323
(h) STUDY ON CODES FOR NON-ONCOLOGY CODES.—
(1) STUDY.—The Secretary shall conduct a 
study to determine the appropriateness of estab-
lishing and implementing separate codes for non-on-
cology infusions that are based on the level of com-
plexity of the administration and resource consump-
tion. 
(2) REPORT.—Not later than 1 year after the 
date of the enactment of this Act, the Secretary 
shall submit a report to Congress on the study. To 
the extent the Secretary determines it to be appro-
priate, the Secretary may implement appropriate 
changes in the payment methodology for such codes. 
SEC. 304. DEMONSTRATION PROJECT FOR USE OF RECOV-
ERY AUDIT CONTRACTORS. 
(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 use of recovery audit con-
tractors under the Medicare Integrity Program in identi-
fying underpayments and overpayments and recouping 
overpayments under the medicare program for services for 
which payment is made under part A or part B of title 
XVIII of the Social Security Act. Under the project—
324
(1) payment may be made to such a contractor 
on a contingent basis; 
(2) a percentage of the amount recovered may 
be retained by the Secretary and shall be available 
to the program management account of the Centers 
for Medicare & Medicaid Services; and 
(3) the Secretary shall examine the efficacy of 
such use with respect to duplicative payments, accu-
racy of coding, and other payment policies in which 
inaccurate payments arise. 
(b) SCOPE AND DURATION.—
(1) SCOPE.—The project shall cover at least 2 
States that are among the States with—
(A) the highest per capita utilization rates 
of medicare services, and 
(B) at least 3 contractors. 
(2) DURATION.—The project shall last for not 
longer than 3 years. 
(c) 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 (a). 
(d) QUALIFICATIONS OF CONTRACTORS.—
325
(1) IN
GENERAL.—The Secretary shall enter 
into a recovery audit contract under this section 
with an entity only if the entity has staff that has 
the appropriate clinical knowledge of and experience 
with the payment rules and regulations under the 
medicare program or the entity has or will contract 
with another entity that has such knowledgeable and 
experienced staff. 
(2) INELIGIBILITY
OF
CERTAIN
CONTRAC-
TORS.—The Secretary may not enter into a recovery 
audit contract under this section with an entity to 
the extent that the entity is a fiscal intermediary 
under section 1816 of the Social Security Act (42 
U.S.C. 1395h), a carrier under section 1842 of such 
Act (42 U.S.C. 1395u), or a Medicare Administra-
tive Contractor under section 1874A of such Act. 
(3) PREFERENCE
FOR
ENTITIES
WITH
DEM-
ONSTRATED
PROFICIENCY.—In awarding contracts 
to recovery audit contractors under this section, the 
Secretary shall give preference to those risk entities 
that the Secretary determines have demonstrated 
more than 3 years direct management experience 
and a proficiency for cost control or recovery audits 
with private insurers, health care providers, health
326
plans, or under the medicaid program under title 
XIX of the Social Security Act. 
(e) CONSTRUCTION RELATING TO CONDUCT OF IN-
VESTIGATION OF FRAUD.—A recovery of an overpayment 
to a provider by a recovery audit contractor shall not be 
construed to prohibit the Secretary or the Attorney Gen-
eral from investigating and prosecuting, if appropriate, al-
legations of fraud or abuse arising from such overpay-
ment. 
(f) REPORT.—The Secretary of Health and Human 
Services shall submit to Congress a 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 savings to the medicare program and rec-
ommendations on the cost-effectiveness of extending or ex-
panding the project.
TITLE IV—RURAL HEALTH CARE 
IMPROVEMENTS 
SEC. 401. ENHANCED DISPROPORTIONATE SHARE HOS-
PITAL (DSH) TREATMENT FOR RURAL HOS-
PITALS AND URBAN HOSPITALS WITH FEWER 
THAN 100 BEDS. 
(a) DOUBLING THE CAP.—
327
(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, 2003, 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 disproportionate 
share adjustment 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).’’. 
(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 ‘‘sub-
ject to clause (xiv) and’’ before ‘‘for discharges 
occurring’’; 
(B) in clause (viii), by striking ‘‘The for-
mula’’ and inserting ‘‘Subject to clause (xiv), 
the formula’’; and
328
(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, 2003.
SEC. 
402. 
IMMEDIATE 
ESTABLISHMENT 
OF 
UNIFORM 
STANDARDIZED 
AMOUNT 
IN 
RURAL 
AND 
SMALL URBAN AREAS. 
(a) IN GENERAL.—Section 1886(d)(3)(A) (42 U.S.C. 
1395ww(d)(3)(A)) is amended—
(1) in clause (iv), by inserting ‘‘and ending on 
or before September 30, 2003,’’ after ‘‘October 1, 
1995,’’; and 
(2) by redesignating clauses (v) and (vi) as 
clauses (vii) and (viii), respectively, and inserting 
after clause (iv) the following new clauses: 
‘‘(v) For discharges occurring in the fiscal year 
beginning on October 1, 2003, the average standard-
ized amount for hospitals located in areas other than 
a large urban area shall be equal to the average 
standardized amount for hospitals located in a large 
urban area.’’. 
(b) CONFORMING AMENDMENTS.—
329
(1) COMPUTING DRG-SPECIFIC RATES.—Section 
1886(d)(3)(D) (42 U.S.C. 1395ww(d)(3)(D)) is 
amended—
(A) in the heading, by striking ‘‘IN DIF-
FERENT AREAS’’; 
(B) in the matter preceding clause (i), by 
striking ‘‘, each of’’; 
(C) in clause (i)—
(i) in the matter preceding subclause 
(I), by inserting ‘‘for fiscal years before fis-
cal year 2004,’’ before ‘‘for hospitals’’; and 
(ii) in subclause (II), by striking 
‘‘and’’ after the semicolon at the end; 
(D) in clause (ii)—
(i) in the matter preceding subclause 
(I), by inserting ‘‘for fiscal years before fis-
cal year 2004,’’ before ‘‘for hospitals’’; and 
(ii) in subclause (II), by striking the 
period at the end and inserting ‘‘; and’’; 
and 
(E) by adding at the end the following new 
clause: 
‘‘(iii) for a fiscal year beginning after fiscal 
year 2003, for hospitals located in all areas, to 
the product of—
330
‘‘(I) 
the 
applicable 
standardized 
amount (computed under subparagraph 
(A)), reduced under subparagraph (B), 
and adjusted or reduced under subpara-
graph (C) for the fiscal year; and 
‘‘(II) the weighting factor (determined 
under paragraph (4)(B)) for that diag-
nosis-related group.’’. 
(2) TECHNICAL CONFORMING SUNSET.—Section 
1886(d)(3) (42 U.S.C. 1395ww(d)(3)) is amended—
(A) in the matter preceding subparagraph 
(A), by inserting ‘‘, for fiscal years before fiscal 
year 1997,’’ before ‘‘a regional adjusted DRG 
prospective payment rate’’; and 
(B) in subparagraph (D), in the matter 
preceding clause (i), by inserting ‘‘, for fiscal 
years before fiscal year 1997,’’ before ‘‘a re-
gional DRG prospective payment rate for each 
region,’’.
SEC. 403. ESTABLISHMENT OF ESSENTIAL RURAL HOS-
PITAL CLASSIFICATION. 
(a) CLASSIFICATION.—Section 1861(mm) (42 U.S.C. 
1395x(mm)) is amended—
(1) in the heading by adding ‘‘ESSENTIAL 
RURAL HOSPITALS’’ at the end; and
331
(2) by adding at the end the following new 
paragraphs: 
‘‘(4)(A) The term ‘essential rural hospital’ means a 
subsection 
(d) 
hospital 
(as 
defined 
in 
section 
1886(d)(1)(B)) that is located in a rural area (as defined 
for purposes of section 1886(d)), has more than 25 li-
censed acute care inpatient beds, has applied to the Sec-
retary for classification as such a hospital, and with re-
spect to which the Secretary has determined that the clo-
sure of the hospital would significantly diminish the ability 
of medicare beneficiaries to obtain essential health care 
services. 
‘‘(B) The determination under subparagraph (A) 
shall be based on the following criteria: 
‘‘(i) HIGH PROPORTION OF MEDICARE BENE-
FICIARIES RECEIVING CARE FROM HOSPITAL.—(I) A 
high percentage of such beneficiaries residing in the 
area of the hospital who are hospitalized (during the 
most recent year for which complete data are avail-
able) receive basic inpatient medical care at the hos-
pital. 
‘‘(II) For a hospital with more than 200 li-
censed beds, a high percentage of such beneficiaries 
residing in such area who are hospitalized (during
332
such recent year) receive specialized surgical inpa-
tient care at the hospital. 
‘‘(III) Almost all physicians described in section 
1861(r)(1) in such area have privileges at the hos-
pital and provide their inpatient services primarily at 
the hospital. 
‘‘(IV) The hospital inpatient score for quality of 
care is not less than the median hospital score for 
qualify of care for hospitals in the State, as estab-
lished under standards of the utilization and quality 
control peer review organization under part B of 
title XI or other quality standards recognized by the 
Secretary. 
‘‘(ii) SIGNIFICANT
ADVERSE
IMPACT
IN
AB-
SENCE
OF
HOSPITAL.—If the hospital were to 
close—
‘‘(I) there would be a significant amount of 
time needed for residents to reach emergency 
treatment, resulting in a potential significant 
harm to beneficiaries with critical illnesses or 
injuries; 
‘‘(II) there would be an inability in the 
community to stablize emergency cases for 
transfers to another acute care setting, result-
333
ing in a potential for significant harm to medi-
care beneficiaries; and 
‘‘(III) any other nearby hospital lacks the 
physical and clinical capacity to take over the 
hospital’s typical admissions. 
‘‘(C) In making such determination, the Secretary 
may also consider the following: 
‘‘(i) Free-standing ambulatory surgery centers, 
office-based oncology care, and imaging center serv-
ices are insufficient in the hospital’s area to handle 
the outpatient care of the hospital. 
‘‘(ii) Beneficiaries in nearby areas would be ad-
versely affected if the hospital were to close as the 
hospital provides specialized knowledge and services 
to a network of smaller hospitals and critical access 
hospitals. 
‘‘(iii) Medicare beneficiaries would have dif-
ficulty in accessing care if the hospital were to close 
as the hospital provides significant subsidies to sup-
port ambulatory care in local clinics, including men-
tal health clinics and to support post acute care. 
‘‘(iv) The hospital has a committment to pro-
vide graduate medical education in a rural area. 
A hospital classified as an essential rural hospital may not 
change such classification and a hospital so classified shall
334
not be treated as a sole community hospital, medicare de-
pendent hospital, or rural referral center for purposes of 
section 1886.’’. 
(b) PAYMENT BASED ON 102 PERCENT OF ALLOWED 
COSTS.—
(1) INPATIENT
HOSPITAL
SERVICES.—Section 
1886(d) (42 U.S.C. 1395ww(d)) is amended by add-
ing at the end the following: 
‘‘(11) In the case of a hospital classified as an essen-
tial rural hospital under section 1861(mm)(4) for a cost 
reporting period, the payment under this subsection for 
inpatient hospital services for discharges occurring during 
the period shall be based on 102 percent of the reasonable 
costs for such services. Nothing in this paragraph shall 
be construed as affecting the application or amount of 
deductibles or copayments otherwise applicable to such 
services under part A or as waiving any requirement for 
billing for such services.’’. 
(2) HOSPITAL OUTPATIENT SERVICES.—Section 
1833(t)(13) (42 U.S.C. 1395l(t)(13)) is amended by 
adding at the end the following new subparagraph: 
‘‘(B) SPECIAL
RULE
FOR
ESSENTIAL 
RURAL HOSPITALS.—In the case of a hospital 
classified as an essential rural hospital under 
section 1861(mm)(4) for a cost reporting pe-
335
riod, the payment under this subsection for cov-
ered OPD services during the period shall be 
based on 102 percent of the reasonable costs 
for such services. Nothing in this subparagraph 
shall be construed as affecting the application 
or amount of deductibles or copayments other-
wise applicable to such services under this part 
or as waiving any requirement for billing for 
such services.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to cost reporting periods beginning 
on or after October 1, 2004. 
SEC. 404. 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, including the labor 
share, 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, 2004, the 
Secretary shall submit a report to Congress on the fre-
quency established under subsection (a), including an ex-
336
planation of the reasons for, and options considered, in 
determining such frequency. 
SEC. 405. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL 
PROGRAM. 
(a) INCREASE IN PAYMENT AMOUNTS.—
(1) 
IN
GENERAL.—Sections 
1814(l), 
1834(g)(1), and 1883(a)(3) (42 U.S.C. 1395f(l); 
1395m(g)(1); 42 U.S.C. 1395tt(a)(3)) are each 
amended by inserting ‘‘equal to 102 percent of’’ be-
fore ‘‘the reasonable costs’’. 
(2) EFFECTIVE DATE.—The amendments made 
by paragraph (1) shall apply to payments for serv-
ices furnished during cost reporting periods begin-
ning on or after October 1, 2003. 
(b) COVERAGE OF COSTS FOR CERTAIN EMERGENCY 
ROOM ON-CALL PROVIDERS.—
(1) IN
GENERAL.—Section 1834(g)(5) (42 
U.S.C. 1395m(g)(5)) is amended—
(A) in the heading—
(i) by inserting ‘‘CERTAIN’’ before 
‘‘EMERGENCY’’; and 
(ii) by striking ‘‘PHYSICIANS’’ and in-
serting ‘‘PROVIDERS’’; 
(B) by striking ‘‘emergency room physi-
cians who are on-call (as defined by the Sec-
337
retary)’’ and inserting ‘‘physicians, physician 
assistants, nurse practitioners, and clinical 
nurse specialists who are on-call (as defined by 
the Secretary) to provide emergency services’’; 
and 
(C) by striking ‘‘physicians’ services’’ and 
inserting ‘‘services covered under this title’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply with respect to costs 
incurred for services provided on or after January 1, 
2004. 
(c) MODIFICATION OF THE ISOLATION TEST FOR 
COST-BASED CAH AMBULANCE SERVICES.—
(1) IN
GENERAL.—Section 1834(l)(8) (42 
U.S.C. 1395m(l)), as added by section 205(a) of 
BIPA (114 Stat. 2763A–482), is amended by add-
ing at the end the following: ‘‘The limitation de-
scribed in the matter following subparagraph (B) in 
the previous sentence shall not apply if the ambu-
lance services are furnished by such a provider or 
supplier of ambulance services who is a first re-
sponder to emergencies in accordance with local pro-
tocols (as determined by the Secretary).’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to ambulances services
338
furnished on or after the first cost reporting period 
that begins after the date of the enactment of this 
Act. 
(d) REINSTATEMENT OF PERIODIC INTERIM PAY-
MENT (PIP).—
(1) IN
GENERAL.—Section 1815(e)(2) (42 
U.S.C. 1395g(e)(2)) is amended—
(A) in the matter before subparagraph (A), 
by inserting ‘‘, in the cases described in sub-
paragraphs (A) through (D)’’ after ‘‘1986’’; 
and 
(B) by striking ‘‘and’’ at the end of sub-
paragraph (C); 
(C) by adding ‘‘and’’ at the end of sub-
paragraph (D); and 
(D) by inserting after subparagraph (D) 
the following new subparagraph: 
‘‘(E) inpatient critical access hospital services;’’. 
(2) DEVELOPMENT OF ALTERNATIVE METHODS 
OF PERIODIC INTERIM PAYMENTS.—With respect to 
periodic interim payments to critical access hospitals 
for inpatient critical access hospital services under 
section 1815(e)(2)(E) of the Social Security Act, as 
added by paragraph (1), the Secretary shall develop
339
alternative methods for such payments that are 
based on expenditures of the hospital. 
(3) REINSTATEMENT
OF
PIP.—The amend-
ments made by paragraph (1) shall apply to pay-
ments made on or after January 1, 2004. 
(e) CONDITION FOR APPLICATION OF SPECIAL PHY-
SICIAN PAYMENT ADJUSTMENT.—
(1) IN
GENERAL.—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.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) 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). 
(f) FLEXIBILITY
IN BED LIMITATION
FOR HOS-
PITALS.—Section 1820 (42 U.S.C. 1395i–4) is amended—
340
(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:
341
‘‘(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).’’. 
(4) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to designations made 
before, on, or after January 1, 2004. 
(g) ADDITIONAL 5-YEAR PERIOD OF FUNDING FOR 
GRANT PROGRAM.—
(1) IN GENERAL.—Section 1820(g) (42 U.S.C. 
1395i–4(g)) is amended by adding at the end the 
following new paragraph: 
‘‘(4) FUNDING.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), payment for grants made under this 
subsection during fiscal years 2004 through 
2008 shall be made from the Federal Hospital 
Insurance Trust Fund. 
‘‘(B) ANNUAL AGGREGATE LIMITATION.—
In no case may the amount of payment pro-
342
vided for under subparagraph (A) for a fiscal 
year exceed $25,000,000.’’. 
(2) CONFORMING AMENDMENT.—Section 1820 
(42 U.S.C. 1395i–4) is amended by striking sub-
section (j).
SEC. 406. 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 ‘‘sub-
ject to subparagraph (I),’’ after ‘‘October 1, 1997,’’; 
(2) in subparagraph (H)(i), by inserting ‘‘sub-
ject 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
343
the reference periods (as defined in 
subclause (II)), effective for cost re-
porting periods beginning on or after 
January 1, 2004, 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 ‘ref-
erence periods’ means, for a hospital, 
the 3 most recent consecutive cost re-
porting periods of the hospital for 
which cost reports have been settled 
(or, if not, submitted) on or before 
September 30, 2002. 
‘‘(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,
344
the Secretary shall adjust (subject to 
audit) the reference resident level for 
a hospital to be the resident level for 
the hospital for the cost reporting pe-
riod that includes July 1, 2003. 
‘‘(V) 
AFFILIATION.—With 
re-
spect to hospitals which are members 
of the same affiliated group (as de-
fined by the Secretary under subpara-
graph (H)(ii)), the provisions of this 
section shall be applied with respect to 
such an affiliated group by deeming 
the affiliated group to be a single hos-
pital. 
‘‘(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).
345
‘‘(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, 2004, 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, 2005. 
‘‘(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
346
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
347
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 ‘other-
wise applicable resident limit’ means, 
with respect to a hospital, the limit
348
otherwise applicable under subpara-
graphs (F)(i) and (H) on the resident 
level for the hospital determined with-
out regard to this subparagraph.’’. 
(b) CONFORMING AMENDMENT
TO IME.—Section 
1886(d)(5)(B)(v) (42 U.S.C. 1395ww(d)(5)(B)(v)) is 
amended by adding at the end the following: ‘‘The provi-
sions of subparagraph (I) of subsection (h)(4) shall apply 
with respect to the first sentece of this clause in the same 
manner as it applies with respect to subparagraph (F) of 
such subsection.’’. 
(c) REPORT
ON
EXTENSION
OF
APPLICATIONS 
UNDER REDISTRIBUTION PROGRAM.—Not later than July 
1, 2005, 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)). 
SEC. 407. TWO-YEAR EXTENSION OF HOLD HARMLESS PRO-
VISIONS FOR SMALL RURAL HOSPITALS AND 
SOLE COMMUNITY HOSPITALS UNDER PRO-
SPECTIVE PAYMENT SYSTEM FOR HOSPITAL 
OUTPATIENT DEPARTMENT SERVICES. 
(a) HOLD HARMLESS PROVISIONS.—
349
(1) IN GENERAL.—Section 1833(t)(7)(D)(i) (42 
U.S.C. 1395l(t)(7)(D)(i)) is amended—
(A) in the heading, by striking ‘‘SMALL’’ 
and inserting ‘‘CERTAIN’’; 
(B) by inserting ‘‘or a sole community hos-
pital (as defined in section 1886(d)(5)(D)(iii)) 
located in a rural area’’ after ‘‘100 beds’’; and 
(C) by striking ‘‘2004’’ and inserting 
‘‘2006’’. 
(2) EFFECTIVE DATE.—The amendment made 
by subsection (a)(2) shall apply with respect to pay-
ment for OPD services furnished on and after Janu-
ary 1, 2004. 
(b) STUDY; ADJUSTMENT.—
(1) STUDY.—The Secretary shall conduct a 
study to determine if, under the prospective payment 
system for hospital outpatient department services 
under section 1833(t) of the Social Security Act (42 
U.S.C. 1395l(t)), costs incurred by rural providers 
of services by ambulatory payment classification 
groups (APCs) exceed those costs incurred by urban 
providers of services. 
(2) ADJUSTMENT.—Insofar as the Secretary 
determines under paragraph (1) that costs incurred 
by rural providers exceed those costs incurred by
350
urban providers of services, the Secretary shall pro-
vide for an appropriate adjustment under such sec-
tion 1833(t) to reflect those higher costs by January 
1, 2005. 
SEC. 408. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC 
AND FEDERALLY QUALIFIED HEALTH CEN-
TER SERVICES FROM THE PROSPECTIVE PAY-
MENT SYSTEM FOR SKILLED NURSING FA-
CILITIES. 
(a) IN GENERAL.—Section 1888(e)(2)(A) (42 U.S.C. 
1395yy(e)(2)(A)) is amended—
(1) in clause (i)(II), by striking ‘‘clauses (ii) 
and (iii)’’ and inserting ‘‘clauses (ii), (iii), and (iv)’’; 
and 
(2) by adding at the end the following new 
clause: 
‘‘(iv) EXCLUSION OF CERTAIN RURAL 
HEALTH CLINIC AND FEDERALLY QUALI-
FIED
HEALTH
CENTER
SERVICES.—Serv-
ices described in this clause are—
‘‘(I) rural health clinic services 
(as defined in paragraph (1) of sec-
tion 1861(aa)); and
351
‘‘(II) Federally qualified health 
center services (as defined in para-
graph (3) of such section); 
that would be described in clause (ii) if 
such services were not furnished by an in-
dividual affiliated with a rural health clinic 
or a Federally qualified health center.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall apply to services furnished on or after 
January 1, 2004. 
SEC. 409. RECOGNITION OF ATTENDING NURSE PRACTI-
TIONERS AS ATTENDING PHYSICIANS TO 
SERVE HOSPICE PATIENTS. 
(a) IN
GENERAL.—Section 1861(dd)(3)(B) (42 
U.S.C. 1395x(dd)(3)(B)) is amended by inserting ‘‘or 
nurse practitioner (as defined in subsection (aa)(5))’’ after 
‘‘the physician (as defined in subsection (r)(1))’’. 
(b) CLARIFICATION OF HOSPICE ROLE OF NURSE 
PRACTITIONERS.—Section 1814(a)(7)(A)(i)(I) (42 U.S.C. 
1395f(a)(7)(A)(i)(I)) is amended by inserting ‘‘(which for 
purposes of this subparagraph does not include a nurse 
practitioner)’’ after ‘‘attending physician (as defined in 
section 1861(dd)(3)(B))’’.
352
SEC. 410. IMPROVEMENT IN PAYMENTS TO RETAIN EMER-
GENCY CAPACITY FOR AMBULANCE SERV-
ICES IN RURAL AREAS. 
Section 1834(l) (42 U.S.C. 1395m(l)) is amended—
(1) by redesignating paragraph (8), as added by 
section 221(a) of BIPA (114 Stat. 2763A–486), as 
paragraph (9); and 
(2) by adding at the end the following new 
paragraph: 
‘‘(10) ASSISTANCE
FOR
RURAL
PROVIDERS 
FURNISHING
SERVICES
IN
LOW
MEDICARE
POPU-
LATION DENSITY AREAS.—
‘‘(A) IN GENERAL.—In the case of ground 
ambulance services furnished on or after Janu-
ary 1, 2004, for which the transportation origi-
nates in a qualified rural area (as defined in 
subparagraph (B)), the Secretary shall provide 
for a percent increase in the base rate of the fee 
schedule for a trip established under this sub-
section. In establishing such percent increase, 
the Secretary shall estimate the average cost 
per trip for the base rate in the lowest quartile 
as compared to the average cost for the base 
rate for such services that is in the highest 
quartile of all rural county populations.
353
‘‘(B) QUALIFIED RURAL AREA DEFINED.—
For purposes of subparagraph (A), the term 
‘qualified rural area’ is a rural area (as defined 
in section 1886(d)(2)(D)) with a population 
density of medicare beneficiaries residing in the 
area that is in the lowest quartile of all rural 
county populations.’’. 
SEC. 411. TWO-YEAR INCREASE FOR HOME HEALTH SERV-
ICES FURNISHED IN A RURAL AREA. 
(a) IN GENERAL.—In the case of home health serv-
ices furnished in a rural area (as defined in section 
1886(d)(2)(D) of the Social Security Act (42 U.S.C. 
1395ww(d)(2)(D))) during 2004 and 2005, the Secretary 
shall increase the payment amount otherwise made under 
section 1895 of such Act (42 U.S.C. 1395fff ) for such 
services by 5 percent. 
(b) WAIVING BUDGET NEUTRALITY.—The Secretary 
shall not reduce the standard prospective payment amount 
(or amounts) under section 1895 of the Social Security 
Act (42 U.S.C. 1395fff ) applicable to home health services 
furnished during a period to offset the increase in pay-
ments resulting from the application of subsection (a).
354
SEC. 412. 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.’’.
355
(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.
356
(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. 413. 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
357
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).
358
SEC. 414. TREATMENT OF MISSING COST REPORTING PERI-
ODS FOR SOLE COMMUNITY HOSPITALS. 
(a) IN GENERAL.—Section 1886(b)(3)(I) (42 U.S.C. 
1395ww(b)(3)(I)) is amended by adding at the end the 
following new clause: 
‘‘(iii) In no case shall a hospital be denied treatment 
as a sole community hospital or payment (on the basis 
of a target rate as such as a hospital) because data are 
unavailable for any cost reporting period due to changes 
in ownership, changes in fiscal intermediaries, or other ex-
traordinary circumstances, so long as data for at least one 
applicable base cost reporting period is available.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to cost reporting periods begin-
ning on or after January 1, 2004. 
SEC. 415. EXTENSION OF TELEMEDICINE DEMONSTRATION 
PROJECT. 
Section 4207 of Balanced Budget Act of 1997 (Pub-
lic Law 105–33) is amended—
(1) in subsection (a)(4), by striking ‘‘4-year’’ 
and inserting ‘‘8-year’’; and 
(2) 
in 
subsection 
(d)(3), 
by 
striking 
‘‘$30,000,000’’ and inserting ‘‘$60,000,000’’.
359
SEC. 416. ADJUSTMENT TO THE MEDICARE INPATIENT HOS-
PITAL PPS WAGE INDEX TO REVISE THE 
LABOR-RELATED SHARE OF SUCH INDEX. 
(a) IN GENERAL.—Section 1886(d)(3)(E) (42 U.S.C. 
1395ww(d)(3)(E)) is amended—
(1) by striking ‘‘WAGE
LEVELS.—The Sec-
retary’’ and inserting ‘‘WAGE LEVELS.—
‘‘(i) IN GENERAL.—Except as provided in 
clause (ii), the Secretary’’; and 
(2) by adding at the end the following new 
clause: 
‘‘(ii) ALTERNATIVE
PROPORTION
TO
BE 
ADJUSTED BEGINNING IN FISCAL YEAR 2004.—
‘‘(I) IN
GENERAL.—Except as pro-
vided in subclause (II), for discharges oc-
curring on or after October 1, 2003, the 
Secretary shall substitute the ‘62 percent’ 
for the proportion described in the first 
sentence of clause (i). 
‘‘(II) HOLD HARMLESS FOR CERTAIN 
HOSPITALS.—If the application of sub-
clause (I) would result in lower payments 
to a hospital than would otherwise be 
made, then this subparagraph shall be ap-
plied as if this clause had not been en-
acted.’’.
360
(b) 
WAIVING
BUDGET
NEUTRALITY.—Section 
1886(d)(3)(E) (42 U.S.C. 1395ww(d)(3)(E)), as amended 
by subsection (a), is amended by adding at the end of 
clause (i) the following new sentence: ‘‘The Secretary shall 
apply the previous sentence for any period as if the 
amendments made by section 402(a) of the Medicare Pre-
scription Drug and Modernization Act of 2003 had not 
been enacted.’’. 
SEC. 417. MEDICARE INCENTIVE PAYMENT PROGRAM IM-
PROVEMENTS FOR PHYSICIAN SCARCITY. 
(a) ADDITIONAL BONUS PAYMENT
FOR CERTAIN 
PHYSICIAN SCARCITY AREAS.—
(1) IN
GENERAL.—Section 1833 (42 U.S.C. 
1395l) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(u) INCENTIVE PAYMENTS FOR PHYSICIAN SCAR-
CITY AREAS.—
‘‘(1) IN GENERAL.—In the case of physicians’ 
services furnished in a year—
‘‘(A) by a primary care physician in a pri-
mary care scarcity county (identified under 
paragraph (4)); or 
‘‘(B) by a physician who is not a primary 
care physician in a specialist care scarcity coun-
ty (as so identified),
361
in addition to the amount of payment that would 
otherwise be made for such services under this part, 
there also shall be paid an amount equal to 5 per-
cent of the payment amount for the service under 
this part. 
‘‘(2) DETERMINATION
OF
RATIOS
OF
PHYSI-
CIANS
TO
MEDICARE
BENEFICIARIES
IN
AREA.—
Based upon available data, the Secretary shall peri-
odically determine, for each county or equivalent 
area in the United States, the following: 
‘‘(A) NUMBER OF PHYSICIANS PRACTICING 
IN THE AREA.—The number of physicians who 
furnish physicians’ services in the active prac-
tice of medicine or osteopathy in that county or 
area, other than physicians whose practice is 
exclusively for the Federal Government, physi-
cians who are retired, or physicians who only 
provide administrative services. Of such num-
ber, the number of such physicians who are—
‘‘(i) primary care physicians; or 
‘‘(ii) physicians who are not primary 
care physicians. 
‘‘(B) 
NUMBER
OF
MEDICARE
BENE-
FICIARIES RESIDING IN THE AREA.—The num-
ber of individuals who are residing in the coun-
362
ty and are entitled to benefits under part A or 
enrolled under this part, or both. 
‘‘(C) DETERMINATION OF RATIOS.—
‘‘(i) PRIMARY CARE RATIO.—The ratio 
(in this paragraph referred to as the ‘pri-
mary care ratio’) of the number of primary 
care physicians (determined under sub-
paragraph (A)(i)), to number of medicare 
beneficiaries determined under subpara-
graph (B). 
‘‘(ii) SPECIALIST
CARE
RATIO.—The 
ratio (in this paragraph referred to as the 
‘specialist care ratio’) of the number of 
other physicians (determined under sub-
paragraph (A)(ii)), to number of medicare 
beneficiaries determined under subpara-
graph (B). 
‘‘(3) RANKING OF COUNTIES.—The Secretary 
shall rank each such county or area based separately 
on its primary care ratio and its specialist care ratio. 
‘‘(4) IDENTIFICATION OF COUNTIES.—The Sec-
retary shall identify—
‘‘(A) those counties and areas (in this 
paragraph referred to as ‘primary care scarcity 
counties’) with the lowest primary care ratios
363
that represent, if each such county or area were 
weighted by the number of medicare bene-
ficiaries determined under paragraph (2)(B), an 
aggregate total of 20 percent of the total of the 
medicare beneficiaries determined under such 
paragraph; and 
‘‘(B) those counties and areas (in this sub-
section referred to as ‘specialist care scarcity 
counties’) with the lowest specialist care ratios 
that represent, if each such county or area were 
weighted by the number of medicare bene-
ficiaries determined under paragraph (2)(B), an 
aggregate total of 20 percent of the total of the 
medicare beneficiaries determined under such 
paragraph. 
There is no administrative or judicial review respect-
ing the identification of a county or area or the as-
signment of a specialty of any physician under this 
paragraph. 
‘‘(5) RURAL CENSUS TRACKS.—To the extent 
feasible, the Secretary shall treat a rural census 
tract of a metropolitan statistical area (as deter-
mined under the most recent modification of the 
Goldsmith Modification, originally published in the 
Federal Register on February 27, 1992 (57 Fed.
364
Reg. 6725) as an equivalent area for purposes of 
qualifying as a primary care scarcity county or spe-
cialist care scarcity county under this subsection. 
‘‘(6) PHYSICIAN DEFINED.—For purposes of 
this paragraph, the term ‘physician’ means a physi-
cian described in section 1861(r)(1) and the term 
‘primary care physician’ means a physician who is 
identified in the available data as a general practi-
tioner, family practice practitioner, general internist, 
or obstetrician or gynecologist. 
‘‘(7) PUBLICATION OF LIST OF COUNTIES.—In 
carrying out this subsection for a year, the Secretary 
shall include, as part of the proposed and final rule 
to implement the physician fee schedule under sec-
tion 1848 for the year, a list of all areas which will 
qualify as a primary care scarcity county or spe-
cialist care scarcity county under this subsection for 
the year involved.’’. 
(2) EFFECTIVE DATE.—The amendments made 
by subsection (a) shall apply to physicians’ services 
furnished or after January 1, 2004. 
(b) IMPROVEMENT TO MEDICARE INCENTIVE PAY-
MENT PROGRAM.—
(1) IN GENERAL.—Section 1833(m) (42 U.S.C. 
1395l(m)) is amended—
365
(A) by inserting ‘‘(1)’’ after ‘‘(m)’’; and 
(B) by adding at the end the following new 
paragraphs: 
‘‘(2) The Secretary shall establish procedures under 
which the Secretary, and not the physician furnishing the 
service, is responsible for determining when a payment is 
required to be made under paragraph (1). 
‘‘(3) In carrying out paragraph (1) for a year, the 
Secretary shall include, as part of the proposed and final 
rule to implement the physician fee schedule under section 
1848 for the year, a list of all areas which will qualify 
as a health professional shortage area under paragraph 
(1) for the year involved.’’. 
(2) EFFECTIVE DATE.—The amendments made 
by paragraph (1) shall apply to physicians’ services 
furnished or after January 1, 2004.
SEC. 418. 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
366
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.
367
TITLE V—PROVISIONS 
RELATING TO PART A 
Subtitle A—Inpatient Hospital 
Services 
SEC. 501. REVISION OF ACUTE CARE HOSPITAL PAYMENT 
UPDATES. 
Section 
1886(b)(3)(B)(i) 
(42 
U.S.C. 
1395ww(b)(3)(B)(i)) is amended—
(1) by striking ‘‘and’’ at the end of subclause 
(XVIII); 
(2) by striking subclause (XIX); and 
(3) by inserting after subclause (XVIII) the fol-
lowing new subclauses: 
‘‘(XIX) for each of fiscal years 2004 through 
2006, the market basket percentage increase minus 
0.4 percentage points for hospitals in all areas; and 
‘‘(XX) for fiscal year 2007 and each subsequent 
fiscal year, the market basket percentage increase 
for hospitals in all areas.’’.
SEC. 502. 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:
368
‘‘(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
FOR
TECHNOLOGY 
OUTLIERS.—
(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 specific discharges in which the service or 
technology has been used.’’.
369
(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 75 percent of the standardized 
amount (increased to reflect the difference between 
cost and charges) or 75 percent of one standard de-
viation for the diagnosis-related group involved)’’ 
after ‘‘is inadequate’’. 
(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 of the
370
Federal Food, Drug, and Cosmetic Act, approved under 
section 314.510 or 601.41 of title 21, Code of Federal 
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. Nothing in this subclause shall be construed 
as effecting the authority of the Secretary to determine 
whether items and services are medically necessary and 
appropriate under section 1862(a)(1).’’. 
(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-
371
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
372
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. 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) ESTABLISHMENT OF NEW FUNDING FOR HOS-
PITAL INPATIENT TECHNOLOGY.—
(1) 
IN
GENERAL.—Section 
1886(d)(5)(K)(ii)(III) 
(42 
U.S.C. 
1395ww(d)(5)(K)(ii)(III)) is amended by striking 
‘‘subject to paragraph (4)(C)(iii),’’. 
(2) NOT BUDGET NEUTRAL.—There shall be no 
reduction or other adjustment in payments under 
section 1886 of the Social Security Act because an
373
additional payment is provided under subsection 
(d)(5)(K)(ii)(III) of such section. 
(f) 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 2005. 
(2) RECONSIDERATIONS OF APPLICATIONS FOR 
FISCAL YEAR 2004 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 2004 and that is denied—
(A) the Secretary shall automatically re-
consider the application as an application for 
fiscal year 2005 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. 503. INCREASE IN FEDERAL RATE FOR HOSPITALS IN 
PUERTO RICO. 
Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is 
amended—
374
(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) on or after October 1, 1987, and before Oc-
tober 1, 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-
375
age is 50 percent and the applicable Federal per-
centage is 50 percent; 
‘‘(iii) during fiscal year 2004, the applicable 
Puerto Rico percentage is 41 percent and the appli-
cable Federal percentage is 59 percent; 
‘‘(iv) during fiscal year 2005, the applicable 
Puerto Rico percentage is 33 percent and the appli-
cable Federal percentage is 67 percent; and 
‘‘(v) on or after October 1, 2005, the applicable 
Puerto Rico percentage is 25 percent and the appli-
cable Federal percentage is 75 percent.’’. 
SEC. 504. WAGE INDEX ADJUSTMENT RECLASSIFICATION 
REFORM . 
(a) IN
GENERAL.—Section 1886(d) (42 U.S.C. 
1395ww(d)) is amended by adding at the end the fol-
lowing: 
‘‘(11)(A) In order to recognize commuting patterns 
among Metropolitan Statistical Areas and between such 
Areas and rural areas, the Secretary shall establish a proc-
ess, upon application of a subsection (d) hospital that es-
tablishes that it is a qualifying hospital described in sub-
paragraph (B), for an increase of the wage index applied 
under paragraph (3)(E) for the hospital in the amount 
computed under subparagraph (D).
376
‘‘(B) A qualifying hospital described in this subpara-
graph is a subsection (d) hospital—
‘‘(i) the average wages of which exceed the av-
erage wages for the area in which the hospital is lo-
cated; and 
‘‘(ii) which has at least 10 percent of its em-
ployees who reside in one or more higher wage index 
areas. 
‘‘(C) For purposes of this paragraph, the term ‘high-
er wage index area’ means, with respect to a hospital, an 
area with a wage index that exceeds that of the area in 
which the hospital is located. 
‘‘(D) The increase in the wage index under subpara-
graph (A) for a hospital shall be equal to the percentage 
of the employees of the hospital that resides in any higher 
wage index area multiplied by the sum of the products, 
for each higher wage index area of—
‘‘(i) the difference between (I) the wage index 
for such area, and (II) the wage index of the area 
in which the hospital is located (before the applica-
tion of this paragraph); and 
‘‘(ii) the number of employees of the hospital 
that reside in such higher wage index area divided 
by the total number of such employees that reside in 
all high wage index areas.
377
‘‘(E) The process under this paragraph shall be based 
upon the process used by the Medicare Geographic Classi-
fication Review Board under paragraph (10) with respect 
to data submitted by hospitals to the Board on the loca-
tion of residence of hospital employees and wages under 
the applicable schedule established for geographic reclassi-
fication. 
‘‘(F) A reclassification under this paragraph shall be 
effective for a period of 3 fiscal years, except that the Sec-
retary shall establish procedures under which a subsection 
(d) hospital may elect to terminate such reclassification 
before the end of such period. 
‘‘(G) A hospital that is reclassified under this para-
graph for a period is not eligible for reclassification under 
paragraphs (8) or (10) during that period. 
‘‘(H) Any increase in a wage index under this para-
graph for a hospital shall not be taken into account for 
purposes of—
‘‘(i) computing the wage index for the area in 
which the hospital is located or any other area; or 
‘‘(ii) applying any budget neutrality adjustment 
with respect to such index under paragraph 
(8)(D).’’.
378
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall first apply to the wage index for dis-
charges occurring on or after October 1, 2004. 
SEC. 505. MEDPAC REPORT ON SPECIALTY HOSPITALS. 
(a) MEDPAC STUDY.—The Medicare Payment Advi-
sory Commission shall conduct a study of specialty hos-
pitals compared with other similar general acute care hos-
pitals under the medicare program. Such study shall ex-
amine—
(1) whether there are excessive self-referrals; 
(2) quality of care furnished; 
(3) the impact of specialty hospitals on such 
general acute care hospitals; and 
(4) differences in the scope of services, medicaid 
utilization, and uncompensated care furnished. 
(b) REPORT.—Not later than 1 year after the date 
of the enactment of this Act, the Secretary shall submit 
to Congress a report on the study conducted under sub-
section (a), and shall include any recommendations for 
legislation or administrative change as the Secretary de-
termines appropriate.
379
Subtitle B—Other Provisions 
SEC. 511. PAYMENT FOR COVERED SKILLED NURSING FA-
CILITY SERVICES. 
(a) ADJUSTMENT
TO
RUGS
FOR
AIDS RESI-
DENTS.—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.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
paragraph (1) shall apply to services furnished on or after 
October 1, 2003.
380
SEC. 512. 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:
381
‘‘(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. 513. CORRECTION OF TRUST FUND HOLDINGS. 
(a) IN GENERAL.—Within 120 days after the effec-
tive date of this section, the Secretary of the Treasury 
shall take the actions described in subsection (b) with re-
spect to the Federal Hospital Insurance Trust Fund (in 
this section referred to as the ‘‘Trust Fund’’) with the goal 
being that, after the actions are taken, the holdings of the 
Trust Fund will replicate, to the extent practicable in the 
judgment of the Secretary of the Treasury, in consultation
382
with the Secretary, the obligations that would have been 
held by the trust fund if the clerical error had not oc-
curred. 
(b) OBLIGATIONS ISSUED
AND REDEEMED.—The 
Secretary of the Treasury shall—
(1) issue to the Trust Fund obligations under 
chapter 31 of title 31, United States Code, that bear 
issue dates, interest rates, and maturity dates as the 
obligations that—
(A) would have been issued to the Trust 
Fund if the clerical error had not occurred; or 
(B) were issued to the Trust Fund and 
were redeemed by reason of the clerical error; 
and 
(2) redeem from the Trust Fund obligations 
that would have been redeemed from the Trust 
Fund if the clerical error had not occurred. 
(c) APPROPRIATION TO TRUST FUND.—Within 120 
days after the effective date of this section, there is hereby 
appropriated to the Trust Fund, out of any money in the 
Treasury not otherwise appropriated, an amount deter-
mined by the Secretary of the Treasury, in consultation 
with the Secretary of Health and Human Services, to be 
equal to the interest income lost by the trust fund through 
the date of credit by reason of the clerical error.
383
(d) CLERICAL ERROR DEFINED.—For purposes of 
this section, the term ‘‘clerical error’’ means the failure 
to have transferred the correct amount from the general 
fund to the Trust Fund, which failure occurred on April 
15, 2001.
TITLE VI—PROVISIONS 
RELATING TO PART B 
Subtitle A—Physicians’ Services
SEC. 601. REVISION OF UPDATES FOR PHYSICIANS’ SERV-
ICES. 
(a) UPDATE FOR 2004 AND 2005.—
(1) IN GENERAL.—Section 1848(d) (42 U.S.C. 
1395w–4(d)) is amended by adding at the end the 
following new paragraph: 
‘‘(5) UPDATE FOR 2004 AND 2005.—The update 
to the single conversion factor established in para-
graph (1)(C) for each of 2004 and 2005 shall be not 
less than 1.5 percent.’’. 
(2) 
CONFORMING
AMENDMENT.—Paragraph 
(4)(B) of such section is amended, in the matter be-
fore clause (i), by inserting ‘‘and paragraph (5)’’ 
after ‘‘subparagraph (D)’’. 
(3) NOT TREATED AS CHANGE IN LAW AND 
REGULATION IN SUSTAINABLE GROWTH RATE DE-
TERMINATION.—The amendments made by this sub-
384
section shall not be treated as a change in law for 
purposes of applying section 1848(f)(2)(D) of the 
Social Security Act (42 U.S.C. 1395w–4(f)(2)(D)). 
(b) USE OF 10-YEAR ROLLING AVERAGE IN COM-
PUTING GROSS DOMESTIC PRODUCT.—
(1) IN
GENERAL.—Section 1848(f)(2)(C) (42 
U.S.C. 1395w–4(f)(2)(C)) is amended—
(A) by striking ‘‘projected’’ and inserting 
‘‘annual average’’; and 
(B) by striking ‘‘from the previous applica-
ble period to the applicable period involved’’ 
and inserting ‘‘during the 10-year period ending 
with the applicable period involved’’.
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to computations of the 
sustainable growth rate for years beginning with 
2003. 
SEC. 602. 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—
385
(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.—
386
(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. 
(c) GAO STUDY OF MEDICARE PAYMENT FOR INHA-
LATION THERAPY.—
(1) STUDY.—The Comptroller General of the 
United States shall conduct a study to examine the 
adequacy of current reimbursements for inhalation 
therapy under the medicare program. 
(2) REPORT.—Not later than May 1, 2004, the 
Comptroller General shall submit to Congress a re-
port on the study conducted under paragraph (1). 
SEC. 603. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS’ 
SERVICES. 
(a) PRACTICE EXPENSE COMPONENT.—Not later 
than 1 year after the date of the enactment of this Act, 
the Medicare Payment Advisory Commission shall submit
387
to Congress a report on the effect of refinements to the 
practice expense component of payments for physicians’ 
services, after the transition to a full resource-based pay-
ment system in 2002, under section 1848 of the Social 
Security Act (42 U.S.C. 1395w–4). Such report shall ex-
amine 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. 
(b) VOLUME OF PHYSICIAN SERVICES.—The Medi-
care Payment Advisory Commission shall submit to Con-
gress a report on the extent to which increases in the vol-
ume of physicians’ services under part B of the medicare 
program are a result of care that improves the health and 
well-being of medicare beneficiaries. The study shall in-
clude the following:
388
(1) An analysis of recent and historic growth in 
the components that the Secretary includes under 
the sustainable growth rate (under section 1848(f) 
of the Social Security Act). 
(2) An examination of the relative growth of 
volume in physician services between medicare bene-
ficiaries and other populations. 
(3) An analysis of the degree to which new 
technology, including coverage determinations of the 
Centers for Medicare & Medicaid Services, has af-
fected the volume of physicians’ services. 
(4) An examination of the impact on volume of 
demographic changes. 
(5) An examination of shifts in the site of serv-
ice of services that influence the number and inten-
sity of services furnished in physicians’ offices and 
the extent to which changes in reimbursement rates 
to other providers have affected these changes. 
(6) An evaluation of the extent to which the 
Centers for Medicare & Medicaid Services takes into 
account the impact of law and regulations on the 
sustainable growth rate.
389
SEC. 604. INCLUSION OF PODIATRISTS AND DENTISTS 
UNDER PRIVATE CONTRACTING AUTHORITY. 
Section 1802(b)(5)(B) (42 U.S.C. 1395a(b)(5)(B)) is 
amended by striking ‘‘section 1861(r)(1)’’ and inserting 
‘‘paragraphs (1), (2), and (3) of section 1861(r)’’. 
SEC. 605. ESTABLISHMENT OF FLOOR ON WORK GEO-
GRAPHIC ADJUSTMENT. 
(a) MINIMUM
INDEX.—Section 1848(e)(1) (42 
U.S.C. 1395w–4(e)(1)) is amended by adding at the end 
the following new subparagraph: 
‘‘(E) FLOOR AT 1.0 ON WORK GEOGRAPHIC 
INDEX.—
‘‘(i) IN GENERAL.—Subject to clause 
(ii), after calculating the work geographic 
index in subparagraph (A)(iii), for pur-
poses of payment for services furnished on 
or after January 1, 2004, and before Jan-
uary 1, 2006, the Secretary shall increase 
the work geographic index to 1.00 for any 
locality for which such work geographic 
index is less than 1.00. 
‘‘(ii) 
SECRETARIAL
DISCRETION.—
Clause (i) shall have no force or effect in 
law if the Secretary determines, taking 
into account the report of the Comptroller 
General under section 605(b)(2) of the
390
Medicare Prescription Drug and Mod-
ernization Act of 2003, that there is no 
sound economic rationale for the imple-
mentation of that clause.’’. 
(b) GAO REPORT.—
(1) EVALUATION.—As part of the study on geo-
graphic differences in payments for physicians’ serv-
ices conducted under section 413, the Comptroller 
General of the United States shall evaluate the fol-
lowing: 
(A) Whether there is a sound economic 
basis for the implementation of the adjustment 
of the work geographic index under section 
1848(e)(1) of the Social Security Act under 
subsection (a) in those areas in which the ad-
justment 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.
391
(C) The appropriateness of establishing a 
floor of 1.0 for the work geographic index. 
(2) REPORT.—By not later than September 1, 
2004, the Comptroller General shall submit to Con-
gress and to the Secretary a report on the evaluation 
conducted under paragraph (1). 
Subtitle B—Preventive Services
SEC. 611. 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
392
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’’.
393
(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.
394
SEC. 612. COVERAGE OF CHOLESTEROL AND BLOOD LIPID 
SCREENING. 
(a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 
1395x(s)(2)), as amended by section 611(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 611(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.’’.
395
(c) FREQUENCY.—Section 1862(a)(1) (42 U.S.C. 
1395y(a)(1)), as amended by section 611(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, 2005. 
SEC. 613. WAIVER OF DEDUCTIBLE FOR COLORECTAL CAN-
CER SCREENING TESTS. 
(a) IN GENERAL.—The first sentence of section 
1833(b) (42 U.S.C. 1395l(b)), as amended by section 
611(c)(1), is amended—
(1) by striking ‘‘and’’ before ‘‘(7)’’; and 
(2) by inserting before the period at the end the 
following: ‘‘, and (8) such deductible shall not apply
396
with respect to colorectal cancer screening tests (as 
described in section 1861(pp)(1))’’. 
(b) 
CONFORMING
AMENDMENTS.—Paragraphs 
(2)(C)(ii) and (3)(C)(ii) of section 1834(d) (42 U.S.C. 
1395m(d)) are each amended—
(1) by striking ‘‘DEDUCTIBLE
AND’’ in the 
heading; and 
(2) in subclause (I), by striking ‘‘deductible or’’ 
each place it appears. 
(c) EFFECTIVE DATE.—The amendment made by 
this section shall apply to items and services furnished on 
or after Janaury 1, 2004.
SEC. 614. 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) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to mammography performed on 
or after January 1, 2004.
397
Subtitle C—Other Services 
SEC. 621. HOSPITAL OUTPATIENT DEPARTMENT (HOPD) 
PAYMENT REFORM. 
(a) PAYMENT FOR DRUGS.—
(1) MODIFICATION OF AMBULATORY PAYMENT 
CLASSIFICATION
(APC)
GROUPS.—Section 1833(t) 
(42 U.S.C. 1395l(t)) is amended—
(A) by redesignating paragraph (13) as 
paragraph (14); and 
(B) by inserting after paragraph (12) the 
following new paragraph: 
‘‘(13) DRUG APC PAYMENT RATES.—
‘‘(A) IN GENERAL.—With respect to pay-
ment for covered OPD services that includes a 
specified covered outpatient drug (defined in 
subparagraph (B)), the amount provided for 
payment for such drug under the payment sys-
tem under this subsection for services furnished 
in—
‘‘(i) 2004, 2005, or 2006, shall in no 
case—
‘‘(I) exceed 95 percent of the av-
erage wholesale price for the drug; or 
‘‘(II) be less than the transition 
percentage (under subparagraph (C))
398
of the average wholesale price for the 
drug; or 
‘‘(ii) a subsequent year, shall be equal 
to the average price for the drug for that 
area and year established under the com-
petitive acquisition program under section 
1847A as calculated and applied by the 
Secretary for purposes of this paragraph. 
‘‘(B) SPECIFIED
COVERED
OUTPATIENT 
DRUG DEFINED.—
‘‘(i) IN GENERAL.—In this paragraph, 
the term ‘specified covered outpatient 
drug’ means, subject to clause (ii), a cov-
ered outpatient drug (as defined in 
1927(k)(2), that is—
‘‘(I) a radiopharmaceutical; or 
‘‘(II) a drug or biological for 
which payment was made under para-
graph (6) (relating to pass-through 
payments) on or before December 31, 
2002. 
‘‘(ii) EXCEPTION.—Such term does 
not include—
399
‘‘(I) a drug for which payment is 
first made on or after January 1, 
2003, under paragraph (6); or 
‘‘(II) a drug for a which a tem-
porary HCPCS code has not been as-
signed. 
‘‘(C) TRANSITION
TOWARDS
HISTORICAL 
AVERAGE
ACQUISITION
COST.—The transition 
percentage under this subparagraph for drugs 
furnished in a year is determined in accordance 
with the following table:
For the year—
The transition percentage for—
Single source 
drugs are—
Innovator mul-
tiple source 
drugs are—
Generic drugs 
are—
2004 .............................
83% 
81.5%
46%
2005 .............................
77%
75%
46%
2006 .............................
71%
68%
46%
‘‘(D) PAYMENT
FOR
NEW
DRUGS
UNTIL 
TEMPORARY HCPCS CODE
ASSIGNED.—With 
respect to payment for covered OPD services 
that includes a covered outpatient drug (as de-
fined in 1927(k)) for a which a temporary 
HCPCS code has not been assigned, the 
amount provided for payment for such drug 
under the payment system under this sub-
section shall be equal to 95 percent of the aver-
age wholesale price for the drug.
400
‘‘(E) CLASSES OF DRUGS.—For purposes 
of this paragraph, each of the following shall be 
treated as a separate class of drugs: 
‘‘(i) SOLE
SOURCE
DRUGS.—A sole 
source drug which for purposes of this 
paragraph means a drug or biological that 
is not a multiple source drug (as defined in 
subclauses 
(I) 
and 
(II) 
of 
section 
1927(k)(7)(A)(i)) and is not a drug ap-
proved under an abbreviated new drug ap-
plication under section 355(j) of the Fed-
eral Food, Drug, and Cosmetic Act. 
‘‘(ii) INNOVATOR
MULTIPLE
SOURCE 
DRUGS.—Innovator multiple source drugs 
(as defined in section 1927(k)(7)(A)(ii)). 
‘‘(iii) 
NONINNOVATOR
MULTIPLE 
SOURCE
DRUGS.—Noninnovator multiple 
source drugs (as defined in section 
1927(k)(7)(A)(iii)). 
‘‘(F) INAPPLICABILITY OF EXPENDITURES 
IN DETERMINING CONVERSION FACTORS.—Ad-
ditional expenditures resulting from this para-
graph and paragraph (14)(C) in a year shall 
not be taken into account in establishing the 
conversion factor for that year.’’.
401
(2) REDUCTION IN THRESHOLD FOR SEPARATE 
APCS FOR DRUGS.—Section 1833(t)(14), as redesig-
nated by paragraph (1)(A), is amended by adding at 
the end the following new subparagraph: 
‘‘(B) THRESHOLD
FOR
ESTABLISHMENT 
OF
SEPARATE
APCS
FOR
DRUGS.—The Sec-
retary shall reduce the threshold for the estab-
lishment of separate ambulatory payment clas-
sification groups (APCs) with respect to drugs 
to $50 per administration.’’. 
(3) EXCLUSION OF SEPARATE DRUG APCS FROM 
OUTLIER PAYMENTS.—Section 1833(t)(5) is amend-
ed by adding at the end the following new subpara-
graph: 
‘‘(E) EXCLUSION
OF
SEPARATE
DRUG 
APCS
FROM
OUTLIER
PAYMENTS.—No addi-
tional payment shall be made under subpara-
graph (A) in the case of ambulatory procedure 
codes established separately for drugs.’’. 
(4) PAYMENT FOR PASS THROUGH DRUGS.—
Clause (i) of section 1833(t)(6)(D) (42 U.S.C. 
1395l(t)(6)(D)) is amended by inserting after 
‘‘under section 1842(o)’’ the following: ‘‘(or if the 
drug is covered under a competitive acquisition con-
tract under section 1847A for an area, an amount
402
determined by the Secretary equal to the average 
price for the drug for that area and year established 
under such section as calculated and applied by the 
Secretary for purposes of this paragraph)’’. 
(5) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to services furnished 
on or after January 1, 2004. 
(b) SPECIAL PAYMENT FOR BRACHYTHERAPY.—
(1) IN GENERAL.—Section 1833(t)(14), as so 
redesignated and amended by subsection (a)(2), is 
amended by adding at the end the following new 
subparagraph: 
‘‘(C) 
PAYMENT
FOR
DEVICES
OF 
BRACHYTHERAPY
AT
CHARGES
ADJUSTED
TO 
COST.—Notwithstanding the preceding provi-
sions of this subsection, for a device of 
brachytherapy furnished on or after January 1, 
2004, and before January 1, 2007, the payment 
basis for the device under this subsection shall 
be equal to the hospital’s charges for each de-
vice furnished, adjusted to cost.’’. 
(2) 
SPECIFICATION
OF
GROUPS
FOR 
BRACHYTHERAPY DEVICES.—Section 1833(t)(2) (42 
U.S.C. 1395l(t)(2) is amended—
403
(A) in subparagraph (F), by striking 
‘‘and’’ at the end; 
(B) in subparagraph (G), by striking the 
period at the end and inserting ‘‘; and’’; and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(H) 
with 
respect 
to 
devices 
of 
brachytherapy, the Secretary shall create addi-
tional groups of covered OPD services that clas-
sify such devices separately from the other serv-
ices (or group of services) paid for under this 
subsection in a manner reflecting the number, 
isotope, and radioactive intensity of such de-
vices furnished, including separate groups for 
palladium-103 and iodine-125 devices.’’. 
(3) GAO REPORT.—The Comptroller General of 
the United States shall conduct a study to determine 
appropriate 
payment 
amounts 
under 
section 
1833(t)(13)(B) of the Social Security Act, as added 
by paragraph (1), for devices of brachytherapy. Not 
later than January 1, 2005, the Comptroller General 
shall submit to Congress and the Secretary a report 
on the study conducted under this paragraph, and 
shall include specific recommendations for appro-
priate payments for such devices.
404
(c) APPLICATION
OF FUNCTIONAL EQUIVALENCE 
TEST.—
(1) IN
GENERAL.—Section 1833(t)(6) (42 
U.S.C. 1395l(t)(6)) is amended by adding at the end 
the following new subparagraph: 
‘‘(F) LIMITATION
ON
APPLICATION
OF 
FUNCTIONAL
EQUIVALENCE
STANDARD.—The 
Secretary may not apply a ‘functional equiva-
lence’ payment standard (including such stand-
ard promulgated on November 1, 2002) or any 
other similar standard in order to deem a par-
ticular product to be functionally equivalent (or 
a similar standard) unless the Commissioner of 
Food and Drugs establishes a functional 
equivalence standard and certifies, under such 
standards, that the two products are function-
ally equivalent. If the Commissioner makes such 
a certification with respect to two or more prod-
ucts, the Secretary may, after complying with 
applicable rulemaking requirements, implement 
such standard with respect to such products 
under this subsection.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to the application of a 
functional equivalence standard to a drug or biologi-
405
cal on or after the date of the enactment of this Act, 
unless such application was being made to such drug 
or biological prior to June 13, 2003. 
(d) HOSPITAL ACQUISITION COST STUDY.—
(1) IN GENERAL.—The Secretary shall conduct 
a study on the costs incurred by hospitals in acquir-
ing covered outpatient drugs for which payment is 
made under section 1833(t) of the Social Security 
Act (42 U.S.C. 1395l(t)). 
(2) DRUGS COVERED.—The study in paragraph 
(1) shall not include those drugs for which the ac-
quisition costs is less than $50 per administration. 
(3) 
REPRESENTATIVE
SAMPLE
OF
HOS-
PITALS.—In conducting the study under paragraph 
(1), the Secretary shall collect data from a statis-
tically valid sample of hospitals with an urban/rural 
stratification. 
(4) REPORT.—Not later than January 1, 2006, 
the Secretary shall submit to Congress a report on 
the study conducted under paragraph (1), and shall 
include recommendations with respect to the fol-
lowing: 
(A) Whether the study should be repeated, 
and if so, how frequently.
406
(B) Whether the study produced useful 
data on hospital acquisition cost. 
(C) Whether data produced in the study is 
appropriate for use in making adjustments to 
payments for drugs and biologicals under sec-
tion 1847A of the Social Security Act. 
(D) Whether separate estimates can be 
made of overhead costs, including handing and 
administering costs for drugs.
SEC. 622. 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)), as amended by section 
410(a), is amended—
(1) in paragraph (2)(E), by inserting ‘‘con-
sistent with paragraph (11)’’ after ‘‘in an efficient 
and fair manner’’; and 
(2) by adding at the end the following new 
paragraph: 
‘‘(11) 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, the portion of the payment amount that 
is based on the fee schedule shall be the greater of
407
the amount determined under such fee schedule 
(without regard to this paragraph) or the following 
blended rate of the fee schedule under paragraph (1) 
and of a regional fee schedule for the region in-
volved: 
‘‘(A) For 2004, 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 2005, 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 2006, 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 2007, 2008, and 2009, the 
blended rate shall be based 80 percent on the 
fee schedule under paragraph (1) and 20 per-
cent on the regional fee schedule. 
‘‘(E) For 2010 and each succeeding year, 
the blended rate shall be based 100 percent on 
the fee schedule under paragraph (1).
408
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: 
‘‘(12) ADJUSTMENT IN PAYMENT FOR CERTAIN 
LONG
TRIPS.—In the case of ground ambulance 
services furnished on or after January 1, 2004, and 
before January 1, 2009, 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) GAO REPORT ON COSTS AND ACCESS.—Not later 
than December 31, 2005, the Comptroller General of the 
United States shall submit to Congress an initial report
409
on how costs differ among the types of ambulance pro-
viders and on access, supply, and quality of ambulance 
services in those regions and States that have a reduction 
in payment under the medicare ambulance fee schedule 
(under section 1834(l) of the Social Security Act, as 
amended by this section). Not later than December 31, 
2007, the Comptroller General shall submit to Congress 
a final report on such access and supply. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to ambulance services furnished 
on or after January 1, 2004.
SEC. 623. RENAL DIALYSIS SERVICES. 
(a) DEMONSTRATION OF ALTERNATIVE DELIVERY 
MODELS.—
(1) USE OF ADVISORY BOARD.—In carrying out 
the demonstration project relating to improving care 
for people with end-stage renal disease through al-
ternative delivery models (as published in the Fed-
eral Register of June 4, 2003), the Secretary shall 
establish an advisory board comprised of representa-
tives described in paragraph (2) to provide advice 
and recommendations with respect to the establish-
ment and operation of such demonstration project.
410
(2) REPRESENTATIVES.—Representatives re-
ferred to in paragraph (1) include representatives of 
the following: 
(A) Patient organizations. 
(B) Clinicians. 
(C) The medicare payment advisory com-
mission, established under section 1805 of the 
Social Security Act (42 U.S.C. 1395b–6). 
(D) The National Kidney Foundation. 
(E) The National Institute of Diabetes and 
Digestive and Kidney Diseases of National In-
stitutes of Health. 
(F) End-stage renal disease networks. 
(G) Medicare contractors to monitor qual-
ity of care. 
(I) providers of services and renal dialysis 
facilities furnishing end-stage renal disease 
services. 
(J) Economists. 
(K) Researchers. 
(b) RESTORING COMPOSITE RATE EXCEPTIONS FOR 
PEDIATRIC FACILITIES.—
(1) IN GENERAL.—Section 422(a)(2) of BIPA 
is amended—
411
(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)), as amended by subsection (b), is fur-
ther amended by striking ‘‘Until’’ and inserting 
‘‘Subject to section 422(a)(2) of the Medicare, Med-
icaid, and SCHIP Benefits Improvement and Pro-
tection Act of 2000, and until’’. 
(c) INCREASE IN RENAL DIALYSIS COMPOSITE RATE 
FOR SERVICES FURNISHED IN 2004.—Notwithstanding
412
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 
1.6 percent. 
SEC. 624. ONE-YEAR MORATORIUM ON THERAPY CAPS; 
PROVISIONS RELATING TO REPORTS. 
(a) 1-YEAR MORATORIUM ON THERAPY CAPS.—Sec-
tion 1833(g)(4) (42 U.S.C. 1395l(g)(4)) is amended by 
striking ‘‘and 2002’’ and inserting ‘‘2002, and 2004’’. 
(b) PROMPT SUBMISSION OF OVERDUE REPORTS ON 
PAYMENT AND UTILIZATION OF OUTPATIENT THERAPY 
SERVICES.—Not later than December 31, 2003, 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
413
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.—
(A) PRELIMINARY
REPORT.—Not later 
than July 1, 2004, the Secretary shall submit 
to Congress a preliminary report on the condi-
tions and diseases identified under paragraph 
(1). 
(B) FINAL REPORT.—Not later than Sep-
tember 1, 2004, the Secretary shall submit to 
Congress a final report on such conditions and 
diseases. 
(C) RECOMMENDATIONS.—Not later than 
October 1, 2004, the Secretary shall submit to 
Congress a recommendation of criteria, with re-
spect to such conditions and disease, under 
which a waiver of the therapy caps would apply. 
(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
414
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
415
under paragraph (1) by not later than 1 year after 
the date of the enactment of this Act. 
SEC. 625. ADJUSTMENT TO PAYMENTS FOR SERVICES FUR-
NISHED IN AMBULATORY SURGICAL CEN-
TERS. 
Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is 
amended in the last sentence by inserting ‘‘and each of 
fiscal years 2004 through 2008’’ after ‘‘In each of the fis-
cal years 1998 through 2002’’. 
SEC. 626. PAYMENT FOR CERTAIN SHOES AND INSERTS 
UNDER THE FEE SCHEDULE FOR ORTHOTICS 
AND PROSTHETICS. 
(a) IN
GENERAL.—Section 1833(o) (42 U.S.C. 
1395l(o)) is amended—
(1) in paragraph (1), by striking ‘‘no more than 
the limits established under paragraph (2)’’ and in-
serting ‘‘no more than the amount of payment appli-
cable under paragraph (2)’’; and 
(2) in paragraph (2), to read as follows: 
‘‘(2)(A) Except as provided by the Secretary under 
subparagraphs (B) and (C), the amount of payment under 
this paragraph for custom molded shoes, extra depth 
shoes, and inserts shall be the amount determined for such 
items by the Secretary under section 1834(h).
416
‘‘(B) The Secretary or a carrier may establish pay-
ment amounts for shoes and inserts that are lower than 
the amount established under section 1834(h) if the Sec-
retary finds that shoes and inserts of an appropriate qual-
ity are readily available at or below the amount established 
under such section. 
‘‘(C) In accordance with procedures established by 
the Secretary, an individual entitled to benefits with re-
spect to shoes described in section 1861(s)(12) may sub-
stitute modification of such shoes instead of obtaining one 
(or more, as specified by the Secretary) pair of inserts 
(other than the original pair of inserts with respect to such 
shoes). In such case, the Secretary shall substitute, for 
the payment amount established under section 1834(h), 
a payment amount that the Secretary estimates will assure 
that there is no net increase in expenditures under this 
subsection as a result of this subparagraph.’’. 
(b) 
CONFORMING
AMENDMENTS.—(1) 
Section 
1834(h)(4)(C) (42 U.S.C. 1395m(h)(4)(C)) is amended by 
inserting ‘‘(and includes shoes described in section 
1861(s)(12))’’ after ‘‘in section 1861(s)(9)’’. 
(2) Section 1842(s)(2) (42 U.S.C. 1395u(s)(2)) is 
amended by striking subparagraph (C).
417
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to items furnished on or after Jan-
uary 1, 2004.
SEC. 627. 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, 2003, or 2004 
and who demonstrates to the Secretary before De-
cember 31, 2004, 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 2004. The Secretary 
of Health and Human Services shall establish a 
method for providing rebates of premium penalties
418
paid for months on or after January 2004 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, 2004. 
(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. 628. PART B DEDUCTIBLE. 
Section 1833(b) (42 U.S.C. 1395l(b)) is amended—
419
(1) by striking ‘‘1991 and’’ and inserting 
‘‘1991,’’; and 
(2) by striking ‘‘and subsequent years’’ and in-
serting ‘‘and each subsequent year through 2003, 
and for a subsequent year after 2003 the amount of 
such deductible for the previous year increased by 
the annual percentage increase in the monthly actu-
arial rate under section 1839(a)(1) ending with such 
subsequent year (rounded to the nearest $1)’’.
SEC. 629. EXTENSION OF COVERAGE OF INTRAVENOUS IM-
MUNE GLOBULIN (IVIG) FOR THE TREAT-
MENT OF PRIMARY IMMUNE DEFICIENCY DIS-
EASES IN THE HOME. 
(a) IN GENERAL.—Section 1861 (42 U.S.C. 1395x), 
as amended by sections 611(a) and 612(a) is amended—
(1) in subsection (s)(2)—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (W); 
(B) by adding ‘‘and’’ at the end of sub-
paragraph (X); and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(Y) intravenous immune globulin for the 
treatment of primary immune deficiency dis-
420
eases in the home (as defined in subsection 
(yy));’’; and 
(2) by adding at the end the following new sub-
section: 
‘‘Intravenous Immune Globulin 
‘‘(yy) The term ‘intravenous immune globulin’ means 
an approved pooled plasma derivative for the treatment 
in the patient’s home of a patient with a diagnosed pri-
mary immune deficiency disease, but not including items 
or services related to the administration of the derivative, 
if a physician determines administration of the derivative 
in the patient’s home is medically appropriate.’’. 
(b) PAYMENT AS A DRUG OR BIOLOGICAL.—Section 
1833(a)(1)(S) (42 U.S.C. 1395l(a)(1)(S)) is amended by 
inserting ‘‘(including intravenous immune globulin (as de-
fined in section 1861(yy)))’’ after ‘‘with respect to drugs 
and biologicals’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to items furnished administered 
on or after January 1, 2004. 
SEC. 630. MEDICARE COVERAGE OF DIABETES LABORA-
TORY DIAGNOSTIC TESTS. 
(a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 
1395x(s)(2)), as amended by sections 611 and 612, is 
amended—
421
(1) in subparagraph (W), by striking ‘‘and’’ at 
the end; 
(2) in subparagraph (X), by adding ‘‘and’’ at 
the end; and 
(3) by adding at the end the following new sub-
paragraph: 
‘‘(Y) diabetes screening tests and services (as 
defined in subsection (yy));’’. 
(b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 
1395x), as amended by sections 611 and 612, is further 
amended by adding at the end the following new sub-
section: 
‘‘Diabetes Screening Tests and Services 
‘‘(yy)(1) The term ‘diabetes screening tests’ means 
diagnostic testing furnished to an individual at risk for 
diabetes (as defined in paragraph (2)) for the purpose of 
early detection of diabetes, including—
‘‘(A) a fasting plasma glucose test; and 
‘‘(B) such other tests, and modifications to 
tests, as the Secretary determines appropriate, in 
consultation with appropriate organizations. 
‘‘(2) For purposes of paragraph (1), the term ‘indi-
vidual at risk for diabetes’ means an individual who has 
any, a combination of, or all of the following risk factors 
for diabetes:
422
‘‘(A) A family history of diabetes. 
‘‘(B) Overweight defined as a body mass index 
greater than or equal to 25 kg/m2. 
‘‘(C) Habitual physical inactivity. 
‘‘(D) Belonging to a high-risk ethnic or racial 
group. 
‘‘(E) Previous identification of an elevated im-
paired fasting glucose. 
‘‘(F) Identification of impaired glucose toler-
ance. 
‘‘(G) Hypertension. 
‘‘(H) Dyslipidemia. 
‘‘(I) History of gestational diabetes mellitus or 
delivery of a baby weighing greater than 9 pounds. 
‘‘(J) Polycystic ovary syndrome. 
‘‘(3) The Secretary shall establish standards, in con-
sultation with appropriate organizations, regarding the 
frequency of diabetes screening tests, except that such fre-
quency may not be more often than twice within the 12-
month period following the date of the most recent diabe-
tes screening test of that individual.’’. 
(c) FREQUENCY.—Section 1862(a)(1) (42 U.S.C. 
1395y(a)(1)), as amended by sections 611 and 612, is 
amended—
423
(1) by striking ‘‘and’’ at the end of subpara-
graph (J); 
(2) by striking the semicolon at the end of sub-
paragraph (K) and inserting ‘‘; and’’; and 
(3) by adding at the end the following new sub-
paragraph: 
‘‘(L) in the case of a diabetes screening tests or 
service (as defined in section 1861(yy)(1)), which is 
performed more frequently than is covered under 
section 1861(yy)(3).’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to tests furnished on or after the 
date that is 90 days after the date of enactment of this 
Act.
SEC. 631. DEMONSTRATION PROJECT FOR COVERAGE OF 
CERTAIN PRESCRIPTION DRUGS AND BIO-
LOGICS. 
(a) DEMONSTRATION PROJECT.—The Secretary shall 
conduct a demonstration project under part B of title 
XVIII of the Social Security Act under which payment is 
made for drugs or biologics that are prescribed as replace-
ments for drugs and biologicals described in section 
1861(s)(2)(A) or 1861(s)(2)(Q) of such Act (42 U.S.C. 
1395x(s)(2)(A), 1395x(s)(2)(Q))), or both, for which pay-
ment is made under such part.
424
(b) DEMONSTRATION PROJECT SITES.—The project 
established under this section shall be conducted in 3 
States selected by the Secretary. 
(c) DURATION.—The Secretary shall conduct the 
demonstration project for the 2-year period beginning on 
the date that is 90 days after the date of the enactment 
of this Act, but in no case may the project extend beyond 
December 31, 2005. 
(d) LIMITATION.—Under the demonstration project 
over the duration of the project, the Secretary may not 
provide—
(1) coverage for more than 10,000 patients; 
and 
(2) more than $100,000,000 in funding. 
(e) REPORT.—Not later than January 1, 2006, the 
Secretary shall submit to Congress a report on the project. 
The report shall include an evaluation of patient access 
to care and patient outcomes under the project, as well 
as an analysis of the cost effectiveness of the project, in-
cluding an evaluation of the costs savings (if any) to the 
medicare program attributable to reduced physicians’ 
services and hospital outpatient departments services for 
administration of the biological.
425
TITLE VII—PROVISIONS 
RELATING TO PARTS A AND B 
Subtitle A—Home Health Services 
SEC. 701. UPDATE IN HOME HEALTH SERVICES. 
(a) CHANGE TO CALENDER 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 (be-
ginning with fiscal year 2002)’’ and insert-
ing ‘‘fiscal year 2002 and for fiscal year 
2003 and for each subsequent year (begin-
ning with 2004)’’; and 
(ii) by inserting ‘‘or year’’ after ‘‘the 
fiscal year’’; 
(B) in paragraph (3)(B)(ii)(II), by striking 
‘‘any subsequent fiscal year’’ and inserting 
‘‘2004 and any subsequent year’’; 
(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
426
(ii) by inserting ‘‘or years’’ after ‘‘fis-
cal 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, 2003, shall 
be such amount (or amounts) for the previous cal-
endar quarter. 
(b) CHANGES IN UPDATES FOR 2004, 2005, AND 
2006.—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) by striking ‘‘or’’ at the end of subclause (I); 
(2) by redesignating subclause (II) as subclause 
(III); 
(3) in subclause (III), as so redesignated, by 
striking ‘‘2004’’ and inserting ‘‘2007’’; and 
(4) by inserting after subclause (I) the fol-
lowing new subclause: 
‘‘(II) each of 2004, 2005, and 
2006 the home health market basket 
percentage increase minus 0.4 per-
centage points; or’’.
427
SEC. 702. ESTABLISHMENT OF REDUCED COPAYMENT FOR 
A HOME HEALTH SERVICE EPISODE OF CARE 
FOR CERTAIN BENEFICIARIES. 
(a) PART A.—
(1) IN GENERAL.—Section 1813(a) (42 U.S.C. 
1395e(a)) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(5)(A)(i) Subject to clause (ii), the amount payable 
for home health services furnished to the individual under 
this title for each episode of care beginning in a year (be-
ginning with 2004) shall be reduced by a copayment equal 
to the copayment amount specified in subparagraph 
(B)(ii) for such year. 
‘‘(ii) The copayment under clause (i) shall not 
apply—
‘‘(I) in the case of an individual who has been 
determined to be entitled to medical assistance 
under section 1902(a)(10)(A) or 1902(a)(10)(C) or 
to be a qualified medicare beneficiary (as defined in 
section 1905(p)(1)), a specified low-income medicare 
beneficiary described in section 1902(a)(10)(E)(iii), 
or a qualifying individual described in section 
1902(a)(10)(E)(iv)(I); and 
‘‘(II) in the case of an episode of care which 
consists of 4 or fewer visits.
428
‘‘(B)(i) The Secretary shall estimate, before the be-
ginning of each year (beginning with 2004), the national 
average payment under this title per episode for home 
health services projected for the year involved. 
‘‘(ii) For each year the copayment amount under this 
clause is equal to 1.5 percent of the national average pay-
ment estimated for the year involved under clause (i). Any 
amount determined under the preceding sentence which 
is not a multiple of $5 shall be rounded to the nearest 
multiple of $5. 
‘‘(iii) There shall be no administrative or judicial re-
view under section 1869, 1878, or otherwise of the esti-
mation of average payment under clause (i).’’. 
(2) TIMELY
IMPLEMENTATION.—Unless the 
Secretary of Health and Human Services otherwise 
provides on a timely basis, the copayment amount 
specified under section 1813(a)(5)(B)(ii) of the So-
cial Security Act (as added by paragraph (1)) for 
2004 shall be deemed to be $40. 
(b) CONFORMING PROVISIONS.—
(1) 
Section 
1833(a)(2)(A) 
(42 
U.S.C. 
1395l(a)(2)(A)) is amended by inserting ‘‘less the 
copayment 
amount 
applicable 
under 
section 
1813(a)(5)’’ after ‘‘1895’’.
429
(2) 
Section 
1866(a)(2)(A)(i) 
(42 
U.S.C. 
1395cc(a)(2)(A)(i)) is amended—
(A) by striking ‘‘or coinsurance’’ and in-
serting ‘‘, coinsurance, or copayment’’; and 
(B) by striking ‘‘or (a)(4)’’ and inserting 
‘‘(a)(4), or (a)(5)’’. 
SEC. 703. 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. 704. DEMONSTRATION PROJECT TO CLARIFY THE 
DEFINITION OF HOMEBOUND. 
(a) DEMONSTRATION PROJECT.—Not later than 180 
days after the date of the enactment of this Act, the Sec-
430
retary shall conduct a two-year demonstration project 
under part B of title XVIII of the Social Security Act 
under which medicare beneficiaries with chronic conditions 
described in subsection (b) are deemed to be homebound 
for purposes of receiving home health services under the 
medicare program. 
(b) MEDICARE BENEFICIARY DESCRIBED.—For pur-
poses of subsection (a), a medicare beneficiary is eligible 
to be deemed to be homebound, without regard to the pur-
pose, frequency, or duration of absences from the home, 
if—
(1) the beneficiary has been certified by one 
physician as an individual who has a permanent and 
severe condition that will not improve; 
(2) the beneficiary requires the individual to re-
ceive assistance from another individual with at least 
3 out of the 5 activities of daily living for the rest 
of the individual’s life; 
(3) the beneficiary requires skilled nursing serv-
ices on a permanent basis and the skilled nursing is 
more than medication management; 
(4) either (A) an attendant is needed during 
the day to monitor and treat the beneficiary’s med-
ical condition, or (B) the beneficiary needs daily
431
skilled nursing on a permanent basis and the skilled 
nursing is more than medication management; and 
(5) the beneficiary requires technological assist-
ance or the assistance of another person to leave the 
home. 
(c) DEMONSTRATION PROJECT SITES.—The dem-
onstration project established under this section shall be 
conducted in 3 States selected by the Secretary to rep-
resent the Northeast, Midwest, and Western regions of the 
United States. 
(d) LIMITATION ON NUMBER OF PARTICIPANTS.—
The aggregate number of such beneficiaries that may par-
ticipate in the project may not exceed 15,000. 
(e) DATA.—The Secretary shall collect such data on 
the demonstration project with respect to the provision of 
home health services to medicare beneficiaries that relates 
to quality of care, patient outcomes, and additional costs, 
if any, to the medicare program. 
(f) REPORT TO CONGRESS.—Not later than 1 year 
after the date of the completion of the demonstration 
project under this section, the Secretary shall submit to 
Congress a report on the project using the data collected 
under subsection (e) and shall include—
432
(1) an examination of whether the provision of 
home health services to medicare beneficiaries under 
the project—
(A) adversely effects the provision of home 
health services under the medicare program; or 
(B) directly causes an unreasonable in-
crease of expenditures under the medicare pro-
gram for the provision of such services that is 
directly attributable to such clarification; 
(2) the specific data evidencing the amount of 
any increase in expenditures that is a directly attrib-
utable to the demonstration project (expressed both 
in absolute dollar terms and as a percentage) above 
expenditures that would otherwise have been in-
curred for home health services under the medicare 
program; and 
(3) specific recommendations to exempt perma-
nently and severely disabled homebound beneficiaries 
from restrictions on the length, frequency and pur-
pose of their absences from the home to qualify for 
home health services without incurring additional 
unreasonable costs to the medicare program. 
(g) WAIVER AUTHORITY.—The Secretary shall waive 
compliance with the requirements of title XVIII of the So-
cial Security Act (42 U.S.C. 1395 et seq.) to such extent
433
and for such period as the Secretary determines is nec-
essary to conduct demonstration projects. 
(h) CONSTRUCTION.—Nothing in this section shall be 
construed as waiving any applicable civil monetary pen-
alty, criminal penalty, or other remedy available to the 
Secretary under title XI or title XVIII of the Social Secu-
rity Act for acts prohibited under such titles, including 
penalties for false certifications for purposes of receipt of 
items or services under the medicare program. 
(i) AUTHORIZATION
OF
APPROPRIATIONS.—Pay-
ments for the costs of carrying out the demonstration 
project under this section shall be made from the Federal 
Supplementary Insurance Trust Fund under section 1841 
of such Act (42 U.S.C. 1395t). 
(j) DEFINITIONS.—In this section: 
(1) 
MEDICARE
BENEFICIARY.—The 
term 
‘‘medicare beneficiary’’ means an individual who is 
enrolled under part B of title XVIII of the Social 
Security Act. 
(2) HOME
HEALTH
SERVICES.—The term 
‘‘home health services’’ has the meaning given such 
term in section 1861(m) of the Social Security Act 
(42 U.S.C. 1395x(m)).
434
(3) ACTIVITIES OF DAILY LIVING DEFINED.—
The term ‘‘activities of daily living’’ means eating, 
toileting, transferring, bathing, and dressing. 
(4) SECRETARY.—The term ‘‘Secretary’’ means 
the Secretary of Health and Human Services.
Subtitle B—Direct Graduate 
Medical Education 
SEC. 711. 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 inserting ‘‘AND
2004
THROUGH 
2013’’ after ‘‘AND 2002’’; and 
(B) by inserting ‘‘or during the period be-
ginning with fiscal year 2004 and ending with 
fiscal year 2013’’ after ‘‘during fiscal year 2001 
or fiscal year 2002’’; and 
(2) in subclause (II)—
(A) by striking ‘‘fiscal year 2004, or fiscal 
year 2005,’’ and 
(B) by striking ‘‘For a’’ and inserting 
‘‘For the’’.
435
Subtitle C—Chronic Care 
Improvement 
SEC. 721. VOLUNTARY CHRONIC CARE IMPROVEMENT 
UNDER TRADITIONAL FEE-FOR-SERVICE. 
Title XVIII, as amended by section 105(a), is amend-
ed by inserting after section 1807 the following new sec-
tion: 
‘‘CHRONIC CARE IMPROVEMENT 
‘‘SEC. 1808. (a) IN GENERAL.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish a process for providing chronic care improve-
ment programs in each CCIA region for medicare 
beneficiaries who are not enrolled under part C or 
E and who have certain chronic conditions, such as 
congestive heart failure, diabetes, chronic obstructive 
pulmonary disease (COPD), stroke, prostate and 
colon cancer, hypertension, or other disease as iden-
tified by the Secretary as appropriate for chronic 
care improvement. Such a process shall begin to be 
implemented no later than 1 year after the date of 
the enactment of this section. 
‘‘(2) TERMINOLOGY.—For purposes of this sec-
tion: 
‘‘(A) CCIA REGION.—The term ‘CCIA re-
gion’ means a chronic care improvement admin-
436
istrative region delineated under subsection 
(b)(2). 
‘‘(B) CHRONIC CARE IMPROVEMENT PRO-
GRAM.—The terms ‘chronic care improvement 
program’ and ‘program’ means such a program 
provided by a contractor under this section. 
‘‘(C) CONTRACTOR.—The term ‘contractor’ 
means an entity with a contract to provide a 
chronic care improvement program in a CCIA 
region under this section. 
‘‘(D) INDIVIDUAL PLAN.—The term ‘indi-
vidual plan’ means a chronic care improvement 
plan established under subsection (c)(5) for an 
individual. 
‘‘(3) CONSTRUCTION.—Nothing in this section 
shall be construed as expanding the amount, dura-
tion, or scope of benefits under this title. 
‘‘(b) COMPETITIVE BIDDING PROCESS.—
‘‘(1) IN GENERAL.—Under this section the Sec-
retary shall award contracts to qualified entities for 
chronic care improvement programs for each CCIA 
region under this section through a competitive bid-
ding process. 
‘‘(2) PROCESS.—Under such process—
437
‘‘(A) the Secretary shall delineate the 
United States into multiple chronic care im-
provement administrative regions; and 
‘‘(B) the Secretary shall select at least 2 
winning bidders in each CCIA region on the 
basis of the ability of each bidder to carry out 
a chronic care improvement program in accord-
ance with this section, in order to achieve im-
proved health and financial outcomes. 
‘‘(3) ELIGIBLE
CONTRACTOR.—A contractor 
may be a disease improvement organization, health 
insurer, provider organization, a group of physicians, 
or any other legal entity that the Secretary deter-
mines appropriate. 
‘‘(c) CHRONIC CARE IMPROVEMENT PROGRAMS.—
‘‘(1) IN GENERAL.—Each contract under this 
section shall provide for the operation of a chronic 
care improvement program by a contractor in a 
CCIA region consistent with this subsection. 
‘‘(2) IDENTIFICATION
OF
PROSPECTIVE
PRO-
GRAM PARTICIPANTS.—Each contractor shall have a 
method for identifying medicare beneficiaries in the 
region to whom it will offer services under its pro-
gram. The contractor shall identify such bene-
ficiaries through claims or other data and other
438
means permitted consistent with applicable disclo-
sure provisions. 
‘‘(3) INITIAL
CONTACT
BY
SECRETARY.—The 
Secretary shall communicate with each beneficiary 
identified under paragraph (2) as a prospective par-
ticipant in one or more programs concerning partici-
pation in a program. Such communication may be 
made by the Secretary (or on behalf of the Sec-
retary) and shall include information on the fol-
lowing: 
‘‘(A) A description of the advantages to 
the beneficiary in participating in a program. 
‘‘(B) Notification that the contractor offer-
ing a program may contact the beneficiary di-
rectly concerning such participation. 
‘‘(C) Notification that participation in a 
program is voluntary. 
‘‘(D) A description of the method for the 
beneficiary to select the single program in 
which the beneficiary wishes to participate and 
for declining to participate and a method for 
obtaining additional information concerning 
such participation. 
‘‘(4) PARTICIPATION.—A medicare beneficiary 
may participate in only one program under this sec-
439
tion and may terminate participation at any time in 
a manner specified by the Secretary. 
‘‘(5) INDIVIDUAL CHRONIC CARE IMPROVEMENT 
PLANS.—
‘‘(A) IN GENERAL.—For each beneficiary 
participating in a program of a contractor 
under this section, the contractor shall develop 
with the beneficiary an individualized, goal-ori-
ented chronic care improvement plan. 
‘‘(B) ELEMENTS OF INDIVIDUAL PLAN.—
Each individual plan developed under subpara-
graph (A) shall include a single point of contact 
to coordinate care and the following, as appro-
priate: 
‘‘(i) Self-improvement education for 
the beneficiary (such as education for dis-
ease management through medical nutri-
tion therapy) and support education for 
health care providers, primary caregivers, 
and family members. 
‘‘(ii) Coordination of health care serv-
ices, such as application of a prescription 
drug regimen and home health services.
440
‘‘(iii) Collaboration with physicians 
and other providers to enhance commu-
nication of relevant clinical information. 
‘‘(iv) The use of monitoring tech-
nologies that enable patient guidance 
through the exchange of pertinent clinical 
information, such as vital signs, sympto-
matic information, and health self-assess-
ment. 
‘‘(v) The provision of information 
about hospice care, pain and palliative 
care, and end-of-life care. 
‘‘(C) CONTRACTOR RESPONSIBILITIES.—In 
establishing and carrying out individual plans 
under a program, a contractor shall, directly or 
through subcontractors—
‘‘(i) guide participants in managing 
their 
health, 
including 
all 
their 
co-
morbidities, and in performing activities as 
specified under the elements of the plan; 
‘‘(ii) use decision support tools such 
as evidence-based practice guidelines or 
other criteria as determined by the Sec-
retary; and
441
‘‘(iii) develop a clinical information 
database to track and monitor each partic-
ipant across settings and to evaluate out-
comes. 
‘‘(6) ADDITIONAL
REQUIREMENTS.—The Sec-
retary may establish additional requirements for pro-
grams and contractors under this section. 
‘‘(7) ACCREDITATION.—The Secretary may pro-
vide that programs that are accredited by qualified 
organizations may be deemed to meet such require-
ments under this section as the Secretary may speci-
fy. 
‘‘(c) CONTRACT TERMS.—
‘‘(1) IN GENERAL.—A contract under this sec-
tion shall contain such terms and conditions as the 
Secretary may specify consistent with this section. 
The Secretary may not enter into a contract with an 
entity under this section unless the entity meets 
such clinical, quality improvement, financial, and 
other requirements as the Secretary deems to be ap-
propriate for the population to be served. 
‘‘(2) USE OF SUBCONTRACTORS PERMITTED.—
A contractor may carry out a program directly or 
through contracts with subcontractors.
442
‘‘(3) BUDGET
NEUTRAL
PAYMENT
CONDI-
TION.—In entering into a contract with an entity 
under this subsection, the Secretary shall establish 
payment rates that assure that there will be no net 
aggregate increase in payments under this title over 
any period of 3 years or longer, as agreed to by the 
Secretary. Under this section, the Secretary shall as-
sure that medicare program outlays plus administra-
tive expenses (that would not have been paid under 
this title without implementation of this section), in-
cluding contractor fees, shall not exceed the expendi-
tures that would have been incurred under this title 
for a comparable population in the absence of the 
program under this section for the 3-year contract 
period. 
‘‘(4) AT RISK RELATIONSHIP.—For purposes of 
section 1128B(b)(3)(F), a contract under this sec-
tion shall be treated as a risk-sharing arrangement 
referred to in such section. 
‘‘(5) PERFORMANCE STANDARDS.—Payment to 
contractors under this section shall be subject to the 
contractor’s meeting of clinical and financial per-
formance standards set by the Secretary. 
‘‘(6) CONTRACTOR OUTCOMES REPORT.—Each 
contractor offering a program shall monitor and re-
443
port to the Secretary, in a manner specified by the 
Secretary, the quality of care and efficacy of such 
program in terms of—
‘‘(A) process measures, such as reductions 
in errors of treatment and rehospitalization 
rates; 
‘‘(B) beneficiary and provider satisfaction; 
‘‘(C) health outcomes; and 
‘‘(D) financial outcomes. 
‘‘(7) PHASED
IN
IMPLEMENTATION.—Nothing 
in this section shall be construed as preventing the 
Secretary from phasing in the implementation of 
programs. 
‘‘(d) BIANNUAL OUTCOMES REPORTS.—The Sec-
retary shall submit to the Congress biannual reports on 
the implementation of this section. Each such report shall 
include information on—
‘‘(1) the scope of implementation (in terms of 
both regions and chronic conditions); 
‘‘(2) program design; and 
‘‘(3) improvements in health outcomes and fi-
nancial efficiencies that result from such implemen-
tation. 
‘‘(e) CLINICAL TRIALS.—The Secretary shall conduct 
randomized clinical trials, that compare program partici-
444
pants with medicare beneficiaries who are offered, but de-
cline, to participate, in order to assess the potential of pro-
grams to—
‘‘(1) reduce costs under this title; and 
‘‘(2) improve health outcomes under this title. 
‘‘(f) AUTHORIZATION OF APPROPRIATIONS.—There 
are authorized to be appropriated to the Secretary, in ap-
propriate part from the Hospital Insurance Trust Fund 
and the Supplementary Medical Insurance Trust Fund, 
such sums as may be necessary to provide for contracts 
with chronic care improvement programs under this sec-
tion. 
‘‘(g) LIMITATION ON FUNDING.—In no case shall the 
funding under this section exceed $100,000,000 over a pe-
riod of 3 years.’’. 
SEC. 722. CHRONIC CARE IMPROVEMENT UNDER MEDI-
CARE ADVANTAGE AND ENHANCED FEE-FOR-
SERVICE PROGRAMS. 
(a) UNDER MEDICARE ADVANTAGE PROGRAM.—Sec-
tion 1852 (42 U.S.C. 1395w–22) is amended—
(1) by amending subsection (e) to read as fol-
lows: 
‘‘(e) IMPLEMENTATION OF CHRONIC CARE IMPROVE-
MENT PROGRAMS FOR BENEFICIARIES WITH MULTIPLE 
OR SUFFICIENTLY SEVERE CHRONIC CONDITIONS.—
445
‘‘(1) IN GENERAL.—Each Medicare Advantage 
organization with respect to each Medicare Advan-
tage plan it offers shall have in effect, for enrollees 
with multiple or sufficiently severe chronic condi-
tions, a chronic care improvement program that is 
designed to manage the needs of such enrollees and 
that meets the requirements of this subsection. 
‘‘(2) ENROLLEE
WITH
MULTIPLE
OR
SUFFI-
CIENTLY SEVERE CHRONIC CONDITIONS.—For pur-
poses of this subsection, the term ‘enrollee with mul-
tiple or sufficiently severe chronic conditions’ means, 
with respect to an enrollee in a Medicare Advantage 
plan of a Medicare Advantage organization, an en-
rollee in the plan who has one or more chronic con-
ditions, such as congestive heart failure, diabetes, 
COPD, stroke, prostate and colon cancer, hyper-
tension, or other disease as identified by the organi-
zation as appropriate for chronic care improvement. 
‘‘(3) GENERAL REQUIREMENTS.—
‘‘(A) IN GENERAL.—Each chronic care im-
provement program under this subsection shall 
be conducted consistent with this subsection. 
‘‘(B) IDENTIFICATION
OF
ENROLLEES.—
Each such program shall have a method for 
monitoring and identifying enrollees with mul-
446
tiple or sufficiently severe chronic conditions 
that meet the organization’s criteria for partici-
pation under the program. 
‘‘(C) DEVELOPMENT OF PLANS.—For an 
enrollee identified under subparagraph (B) for 
participation in a program, the program shall 
develop, with the enrollee’s consent, an individ-
ualized, goal-oriented chronic care improvement 
plan for chronic care improvement. 
‘‘(D) ELEMENTS OF PLANS.—Each chronic 
care improvement plan developed under sub-
paragraph (C) shall include a single point of 
contact to coordinate care and the following, as 
appropriate: 
‘‘(i) Self-improvement education for 
the enrollee (such as education for disease 
management through medical nutrition 
therapy) and support education for health 
care providers, primary caregivers, and 
family members. 
‘‘(ii) Coordination of health care serv-
ices, such as application of a prescription 
drug regimen and home health services.
447
‘‘(iii) Collaboration with physicians 
and other providers to enhance commu-
nication of relevant clinical information. 
‘‘(iv) The use of monitoring tech-
nologies that enable patient guidance 
through the exchange of pertinent clinical 
information, such as vital signs, sympto-
matic information, and health self-assess-
ment. 
‘‘(v) The provision of information 
about hospice care, pain and palliative 
care, and end-of-life care. 
‘‘(E) ORGANIZATION RESPONSIBILITIES.—
In establishing and carrying out chronic care 
improvement plans for participants under this 
paragraph, a Medicare Advantage organization 
shall, directly or through subcontractors—
‘‘(i) guide participants in managing 
their 
health, 
including 
all 
their 
co-
morbidities, and in performing the activi-
ties as specified under the elements of the 
plan; 
‘‘(ii) use decision support tools such 
as evidence-based practice guidelines or
448
other criteria as determined by the Sec-
retary; and 
‘‘(iii) develop a clinical information 
database to track and monitor each partic-
ipant across settings and to evaluate out-
comes. 
‘‘(3) ADDITIONAL
REQUIREMENTS.—The Sec-
retary may establish additional requirements for 
chronic care improvement programs under this sec-
tion. 
‘‘(4) ACCREDITATION.—The Secretary may pro-
vide that chronic care improvement programs that 
are accredited by qualified organizations may be 
deemed to meet such requirements under this sub-
section as the Secretary may specify. 
‘‘(5) OUTCOMES REPORT.—Each Medicare Ad-
vantage organization with respect to its chronic care 
improvement program under this subsection shall 
monitor and report to the Secretary information on 
the quality of care and efficacy of such program as 
the Secretary may require.’’; and 
(2) by amending subparagraph (I) of subsection 
(c)(1) to read as follows: 
‘‘(I) CHRONIC
CARE
IMPROVEMENT
PRO-
GRAM.—A description of the organization’s
449
chronic care improvement program under sub-
section (e).’’. 
(b) APPLICATION
UNDER
ENHANCED
FEE-FOR-
SERVICE PROGRAM.—Section 1860E–2(c)(3), as inserted 
by section 201(a), is amended by inserting ‘‘, including 
subsection (e) (relating to implementation of chronic care 
improvement programs)’’ after ‘‘The provisions of section 
1852’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply for contract years beginning on 
or after 1 year after the date of the enactment of this 
Act. 
SEC. 723. INSTITUTE OF MEDICINE REPORT. 
(a) STUDY.—
(1) IN GENERAL.—The Secretary of Health and 
Human Services shall contract with the Institute of 
Medicine of the National Academy of Sciences to 
conduct a study of the barriers to effective inte-
grated care improvement for medicare beneficiaries 
with multiple or severe chronic conditions across set-
tings and over time and to submit a report under 
subsection (b). 
(2) SPECIFIC ITEMS.—The study shall examine 
the statutory and regulatory barriers to coordinating 
care across settings for medicare beneficiaries in
450
transition from one setting to another (such as be-
tween hospital, nursing facility, home health, hos-
pice, and home). The study shall specifically identify 
the following: 
(A) Clinical, financial, or administrative re-
quirements in the medicare program that 
present barriers to effective, seamless transi-
tions across care settings. 
(B) Policies that impede the establishment 
of administrative and clinical information sys-
tems to track health status, utilization, cost, 
and quality data across settings. 
(C) State-level requirements that may 
present barriers to better care for medicare 
beneficiaries. 
(3) CONSULTATION.—The study under this 
subsection shall be conducted in consultation with 
experts in the field of chronic care, consumers, and 
family caregivers, working to integrate care delivery 
and create more seamless transitions across settings 
and over time. 
(b) REPORT.—The report under this subsection shall 
be submitted to the Secretary and Congress not later than 
18 months after the date of the enactment of this Act.
451
SEC. 724. MEDPAC REPORT. 
(a) EVALUATION.—shall conduct an evaluation that 
includes a description of the status of the implementation 
of chronic care improvement programs under section 1808 
of the Social Security Act, the quality of health care serv-
ices provided to individuals in such program, the health 
status of the participants of such program, and the cost 
savings attributed to implementation of such program. 
(b) REPORT.—Not later than 2 years after the date 
of implementation of such chronic care improvement pro-
grams, the Commission shall submit a report on such eval-
uation.
Subtitle D—Other Provisions 
SEC. 731. 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–
452
6(b)(2)(B)(i)) is amended by inserting ‘‘the efficient provi-
sion of’’ after ‘‘expenditures for’’. 
(c) 
APPLICATION
OF
DISCLOSURE
REQUIRE-
MENTS.—
(1) IN GENERAL.—Section 1805(c)(2)(D) (42 
U.S.C. 1395b–6(c)(2)(D)) is amended by adding at 
the end the following: ‘‘Members of the Commission 
shall be treated as employees of the Congress for 
purposes of applying title I of the Ethics in Govern-
ment Act of 1978 (Public Law 95-521).’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall take effect on January 1, 
2004. 
(d) 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, 2004, 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.
453
(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, 2004, a 
report on the following: 
(A) Investments, endowments, and fund-
raising of hospitals participating under the 
medicare program and related foundations. 
(B) Access to capital financing for private 
and for not-for-profit hospitals. 
SEC. 732. DEMONSTRATION PROJECT FOR MEDICAL ADULT 
DAY CARE SERVICES. 
(a) ESTABLISHMENT.—Subject to the succeeding 
provisions of this section, the Secretary of Health and 
Human Services shall establish a demonstration project 
(in this section referred to as the ‘‘demonstration project’’) 
under which the Secretary shall, as part of a plan of an 
episode of care for home health services established for 
a medicare beneficiary, permit a home health agency, di-
rectly or under arrangements with a medical adult day 
care facility, to provide medical adult day care services as 
a substitute for a portion of home health services that 
would otherwise be provided in the beneficiary’s home. 
(b) PAYMENT.—
454
(1) IN GENERAL.—The amount of payment for 
an episode of care for home health services, a por-
tion of which consists of substitute medical adult 
day care services, under the demonstration project 
shall be made at a rate equal to 95 percent of the 
amount that would otherwise apply for such home 
health services under section 1895 of the Social Se-
curity Act (42 u.s.c. 1395fff). In no case may a 
home health agency, or a medical adult day care fa-
cility under arrangements with a home health agen-
cy, separately charge a beneficiary for medical adult 
day care services furnished under the plan of care. 
(2) BUDGET
NEUTRALITY
FOR
DEMONSTRA-
TION PROJECT.—Notwithstanding any other provi-
sion of law, the Secretary shall provide for an appro-
priate reduction in the aggregate amount of addi-
tional payments made under section 1895 of the So-
cial Security Act (42 U.S.C. 1395fff) to reflect any 
increase in amounts expended from the Trust Funds 
as a result of the demonstration project conducted 
under this section. 
(c) DEMONSTRATION PROJECT SITES.—The project 
established under this section shall be conducted in not 
more than 5 States selected by the Secretary that license
455
or certify providers of services that furnish medical adult 
day care services. 
(d) DURATION.—The Secretary shall conduct the 
demonstration project for a period of 3 years. 
(e) VOLUNTARY PARTICIPATION.—Participation of 
medicare beneficiaries in the demonstration project shall 
be voluntary. The total number of such beneficiaries that 
may participate in the project at any given time may not 
exceed 15,000. 
(f) PREFERENCE IN SELECTING AGENCIES.—In se-
lecting home health agencies to participate under the dem-
onstration project, the Secretary shall give preference to 
those agencies that are currently licensed or certified 
through common ownership and control to furnish medical 
adult day care services. 
(g) WAIVER AUTHORITY.—The Secretary may waive 
such requirements of title XVIII of the Social Security Act 
as may be necessary for the purposes of carrying out the 
demonstration project, other than waiving the requirement 
that an individual be homebound in order to be eligible 
for benefits for home health services. 
(h) EVALUATION AND REPORT.—The Secretary shall 
conduct an evaluation of the clinical and cost effectiveness 
of the demonstration project. Not later 30 months after 
the commencement of the project, the Secretary shall sub-
456
mit to Congress a report on the evaluation, and shall in-
clude in the report the following: 
(1) An analysis of the patient outcomes and 
costs of furnishing care to the medicare beneficiaries 
participating in the project as compared to such out-
comes and costs to beneficiaries receiving only home 
health services for the same health conditions. 
(2) Such recommendations regarding the exten-
sion, expansion, or termination of the project as the 
Secretary determines appropriate. 
(i) DEFINITIONS.—In this section: 
(1) HOME HEALTH AGENCY.—The term ‘‘home 
health agency’’ has the meaning given such term in 
section 1861(o) of the Social Security Act (42 
U.S.C. 1395x(o)). 
(2) MEDICAL ADULT DAY CARE FACILITY.—The 
term ‘‘medical adult day care facility’’ means a facil-
ity that—
(A) has been licensed or certified by a 
State to furnish medical adult day care services 
in the State for a continuous 2-year period; 
(B) is engaged in providing skilled nursing 
services and other therapeutic services directly 
or under arrangement with a home health agen-
cy;
457
(C) meets such standards established by 
the Secretary to assure quality of care and such 
other requirements as the Secretary finds nec-
essary in the interest of the health and safety 
of individuals who are furnished services in the 
facility; and 
(D) provides medical adult day care serv-
ices. 
(3) MEDICAL
ADULT
DAY
CARE
SERVICES.—
The term ‘‘medical adult day care services’’ means—
(A) home health service items and services 
described in paragraphs (1) through (7) of sec-
tion 1861(m) furnished in a medical adult day 
care facility; 
(B) a program of supervised activities fur-
nished in a group setting in the facility that—
(i) meet such criteria as the Secretary 
determines appropriate; and 
(ii) is designed to promote physical 
and mental health of the individuals; and 
(C) such other services as the Secretary 
may specify. 
(4) 
MEDICARE
BENEFICIARY.—The 
term 
‘‘medicare beneficiary’’ means an individual entitled
458
to benefits under part A of this title, enrolled under 
part B of this title, or both. 
SEC. 733. IMPROVEMENTS IN NATIONAL AND LOCAL COV-
ERAGE DETERMINATION PROCESS TO RE-
SPOND TO CHANGES IN TECHNOLOGY. 
(a) NATIONAL AND LOCAL COVERAGE DETERMINA-
TION PROCESS.—
(1) IN
GENERAL.—Section 1862 (42 U.S.C. 
1395y) is amended—
(A) in the third sentence of subsection (a) 
by inserting ‘‘consistent with subsection (k)’’ 
after ‘‘the Secretary shall ensure’’; and 
(B) by adding at the end the following new 
subsection: 
‘‘(k) NATIONAL AND LOCAL COVERAGE DETERMINA-
TION PROCESS.—
‘‘(1) FACTORS AND EVIDENCE USED IN MAKING 
NATIONAL COVERAGE DETERMINATIONS.—The Sec-
retary shall make available to the public the factors 
considered in making national coverage determina-
tions of whether an item or service is reasonable and 
necessary. The Secretary shall develop guidance doc-
uments to carry out this paragraph in a manner 
similar to the development of guidance documents
459
under section 701(h) of the Federal Food, Drug, 
and Cosmetic Act (21 U.S.C. 371(h)). 
‘‘(2) TIMEFRAME FOR DECISIONS ON REQUESTS 
FOR
NATIONAL
COVERAGE
DETERMINATIONS.—In 
the case of a request for a national coverage deter-
mination that—
‘‘(A) does not require a technology assess-
ment from an outside entity or deliberation 
from the Medicare Coverage Advisory Com-
mittee, the decision on the request shall be 
made not later than 6 months after the date of 
the request; or 
‘‘(B) requires such an assessment or delib-
eration and in which a clinical trial is not re-
quested, the decision on the request shall be 
made not later than 9 months after the date of 
the request. 
‘‘(3) PROCESS FOR PUBLIC COMMENT IN NA-
TIONAL COVERAGE DETERMINATIONS.—At the end 
of the 6-month period (or 9-month period for re-
quests described in paragraph (2)(B)) that begins on 
the date a request for a national coverage deter-
mination is made, the Secretary shall—
‘‘(A) make a draft of proposed decision on 
the request available to the public through the
460
Medicare Internet site of the Department of 
Health and Human Services or other appro-
priate means; 
‘‘(B) provide a 30-day period for public 
comment on such draft; 
‘‘(C) make a final decision on the request 
within 60 days of the conclusion of the 30-day 
period referred to under subparagraph (B); 
‘‘(D) include in such final decision sum-
maries of the public comments received and re-
sponses thereto; 
‘‘(E) make available to the public the clin-
ical evidence and other data used in making 
such a decision when the decision differs from 
the recommendations of the Medicare Coverage 
Advisory Committee; and 
‘‘(F) in the case of a decision to grant the 
coverage determination, assign a temporary or 
permanent code and implement the coding 
change. 
‘‘(4) CONSULTATION WITH OUTSIDE EXPERTS 
IN
CERTAIN
NATIONAL
COVERAGE
DETERMINA-
TIONS.—With respect to a request for a national 
coverage determination for which there is not a re-
view by the Medicare Coverage Advisory Committee,
461
the Secretary shall consult with appropriate outside 
clinical experts. 
‘‘(5) LOCAL COVERAGE DETERMINATION PROC-
ESS.—With respect to local coverage determinations 
made on or after January 1, 2004—
‘‘(A) PLAN TO PROMOTE CONSISTENCY OF 
COVERAGE
DETERMINATIONS.—The Secretary 
shall develop a plan to evaluate new local cov-
erage determinations to determine which deter-
minations should be adopted nationally and to 
what extent greater consistency can be achieved 
among local coverage determinations. 
‘‘(B) 
CONSULTATION.—The 
Secretary 
shall require the fiscal intermediaries or car-
riers providing services within the same area to 
consult on all new local coverage determinations 
within the area. 
‘‘(C) DISSEMINATION OF INFORMATION.—
The Secretary should serve as a center to dis-
seminate information on local coverage deter-
minations among fiscal intermediaries and car-
riers to reduce duplication of effort. 
‘‘(6) NATIONAL AND LOCAL COVERAGE DETER-
MINATION
DEFINED.—For purposes of this sub-
section, the terms ‘national coverage determination’
462
and ‘local coverage determination’ have the meaning 
given such terms in paragraphs (1)(B) and (2)(B), 
respectively, of section 1869(f).’’. 
(2) EFFECTIVE DATE.—The amendments made 
by paragraph (1) shall apply to national and local 
coverage determinations as of January 1, 2004. 
(b) MEDICARE COVERAGE OF ROUTINE COSTS ASSO-
CIATED WITH CERTAIN CLINICAL TRIALS.—
(1) IN GENERAL.—With respect to the coverage 
of routine costs of care for beneficiaries participating 
in a qualifying clinical trial, as set forth on the date 
of the enactment of this Act in National Coverage 
Determination 30-1 of the Medicare Coverage Issues 
Manual, the Secretary shall deem clinical trials con-
ducted in accordance with an investigational device 
exemption approved under section 520(g) of the 
Federal Food, Drug, and Cosmetic Act (42 U.S.C. 
360j(g)) to be automatically qualified for such cov-
erage. 
(2) RULE OF CONSTRUCTION.—Nothing in this 
subsection shall be construed as authorizing or re-
quiring the Secretary to modify the regulations set 
forth on the date of the enactment of this Act at 
subpart B of part 405 of title 42, Code of Federal 
Regulations, or subpart A of part 411 of such title,
463
relating to coverage of, and payment for, a medical 
device that is the subject of an investigational device 
exemption by the Food and Drug Administration 
(except as may be necessary to implement paragraph 
(1)). 
(3) EFFECTIVE
DATE.—This subsection shall 
apply to clinical trials begun before, on, or after the 
date of the enactment of this Act and to items and 
services furnished on or after such date. 
(c) ISSUANCE OF TEMPORARY NATIONAL CODES.—
Not later than January 1, 2004, the Secretary shall imple-
ment revised procedures for the issuance of temporary na-
tional HCPCS codes under part B of title XVIII of the 
Social Security Act. 
SEC. 734. TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY 
SERVICES. 
(a) IN
GENERAL.—Section 1848(i) (42 U.S.C. 
1395w–4(i)) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(4) TREATMENT OF CERTAIN INPATIENT PHY-
SICIAN PATHOLOGY SERVICES.—
‘‘(A) IN GENERAL.—With respect to serv-
ices furnished on or after January 1, 2004, and 
before January 1, 2009, if an independent lab-
oratory furnishes the technical component of a
464
physician pathology service to a fee-for-service 
medicare beneficiary who is an inpatient or out-
patient of a covered hospital, the Secretary 
shall treat such component as a service for 
which payment shall be made to the laboratory 
under this section and not as an inpatient hos-
pital service for which payment is made to the 
hospital under section 1886(d) or as a hospital 
outpatient service for which payment is made to 
the hospital under section 1833(t). 
‘‘(B) DEFINITIONS.—In this paragraph: 
‘‘(i) COVERED HOSPITAL.—
‘‘(I) IN
GENERAL.—The term 
‘covered hospital’ means, with respect 
to an inpatient or outpatient, a hos-
pital that had an arrangement with 
an independent laboratory that was in 
effect as of July 22, 1999, under 
which a laboratory furnished the tech-
nical component of physician pathol-
ogy services to fee-for-service medi-
care beneficiaries who were hospital 
inpatients or outpatients, respectively, 
and submitted claims for payment for 
such component to a carrier with a
465
contract under section 1842 and not 
to the hospital. 
‘‘(II) CHANGE
IN
OWNERSHIP 
DOES
NOT
AFFECT
DETERMINA-
TION.—A change in ownership with 
respect to a hospital on or after the 
date referred to in subclause (I) shall 
not affect the determination of wheth-
er such hospital is a covered hospital 
for purposes of such subclause. 
‘‘(ii) 
FEE-FOR-SERVICE
MEDICARE 
BENEFICIARY.—The term ‘fee-for-service 
medicare beneficiary’ means an individual 
who is entitled to benefits under part A, or 
enrolled under this part, or both, but is not 
enrolled in any of the following: 
‘‘(I) A Medicare+Choice plan 
under part C. 
‘‘(II) A plan offered by an eligi-
ble organization under section 1876. 
‘‘(III) A program of all-inclusive 
care for the elderly (PACE) under 
section 1894. 
‘‘(IV) A social health mainte-
nance organization (SHMO) dem-
466
onstration project established under 
section 4018(b) of the Omnibus 
Budget Reconciliation Act of 1987 
(Public Law 100–203).’’. 
(b) CONFORMING AMENDMENT.—Section 542 of the 
Medicare, Medicaid, and SCHIP Benefits Improvement 
and Protection Act of 2000 (114 Stat. 2763A–550), as 
enacted into law by section 1(a)(6) of Public Law 106–
554, is repealed. 
(c) EFFECTIVE DATES.—The amendments made by 
this section shall take effect as if included in the enact-
ment of the Medicare, Medicaid, and SCHIP Benefits Im-
provement and Protection Act of 2000 (Appendix F, 114 
Stat. 2763A–463), as enacted into law by section 1(a)(6) 
of Public Law 106–554. 
SEC. 735. CLINICAL INVESTIGATION OF MEDICARE PAN-
CREATIC ISLET CELL TRANSPLANTS. 
The Secretary shall authorize payment under title 
XVIII of the Social Security Act for the routine costs for 
items and services for medicare beneficiaries received as 
part of a clinical investigation of pancreatic islet cell trans-
plants conducted by the National Institutes of Health.
SEC. 736. DEMONSTRATION PROJECT FOR CONSUMER-DI-
RECTED CHRONIC OUTPATIENT SERVICES. 
(a) ESTABLISHMENT.—
467
(1) IN
GENERAL.—Subject to the succeeding 
provisions of this section, the Secretary shall estab-
lish demonstration projects (in this section referred 
to as ‘‘demonstration projects’’) under which the 
Secretary shall evaluate methods that improve the 
quality of care provided to medicare beneficiaries 
with chronic conditions and that reduce expenditures 
that would otherwise be made under the medicare 
program on behalf of such individuals for such 
chronic conditions, such methods to include permit-
ting those beneficiaries to direct their own health 
care needs and services. 
(2) MEDICARE BENEFICIARIES WITH CHRONIC 
CONDITIONS
DEFINED.—In this section, the term 
‘‘medicare beneficiaries with chronic conditions’’ 
means an individual entitled to benefits under part 
A of title XVIII of the Social Security Act, and en-
rolled under part B of such title, but who is not en-
rolled under part C of such title who is diagnosed 
as having one or more chronic conditions (as defined 
by the Secretary), such as diabetes. 
(b) DESIGN OF PROJECTS.—
(1) IN
GENERAL.—In establishing the dem-
onstration projects under this section, the Secretary 
shall evaluate practices employed by group health
468
plans and practices under State plans for medical 
assistance under the medicaid program under title 
XIX of the Social Security Act that permit patients 
to self-direct the provision of personal care services. 
(2) SCOPE OF SERVICES.—The Secretary shall 
determine the appropriate scope of personal care 
services that would apply under the demonstration 
projects. 
(c) VOLUNTARY PARTICIPATION.—Participation of 
medicare beneficiaries in the demonstration projects shall 
be voluntary. 
(d) DEMONSTRATION PROJECTS SITES.—Not later 
than 2 years after the date of the enactment of this Act, 
the Secretary shall conduct no fewer than 3 demonstration 
projects established under this section. Of those dem-
onstration projects, the Secretary shall conduct at least 
one in each of the following areas: 
(1) An urban area. 
(2) A rural area. 
(3) An area that the Secretary determines has 
a medicare population with rate of incidence of dia-
betes that significantly exceeds the national average 
rate of all areas. 
(e) EVALUATION AND REPORT.—
469
(1) EVALUATIONS.—The Secretary shall con-
duct evaluations of the clinical and cost effectiveness 
of the demonstration projects. 
(2) REPORTS.—Not later than 2 years after the 
commencement of the demonstration projects, and 
biannually thereafter, the Secretary shall submit to 
Congress a report on the evaluation, and shall in-
clude in the report the following: 
(A) An analysis of the patient outcomes 
and costs of furnishing care to the medicare 
beneficiaries participating in the projects as 
compared to such outcomes and costs to other 
beneficiaries for the same health conditions. 
(B) Evaluation of patient satisfaction 
under the demonstration projects. 
(C) Such recommendations regarding the 
extension, expansion, or termination of the 
projects as the Secretary determines appro-
priate.
470
TITLE VIII—MEDICARE 
BENEFITS ADMINISTRATION
SEC. 801. ESTABLISHMENT OF MEDICARE BENEFITS AD-
MINISTRATION. 
(a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et 
seq.), as amended by sections 105 and 721, is amended 
by inserting after 1808 the following new section: 
‘‘MEDICARE BENEFITS ADMINISTRATION 
‘‘SEC. 1809. (a) ESTABLISHMENT.—There is estab-
lished within the Department of Health and Human Serv-
ices an agency to be known as the Medicare Benefits Ad-
ministration. 
‘‘(b) ADMINISTRATOR; DEPUTY
ADMINISTRATOR; 
CHIEF ACTUARY.—
‘‘(1) ADMINISTRATOR.—
‘‘(A) IN GENERAL.—The Medicare Bene-
fits Administration shall be headed by an ad-
ministrator to be known as the ‘Medicare Bene-
fits Administrator’ (in this section referred to 
as the ‘Administrator’) who shall be appointed 
by the President, by and with the advice and 
consent of the Senate. The Administrator shall 
be in direct line of authority to the Secretary. 
‘‘(B) COMPENSATION.—The Administrator 
shall be paid at the rate of basic pay payable
471
for level III of the Executive Schedule under 
section 5314 of title 5, United States Code. 
‘‘(C) TERM
OF
OFFICE.—The Adminis-
trator shall be appointed for a term of 4 years. 
In any case in which a successor does not take 
office at the end of an Administrator’s term of 
office, that Administrator may continue in of-
fice until the entry upon office of such a suc-
cessor. An Administrator appointed to a term of 
office after the commencement of such term 
may serve under such appointment only for the 
remainder of such term. 
‘‘(D) GENERAL AUTHORITY.—The Admin-
istrator shall be responsible for the exercise of 
all powers and the discharge of all duties of the 
Administration, and shall have authority and 
control over all personnel and activities thereof. 
‘‘(E) RULEMAKING AUTHORITY.—The Ad-
ministrator may prescribe such rules and regu-
lations as the Administrator determines nec-
essary or appropriate to carry out the functions 
of the Administration. The regulations pre-
scribed by the Administrator shall be subject to 
the rulemaking procedures established under 
section 553 of title 5, United States Code. The
472
Administrator shall provide for the issuance of 
new regulations to carry out parts C, D, and E. 
‘‘(F) AUTHORITY TO ESTABLISH ORGANI-
ZATIONAL UNITS.—The Administrator may es-
tablish, alter, consolidate, or discontinue such 
organizational units or components within the 
Administration as the Administrator considers 
necessary or appropriate, except as specified in 
this section. 
‘‘(G) AUTHORITY TO DELEGATE.—The Ad-
ministrator may assign duties, and delegate, or 
authorize successive redelegations of, authority 
to act and to render decisions, to such officers 
and employees of the Administration as the Ad-
ministrator may find necessary. Within the lim-
itations of such delegations, redelegations, or 
assignments, all official acts and decisions of 
such officers and employees shall have the same 
force and effect as though performed or ren-
dered by the Administrator. 
‘‘(2) DEPUTY ADMINISTRATOR.—
‘‘(A) IN GENERAL.—There shall be a Dep-
uty Administrator of the Medicare Benefits Ad-
ministration who shall be appointed by the
473
President, by and with the advice and consent 
of the Senate. 
‘‘(B) COMPENSATION.—The Deputy Ad-
ministrator shall be paid at the rate of basic 
pay payable for level IV of the Executive Sched-
ule under section 5315 of title 5, United States 
Code. 
‘‘(C) TERM OF OFFICE.—The Deputy Ad-
ministrator shall be appointed for a term of 4 
years. In any case in which a successor does not 
take office at the end of a Deputy Administra-
tor’s term of office, such Deputy Administrator 
may continue in office until the entry upon of-
fice of such a successor. A Deputy Adminis-
trator appointed to a term of office after the 
commencement of such term may serve under 
such appointment only for the remainder of 
such term. 
‘‘(D) DUTIES.—The Deputy Administrator 
shall perform such duties and exercise such 
powers as the Administrator shall from time to 
time assign or delegate. The Deputy Adminis-
trator shall be Acting Administrator of the Ad-
ministration during the absence or disability of 
the Administrator and, unless the President
474
designates another officer of the Government as 
Acting Administrator, in the event of a vacancy 
in the office of the Administrator. 
‘‘(3) CHIEF ACTUARY.—
‘‘(A) IN GENERAL.—There is established in 
the Administration the position of Chief Actu-
ary. The Chief Actuary shall be appointed by, 
and in direct line of authority to, the Adminis-
trator of such Administration. The Chief Actu-
ary shall be appointed from among individuals 
who have demonstrated, by their education and 
experience, superior expertise in the actuarial 
sciences. The Chief Actuary may be removed 
only for cause. 
‘‘(B) COMPENSATION.—The Chief Actuary 
shall be compensated at the highest rate of 
basic pay for the Senior Executive Service 
under section 5382(b) of title 5, United States 
Code. 
‘‘(C) DUTIES.—The Chief Actuary shall 
exercise such duties as are appropriate for the 
office of the Chief Actuary and in accordance 
with professional standards of actuarial inde-
pendence.
475
‘‘(4) SECRETARIAL COORDINATION OF PROGRAM 
ADMINISTRATION.—The Secretary shall ensure ap-
propriate coordination between the Administrator 
and the Administrator of the Centers for Medicare 
& Medicaid Services in carrying out the programs 
under this title. 
‘‘(c) DUTIES; ADMINISTRATIVE PROVISIONS.—
‘‘(1) DUTIES.—
‘‘(A) GENERAL
DUTIES.—The Adminis-
trator shall carry out parts C, D, and E, in-
cluding—
‘‘(i) negotiating, entering into, and en-
forcing, contracts with plans for the offer-
ing of Medicare Advantage plans under 
part C and EFFS plans under part E, in-
cluding the offering of qualified prescrip-
tion drug coverage under such plans; and 
‘‘(ii) negotiating, entering into, and 
enforcing, contracts with PDP sponsors for 
the offering of prescription drug plans 
under part D. 
‘‘(B) OTHER DUTIES.—The Administrator 
shall carry out any duty provided for under 
part C, part D, or part E, including demonstra-
tion projects carried out in part or in whole
476
under such parts, the programs of all-inclusive 
care for the elderly (PACE program) under sec-
tion 1894, the social health maintenance orga-
nization (SHMO) demonstration projects (re-
ferred to in section 4104(c) of the Balanced 
Budget Act of 1997), medicare cost contractors 
under section 1876(h), and through a Medicare 
Advantage project that demonstrates the appli-
cation of capitation payment rates for frail el-
derly medicare beneficiaries through the use of 
a interdisciplinary team and through the provi-
sion of primary care services to such bene-
ficiaries by means of such a team at the nurs-
ing facility involved). 
‘‘(C) PRESCRIPTION
DRUG
CARD.—The 
Administrator shall carry out section 1807 (re-
lating to the medicare prescription drug dis-
count card endorsement program). 
‘‘(D) 
NONINTERFERENCE.—In 
carrying 
out its duties with respect to the provision of 
qualified prescription drug coverage to bene-
ficiaries under this title, the Administrator may 
not—
477
‘‘(i) require a particular formulary or 
institute a price structure for the reim-
bursement of covered outpatient drugs; 
‘‘(ii) interfere in any way with nego-
tiations between PDP sponsors and Medi-
care Advantage organizations and EFFS 
organizations and drug manufacturers, 
wholesalers, or other suppliers of covered 
outpatient drugs; and 
‘‘(iii) otherwise interfere with the 
competitive nature of providing such cov-
erage through such sponsors and organiza-
tions. 
‘‘(E) ANNUAL REPORTS.—Not later March 
31 of each year, the Administrator shall submit 
to Congress and the President a report on the 
administration of parts C, D, and E during the 
previous fiscal year. 
‘‘(2) STAFF.—
‘‘(A) IN
GENERAL.—The Administrator, 
with the approval of the Secretary, may employ, 
without regard to chapter 31 of title 5, United 
States Code, other than sections 3102 through 
3108, 3110 through 3113, 3136m and 3151, 
such officers and employees as are necessary to
478
administer the activities to be carried out 
through the Medicare Benefits Administration. 
The Administrator shall employ staff with ap-
propriate and necessary expertise in negotiating 
contracts in the private sector. 
‘‘(B) FLEXIBILITY WITH RESPECT TO COM-
PENSATION.—
‘‘(i) IN GENERAL.—The staff of the 
Medicare Benefits Administration shall, 
subject to clause (ii), be paid without re-
gard to the provisions of chapter 51 (other 
than section 5101) and chapter 53 (other 
than section 5301) of such title (relating to 
classification and schedule pay rates). 
‘‘(ii) MAXIMUM
RATE.—In no case 
may the rate of compensation determined 
under clause (i) exceed the rate of basic 
pay payable for level IV of the Executive 
Schedule under section 5315 of title 5, 
United States Code. 
‘‘(C) LIMITATION ON FULL-TIME EQUIVA-
LENT STAFFING FOR CURRENT CMS FUNCTIONS 
BEING TRANSFERRED.—The Administrator may 
not employ under this paragraph a number of 
full-time equivalent employees, to carry out
479
functions that were previously conducted by the 
Centers for Medicare & Medicaid Services and 
that are conducted by the Administrator by rea-
son of this section, that exceeds the number of 
such full-time equivalent employees authorized 
to be employed by the Centers for Medicare & 
Medicaid Services to conduct such functions as 
of the date of the enactment of this Act. 
‘‘(3) REDELEGATION OF CERTAIN FUNCTIONS 
OF THE CENTERS FOR MEDICARE & MEDICAID SERV-
ICES.—
‘‘(A) IN
GENERAL.—The Secretary, the 
Administrator, and the Administrator of the 
Centers for Medicare & Medicaid Services shall 
establish an appropriate transition of responsi-
bility in order to redelegate the administration 
of part C from the Secretary and the Adminis-
trator of the Centers for Medicare & Medicaid 
Services to the Administrator as is appropriate 
to carry out the purposes of this section. 
‘‘(B) TRANSFER OF DATA AND INFORMA-
TION.—The Secretary shall ensure that the Ad-
ministrator of the Centers for Medicare & Med-
icaid Services transfers to the Administrator of 
the Medicare Benefits Administration such in-
480
formation and data in the possession of the Ad-
ministrator of the Centers for Medicare & Med-
icaid Services as the Administrator of the Medi-
care Benefits Administration requires to carry 
out the duties described in paragraph (1). 
‘‘(C) CONSTRUCTION.—Insofar as a re-
sponsibility of the Secretary or the Adminis-
trator of the Centers for Medicare & Medicaid 
Services is redelegated to the Administrator 
under this section, any reference to the Sec-
retary or the Administrator of the Centers for 
Medicare & Medicaid Services in this title or 
title XI with respect to such responsibility is 
deemed to be a reference to the Administrator.
‘‘(d) OFFICE OF BENEFICIARY ASSISTANCE.—
‘‘(1) ESTABLISHMENT.—The Secretary shall es-
tablish within the Medicare Benefits Administration 
an Office of Beneficiary Assistance to coordinate 
functions relating to outreach and education of 
medicare beneficiaries under this title, including the 
functions described in paragraph (2). The Office 
shall be separate operating division within the Ad-
ministration. 
‘‘(2) DISSEMINATION
OF
INFORMATION
ON 
BENEFITS AND APPEALS RIGHTS.—
481
‘‘(A) DISSEMINATION OF BENEFITS INFOR-
MATION.—The Office of Beneficiary Assistance 
shall disseminate, directly or through contract, 
to medicare beneficiaries, by mail, by posting on 
the Internet site of the Medicare Benefits Ad-
ministration and through a toll-free telephone 
number, information with respect to the fol-
lowing: 
‘‘(i) Benefits, and limitations on pay-
ment (including cost-sharing, stop-loss pro-
visions, and formulary restrictions) under 
parts C, D, and E. 
‘‘(ii) Benefits, and limitations on pay-
ment under parts A and B, including in-
formation on medicare supplemental poli-
cies under section 1882. 
Such information shall be presented in a man-
ner so that medicare beneficiaries may compare 
benefits under parts A, B, D, and medicare 
supplemental policies with benefits under Medi-
care Advantage plans under part C and EFFS 
plans under part E. 
‘‘(B) DISSEMINATION OF APPEALS RIGHTS 
INFORMATION.—The Office of Beneficiary As-
sistance shall disseminate to medicare bene-
482
ficiaries in the manner provided under subpara-
graph (A) a description of procedural rights (in-
cluding grievance and appeals procedures) of 
beneficiaries under the original medicare fee-
for-service program under parts A and B, the 
Medicare Advantage program under part C, the 
Voluntary Prescription Drug Benefit Program 
under part D, and the Enhanced Fee-for-Serv-
ice program under part E. 
‘‘(e) MEDICARE POLICY ADVISORY BOARD.—
‘‘(1) ESTABLISHMENT.—There is established 
within the Medicare Benefits Administration the 
Medicare Policy Advisory Board (in this section re-
ferred to the ‘Board’). The Board shall advise, con-
sult with, and make recommendations to the Admin-
istrator of the Medicare Benefits Administration 
with respect to the administration of parts C, D, 
and E, including the review of payment policies 
under such parts. 
‘‘(2) REPORTS.—
‘‘(A) IN GENERAL.—With respect to mat-
ters of the administration of parts C, D, and E 
the Board shall submit to Congress and to the 
Administrator of the Medicare Benefits Admin-
istration such reports as the Board determines
483
appropriate. Each such report may contain such 
recommendations as the Board determines ap-
propriate 
for 
legislative 
or 
administrative 
changes to improve the administration of such 
parts, including the topics described in subpara-
graph (B). Each such report shall be published 
in the Federal Register. 
‘‘(B) TOPICS
DESCRIBED.—Reports re-
quired under subparagraph (A) may include the 
following topics: 
‘‘(i) FOSTERING COMPETITION.—Rec-
ommendations or proposals to increase 
competition under parts C, D, and E for 
services 
furnished 
to 
medicare 
bene-
ficiaries. 
‘‘(ii) 
EDUCATION
AND
ENROLL-
MENT.—Recommendations for the im-
provement to efforts to provide medicare 
beneficiaries information and education on 
the program under this title, and specifi-
cally parts C, D, and E, and the program 
for enrollment under the title. 
‘‘(iii) IMPLEMENTATION OF RISK-AD-
JUSTMENT.—Evaluation of the implemen-
tation under section 1853(a)(3)(C) of the
484
risk adjustment methodology to payment 
rates under that section to Medicare Ad-
vantage organizations offering Medicare 
Advantage plans (and the corresponding 
payment provisions under part E) that ac-
counts for variations in per capita costs 
based on health status, geography, and 
other demographic factors. 
‘‘(iv) RURAL ACCESS.—Recommenda-
tions to improve competition and access to 
plans under parts C, D, and E in rural 
areas. 
‘‘(C) MAINTAINING
INDEPENDENCE
OF 
BOARD.—The Board shall directly submit to 
Congress reports required under subparagraph 
(A). No officer or agency of the United States 
may require the Board to submit to any officer 
or agency of the United States for approval, 
comments, or review, prior to the submission to 
Congress of such reports. 
‘‘(3) DUTY OF ADMINISTRATOR OF MEDICARE 
BENEFITS ADMINISTRATION.—With respect to any 
report submitted by the Board under paragraph 
(2)(A), not later than 90 days after the report is 
submitted, the Administrator of the Medicare Bene-
485
fits Administration shall submit to Congress and the 
President an analysis of recommendations made by 
the Board in such report. Each such analysis shall 
be published in the Federal Register. 
‘‘(4) MEMBERSHIP.—
‘‘(A) APPOINTMENT.—Subject to the suc-
ceeding provisions of this paragraph, the Board 
shall consist of seven members to be appointed 
as follows: 
‘‘(i) Three members shall be ap-
pointed by the President. 
‘‘(ii) Two members shall be appointed 
by the Speaker of the House of Represent-
atives, with the advice of the chairmen and 
the ranking minority members of the Com-
mittees on Ways and Means and on En-
ergy and Commerce of the House of Rep-
resentatives. 
‘‘(iii) Two members shall be appointed 
by the President pro tempore of the Senate 
with the advice of the chairman and the 
ranking minority member of the Senate 
Committee on Finance. 
‘‘(B) 
QUALIFICATIONS.—The 
members 
shall be chosen on the basis of their integrity,
486
impartiality, and good judgment, and shall be 
individuals who are, by reason of their edu-
cation and experience in health care benefits 
management, exceptionally qualified to perform 
the duties of members of the Board. 
‘‘(C) PROHIBITION ON INCLUSION OF FED-
ERAL EMPLOYEES.—No officer or employee of 
the United States may serve as a member of 
the Board. 
‘‘(5) COMPENSATION.—Members of the Board 
shall receive, for each day (including travel time) 
they are engaged in the performance of the functions 
of the board, compensation at rates not to exceed 
the daily equivalent to the annual rate in effect for 
level IV of the Executive Schedule under section 
5315 of title 5, United States Code. 
‘‘(6) TERMS OF OFFICE.—
‘‘(A) IN GENERAL.—The term of office of 
members of the Board shall be 3 years. 
‘‘(B) TERMS OF INITIAL APPOINTEES.—As 
designated by the President at the time of ap-
pointment, of the members first appointed—
‘‘(i) one shall be appointed for a term 
of 1 year;
487
‘‘(ii) three shall be appointed for 
terms of 2 years; and 
‘‘(iii) three shall be appointed for 
terms of 3 years. 
‘‘(C) REAPPOINTMENTS.—Any person ap-
pointed as a member of the Board may not 
serve for more than 8 years. 
‘‘(D) VACANCY.—Any member appointed 
to fill a vacancy occurring before the expiration 
of the term for which the member’s predecessor 
was appointed shall be appointed only for the 
remainder of that term. A member may serve 
after the expiration of that member’s term until 
a successor has taken office. A vacancy in the 
Board shall be filled in the manner in which the 
original appointment was made. 
‘‘(7) CHAIR.—The Chair of the Board shall be 
elected by the members. The term of office of the 
Chair shall be 3 years. 
‘‘(8) MEETINGS.—The Board shall meet at the 
call of the Chair, but in no event less than three 
times during each fiscal year. 
‘‘(9) DIRECTOR AND STAFF.—
488
‘‘(A) APPOINTMENT
OF
DIRECTOR.—The 
Board shall have a Director who shall be ap-
pointed by the Chair. 
‘‘(B) IN GENERAL.—With the approval of 
the Board, the Director may appoint, without 
regard to chapter 31 of title 5, United States 
Code, such additional personnel as the Director 
considers appropriate. 
‘‘(C) FLEXIBILITY WITH RESPECT TO COM-
PENSATION.—
‘‘(i) IN GENERAL.—The Director and 
staff of the Board shall, subject to clause 
(ii), be paid without regard to the provi-
sions of chapter 51 and chapter 53 of such 
title (relating to classification and schedule 
pay rates). 
‘‘(ii) MAXIMUM
RATE.—In no case 
may the rate of compensation determined 
under clause (i) exceed the rate of basic 
pay payable for level IV of the Executive 
Schedule under section 5315 of title 5, 
United States Code. 
‘‘(D) ASSISTANCE
FROM
THE
ADMINIS-
TRATOR OF THE MEDICARE BENEFITS ADMINIS-
TRATION.—The Administrator of the Medicare
489
Benefits Administration shall make available to 
the Board such information and other assist-
ance as it may require to carry out its func-
tions. 
‘‘(10) CONTRACT AUTHORITY.—The Board may 
contract with and compensate government and pri-
vate agencies or persons to carry out its duties 
under this subsection, without regard to section 
3709 of the Revised Statutes (41 U.S.C. 5). 
‘‘(f) FUNDING.—There is authorized to be appro-
priated, in appropriate part from the Federal Hospital In-
surance Trust Fund and from the Federal Supplementary 
Medical Insurance Trust Fund (including the Medicare 
Prescription Drug Account), such sums as are necessary 
to carry out this section.’’. 
(b) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendment made by 
subsection (a) shall take effect on the date of the en-
actment of this Act. 
(2) DUTIES WITH RESPECT TO ELIGIBILITY DE-
TERMINATIONS
AND
ENROLLMENT.—The Adminis-
trator of the Medicare Benefits Administration shall 
carry out enrollment under title XVIII of the Social 
Security Act, make eligibility determinations under
490
such title, and carry out parts C and E of such title 
for years beginning or after January 1, 2006. 
(3) TRANSITION.—Before the date the Adminis-
trator of the Medicare Benefits Administration is 
appointed and assumes responsibilities under this 
section and section 1807 of the Social Security Act, 
the Secretary of Health and Human Services shall 
provide for the conduct of any responsibilities of 
such Administrator that are otherwise provided 
under law. 
(c) 
MISCELLANEOUS
ADMINISTRATIVE
PROVI-
SIONS.—
(1) ADMINISTRATOR
AS
MEMBER
OF
THE 
BOARD
OF
TRUSTEES
OF
THE
MEDICARE
TRUST 
FUNDS.—Section 1817(b) and section 1841(b) (42 
U.S.C. 1395i(b), 1395t(b)) are each amended by 
striking ‘‘and the Secretary of Health and Human 
Services, all ex officio,’’ and inserting ‘‘the Secretary 
of Health and Human Services, and the Adminis-
trator of the Medicare Benefits Administration, all 
ex officio,’’. 
(2) INCREASE IN GRADE TO EXECUTIVE LEVEL 
III FOR THE ADMINISTRATOR OF THE CENTERS FOR 
MEDICARE & MEDICAID SERVICES; LEVEL FOR MEDI-
CARE BENEFITS ADMINISTRATOR.—
491
(A) IN GENERAL.—Section 5314 of title 5, 
United States Code, by adding at the end the 
following: 
‘‘Administrator of the Centers for Medicare & 
Medicaid Services. 
‘‘Administrator of the Medicare Benefits Ad-
ministration.’’. 
(B) CONFORMING
AMENDMENT.—Section 
5315 of such title is amended by striking ‘‘Ad-
ministrator of the Health Care Financing Ad-
ministration.’’. 
(C) EFFECTIVE DATE.—The amendments 
made by this paragraph take effect on January 
1, 2004.
TITLE IX—REGULATORY REDUC-
TION AND CONTRACTING RE-
FORM 
Subtitle A—Regulatory Reform 
SEC. 901. CONSTRUCTION; DEFINITION OF SUPPLIER. 
(a) CONSTRUCTION.—Nothing in this title shall be 
construed—
(1) to compromise or affect existing legal rem-
edies for addressing fraud or abuse, whether it be 
criminal prosecution, civil enforcement, or adminis-
trative remedies, including under sections 3729
492
through 3733 of title 31, United States Code 
(known as the False Claims Act); or 
(2) to prevent or impede the Department of 
Health and Human Services in any way from its on-
going efforts to eliminate waste, fraud, and abuse in 
the medicare program. 
Furthermore, the consolidation of medicare administrative 
contracting set forth in this Act does not constitute con-
solidation of the Federal Hospital Insurance Trust Fund 
and the Federal Supplementary Medical Insurance Trust 
Fund or reflect any position on that issue. 
(b) DEFINITION OF SUPPLIER.—Section 1861 (42 
U.S.C. 1395x) is amended by inserting after subsection 
(c) the following new subsection: 
‘‘Supplier 
‘‘(d) The term ‘supplier’ means, unless the context 
otherwise requires, a physician or other practitioner, a fa-
cility, or other entity (other than a provider of services) 
that furnishes items or services under this title.’’. 
SEC. 902. ISSUANCE OF REGULATIONS. 
(a) REGULAR
TIMELINE
FOR
PUBLICATION
OF 
FINAL RULES.—
(1) IN GENERAL.—Section 1871(a) (42 U.S.C. 
1395hh(a)) is amended by adding at the end the fol-
lowing new paragraph:
493
‘‘(3)(A) The Secretary, in consultation with the Di-
rector of the Office of Management and Budget, shall es-
tablish and publish a regular timeline for the publication 
of final regulations based on the previous publication of 
a proposed regulation or an interim final regulation. 
‘‘(B) Such timeline may vary among different regula-
tions based on differences in the complexity of the regula-
tion, the number and scope of comments received, and 
other relevant factors, but shall not be longer than 3 years 
except under exceptional circumstances. If the Secretary 
intends to vary such timeline with respect to the publica-
tion of a final regulation, the Secretary shall cause to have 
published in the Federal Register notice of the different 
timeline by not later than the timeline previously estab-
lished with respect to such regulation. Such notice shall 
include a brief explanation of the justification for such 
variation. 
‘‘(C) In the case of interim final regulations, upon 
the expiration of the regular timeline established under 
this paragraph for the publication of a final regulation 
after opportunity for public comment, the interim final 
regulation shall not continue in effect unless the Secretary 
publishes (at the end of the regular timeline and, if appli-
cable, at the end of each succeeding 1-year period) a notice 
of continuation of the regulation that includes an expla-
494
nation of why the regular timeline (and any subsequent 
1-year extension) was not complied with. If such a notice 
is published, the regular timeline (or such timeline as pre-
viously extended under this paragraph) for publication of 
the final regulation shall be treated as having been ex-
tended for 1 additional year. 
‘‘(D) The Secretary shall annually submit to Con-
gress a report that describes the instances in which the 
Secretary failed to publish a final regulation within the 
applicable regular timeline under this paragraph and that 
provides an explanation for such failures.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall take effect on the date of the 
enactment of this Act. The Secretary shall provide 
for an appropriate transition to take into account 
the backlog of previously published interim final reg-
ulations. 
(b) LIMITATIONS ON NEW MATTER IN FINAL REGU-
LATIONS.—
(1) IN GENERAL.—Section 1871(a) (42 U.S.C. 
1395hh(a)), as amended by subsection (a), is 
amended by adding at the end the following new 
paragraph: 
‘‘(4) If the Secretary publishes a final regulation that 
includes a provision that is not a logical outgrowth of a
495
previously published notice of proposed rulemaking or in-
terim final rule, such provision shall be treated as a pro-
posed regulation and shall not take effect until there is 
the further opportunity for public comment and a publica-
tion of the provision again as a final regulation.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to final regulations 
published on or after the date of the enactment of 
this Act. 
SEC. 903. COMPLIANCE WITH CHANGES IN REGULATIONS 
AND POLICIES. 
(a) NO
RETROACTIVE
APPLICATION
OF
SUB-
STANTIVE CHANGES.—
(1) IN
GENERAL.—Section 1871 (42 U.S.C. 
1395hh), as amended by section 902(a), is amended 
by adding at the end the following new subsection: 
‘‘(e)(1)(A) A substantive change in regulations, man-
ual instructions, interpretative rules, statements of policy, 
or guidelines of general applicability under this title shall 
not be applied (by extrapolation or otherwise) retroactively 
to items and services furnished before the effective date 
of the change, unless the Secretary determines that—
‘‘(i) such retroactive application is necessary to 
comply with statutory requirements; or
496
‘‘(ii) failure to apply the change retroactively 
would be contrary to the public interest.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to substantive changes 
issued on or after the date of the enactment of this 
Act. 
(b) TIMELINE FOR COMPLIANCE WITH SUBSTANTIVE 
CHANGES AFTER NOTICE.—
(1) IN
GENERAL.—Section 1871(e)(1), as 
added by subsection (a), is amended by adding at 
the end the following: 
‘‘(B)(i) Except as provided in clause (ii), a sub-
stantive change referred to in subparagraph (A) shall not 
become effective before the end of the 30-day period that 
begins on the date that the Secretary has issued or pub-
lished, as the case may be, the substantive change. 
‘‘(ii) The Secretary may provide for such a sub-
stantive change to take effect on a date that precedes the 
end of the 30-day period under clause (i) if the Secretary 
finds that waiver of such 30-day period is necessary to 
comply with statutory requirements or that the application 
of such 30-day period is contrary to the public interest. 
If the Secretary provides for an earlier effective date pur-
suant to this clause, the Secretary shall include in the 
issuance or publication of the substantive change a finding
497
described in the first sentence, and a brief statement of 
the reasons for such finding. 
‘‘(C) No action shall be taken against a provider of 
services or supplier with respect to noncompliance with 
such a substantive change for items and services furnished 
before the effective date of such a change.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to compliance actions 
undertaken on or after the date of the enactment of 
this Act. 
(c) RELIANCE ON GUIDANCE.—
(1) IN GENERAL.—Section 1871(e), as added 
by subsection (a), is further amended by adding at 
the end the following new paragraph: 
‘‘(2)(A) If—
‘‘(i) a provider of services or supplier follows 
the written guidance (which may be transmitted 
electronically) provided by the Secretary or by a 
medicare contractor (as defined in section 1889(g)) 
acting within the scope of the contractor’s contract 
authority, with respect to the furnishing of items or 
services and submission of a claim for benefits for 
such items or services with respect to such provider 
or supplier;
498
‘‘(ii) the Secretary determines that the provider 
of services or supplier has accurately presented the 
circumstances relating to such items, services, and 
claim to the contractor in writing; and 
‘‘(iii) the guidance was in error; 
the provider of services or supplier shall not be subject 
to any sanction (including any penalty or requirement for 
repayment of any amount) if the provider of services or 
supplier reasonably relied on such guidance. 
‘‘(B) Subparagraph (A) shall not be construed as pre-
venting the recoupment or repayment (without any addi-
tional penalty) relating to an overpayment insofar as the 
overpayment was solely the result of a clerical or technical 
operational error.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall take effect on the date of the 
enactment of this Act but shall not apply to any 
sanction for which notice was provided on or before 
the date of the enactment of this Act. 
SEC. 904. REPORTS AND STUDIES RELATING TO REGU-
LATORY REFORM. 
(a) GAO STUDY ON ADVISORY OPINION AUTHOR-
ITY.—
(1) STUDY.—The Comptroller General of the 
United States shall conduct a study to determine the
499
feasibility and appropriateness of establishing in the 
Secretary authority to provide legally binding advi-
sory opinions on appropriate interpretation and ap-
plication of regulations to carry out the medicare 
program under title XVIII of the Social Security 
Act. Such study shall examine the appropriate time-
frame for issuing such advisory opinions, as well as 
the need for additional staff and funding to provide 
such opinions. 
(2) REPORT.—The Comptroller General shall 
submit to Congress a report on the study conducted 
under paragraph (1) by not later than one year after 
the date of the enactment of this Act. 
(b) REPORT ON LEGAL AND REGULATORY INCON-
SISTENCIES.—Section 1871 (42 U.S.C. 1395hh), as 
amended by section 2(a), is amended by adding at the end 
the following new subsection: 
‘‘(f)(1) Not later than 2 years after the date of the 
enactment of this subsection, and every 2 years thereafter, 
the Secretary shall submit to Congress a report with re-
spect to the administration of this title and areas of incon-
sistency or conflict among the various provisions under 
law and regulation. 
‘‘(2) In preparing a report under paragraph (1), the 
Secretary shall collect—
500
‘‘(A) information from individuals entitled to 
benefits under part A or enrolled under part B, or 
both, providers of services, and suppliers and from 
the Medicare Beneficiary Ombudsman and the Medi-
care Provider Ombudsman with respect to such 
areas of inconsistency and conflict; and 
‘‘(B) information from medicare contractors 
that tracks the nature of written and telephone in-
quiries. 
‘‘(3) A report under paragraph (1) shall include a de-
scription of efforts by the Secretary to reduce such incon-
sistency or conflicts, and recommendations for legislation 
or administrative action that the Secretary determines ap-
propriate to further reduce such inconsistency or con-
flicts.’’. 
Subtitle B—Contracting Reform 
SEC. 911. INCREASED FLEXIBILITY IN MEDICARE ADMINIS-
TRATION. 
(a) CONSOLIDATION AND FLEXIBILITY IN MEDICARE 
ADMINISTRATION.—
(1) IN GENERAL.—Title XVIII is amended by 
inserting after section 1874 the following new sec-
tion: 
‘‘CONTRACTS WITH MEDICARE ADMINISTRATIVE 
CONTRACTORS 
‘‘SEC. 1874A. (a) AUTHORITY.—
501
‘‘(1) 
AUTHORITY
TO
ENTER
INTO
CON-
TRACTS.—The Secretary may enter into contracts 
with any eligible entity to serve as a medicare ad-
ministrative contractor with respect to the perform-
ance of any or all of the functions described in para-
graph (4) or parts of those functions (or, to the ex-
tent provided in a contract, to secure performance 
thereof by other entities). 
‘‘(2) ELIGIBILITY OF ENTITIES.—An entity is 
eligible to enter into a contract with respect to the 
performance of a particular function described in 
paragraph (4) only if—
‘‘(A) the entity has demonstrated capa-
bility to carry out such function; 
‘‘(B) the entity complies with such conflict 
of interest standards as are generally applicable 
to Federal acquisition and procurement; 
‘‘(C) the entity has sufficient assets to fi-
nancially support the performance of such func-
tion; and 
‘‘(D) the entity meets such other require-
ments as the Secretary may impose. 
‘‘(3) MEDICARE ADMINISTRATIVE CONTRACTOR 
DEFINED.—For purposes of this title and title XI—
502
‘‘(A) IN
GENERAL.—The term ‘medicare 
administrative contractor’ means an agency, or-
ganization, or other person with a contract 
under this section. 
‘‘(B) APPROPRIATE
MEDICARE
ADMINIS-
TRATIVE
CONTRACTOR.—With respect to the 
performance of a particular function in relation 
to an individual entitled to benefits under part 
A or enrolled under part B, or both, a specific 
provider of services or supplier (or class of such 
providers of services or suppliers), the ‘appro-
priate’ medicare administrative contractor is the 
medicare administrative contractor that has a 
contract under this section with respect to the 
performance of that function in relation to that 
individual, provider of services or supplier or 
class of provider of services or supplier. 
‘‘(4) FUNCTIONS
DESCRIBED.—The functions 
referred to in paragraphs (1) and (2) are payment 
functions, provider services functions, and functions 
relating to services furnished to individuals entitled 
to benefits under part A or enrolled under part B, 
or both, as follows: 
‘‘(A) 
DETERMINATION
OF
PAYMENT 
AMOUNTS.—Determining (subject to the provi-
503
sions of section 1878 and to such review by the 
Secretary as may be provided for by the con-
tracts) the amount of the payments required 
pursuant to this title to be made to providers 
of services, suppliers and individuals. 
‘‘(B) MAKING
PAYMENTS.—Making pay-
ments described in subparagraph (A) (including 
receipt, disbursement, and accounting for funds 
in making such payments). 
‘‘(C) BENEFICIARY
EDUCATION
AND
AS-
SISTANCE.—Providing education and outreach 
to individuals entitled to benefits under part A 
or enrolled under part B, or both, and pro-
viding assistance to those individuals with spe-
cific issues, concerns or problems. 
‘‘(D) PROVIDER
CONSULTATIVE
SERV-
ICES.—Providing consultative services to insti-
tutions, agencies, and other persons to enable 
them to establish and maintain fiscal records 
necessary for purposes of this title and other-
wise to qualify as providers of services or sup-
pliers. 
‘‘(E) 
COMMUNICATION
WITH
PRO-
VIDERS.—Communicating to providers of serv-
ices and suppliers any information or instruc-
504
tions furnished to the medicare administrative 
contractor by the Secretary, and facilitating 
communication between such providers and sup-
pliers and the Secretary. 
‘‘(F) PROVIDER
EDUCATION
AND
TECH-
NICAL ASSISTANCE.—Performing the functions 
relating to provider education, training, and 
technical assistance. 
‘‘(G) 
ADDITIONAL
FUNCTIONS.—Per-
forming such other functions as are necessary 
to carry out the purposes of this title. 
‘‘(5) RELATIONSHIP TO MIP CONTRACTS.—
‘‘(A) NONDUPLICATION
OF
DUTIES.—In 
entering into contracts under this section, the 
Secretary shall assure that functions of medi-
care administrative contractors in carrying out 
activities under parts A and B do not duplicate 
activities carried out under the Medicare Integ-
rity Program under section 1893. The previous 
sentence shall not apply with respect to the ac-
tivity described in section 1893(b)(5) (relating 
to prior authorization of certain items of dura-
ble 
medical 
equipment 
under 
section 
1834(a)(15)).
505
‘‘(B) CONSTRUCTION.—An entity shall not 
be treated as a medicare administrative con-
tractor merely by reason of having entered into 
a contract with the Secretary under section 
1893. 
‘‘(6) APPLICATION
OF
FEDERAL
ACQUISITION 
REGULATION.—Except to the extent inconsistent 
with a specific requirement of this title, the Federal 
Acquisition Regulation applies to contracts under 
this title. 
‘‘(b) CONTRACTING REQUIREMENTS.—
‘‘(1) USE OF COMPETITIVE PROCEDURES.—
‘‘(A) IN GENERAL.—Except as provided in 
laws with general applicability to Federal acqui-
sition and procurement or in subparagraph (B), 
the Secretary shall use competitive procedures 
when entering into contracts with medicare ad-
ministrative contractors under this section, tak-
ing into account performance quality as well as 
price and other factors. 
‘‘(B) RENEWAL OF CONTRACTS.—The Sec-
retary may renew a contract with a medicare 
administrative contractor under this section 
from term to term without regard to section 5 
of title 41, United States Code, or any other
506
provision of law requiring competition, if the 
medicare administrative contractor has met or 
exceeded the performance requirements applica-
ble with respect to the contract and contractor, 
except that the Secretary shall provide for the 
application of competitive procedures under 
such a contract not less frequently than once 
every five years. 
‘‘(C) TRANSFER
OF
FUNCTIONS.—The 
Secretary may transfer functions among medi-
care administrative contractors consistent with 
the provisions of this paragraph. The Secretary 
shall ensure that performance quality is consid-
ered in such transfers. The Secretary shall pro-
vide public notice (whether in the Federal Reg-
ister or otherwise) of any such transfer (includ-
ing a description of the functions so trans-
ferred, a description of the providers of services 
and suppliers affected by such transfer, and 
contact information for the contractors in-
volved). 
‘‘(D) INCENTIVES
FOR
QUALITY.—The 
Secretary shall provide incentives for medicare 
administrative contractors to provide quality 
service and to promote efficiency.
507
‘‘(2) COMPLIANCE WITH REQUIREMENTS.—No 
contract under this section shall be entered into with 
any medicare administrative contractor unless the 
Secretary finds that such medicare administrative 
contractor will perform its obligations under the con-
tract efficiently and effectively and will meet such 
requirements as to financial responsibility, legal au-
thority, quality of services provided, and other mat-
ters as the Secretary finds pertinent. 
‘‘(3) PERFORMANCE REQUIREMENTS.—
‘‘(A) DEVELOPMENT
OF
SPECIFIC
PER-
FORMANCE
REQUIREMENTS.—In 
developing 
contract performance requirements, the Sec-
retary shall develop performance requirements 
applicable to functions described in subsection 
(a)(4). 
‘‘(B) CONSULTATION.— In developing such 
requirements, the Secretary may consult with 
providers of services and suppliers, organiza-
tions representing individuals entitled to bene-
fits under part A or enrolled under part B, or 
both, and organizations and agencies per-
forming functions necessary to carry out the 
purposes of this section with respect to such 
performance requirements.
508
‘‘(C) INCLUSION IN CONTRACTS.—All con-
tractor performance requirements shall be set 
forth in the contract between the Secretary and 
the appropriate medicare administrative con-
tractor. Such performance requirements—
‘‘(i) shall reflect the performance re-
quirements developed under subparagraph 
(A), but may include additional perform-
ance requirements; 
‘‘(ii) shall be used for evaluating con-
tractor performance under the contract; 
and 
‘‘(iii) shall be consistent with the writ-
ten statement of work provided under the 
contract. 
‘‘(4) INFORMATION REQUIREMENTS.—The Sec-
retary shall not enter into a contract with a medi-
care administrative contractor under this section un-
less the contractor agrees—
‘‘(A) to furnish to the Secretary such time-
ly information and reports as the Secretary may 
find necessary in performing his functions 
under this title; and 
‘‘(B) to maintain such records and afford 
such access thereto as the Secretary finds nec-
509
essary to assure the correctness and verification 
of the information and reports under subpara-
graph (A) and otherwise to carry out the pur-
poses of this title. 
‘‘(5) SURETY BOND.—A contract with a medi-
care administrative contractor under this section 
may require the medicare administrative contractor, 
and any of its officers or employees certifying pay-
ments or disbursing funds pursuant to the contract, 
or otherwise participating in carrying out the con-
tract, to give surety bond to the United States in 
such amount as the Secretary may deem appro-
priate. 
‘‘(c) TERMS AND CONDITIONS.—
‘‘(1) IN GENERAL.—A contract with any medi-
care administrative contractor under this section 
may contain such terms and conditions as the Sec-
retary finds necessary or appropriate and may pro-
vide for advances of funds to the medicare adminis-
trative contractor for the making of payments by it 
under subsection (a)(4)(B). 
‘‘(2) PROHIBITION ON MANDATES FOR CERTAIN 
DATA COLLECTION.—The Secretary may not require, 
as a condition of entering into, or renewing, a con-
tract under this section, that the medicare adminis-
510
trative contractor match data obtained other than in 
its activities under this title with data used in the 
administration of this title for purposes of identi-
fying situations in which the provisions of section 
1862(b) may apply. 
‘‘(d) LIMITATION ON LIABILITY OF MEDICARE AD-
MINISTRATIVE CONTRACTORS AND CERTAIN OFFICERS.—
‘‘(1) CERTIFYING OFFICER.—No individual des-
ignated pursuant to a contract under this section as 
a certifying officer shall, in the absence of the reck-
less disregard of the individual’s obligations or the 
intent by that individual to defraud the United 
States, be liable with respect to any payments cer-
tified by the individual under this section. 
‘‘(2) DISBURSING OFFICER.—No disbursing of-
ficer shall, in the absence of the reckless disregard 
of the officer’s obligations or the intent by that offi-
cer to defraud the United States, be liable with re-
spect to any payment by such officer under this sec-
tion if it was based upon an authorization (which 
meets the applicable requirements for such internal 
controls established by the Comptroller General) of 
a certifying officer designated as provided in para-
graph (1) of this subsection.