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(1) PAYMENTS UNDER PART A.—Section 1814(b)
(42 U.S.C. 1395f(b)) is amended in the matter pre-
ceding paragraph (1) by striking ‘‘and 1886’’ and in-
serting ‘‘1886, and 1895’’.
(2) TREATMENT OF ITEMS AND SERVICES PAID
UNDER PART B.—
(A) PAYMENTS
UNDER
PART
B.—Section
1833(a)(2) (42 U.S.C. 1395l(a)(2)) is amended—
(i) by amending subparagraph (A) to
read as follows:
‘‘(A) with respect to home health services
(other than a covered osteoporosis drug) (as de-
fined in section 1861(kk)), the amount deter-
mined under the prospective payment system
under section 1895;’’;
(ii) by striking ‘‘and’’ at the end of
subparagraph (E);
(iii) by adding ‘‘and’’ at the end of
subparagraph (F); and
(iv) by adding at the end the following
new subparagraph:
‘‘(G) with respect to items and services de-
scribed in section 1861(s)(10)(A), the lesser of—
‘‘(i) the reasonable cost of such services,
as determined under section 1861(v), or
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‘‘(ii) the customary charges with re-
spect to such services,
or, if such services are furnished by a public pro-
vider of services, or by another provider which
demonstrates to the satisfaction of the Secretary
that a significant portion of its patients are low-
income (and requests that payment be made
under this provision), free of charge or at nomi-
nal charges to the public, the amount determined
in accordance with section 1814(b)(2);’’.
(B) REQUIRING PAYMENT FOR ALL ITEMS
AND SERVICES TO BE MADE TO AGENCY.—
(i) IN GENERAL.—The first sentence of
section 1842(b)(6) (42 U.S.C. 1395u(b)(6))
(as amended by section 5332(b)(2)) is
amended—
(I) by striking ‘‘and (E)’’ and in-
serting ‘‘(E)’’; and
(II) by striking the period at the
end and inserting the following: ‘‘, and
(F) in the case of home health services
furnished to an individual who (at the
time the item or service is furnished) is
under a plan of care of a home health
agency, payment shall be made to the
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agency (without regard to whether or
not the item or service was furnished
by the agency, by others under ar-
rangement with them made by the
agency, or when any other contracting
or consulting arrangement, or other-
wise).’’.
(ii) CONFORMING
AMENDMENT.—Sec-
tion 1832(a)(1) (42 U.S.C. 1395k(a)(1)) (as
amended 
by 
section 
5332(b)(4)(B)) 
is
amended 
by 
striking 
‘‘section
1842(b)(6)(E);’’ and inserting ‘‘subpara-
graphs (E) and (F) of section 1842(b)(6);’’.
(C) EXCLUSIONS FROM COVERAGE.—Section
1862(a) (42 U.S.C. 1395y(a)), as amended by
section 5332(b)(1), is amended—
(i) by striking ‘‘or’’ at the end of para-
graph (16);
(ii) by striking the period at the end of
paragraph (17) and inserting ‘‘or’’; and
(iii) by inserting after paragraph (17)
the following:
‘‘(18) where such expenses are for home health
services furnished to an individual who is under a
plan of care of the home health agency if the claim
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for payment for such services is not submitted by the
agency.’’.
(d) EFFECTIVE DATE.—Except as otherwise provided,
the amendments made by this section shall apply to cost
reporting periods beginning on or after October 1, 1999.
(e) CONTINGENCY.—If the Secretary of Health and
Human Services for any reason does not establish and im-
plement the prospective payment system for home health
services described in section 1895(b) of the Social Security
Act (as added by subsection (a)) for cost reporting periods
described in subsection (d), for such cost reporting periods
the Secretary shall provide for a reduction by 15 percent
in the cost limits and per beneficiary limits described in
section 1861(v)(1)(L) of such Act, as those limits would oth-
erwise be in effect on September 30, 1999.
SEC. 5344. PAYMENT BASED ON LOCATION WHERE HOME
HEALTH SERVICE IS FURNISHED.
(a) CONDITIONS
OF PARTICIPATION.—Section 1891
(42 U.S.C. 1395bbb) is amended by adding at the end the
following:
‘‘(g) PAYMENT ON BASIS OF LOCATION OF SERVICE.—
A home health agency shall submit claims for payment for
home health services under this title only on the basis of
the geographic location at which the service is furnished,
as determined by the Secretary.’’.
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(b) WAGE ADJUSTMENT.—Section 1861(v)(1)(L)(iii)
(42 U.S.C. 1395x(v)(1)(L)(iii)) is amended by striking
‘‘agency is located’’ and inserting ‘‘service is furnished’’.
(c) EFFECTIVE DATE.—The amendments made by this
section apply to cost reporting periods beginning on or after
October 1, 1997.
PART II—HOME HEALTH BENEFITS
SEC. 5361. MODIFICATION OF PART A HOME HEALTH BENE-
FIT FOR INDIVIDUALS ENROLLED UNDER
PART B.
(a) IN GENERAL.—Section 1812 (42 U.S.C. 1395d) is
amended—
(1) in subsection (a)(3), by striking ‘‘home health
services’’ and inserting ‘‘for individuals not enrolled
in part B, home health services, and for individuals
so enrolled, part A home health services (as defined in
subsection (g))’’;
(2) by redesignating subsection (g) as subsection
(h); and
(3) by inserting after subsection (f) the following
new subsection:
‘‘(g)(1) For purposes of this section, the term ‘part A
home health services’ means—
‘‘(A) for services furnished during each year be-
ginning with 1998 and ending with 2003, home
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health services subject to the transition reduction ap-
plied under paragraph (2)(C) for services furnished
during the year, and
‘‘(B) for services furnished on or after January
1, 2004, post-institutional home health services for up
to 100 visits during a home health spell of illness.
‘‘(2) For purposes of paragraph (1)(A), the Secretary
shall specify, before the beginning of each year beginning
with 1998 and ending with 2003, a transition reduction
in the home health services benefit under this part as fol-
lows:
‘‘(A) The Secretary first shall estimate the
amount of payments that would have been made
under this part for home health services furnished
during the year if—
‘‘(i) part A home health services were all
home health services, and
‘‘(ii) part A home health services were lim-
ited to services described in paragraph (1)(B).
‘‘(B)(i) The Secretary next shall compute a
transfer reduction amount equal to the appropriate
proportion (specified under clause (ii)) of the amount
by which the amount estimated under subparagraph
(A)(i) for the year exceeds the amount estimated
under subparagraph (A)(ii) for the year.
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‘‘(ii) For purposes of clause (i), the ‘appropriate
proportion’ is equal to—
‘‘(I) 1⁄7 for 1998,
‘‘(II) 2⁄7 for 1999,
‘‘(III) 3⁄7 for 2000,
‘‘(IV) 4⁄7 for 2001,
‘‘(V) 5⁄7 for 2002, and
‘‘(VI) 6⁄7 for 2003.
‘‘(C) The Secretary shall establish a transition
reduction by specifying such a visit limit (during a
home health spell of illness) or such a post-institu-
tional limitation on home health services furnished
under this part during the year as the Secretary esti-
mates will result in a reduction in the amount of
payments that would otherwise be made under this
part for home health services furnished during the
year equal to the transfer amount computed under
subparagraph (B)(i) for the year.
‘‘(3) Payment under this part for home health services
furnished an individual enrolled under part B—
‘‘(A) during a year beginning with 1998 and
ending with 2003, may not be made for services that
are not within the visit limit or other limitation spec-
ified by the Secretary under the transition reduction
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under paragraph (3)(C) for services furnished during
the year; or
‘‘(B) on or after January 1, 2004, may not be
made for home health services that are not post-insti-
tutional home health services or for post-institutional
furnished to the individual after such services have
been furnished to the individual for a total of 100 vis-
its during a home health spell of illness.’’.
(b) POST-INSTITUTIONAL HOME HEALTH SERVICES
DEFINED.—Section 1861 (42 U.S.C. 1395x), as amended
by sections 5102(a) and 5103(a), is amended by adding at
the end the following:
‘‘Post-Institutional Home Health Services; Home Health
Spell of Illness
‘‘(qq)(1) The term ‘post-institutional home health serv-
ices’ means home health services furnished to an individ-
ual—
‘‘(A) after discharge from a hospital or rural
primary care hospital in which the individual was
an inpatient for not less than 3 consecutive days be-
fore such discharge if such home health services were
initiated within 14 days after the date of such dis-
charge; or
‘‘(B) after discharge from a skilled nursing facil-
ity in which the individual was provided post-hos-
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pital extended care services if such home health serv-
ices were initiated within 14 days after the date of
such discharge.
‘‘(2) The term ‘home health spell of illness’ with respect
to any individual means a period of consecutive days—
‘‘(A) beginning with the first day (not included
in a previous home health spell of illness) (i) on
which such individual is furnished post-institutional
home health services, and (ii) which occurs in a
month for which the individual is entitled to benefits
under part A, and
‘‘(B) ending with the close of the first period of
60 consecutive days thereafter on each of which the
individual is neither an inpatient of a hospital or
rural primary care hospital nor an inpatient of a fa-
cility described in section 1819(a)(1) or subsection
(y)(1) nor provided home health services.’’.
(c) MAINTAINING APPEAL RIGHTS FOR HOME HEALTH
SERVICES.—Section 
1869(b)(2)(B) 
(42 
U.S.C.
1395ff(b)(2)(B)) is amended by inserting ‘‘(or $100 in the
case of home health services)’’ after ‘‘$500’’.
(d) 
MAINTAINING
SEAMLESS
ADMINISTRATION
THROUGH FISCAL INTERMEDIARIES.—Section 1842(b)(2)
(42 U.S.C. 1395u(b)(2)) is amended by adding at the end
the following:
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‘‘(E) With respect to the payment of claims for home
health services under this part that, but for the amendments
made by section 5361, would be payable under part A in-
stead of under this part, the Secretary shall continue ad-
ministration of such claims through fiscal intermediaries
under section 1816.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section apply to services furnished on or after January 1,
1998. For the purpose of applying such amendments, any
home health spell of illness that began, but did not end,
before such date shall be considered to have begun as of such
date.
SEC. 5362. IMPOSITION OF $5 COPAYMENT FOR PART B
HOME HEALTH SERVICES.
(a) IN GENERAL.—Section 1833(a)(2)(A) (42 U.S.C.
1395l(a)(2)(A)) (as amended by section 5343(c)(2)) is
amended by striking ‘‘1895’’ and inserting ‘‘1895, less a
copayment amount equal to $5 per visit, not to exceed a
total annual copayment amount equal to the inpatient hos-
pital deductible determined under section 1813 for the cal-
endar year in which such service is furnished’’.
(b) PROVIDER CHARGES.—Section 1866(a)(2)(A)(i)
(42 U.S.C. 1395cc(a)(2)(A)(i)) is amended—
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(1) by striking ‘‘deduction or coinsurance’’ and
inserting ‘‘deduction, coinsurance, or copayment’’;
and
(2) by striking ‘‘section 1833(b)’’ and inserting
‘‘subsection (a)(2)(A) or (b) of section 1833’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to services furnished on or after October
1, 1997.
SEC. 5363. CLARIFICATION OF PART-TIME OR INTERMIT-
TENT NURSING CARE.
(a) IN
GENERAL.—Section 1861(m) (42 U.S.C.
1395x(m)) is amended by adding at the end the following:
‘‘For purposes of paragraphs (1) and (4), the term ‘part-
time or intermittent services’ means skilled nursing and
home health aide services furnished any number of days per
week as long as they are furnished (combined) less than 8
hours each day and 28 or fewer hours each week (or, subject
to review on a case-by-case basis as to the need for care,
less than 8 hours each day and 35 or fewer hours per week).
For purposes of sections 1814(a)(2)(C) and 1835(a)(2)(A),
‘intermittent’ means skilled nursing care that is either pro-
vided or needed on fewer than 7 days each week, or less
than 8 hours of each day for periods of 21 days or less (with
extensions in exceptional circumstances when the need for
additional care is finite and predictable).’’.
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(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) applies to services furnished on or after October
1, 1997.
SEC. 5364. STUDY ON DEFINITION OF HOMEBOUND.
(a) STUDY.—The Secretary of Health and Human
Services shall conduct a study of the criteria that should
be applied, and the method of applying such criteria, in
the determination of whether an individual is homebound
for purposes of qualifying for receipt of benefits for home
health services under the medicare program. Such criteria
shall include the extent and circumstances under which a
person may be absent from the home but nonetheless qualify.
(b) REPORT.—Not later than October 1, 1998, the Sec-
retary shall submit a report to the Congress on the study
conducted under subsection (a). The report shall include
specific recommendations on such criteria and methods.
SEC. 5365. NORMATIVE STANDARDS FOR HOME HEALTH
CLAIMS DENIALS.
(a) IN GENERAL.—Section 1862(a)(1) (42 U.S.C.
1395y(a)(1)), as amended by section 5102(c), is amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (F),
(2) by striking the semicolon at the end of sub-
paragraph (G) and inserting ‘‘, and’’, and
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(3) by inserting after subparagraph (G) the fol-
lowing new subparagraph:
‘‘(H) the frequency and duration of home health
services which are in excess of normative guidelines
that the Secretary shall establish by regulation;’’.
(b) NOTIFICATION.—The Secretary of Health and
Human Services may establish a process for notifying a
physician in cases in which the number of home health serv-
ice visits furnished under the medicare program under title
XVIII of the Social Security Act (42 U.S.C. 1395 et seq.)
pursuant to a prescription or certification of the physician
significantly exceeds such threshold (or thresholds) as the
Secretary specifies. The Secretary may adjust such thresh-
old to reflect demonstrated differences in the need for home
health services among different beneficiaries.
(c) EFFECTIVE DATE.—The amendments made by this
section apply to services furnished on or after October 1,
1997.
SEC. 5366. INCLUSION OF COST OF SERVICE IN EXPLA-
NATION OF MEDICARE BENEFITS.
(a) IN GENERAL.—Section 1842(h)(7) of the Social Se-
curity Act (42 U.S.C. 1395u(h)(7)) is amended—
(1) in subparagraph (C), by striking ‘‘and’’ at
the end;
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(2) in subparagraph (D), by striking the period
at the end and inserting ‘‘, and’’; and
(3) by adding at the end the following:
‘‘(E) in the case of home health services fur-
nished to an individual enrolled under this part, the
total amount that the home health agency or other
provider of such services billed for such services.’’.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) apply to explanation of benefits provided on and
after October 1, 1997.
Subtitle F—Provisions Relating to
Part A
CHAPTER 1—PAYMENT OF PPS HOSPITALS
SEC. 5401. PPS HOSPITAL PAYMENT UPDATE.
(a) IN
GENERAL.—Section 1886(b)(3)(B)(i) (42
U.S.C. 1395ww(b)(3)(B)(i)) is amended—
(1) in subclause (XII)—
(A) by inserting ‘‘and the period beginning
on October 1, 1997, and ending on December 31,
1997,’’ after ‘‘fiscal year 1997,’’; and
(B) by striking ‘‘and’’ at the end; and
(2) by striking subclause (XIII) and inserting
the following:
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‘‘(XIII) for calendar year 1998 for hospitals in
all areas, the market basket percentage increase minus
2.5 percentage points,
‘‘(XIV) for calendar year 1999 for hospitals in
all areas, the market basket percentage increase minus
1.3 percentage points,
‘‘(XV) for calendar years 2000 through 2002 for
hospitals in all areas, the market basket percentage
increase minus 1.0 percentage points, and
‘‘(XVI) for calendar year 2003 and each subse-
quent calendar year for hospitals in all areas, the
market basket percentage increase.’’.
(b) RULE
OF CONSTRUCTION.—Section 1886 (42
U.S.C. 1395ww) is amended by adding at the end the fol-
lowing new subsection:
‘‘(j) PPS CALENDAR
YEAR
PAYMENTS.—Notwith-
standing any other provision of this title, any updates or
payment amounts determined under this section shall on
and after December 31, 1998, take effect and be applied on
a calendar year basis. With respect to any cost reporting
periods that relate to any such updates or payment
amounts, the Secretary shall revise such cost reporting peri-
ods to ensure that on and after December 31, 1998, such
cost reporting periods relate to updates and payment
amounts made under this section on a calendar year basis
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in the same manner as such cost reporting periods applied
to updates and payment amounts under this section on the
day before the date of enactment of this subsection.’’.
SEC. 5402. CAPITAL PAYMENTS FOR PPS HOSPITALS.
(a) MAINTAINING SAVINGS FROM TEMPORARY REDUC-
TION IN PPS CAPITAL RATES.—Section 1886(g)(1)(A) (42
U.S.C. 1395ww(g)(1)(A)) is amended by adding at the end
the following: ‘‘In addition to the reduction described in the
preceding sentence, for discharges occurring on or after Oc-
tober 1, 1997, the Secretary shall apply the budget neutral-
ity adjustment factor used to determine the Federal capital
payment rate in effect on September 30, 1995 (as described
in section 412.352 of title 42 of the Code of Federal Regula-
tions), to (i) the unadjusted standard Federal capital pay-
ment rate (as described in section 412.308(c) of that title,
as in effect on September 30, 1997), and (ii) the unadjusted
hospital-specific rate (as described in section 412.328(e)(1)
of that title, as in effect on September 30, 1997).’’.
(b) SYSTEM EXCEPTION PAYMENTS
FOR TRANSI-
TIONAL CAPITAL.—
(1) IN GENERAL.—Section 1886(g)(l) (42 U.S.C.
1395ww(g)(1)) is amended—
(A) by redesignating subparagraph (C) as
subparagraph (F), and
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(B) by inserting after subparagraph (B) the
following:
‘‘(C) The exceptions under the system pro-
vided by the Secretary under subparagraph
(B)(iii) shall include the provision of exception
payments under the special exceptions process
provided under section 412.348(g) of title 42,
Code of Federal Regulations (as in effect on Sep-
tember 1, 1995), except that the Secretary shall
revise such process, effective for discharges occur-
ring after September 30, 1997, as follows:
‘‘(i) Eligible hospital requirements, as
described in section 412.348(g)(1) of title
42, Code of Federal Regulations, shall apply
except that subparagraph (ii) shall be re-
vised to require that hospitals located in an
urban area with at least 300 beds shall be
eligible under such process and that such a
hospital shall be eligible without regard to
its 
disproportionate 
patient 
percentage
under subsection (d)(5)(F) or whether it
qualifies for additional payment amounts
under such subsection.
‘‘(ii) Project size requirements, as de-
scribed in section 412.348(g)(5) of title 42,
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Code of Federal Regulations, shall apply ex-
cept that subparagraph (ii) shall be revised
to require that the project costs of a hospital
are at least 150 percent of its operating cost
during the first 12 month cost reporting pe-
riod beginning on or after October 1, 1991.
‘‘(iii) The minimum payment level for
qualifying hospitals shall be 85 percent.
‘‘(iv) A hospital shall be considered to
meet the requirement that it complete the
project involved no later than the end of the
last cost reporting period of the hospital be-
ginning before October l, 2001, if—
‘‘(I) the hospital has obtained a
certificate of need for the project ap-
proved by the State or a local planning
authority by September 1, 1995; and
‘‘(II) by September 1, 1995, the
hospital has expended on the project at
least $750,000 or 10 percent of the esti-
mated cost of the project.
‘‘(v) Offsetting amounts, as described
in section 412.348(g)(8)(ii) of title 42, Code
of Federal Regulations, shall apply except
that subparagraph (B) of such section shall
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be revised to require that the additional
payment that would otherwise be payable
for the cost reporting period shall be re-
duced by the amount (if any) by which the
hospital’s current year medicare capital
payments (excluding, if applicable, 75 per-
cent of the hospital’s capital-related dis-
proportionate share payments) exceeds its
medicare capital costs for such year.
‘‘(D)(i) The Secretary shall reduce the Fed-
eral capital and hospital rates up to $50,000,000
for a calendar year to ensure that the applica-
tion of subparagraph (C) does not result in an
increase in the total amount that would have
been paid under this subsection in the fiscal year
if such subparagraph did not apply.
‘‘(ii) Payments made pursuant to the appli-
cation of subparagraph (C) shall not be consid-
ered for purposes of calculating total estimated
payments under section 412.348(h), title 42,
Code of Federal Regulations.
‘‘(E) The Secretary shall provide for publi-
cation in the Federal Register each year (begin-
ning with 1999) of a description of the distribu-
tional impact of the application of subparagraph
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(C) on hospitals which receive, and do not re-
ceive, an exception payment under such subpara-
graph.’’.
(2) 
CONFORMING
AMENDMENT.—Section
1886(g)(1)(B)(iii) (42 U.S.C. 1395ww(g)(1)(B)(iii))
is amended by striking ‘‘may provide’’ and inserting
‘‘shall provide (in accordance with subparagraph
(C))’’.
CHAPTER 2—PAYMENT OF PPS EXEMPT
HOSPITALS
SEC. 5421. PAYMENT UPDATE.
(a) IN
GENERAL.—Section 1886(b)(3)(B)(ii) (42
U.S.C. 1395ww(b)(3)(B)(ii)) is amended—
(1) by striking ‘‘and’’ at the end of subclause
(V);
(2) by redesignating subclause (VI) as subclause
(VIII); and
(3) by inserting after subclause (V), the following
subclauses:
‘‘(VI) 
for 
fiscal 
years 
1998
through 2001, is 0 percent;
‘‘(VII) for fiscal year 2002, is the
market 
basket 
percentage 
increase
minus 3.0 percentage points, and’’.
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(b) NO EFFECT OF PAYMENT REDUCTION ON EXCEP-
TIONS AND ADJUSTMENTS.—Section 1886(b)(4)(A)(ii) (42
U.S.C. 1395ww(b)(4)(A)(ii)) is amended by adding at the
end the following new sentence: ‘‘In making such reductions,
the Secretary shall treat the applicable update factor de-
scribed in paragraph (3)(B)(vi) for a fiscal year as being
equal to the market basket percentage for that year.’’.
SEC. 5422. REDUCTIONS TO CAPITAL PAYMENTS FOR CER-
TAIN PPS-EXEMPT HOSPITALS AND UNITS.
Section 1886(g) (42 U.S.C. 1395ww(g)) is amended by
adding at the end the following new paragraph:
‘‘(4) In determining the amount of the payments that
are attributable to portions of cost reporting periods occur-
ring during fiscal years 1998 through 2002 and that may
be made under this title with respect to capital-related costs
of inpatient hospital services of a hospital which is de-
scribed in clause (i), (ii), or (iv) of subsection (d)(1)(B)
or a unit described in the matter after clause (v) of such
subsection, the Secretary shall reduce the amounts of such
payments otherwise determined under this title by 15 per-
cent.’’.
SEC. 5423. CAP ON TEFRA LIMITS.
Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)) is
amended—
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(1) in subparagraph (A) by striking ‘‘subpara-
graphs (C), (D), and (E)’’ and inserting ‘‘subpara-
graph (C) and succeeding subparagraphs’’, and
(2) by adding at the end the following:
‘‘(F)(i) Except as provided in clause (ii), in the case
of a hospital or unit that is within a class of hospital de-
scribed in clause (iii), for cost reporting periods beginning
on or after October 1, 1997, and before October 1, 2002,
such target amount may not be greater than the 75th per-
centile of the target amounts for such hospitals within such
class for cost reporting periods beginning during that fiscal
year (determined without regard to clause (ii)).
‘‘(ii) In the case of a hospital or unit—
‘‘(I) that is within a class of hospital described
in clause (iii); and
‘‘(II) whose operating costs of inpatient hospital
services recognized under this title for the most recent
cost reporting period for which information is avail-
able are less than the target amount for the hospital
or unit under clause (i) (determined without regard
to this clause) for its cost reporting period beginning
on or after October 1, 1997, and before October 1,
1998,
clause (i) shall be applied for cost reporting periods begin-
ning on or after October 1, 1997, and before October 1,
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2002, by substituting for the dollar limit on the target
amounts established under such clause for such period a dol-
lar limit that is equal to the greater of 90 percent of such
dollar limit or the operating costs of the hospital or unit
determined under subclause (II).
‘‘(iii) For purposes of this subparagraph, each of the
following shall be treated as a separate class of hospital:
‘‘(I) Hospitals described in clause (i) of sub-
section (d)(1)(B) and psychiatric units described in
the matter following clause (v) of such subsection.
‘‘(II) Hospitals described in clause (ii) of such
subsection and rehabilitation units described in the
matter following clause (v) of such subsection.
‘‘(III) Hospitals described in clause (iv) of such
subsection.’’.
SEC. 5424. CHANGE IN BONUS AND RELIEF PAYMENTS.
(a) 
CHANGE
IN
BONUS
PAYMENT.—Section
1886(b)(1)(A) (42 U.S.C. 1395ww(b)(1)(A)) is amended by
striking all that follows ‘‘plus—’’ and inserting the follow-
ing:
‘‘(i) in the case of a hospital with a
target amount that is less than 135 percent
of the median of the target amounts for hos-
pitals in the same class of hospital, the less-
er of 40 percent of the amount by which the
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target amount exceeds the amount of the op-
erating costs or 4 percent of the target
amount;
‘‘(ii) in the case of a hospital with a
target amount that equals or exceeds 135 of
such median but is less than 150 percent of
such median, the lesser of 30 percent of the
amount by which the target amount exceeds
the amount of the operating costs or 3 per-
cent of the target amount; and
‘‘(iii) in the case of a hospital with a
target amount that equals or exceeds 150 of
such median, the lesser of 20 percent of the
amount by which the target amount exceeds
the amount of the operating costs or 2 per-
cent of the target amount; or’’.
(b) 
CHANGE
IN
RELIEF
PAYMENTS.—Section
1886(b)(1) (42 U.S.C. 1395ww(b)(1)) is amended—
(1) in subparagraph (B)—
(A) by striking ‘‘greater than the target
amount’’ and inserting ‘‘greater than 110 per-
cent of the target amount’’,
(B) by striking ‘‘exceed the target amount’’
and inserting ‘‘exceed 110 percent of the target
amount’’,
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(C) by striking ‘‘10 percent’’ and inserting
‘‘20 percent’’, and
(D) by redesignating such subparagraph as
subparagraph (C); and
(2) by inserting after subparagraph (A) the fol-
lowing new subparagraph:
‘‘(B) are greater than the target amount but do
not exceed 110 percent of the target amount, the
amount of the payment with respect to those operat-
ing costs payable under part A on a per discharge
basis shall equal the target amount; or’’.
SEC. 5425. TARGET AMOUNTS FOR REHABILITATION HOS-
PITALS, LONG-TERM CARE HOSPITALS, AND
PSYCHIATRIC HOSPITALS.
Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)) is
amended—
(1) in subparagraph (A), in the matter preceding
clause (i), by striking ‘‘and (E)’’ and inserting ‘‘(E),
(F), and (G)’’; and
(2) by adding at the end the following new sub-
paragraphs:
‘‘(F) In the case of a rehabilitation hospital (or unit
thereof) (as described in clause (ii) of subsection (d)(1)(B)),
for cost reporting periods beginning on or after October 1,
1997—
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‘‘(i) in the case of a hospital which first receives
payments under this section before October 1, 1997,
the target amount determined under subparagraph
(A) for such hospital or unit for a cost reporting pe-
riod beginning during a fiscal year shall not be less
than 50 percent of the national mean of the target
amounts determined under such subparagraph for all
such hospitals for cost reporting periods beginning
during such fiscal year (determined without regard to
this subparagraph); and
‘‘(ii) in the case of a hospital which first receives
payments under this section on or after October 1,
1997, such target amount may not be greater than
110 percent of the national mean of the target
amounts for such hospitals (and units thereof) for cost
reporting periods beginning during fiscal year 1991.
‘‘(G) In the case of a hospital which has an average
inpatient length of stay of greater than 25 days (as de-
scribed in clause (iv) of subsection (d)(1)(B)), for cost re-
porting periods beginning on or after October 1, 1997—
‘‘(i) in the case of a hospital which first receives
payments under this section as a hospital that is not
a subsection (d) hospital or a subsection (d) Puerto
Rico hospital before October 1, 1997, the target
amount determined under subparagraph (A) for such
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hospital for a cost reporting period beginning during
a fiscal year shall not be less than 50 percent of the
national mean of the target amounts determined
under such subparagraph for all such hospitals for
cost reporting periods beginning during such fiscal
year (determined without regard to this subpara-
graph); and
‘‘(ii) in the case of any other hospital which first
receives payment under this section on or after Octo-
ber 1, 1997, such target amount may not be greater
than 110 percent of such national mean of the target
amounts for such hospitals for cost reporting periods
beginning during fiscal year 1991.
‘‘(H) In the case of a psychiatric hospital (as defined
in section 1861(f)), for cost reporting periods beginning on
or after October 1, 1997—
‘‘(i) in the case of a hospital which first receives
payments under this section before October 1, 1997,
the target amount determined under subparagraph
(A) for such hospital for a cost reporting period be-
ginning during a fiscal year shall not be less than 50
percent of the national mean of the target amounts
determined under such subparagraph for all such hos-
pitals for cost reporting periods beginning during
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such fiscal year (determined without regard to this
subparagraph); and
‘‘(ii) in the case of any other hospital which first
receives payment under this section on or after Octo-
ber 1, 1997, such target amount may not be greater
than 110 percent of such national mean of the target
amounts for such hospitals for cost reporting periods
beginning during fiscal year 1991.’’.
SEC. 5426. TREATMENT OF CERTAIN LONG-TERM CARE HOS-
PITALS LOCATED WITHIN OTHER HOSPITALS.
(a) IN GENERAL.—Section 1886(d)(1)(B) (42 U.S.C.
1395ww(d)(1)(B)) is amended by adding at the end the fol-
lowing new sentence: ‘‘A hospital that was classified by the
Secretary on or before September 30, 1995, as a hospital
described in clause (iv) shall continue to be so classified
notwithstanding that it is located in the same building as,
or on the same campus as, another hospital.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to discharges occurring on or after
October 1, 1995.
SEC. 5426A. REBASING.
Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)), as
amended by section 5423, is amended by adding at the end
the following:
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‘‘(G)(i) In the case of a hospital (or unit de-
scribed in the matter following clause (v) of sub-
section (d)(1)(B)) that received payment under
this subsection for inpatient hospital services fur-
nished before January 1, 1990, that is within a
class of hospital described in clause (iii), and
that elects (in a form and manner determined by
the Secretary) this subparagraph to apply to the
hospital, the target amount for the hospital’s 12-
month cost reporting period beginning during
fiscal year 1998 is equal to the average described
in clause (ii).
‘‘(ii) The average described in this clause
for a hospital or unit shall be determined by the
Secretary as follows:
‘‘(I) The Secretary shall determine the
allowable operating costs for inpatient hos-
pital services for the hospital or unit for
each of the 5 cost reporting periods for
which the Secretary has the most recent set-
tled cost reports as of the date of the enact-
ment of this subparagraph.
‘‘(II) The Secretary shall increase the
amount determined under subclause (I) for
each cost reporting period by the applicable
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percentage increase under subparagraph
(B)(ii) for each subsequent cost reporting
period up to the cost reporting period de-
scribed in clause (i).
‘‘(III) The Secretary shall identify
among such 5 cost reporting periods the cost
reporting periods for which the amount de-
termined under subclause (II) is the highest,
and the lowest.
‘‘(IV) The Secretary shall compute the
averages of the amounts determined under
subclause (II) for the 3 cost reporting peri-
ods not identified under subclause (III).
‘‘(iii) For purposes of this subparagraph,
each of the following shall be treated as a sepa-
rate class of hospital:
‘‘(I) Hospitals described in clause (i) of
subsection (d)(1)(B) and psychiatric units
described in the matter following clause (v)
of such subsection.
‘‘(II) Hospitals described in clause (ii)
of such subsection and rehabilitation units
described in the matter following clause (v)
of such subsection.
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‘‘(III) Hospitals described in clause
(iii) of such subsection.
‘‘(IV) Hospitals described in clause (iv)
of such subsection.
‘‘(V) Hospitals described in clause (v)
of such subsection.’’.
SEC. 5427. ELIMINATION OF EXEMPTIONS; REPORT ON EX-
CEPTIONS AND ADJUSTMENTS.
(a) ELIMINATION OF EXEMPTIONS.—
(1) IN GENERAL.—Section 1886(b)(4)(A)(i) (42
U.S.C. 1395ww(b)(4)(A)(i)) is amended by striking
‘‘exemption from, or an exception and adjustment to,’’
and inserting ‘‘an exception and adjustment to’’ each
place it appears.
(2) EFFECTIVE DATE.—The amendments made
by paragraph (1) shall apply to hospitals that first
qualify as a hospital described in clause (i), (ii), or
(iv) 
of 
section 
1886(d)(1)(B) 
(42 
U.S.C.
1395ww(d)(1)(B)) on or after October 1, 1997.
(b) REPORT.—The Secretary of Health and Human
Services shall publish annually in the Federal Register a
report describing the total amount of payments made to
hospitals by reason of section 1886(b)(4) of the Social Secu-
rity Act (42 U.S.C. 1395ww(b)(4)), as amended by sub-
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section (a), for cost reporting periods ending during the pre-
vious fiscal year.
SEC. 5428. TECHNICAL CORRECTION RELATING TO SUB-
SECTION (d) HOSPITALS.
(a) IN GENERAL.—Section 1886(d)(1) (42 U.S.C.
1395ww(d)(1)) is amended—
(1) in subparagraph (B)(v)—
(A) by inserting ‘‘(I)’’ after ‘‘(v)’’; and
(B) by striking the semicolon at the end and
inserting ‘‘, or’’; and
(C) by adding at the end the following:
‘‘(II) a hospital that—
‘‘(aa) was recognized as a comprehensive
cancer center or clinical cancer research center
by the National Cancer Institute of the National
Institutes of Health as of April 20, 1983, or is
able to demonstrate, for any six-month period,
that at least 50 percent of its total discharges
have a principal diagnosis that reflects a finding
of neoplastic disease, as defined in subparagraph
(E);
‘‘(bb) applied on or before December 31,
1990, for classification as a hospital involved ex-
tensively in treatment for or research on cancer
under this clause (as in effect on the day before
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the date of the enactment of this subclause), but
was not approved for such classification; and
‘‘(cc) is located in a State which, as of De-
cember 19, 1989, was not operating a demonstra-
tion project under section 1814(b);’’; and
(2) by adding at the end the following:
‘‘(E) For purposes of subparagraph (B)(v)(II)(aa), the
term ‘principal diagnosis that reflects a finding of neo-
plastic disease’ means the condition established after study
to be chiefly responsible for occasioning the admission of
a patient to a hospital, except that only discharges with
ICD–9–CM principal diagnosis codes of 140 through 239,
V58.0, V58.1, V66.1, V66.2, or 990 will be considered to re-
flect such a principal diagnosis.’’.
(b) PAYMENTS.—Any classification by reason of sec-
tion 1886(d)(1)(B)(v)(II) of the Social Security Act (42
U.S.C. 1395ww(d)(1)(B)(v)(II)) (as added by subsection
(a)) shall apply to all cost reporting periods beginning on
or after January 1, 1991. Any payments owed to a hospital
as a result of such section (as so amended) shall be made
expeditiously, but in no event later than 1 year after the
date of enactment of this Act.
SEC. 5429. CERTAIN CANCER HOSPITALS.
(a) IN GENERAL.—Section 1886(d)(1) (42 U.S.C.
1395ww(d)(1)), as amended by section 5428, is amended—
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(1) in subparagraph (B)(v), by striking the
semicolon at the end of subclause (II)(cc) and insert-
ing the following: ‘‘, or’’, and by adding at the end
the following:
‘‘(III) a hospital—
‘‘(aa) that was classified under subsection
(iv) beginning on or before December 31, 1990,
and through December 31, 1995; and
‘‘(bb) throughout the period described in
item (aa) and currently has greater than 49 per-
cent of its total patient discharges with a prin-
cipal diagnosis that reflects a finding of neo-
plastic disease;’’; and
(2) by adding at the end the following:
‘‘(F) In the case of a hospital that is classified under
subparagraph (B)(v)(III), no rebasing is permitted by such
hospital and such hospital shall use the base period in effect
at the time of such hospital’s December 31, 1995, cost re-
port.’’.
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such a payment shall equal the applicable
percentage of the product of—
‘‘(I) 
the 
aggregate 
approved
amount (as defined in subparagraph
(B)) for that period; and
‘‘(II) the fraction of the total
number of inpatient-bed days (as es-
tablished by the Secretary) during the
period which are attributable to such
enrolled individuals.
‘‘(ii) APPLICABLE
PERCENTAGE.—For
purposes of clause (i), the applicable per-
centage is—
‘‘(I) 25 percent in 1998,
‘‘(II) 50 percent in 1999,
‘‘(III) 75 percent in 2000, and
‘‘(IV) 100 percent in 2001 and
subsequent years.
‘‘(iii) SPECIAL RULE FOR HOSPITALS
UNDER
REIMBURSEMENT
SYSTEM.—The
Secretary shall establish rules for the appli-
cation of this subparagraph to a hospital
reimbursed under a reimbursement system
authorized under section 1814(b)(3) in the
same manner as it would apply to the hos-