause (IX) as so redesignated, by 
striking ‘‘2002’’ and inserting ‘‘2004’’; and 
(4) by inserting after subclause (VI) the fol-
lowing new subclause: 
‘‘(VII) during fiscal year 2003, ‘c’ is equal 
to 1.47; 
‘‘(VIII) during fiscal year 2004, ‘c’ is 
equal to 1.45; and’’. 
SEC. 203. RECOGNITION OF NEW MEDICAL TECHNOLOGIES 
UNDER INPATIENT HOSPITAL PPS. 
(a) IMPROVING TIMELINESS
OF DATA COLLEC-
TION.—Section 
1886(d)(5)(K) 
(42 
U.S.C. 
1395ww(d)(5)(K)) is amended by adding at the end the 
following new clause:
‘‘(vii) Under the mechanism under this subpara-
graph, the Secretary shall provide for the addition of new 
diagnosis and procedure codes in April 1 of each year, but 
the addition of such codes shall not require the Secretary 
to adjust the payment (or diagnosis-related group classi-
fication) under this subsection until the fiscal year that 
begins after such date.’’. 
(b) ELIGIBILITY STANDARD.—
(1) MINIMUM
PERIOD
FOR
RECOGNITION
OF 
NEW
TECHNOLOGIES.—Section 
1886(d)(5)(K)(vi) 
(42 U.S.C. 1395ww(d)(5)(K)(vi)) is amended—
(A) by inserting ‘‘(I)’’ after ‘‘(vi)’’; and 
(B) by adding at the end the following new 
subclause: 
‘‘(II) Under such criteria, a service or technology 
shall not be denied treatment as a new service or tech-
nology on the basis of the period of time in which the serv-
ice or technology has been in use if such period ends before 
the end of the 2-to-3-year period that begins on the effec-
tive date of implementation of a code under ICD–9–CM 
(or a successor coding methodology) that enables the iden-
tification of a significant sample of specific discharges in 
which the service or technology has been used.’’. 
(2) ADJUSTMENT
OF
THRESHOLD.—Section 
1886(d)(5)(K)(ii)(I) 
(42 
U.S.C.
1395ww(d)(5)(K)(ii)(I)) is amended by inserting 
‘‘(applying a threshold specified by the Secretary 
that is the lesser of 50 percent of the national aver-
age standardized amount for operating costs of inpa-
tient hospital services for all hospitals and all diag-
nosis-related groups or one standard deviation for 
the diagnosis-related group involved)’’ after ‘‘is inad-
equate’’. 
(3) CRITERION
FOR
SUBSTANTIAL
IMPROVE-
MENT.—Section 
1886(d)(5)(K)(vi) 
(42 
U.S.C. 
1395ww(d)(5)(K)(vi)), as amended by paragraph 
(1), is further amended by adding at the end the fol-
lowing subclause: 
‘‘(III) The Secretary shall by regulation provide for 
further clarification of the criteria applied to determine 
whether a new service or technology represents an advance 
in medical technology that substantially improves the diag-
nosis or treatment of beneficiaries. Under such criteria, 
in determining whether a new service or technology rep-
resents an advance in medical technology that substan-
tially improves the diagnosis or treatment of beneficiaries, 
the Secretary shall deem a service or technology as meet-
ing such requirement if the service or technology is a drug 
or biological that is designated under section 506 or 526 
of the Federal Food, Drug, and Cosmetic Act, approved
under section 314.510 or 601.41 of title 21, Code of Fed-
eral Regulations, or designated for priority review when 
the marketing application for such drug or biological was 
filed or is a medical device for which an exemption has 
been granted under section 520(m) of such Act, or for 
which priority review has been provided under section 
515(d)(5) of such Act.’’.
(4) PROCESS
FOR
PUBLIC
INPUT.—Section 
1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)), as 
amended by paragraph (1), is amended—
(A) in clause (i), by adding at the end the 
following: ‘‘Such mechanism shall be modified 
to meet the requirements of clause (viii).’’; and 
(B) by adding at the end the following new 
clause: 
‘‘(viii) The mechanism established pursuant to clause 
(i) shall be adjusted to provide, before publication of a 
proposed rule, for public input regarding whether a new 
service or technology not described in the second sentence 
of clause (vi)(III) represents an advance in medical tech-
nology that substantially improves the diagnosis or treat-
ment of beneficiaries as follows: 
‘‘(I) The Secretary shall make public and peri-
odically update a list of all the services and tech-
nologies for which an application for additional pay-
ment under this subparagraph is pending. 
‘‘(II) The Secretary shall accept comments, rec-
ommendations, and data from the public regarding 
whether the service or technology represents a sub-
stantial improvement. 
‘‘(III) The Secretary shall provide for a meeting 
at which organizations representing hospitals, physi-
cians, medicare beneficiaries, manufacturers, and 
any other interested party may present comments, 
recommendations, and data to the clinical staff of 
the Centers for Medicare & Medicaid Services before 
publication of a notice of proposed rulemaking re-
garding whether service or technology represents a 
substantial improvement.’’. 
(c) PREFERENCE FOR USE OF DRG ADJUSTMENT.—
Section 1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is 
further amended by adding at the end the following new 
clause: 
‘‘(ix) Before establishing any add-on payment under 
this subparagraph with respect to a new technology, the 
Secretary shall seek to identify one or more diagnosis-re-
lated groups associated with such technology, based on 
similar clinical or anatomical characteristics and the cost 
of the technology. Within such groups the Secretary shall
assign an eligible new technology into a diagnosis-related 
group where the average costs of care most closely approx-
imate the costs of care of using the new technology. In 
such case, no add-on payment under this subparagraph 
shall be made with respect to such new technology and 
this clause shall not affect the application of paragraph 
(4)(C)(iii).’’. 
(d) IMPROVEMENT IN PAYMENT FOR NEW TECH-
NOLOGY.—Section 
1886(d)(5)(K)(ii)(III) 
(42 
U.S.C. 
1395ww(d)(5)(K)(ii)(III)) is amended by inserting after 
‘‘the estimated average cost of such service or technology’’ 
the following: ‘‘(based on the marginal rate applied to 
costs under subparagraph (A))’’. 
(e) EFFECTIVE DATE.—
(1) IN GENERAL.—The Secretary shall imple-
ment the amendments made by this section so that 
they apply to classification for fiscal years beginning 
with fiscal year 2004. 
(2) RECONSIDERATIONS OF APPLICATIONS FOR 
FISCAL YEAR 2003 THAT ARE DENIED.—In the case 
of an application for a classification of a medical 
service or technology as a new medical service or 
technology under section 1886(d)(5)(K) of the Social 
Security Act (42 U.S.C. 1395ww(d)(5)(K)) that was 
filed for fiscal year 2003 and that is denied—
(A) the Secretary shall automatically re-
consider the application as an application for 
fiscal year 2004 under the amendments made 
by this section; and 
(B) the maximum time period otherwise 
permitted for such classification of the service 
or technology shall be extended by 12 months. 
SEC. 204. PHASE-IN OF FEDERAL RATE FOR HOSPITALS IN 
PUERTO RICO. 
Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is 
amended—
(1) in subparagraph (A)—
(A) in clause (i), by striking ‘‘for dis-
charges beginning on or after October 1, 1997, 
50 percent (and for discharges between October 
1, 1987, and September 30, 1997, 75 percent)’’ 
and inserting ‘‘the applicable Puerto Rico per-
centage (specified in subparagraph (E))’’; and 
(B) in clause (ii), by striking ‘‘for dis-
charges beginning in a fiscal year beginning on 
or after October 1, 1997, 50 percent (and for 
discharges between October 1, 1987, and Sep-
tember 30, 1997, 25 percent)’’ and inserting 
‘‘the applicable Federal percentage (specified in 
subparagraph (E))’’; and
(2) by adding at the end the following new sub-
paragraph: 
‘‘(E) For purposes of subparagraph (A), for dis-
charges occurring—
‘‘(i) between October 1, 1987, and September 
30, 1997, the applicable Puerto Rico percentage is 
75 percent and the applicable Federal percentage is 
25 percent; 
‘‘(ii) on or after October 1, 1997, and before 
October 1, 2003, the applicable Puerto Rico percent-
age is 50 percent and the applicable Federal per-
centage is 50 percent; 
‘‘(iii) during fiscal year 2004, the applicable 
Puerto Rico percentage is 45 percent and the appli-
cable Federal percentage is 55 percent; 
‘‘(iv) during fiscal year 2005, the applicable 
Puerto Rico percentage is 40 percent and the appli-
cable Federal percentage is 60 percent; 
‘‘(v) during fiscal year 2006, the applicable 
Puerto Rico percentage is 35 percent and the appli-
cable Federal percentage is 65 percent; 
‘‘(vi) during fiscal year 2007, the applicable 
Puerto Rico percentage is 30 percent and the appli-
cable Federal percentage is 70 percent; and
‘‘(vii) on or after October 1, 2007, the applica-
ble Puerto Rico percentage is 25 percent and the ap-
plicable Federal percentage is 75 percent.’’.
SEC. 205. REFERENCE TO PROVISION RELATING TO EN-
HANCED DISPROPORTIONATE SHARE HOS-
PITAL (DSH) PAYMENTS FOR RURAL HOS-
PITALS AND URBAN HOSPITALS WITH FEWER 
THAN 100 BEDS. 
For provision enhancing disproportionate share hos-
pital (DSH) treatment for rural hospitals and urban hos-
pitals with fewer than 100 beds, see section 102. 
SEC. 206. REFERENCE TO PROVISION RELATING TO 2-YEAR 
PHASED-IN INCREASE IN THE STANDARDIZED 
AMOUNT 
IN 
RURAL 
AND 
SMALL 
URBAN 
AREAS TO ACHIEVE A SINGLE, UNIFORM 
STANDARDIZED AMOUNT. 
For provision phasing in over a 2-year period an in-
crease in the standardized amount for rural and small 
urban areas to achieve a single, uniform, standardized 
amount, see section 103.
SEC. 207. REFERENCE TO PROVISION FOR MORE FRE-
QUENT UPDATES IN THE WEIGHTS USED IN 
HOSPITAL MARKET BASKET. 
For provision providing for more frequent updates in 
the weights used in hospital market basket, see section 
104. 
SEC. 208. REFERENCE TO PROVISION MAKING IMPROVE-
MENTS TO CRITICAL ACCESS HOSPITAL PRO-
GRAM. 
For provision providing making improvements to crit-
ical access hospital program, see section 105. 
SEC. 209. GAO STUDY ON IMPROVING THE HOSPITAL WAGE 
INDEX. 
(a) STUDY.—
(1) IN GENERAL.—The Comptroller General of 
the United States shall conduct a study on the im-
provements that can be made in the measurement of 
regional differences in hospital wages reflected in the 
hospital wage index under section 1886(d) of the So-
cial Security Act (42 U.S.C. 1395ww(d)). 
(2) EXAMINATION OF USE OF METROPOLITAN 
STATISTICAL AREAS (MSAS).—The study shall spe-
cifically examine the use of metropolitan statistical 
areas for purposes of computing and applying the 
wage index and whether the boundaries of such 
areas accurately reflect local labor markets. In addi-
tion, the study shall examine whether regional in-
equities are created as a result of infrequent updates 
of such boundaries and policies of the Bureau of the 
Census relating to commuting criteria. 
(3) WAGE DATA.—The study shall specifically 
examine the portions of the hospital cost reports re-
lating to wages, and methods for improving the ac-
curacy of the wage data and for reducing inequities 
resulting from differences among hospitals in the re-
porting of wage data. 
(b) CONSULTATION WITH OMB.—The Comptroller 
General shall consult with the Director of Office of Man-
agement and Budget in conducting the study under sub-
section (a)(2). 
(c) REPORT.—Not later than May 1, 2003, the 
Comptroller General shall submit to Congress a report on 
the study conducted under subsection (a) and shall include 
in the report such recommendations as may be appropriate 
on—
(1) changes in the definition of labor market 
areas used for purposes of the area wage index 
under section 1886 of the Social Security Act; and 
(2) improvements in methods for the collection 
of wage data.
Subtitle B—Skilled Nursing 
Facility Services 
SEC. 211. PAYMENT FOR COVERED SKILLED NURSING FA-
CILITY SERVICES. 
(a) TEMPORARY INCREASE IN NURSING COMPONENT 
OF PPS FEDERAL RATE.—Section 312(a) of BIPA is 
amended by adding at the end the following new sentence: 
‘‘The Secretary of Health and Human Services shall in-
crease by 12, 10, and 8 percent the nursing component 
of the case-mix adjusted Federal prospective payment rate 
specified in Tables 3 and 4 of the final rule published in 
the Federal Register by the Health Care Financing Ad-
ministration on July 31, 2000 (65 Fed. Reg. 46770) and 
as subsequently updated under section 1888(e)(4)(E)(ii) 
of 
the 
Social 
Security 
Act 
(42 
U.S.C. 
1395yy(e)(4)(E)(ii)), effective for services furnished dur-
ing fiscal years 2003, 2004, and 2005, respectively.’’. 
(b) ADJUSTMENT
TO
RUGS
FOR
AIDS RESI-
DENTS.—
(1) IN GENERAL.—Paragraph (12) of section 
1888(e) (42 U.S.C. 1395yy(e)) is amended to read 
as follows: 
‘‘(12) ADJUSTMENT
FOR
RESIDENTS
WITH 
AIDS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), in the case of a resident of a skilled 
nursing facility who is afflicted with acquired 
immune deficiency syndrome (AIDS), the per 
diem amount of payment otherwise applicable 
shall be increased by 128 percent to reflect in-
creased costs associated with such residents. 
‘‘(B) SUNSET.—Subparagraph (A) shall 
not apply on and after such date as the Sec-
retary certifies that there is an appropriate ad-
justment in the case mix under paragraph 
(4)(G)(i) to compensate for the increased costs 
associated with residents described in such sub-
paragraph.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to services furnished on 
or after October 1, 2003. 
Subtitle C—Hospice 
SEC. 221. COVERAGE OF HOSPICE CONSULTATION SERV-
ICES. 
(a) COVERAGE OF HOSPICE CONSULTATION SERV-
ICES.—Section 1812(a) (42 U.S.C. 1395d(a)) is amend-
ed—
(1) by striking ‘‘and’’ at the end of paragraph 
(3);
(2) by striking the period at the end of para-
graph (4) and inserting ‘‘; and’’; and 
(3) by inserting after paragraph (4) the fol-
lowing new paragraph: 
‘‘(5) for individuals who are terminally ill, have 
not made an election under subsection (d)(1), and 
have not previously received services under this 
paragraph, services that are furnished by a physi-
cian who is either the medical director or an em-
ployee of a hospice program and that consist of—
‘‘(A) an evaluation of the individual’s need 
for pain and symptom management; 
‘‘(B) counseling the individual with respect 
to end-of-life issues and care options; and 
‘‘(C) advising the individual regarding ad-
vanced care planning.’’. 
(b) PAYMENT.—Section 1814(i) (42 U.S.C. l395f(i)) 
is amended by adding at the end the following new para-
graph: 
‘‘(4) The amount paid to a hospice program with re-
spect to the services under section 1812(a)(5) for which 
payment may be made under this part shall be equal to 
an amount equivalent to the amount established for an 
office or other outpatient visit for evaluation and manage-
ment associated with presenting problems of moderate se-
verity under the fee schedule established under section 
1848(b), other than the portion of such amount attrib-
utable to the practice expense component.’’. 
(c) 
CONFORMING
AMENDMENT.—Section 
1861(dd)(2)(A)(i) (42 U.S.C. 1395x(dd)(2)(A)(i)) is 
amended by inserting before the comma at the end the 
following: ‘‘and services described in section 1812(a)(5)’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to services provided by a hospice 
program on or after January 1, 2004. 
SEC. 222. 10 PERCENT INCREASE IN PAYMENT FOR HOS-
PICE CARE FURNISHED IN A FRONTIER AREA. 
(a) IN GENERAL.—Section 1814(i)(1) (42 U.S.C. 
1395f(i)(1)) is amended by adding at the end the following 
new subparagraph: 
‘‘(D) With respect to hospice care furnished in a fron-
tier area on or after January 1, 2003, and before January 
1, 2008, the payment rates otherwise established for such 
care shall be increased by 10 percent. For purposes of this 
subparagraph, the term ‘frontier area’ means a county in 
which the population density is less than 7 persons per 
square mile.’’. 
(b) REPORT ON COSTS.—Not later than January 1, 
2007, the Comptroller General of the United States shall 
submit to Congress a report on the costs of furnishing
hospice care in frontier areas. Such report shall include 
recommendations regarding the appropriateness of extend-
ing, and modifying, the payment increase provided under 
the amendment made by subsection (a). 
SEC. 223. RURAL HOSPICE DEMONSTRATION PROJECT. 
(a) IN GENERAL.—The Secretary shall conduct a 
demonstration project for the delivery of hospice care to 
medicare beneficiaries in rural areas. Under the project 
medicare beneficiaries who are unable to receive hospice 
care in the home for lack of an appropriate caregiver are 
provided such care in a facility of 20 or fewer beds which 
offers, within its walls, the full range of services provided 
by hospice programs under section 1861(dd) of the Social 
Security Act (42 U.S.C. 1395x(dd)). 
(b) SCOPE OF PROJECT.—The Secretary shall con-
duct the project under this section with respect to no more 
than 3 hospice programs over a period of not longer than 
5 years each. 
(c) COMPLIANCE WITH CONDITIONS.—Under the 
demonstration project—
(1) the hospice program shall comply with oth-
erwise applicable requirements, except that it shall 
not be required to offer services outside of the home 
or 
to 
meet 
the 
requirements 
of 
section 
1861(dd)(2)(A)(iii) of the Social Security Act; and
(2) payments for hospice care shall be made at 
the rates otherwise applicable to such care under 
title XVIII of such Act. 
The Secretary may require the program to comply with 
such additional quality assurance standards for its provi-
sion of services in its facility as the Secretary deems ap-
propriate. 
(d) REPORT.—Upon completion of the project, the 
Secretary shall submit a report to Congress on the project 
and shall include in the report recommendations regarding 
extension of such project to hospice programs serving 
rural areas.
TITLE III—PROVISIONS 
RELATING TO PART B 
Subtitle A—Physicians’ Services 
SEC. 301. STUDIES ON ACCESS TO PHYSICIANS’ SERVICES. 
(a) GAO STUDY ON BENEFICIARY ACCESS TO PHYSI-
CIANS’ SERVICES.—
(1) STUDY.—The Comptroller General of the 
United States shall conduct a study on access of 
medicare beneficiaries to physicians’ services under 
the medicare program. The study shall include—
(A) an assessment of the use by bene-
ficiaries of such services through an analysis of
claims submitted by physicians for such services 
under part B of the medicare program; 
(B) an examination of changes in the use 
by beneficiaries of physicians’ services over 
time; 
(C) an examination of the extent to which 
physicians are not accepting new medicare 
beneficiaries as patients. 
(2) REPORT.—Not later than 18 months after 
the date of the enactment of this Act, the Comp-
troller General shall submit to Congress a report on 
the study conducted under paragraph (1). The re-
port shall include a determination whether—
(A) data from claims submitted by physi-
cians under part B of the medicare program in-
dicate potential access problems for medicare 
beneficiaries in certain geographic areas; and 
(B) access by medicare beneficiaries to 
physicians’ services may have improved, re-
mained constant, or deteriorated over time.
(b) STUDY
AND REPORT
ON SUPPLY
OF PHYSI-
CIANS.—
(1) STUDY.—The Secretary shall request the 
Institute of Medicine of the National Academy of 
Sciences to conduct a study on the adequacy of the
supply of physicians (including specialists) in the 
United States and the factors that affect such sup-
ply. 
(2) REPORT TO CONGRESS.—Not later than 2 
years after the date of enactment of this section, the 
Secretary shall submit to Congress a report on the 
results of the study described in paragraph (1), in-
cluding any recommendations for legislation. 
SEC. 302. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS’ 
SERVICES. 
Not later than 1 year after the date of the enactment 
of this Act, the Medicare Payment Advisory Commission 
shall submit to Congress a report on the effect of refine-
ments to the practice expense component of payments for 
physicians’ services, after the transition to a full resource-
based payment system in 2002, under section 1848 of the 
Social Security Act (42 U.S.C. 1395w–4). Such report 
shall examine the following matters by physician specialty: 
(1) The effect of such refinements on payment 
for physicians’ services. 
(2) The interaction of the practice expense com-
ponent with other components of and adjustments to 
payment for physicians’ services under such section. 
(3) The appropriateness of the amount of com-
pensation by reason of such refinements.
(4) The effect of such refinements on access to 
care by medicare beneficiaries to physicians’ serv-
ices. 
(5) The effect of such refinements on physician 
participation under the medicare program.
SEC. 303. 1-YEAR EXTENSION OF TREATMENT OF CERTAIN 
PHYSICIAN PATHOLOGY SERVICES UNDER 
MEDICARE. 
Section 542(c) of BIPA is amended by striking ‘‘2-
year period’’ and inserting ‘‘3-year period’’.
SEC. 304. PHYSICIAN FEE SCHEDULE WAGE INDEX REVI-
SION. 
(a) INDEX REVISION.—
(1) IN GENERAL.—Subject to paragraph (2), 
notwithstanding any other provision of law, for pur-
poses of payment under the physician fee schedule 
under section 1848 of the Social Security Act (42 
U.S.C. 1395w–4) for physicians’ services furnished 
during 2004, in no case may the work geographic 
index 
otherwise 
calculated 
under 
subsection 
(e)(1)(A)(iii) of such section be less than 0.985. 
(2) SECRETARIAL DISCRETION.—Paragraph (1) 
shall not take effect or be in force if the Secretary 
determines, taking into account the report of the 
Comptroller General under subsection (b)(2), that
there is no sound economic rationale for the imple-
mentation of such paragraph. 
(3) EXEMPTION FROM LIMITATION ON ANNUAL 
ADJUSTMENTS.—Any increase in expenditures at-
tributable to paragraph (1) during 2004 shall not be 
taken 
into 
account 
in 
applying 
section 
1848(c)(2)(B)(ii)(II) of the Social Security Act (42 
U.S.C. 1395w–4(c)(2)(B)(ii)(II)) for that year. 
(b) GAO REPORT.—
(1) EVALUATION.—As part of the study on geo-
graphic differences in payments for physicians’ serv-
ices conducted under section 109, the Comptroller 
General shall evaluate the following: 
(A) Whether there is a sound economic 
basis for the implementation of the adjustment 
under subsection (a)(1) in those areas in which 
the adjustment applies. 
(B) The effect of such adjustment on phy-
sician location and retention in areas affected 
by such adjustment, taking into account—
(i) differences in recruitment costs 
and retention rates for physicians, includ-
ing specialists, between large urban areas 
and other areas; and
(ii) the mobility of physicians, includ-
ing specialists, over the last decade. 
(C) The appropriateness of establishing a 
floor of 1.0 for the work geographic index. 
(2) REPORT.—By not later than September 1, 
2003, the Comptroller General shall submit to Con-
gress and to the Secretary a report on the evaluation 
conducted under paragraph (1). 
Subtitle B—Other Services
SEC. 311. PAYMENT FOR AMBULANCE SERVICES. 
(a) PHASE-IN PROVIDING FLOOR USING BLEND OF 
FEE SCHEDULE AND REGIONAL FEE SCHEDULES.—Sec-
tion 1834(l) (42 U.S.C. 1395m(l)) is amended—
(1) 
in 
paragraph 
(2)(E), 
by 
inserting 
‘‘consistent with paragraph (10)’’ after ‘‘in an effi-
cient and fair manner’’; 
(2) by redesignating the paragraph (8) added 
by section 221(a) of BIPA as paragraph (9); and 
(3) by adding at the end the following new 
paragraph: 
‘‘(10) PHASE-IN
PROVIDING
FLOOR
USING 
BLEND
OF
FEE
SCHEDULE
AND
REGIONAL
FEE 
SCHEDULES.—In carrying out the phase-in under 
paragraph (2)(E) for each level of service furnished 
in a year before January 1, 2007, the portion of the
payment amount that is based on the fee schedule 
shall not be less than the following blended rate of 
the fee schedule under paragraph (1) and of a re-
gional fee schedule for the region involved: 
‘‘(A) For 2003, the blended rate shall be 
based 20 percent on the fee schedule under 
paragraph (1) and 80 percent on the regional 
fee schedule. 
‘‘(B) For 2004, the blended rate shall be 
based 40 percent on the fee schedule under 
paragraph (1) and 60 percent on the regional 
fee schedule. 
‘‘(C) For 2005, the blended rate shall be 
based 60 percent on the fee schedule under 
paragraph (1) and 40 percent on the regional 
fee schedule. 
‘‘(D) For 2006, the blended rate shall be 
based 80 percent on the fee schedule under 
paragraph (1) and 20 percent on the regional 
fee schedule. 
For purposes of this paragraph, the Secretary shall 
establish a regional fee schedule for each of the 9 
Census divisions using the methodology (used in es-
tablishing the fee schedule under paragraph (1)) to 
calculate a regional conversion factor and a regional
mileage payment rate and using the same payment 
adjustments and the same relative value units as 
used in the fee schedule under such paragraph.’’. 
(b) ADJUSTMENT IN PAYMENT FOR CERTAIN LONG 
TRIPS.—Section 1834(l), as amended by subsection (a), 
is further amended by adding at the end the following new 
paragraph: 
‘‘(11) ADJUSTMENT IN PAYMENT FOR CERTAIN 
LONG
TRIPS.—In the case of ground ambulance 
services furnished on or after January 1, 2003, and 
before January 1, 2008, regardless of where the 
transportation originates, the fee schedule estab-
lished under this subsection shall provide that, with 
respect to the payment rate for mileage for a trip 
above 50 miles the per mile rate otherwise estab-
lished shall be increased by 1⁄4 of the payment per 
mile otherwise applicable to such miles.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to ambulance services furnished 
on or after January 1, 2003. 
SEC. 312. 2-YEAR EXTENSION OF MORATORIUM ON THER-
APY CAPS; PROVISIONS RELATING TO RE-
PORTS. 
(a) 2-YEAR EXTENSION OF MORATORIUM ON THER-
APY CAPS.—Section 1833(g)(4) (42 U.S.C. 1395l(g)(4))
is amended by striking ‘‘and 2002’’ and inserting ‘‘2002, 
2003, and 2004’’. 
(b) PROMPT SUBMISSION OF OVERDUE REPORTS ON 
PAYMENT AND UTILIZATION OF OUTPATIENT THERAPY 
SERVICES.—Not later than December 31, 2002, the Sec-
retary shall submit to Congress the reports required under 
section 4541(d)(2) of the Balanced Budget Act of 1997 
(relating to alternatives to a single annual dollar cap on 
outpatient therapy) and under section 221(d) of the Medi-
care, Medicaid, and SCHIP Balanced Budget Refinement 
Act of 1999 (relating to utilization patterns for outpatient 
therapy).
(c) IDENTIFICATION OF CONDITIONS AND DISEASES 
JUSTIFYING WAIVER OF THERAPY CAP.—
(1) STUDY.—The Secretary shall request the 
Institute of Medicine of the National Academy of 
Sciences to identify conditions or diseases that 
should justify conducting an assessment of the need 
to waive the therapy caps under section 1833(g)(4) 
of the Social Security Act (42 U.S.C. 1395l(g)(4)). 
(2) REPORTS TO CONGRESS.—Not later than 
September 1, 2003, the Secretary shall submit to 
Congress a preliminary report on the conditions and 
diseases identified under paragraph (1) and not later
than December 31, 2003, a final report on the con-
ditions and diseases so identified. 
(d) GAO STUDY OF PATIENT ACCESS TO PHYSICAL 
THERAPIST SERVICES.—
(1) STUDY.—The Comptroller General of the 
United States shall conduct a study on access to 
physical therapist services in States authorizing such 
services without a physician referral and in States 
that require such a physician referral. The study 
shall—
(A) examine the use of and referral pat-
terns for physical therapist services for patients 
age 50 and older in States that authorize such 
services without a physician referral and in 
States that require such a physician referral; 
(B) examine the use of and referral pat-
terns for physical therapist services for patients 
who are medicare beneficiaries; 
(C) examine the potential effect of prohib-
iting a physician from referring patients to 
physical therapy services owned by the physi-
cian and provided in the physician’s office; 
(D) examine the delivery of physical thera-
pists’ services within the facilities of Depart-
ment of Defense; and
(E) analyze the potential impact on medi-
care beneficiaries and on expenditures under 
the medicare program of eliminating the need 
for a physician referral and physician certifi-
cation for physical therapist services under the 
medicare program. 
(2) REPORT.—The Comptroller General shall 
submit to Congress a report on the study conducted 
under paragraph (1) by not later than 1 year after 
the date of the enactment of this Act.
SEC. 313. COVERAGE OF AN INITIAL PREVENTIVE PHYS-
ICAL EXAMINATION. 
(a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 
1395x(s)(2)) is amended—
(1) in subparagraph (U), by striking ‘‘and’’ at 
the end; 
(2) in subparagraph (V), by inserting ‘‘and’’ at 
the end; and 
(3) by adding at the end the following new sub-
paragraph: 
‘‘(W) an initial preventive physical examination 
(as defined in subsection (ww));’’. 
(b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 
1395x) is amended by adding at the end the following new 
subsection:
‘‘Initial Preventive Physical Examination 
‘‘(ww) The term ‘initial preventive physical examina-
tion’ means physicians’ services consisting of a physical 
examination with the goal of health promotion and disease 
detection and includes items and services (excluding clin-
ical laboratory tests), as determined by the Secretary, con-
sistent with the recommendations of the United States 
Preventive Services Task Force.’’. 
(c) WAIVER OF DEDUCTIBLE AND COINSURANCE.—
(1) DEDUCTIBLE.—The first sentence of sec-
tion 1833(b) (42 U.S.C. 1395l(b)) is amended—
(A) by striking ‘‘and’’ before ‘‘(6)’’, and 
(B) by inserting before the period at the 
end the following: ‘‘, and (7) such deductible 
shall not apply with respect to an initial preven-
tive physical examination (as defined in section 
1861(ww))’’. 
(2) COINSURANCE.—Section 1833(a)(1) (42 
U.S.C. 1395l(a)(1)) is amended—
(A) in clause (N), by inserting ‘‘(or 100 
percent in the case of an initial preventive phys-
ical 
examination, 
as 
defined 
in 
section 
1861(ww))’’ after ‘‘80 percent’’; and 
(B) in clause (O), by inserting ‘‘(or 100 
percent in the case of an initial preventive phys-
ical 
examination, 
as 
defined 
in 
section 
1861(ww))’’ after ‘‘80 percent’’. 
(d) PAYMENT AS PHYSICIANS’ SERVICES.—Section 
1848(j)(3) (42 U.S.C. 1395w–4(j)(3)) is amended by in-
serting ‘‘(2)(W),’’ after ‘‘(2)(S),’’. 
(e) OTHER CONFORMING AMENDMENTS.—Section 
1862(a) (42 U.S.C. 1395y(a)) is amended—
(1) in paragraph (1)—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (H); 
(B) by striking the semicolon at the end of 
subparagraph (I) and inserting ‘‘, and’’; and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(J) in the case of an initial preventive physical 
examination, which is performed not later than 6 
months after the date the individual’s first coverage 
period begins under part B;’’; and 
(2) in paragraph (7), by striking ‘‘or (H)’’ and 
inserting ‘‘(H), or (J)’’. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to services furnished on or after 
January 1, 2004, but only for individuals whose coverage 
period begins on or after such date.
SEC. 314. RENAL DIALYSIS SERVICES. 
(a) REPORT ON DIFFERENCES IN COSTS IN DIF-
FERENT SETTINGS.—Not later than 1 year after the date 
of the enactment of this Act, the Comptroller General of 
the United States shall submit to Congress a report con-
taining—
(1) an analysis of the differences in costs of 
providing renal dialysis services under the medicare 
program in home settings and in facility settings; 
(2) an assessment of the percentage of overhead 
costs in home settings and in facility settings; and 
(3) an evaluation of whether the charges for 
home dialysis supplies and equipment are reasonable 
and necessary. 
(b) RESTORING COMPOSITE RATE EXCEPTIONS FOR 
PEDIATRIC FACILITIES.—
(1) IN GENERAL.—Section 422(a)(2) of BIPA 
is amended—
(A) in subparagraph (A), by striking ‘‘and 
(C)’’ and inserting ‘‘, (C), and (D)’’; 
(B) in subparagraph (B), by striking ‘‘In 
the case’’ and inserting ‘‘Subject to subpara-
graph (D), in the case’’; and 
(C) by adding at the end the following new 
subparagraph:
‘‘(D) INAPPLICABILITY TO PEDIATRIC FA-
CILITIES.—Subparagraphs (A) and (B) shall 
not apply, as of October 1, 2002, to pediatric 
facilities that do not have an exception rate de-
scribed in subparagraph (C) in effect on such 
date. For purposes of this subparagraph, the 
term ‘pediatric facility’ means a renal facility at 
least 50 percent of whose patients are individ-
uals under 18 years of age.’’. 
(2) CONFORMING
AMENDMENT.—The fourth 
sentence 
of 
section 
1881(b)(7) 
(42 
U.S.C. 
1395rr(b)(7)) is amended by striking ‘‘The Sec-
retary’’ and inserting ‘‘Subject to section 422(a)(2) 
of the Medicare, Medicaid, and SCHIP Benefits Im-
provement and Protection Act of 2000, the Sec-
retary’’. 
(c) INCREASE IN RENAL DIALYSIS COMPOSITE RATE 
FOR SERVICES FURNISHED IN 2004.—Notwithstanding 
any other provision of law, with respect to payment under 
part B of title XVIII of the Social Security Act for renal 
dialysis services furnished in 2004, the composite payment 
rate otherwise established under section 1881(b)(7) of 
such Act (42 U.S.C. 1395rr(b)(7)) shall be increased by 
1.2 percent.
SEC. 315. IMPROVED PAYMENT FOR CERTAIN MAMMOG-
RAPHY SERVICES. 
(a) EXCLUSION FROM OPD FEE SCHEDULE.—Sec-
tion 1833(t)(1)(B)(iv) (42 U.S.C. 1395l(t)(1)(B)(iv)) is 
amended by inserting before the period at the end the fol-
lowing: ‘‘and does not include screening mammography (as 
defined in section 1861(jj)) and unilateral and bilateral 
diagnostic mammography’’. 
(b) ADJUSTMENT TO TECHNICAL COMPONENT.—For 
diagnostic mammography performed on or after January 
1, 2004, for which payment is made under the physician 
fee schedule under section 1848 of the Social Security Act 
(42 U.S.C. 1395w–4), the Secretary, based on the most 
recent cost data available, shall provide for an appropriate 
adjustment in the payment amount for the technical com-
ponent of the diagnostic mammography. 
(c) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to mammography performed on 
or after January 1, 2004.
SEC. 316. WAIVER OF PART B LATE ENROLLMENT PENALTY 
FOR CERTAIN MILITARY RETIREES; SPECIAL 
ENROLLMENT PERIOD. 
(a) WAIVER OF PENALTY.—
(1) IN GENERAL.—Section 1839(b) (42 U.S.C. 
1395r(b)) is amended by adding at the end the fol-
lowing new sentence: ‘‘No increase in the premium
shall be effected for a month in the case of an indi-
vidual who is 65 years of age or older, who enrolls 
under this part during 2001, 2002, or 2003, and 
who demonstrates to the Secretary before December 
31, 2003, that the individual is a covered beneficiary 
(as defined in section 1072(5) of title 10, United 
States Code). The Secretary of Health and Human 
Services shall consult with the Secretary of Defense 
in identifying individuals described in the previous 
sentence.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to premiums for 
months beginning with January 2003. The Secretary 
of Health and Human Services shall establish a 
method for providing rebates of premium penalties 
paid for months on or after January 2003 for which 
a penalty does not apply under such amendment but 
for which a penalty was previously collected. 
(b) MEDICARE PART B SPECIAL ENROLLMENT PE-
RIOD.—
(1) IN GENERAL.—In the case of any individual 
who, as of the date of the enactment of this Act, is 
65 years of age or older, is eligible to enroll but is 
not enrolled under part B of title XVIII of the So-
cial Security Act, and is a covered beneficiary (as
defined in section 1072(5) of title 10, United States 
Code), the Secretary of Health and Human Services 
shall provide for a special enrollment period during 
which the individual may enroll under such part. 
Such period shall begin as soon as possible after the 
date of the enactment of this Act and shall end on 
December 31, 2003. 
(2) COVERAGE PERIOD.—In the case of an indi-
vidual who enrolls during the special enrollment pe-
riod provided under paragraph (1), the coverage pe-
riod under part B of title XVIII of the Social Secu-
rity Act shall begin on the first day of the month 
following the month in which the individual enrolls. 
SEC. 317. COVERAGE OF CHOLESTEROL AND BLOOD LIPID 
SCREENING. 
(a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 
1395x(s)(2)), as amended by section 313(a), is amended—
(1) in subparagraph (V), by striking ‘‘and’’ at 
the end; 
(2) in subparagraph (W), by inserting ‘‘and’’ at 
the end; and 
(3) by adding at the end the following new sub-
paragraph:
‘‘(X) cholesterol and other blood lipid 
screening tests (as defined in subsection 
(XX));’’. 
(b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 
1395x), as amended by section 313(b), is amended by add-
ing at the end the following new subsection: 
‘‘Cholesterol and Other Blood Lipid Screening Test 
‘‘(xx)(1) The term ‘cholesterol and other blood lipid 
screening test’ means diagnostic testing of cholesterol and 
other lipid levels of the blood for the purpose of early de-
tection of abnormal cholesterol and other lipid levels. 
‘‘(2) The Secretary shall establish standards, in con-
sultation with appropriate organizations, regarding the 
frequency and type of cholesterol and other blood lipid 
screening tests, except that such frequency may not be 
more often than once every 2 years.’’. 
(c) FREQUENCY.—Section 1862(a)(1) (42 U.S.C. 
1395y(a)(1)), as amended by section 313(e), is amend-
ed—
(1) by striking ‘‘and’’ at the end of subpara-
graph (I); 
(2) by striking the semicolon at the end of sub-
paragraph (J) and inserting ‘‘; and’’; and 
(3) by adding at the end the following new sub-
paragraph:
‘‘(K) in the case of a cholesterol and other 
blood lipid screening test (as defined in section 
1861(xx)(1)), which is performed more frequently 
than is covered under section 1861(xx)(2).’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to tests furnished on or after Janu-
ary 1, 2004. 
TITLE IV—PROVISIONS 
RELATING TO PARTS A AND B 
Subtitle A—Home Health Services 
SEC. 401. ELIMINATION OF 15 PERCENT REDUCTION IN 
PAYMENT RATES UNDER THE PROSPECTIVE 
PAYMENT SYSTEM. 
(a) IN GENERAL.—Section 1895(b)(3)(A) (42 U.S.C. 
1395fff(b)(3)(A)) is amended to read as follows: 
‘‘(A) INITIAL BASIS.—Under such system 
the Secretary shall provide for computation of 
a standard prospective payment amount (or 
amounts) as follows: 
‘‘(i) Such amount (or amounts) shall 
initially be based on the most current au-
dited cost report data available to the Sec-
retary and shall be computed in a manner 
so that the total amounts payable under 
the system for fiscal year 2001 shall be
equal to the total amount that would have 
been made if the system had not been in 
effect and if section 1861(v)(1)(L)(ix) had 
not been enacted. 
‘‘(ii) For fiscal year 2002 and for the 
first quarter of fiscal year 2003, such 
amount (or amounts) shall be equal to the 
amount (or amounts) determined under 
this paragraph for the previous fiscal year, 
updated under subparagraph (B). 
‘‘(iii) For 2003, such amount (or 
amounts) shall be equal to the amount (or 
amounts) determined under this paragraph 
for fiscal year 2002, updated under sub-
paragraph (B) for 2003. 
‘‘(iv) For 2004 and each subsequent 
year, such amount (or amounts) shall be 
equal to the amount (or amounts) deter-
mined under this paragraph for the pre-
vious year, updated under subparagraph 
(B). 
Each such amount shall be standardized in a 
manner that eliminates the effect of variations 
in relative case mix and area wage adjustments 
among different home health agencies in a
budget neutral manner consistent with the case 
mix and wage level adjustments provided under 
paragraph (4)(A). Under the system, the Sec-
retary may recognize regional differences or dif-
ferences based upon whether or not the services 
or agency are in an urbanized area.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall take effect as if included in the 
amendments made by section 501 of the Medicare, Med-
icaid, and SCHIP Benefits Improvement and Protection 
Act of 2000 (as enacted into law by section 1(a)(6) of 
Public Law 106–554). 
SEC. 402. UPDATE IN HOME HEALTH SERVICES. 
(a) CHANGE TO CALENDAR YEAR UPDATE.—
(1) IN GENERAL.—Section 1895(b) (42 U.S.C. 
1395fff(b)(3)) is amended—
(A) in paragraph (3)(B)(i)—
(i) by striking ‘‘each fiscal year 
(beginning with fiscal year 2002)’’ and in-
serting ‘‘fiscal year 2002 and for each sub-
sequent year (beginning with 2003)’’; and 
(ii) by inserting ‘‘or year’’ after ‘‘the 
fiscal year’’; 
(B) in paragraph (3)(B)(ii)—
(i) in subclause (II), by striking 
‘‘fiscal year’’ and inserting ‘‘year’’ and by 
redesignating such subclause as subclause 
(III); and 
(ii) in subclause (I), by striking ‘‘each 
of fiscal years 2002 and 2003’’ and insert-
ing the following: ‘‘fiscal year 2002, the 
home health market basket percentage in-
crease (as defined in clause (iii)) minus 1.1 
percentage points; 
‘‘(II) 2003’’; 
(C) in paragraph (3)(B)(iii), by inserting 
‘‘or year’’ after ‘‘fiscal year’’ each place it ap-
pears; 
(D) in paragraph (3)(B)(iv)—
(i) by inserting ‘‘or year’’ after ‘‘fiscal 
year’’ each place it appears; and 
(ii) by inserting ‘‘or years’’ after 
‘‘fiscal years’’; and 
(E) in paragraph (5), by inserting ‘‘or 
year’’ after ‘‘fiscal year’’. 
(2) TRANSITION RULE.—The standard prospec-
tive payment amount (or amounts) under section 
1895(b)(3) of the Social Security Act for the cal-
endar quarter beginning on October 1, 2002, shall
be such amount (or amounts) for the previous cal-
endar quarter. 
(b) CHANGES IN UPDATES FOR 2003, 2004, AND 
2005.—Section 
1895(b)(3)(B)(ii) 
(42 
U.S.C. 
1395fff(b)(3)(B)(ii)), as amended by subsection (a)(1)(B), 
is amended—
(1) in subclause (II), by striking ‘‘the home 
health market basket percentage increase (as defined 
in clause (iii)) minus 1.1 percentage points’’ and in-
serting ‘‘2.0 percentage points’’; 
(2) by striking ‘‘or’’ at the end of subclause 
(II); 
(3) by redesignating subclause (III) as sub-
clause (V); and 
(4) by inserting after subclause (II) the fol-
lowing new subclause: 
‘‘(III) 
2004, 
1.1 
percentage 
points; 
‘‘(IV) 
2005, 
2.7 
percentage 
points; or’’. 
(c) PAYMENT ADJUSTMENT.—
(1) IN
GENERAL.—Section 1895(b)(5) (42 
U.S.C. 1395fff(b)(5)) is amended by striking ‘‘5 per-
cent’’ and inserting ‘‘3 percent’’.
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to years beginning with 
2003. 
SEC. 403. OASIS TASK FORCE; SUSPENSION OF CERTAIN 
OASIS DATA COLLECTION REQUIREMENTS 
PENDING TASK FORCE SUBMITTAL OF RE-
PORT. 
(a) ESTABLISHMENT.—The Secretary of Health and 
Human Services shall establish and appoint a task force 
(to be known as the ‘‘OASIS Task Force’’) to examine 
the data collection and reporting requirements under 
OASIS. For purposes of this section, the term ‘‘OASIS’’ 
means the Outcome and Assessment Information Set re-
quired by reason of section 4602(e) of Balanced Budget 
Act of 1997 (42 U.S.C. 1395fff note). 
(b) COMPOSITION.—The OASIS Task Force shall be 
composed of the following: 
(1) Staff of the Centers for Medicare & Med-
icaid Services with expertise in post-acute care. 
(2) Representatives of home health agencies. 
(3) Health care professionals and research and 
health care quality experts outside the Federal Gov-
ernment with expertise in post-acute care. 
(4) Advocates for individuals requiring home 
health services.
(c) DUTIES.—
(1) REVIEW
AND
RECOMMENDATIONS.—The 
OASIS Task Force shall review and make rec-
ommendations to the Secretary regarding changes in 
OASIS to improve and simplify data collection for 
purposes of—
(A) assessing the quality of home health 
services; and 
(B) providing consistency in classification 
of patients into home health resource groups 
(HHRGs) for payment under section 1895 of 
the Social Security Act (42 U.S.C. 1395fff). 
(2) SPECIFIC ITEMS.—In conducting the review 
under paragraph (1), the OASIS Task Force shall 
specifically examine—
(A) the 41 outcome measures currently in 
use; 
(B) the timing and frequency of data col-
lection; and 
(C) the collection of information on 
comorbidities and clinical indicators. 
(3) REPORT.—The OASIS Task Force shall 
submit a report to the Secretary containing its find-
ings and recommendations for changes in OASIS by
not later than 18 months after the date of the enact-
ment of this Act. 
(d) SUNSET.—The OASIS Task Force shall termi-
nate 60 days after the date on which the report is sub-
mitted under subsection (c)(2). 
(e) NONAPPLICATION OF FACA.—The provisions of 
the Federal Advisory Committee Act shall not apply to 
the OASIS Task Force. 
(f) SUSPENSION OF OASIS REQUIREMENT FOR COL-
LECTION OF DATA ON NON-MEDICARE AND NON-MED-
ICAID PATIENTS PENDING TASK FORCE REPORT.—
(1) IN GENERAL.—During the period described 
in paragraph (2), the Secretary of Health and 
Human Services may not require, under section 
4602(e) of the Balanced Budget Act of 1997 or oth-
erwise under OASIS, a home health agency to gath-
er or submit information that relates to an indi-
vidual who is not eligible for benefits under either 
title XVIII or title XIX of the Social Security Act. 
(2) PERIOD OF SUSPENSION.—The period de-
scribed in this paragraph—
(A) begins on January 1, 2003, and 
(B) ends on the last day of the 2nd month 
beginning after the date the report is submitted 
under subsection (c)(2).
SEC. 404. MEDPAC STUDY ON MEDICARE MARGINS OF 
HOME HEALTH AGENCIES. 
(a) STUDY.—The Medicare Payment Advisory Com-
mission shall conduct a study of payment margins of home 
health agencies under the home health prospective pay-
ment system under section 1895 of the Social Security Act 
(42 U.S.C. 1395fff). Such study shall examine whether 
systematic differences in payment margins are related to 
differences in case mix (as measured by home health re-
source groups (HHRGs)) among such agencies. The study 
shall use the partial or full-year cost reports filed by home 
health agencies. 
(b) REPORT.—Not later than 2 years after the date 
of the enactment of this Act, the Commission shall submit 
to Congress a report on the study under subsection (a). 
SEC. 405. CLARIFICATION OF TREATMENT OF OCCASIONAL 
ABSENCES IN DETERMINING WHETHER AN 
INDIVIDUAL IS CONFINED TO THE HOME. 
(a) IN GENERAL.—The penultimate sentence of sec-
tion 1814(a) (42 U.S.C. 1395f(a) and the penultimate 
sentence of section 1835(a) (42 U.S.C. 1395n(a)) are each 
amended to read as follows: ‘‘Any other absence of an indi-
vidual from the home shall not so disqualify the individual 
if the absence is infrequent or of relatively short duration, 
such as an occasional trip to the barber or a walk around 
the block, and is not inconsistent with the assessment un-
derlying the individual’s plan of care for home health serv-
ices.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall take effect on the date of the enact-
ment of this Act. 
Subtitle B—Direct Graduate 
Medical Education 
SEC. 411. EXTENSION OF UPDATE LIMITATION ON HIGH 
COST PROGRAMS. 
Section 
1886(h)(2)(D)(iv) 
(42 
U.S.C. 
1395ww(h)(2)(D)(iv)) is amended—
(1) in subclause (I)—
(A) by striking ‘‘AND 2002’’ and inserting 
‘‘THROUGH 2012’’; 
(B) by striking ‘‘during fiscal year 2001 or 
fiscal year 2002’’ and inserting ‘‘during the pe-
riod beginning with fiscal year 2001 and ending 
with fiscal year 2012’’; and 
(C) by striking ‘‘subject to subclause 
(III),’’; 
(2) by striking subclause (II); and 
(3) in subclause (III)—
(A) by redesignating such subclause as 
subclause (II); and 
(B) by striking ‘‘or (II)’’.
SEC. 412. REDISTRIBUTION OF UNUSED RESIDENT POSI-
TIONS. 
(a) IN GENERAL.—Section 1886(h)(4) (42 U.S.C. 
1395ww(h)(4)) is amended—
(1) in subparagraph (F)(i), by inserting 
‘‘subject to subparagraph (I),’’ after ‘‘October 1, 
1997,’’; 
(2) in subparagraph (H)(i), by inserting 
‘‘subject to subparagraph (I),’’ after ‘‘subparagraphs 
(F) and (G),’’; and 
(3) by adding at the end the following new sub-
paragraph: 
‘‘(I) REDISTRIBUTION
OF
UNUSED
RESI-
DENT POSITIONS.—
‘‘(i) REDUCTION IN LIMIT BASED ON 
UNUSED POSITIONS.—
‘‘(I) IN
GENERAL.—If a hos-
pital’s resident level (as defined in 
clause (iii)(I)) is less than the other-
wise applicable resident limit (as de-
fined in clause (iii)(II)) for each of 
the reference periods (as defined in 
subclause (II)), effective for cost re-
porting periods beginning on or after 
January 1, 2003, the otherwise appli-
cable resident limit shall be reduced
by 75 percent of the difference be-
tween such limit and the reference 
resident level specified in subclause 
(III) (or subclause (IV) if applicable). 
‘‘(II) REFERENCE PERIODS DE-
FINED.—In this clause, the term 
‘reference periods’ means, for a hos-
pital, the 3 most recent consecutive 
cost reporting periods of the hospital 
for which cost reports have been set-
tled (or, if not, submitted) on or be-
fore September 30, 2001. 
‘‘(III) 
REFERENCE
RESIDENT 
LEVEL.—Subject to subclause (IV), 
the reference resident level specified in 
this subclause for a hospital is the 
highest resident level for the hospital 
during any of the reference periods. 
‘‘(IV) ADJUSTMENT PROCESS.—
Upon the timely request of a hospital, 
the Secretary may adjust the ref-
erence resident level for a hospital to 
be the resident level for the hospital 
for the cost reporting period that in-
cludes July 1, 2002.
‘‘(ii) REDISTRIBUTION.—
‘‘(I) IN
GENERAL.—The Sec-
retary is authorized to increase the 
otherwise applicable resident limits for 
hospitals by an aggregate number es-
timated by the Secretary that does 
not exceed the aggregate reduction in 
such limits attributable to clause (i) 
(without taking into account any ad-
justment under subclause (IV) of such 
clause). 
‘‘(II) EFFECTIVE DATE.—No in-
crease under subclause (I) shall be 
permitted or taken into account for a 
hospital for any portion of a cost re-
porting period that occurs before July 
1, 2003, or before the date of the hos-
pital’s application for an increase 
under this clause. No such increase 
shall be permitted for a hospital un-
less the hospital has applied to the 
Secretary for such increase by Decem-
ber 31, 2004. 
‘‘(III) CONSIDERATIONS
IN
RE-
DISTRIBUTION.—In determining for
which hospitals the increase in the 
otherwise applicable resident limit is 
provided under subclause (I), the Sec-
retary shall take into account the 
need for such an increase by specialty 
and location involved, consistent with 
subclause (IV). 
‘‘(IV) PRIORITY FOR RURAL AND 
SMALL
URBAN
AREAS.—In 
deter-
mining for which hospitals and resi-
dency training programs an increase 
in the otherwise applicable resident 
limit is provided under subclause (I), 
the Secretary shall first distribute the 
increase to programs of hospitals lo-
cated in rural areas or in urban areas 
that are not large urban areas (as de-
fined for purposes of subsection (d)) 
on a first-come-first-served basis (as 
determined by the Secretary) based on 
a demonstration that the hospital will 
fill the positions made available under 
this clause and not to exceed an in-
crease of 25 full-time equivalent posi-
tions with respect to any hospital.
‘‘(V) APPLICATION OF LOCALITY 
ADJUSTED
NATIONAL
AVERAGE
PER 
RESIDENT AMOUNT.—With respect to 
additional residency positions in a 
hospital attributable to the increase 
provided under this clause, notwith-
standing any other provision of this 
subsection, the approved FTE resi-
dent amount is deemed to be equal to 
the locality adjusted national average 
per resident amount computed under 
subparagraph (E) for that hospital. 
‘‘(VI) CONSTRUCTION.—Nothing 
in this clause shall be construed as 
permitting the redistribution of reduc-
tions in residency positions attrib-
utable to voluntary reduction pro-
grams under paragraph (6) or as af-
fecting the ability of a hospital to es-
tablish new medical residency training 
programs under subparagraph (H). 
‘‘(iii) RESIDENT
LEVEL
AND
LIMIT 
DEFINED.—In this subparagraph: 
‘‘(I) 
RESIDENT
LEVEL.—The 
term ‘resident level’ means, with re-
spect to a hospital, the total number 
of full-time equivalent residents, be-
fore the application of weighting fac-
tors (as determined under this para-
graph), in the fields of allopathic and 
osteopathic medicine for the hospital. 
‘‘(II) OTHERWISE
APPLICABLE 
RESIDENT
LIMIT.—The 
term 
‘otherwise applicable resident limit’ 
means, with respect to a hospital, the 
limit otherwise applicable under sub-
paragraphs (F)(i) and (H) on the 
resident level for the hospital deter-
mined without regard to this subpara-
graph.’’. 
(b) NO APPLICATION OF INCREASE TO IME.—Sec-
tion 1886(d)(5)(B)(v) (42 U.S.C. 1395ww(d)(5)(B)(v)) is 
amended by adding at the end the following: ‘‘The provi-
sions of clause (i) of subparagraph (I) of subsection (h)(4) 
shall apply with respect to the first sentence of this clause 
in the same manner as it applies with respect to subpara-
graph (F) of such subsection, but the provisions of clause 
(ii) of such subparagraph shall not apply.’’. 
(c) REPORT
ON
EXTENSION
OF
APPLICATIONS 
UNDER REDISTRIBUTION PROGRAM.—Not later than July
1, 2004, the Secretary shall submit to Congress a report 
containing recommendations regarding whether to extend 
the deadline for applications for an increase in resident 
limits under section 1886(h)(4)(I)(ii)(II) of the Social Se-
curity Act (as added by subsection (a)). 
Subtitle C—Other Provisions 
SEC. 421. MODIFICATIONS TO MEDICARE PAYMENT ADVI-
SORY COMMISSION (MEDPAC). 
(a) EXAMINATION OF BUDGET CONSEQUENCES.—
Section 1805(b) (42 U.S.C. 1395b–6(b)) is amended by 
adding at the end the following new paragraph: 
‘‘(8) 
EXAMINATION
OF
BUDGET
CON-
SEQUENCES.—Before making any recommendations, 
the Commission shall examine the budget con-
sequences of such recommendations, directly or 
through consultation with appropriate expert enti-
ties.’’. 
(b) CONSIDERATION OF EFFICIENT PROVISION OF 
SERVICES.—Section 1805(b)(2)(B)(i) (42 U.S.C. 1395b–
6(b)(2)(B)(i)) is amended by inserting ‘‘the efficient provi-
sion of’’ after ‘‘expenditures for’’. 
(c) ADDITIONAL REPORTS.—
(1) DATA NEEDS AND SOURCES.—The Medicare 
Payment Advisory Commission shall conduct a 
study, and submit a report to Congress by not later
than June 1, 2003, on the need for current data, 
and sources of current data available, to determine 
the solvency and financial circumstances of hospitals 
and other medicare providers of services. The Com-
mission shall examine data on uncompensated care, 
as well as the share of uncompensated care ac-
counted for by the expenses for treating illegal 
aliens. 
(2) USE
OF
TAX-RELATED
RETURNS.—Using 
return information provided under Form 990 of the 
Internal Revenue Service, the Commission shall sub-
mit to Congress, by not later than June 1, 2003, a 
report on the following: 
(A) Investments and capital financing of 
hospitals participating under the medicare pro-
gram and related foundations. 
(B) Access to capital financing for private 
and for not-for-profit hospitals. 
SEC. 422. DEMONSTRATION PROJECT FOR DISEASE MAN-
AGEMENT FOR CERTAIN MEDICARE BENE-
FICIARIES WITH DIABETES. 
(a) IN GENERAL.—The Secretary of Health and 
Human Services shall conduct a demonstration project 
under this section (in this section referred to as the 
‘‘project’’) to demonstrate the impact on costs and health
outcomes of applying disease management to certain medi-
care beneficiaries with diagnosed diabetes. In no case may 
the number of participants in the project exceed 30,000 
at any time. 
(b) VOLUNTARY PARTICIPATION.—
(1) ELIGIBILITY.—Medicare beneficiaries are 
eligible to participate in the project only if—
(A) they are a member of a health dis-
parity 
population 
(as 
defined 
in 
section 
485E(d) of the Public Health Service Act), 
such as Hispanics; 
(B) they meet specific medical criteria 
demonstrating the appropriate diagnosis and 
the advanced nature of their disease; 
(C) their physicians approve of participa-
tion in the project; and 
(D) 
they 
are 
not 
enrolled 
in 
a 
Medicare+Choice plan. 
(2) BENEFITS.—A medicare beneficiary who is 
enrolled in the project shall be eligible—
(A) for disease management services re-
lated to their diabetes; and
(B) for payment for all costs for prescrip-
tion drugs without regard to whether or not 
they relate to the diabetes, except that the
project may provide for modest cost-sharing 
with respect to prescription drug coverage. 
(c) CONTRACTS WITH DISEASE MANAGEMENT ORGA-
NIZATIONS.—
(1) IN GENERAL.—The Secretary of Health and 
Human Services shall carry out the project through 
contracts with up to three disease management orga-
nizations. The Secretary shall not enter into such a 
contract with an organization unless the organiza-
tion demonstrates that it can produce improved 
health outcomes and reduce aggregate medicare ex-
penditures consistent with paragraph (2). 
(2) CONTRACT PROVISIONS.—Under such con-
tracts—
(A) such an organization shall be required 
to provide for prescription drug coverage de-
scribed in subsection (b)(2)(B); 
(B) such an organization shall be paid a 
fee negotiated and established by the Secretary 
in a manner so that (taking into account sav-
ings in expenditures under parts A and B of 
the medicare program under title XVIII of the 
Social Security Act) there will be no net in-
crease, and to the extent practicable, there will 
be a net reduction in expenditures under the
medicare program as a result of the project; 
and 
(C) such an organization shall guarantee, 
through an appropriate arrangement with a re-
insurance company or otherwise, the prohibition 
on net increases in expenditures described in 
subparagraph (B). 
(3) PAYMENTS.—Payments to such organiza-
tions shall be made in appropriate proportion from 
the Trust Funds established under title XVIII of the 
Social Security Act. 
(d) APPLICATION
OF MEDIGAP PROTECTIONS
TO 
DEMONSTRATION PROJECT ENROLLEES.—(1) Subject to 
paragraph (2), the provisions of section 1882(s)(3) (other 
than clauses (i) through (iv) of subparagraph (B)) and 
1882(s)(4) of the Social Security Act shall apply to enroll-
ment (and termination of enrollment) in the demonstra-
tion project under this section, in the same manner as they 
apply to enrollment (and termination of enrollment) with 
a Medicare+Choice organization in a Medicare+Choice 
plan. 
(2) In applying paragraph (1)—
(A) any reference in clause (v) or (vi) of section 
1882(s)(3)(B) of such Act to 12 months is deemed
a reference to the period of the demonstration 
project; and 
(B) the notification required under section 
1882(s)(3)(D) of such Act shall be provided in a 
manner specified by the Secretary of Health and 
Human Services. 
(e) DURATION.—The project shall last for not longer 
than 3 years. 
(f) WAIVER.—The Secretary of Health and Human 
Services shall waive such provisions of title XVIII of the 
Social Security Act as may be necessary to provide for 
payment for services under the project in accordance with 
subsection (c)(3). 
(g) REPORT.—The Secretary of Health and Human 
Services shall submit to Congress an interim report on the 
project not later than 2 years after the date it is first im-
plemented and a final report on the project not later than 
6 months after the date of its completion. Such reports 
shall include information on the impact of the project on 
costs and health outcomes and recommendations on the 
cost-effectiveness of extending or expanding the project. 
(h) WORKING GROUP ON MEDICARE DISEASE MAN-
AGEMENT
PROGRAMS.—The Secretary shall establish 
within the Department of Health and Human Services a
working group consisting of employees of the Department 
to carry out the following: 
(1) To oversee the project. 
(2) To establish policy and criteria for medicare 
disease management programs within the Depart-
ment, including the establishment of policy and cri-
teria for such programs. 
(3) To identify targeted medical conditions and 
targeted individuals. 
(4) To select areas in which such programs are 
carried out. 
(5) To monitor health outcomes under such 
programs. 
(6) To measure the effectiveness of such pro-
grams in meeting any budget neutrality require-
ments. 
(7) Otherwise to serve as a central focal point 
within the Department for dissemination of informa-
tion on medicare disease management programs. 
(i) GAO STUDY ON DISEASE MANAGEMENT PRO-
GRAMS.—The Comptroller General of the United States 
shall conduct a study that compares disease management 
programs under title XVIII of the Social Security Act with 
such programs conducted in the private sector, including 
the prevalence of such programs and programs for case