849
‘‘(A) IN GENERAL.—For purposes of 
paragraph (3)(A)(i), the weighted av-
erage of EFFS plan bids for an EFFS 
region and a year is the sum of the 
following products for EFFS plans de-
scribed in subparagraph (C) in the re-
gion and year: 
‘‘(i) UNADJUSTED
EFFS
STATU-
TORY
NON-DRUG
MONTHLY
BID 
AMOUNT.—The unadjusted EFFS 
statutory non-drug monthly bid 
amount (as defined in subsection 
(a)(3)(A)(ii)(I)) for the region and 
year. 
‘‘(ii) PLAN’S SHARE OF EFFS EN-
ROLLMENT
IN
REGION.—The num-
ber of individuals described in 
subparagraph (B), divided by the 
total number of such individuals 
for all EFFS plans described in 
subparagraph (C) for that region 
and year. 
‘‘(B) COUNTING
OF
INDIVIDUALS.—
The Administrator shall count, for 
each EFFS plan described in subpara-
850
graph (C) for an EFFS region and 
year, the number of individuals who 
reside in the region and who were en-
rolled under such plan under this 
part during March of the previous 
year. 
‘‘(C) EXCLUSION OF PLANS NOT OF-
FERED
IN
PREVIOUS
YEAR.—For an 
EFFS region and year, the EFFS 
plans described in this subparagraph 
are plans that are offered in the re-
gion and year and were offered in the 
region in March of the previous year. 
‘‘(5) COMPUTATION OF FEE-FOR-SERVICE 
MARKET SHARE PERCENTAGE.—The Admin-
istrator shall determine, for a year and 
an EFFS region, the proportion (in this 
subsection referred to as the ‘fee-for-serv-
ice market share percentage’) of the 
EFFS eligible individuals who are resi-
dents of the region during March of the 
previous year, of such individuals who 
were not enrolled in an EFFS plan or in 
a Medicare Advantage plan (or, if greater,
851
such proportion determined for individ-
uals nationally). 
‘‘(6) FEE-FOR-SERVICE
REGION-SPECIFIC 
NON-DRUG AMOUNT.—
‘‘(A) IN GENERAL.—For purposes of 
paragraph 
(3)(B)(i) 
and 
section 
1839(h)(2)(A), 
subject 
to 
subpara-
graph (B), the term ‘fee-for-service re-
gion-specific 
non-drug 
amount’ 
means, for a competitive EFFS region 
and a year, the adjusted average per 
capita cost for the year involved, de-
termined under section 1876(a)(4) for 
such 
region 
for 
services 
covered 
under parts A and B for individuals 
entitled to benefits under part A and 
enrolled under this part who are not 
enrolled in an EFFS plan under part 
E or a Medicare Advantage plan 
under part C for the year, but ad-
justed to exclude costs attributable to 
payments under section 1886(h). 
‘‘(B) INCLUSION OF COSTS OF VA AND 
DOD
MILITARY
FACILITY
SERVICES
TO 
MEDICARE-ELIGIBLE
BENEFICIARIES.—In
852
determining the adjusted average per 
capita cost under subparagraph (A) 
for a year, such cost shall be adjusted 
to include the Administrator’s esti-
mate, on a per capita basis, of the 
amount of additional payments that 
would have been made in the region 
involved under this title if individ-
uals entitled to benefits under this 
title had not received services from 
facilities of the Department of Vet-
erans Affairs or the Department of 
Defense. 
‘‘(7) APPLICATION OF COMPETITION.—In 
the case of an EFFS region that is a com-
petitive EFFS region for a year, for pur-
poses of applying subsections (b) and 
(c)(1) and section 1860E–4(a), any ref-
erence to an EFFS region-specific non-
drug monthly benchmark amount shall 
be treated as a reference to the competi-
tive EFFS non-drug monthly benchmark 
amount under paragraph (2) for the re-
gion and year.
853
‘‘(8) PHASE-IN OF BENCHMARK FOR EACH 
REGION.—
‘‘(A) 
USE
OF
BLENDED
BENCH-
MARK.—In the case of a region that 
has not been a competitive EFFS re-
gion for each of the previous 4 years, 
the 
competitive 
EFFS 
non-drug 
monthly benchmark amount shall be 
equal to the sum of the following: 
‘‘(i) NEW
COMPETITIVE
COMPO-
NENT.—The product of—
‘‘(I) the weighted average 
phase-in proportion for that 
area and year, as specified in 
subparagraph (B); and 
‘‘(II) the competitive EFFS 
non-drug monthly benchmark 
amount for the region and 
year, determined under para-
graph (2) without regard to 
this paragraph. 
‘‘(ii) OLD COMPETITIVE COMPO-
NENT.—The product of—
854
‘‘(I) 1 minus the weighted 
average phase-in proportion 
for that region and year; and 
‘‘(II) the EFFS region-spe-
cific 
non-drug 
benchmark 
amount for the region and the 
year. 
‘‘(B) COMPUTATION
OF
WEIGHTED 
AVERAGE
PHASE-IN
PROPORTION.—For 
purposes 
of 
this 
paragraph, 
the 
‘weighted average phase-in propor-
tion’ for an EFFS region for a year 
shall be determined as follows: 
‘‘(i) FIRST
YEAR
(AND
REGION 
NOT
COMPETITIVE
REGION
IN
PRE-
VIOUS YEAR).—If the area was not 
a competitive EFFS region in the 
previous year, the weighted aver-
age phase-in proportion for the 
region for the year is equal to 1⁄5. 
‘‘(ii) COMPETITIVE
REGION
IN 
PREVIOUS YEAR.—If the region was 
a competitive EFFS region in the 
previous year, the weighted aver-
age phase-in proportion for the
855
region for the year is equal to the 
weighted average phase-in pro-
portion determined under this 
subparagraph for the region for 
the previous year plus 1⁄5, but in 
no case more than 1.’’. 
(2) CONFORMING AMENDMENTS.—
(A) Such section 1860E–3 is fur-
ther amended—
(i) in subsection (b), by adding 
at the end the following new 
paragraph: 
‘‘(4) APPLICATION
IN
COMPETITIVE 
REGIONS.—For special rules applying 
this subsection in competitive EFFS 
regions, see subsection (e)(7).’’; 
(ii) in subsection (c)(1), by in-
serting ‘‘and subsection (e)(7)’’ 
after ‘‘(as made applicable under 
subsection (d))’’; and 
(iii) in subsection (d) , by 
striking ‘‘and (e)’’ and inserting 
‘‘(e), and (k) ’’. 
(B) Section 1860E–4(a)(1), as in-
serted by section 201(a)(2), is amend-
856
ed by inserting ‘‘, except as provided 
in section 1860E–3(e)(7)’’ after ‘‘para-
graph (2)’’.
(b) IDENTIFICATION OF COMPETITIVE MEDI-
CARE ADVANTAGE AREAS; APPLICATION OF COM-
PETITIVE
MEDICARE
ADVANTAGE
NON-DRUG 
BENCHMARKS
UNDER
MEDICARE
ADVANTAGE 
PROGRAM.—
(1) IN
GENERAL.—Section 1853, as 
amended by section 221(b)(3), is amended 
by adding at the end the following new 
subsection: 
‘‘(k) APPLICATION OF COMPETITION.—
‘‘(1) DETERMINATION
OF
COMPETITIVE 
MEDICARE ADVANTAGE AREAS.—
‘‘(A) IN GENERAL.—For purposes of 
this 
part, 
the 
terms 
‘competitive 
Medicare Advantage area’ and ‘CMA 
area’ mean, for a year beginning with 
2010, an area (which is a metropoli-
tan statistical area or other area with 
a substantial number of Medicare Ad-
vantage enrollees) that the Adminis-
trator finds—
857
‘‘(i) there will be offered dur-
ing the annual, coordinated elec-
tion 
period 
under 
section 
1851(e)(3)(B) under this part be-
fore the beginning of the year at 
least 2 Medicare Advantage plans 
(in addition to the fee-for-service 
program under parts A and B), 
each offered by a different Medi-
care Advantage organization and 
each of which met the minimum 
enrollment requirements of para-
graph (1) of section 1857(b) (as ap-
plied without regard to para-
graph (3) thereof) as of March of 
the previous year with respect to 
the area; and 
‘‘(ii) during March of the pre-
vious year at least the percentage 
specified in subparagraph (B) of 
the number of Medicare Advan-
tage eligible individuals who re-
side in the area were enrolled in 
a Medicare Advantage plan. 
‘‘(B) PERCENTAGE SPECIFIED.—
858
‘‘(i) IN GENERAL.—For purposes 
of subparagraph (A), subject to 
clause (ii), the percentage speci-
fied in this subparagraph for a 
year is equal the lesser of 20 per-
cent or to the sum of—
‘‘(I) the percentage, as es-
timated by the Administrator, 
of EFFS eligible individuals in 
the United States who are en-
rolled in EFFS plans during 
March of the previous year; 
and 
‘‘(II) the percentage, as es-
timated by the Administrator, 
of Medicare Advantage eligi-
ble individuals in the United 
States who are enrolled in 
Medicare 
Advantage 
plans 
during March of the previous 
year. 
‘‘(ii) EXCEPTION.—In the case 
of an area that was a competitive 
area for the previous year, the 
Medicare Benefits Administrator
859
may continue to treat the area as 
meeting the requirement of sub-
paragraph 
(A)(ii) 
if 
the 
area 
would meet such requirement but 
for a de minimis reduction below 
the percentage specified in clause 
(i). 
‘‘(2) COMPETITIVE MEDICARE ADVANTAGE 
NON-DRUG MONTHLY BENCHMARK AMOUNT.—
For purposes of this part, the term ‘com-
petitive Medicare Advantage non-drug 
monthly benchmark amount’ means, with 
respect to a competitive Medicare Advan-
tage area for a month in a year subject to 
paragraph (8), the sum of the 2 compo-
nents described in paragraph (3) for the 
area and year. The Administrator shall 
compute such benchmark amount for 
each competitive Medicare Advantage 
area before the beginning of each annual, 
coordinated election period under sec-
tion 1851(e)(3)(B) for each year (begin-
ning with 2010) in which it is designated 
as such an area.
860
‘‘(3) 2 COMPONENTS.—For purposes of 
paragraph (2), the 2 components de-
scribed in this paragraph for a competi-
tive Medicare Advantage area and a year 
are the following: 
‘‘(A) MEDICARE ADVANTAGE COMPO-
NENT.—The product of the following: 
‘‘(i) 
WEIGHTED
AVERAGE
OF 
MEDICARE ADVANTAGE PLAN BIDS IN 
AREA.—The weighted average of 
the plan bids for the area and 
year (as determined under para-
graph (4)(A)). 
‘‘(ii) NON-FFS MARKET SHARE.—
1 minus the fee-for-service market 
share 
percentage, 
determined 
under paragraph (5) for the area 
and year. 
‘‘(B) 
FEE-FOR-SERVICE
COMPO-
NENT.—The product of the following: 
‘‘(i) FEE-FOR-SERVICE AREA-SPE-
CIFIC NON-DRUG AMOUNT.—The fee-
for-service area-specific non-drug 
amount (as defined in paragraph 
(6)) for the area and year.
861
‘‘(ii) FEE-FOR-SERVICE
MARKET 
SHARE.—The fee-for-service mar-
ket share percentage, determined 
under paragraph (5) for the area 
and year. 
‘‘(4) DETERMINATION OF WEIGHTED AV-
ERAGE MEDICARE ADVANTAGE BIDS FOR AN 
AREA.—
‘‘(A) IN GENERAL.—For purposes of 
paragraph (3)(A)(i), the weighted av-
erage of plan bids for an area and a 
year is the sum of the following prod-
ucts for Medicare Advantage plans 
described in subparagraph (C) in the 
area and year: 
‘‘(i) MONTHLY MEDICARE ADVAN-
TAGE
STATUTORY
NON-DRUG
BID 
AMOUNT.—The unadjusted Medi-
care Advantage statutory non-
drug monthly bid amount. 
‘‘(ii) PLAN’S SHARE OF MEDICARE 
ADVANTAGE ENROLLMENT IN AREA.—
The number of individuals de-
scribed in subparagraph (B), di-
vided by the total number of such
862
individuals for all Medicare Ad-
vantage plans described in sub-
paragraph (C) for that area and 
year. 
‘‘(B) COUNTING
OF
INDIVIDUALS.—
The Administrator shall count, for 
each Medicare Advantage plan de-
scribed in subparagraph (C) for an 
area and year, the number of individ-
uals who reside in the area and who 
were enrolled under such plan under 
this part during March of the pre-
vious year. 
‘‘(C) EXCLUSION OF PLANS NOT OF-
FERED IN PREVIOUS YEAR.—For an area 
and year, the Medicare Advantage 
plans described in this subparagraph 
are plans described in the first sen-
tence of section 1851(a)(2)(A) that are 
offered in the area and year and were 
offered in the area in March of the 
previous year. 
‘‘(5) COMPUTATION OF FEE-FOR-SERVICE 
MARKET SHARE PERCENTAGE.—The Admin-
istrator shall determine, for a year and a
863
competitive Medicare Advantage area, 
the proportion (in this subsection re-
ferred to as the ‘fee-for-service market 
share percentage’) of Medicare Advan-
tage eligible individuals residing in the 
area who during March of the previous 
year were not enrolled in a Medicare Ad-
vantage plan or in an EFFS plan (or, if 
greater, such proportion determined for 
individuals nationally). 
‘‘(6) 
FEE-FOR-SERVICE
AREA-SPECIFIC 
NON-DRUG AMOUNT.—
‘‘(A) IN GENERAL.—For purposes of 
paragraph 
(3)(B)(i) 
and 
section 
1839(h)(1)(A), 
subject 
to 
subpara-
graph (B), the term ‘fee-for-service 
area-specific 
non-drug 
amount’ 
means, for a competitive Medicare 
Advantage area and a year, the ad-
justed average per capita cost for the 
year involved, determined under sec-
tion 1876(a)(4) for such area for serv-
ices covered under parts A and B for 
individuals entitled to benefits under 
part A and enrolled under this part
864
who are not enrolled in a Medicare 
Advantage plan under part C or an 
EFFS plan under part E for the year, 
but adjusted to exclude costs attrib-
utable to payments under section 
1886(h). 
‘‘(B) INCLUSION OF COSTS OF VA AND 
DOD
MILITARY
FACILITY
SERVICES
TO 
MEDICARE-ELIGIBLE
BENEFICIARIES.—In 
determining the adjusted average per 
capita cost under subparagraph (A) 
for a year, such cost shall be adjusted 
to include the Administrator’s esti-
mate, on a per capita basis, of the 
amount of additional payments that 
would have been made in the area in-
volved under this title if individuals 
entitled to benefits under this title 
had not received services from facili-
ties of the Department of Veterans Af-
fairs or the Department of Defense. 
‘‘(7) APPLICATION OF COMPETITION.—In 
the case of an area that is a competitive 
Medicare Advantage area for a year, for 
purposes 
of 
applying 
subsection
865
(a)(1)(A)(ii) and sections 1854(b)(2)(A)(ii) 
and 1854(b)(3)(B)(i), any reference to a 
Medicare Advantage area-specific non-
drug monthly benchmark amount shall 
be treated as a reference to the competi-
tive 
Medicare 
Advantage 
non-drug 
monthly benchmark amount under para-
graph (2) for the area and year. 
‘‘(8) PHASE-IN OF BENCHMARK FOR EACH 
AREA.—
‘‘(A) 
USE
OF
BLENDED
BENCH-
MARK.—In the case of an area that has 
not been a competitive Medicare Ad-
vantage area for each of the previous 
4 years, the competitive Medicare Ad-
vantage 
non-drug 
monthly 
bench-
mark amount shall be equal to the 
sum of the following: 
‘‘(i) NEW
COMPETITIVE
COMPO-
NENT.—The product of—
‘‘(I) the weighted average 
phase-in proportion for that 
area and year, as specified in 
subparagraph (B); and
866
‘‘(II) the competitive Medi-
care 
Advantage 
non-drug 
monthly benchmark amount 
for the area and year, deter-
mined under paragraph (2) 
without regard to this para-
graph. 
‘‘(ii) OLD COMPETITIVE COMPO-
NENT.—The product of—
‘‘(I) 1 minus the weighted 
average phase-in proportion 
for that area and year; and 
‘‘(II) the Medicare Advan-
tage 
area-wide 
non-drug 
benchmark amount for the 
area and the year. 
‘‘(B) COMPUTATION
OF
WEIGHTED 
AVERAGE
PHASE-IN
PROPORTION.—For 
purposes 
of 
this 
paragraph, 
the 
‘weighted average phase-in propor-
tion’ for a Medicare Advantage pay-
ment area for a year shall be deter-
mined as follows: 
‘‘(i) FIRST YEAR (AND AREA NOT 
COMPETITIVE
AREA
IN
PREVIOUS
867
YEAR).—If the area was not a 
Medicare Advantage competitive 
area in the previous year, the 
weighted average phase-in pro-
portion for the area for the year 
is equal to 1⁄5. 
‘‘(ii) COMPETITIVE AREA IN PRE-
VIOUS
YEAR.—If the area was a 
competitive Medicare Advantage 
area in the previous year, the 
weighted average phase-in pro-
portion for the area for the year 
is equal to the weighted average 
phase-in proportion determined 
under this subparagraph for the 
area for the previous year plus 1⁄5, 
but in no case more than 1. 
‘‘(C) MEDICARE
ADVANTAGE
AREA-
WIDE NON-DRUG BENCHMARK AMOUNT.—
For 
purposes 
of 
subparagraph 
(A)(ii)(II), the term ‘Medicare Advan-
tage area-wide non-drug benchmark 
amount’ means, for an area and year, 
the weighted average of the amounts 
described in section 1853(j) for Medi-
868
care Advantage payment area or 
areas included in the area (based on 
the number of traditional fee-for-serv-
ice enrollees in such payment area or 
areas) and year.’’. 
(2) APPLICATION.—Section 1854 (42 
U.S.C. 1395w–24) is amended—
(A) in subsection (b)(1)(C)(i), as 
added by section 221(b)(1)(A), by 
striking ‘‘(i) REQUIREMENT.—The’’ and 
inserting ‘‘(i) REQUIREMENT FOR NON-
COMPETITIVE AREAS.—In the case of a 
Medicare Advantage payment area 
that is not a competitive Medicare 
Advantage area designated under sec-
tion 1853(k)(1), the’’; 
(B) in subsection (b)(1)(C), as so 
added, by inserting after clause (i) 
the following new clause: 
‘‘(ii) REQUIREMENT
FOR
COM-
PETITIVE
MEDICARE
ADVANTAGE 
AREAS.—In the case of a Medicare 
Advantage payment area that is 
designated as a competitive Medi-
care Advantage area under sec-
869
tion 1853(k)(1), if there are aver-
age per capita monthly savings 
described in paragraph (6) for a 
Medicare 
Advantage 
plan 
and 
year, 
the 
Medicare 
Advantage 
plan shall provide to the enrollee 
a monthly rebate equal to 75 per-
cent of such savings.’’; and 
(C) by adding at the end of sub-
section (b), as amended by sections 
221(b)(1)(B) and 221(b)(2), the fol-
lowing new paragraph: 
‘‘(6) COMPUTATION
OF
AVERAGE
PER 
CAPITA MONTHLY SAVINGS FOR COMPETITIVE 
MEDICARE
ADVANTAGE
AREAS.—For pur-
poses of paragraph (1)(C)(ii), the average 
per capita monthly savings referred to in 
such paragraph for a Medicare Advan-
tage plan and year shall be computed in 
the same manner as the average per cap-
ita monthly savings is computed under 
paragraph (3) except that the reference 
to the Medicare Advantage area-specific 
non-drug monthly benchmark amount in 
paragraph (3)(B)(i) (or to the benchmark
870
amount as adjusted under paragraph 
(3)(C)(i)) is deemed to be a reference to 
the competitive Medicare Advantage non-
drug monthly benchmark amount (or 
such amount as adjusted in the manner 
described in paragraph (3)(B)(i)).’’. 
(3) ADDITIONAL
CONFORMING
AMEND-
MENTS.—
(A) PAYMENT
OF
PLANS.—Section 
1853(a)(1)(A)(ii), as amended by sec-
tion 221(c)(1), is amended—
(i) in subclauses (I) and (II), 
by inserting ‘‘(or, insofar as such 
payment area is a competitive 
Medicare 
Advantage 
area, 
de-
scribed 
in 
section 
1854(b)(6))’’ 
after ‘‘section 1854(b)(3)(C)’’; and 
(ii) in subclause (II), by insert-
ing ‘‘(or, insofar as such payment 
area is a competitive Medicare 
Advantage area, the competitive 
Medicare 
Advantage 
non-drug 
monthly 
benchmark 
amount)’’ 
after ‘‘Medicare Advantage area-
871
specific non-drug monthly bench-
mark amount’’; and 
(B) DISCLOSURE OF INFORMATION.—
Section 1853(b)(1)(B), as amended by 
section 221(e)(1), is amended to read 
as follows: 
‘‘(B) COMPETITION
INFORMATION.—
For years beginning with 2006, the 
following: 
‘‘(i) BENCHMARKS.—The Medi-
care Advantage area-specific non-
drug benchmark under section 
1853(j) and, if applicable, the com-
petitive Medicare Advantage non-
drug benchmark under section 
1853(k)(2), for the year and com-
petitive Medicare Advantage area 
involved and the national fee-for-
service market share percentage 
for the area and year. 
‘‘(ii) ADJUSTMENT
FACTORS.—
The adjustment factors applied 
under section 1853(a)(1)(A)(iv) (re-
lating 
to 
demographic 
adjust-
ment), section 1853(a)(1)(B) (relat-
872
ing to adjustment for end-stage 
renal 
disease), 
and 
section 
1853(a)(3) (relating to health sta-
tus adjustment). 
‘‘(iii) CERTAIN BENCHMARKS AND 
AMOUNTS.—In the case of a com-
petitive 
Medicare 
Advantage 
area, 
the 
Medicare 
Advantage 
area-wide non-drug benchmark 
amount (as defined in subsection 
(k)(8)(C)) and the fee-for-service 
area-specific non-drug amount (as 
defined in section 1853(k)(6)) for 
the area. 
‘‘(iv) INDIVIDUALS.—The num-
ber of individuals counted under 
subsection (k)(4)(B) and enrolled 
in each Medicare Advantage plan 
in the area.’’. 
(C) DEFINITION OF MONTHLY BASIC 
PREMIUM.—Section 1854(b)(2)(A)(ii), as 
amended 
by 
section 
221(d)(2), 
is 
amended by inserting ‘‘(or, in the case 
of a competitive Medicare Advantage 
area, the competitive Medicare Ad-
873
vantage 
non-drug 
monthly 
bench-
mark amount or, in applying this 
paragraph under part E in the case of 
a competitive EFFS region, the com-
petitive 
EFFS 
non-drug 
monthly 
benchmark amount)’’ after ‘‘bench-
mark amount’’. 
(c) PREMIUM ADJUSTMENT.—
(1) IN
GENERAL.—Section 1839 (42 
U.S.C. 1395r) is amended by adding at the 
end the following new subsection: 
‘‘(h)(1)(A) In the case of an individual who 
resides in a competitive Medicare Advantage 
area under section 1853(k)(1) (regardless of 
whether such area is in a competitive EFFS 
region under section 1860E–3(e)) and who is 
not enrolled in a Medicare Advantage plan 
under part C or in an EFFS plan under part 
E, the monthly premium otherwise applied 
under this part (determined without regard 
to subsections (b) and (f) or any adjustment 
under this subsection) shall be adjusted as fol-
lows: If the fee-for-service area-specific non-
drug amount (as defined in section 1853(k)(6))
874
for the competitive Medicare Advantage area 
in which the individual resides for a month—
‘‘(i) does not exceed the competitive 
Medicare 
Advantage 
non-drug 
bench-
mark (as determined under paragraph (2) 
of section 1853(k), without regard to 
paragraph (8) thereof) for such area, the 
amount of the premium for the individual 
for the month shall be reduced by an 
amount equal to the product of the ad-
justment factor under subparagraph (C) 
and 75 percent of the amount by which 
such 
competitive 
benchmark 
exceeds 
such fee-for-service area-specific non-
drug amount; or 
‘‘(ii) exceeds such competitive Medi-
care Advantage non-drug benchmark, the 
amount of the premium for the individual 
for the month shall be adjusted to ensure, 
subject to subparagraph (B), that—
‘‘(I) the sum of the amount of the 
adjusted premium and the competi-
tive Medicare Advantage non-drug 
benchmark for the area, is equal to
875
‘‘(II) the sum of the unadjusted 
premium plus amount of the fee-for-
service 
area-specific 
non-drug 
amount for the area. 
‘‘(B) In no case shall the actual amount of 
an adjustment under subparagraph (A)(ii) ex-
ceed the product of the adjustment factor 
under subparagraph (C) and the amount of 
the adjustment otherwise computed under 
subparagraph (A)(ii) without regard to this 
subparagraph. 
‘‘(C) The adjustment factor under this sub-
paragraph for an area for a year is equal to—
‘‘(i) the number of consecutive years 
(in the 5-year period ending with the 
year involved) in which such area was a 
competitive Medicare Advantage area; di-
vided by 
‘‘(ii) 5. 
‘‘(2)(A) In the case of an individual who re-
sides in an area that is within a competitive 
EFFS region under section 1860E–3(e) but is 
not within a competitive Medicare Advantage 
area under section 1853(k)(1) and who is not 
enrolled in a Medicare Advantage plan under
876
part C or in an EFFS plan under part E, the 
monthly premium otherwise applied under 
this part (determined without regard to sub-
sections (b) and (f) or any adjustment under 
this subsection) shall be adjusted as follows: 
If the fee-for-service region-specific non-drug 
amount (as defined in section 1860E–3(e)(6)) 
for a region for a month—
‘‘(i) does not exceed the competitive 
EFFS 
non-drug 
monthly 
benchmark 
amount (as determined under paragraph 
(2) of section 1860E–3(e), without regard 
to paragraph (8) thereof) for such region, 
the amount of the premium for the indi-
vidual for the month shall be reduced by 
an amount equal to the product of the ad-
justment factor under subparagraph (C) 
and 75 percent of the amount by which 
such competitive benchmark amount ex-
ceeds such fee-for-service region-specific 
non-drug benchmark amount; or 
‘‘(ii) exceeds such competitive EFFS 
non-drug monthly benchmark amount, 
the amount of the premium for the indi-
vidual for the month shall be adjusted to
877
ensure, subject to subparagraph (B), 
that—
‘‘(I) the sum of the amount of the 
adjusted premium and the competi-
tive EFFS non-drug monthly bench-
mark amount for the region, is equal 
to 
‘‘(II) the sum of the unadjusted 
premium plus the amount of the 
EFFS 
region-specific 
non-drug 
monthly bid for the region. 
‘‘(B) In no case shall the actual amount of 
an adjustment under subparagraph (A)(ii) ex-
ceed the product of the adjustment factor 
under subparagraph (C) and the amount of 
the adjustment otherwise computed under 
subparagraph (A)(ii) without regard to this 
subparagraph. 
‘‘(C) The adjustment factor under this sub-
paragraph for an EFFS region for a year is 
equal to—
‘‘(i) the number of consecutive years 
(in the 5-year period ending with the 
year involved) in which such region was 
a competitive EFFS region; divided by
878
‘‘(ii) 5. 
‘‘(3) Nothing in this subsection shall be 
construed as preventing a reduction under 
paragraph (1)(A) or paragraph (2)(A) in the 
premium otherwise applicable under this part 
to zero or from requiring the provision of a 
rebate to the extent such premium would oth-
erwise be required to be less than zero. 
‘‘(4) The adjustment in the premium under 
this subsection shall be effected in such man-
ner as the Medicare Benefits Administrator 
determines appropriate. 
‘‘(5) In order to carry out this subsection 
(insofar as it is effected through the manner 
of collection of premiums under 1840(a)), the 
Medicare Benefits Administrator shall trans-
mit to the Commissioner of Social Security—
‘‘(A) at the beginning of each year, the 
name, social security account number, 
and the amount of the adjustment (if any) 
under this subsection for each individual 
enrolled under this part for each month 
during the year; and 
‘‘(B) periodically throughout the year, 
information to update the information
879
previously transmitted under this para-
graph for the year.’’. 
(2) CONFORMING AMENDMENT.—Section 
1844(c) (42 U.S.C. 1395w(c)) is amended 
by inserting ‘‘and without regard to any 
premium adjustment effected under sec-
tion 1839(h)’’ before the period at the end. 
(d) EFFECTIVE
DATE.—The amendments 
made by this section shall take effect on Janu-
ary 1, 2010.
TITLE III—COMBATTING WASTE, 
FRAUD, AND ABUSE 
SEC. 301. MEDICARE SECONDARY PAYOR (MSP) PROVI-
SIONS. 
(a) TECHNICAL
AMENDMENT
CONCERNING 
SECRETARY’S AUTHORITY TO MAKE CONDITIONAL 
PAYMENT WHEN CERTAIN PRIMARY PLANS DO 
NOT PAY PROMPTLY.—
(1) IN GENERAL.—Section 1862(b)(2) (42 
U.S.C. 1395y(b)(2)) is amended—
(A) in subparagraph (A)(ii), by 
striking ‘‘promptly (as determined in 
accordance with regulations)’’; 
(B) in subparagraph (B)—
880
(i) by redesignating clauses (i) 
through 
(iii) 
as 
clauses 
(ii) 
through (iv), respectively; and 
(ii) by inserting before clause 
(ii), as so redesignated, the fol-
lowing new clause: 
‘‘(i) AUTHORITY TO MAKE CONDI-
TIONAL
PAYMENT.—The Secretary 
may make payment under this 
title with respect to an item or 
service if a primary plan de-
scribed in subparagraph (A)(ii) 
has not made or cannot reason-
ably be expected to make pay-
ment with respect to such item or 
service promptly (as determined 
in accordance with regulations). 
Any such payment by the Sec-
retary shall be conditioned on re-
imbursement to the appropriate 
Trust Fund in accordance with 
the succeeding provisions of this 
subsection.’’. 
(2) EFFECTIVE DATE.—The amendments 
made by paragraph (1) shall be effective
881
as if included in the enactment of title III 
of the Medicare and Medicaid Budget 
Reconciliation Amendments of 1984 (Pub-
lic Law 98-369). 
(b) CLARIFYING
AMENDMENTS
TO
CONDI-
TIONAL
PAYMENT
PROVISIONS.—Section 
1862(b)(2) (42 U.S.C. 1395y(b)(2)) is further 
amended—
(1) in subparagraph (A), in the matter 
following clause (ii), by inserting the fol-
lowing sentence at the end: ‘‘An entity 
that engages in a business, trade, or pro-
fession shall be deemed to have a self-in-
sured plan if it carries its own risk 
(whether by a failure to obtain insurance, 
or otherwise) in whole or in part.’’; 
(2) in subparagraph (B)(ii), as redesig-
nated by subsection (a)(2)(B)—
(A) by striking the first sentence 
and inserting the following: ‘‘A pri-
mary plan, and an entity that re-
ceives payment from a primary plan, 
shall reimburse the appropriate Trust 
Fund for any payment made by the 
Secretary under this title with re-
882
spect to an item or service if it is 
demonstrated that such primary plan 
has or had a responsibility to make 
payment with respect to such item or 
service. A primary plan’s responsi-
bility for such payment may be dem-
onstrated by a judgment, a payment 
conditioned upon the recipient’s com-
promise, waiver, or release (whether 
or not there is a determination or ad-
mission of liability) of payment for 
items or services included in a claim 
against the primary plan or the pri-
mary plan’s insured, or by other 
means.’’; and 
(B) in the final sentence, by strik-
ing ‘‘on the date such notice or other 
information is received’’ and insert-
ing ‘‘on the date notice of, or informa-
tion related to, a primary plan’s re-
sponsibility for such payment or 
other information is received’’; and 
(3) in subparagraph (B)(iii), as redes-
ignated by subsection (a)(2)(B), by strik-
ing the first sentence and inserting the
883
following: ‘‘In order to recover payment 
made under this title for an item or serv-
ice, the United States may bring an ac-
tion against any or all entities that are or 
were required or responsible (directly, as 
an insurer or self-insurer, as a third-
party administrator, as an employer that 
sponsors or contributes to a group health 
plan, or large group health plan, or other-
wise) to make payment with respect to 
the same item or service (or any portion 
thereof) under a primary plan. The 
United States may, in accordance with 
paragraph (3)(A) collect double damages 
against any such entity. In addition, the 
United States may recover under this 
clause from any entity that has received 
payment from a primary plan or from the 
proceeds of a primary plan’s payment to 
any entity.’’. 
(c) 
CLERICAL
AMENDMENTS.—Section 
1862(b) (42 U.S.C. 1395y(b)) is amended—
(1) in paragraph (1)(A), by moving the 
indentation of clauses (ii) through (v) 2 
ems to the left; and
884
(2) in paragraph (3)(A), by striking 
‘‘such’’ before ‘‘paragraphs’’. 
SEC. 302. COMPETITIVE ACQUISITION OF CERTAIN ITEMS 
AND SERVICES. 
(a) IN GENERAL.—Section 1847 (42 U.S.C. 
1395w–3) is amended to read as follows:
‘‘COMPETITIVE ACQUISITION OF CERTAIN ITEMS 
AND SERVICES 
‘‘SEC. 1847. (a) ESTABLISHMENT OF COMPETI-
TIVE ACQUISITION PROGRAMS.—
‘‘(1) IMPLEMENTATION OF PROGRAMS.—
‘‘(A) IN
GENERAL.—The Secretary 
shall establish and implement pro-
grams under which competitive ac-
quisition 
areas 
are 
established 
throughout the United States for con-
tract award purposes for the fur-
nishing under this part of competi-
tively priced items and services (de-
scribed in paragraph (2)) for which 
payment is made under this part. 
Such areas may differ for different 
items and services. 
‘‘(B) PHASED-IN IMPLEMENTATION.—
The programs shall be phased-in—
885
‘‘(i) among competitive acqui-
sition areas over a period of not 
longer than 3 years in a manner 
so that the competition under the 
programs occurs in—
‘‘(I) at least 
1⁄3
of such 
areas in 2005; and 
‘‘(II) at least 2⁄3 of such 
areas in 2006; and 
‘‘(ii) among items and services 
in a manner such that the pro-
grams apply to the highest cost 
and highest volume items and 
services first. 
‘‘(C) WAIVER
OF
CERTAIN
PROVI-
SIONS.—In carrying out the programs, 
the Secretary may waive such provi-
sions of the Federal Acquisition Reg-
ulation as are necessary for the effi-
cient implementation of this section, 
other than provisions relating to con-
fidentiality of information and such 
other provisions as the Secretary de-
termines appropriate.
886
‘‘(2) ITEMS AND SERVICES DESCRIBED.—
The items and services referred to in 
paragraph (1) are the following: 
‘‘(A) DURABLE MEDICAL EQUIPMENT 
AND
MEDICAL
SUPPLIES.—Covered 
items 
(as 
defined 
in 
section 
1834(a)(13)) for which payment is oth-
erwise made under section 1834(a), 
including items used in infusion and 
drugs and supplies used in conjunc-
tion with durable medical equipment, 
but excluding class III devices under 
the Federal Food, Drug, and Cosmetic 
Act. 
‘‘(B) OTHER
EQUIPMENT
AND
SUP-
PLIES.—Items, equipment, and sup-
plies 
(as 
described 
in 
section 
1842(s)(2)(D) other than enteral nutri-
ents). 
‘‘(C) OFF-THE-SHELF
ORTHOTICS.—
Orthotics 
(described 
in 
section 
1861(s)(9)) for which payment is oth-
erwise made under section 1834(h) 
which require minimal self-adjust-
ment for appropriate use and does
887
not require expertise in trimming, 
bending, molding, assembling, or cus-
tomizing to fit to the patient. 
‘‘(3) EXCEPTION
AUTHORITY.—In car-
rying out the programs under this sec-
tion, the Secretary may exempt—
‘‘(A) rural areas and areas with 
low population density within urban 
areas that are not competitive, unless 
there is a significant national market 
through mail order for a particular 
item or service; and 
‘‘(B) items and services for which 
the application of competitive acqui-
sition is not likely to result in signifi-
cant savings. 
‘‘(4) SPECIAL RULE FOR CERTAIN RENTED 
ITEMS OF DURABLE MEDICAL EQUIPMENT.—In 
the case of a covered item for which pay-
ment is made on a rental basis under sec-
tion 1834(a), the Secretary shall establish 
a process by which rental agreements for 
the covered items entered into before the 
application of the competitive acquisition 
program under this section for the item
888
may be continued notwithstanding this 
section. In the case of any such continu-
ation, the supplier involved shall provide 
for appropriate servicing and replace-
ment, as required under section 1834(a). 
‘‘(5) PHYSICIAN
AUTHORIZATION.—The 
Secretary may establish a process under 
which a physician may prescribe a par-
ticular brand or mode of delivery of an 
item or service if the item or service in-
volved is clinically more appropriate 
than other similar items or services. 
‘‘(6) APPLICATION.—For each competi-
tive acquisition area in which the pro-
gram is implemented under this sub-
section with respect to items and serv-
ices, the payment basis determined under 
the competition conducted under sub-
section (b) shall be substituted for the 
payment basis otherwise applied under 
section 1834(a). 
‘‘(b) PROGRAM REQUIREMENTS.—
‘‘(1) IN GENERAL.—The Secretary shall 
conduct a competition among entities 
supplying items and services described in
889
subsection (a)(2) for each competitive ac-
quisition area in which the program is 
implemented under subsection (a) with 
respect to such items and services. 
‘‘(2) CONDITIONS
FOR
AWARDING
CON-
TRACT.—
‘‘(A) IN
GENERAL.—The Secretary 
may not award a contract to any enti-
ty under the competition conducted 
in an competitive acquisition area 
pursuant to paragraph (1) to furnish 
such items or services unless the Sec-
retary finds all of the following: 
‘‘(i) The entity meets quality 
and financial standards specified 
by the Secretary or developed by 
the Program Advisory and Over-
sight 
Committee 
established 
under subsection (c). 
‘‘(ii) The total amounts to be 
paid under the contract (includ-
ing costs associated with the ad-
ministration of the contract) are 
expected to be less than the total
890
amounts that would otherwise be 
paid. 
‘‘(iii) Beneficiary access to a 
choice of multiple suppliers in the 
area is maintained. 
‘‘(iv) Beneficiary liability is 
limited to 20 percent of the appli-
cable contract award price, ex-
cept in such cases where a sup-
plier has furnished an upgraded 
item and has executed an ad-
vanced beneficiary notice. 
‘‘(B) 
DEVELOPMENT
OF
QUALITY 
STANDARDS FOR DME PRODUCTS.—
‘‘(i) IN
GENERAL.—The quality 
standards specified under sub-
paragraph (A)(i) shall not be less 
than the quality standards that 
would otherwise apply if this sec-
tion did not apply and shall in-
clude consumer services stand-
ards. Not later than July 1, 2004, 
the Secretary shall establish new 
quality standards for products 
subject to competitive acquisition
891
under this section. Such stand-
ards shall be applied prospec-
tively and shall be published on 
the website of the Department of 
Health and Human Services. 
‘‘(ii) CONSULTATION
WITH
PRO-
GRAM
ADVISORY
AND
OVERSIGHT 
COMMITTEE.—The Secretary shall 
consult with the Program Advi-
sory and Oversight Committee 
(established under subsection (c)) 
to review (and advise the Sec-
retary concerning) the quality 
standards referred to in clause (i). 
‘‘(3) CONTENTS OF CONTRACT.—
‘‘(A) IN GENERAL.—A contract en-
tered into with an entity under the 
competition conducted pursuant to 
paragraph (1) is subject to terms and 
conditions that the Secretary may 
specify. 
‘‘(B) TERM
OF
CONTRACTS.—The 
Secretary shall recompete contracts 
under this section not less often than 
once every 3 years.
892
‘‘(4) LIMIT
ON
NUMBER
OF
CONTRAC-
TORS.—
‘‘(A) IN
GENERAL.—The Secretary 
may limit the number of contractors 
in a competitive acquisition area to 
the number needed to meet projected 
demand for items and services cov-
ered under the contracts. In award-
ing contracts, the Secretary shall take 
into account the ability of bidding en-
tities to furnish items or services in 
sufficient quantities to meet the an-
ticipated needs of beneficiaries for 
such items or services in the geo-
graphic area covered under the con-
tract on a timely basis. 
‘‘(B) MULTIPLE WINNERS.—The Sec-
retary shall award contracts to mul-
tiple entities submitting bids in each 
area for an item or service. 
‘‘(5) PAYMENT.—Payment under this 
part for competitively priced items and 
services described in subsection (a)(2) 
shall be based on the bids submitted and
893
accepted under this section for such 
items and services. 
‘‘(6) 
PARTICIPATING
CONTRACTORS.—
Payment shall not be made for items and 
services described in subsection (a)(2) 
furnished by a contractor and for which 
competition is conducted under this sec-
tion unless—
‘‘(A) the contractor has submitted 
a bid for such items and services 
under this section; and 
‘‘(B) the Secretary has awarded a 
contract to the contractor for such 
items and services under this section. 
In this section, the term ‘bid’ means a re-
quest for a proposal for an item or serv-
ice that includes the cost of the item or 
service, and where appropriate, any serv-
ices that are attendant to the provision of 
the item or service. 
‘‘(7) CONSIDERATION
IN
DETERMINING 
CATEGORIES
FOR
BIDS.—The 
Secretary 
shall consider the similarity of the clin-
ical efficiency and value of specific codes 
and products, including products that
894
may provide a therapeutic advantage to 
beneficiaries, before delineating the cat-
egories and products that will be subject 
to bidding. 
‘‘(8) AUTHORITY TO CONTRACT FOR EDU-
CATION, MONITORING, OUTREACH AND COM-
PLAINT
SERVICES.—The 
Secretary 
may 
enter into a contract with an appropriate 
entity to address complaints from bene-
ficiaries who receive items and services 
from an entity with a contract under this 
section and to conduct appropriate edu-
cation of and outreach to such bene-
ficiaries and monitoring quality of serv-
ices with respect to the program. 
‘‘(c) PROGRAM ADVISORY
AND OVERSIGHT 
COMMITTEE.—
‘‘(1) ESTABLISHMENT.—There is estab-
lished a Program Advisory and Oversight 
Committee (hereinafter in this section re-
ferred to as the ‘Committee’). 
‘‘(2) MEMBERSHIP; TERMS.—The Com-
mittee shall consist of such members as 
the Secretary may appoint who shall
895
serve for such term as the Secretary may 
specify. 
‘‘(3) DUTIES.—
‘‘(A) TECHNICAL
ASSISTANCE.—The 
Committee shall provide advice and 
technical assistance to the Secretary 
with respect to the following func-
tions: 
‘‘(i) The implementation of the 
program under this section. 
‘‘(ii) The establishment of re-
quirements for collection of data. 
‘‘(iii) The development of pro-
posals for efficient interaction 
among manufacturers and dis-
tributors of the items and serv-
ices and providers and bene-
ficiaries. 
‘‘(B) 
ADDITIONAL
DUTIES.—The 
Committee shall perform such addi-
tional functions to assist the Sec-
retary in carrying out this section as 
the Secretary may specify.
896
‘‘(4) INAPPLICABILITY
OF
FACA.—The 
provisions of the Federal Advisory Com-
mittee Act (5 U.S.C. App.) shall not apply. 
‘‘(d) 
ANNUAL
REPORTS.—The 
Secretary 
shall submit to Congress an annual manage-
ment report on the programs under this sec-
tion. Each such report shall include informa-
tion on savings, reductions in beneficiary 
cost-sharing, access to and quality of items 
and services, and beneficiary satisfaction. 
‘‘(e) DEMONSTRATION PROJECT FOR CLINICAL 
LABORATORY SERVICES.—
‘‘(1) IN GENERAL.—The Secretary shall 
conduct a demonstration project on the 
application of competitive acquisition 
under this section to clinical diagnostic 
laboratory tests—
‘‘(A) for which payment is other-
wise made under section 1833(h) or 
1834(d)(1) (relating to colorectal can-
cer screening tests); and 
‘‘(B) which are furnished by enti-
ties that did not have a face-to-face 
encounter with the individual.
897
‘‘(2) 
TERMS
AND
CONDITIONS.—Such 
project shall be under the same condi-
tions as are applicable to items and serv-
ices described in subsection (a)(2). 
‘‘(3) 
REPORT.—The 
Secretary 
shall 
submit to Congress—
‘‘(A) an initial report on the 
project not later than December 31, 
2005; and 
‘‘(B) such progress and final re-
ports on the project after such date 
as the Secretary determines appro-
priate.’’. 
(b) CONFORMING AMENDMENTS.—
(1) 
DURABLE
MEDICAL
EQUIPMENT; 
ELIMINATION OF INHERENT REASONABLENESS 
AUTHORITY.—Section 1834(a) (42 U.S.C. 
1395m(a)) is amended—
(A) in paragraph (1)(B), by strik-
ing ‘‘The payment basis’’ and insert-
ing ‘‘Subject to subparagraph (E)(i), 
the payment basis’’; 
(B) in paragraph (1)(C), by strik-
ing ‘‘This subsection’’ and inserting
898
‘‘Subject to subparagraph (E)(ii), this 
subsection’’; 
(C) by adding at the end of para-
graph (1) the following new subpara-
graph: 
‘‘(E) APPLICATION
OF
COMPETITIVE 
ACQUISITION; ELIMINATION OF INHERENT 
REASONABLENESS
AUTHORITY.—In the 
case of covered items and services 
that are included in a competitive ac-
quisition program in a competitive 
acquisition 
area 
under 
section 
1847(a)—
‘‘(i) the payment basis under 
this subsection for such items and 
services furnished in such area 
shall be the payment basis deter-
mined under such competitive ac-
quisition program; and 
‘‘(ii) the Secretary may use in-
formation on the payment deter-
mined under such competitive ac-
quisition programs to adjust the 
payment amount otherwise recog-
nized under subparagraph (B)(ii)
899
for an area that is not a competi-
tive acquisition area under sec-
tion 1847 and in the case of such 
adjustment, 
paragraph 
(10)(B) 
shall not be applied.’’; and 
(D) in paragraph (10)(B), by in-
serting ‘‘in an area and with respect 
to covered items and services for 
which the Secretary does not make a 
payment amount adjustment under 
paragraph (1)(E)’’ after ‘‘under this 
subsection’’. 
(2) OFF-THE-SHELF
ORTHOTICS; ELIMI-
NATION OF INHERENT REASONABLENESS AU-
THORITY.—Section 
1834(h) 
(42 
U.S.C. 
1395m(h)) is amended—
(A) in paragraph (1)(B), by strik-
ing ‘‘and (E)’’ and inserting ‘‘, (E) , 
and (H)(i)’’; 
(B) in paragraph (1)(D), by strik-
ing ‘‘This subsection’’ and inserting 
‘‘Subject to subparagraph (H)(ii), this 
subsection’’;
900
(C) by adding at the end of para-
graph (1) the following new subpara-
graph: 
‘‘(H) APPLICATION OF COMPETITIVE 
ACQUISITION
TO
ORTHOTICS; 
ELIMI-
NATION
OF
INHERENT
REASONABLENESS 
AUTHORITY.—In the case of orthotics 
described in paragraph (2)(B) of sec-
tion 1847(a) that are included in a 
competitive acquisition program in a 
competitive acquisition area under 
such section—
‘‘(i) the payment basis under 
this subsection for such orthotics 
furnished in such area shall be 
the payment basis determined 
under such competitive acquisi-
tion program; and 
‘‘(ii) the Secretary may use in-
formation on the payment deter-
mined under such competitive ac-
quisition programs to adjust the 
payment amount otherwise recog-
nized under subparagraph (B)(ii) 
for an area that is not a competi-
901
tive acquisition area under sec-
tion 1847, and in the case of such 
adjustment, paragraphs (8) and 
(9) of section 1842(b) shall not be 
applied.’’. 
(c) REPORT ON ACTIVITIES OF SUPPLIERS.—
The Secretary shall conduct a study to deter-
mine the extent to which (if any) suppliers of 
covered items of durable medical equipment 
that are subject to the competitive acquisition 
program under section 1847 of the Social Se-
curity Act, as amended by subsection (a), are 
soliciting physicians to prescribe certain 
brands or modes of delivery of covered items 
based on profitability.
SEC. 303. COMPETITIVE ACQUISITION OF COVERED OUT-
PATIENT DRUGS AND BIOLOGICALS.
(a) ADJUSTMENT TO PHYSICIAN FEE SCHED-
ULE.—
(1) ADJUSTMENT IN PRACTICE EXPENSE 
RELATIVE VALUE UNITS.—Section 1848(c)(2) 
(42 U.S.C. 1395w–4(c)(2)) is amended—
(A) in subparagraph (B)—
(i) in clause (ii)(II), by striking 
‘‘The adjustments’’ and inserting
902
‘‘Subject to clause (iv), the adjust-
ments’’; and 
(ii) by adding at the end of 
subparagraph (B), the following 
new clause: 
‘‘(iv) 
EXCEPTION
TO
BUDGET 
NEUTRALITY.—The additional ex-
penditures attributable to clauses 
(ii) and (iii) of subparagraph (H) 
shall not be taken into account in 
applying clause (ii)(II) for 2005.’’; 
and 
(B) by adding at the end the fol-
lowing new subparagraph: 
‘‘(H) ADJUSTMENTS IN PRACTICE EX-
PENSE
RELATIVE
VALUE
UNITS
FOR 
2004.—
‘‘(i) IN
GENERAL.—As part of 
the annual process of establishing 
the physician fee schedule under 
subsection (b) for 2004, the Sec-
retary shall increase the practice 
expense relative value units for 
2004 consistent with clauses (ii) 
and (iii).
903
‘‘(ii) 
USE
OF
SUPPLEMENTAL 
SURVEY
DATA.—For 2004 for any 
specialty that submitted survey 
data that included expenses for 
the administration of drugs and 
biologicals for which payment is 
made under section 1842(o) (or 
section 
1847A), 
the 
Secretary 
shall use such supplemental sur-
vey data in carrying out this sub-
paragraph insofar as they are col-
lected and provided by entities 
and organizations consistent with 
the criteria established by the 
Secretary 
pursuant 
to 
section 
212(a) of the Medicare, Medicaid, 
and SCHIP Balanced Budget Re-
finement Act of 1999 and insofar 
as such data are submitted to the 
Secretary by the date of the en-
actment of this subparagraph.
‘‘(iii) 
EXPEDITING
CONSIDER-
ATION OF CPT CODES FOR AFFECTED 
PHYSICIAN
SPECIALTIES.—The Sec-
retary shall, in cooperation with
904
representatives of physician spe-
cialities affected by section 1847A, 
take such actions as are nec-
essary to expedite considerations 
of CPT codes, or expand the abil-
ity to appropriately bill for physi-
cians’ 
services 
under 
existing 
CPT codes, for costs associated 
with the administration of cov-
ered outpatient drugs. The Sec-
retary shall consult with rep-
resentatives of advisory physician 
groups in expediting such consid-
erations. 
‘‘(iv) SUBSEQUENT, BUDGET NEU-
TRAL
ADJUSTMENTS
PERMITTED.—
Nothing 
in 
this 
subparagraph 
shall be construed as preventing 
the Secretary from providing for 
adjustments in practice expense 
relative value units under (and 
consistent with) subparagraph (B) 
for years after 2004. 
‘‘(v) 
CONSULTATION.—Before 
publishing the notice of proposed
905
rulemaking to carry out this sub-
paragraph, the Secretary shall 
consult with the Comptroller Gen-
eral of the United States and with 
groups representing the physi-
cian specialties involved. 
‘‘(vi) TREATMENT AS CHANGE IN 
LAW
AND
REGULATION
IN
SUSTAIN-
ABLE
GROWTH
RATE
DETERMINA-
TION.—The enactment of subpara-
graph (B)(iv) and this subpara-
graph 
shall 
be 
treated 
as 
a 
change in law for purposes of ap-
plying subsection (f)(2)(D).’’. 
(2) PROHIBITION
OF
ADMINISTRATIVE 
AND
JUDICIAL
REVIEW.—Section 1848(i)(1) 
(42 U.S.C. 1395w–4(i)(1)) is amended—
(A) by striking ‘‘and’’ at the end of 
subparagraph (D); 
(B) by striking the period at the end 
of subparagraph (E) and inserting ‘‘, 
and’’; and 
(C) by adding at the end the following 
new subparagraph:
906
‘‘(F) adjustments in practice ex-
pense relative value units for 2005 
under subsection (c)(2)(H).’’. 
(3) TREATMENT
OF
OTHER
SERVICES 
CURRENTLY
IN
THE
NON-PHYSICIAN
WORK 
POOL.—The Secretary shall make adjust-
ments to the non-physician work pool 
methodology (as such term is used in the 
regulations promulgated by the Secretary 
in the Federal Register as of December 
31, 2002) for determination of practice ex-
pense relative value units under the phy-
sician fee schedule described in section 
1848(c)(2)(C)(ii) of the Social Security Act 
so that the practice expense relative 
value 
units 
for 
services 
determined 
under such methodology are not dis-
proportionately reduced relative to the 
practice expense relative value units of 
other services not determined under such 
non-physician work pool methodology, as 
the result of amendments made by para-
graph (1). 
(4) SUBMISSION
OF
PRACTICE
EXPENSE 
SURVEY
DATA.—Any physician specialty
907
may submit survey data related to prac-
tice expenses to the Secretary through 
Decmeber 31, 2004. Nothing in this para-
graph shall be construed as waiving the 
application of budget neutrality under 
section 1848 of the Social Security Act.
(b) PAYMENT BASED ON COMPETITION.—Title 
XVIII is amended by inserting after section 
1847 (42 U.S.C. 1395w–3), as amended by sec-
tion 302, the following new sections: 
‘‘COMPETITIVE ACQUISITION OF COVERED 
OUTPATIENT DRUGS AND BIOLOGICALS 
‘‘SEC. 1847A. (a) IMPLEMENTATION OF COM-
PETITIVE ACQUISITION.—
‘‘(1) IMPLEMENTATION OF PROGRAM.—
‘‘(A) IN
GENERAL.—The Secretary 
shall establish and implement a com-
petitive acquisition program under 
which—
‘‘(i) 
competitive 
acquisition 
areas are established throughout 
the United States for contract 
award purposes for acquisition of 
and payment for categories of 
covered 
outpatient 
drugs 
and
908
biologicals (as defined in para-
graph (2)) under this part; and 
‘‘(ii) each physician who does 
not elect section 1847B to apply 
makes an annual selection, under 
paragraph (5) of the contractor 
through 
which 
drugs 
and 
biologicals within a category of 
drugs and biologicals will be ac-
quired and delivered to the physi-
cian under this part. 
‘‘(B) IMPLEMENTATION.—The Sec-
retary shall implement the program 
so that the program applies to—
‘‘(i) the oncology category be-
ginning in 2005; and 
‘‘(ii) 
the 
non-oncology 
cat-
egory beginning in 2006. 
This section shall not apply in the 
case of a physician who elects section 
1847B to apply. 
‘‘(C) WAIVER
OF
CERTAIN
PROVI-
SIONS.—In order to promote competi-
tion, efficient service, and product 
quality, in carrying out the program
909
the Secretary may waive such provi-
sions of the Federal Acquisition Reg-
ulation as are necessary for the effi-
cient implementation of this section, 
other than provisions relating to con-
fidentiality of information and such 
other provisions as the Secretary de-
termines appropriate. 
‘‘(D) EXCLUSION
AUTHORITY.—The 
Secretary may exclude covered out-
patient drugs and biologicals (includ-
ing 
a 
class 
of 
such 
drugs 
and 
biologicals) from the competitive bid-
ding system under this section if the 
drugs or biologicals (or class) are not 
appropriate for competitive bidding 
due to low volume of utilization by 
beneficiaries under this part or a 
unique mode or method of delivery or 
similar reasons.
‘‘(2) COVERED
OUTPATIENT
DRUGS
AND 
BIOLOGICALS, 
CATEGORIES, 
PROGRAM
DE-
FINED.—For purposes of this section—
‘‘(A) COVERED
OUTPATIENT
DRUGS 
AND
BIOLOGICALS
DEFINED.—The term
910
‘covered 
outpatient 
drugs 
and 
biologicals’ 
means 
drugs 
and 
biologicals to which section 1842(o) 
applies and which are not covered 
under section 1847 (relating to com-
petitive acquisition for items of dura-
ble medical equipment). Such term 
does not include the following: 
‘‘(i) Blood clotting factors. 
‘‘(ii) Drugs and biologicals fur-
nished to individuals in connec-
tion with the treatment of end 
stage renal disease. 
‘‘(iii) Radiopharmaceuticals. 
‘‘(B) 2 CATEGORIES.—Each of the 
following shall be a separate category 
of 
covered 
outpatient 
drugs 
and 
biologicals, as identified by the Sec-
retary: 
‘‘(i) ONCOLOGY
CATEGORY.—A 
category (in this section referred 
to as the ‘oncology category’) con-
sisting 
of 
those 
covered 
out-
patient 
drugs 
and 
biologicals 
that, as determined by the Sec-
911
retary, are typically primarily 
billed by oncologists or are other-
wise used to treat cancer. 
‘‘(ii) 
NON-ONCOLOGY
CAT-
EGORIES.—Such numbers of cat-
egories (in this section referred to 
as the ‘non-oncology categories’) 
consisting of covered outpatient 
drugs and biologicals not de-
scribed in clause (i), and appro-
priate 
subcategories 
of 
such 
drugs and biologicals as the Sec-
retary may specify. 
‘‘(C) PROGRAM.—The term ‘pro-
gram’ means the competitive acquisi-
tion program under this section. 
‘‘(D) 
COMPETITIVE
ACQUISITION 
AREA; AREA.—The terms ‘competitive 
acquisition area’ and ‘area’ mean an 
appropriate geographic region estab-
lished by the Secretary under the 
program. 
‘‘(E) CONTRACTOR.—The term ‘con-
tractor’ means an entity that has en-
912
tered into a contract with the Sec-
retary under this section. 
‘‘(3) APPLICATION OF PROGRAM PAYMENT 
METHODOLOGY.—With respect to covered 
outpatient drugs and biologicals which 
are supplied under the program in an 
area and which are prescribed by a phy-
sician who has not elected section 1847B 
to apply—
‘‘(A) the claim for such drugs and 
biologicals shall be submitted by the 
contractor that supplied the drugs 
and biologicals; 
‘‘(B) collection of amounts of any 
deductible and coinsurance applica-
ble with respect to such drugs and 
biologicals shall be the responsibility 
of such contractor and shall not be 
collected unless the drug or biological 
is administered to the beneficiary in-
volved; and 
‘‘(C) the payment under this sec-
tion 
(and 
related 
coinsurance 
amounts) 
for 
such 
drugs 
and 
biologicals—
913
‘‘(i) shall be made only to such 
contractor; 
‘‘(ii) shall be conditioned upon 
the administration of such drugs 
and biologicals; and 
‘‘(iii) shall be based on the av-
erage of the bid prices for such 
drugs and biologicals in the area, 
as computed under subsection (d). 
The Secretary shall provide a process 
for recoupment in the case in which 
payment is made for drugs and 
biologicals which were billed at the 
time of dispensing but which were 
not actually administered. 
‘‘(4) CONTRACT REQUIRED.—
‘‘(A) IN
GENERAL.—Payment may 
not be made under this part for cov-
ered outpatient drugs and biologicals 
prescribed by a physician who has 
not elected section 1847B to apply 
within a category and a competitive 
acquisition 
area 
with 
respect 
to 
which the program applies unless—
914
‘‘(i) the drugs or biologicals 
are supplied by a contractor with 
a contract under this section for 
such 
category 
of 
drugs 
and 
biologicals and area; and 
‘‘(ii) the physician has elected 
such contractor under paragraph 
(5) for such category and area. 
‘‘(B) PHYSICIAN CHOICE.—Subpara-
graph (A) shall not apply for a cat-
egory of drugs for an area if the phy-
sician prescribing the covered out-
patient drug in such category and 
area has elected to apply section 
1847B instead of this section.
‘‘(5) CONTRACTOR SELECTION PROCESS.—
‘‘(A) IN
GENERAL.—The Secretary 
shall provide a process for the selec-
tion of a contractor, on an annual 
basis 
and 
in 
such 
exigent 
cir-
cumstances as the Secretary may pro-
vide and with respect to each cat-
egory of covered outpatient drugs 
and biologicals for an area, by physi-
cians prescribing such drugs and
915
biologicals in the area of the con-
tractor under this section that will 
supply the drugs and biologicals 
within that category and area. Such 
selection shall also include the elec-
tion described in section 1847B(a). 
‘‘(B) INFORMATION
ON
CONTRAC-
TORS.—The 
Secretary 
shall 
make 
available to physicians on an ongoing 
basis, through a directory posted on 
the Department’s Internet website or 
otherwise and upon request, a list of 
the contractors under this section in 
the different competitive acquisition 
areas. 
‘‘(C) 
SELECTING
PHYSICIAN
DE-
FINED.—For purposes of this section, 
the term ‘selecting physician’ means, 
with respect to a contractor and cat-
egory and competitive acquisition 
area, a physician who has not elected 
section 1847B to apply and has se-
lected to apply under this section 
such contractor for such category 
and area.
916
‘‘(b) PROGRAM REQUIREMENTS.—
‘‘(1) 
CONTRACT
FOR
COVERED
OUT-
PATIENT
DRUGS
AND
BIOLOGICALS.—The 
Secretary shall conduct a competition 
among entities for the acquisition of a 
covered outpatient drug or biological 
within each HCPCS code within each cat-
egory for each competitive acquisition 
area. 
‘‘(2) CONDITIONS
FOR
AWARDING
CON-
TRACT.—
‘‘(A) IN
GENERAL.—The Secretary 
may not award a contract to any enti-
ty under the competition conducted 
in a competitive acquisition area pur-
suant to paragraph (1) with respect to 
the acquisition of covered outpatient 
drugs and biologicals within a cat-
egory unless the Secretary finds that 
the entity meets all of the following 
with respect to the contract period 
involved: 
‘‘(i) CAPACITY
TO
SUPPLY
COV-
ERED OUTPATIENT DRUG OR BIOLOGI-
CAL WITHIN CATEGORY.—
917
‘‘(I) IN GENERAL.—The enti-
ty 
has 
sufficient 
arrange-
ments to acquire and to de-
liver covered outpatient drugs 
and biologicals within such 
category in the area specified 
in the contract at the bid 
price specified in the contract 
for all physicians that may 
elect such entity. 
‘‘(II) 
SHIPMENT
METHOD-
OLOGY.—The entity has ar-
rangements in effect for the 
shipment at least 5 days each 
week of covered outpatient 
drugs and biologicals under 
the contract and for the time-
ly 
delivery 
(including 
for 
emergency situations) of such 
drugs and biologicals in the 
area under the contract. 
‘‘(ii) QUALITY, SERVICE, FINAN-
CIAL
PERFORMANCE
AND
SOLVENCY 
STANDARDS.—The 
entity 
meets 
quality, 
service, 
financial 
per-
918
formance, and solvency standards 
specified by the Secretary, includ-
ing—
‘‘(I) the establishment of 
procedures for the prompt re-
sponse and resolution of phy-
sician and beneficiary com-
plaints and inquiries regard-
ing the shipment of covered 
outpatient 
drugs 
and 
biologicals; and 
‘‘(II) a grievance process 
for the resolution of disputes. 
‘‘(B) 
ADDITIONAL
CONSIDER-
ATIONS.—The Secretary may refuse to 
award a contract under this section, 
and may terminate such a contract, 
with an entity based upon—
‘‘(i) the suspension or revoca-
tion, by the Federal Government 
or a State government, of the en-
tity’s license for the distribution 
of drugs or biologicals (including 
controlled substances); or
919
‘‘(ii) the exclusion of the enti-
ty under section 1128 from par-
ticipation under this title. 
‘‘(C) 
APPLICATION
OF
MEDICARE 
PROVIDER OMBUDSMAN.—For provision 
providing for a program-wide Medi-
care Provider Ombudsman to review 
complaints, see section 1868(b), as 
added by section 923 of the Medicare 
Prescription Drug and Modernization 
Act of 2003. 
‘‘(3) AWARDING
MULTIPLE
CONTRACTS 
FOR
A
CATEGORY
AND
AREA.—In order to 
provide a choice of at least 2 contractors 
in each competitive acquisition area for a 
category of drugs and biologicals, the 
Secretary may limit (but not below 2) the 
number of qualified entities that are 
awarded such contracts for any category 
and area. The Secretary shall select 
among qualified entities based on the fol-
lowing: 
‘‘(A) The bid prices for covered 
outpatient 
drugs 
and 
biologicals 
within the category and area.
920
‘‘(B) Bid price for distribution of 
such drugs and biologicals. 
‘‘(C) Ability to ensure product in-
tegrity. 
‘‘(D) Customer service. 
‘‘(E) Past experience in the dis-
tribution of drugs and biologicals, in-
cluding controlled substances. 
‘‘(F) Such other factors as the Sec-
retary may specify. 
‘‘(4) TERMS OF CONTRACTS.—
‘‘(A) IN GENERAL.—A contract en-
tered into with an entity under the 
competition conducted pursuant to 
paragraph (1) is subject to terms and 
conditions that the Secretary may 
specify consistent with this section. 
‘‘(B) 
PERIOD
OF
CONTRACTS.—A 
contract under this section shall be 
for a term of 2 years, but may be ter-
minated by the Secretary or the enti-
ty with appropriate, advance notice. 
‘‘(C) INTEGRITY OF DRUG AND BIO-
LOGICAL
DISTRIBUTION
SYSTEM.—The 
Secretary—
921
‘‘(i) shall require that for all 
drug and biological products dis-
tributed by a contractor under 
this section be acquired directly 
from the manufacturer or from a 
distributor that has acquired the 
products directly from the manu-
facturer; and 
‘‘(ii) may require, in the case 
of such products that are particu-
larly susceptible to counterfeit or 
diversion, 
that 
the 
contractor 
comply 
with 
such 
additional 
product integrity safeguards as 
may be determined to be nec-
essary. 
‘‘(D) 
IMPLEMENTATION
OF
ANTI-
COUNTERFEITING, QUALITY, SAFETY, AND 
RECORD
KEEPING
REQUIREMENTS.—The 
Secretary shall require each con-
tractor to implement (through its offi-
cers, agents, representatives, and em-
ployees) requirements relating to the 
storage and handling of covered out-
patient drugs and biologicals and for
922
the establishment and maintenance 
of distribution records for such drugs 
and biologicals. A contract under this 
section may include requirements re-
lating to the following: 
‘‘(i) Secure facilities. 
‘‘(ii) 
Safe 
and 
appropriate 
storage of drugs and biologicals. 
‘‘(iii) Examination of drugs 
and biologicals received and dis-
pensed. 
‘‘(iv) Disposition of damaged 
and 
outdated 
drugs 
and 
biologicals. 
‘‘(v) Record keeping and writ-
ten policies and procedures. 
‘‘(vi) Compliance personnel. 
‘‘(E) COMPLIANCE
WITH
CODE
OF 
CONDUCT
AND
FRAUD
AND
ABUSE 
RULES.—Under the contract—
‘‘(i) the contractor shall com-
ply with a code of conduct, speci-
fied or recognized by the Sec-
retary, that includes standards
923
relating to conflicts of interest; 
and 
‘‘(ii) the contractor shall com-
ply with all applicable provisions 
relating to prevention of fraud 
and abuse, including compliance 
with applicable guidelines of the 
Department of Justice and the In-
spector General of the Depart-
ment of Health and Human Serv-
ices. 
‘‘(F) DIRECT
DELIVERY
OF
DRUGS 
AND
BIOLOGICALS
TO
PHYSICIANS.—
Under the contract the contractor 
shall only supply covered outpatient 
drugs and biologicals directly to the 
selecting physicians and not directly 
to beneficiaries, except under cir-
cumstances and settings where a ben-
eficiary currently receives a drug or 
biological in the beneficiary’s home 
or other non-physician office setting 
as the Secretary may provide. The 
contractor shall not deliver drugs 
and biologicals to a selecting physi-
924
cian except upon receipt of a pre-
scription 
for 
such 
drugs 
and 
biologicals, and such necessary data 
as may be required by the Secretary 
to carry out this section. This section 
does not require a physician to sub-
mit a prescription for each individual 
treatment and does not change the 
physician’s flexibility in terms of 
writing a prescription for drugs for a 
single treatment or a course of treat-
ment. 
‘‘(5) PERMITTING ACCESS TO DRUGS AND 
BIOLOGICALS.—The Secretary shall estab-
lish rules under this section under which 
drugs and biologicals which are acquired 
through a contractor under this section 
may be used to resupply inventories of 
such drugs and biologicals which are ad-
ministered consistent with safe drug 
practices and with adequate safeguards 
against fraud and abuse. The previous 
sentence shall apply—
925
‘‘(A) in cases in which the drugs 
or biologicals are immediately re-
quired; 
‘‘(B) in cases in which the physi-
cian could not have reasonably an-
ticipated the immediate requirement 
for the drugs or biologicals; 
‘‘(C) in cases in which the con-
tractor could not deliver to the physi-
cian the drugs or biologicals in a 
timely manner; and 
‘‘(D) in emergency situations. 
‘‘(6) CONSTRUCTION.—Nothing in this 
section shall be construed as waiving ap-
plicable State requirements relating to li-
censing of pharmacies.
‘‘(c) BIDDING PROCESS.—
‘‘(1) IN GENERAL.—In awarding a con-
tract 
for 
a 
category 
of 
drugs 
and 
biologicals in an area under the program, 
the Secretary shall consider with respect 
to each entity seeking to be awarded a 
contract the prices bid to acquire and 
supply the covered outpatient drugs and 
biologicals for that category and area and
926
the other factors referred to in sub-
section (b)(3). 
‘‘(2) PRICES BID.—The prices bid by an 
entity under paragraph (1) shall be the 
prices in effect and available for the sup-
ply of contracted drugs and biologicals in 
the area through the entity for the con-
tract period.
‘‘(3) REJECTION OF CONTRACT OFFER.—
The Secretary shall reject the contract 
offer of an entity with respect to a cat-
egory of drugs and biologicals for an area 
if the Secretary estimates that the prices 
bid, in the aggregate on average, would 
exceed 120 percent of the average sales 
price 
(as 
determined 
under 
section 
1847B).
‘‘(4) BIDDING
ON
A
NATIONAL
OR
RE-
GIONAL
BASIS.—Nothing in this section 
shall be construed as precluding a bidder 
from bidding for contracts in all areas of 
the United States or as requiring a bid-
der to submit a bid for all areas of the 
United States.
927
‘‘(5) 
UNIFORMITY
OF
BIDS
WITHIN 
AREA.—The amount of the bid submitted 
under a contract offer for any covered 
outpatient drug or biological for an area 
shall be the same for that drug or biologi-
cal for all portions of that area. 
‘‘(6) CONFIDENTIALITY
OF
BIDS.—The 
provisions of subparagraph (D) of section 
1927(b)(3) shall apply to a bid submitted 
in a contract offer for a covered out-
patient drug or biological under this sec-
tion in the same manner as it applies to 
information disclosed under such section, 
except that any reference—
‘‘(A) in that subparagraph to a 
‘manufacturer 
or 
wholesaler’ 
is 
deemed a reference to a ‘bidder’ 
under this section; 
‘‘(B) in that section to ‘prices 
charged for drugs’ is deemed a ref-
erence to a ‘bid’ submitted under this 
section; and 
‘‘(C) in clause (i) of that section to 
‘this section’, is deemed a reference to 
‘part B of title XVIII’.
928
‘‘(7) INCLUSION
OF
COSTS.—The bid 
price submitted in a contract offer for a 
covered outpatient drug or biological 
shall—
‘‘(A) include all costs related to 
the delivery of the drug or biological 
to the selecting physician (or other 
point of delivery); and 
‘‘(B) include the costs of dis-
pensing (including shipping) of such 
drug or biological and management 
fees, but shall not include any costs 
related to the administration of the 
drug or biological, or wastage, spill-
age, or spoilage. 
‘‘(8) PRICE ADJUSTMENTS DURING CON-
TRACT
PERIOD; 
DISCLOSURE
OF
COSTS.—
Each contract awarded shall provide 
for—
‘‘(A) disclosure to the Secretary 
the contractor’s reasonable, net ac-
quisition costs for periods specified 
by the Secretary, not more often than 
quarterly, of the contract; and
929
‘‘(B) 
appropriate 
price 
adjust-
ments over the period of the contract 
to reflect significant increases or de-
creases in a contractor’s reasonable, 
net acquisition costs, as so disclosed.
‘‘(d) COMPUTATION OF AVERAGE BID PRICES 
FOR A CATEGORY AND AREA.—
‘‘(1) IN
GENERAL.—For each year or 
other contract period for each covered 
outpatient drug or biological and area 
with respect to which a competition is 
conducted under the program, the Sec-
retary shall compute an area average of 
the bid prices submitted, in contract of-
fers accepted for the category and area, 
for that year or other contract period. 
‘‘(2) SPECIAL
RULES.—The Secretary 
shall establish rules regarding the use 
under this section of the alternative pay-
ment amount provided under section 
1847B to the use of a price for specific 
covered outpatient drugs and biologicals 
in the following cases: 
‘‘(A) 
NEW
DRUGS
AND 
BIOLOGICALS.—A covered outpatient
930
drug or biological for which an aver-
age bid price has not been previously 
determined. 
‘‘(B) OTHER CASES.—Such other ex-
ceptional cases as the Secretary may 
specify in regulations. 
Such alternative payment amount shall 
be based upon actual market price infor-
mation and in no case shall it exceed the 
average sales price (as determined under 
section 1847B). 
‘‘(e) COINSURANCE.—
‘‘(1) IN GENERAL.—Coinsurance under 
this part with respect to a covered out-
patient drug or biological for which pay-
ment is payable under this section shall 
be based on 20 percent of the payment 
basis under this section. 
‘‘(2) COLLECTION.—Such coinsurance 
shall be collected by the contractor that 
supplies the drug or biological involved 
and, subject to subsection (a)(3)(B), in the 
same manner as coinsurance is collected 
for durable medical equipment under 
this part.
931
‘‘(f) SPECIAL PAYMENT RULES.—
‘‘(1) IN GENERAL.—The Secretary may 
not provide for an adjustment to reim-
bursement for covered outpatient drugs 
and biologicals unless adjustments to the 
practice expense payment adjustment are 
made on the basis of supplemental sur-
veys under section 1848(c)(2)(H)(ii) of the 
Social Security Act, as added by sub-
section (a)(1)(B). 
‘‘(B) USE
IN
EXCLUSION
CASES.—If 
the Secretary excludes a drug or bio-
logical 
(or 
class 
of 
drugs 
or 
biologicals) 
under 
subsection 
(a)(1)(D), the Secretary may provide 
for reimbursement to be made under 
this 
part 
for 
such 
drugs 
and 
biologicals (or class) using the pay-
ment 
methodology 
under 
section 
1847B or other market based pricing 
system. 
‘‘(2) COORDINATION RULES.—The provi-
sions of section 1842(h)(3) shall apply to a 
contractor with respect to covered out-
patients drugs and biologicals supplied
932
by that contractor in the same manner as 
they apply to a participating supplier. In 
order to administer this section, the Sec-
retary may condition payment under this 
part to a person for the administration of 
a drug or biological supplied under this 
section upon person’s provision of infor-
mation on such administration. 
‘‘(3) APPLICATION OF REQUIREMENT FOR 
ASSIGNMENT.—For provision requiring as-
signment of claims for covered outpatient 
drugs 
and 
biologicals, 
see 
section 
1842(o)(3). 
‘‘(4) PROTECTION
FOR
BENEFICIARY
IN 
CASE OF MEDICAL NECESSITY DENIAL.—For 
protection of beneficiaries against liabil-
ity in the case of medical necessity deter-
minations, 
see 
section 
1842(b)(3)(B)(ii)(III). 
‘‘(5) PHYSICIAN ROLE IN APPEALS PROC-
ESS.—The Secretary shall establish a pro-
cedure under which a physician who pre-
scribes a drug or biological for which 
payment is made under this section has 
appeal rights that are similar to those
933
provided to a physician who prescribes 
durable medical equipment or a labora-
tory test. 
‘‘(g) ADVISORY COMMITTEE.—The Secretary 
shall establish an advisory committee that in-
cludes representatives of parties affected by 
the program under this section, including 
physicians, specialty pharmacies, distribu-
tors, manufacturers, and beneficiaries. The 
committee shall advise the Secretary on 
issues relating to the effective implementa-
tion of this section. 
‘‘(h) 
ANNUAL
REPORTS.—The 
Secretary 
shall submit to Congress an annual report in 
each of 2004, 2005, and 2006, on the program. 
Each such report shall include information on 
savings, reductions in cost-sharing, access to 
covered outpatient drugs and biologicals, the 
range of choices of contractors available to 
providers, and beneficiary and provider satis-
faction. 
‘‘OPTIONAL USE OF AVERAGE SALES PRICE 
PAYMENT METHODOLOGY 
‘‘SEC. 1847B. (a) IN GENERAL.—In connec-
tion with the election made by a physician 
under section 1847A(a)(5), the physician may
934
elect to apply this section to the payment for 
covered outpatient drugs instead of the pay-
ment methodology under section 1847A. For 
purposes of this section, the term ‘covered 
outpatient drug’ has the meaning given such 
term in section 1847A(a)(2)(A). 
‘‘(b) COMPUTATION OF PAYMENT AMOUNT.—
‘‘(1) IN
GENERAL.—If this section ap-
plies with respect to a covered outpatient 
drug, the amount payable for the drug 
(based on a minimum dosage unit) is, 
subject to applicable deductible and coin-
surance—
‘‘(A) in the case of a multiple 
source drug (as defined in subsection 
(c)(6)(C)), 
the 
amount 
determined 
under paragraph (3); or 
‘‘(B) in the case of a single source 
drug 
(as 
defined 
in 
subsection 
(c)(6)(D)), 
the 
amount 
determined 
under paragraph (4). 
‘‘(2) SPECIFICATION OF UNIT.—
‘‘(A) SPECIFICATION
BY
MANUFAC-
TURER.—The manufacturer of a cov-
ered outpatient drug shall specify the
935
unit associated with each National 
Drug Code as part of the submission 
of 
data 
under 
section 
1927(b)(3)(A)(iii). 
‘‘(B) UNIT
DEFINED.—In this sec-
tion, the term ‘unit’ means, with re-
spect to a covered outpatient drug, 
the lowest identifiable quantity (such 
as a capsule or tablet, milligram of 
molecules, or grams) of the drug that 
is dispensed, exclusive of any diluent 
without reference to volume meas-
ures pertaining to liquids. 
‘‘(3) MULTIPLE SOURCE DRUG.—For all 
drug products included within the same 
multiple source drug, the amount speci-
fied in this paragraph is the volume-
weighted average of the average sales 
prices 
reported 
under 
section 
1927(b)(3)(A)(iii) computed as follows: 
‘‘(A) Compute the sum of the 
products (for each national drug code 
assigned to such drug products) of—
936
‘‘(i) the manufacturer’s aver-
age sales price (as defined in sub-
section (c)); and 
‘‘(ii) the total number of units 
specified 
under 
paragraph 
(2) 
sold, as reported under section 
1927(b)(3)(A)(iii). 
‘‘(B) Divide the sum computed 
under subparagraph (A) by the sum 
of the total number of units under 
subparagraph (A)(ii) for all national 
drug codes assigned to such drug 
products. 
‘‘(4) 
SINGLE
SOURCE
DRUG.—The 
amount specified in this paragraph for a 
single source drug is the lesser of the fol-
lowing: 
‘‘(A) 
MANUFACTURER’S
AVERAGE 
SALES PRICE.—The manufacturer’s av-
erage sales price for a national drug 
code, as computed using the method-
ology applied under paragraph (3). 
‘‘(B) WHOLESALE ACQUISITION COST 
(WAC).—The wholesale acquisition cost
937
(as defined in subsection (c)(6)(B)) re-
ported for the single source drug. 
‘‘(5) BASIS
FOR
DETERMINATION.—The 
payment amount shall be determined 
under this subsection based on informa-
tion reported under subsection (e) and 
without regard to any special packaging, 
labeling, or identifiers on the dosage 
form or product or package. 
‘‘(c) 
MANUFACTURER’S
AVERAGE
SALES 
PRICE.—
‘‘(1) IN GENERAL.—For purposes of this 
subsection, subject to paragraphs (2) and 
(3), the manufacturer’s ‘average sales 
price’ means, of a covered outpatient 
drug for a NDC code for a calendar quar-
ter for a manufacturer for a unit—
‘‘(A) the manufacturer’s total sales 
(as defined by the Secretary in regu-
lations 
for 
purposes 
of 
section 
1927(c)(1)) in the United States for 
such drug in the calendar quarter; di-
vided by
938
‘‘(B) the total number of such 
units of such drug sold by the manu-
facturer in such quarter. 
‘‘(2) CERTAIN
SALES
EXEMPTED
FROM 
COMPUTATION.—In calculating the manu-
facturer’s average sales price under this 
subsection, the following sales shall be 
excluded: 
‘‘(A) SALES
EXEMPT
FROM
BEST 
PRICE.—Sales exempt from the inclu-
sion in the determination of ‘best 
price’ under section 1927(c)(1)(C)(i). 
‘‘(B) SALES AT NOMINAL CHARGE.—
Such other sales as the Secretary 
identifies by regulation as sales to an 
entity that are nominal in price or do 
not reflect a market price paid by an 
entity to which payment is made 
under this section. 
‘‘(3) SALE PRICE NET OF DISCOUNTS.—In 
calculating the manufacturer’s average 
sales price under this subsection, such 
price shall be determined taking into ac-
count volume discounts, prompt pay dis-
counts, cash discounts, the free goods
939
that are contingent on any purchase re-
quirement, 
chargebacks, 
and 
rebates 
(other than rebates under section 1927), 
that result in a reduction of the cost to 
the purchaser. A rebate to a payor or 
other entity that does not take title to a 
covered outpatient drug shall not be 
taken into account in determining such 
price unless the manufacturer has an 
agreement with the payor or other entity 
under which the purchaser’s price for the 
drug is reduced as a consequence of such 
rebate. 
‘‘(4) AUTHORITY TO DISREGARD AVERAGE 
SALES
PRICE
DURING
FIRST
QUARTER
OF 
SALES.—In the case of a covered out-
patient drug during an initial period (not 
to exceed a full calendar quarter) in 
which data on the prices for sales for the 
drug is not sufficiently available from the 
manufacturer to compute an average 
sales price for the drug, the Secretary 
may 
determine 
the 
amount 
payable 
under this section for the drug without 
considering the manufacturer’s average
940
sales price of that manufacturer for that 
drug. 
‘‘(5) FREQUENCY OF DETERMINATIONS.—
‘‘(A) IN GENERAL ON A QUARTERLY 
BASIS.—The manufacturer’s average 
sales price, for a covered outpatient 
drug of a manufacturer, shall be de-
termined 
by 
such 
manufacturer 
under this subsection on a quarterly 
basis. In making such determination 
insofar as there is a lag in the report-
ing of the information on rebates and 
chargebacks under paragraph (3) so 
that adequate data are not available 
on a timely basis, the manufacturer 
shall apply a methodology established 
by the Secretary based on a 12-month 
rolling average for the manufacturer 
to estimate costs attributable to re-
bates and chargebacks. 
‘‘(B) UPDATES IN RATES.—The pay-
ment rates under subsection (b)(1) 
and (b)(2)(A) shall be updated by the 
Secretary on a quarterly basis and 
shall be applied based upon the man-
941
ufacturer’s average sales price deter-
mined for the most recent calendar 
quarter. 
‘‘(C) USE OF CONTRACTORS; IMPLE-
MENTATION.—The Secretary may use a 
carrier, fiscal intermediary, or other 
contractor to determine the payment 
amount under subsection (b). Not-
withstanding any other provision of 
law, the Secretary may implement, by 
program memorandum or otherwise, 
any of the provisions of this section. 
‘‘(6) DEFINITIONS AND OTHER RULES.—In 
this section: 
‘‘(A) 
MANUFACTURER.—The 
term 
‘manufacturer’ means, with respect to 
a covered outpatient drug, the manu-
facturer 
(as 
defined 
in 
section 
1927(k)(5)) whose national drug code 
appears on such drug. 
‘‘(ii) 
WHOLESALE
ACQUISITION 
COST.—The term ‘wholesale acquisi-
tion cost’ means, with respect to a 
covered outpatient drug, the manu-
facturer’s list price for the drug to
942
wholesalers or direct purchasers in 
the 
United 
States, 
not 
including 
prompt pay or other discounts, re-
bates or reductions in price, for the 
most recent month for which the in-
formation is available, as reported in 
wholesale price guides or other publi-
cations of drug pricing data. 
‘‘(C) MULTIPLE SOURCE DRUG.—The 
term ‘multiple source drug’ means, 
for a calendar quarter, a covered out-
patient drug for which there are 2 or 
more drug products which—
‘‘(i) are rated as therapeuti-
cally equivalent (under the Food 
and Drug Administration’s most 
recent publication of ‘Approved 
Drug Products with Therapeutic 
Equivalence Evaluations’), 
‘‘(ii) except as provided in 
subparagraph (E), are pharma-
ceutically 
equivalent 
and 
bio-
equivalent, as determined under 
subparagraph (F) and as deter-
943
mined by the Food and Drug Ad-
ministration, and 
‘‘(iii) are sold or marketed in 
the United States during the 
quarter. 
‘‘(D) SINGLE
SOURCE
DRUG.—The 
term ‘single source drug’ means a 
covered outpatient drug which is not 
a multiple source drug and which is 
produced or distributed under an 
original new drug application ap-
proved by the Food and Drug Admin-
istration, including a drug product 
marketed by any cross-licensed pro-
ducers 
or 
distributors 
operating 
under the new drug application, or 
which is a biological. 
‘‘(E) 
EXCEPTION
FROM
PHARMA-
CEUTICAL EQUIVALENCE AND BIOEQUIVA-
LENCE
REQUIREMENT.—Subparagraph 
(C)(ii) shall not apply if the Food and 
Drug Administration changes by reg-
ulation the requirement that, for pur-
poses of the publication described in 
subparagraph (C)(i), in order for drug
944
products to be rated as therapeuti-
cally equivalent, they must be phar-
maceutically 
equivalent 
and 
bio-
equivalent, as defined in subpara-
graph (F). 
‘‘(F) DETERMINATION
OF
PHARMA-
CEUTICAL EQUIVALENCE AND BIOEQUIVA-
LENCE.—For purposes of this para-
graph—
‘‘(i) drug products are phar-
maceutically 
equivalent 
if 
the 
products 
contain 
identical 
amounts of the same active drug 
ingredient in the same dosage 
form and meet compendial or 
other 
applicable 
standards 
of 
strength, 
quality, 
purity, 
and 
identity; and 
‘‘(ii) drugs are bioequivalent if 
they do not present a known or 
potential bioequivalence problem, 
or, if they do present such a prob-
lem, they are shown to meet an 
appropriate 
standard 
of 
bio-
equivalence.
945
‘‘(G) INCLUSION
OF
VACCINES.—In 
applying provisions of section 1927 
under this section, ‘other than a vac-
cine’ is deemed deleted from section 
1927(k)(2)(B). 
‘‘(d) MONITORING PRICE INFORMATION.—
‘‘(1) IN GENERAL.—The Secretary shall 
monitor available pricing information, in-
cluding information on average sales 
price and average manufacturer price. 
‘‘(2) RESPONSE TO SIGNIFICANT DISCREP-
ANCIES.—
‘‘(A) REPORT TO CONGRESS.—If the 
Secretary finds that there are signifi-
cant discrepancies among such prices 
and that the manufacturer’s average 
sales price does not reflect a broad-
based market price or a reasonable 
approximation of the acquisition cost 
of the covered outpatient drug in-
volved 
to 
purchasers 
reimbursed 
under this section, the Secretary shall 
submit to Congress a report. 
‘‘(B) CONFIDENTIALITY OF INFORMA-
TION
REPORTED.—Consistent with re-
946
quirements relating to maintaining 
the confidentiality of information re-
ported on manufacturer’s average 
prices under section 1927(b)(3)(D), 
such report shall include details re-
garding such discrepancies and rec-
ommendations on how to best ad-
dress such discrepancies. Such report 
shall not disclose average manufac-
turer prices or average sales prices. 
‘‘(C) 
RECOMMENDATIONS.—Such 
recommendations may include other 
changes in payment methodology. 
‘‘(D) AUTHORITY
TO
MODIFY
PAY-
MENT
METHODOLOGY
BY
RULE.—Upon 
submission of such report, the Sec-
retary may commence a rulemaking 
to change such percent or payment 
methodologies 
under 
paragraph 
(1)(D) and (2) as applied to the cov-
ered outpatient drug involved under 
this section. 
‘‘(3) RESPONSE TO PUBLIC HEALTH EMER-
GENCY.—In the case of a public health 
emergency under section 319 of the Pub-
947
lic Health Service Act in which there is a 
documented inability to access covered 
outpatient drugs, and a concomitant in-
crease in the price, of a drug which is not 
reflected in the manufacturer’s average 
sales price for one or more quarters, the 
Secretary may use the wholesale acquisi-
tion cost (or other reasonable measure of 
drug price) instead of the manufacturer’s 
average sales price for such quarters and 
for subsequent quarters until the price 
and availability of the drug has stabilized 
and is substantially reflected in the appli-
cable manufacturer’s average sales price. 
‘‘(4) ANNUAL
REPORT
TO
CONGRESS.—
The Secretary shall submit to the Com-
mittees on Energy and Commerce and 
Ways and Means of the House of Rep-
resentatives and the Committee on Fi-
nance of the Senate an annual report on 
the operation of this section. Such report 
shall be submitted in coordination with 
the submission of reports under section 
1927(i). Such report shall include infor-
mation on the following:
948
‘‘(A) Trends in average sales price 
under subsection (b). 
‘‘(B) Administrative costs associ-
ated with compliance with this sec-
tion. 
‘‘(C) 
Total 
value 
of 
payments 
made under this section. 
‘‘(D) Comparison of the average 
manufacturer price as applied under 
section 1927 for a covered outpatient 
drug with the manufacturer’s average 
sales price for the drug under this 
section. 
‘‘(e) REPORTS ON PRICING INFORMATION.—
‘‘(1) REFERENCE
TO
REPORTING
RE-
QUIREMENT ON AVERAGE SALES PRICE.—For 
requirements for reporting the manufac-
turer’s average sales price (and, if re-
quired to make payment, the manufactur-
er’s wholesale acquisition cost) for the 
covered outpatient drug, see section 
1927(b)(3). 
‘‘(2) MEDPAC REVIEW.—The Medicare 
Payment Advisory Commission shall peri-
odically review the payment methodology
949
established under this section and submit 
to Congress such recommendations on 
such methodology as it deems appro-
priate as part of its annual reports to 
Congress. 
‘‘(3) CONSTRUCTION.—Nothing in this 
subsection shall be construed as author-
izing the Secretary to review for pur-
poses of this section information reported 
only under section 1927(b)(3). 
‘‘(f) RESTRICTION
ON
ADMINISTRATIVE
AND 
JUDICIAL REVIEW.—There shall be no adminis-
trative or judicial review under section 1869, 
section 1878, or otherwise, of determinations 
of manufacturer’s average sales price under 
subsection (c).’’. 
(c) CONTINUATION
OF PAYMENT METHOD-
OLOGY FOR RADIOPHARMACEUTICALS.—Nothing 
in the amendments made by this section shall 
be construed as changing the payment meth-
odology under part B of title XVIII of the So-
cial Security Act for radiopharmaceuticals, 
including the use by carriers of invoice pric-
ing methodology.
(d) CONFORMING AMENDMENTS.—
950
(1) IN
GENERAL.—Section 1842(o) (42 
U.S.C. 1395u(o)) is amended—
(A) in paragraph (1), by inserting 
‘‘, 
subject 
to 
section 
1847A 
and 
1847B,’’ before ‘‘the amount payable 
for the drug or biological’’; and 
(B) by adding at the end of para-
graph (2) the following: ‘‘This para-
graph shall not apply in the case of 
payment 
under 
section 
1847A 
or 
1847B.’’. 
(2) NO
CHANGE
IN
COVERAGE
BASIS.—
Section 
1861(s)(2)(A) 
(42 
U.S.C. 
1395x(s)(2)(A)) is amended by inserting 
‘‘(or would have been so included but for 
the 
application 
of 
section 
1847A 
or 
1847B)’’ after ‘‘included in the physicians’ 
bills’’. 
(3) 
PAYMENT.—Section 
1833(a)(1)(S) 
(42 U.S.C. 1395l(a)(1)(S)) is amended by 
inserting ‘‘(or, if applicable, under section 
1847A or 1847B)’’ after ‘‘1842(o)’’. 
(4) CONSOLIDATED REPORTING OF PRIC-
ING INFORMATION.—Section 1927 (42 U.S.C. 
1396r–8) is amended—
951
(A) in subsection (a)(1), by insert-
ing ‘‘or under part B of title XVIII’’ 
after ‘‘section 1903(a)’’; 
(B) in subsection (b)(3)(A)—
(i) in clause (i), by striking 
‘‘and’’ at the end; 
(ii) in clause (ii), by striking 
the period and inserting ‘‘; and’’; 
and 
(iii) by adding at the end the 
following new clause: 
‘‘(iii) for calendar quarters be-
ginning on or after April 1, 2004, 
in conjunction with reporting re-
quired under clause (i) and by na-
tional drug code (NDC)—
‘‘(I) the manufacturer’s av-
erage sales price (as defined 
in section 1847B(c)) and the 
total number of units speci-
fied 
under 
section 
1847B(b)(2)(A); 
‘‘(II) if required to make 
payment under section 1847B, 
the manufacturer’s wholesale
952
acquisition cost, as defined in 
subsection (c)(6) of such sec-
tion; and 
‘‘(III) information on those 
sales that were made at a 
nominal price or otherwise 
described 
in 
section 
1847B(c)(2)(B), which informa-
tion is subject to audit by the 
Inspector General of the De-
partment 
of 
Health 
and 
Human Services; 
for a covered outpatient drug for 
which payment is made under 
section 1847B.’’; 
(C) in subsection (b)(3)(B)—
(i) in the heading, by insert-
ing ‘‘AND MANUFACTURER’S AVERAGE 
SALES PRICE’’ after ‘‘PRICE’’; and 
(ii) by inserting ‘‘and manu-
facturer’s average sales prices (in-
cluding 
wholesale 
acquisition 
cost) if required to make pay-
ment’’ 
after 
‘‘manufacturer 
prices’’; and
953
(D) in subsection (b)(3)(D)(i), by 
inserting ‘‘and section 1847B’’ after 
‘‘this section’’. 
(e) GAO STUDY.—
(1) STUDY.—The Comptroller General 
of the United States shall conduct a study 
to assess the impact of the amendments 
made by this section on the delivery of 
services, including their impact on—
(A) beneficiary access to drugs 
and biologicals for which payment is 
made under part B of title XVIII of 
the Social Security Act; and 
(B) the site of delivery of such 
services. 
(2) REPORT.—Not later than 2 years 
after the year in which the amendment 
made by subsection (a)(1) first takes ef-
fect, the Comptroller General shall sub-
mit to Congress a report on the study 
conducted under paragraph (1). 
(f) MEDPAC RECOMMENDATIONS ON BLOOD 
CLOTTING FACTORS.—The Medicare Payment 
Advisory Commission shall submit to Con-
gress, in its annual report in 2004, specific
954
recommendations 
regarding 
a 
payment 
amount (or amounts) for blood clotting fac-
tors and its administration under the medi-
care program. 
(g) ESTABLISHMENT
OF
PHARMACEUTICAL 
MANAGEMENT
FEE
WHERE
DRUGS
PROVIDED 
THROUGH A CONTRACTOR.—Section 1848(a) (42 
U.S.C. 1395w–4(a)) is amended by adding at 
the end the following new paragraph: 
‘‘(5) RECOGNITION OF PHARMACEUTICAL 
MANAGEMENT FEE IN CERTAIN CASES.—In es-
tablishing the fee schedule under this 
section, the Secretary shall provide for a 
separate payment with respect to physi-
cians’ services consisting of the unique 
administrative and management costs as-
sociated 
with 
covered 
drugs 
and 
biologicals which are furnished to physi-
cians through a contractor under section 
1847A (compared with such costs if such 
drugs and biologicals were acquired di-
rectly by such physicians).’’.
955
SEC. 304. DEMONSTRATION PROJECT FOR USE OF RECOV-
ERY AUDIT CONTRACTORS. 
(a) IN GENERAL.—The Secretary of Health 
and Human Services shall conduct a dem-
onstration project under this section (in this 
section referred to as the ‘‘project’’) to dem-
onstrate the use of recovery audit contractors 
under the Medicare Integrity Program in 
identifying 
underpayments 
and 
overpay-
ments and recouping overpayments under the 
medicare program for services for which pay-
ment is made under part A or part B of title 
XVIII of the Social Security Act. Under the 
project—
(1) payment may be made to such a 
contractor on a contingent basis; 
(2) a percentage of the amount recov-
ered 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 ef-
ficacy of such use with respect to dupli-
cative payments, accuracy of coding, and 
other payment policies in which inac-
curate payments arise.
956
(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 utiliza-
tion 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 serv-
ices under the project in accordance with sub-
section (a). 
(d) QUALIFICATIONS OF CONTRACTORS.—
(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 appro-
priate clinical knowledge of and experi-
ence with the payment rules and regula-
tions under the medicare program or the 
entity has or will contract with another
957
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 sec-
tion with an entity to the extent that the 
entity is a fiscal intermediary under sec-
tion 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 
Administrative 
Contractor 
under section 1874A of such Act. 
(3) PREFERENCE
FOR
ENTITIES
WITH 
DEMONSTRATED PROFICIENCY WITH PRIVATE 
INSURERS.—In awarding contracts to re-
covery audit contractors under this sec-
tion, 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 in recovery audits with 
private insurers or under the medicaid 
program under title XIX of such Act. 
(e) CONSTRUCTION RELATING TO CONDUCT 
OF INVESTIGATION OF FRAUD.—A recovery of an
958
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 ap-
propriate, allegations of fraud or abuse aris-
ing from such overpayment. 
(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 recommendations on the cost-effective-
ness of extending or expanding 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.—
(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:
959
‘‘(xiv)(I) In the case of discharges in a fis-
cal year beginning on or after October 1, 2003, 
subject to subclause (II), there shall be sub-
stituted for the disproportionate share adjust-
ment percentage otherwise determined under 
clause (iv) (other than subclause (I)) or under 
clause (viii), (x), (xi), (xii), or (xiii), the dis-
proportionate share adjustment percentage 
determined under clause (vii) (relating to 
large, urban hospitals). 
‘‘(II) Under subclause (I), the dispropor-
tionate share adjustment percentage shall not 
exceed 10 percent for a hospital that is not 
classified as a rural referral center under sub-
paragraph (C).’’. 
(2) 
CONFORMING
AMENDMENTS.—Sec-
tion 
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 in-
serting ‘‘subject to clause (xiv) and’’ 
before ‘‘for discharges occurring’’; 
(B) in clause (viii), by striking 
‘‘The formula’’ and inserting ‘‘Subject 
to clause (xiv), the formula’’; and
960
(C) in each of clauses (x), (xi), 
(xii), and (xiii), by striking ‘‘For pur-
poses’’ 
and 
inserting 
‘‘Subject 
to 
clause (xiv), for purposes’’. 
(b) EFFECTIVE
DATE.—The amendments 
made by this section shall apply with respect 
to discharges occurring 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), respec-
tively, and inserting after clause (iv) the 
following new clauses: 
‘‘(v) For discharges occurring in the 
fiscal year beginning on October 1, 2003, 
the average standardized amount for hos-
pitals located in areas other than a large 
urban area shall be equal to the average
961
standardized amount for hospitals lo-
cated in a large urban area.’’. 
(b) CONFORMING AMENDMENTS.—
(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 
DIFFERENT 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 fis-
cal years before fiscal year 2004,’’ 
before ‘‘for hospitals’’; and 
(ii) in subclause (II), by strik-
ing ‘‘and’’ after the semicolon at 
the end; 
(D) in clause (ii)—
(i) in the matter preceding 
subclause (I), by inserting ‘‘for fis-
cal years before fiscal year 2004,’’ 
before ‘‘for hospitals’’; and
962
(ii) in subclause (II), by strik-
ing the period at the end and in-
serting ‘‘; and’’; and 
(E) by adding at the end the fol-
lowing new clause: 
‘‘(iii) for a fiscal year beginning 
after fiscal year 2003, for hospitals lo-
cated in all areas, to the product of—
‘‘(I) the applicable standard-
ized amount (computed under 
subparagraph (A)), reduced under 
subparagraph (B), and adjusted 
or reduced under subparagraph 
(C) for the fiscal year; and 
‘‘(II) the weighting factor (de-
termined under paragraph (4)(B)) 
for that diagnosis-related group.’’. 
(2) TECHNICAL
CONFORMING
SUNSET.—
Section 
1886(d)(3) 
(42 
U.S.C. 
1395ww(d)(3)) is amended—
(A) in the matter preceding sub-
paragraph (A), by inserting ‘‘, for fis-
cal years before fiscal year 1997,’’ be-
fore ‘‘a regional adjusted DRG pro-
spective payment rate’’; and
963
(B) in subparagraph (D), in the 
matter preceding clause (i), by insert-
ing ‘‘, for fiscal years before fiscal 
year 1997,’’ before ‘‘a regional DRG 
prospective payment rate for each re-
gion,’’.
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 ‘‘ESSEN-
TIAL RURAL HOSPITALS’’ at the end; and 
(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 licensed acute care 
inpatient beds, has applied to the Secretary 
for classification as such a hospital, and with 
respect to which the Secretary has deter-
mined that the closure of the hospital would 
significantly diminish the ability of medicare
964
beneficiaries to obtain essential health care 
services. 
‘‘(B) The determination under subpara-
graph (A) shall be based on the following cri-
teria: 
‘‘(i) HIGH
PROPORTION
OF
MEDICARE 
BENEFICIARIES RECEIVING CARE FROM HOS-
PITAL.—(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 available) receive basic inpatient 
medical care at the hospital. 
‘‘(II) For a hospital with more than 
200 licensed beds, a high percentage of 
such beneficiaries residing in such area 
who are hospitalized (during 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 hospital and provide 
their inpatient services primarily at the 
hospital.
965
‘‘(ii) SIGNIFICANT
ADVERSE
IMPACT
IN 
ABSENCE
OF
HOSPITAL.—If the hospital 
were to close—
‘‘(I) there would be a significant 
amount of time needed for residents 
to reach emergency treatment, result-
ing in a potential significant harm to 
beneficiaries with critical illnesses or 
injuries; 
‘‘(II) there would be an inability 
in the community to stablize emer-
gency cases for transfers to another 
acute care setting, resulting in a po-
tential for significant harm to medi-
care beneficiaries; and 
‘‘(III) any other nearby hospital 
lacks the physical and clinical capac-
ity 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 services are insufficient
966
in the hospital’s area to handle the out-
patient care of the hospital. 
‘‘(ii) Beneficiaries in nearby areas 
would be adversely affected if the hos-
pital were to close as the hospital pro-
vides specialized knowledge and services 
to a network of smaller hospitals and 
critical access hospitals. 
‘‘(iii) Medicare beneficiaries would 
have difficulty in accessing care if the 
hospital were to close as the hospital pro-
vides significant subsidies to support am-
bulatory care in local clinics, including 
mental health clinics and to support post 
acute care. 
‘‘(iv) The hospital has a committment 
to provide graduate medical education in 
a rural area. 
‘‘(C) QUALITY CARE.—The hospital in-
patient score for quality of care is not 
less than the median hospital score for 
qualify of care for hospitals in the State, 
as established under standards of the uti-
lization and quality control peer review 
organization under part B of title XI or
967
other quality standards recognized by the 
Secretary. 
A hospital classified as an essential rural hos-
pital may not change such classification and 
a hospital so classified shall not be treated as 
a sole community hospital, medicare depend-
ent hospital, or rural referral center for pur-
poses of section 1886.’’. 
(b) PAYMENT BASED ON 102 PERCENT OF AL-
LOWED COSTS.—
(1) INPATIENT HOSPITAL SERVICES.—Sec-
tion 1886(d) (42 U.S.C. 1395ww(d)) is 
amended by adding at the end the fol-
lowing: 
‘‘(11) In the case of a hospital classified as 
an essential 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 per-
cent 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 applica-
ble to such services under part A or as
968
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 fol-
lowing 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-
riod, the payment under this sub-
section for covered OPD services dur-
ing the period shall be based on 102 
percent of the reasonable costs for 
such services. Nothing in this sub-
paragraph shall be construed as af-
fecting the application or amount of 
deductibles or copayments otherwise 
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 re-
969
porting 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 estab-
lish a frequency for revising such weights, in-
cluding the labor share, in such market bas-
ket 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 frequency established under 
subsection (a), including an explanation of 
the reasons for, and options considered, in de-
termining 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.
970
1395f(l); 
1395m(g)(1); 
U.S.C. 
1395tt(a)(3)) are each amended by insert-
ing ‘‘equal to 102 percent of’’ before ‘‘the 
reasonable costs’’. 
(2) EFFECTIVE DATE.—The amendments 
made by paragraph (1) shall apply to pay-
ments for services furnished during cost 
reporting periods beginning on or after 
October 1, 2003. 
(b) COVERAGE OF COSTS FOR CERTAIN EMER-
GENCY 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’’ be-
fore ‘‘EMERGENCY’’; and 
(ii) by striking ‘‘PHYSICIANS’’ 
and inserting ‘‘PROVIDERS’’; 
(B) by striking ‘‘emergency room 
physicians who are on-call (as de-
fined by the Secretary)’’ and inserting 
‘‘physicians, 
physician 
assistants, 
nurse 
practitioners, 
and 
clinical 
nurse specialists who are on-call (as
971
defined by the Secretary) to provide 
emergency services’’; and 
(C) by striking ‘‘physicians’ serv-
ices’’ 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 pro-
vided 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 adding at the end the fol-
lowing: ‘‘The limitation described in the 
matter following subparagraph (B) in the 
previous sentence shall not apply if the 
ambulance services are furnished by such 
a provider or supplier of ambulance serv-
ices who is a first responder to emer-
gencies 
(as 
determined 
by 
the 
Sec-
retary).’’. 
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall apply to am-
972
bulances services 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 
PAYMENT (PIP).—
(1) IN GENERAL.—Section 1815(e)(2) (42 
U.S.C. 1395g(e)(2)) is amended—
(A) in the matter before subpara-
graph (A), by inserting ‘‘, in the cases 
described 
in 
subparagraphs 
(A) 
through (D)’’ after ‘‘1986’’; and 
(B) by striking ‘‘and’’ at the end of 
subparagraph (C); 
(C) by adding ‘‘and’’ at the end of 
subparagraph (D); and 
(D) by inserting after subpara-
graph (D) the following new subpara-
graph: 
‘‘(E) inpatient critical access hospital 
services;’’. 
(2) 
DEVELOPMENT
OF
ALTERNATIVE 
METHODS OF PERIODIC INTERIM PAYMENTS.—
With respect to periodic interim pay-
ments to critical access hospitals for in-
973
patient critical access hospital services 
under section 1815(e)(2)(E) of the Social 
Security Act, as added by paragraph (1), 
the Secretary shall develop alternative 
methods for such payments that are 
based on expenditures of the hospital. 
(3) 
REINSTATEMENT
OF
PIP.—The 
amendments made by paragraph (1) shall 
apply to payments made on or after Jan-
uary 1, 2004. 
(e) CONDITION FOR APPLICATION OF SPECIAL 
PHYSICIAN 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 fol-
lowing: 
‘‘The Secretary may not require, as a con-
dition for applying subparagraph (B) 
with respect to a critical access hospital, 
that each physician providing profes-
sional services in the hospital must as-
sign billing rights with respect to such 
services, except that such subparagraph 
shall not apply to those physicians who 
have not assigned such billing rights.’’.
974
(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—
(1) in subsection (c)(2)(B)(iii), by in-
serting ‘‘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
SEA-
SONAL CENSUS FLUCTUATIONS.—
‘‘(A) IN GENERAL.—Subject to sub-
paragraph (C), in the case of a hos-
pital that demonstrates that it meets 
the standards established under sub-
paragraph (B) and has not made the 
election 
described 
in 
subsection 
(f)(2)(A), the bed limitations other-
wise 
applicable 
under 
paragraph
975
(2)(B)(iii) and subsection (f) shall be 
increased by 5 beds. 
‘‘(B) STANDARDS.—The Secretary 
shall specify standards for deter-
mining whether a critical access hos-
pital has sufficiently strong seasonal 
variations in patient admissions to 
justify 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 fol-
lowing new paragraph: 
‘‘(2)(A) A hospital may elect to treat the 
reference in paragraph (1) to ‘15 beds’ as a ref-
erence 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 provided under subsection (c)(3)(A). 
‘‘(B) The limitations in numbers of beds 
under the first sentence of paragraph (1) are
976
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 sub-
paragraph (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
LIMITA-
TION.—In no case may the amount of 
payment provided for under subpara-
graph (A) for a fiscal year exceed 
$25,000,000.’’.
977
(2) CONFORMING AMENDMENT.—Section 
1820 (42 U.S.C. 1395i–4) is amended by 
striking subsection (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 insert-
ing ‘‘subject to subparagraph (I),’’ after 
‘‘October 1, 1997,’’; 
(2) in subparagraph (H)(i), by insert-
ing ‘‘subject to subparagraph (I),’’ after 
‘‘subparagraphs (F) and (G),’’; and 
(3) by adding at the end the following 
new subparagraph: 
‘‘(I) REDISTRIBUTION
OF
UNUSED 
RESIDENT POSITIONS.—
‘‘(i) REDUCTION IN LIMIT BASED 
ON UNUSED POSITIONS.—
‘‘(I) IN GENERAL.—If a hos-
pital’s resident level (as de-
fined in clause (iii)(I)) is less 
than the otherwise applicable 
resident limit (as defined in 
clause (iii)(II)) for each of the
978
reference periods (as defined 
in subclause (II)), effective for 
cost reporting periods begin-
ning on or after January 1, 
2004, the otherwise applicable 
resident limit shall be re-
duced by 75 percent of the dif-
ference between such limit 
and the reference resident 
level specified in subclause 
(III) (or subclause (IV) if ap-
plicable). 
‘‘(II) REFERENCE
PERIODS 
DEFINED.—In this clause, the 
term 
‘reference 
periods’ 
means, for a hospital, the 3 
most recent consecutive cost 
reporting periods of the hos-
pital for which cost reports 
have been settled (or, if not, 
submitted) on or before Sep-
tember 30, 2002. 
‘‘(III) REFERENCE RESIDENT 
LEVEL.—Subject to subclause 
(IV), the reference resident
979
level specified in this sub-
clause for a hospital is the 
highest resident level for the 
hospital during any of the ref-
erence periods. 
‘‘(IV) 
ADJUSTMENT
PROC-
ESS.—Upon the timely request 
of a hospital, the Secretary 
may adjust the reference resi-
dent level for a hospital to be 
the resident level for the hos-
pital for the cost reporting pe-
riod that includes July 1, 
2003. 
‘‘(V) AFFILIATION.—With re-
spect to hospitals which are 
members of the same affili-
ated group (as defined by the 
Secretary 
under 
subpara-
graph (H)(ii)), the provisions 
of this section shall be applied 
with respect to such an affili-
ated group by deeming the af-
filiated group to be a single 
hospital.
980
‘‘(ii) REDISTRIBUTION.—
‘‘(I) IN GENERAL.—The Sec-
retary is authorized to in-
crease the otherwise applica-
ble resident limits for hos-
pitals by an aggregate num-
ber estimated by the Sec-
retary that does not exceed 
the aggregate reduction in 
such 
limits 
attributable 
to 
clause (i) (without taking into 
account 
any 
adjustment 
under subclause (IV) of such 
clause). 
‘‘(II) EFFECTIVE
DATE.—No 
increase under subclause (I) 
shall be permitted or taken 
into account for a hospital for 
any portion of a cost report-
ing period that occurs before 
July 1, 2004, or before the 
date of the hospital’s applica-
tion for an increase under 
this clause. No such increase 
shall be permitted for a hos-
981
pital unless the hospital has 
applied to the Secretary for 
such increase by December 
31, 2005. 
‘‘(III) CONSIDERATIONS
IN 
REDISTRIBUTION.—In 
deter-
mining for which hospitals 
the increase in the otherwise 
applicable resident limit is 
provided under subclause (I), 
the Secretary shall take into 
account the need for such an 
increase by specialty and lo-
cation 
involved, 
consistent 
with subclause (IV). 
‘‘(IV) PRIORITY
FOR
RURAL 
AND
SMALL
URBAN
AREAS.—In 
determining for which hos-
pitals and residency training 
programs an increase in the 
otherwise applicable resident 
limit is provided under sub-
clause (I), the Secretary shall 
first distribute the increase to 
programs of hospitals located
982
in rural areas or in urban 
areas that are not large urban 
areas (as defined for purposes 
of subsection (d)) on a first-
come-first-served basis (as de-
termined by the Secretary) 
based 
on 
a 
demonstration 
that the hospital will fill the 
positions 
made 
available 
under this clause and not to 
exceed an increase of 25 full-
time equivalent positions with 
respect to any hospital. 
‘‘(V) APPLICATION
OF
LO-
CALITY ADJUSTED NATIONAL AV-
ERAGE PER RESIDENT AMOUNT.—
With 
respect 
to 
additional 
residency positions in a hos-
pital attributable to the in-
crease provided under this 
clause, notwithstanding any 
other provision of this sub-
section, the approved FTE 
resident amount is deemed to 
be equal to the locality ad-
983
justed national average per 
resident 
amount 
computed 
under subparagraph (E) for 
that hospital. 
‘‘(VI) 
CONSTRUCTION.—
Nothing in this clause shall be 
construed as permitting the 
redistribution of reductions 
in residency positions attrib-
utable to voluntary reduction 
programs under paragraph (6) 
or as affecting the ability of a 
hospital to establish new med-
ical residency training pro-
grams 
under 
subparagraph 
(H). 
‘‘(iii) 
RESIDENT
LEVEL
AND 
LIMIT
DEFINED.—In this subpara-
graph: 
‘‘(I) RESIDENT LEVEL.—The 
term ‘resident level’ means, 
with respect to a hospital, the 
total 
number 
of 
full-time 
equivalent residents, before 
the application of weighting
984
factors (as determined under 
this paragraph), in the fields 
of allopathic and osteopathic 
medicine for the hospital. 
‘‘(II) OTHERWISE
APPLICA-
BLE RESIDENT LIMIT.—The term 
‘otherwise applicable resident 
limit’ means, with respect to a 
hospital, the limit otherwise 
applicable 
under 
subpara-
graphs (F)(i) and (H) on the 
resident level for the hospital 
determined without regard to 
this subparagraph.’’. 
(b) CONFORMING AMENDMENT TO IME.—Sec-
tion 
1886(d)(5)(B)(v) 
(42 
U.S.C. 
1395ww(d)(5)(B)(v)) is amended by adding at 
the end the following: ‘‘The provisions of sub-
paragraph (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
985
to Congress a report containing recommenda-
tions regarding whether to extend the dead-
line for applications for an increase in resi-
dent limits under section 1886(h)(4)(I)(ii)(II) 
of the Social Security Act (as added by sub-
section (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.—
(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 commu-
nity hospital (as defined in section 
1886(d)(5)(D)(iii)) located in a rural 
area’’ after ‘‘100 beds’’; and 
(C) by striking ‘‘2004’’ and insert-
ing ‘‘2006’’. 
(2) EFFECTIVE DATE.—The amendment 
made by subsection (a)(2) shall apply
986
with respect to payment for OPD services 
furnished on and after January 1, 2004. 
(b) STUDY; ADJUSTMENT.—
(1) STUDY.—The Secretary shall con-
duct 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) ex-
ceed those costs incurred by urban pro-
viders of services. 
(2) ADJUSTMENT.—Insofar as the Sec-
retary determines under paragraph (1) 
that costs incurred by rural providers ex-
ceed those costs incurred by urban pro-
viders of services, the Secretary shall 
provide for an appropriate adjustment 
under such section 1833(t) to reflect those 
higher costs by January 1, 2005.
987
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 FEDER-
ALLY
QUALIFIED
HEALTH
CENTER 
SERVICES.—Services described in 
this clause are—
‘‘(I) 
rural 
health 
clinic 
services (as defined in para-
graph (1) of section 1861(aa)); 
and 
‘‘(II) 
Federally 
qualified 
health center services (as de-
fined in paragraph (3) of such 
section);
988
that would be described in clause 
(ii) if such services were not fur-
nished by an individual affiliated 
with a rural health clinic or a 
Federally qualified health cen-
ter.’’. 
(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 in-
serting ‘‘or nurse practitioner (as defined in 
subsection (aa)(5))’’ after ‘‘the physician (as 
defined in subsection (r)(1))’’. 
(b) PROHIBITION ON NURSE PRACTITIONER 
CERTIFYING
NEED
FOR
HOSPICE.—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))’’.
989
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 
POPULATION DENSITY AREAS.—
‘‘(A) IN
GENERAL.—In the case of 
ground ambulance services furnished 
on or after January 1, 2004, for which 
the transportation originates in a 
qualified rural area (as defined in 
subparagraph 
(B)), 
the 
Secretary 
shall provide for an increase in the 
base rate of the fee schedule for mile-
age for a trip established under this 
subsection. In establishing such in-
crease, the Secretary shall, based on 
the relationship of cost and volume, 
estimate the average increase in cost
990
per trip for such services as com-
pared with the cost per trip for the 
average ambulance service. 
‘‘(B) QUALIFIED
RURAL
AREA
DE-
FINED.—For 
purposes 
of 
subpara-
graph (A), the term ‘qualified rural 
area’ is a rural area (as defined in 
section 1886(d)(2)(D)) with a popu-
lation 
density 
of 
medicare 
bene-
ficiaries 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 services 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))) dur-
ing 2004 and 2005, the Secretary shall in-
crease 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 pro-
spective payment amount (or amounts) under
991
section 1895 of the Social Security Act (42 
U.S.C. 1395fff ) applicable to home health serv-
ices furnished during a period to offset the in-
crease in payments resulting from the appli-
cation of subsection (a). 
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 subparagraph: 
‘‘(H) any remuneration between a 
public or nonprofit private health 
center entity described under clause 
(i) or (ii) of section 1905(l)(2)(B) and 
any individual or entity providing 
goods, items, services, donations or 
loans, or a combination thereof, to
992
such health center entity pursuant to 
a contract, lease, grant, loan, or other 
agreement, if such agreement con-
tributes to the ability of the health 
center entity to maintain or increase 
the availability, or enhance the qual-
ity, of services provided to a medi-
cally underserved population served 
by the health center entity.’’. 
(b) 
RULEMAKING
FOR
EXCEPTION
FOR 
HEALTH CENTER ENTITY ARRANGEMENTS.—
(1) ESTABLISHMENT.—
(A) IN GENERAL.—The Secretary of 
Health and Human Services (in this 
subsection referred to as the ‘‘Sec-
retary’’) shall establish, on an expe-
dited basis, standards relating to the 
exception 
described 
in 
section 
1128B(b)(3)(H) of the Social Security 
Act, as added by subsection (a), for 
health center entity arrangements to 
the antikickback penalties. 
(B) FACTORS
TO
CONSIDER.—The 
Secretary shall consider the following 
factors, among others, in establishing
993
standards relating to the exception 
for health center entity arrangements 
under subparagraph (A): 
(i) Whether the arrangement 
between the health center entity 
and the other party results in sav-
ings of Federal grant funds or in-
creased revenues to the health 
center entity. 
(ii) Whether the arrangement 
between the health center entity 
and the other party restricts or 
limits 
a 
patient’s 
freedom 
of 
choice. 
(iii) Whether the arrangement 
between the health center entity 
and the other party protects a 
health care professional’s inde-
pendent medical judgment re-
garding 
medically 
appropriate 
treatment. 
The Secretary may also include other 
standards and criteria that are con-
sistent with the intent of Congress in
994
enacting the exception established 
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 Register consistent 
with the factors under paragraph (1)(B). 
Such rule shall be effective and final im-
mediately 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 sub-
section. 
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 dif-
ferences in payment amounts under the phy-
sician fee schedule under section 1848 of the 
Social Security Act (42 U.S.C. 1395w–4) for 
physicians’ services in different geographic 
areas. Such study shall include—
995
(1) an assessment of the validity of 
the geographic 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 determine professional liability insur-
ance costs used in computing the mal-
practice component, including a review 
of increases in professional liability in-
surance premiums and variation in such 
increases by State and physician spe-
cialty and methods used to update the ge-
ographic cost of practice index and rel-
ative weights for the malpractice compo-
nent. 
(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 sub-
section (a). The report shall include rec-
ommendations regarding the use of more cur-
rent data in computing geographic cost of 
practice indices as well as the use of data di-
996
rectly representative of physicians’ costs 
(rather than proxy measures of such costs). 
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 
inter-
mediaries, 
or 
other 
extraordinary 
cir-
cumstances, so long as data for at least one 
applicable base cost reporting period is avail-
able.’’. 
(b) EFFECTIVE
DATE.—The amendment 
made by subsection (a) shall apply to cost re-
porting periods beginning on or after January 
1, 2004. 
SEC. 415. EXTENSION OF TELEMEDICINE DEMONSTRATION 
PROJECT. 
Section 4207 of Balanced Budget Act of 
1997 (Public Law 105–33) is amended—
997
(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’’. 
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 
Secretary’’ and inserting ‘‘WAGE LEVELS.—
‘‘(i) IN
GENERAL.—Except as pro-
vided 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 
provided in subclause (II), for dis-
charges occurring on or after Oc-
tober 1, 2003, the Secretary shall 
substitute the ‘62 percent’ for the
998
proportion described in the first 
sentence of clause (i). 
‘‘(II) HOLD HARMLESS FOR CER-
TAIN
HOSPITALS.—If the applica-
tion of subclause (I) would result 
in lower payments to a hospital 
than would otherwise be made, 
then this subparagraph shall be 
applied as if this clause had not 
been enacted.’’. 
(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 Prescription Drug and Moderniza-
tion Act of 2003 had not been enacted.’’. 
SEC. 417. MEDICARE INCENTIVE PAYMENT PROGRAM IM-
PROVEMENTS FOR PHYSICIAN SCARCITY. 
(a) ADDITIONAL BONUS PAYMENT FOR CER-
TAIN PHYSICIAN SCARCITY AREAS.—
999
(1) IN
GENERAL.—Section 1833 (42 
U.S.C. 1395l) is amended by adding at the 
end the following new subsection: 
‘‘(u) INCENTIVE PAYMENTS
FOR PHYSICIAN 
SCARCITY AREAS.—
‘‘(1) IN GENERAL.—In the case of physi-
cians’ services furnished in a year—
‘‘(A) by a primary care physician 
in a primary care scarcity county 
(identified under paragraph (4)); or 
‘‘(B) by a physician who is not a 
primary care physician in a specialist 
care scarcity county (as so identified), 
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 percent of 
the payment amount for the service 
under this part. 
‘‘(2) DETERMINATION OF RATIOS OF PHY-
SICIANS
TO
MEDICARE
BENEFICIARIES
IN 
AREA.—Based upon available data, the 
Secretary shall periodically determine, 
for each county or equivalent area in the 
United States, the following:
1000
‘‘(A) NUMBER OF PHYSICIANS PRAC-
TICING IN THE AREA.—The number of 
physicians who furnish physicians’ 
services in the active practice of med-
icine or osteopathy in that county or 
area, other than physicians whose 
practice is exclusively for the Federal 
Government, physicians who are re-
tired, 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 
number of individuals who are resid-
ing in the county 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
1001
to as the ‘primary care ratio’) of 
the number of primary care phy-
sicians (determined under sub-
paragraph (A)(i)), to number of 
medicare 
beneficiaries 
deter-
mined under subparagraph (B). 
‘‘(ii) SPECIALIST CARE RATIO.—
The ratio (in this paragraph re-
ferred to as the ‘specialist care 
ratio’) of the number of other 
physicians 
(determined 
under 
subparagraph (A)(ii)), to number 
of medicare beneficiaries deter-
mined under subparagraph (B). 
‘‘(3) RANKING OF COUNTIES.—The Sec-
retary shall rank each such county or 
area based separately on its primary care 
ratio and its specialist care ratio. 
‘‘(4) IDENTIFICATION OF COUNTIES.—The 
Secretary shall identify—
‘‘(A) those counties and areas (in 
this paragraph referred to as ‘pri-
mary care scarcity counties’) with the 
lowest primary care ratios that rep-
resent, if each such county or area
1002
were weighted by the number of 
medicare 
beneficiaries 
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 subsection referred to as ‘spe-
cialist care scarcity counties’) with 
the lowest specialist care ratios that 
represent, if each such county or area 
were weighted by the number of 
medicare 
beneficiaries 
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 re-
view respecting the identification of a 
county or area or the assignment of a 
specialty of any physician under this 
paragraph. 
‘‘(5) RURAL CENSUS TRACKS.—To the ex-
tent feasible, the Secretary shall treat a 
rural census tract of a metropolitan sta-
1003
tistical area (as determined under the 
most recent modification of the Gold-
smith Modification, originally published 
in the Federal Register on February 27, 
1992 (57 Fed. Reg. 6725) as an equivalent 
area for purposes of qualifying as a pri-
mary care scarcity county or specialist 
care scarcity county under this sub-
section. 
‘‘(6) 
PHYSICIAN
DEFINED.—For 
pur-
poses of this paragraph, the term ‘physi-
cian’ means a physician described in sec-
tion 1861(r)(1) and the term ‘primary care 
physician’ means a physician who is iden-
tified in the available data as a general 
practitioner, family practice practitioner, 
general internist, or obstetrician or gyne-
cologist. 
‘‘(7) PUBLICATION
OF
LIST
OF
COUN-
TIES.—In carrying out this subsection for 
a year, the Secretary shall include, as 
part of the proposed and final rule to im-
plement the physician fee schedule under 
section 1848 for the year, a list of all 
areas which will qualify as a primary
1004
care scarcity county or specialist 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 
PAYMENT PROGRAM.—
(1) IN GENERAL.—Section 1833(m) (42 
U.S.C. 1395l(m)) is amended—
(A) by inserting ‘‘(1)’’ after ‘‘(m)’’; 
and 
(B) by adding at the end the fol-
lowing new paragraphs: 
‘‘(2) The Secretary shall establish proce-
dures under which the Secretary, and not the 
physician furnishing the service, is respon-
sible for determining when a payment is re-
quired 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
1005
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 phy-
sicians’ services furnished or after Janu-
ary 1, 2004.
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 following new subclauses: 
‘‘(XIX) for each of fiscal years 2004 
through 2006, the market basket percent-
age 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
1006
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: 
‘‘(vii) Under the mechanism under this 
subparagraph, 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 classification) 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
1007
(B) by adding at the end the fol-
lowing new subclause: 
‘‘(II) Under such criteria, a service or 
technology shall not be denied treatment as a 
new service or technology on the basis of the 
period of time in which the service or tech-
nology has been in use if such period ends be-
fore the end of the 2-to-3-year period that be-
gins on the effective date of implementation 
of a code under ICD–9–CM (or a successor 
coding methodology) that enables the identi-
fication of specific discharges in which the 
service or technology has been used.’’. 
(2) ADJUSTMENT
OF
THRESHOLD.—Sec-
tion 
1886(d)(5)(K)(ii)(I) 
(42 
U.S.C. 
1395ww(d)(5)(K)(ii)(I)) is amended by in-
serting ‘‘(applying a threshold specified 
by the Secretary that is 75 percent of one 
standard deviation for the diagnosis-re-
lated group involved)’’ after ‘‘is inad-
equate’’. 
(3) CRITERION
FOR
SUBSTANTIAL
IM-
PROVEMENT.—Section 1886(d)(5)(K)(vi) (42 
U.S.C. 1395ww(d)(5)(K)(vi)), as amended 
by paragraph (1), is further amended by
1008
adding at the end the following sub-
clause: 
‘‘(III) The Secretary shall by regulation 
provide for further clarification of the cri-
teria applied to determine whether a new 
service or technology represents an advance 
in medical technology that substantially im-
proves the diagnosis or treatment of bene-
ficiaries. Under such criteria, in determining 
whether a new service or technology rep-
resents an advance in medical technology 
that substantially improves the diagnosis or 
treatment of beneficiaries, the Secretary shall 
deem a service or technology as meeting such 
requirement if the service or technology is a 
drug or biological that is designated under 
section 506 of the Federal Food, Drug, and 
Cosmetic Act, approved under section 314.510 
or 601.41 of title 21, Code of Federal Regula-
tions, or designated for priority review when 
the marketing application for such drug or bi-
ological was filed or is a medical device for 
which an exemption has been granted under 
section 520(m) of such Act, or for which pri-
ority review has been provided under section
1009
515(d)(5) of such Act. Nothing in this sub-
clause shall be construed as effecting the au-
thority of the Secretary to determine whether 
items and services are medically necessary 
and appropriate under section 1862(a)(1).’’. 
(4) PROCESS
FOR
PUBLIC
INPUT.—Sec-
tion 
1886(d)(5)(K) 
(42 
U.S.C. 
1395ww(d)(5)(K)), as amended by para-
graph (1), is amended—
(A) in clause (i), by adding at the 
end the following: ‘‘Such mechanism 
shall be modified to meet the require-
ments of clause (viii).’’; and 
(B) by adding at the end the fol-
lowing new clause: 
‘‘(viii) The mechanism established pursu-
ant to clause (i) shall be adjusted to provide, 
before publication of a proposed rule, for pub-
lic input regarding whether a new service or 
technology not described in the second sen-
tence of clause (vi)(III) represents an advance 
in medical technology that substantially im-
proves the diagnosis or treatment of bene-
ficiaries as follows:
1010
‘‘(I) The Secretary shall make public 
and periodically update a list of all the 
services and technologies for which an 
application for additional payment under 
this subparagraph is pending. 
‘‘(II) The Secretary shall accept com-
ments, recommendations, and data from 
the public regarding whether the service 
or technology represents a substantial 
improvement. 
‘‘(III) The Secretary shall provide for 
a meeting at which organizations rep-
resenting hospitals, physicians, medicare 
beneficiaries, manufacturers, and any 
other interested party may present com-
ments, recommendations, and data to the 
clinical staff of the Centers for Medicare 
& Medicaid Services before publication of 
a notice of proposed rulemaking regard-
ing whether service or technology rep-
resents a substantial improvement.’’. 
(c) PREFERENCE FOR USE OF DRG ADJUST-
MENT.—Section 
1886(d)(5)(K) 
(42 
U.S.C. 
1395ww(d)(5)(K)) is further amended by add-
ing at the end the following new clause:
1011
‘‘(ix) Before establishing any add-on pay-
ment under this subparagraph with respect to 
a new technology, the Secretary shall seek to 
identify one or more diagnosis-related 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 approximate the costs of care of using 
the new technology. In such case, the new 
technology would no longer meet the thresh-
old of exceeding 75 percent of the standard 
deviation for the diagnosis-related group in-
volved under clause (ii)(I). No add-on pay-
ment under this subparagraph shall be made 
with respect to such new technology and this 
clause shall not affect the application of para-
graph (4)(C)(iii).’’. 
(d) IMPROVEMENT
IN PAYMENT
FOR NEW 
TECHNOLOGY.—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:
1012
‘‘(based on the marginal rate applied to costs 
under subparagraph (A))’’. 
(e) ESTABLISHMENT OF NEW FUNDING FOR 
HOSPITAL
INPATIENT
TECHNOLOGY.—Section 
1886(d)(5)(K)(ii)(III) 
(42 
U.S.C. 
1395ww(d)(5)(K)(ii)(III)) is amended by strik-
ing ‘‘subject to paragraph (4)(C)(iii),’’. 
(f) EFFECTIVE DATE.—
(1) IN GENERAL.—The Secretary shall 
implement the amendments made by this 
section so that they apply to classifica-
tion for fiscal years beginning with fiscal 
year 2005. 
(2) RECONSIDERATIONS OF APPLICATIONS 
FOR FISCAL YEAR 2003 THAT ARE DENIED.—In 
the case of an application for a classifica-
tion 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 automati-
cally reconsider the application as an 
application for fiscal year 2005 under
1013
the amendments made by this sec-
tion; and 
(B) the maximum time period oth-
erwise permitted for such classifica-
tion 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—
(1) in subparagraph (A)—
(A) in clause (i), by striking ‘‘for 
discharges beginning on or after Oc-
tober 1, 1997, 50 percent (and for dis-
charges between October 1, 1987, and 
September 30, 1997, 75 percent)’’ and 
inserting ‘‘the applicable Puerto Rico 
percentage 
(specified 
in 
subpara-
graph (E))’’; and 
(B) in clause (ii), by striking ‘‘for 
discharges beginning in a fiscal year 
beginning on or after October 1, 1997, 
50 percent (and for discharges be-
tween October 1, 1987, and September 
30, 1997, 25 percent)’’ and inserting
1014
‘‘the applicable Federal percentage 
(specified in subparagraph (E))’’; and 
(2) by adding at the end the following 
new subparagraph: 
‘‘(E) For purposes of subparagraph (A), for 
discharges occurring—
‘‘(i) on or after October 1, 1987, and 
before October 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 percentage is 50 percent and 
the applicable Federal percentage is 50 
percent; 
‘‘(iii) during fiscal year 2004, the ap-
plicable Puerto Rico percentage is 41 per-
cent and the applicable Federal percent-
age is 59 percent; 
‘‘(iv) during fiscal year 2005, the ap-
plicable Puerto Rico percentage is 33 per-
cent and the applicable Federal percent-
age is 67 percent; and
1015
‘‘(v) on or after October 1, 2005, the 
applicable Puerto Rico percentage is 25 
percent and the applicable Federal per-
centage 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 following: 
‘‘(11)(A) In order to recognize commuting 
patterns 
among 
Metropolitan 
Statistical 
Areas and between such Areas and rural 
areas, the Secretary shall establish a process, 
upon application of a subsection (d) hospital 
that establishes that it is a qualifying hospital 
described in subparagraph (B), for an in-
crease of the wage index applied under para-
graph (3)(E) for the hospital in the amount 
computed under subparagraph (D). 
‘‘(B) A qualifying hospital described in 
this subparagraph is a subsection (d) hos-
pital—
‘‘(i) the average wages of which ex-
ceed the average wages for the area in 
which the hospital is located; and
1016
‘‘(ii) which has at least 10 percent of 
its employees who reside in one or more 
higher wage index areas. 
‘‘(C) For purposes of this paragraph, the 
term ‘higher wage index area’ means, with re-
spect to a hospital, an area with a wage index 
that exceeds that of the area in which the hos-
pital is located. 
‘‘(D) The increase in the wage index under 
subparagraph (A) for a hospital shall be equal 
to the percentage of the employees of the hos-
pital 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 hos-
pital is located (before the application 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.
1017
‘‘(E) The process under this paragraph 
shall be based upon the process used by the 
Medicare Geographic Classification Review 
Board under paragraph (10) with respect to 
data submitted by hospitals to the Board on 
the location of residence of hospital employ-
ees and wages under the applicable schedule 
established for geographic reclassification. 
‘‘(F) A reclassification under this para-
graph shall be effective for a period of 3 fiscal 
years, except that the Secretary shall estab-
lish procedures under which a subsection (d) 
hospital may elect to terminate such reclassi-
fication before the end of such period. 
‘‘(G) A hospital that is reclassified under 
this paragraph 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 paragraph 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
1018
‘‘(ii) applying any budget neutrality 
adjustment with respect to such index 
under paragraph (8)(D).’’. 
(b) EFFECTIVE
DATE.—The amendment 
made by subsection (a) shall first apply to the 
wage index for cost reporting period begin-
ning on or after October 1, 2004. 
SEC. 505. MEDPAC REPORT ON SPECIALTY HOSPITALS. 
(a) MEDPAC STUDY.—The Medicare Pay-
ment Advisory Commission shall conduct a 
study of specialty hospitals compared with 
other similar general acute care hospitals 
under the medicare program. Such study 
shall examine—
(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 serv-
ices, medicaid utilization, and uncompen-
sated care furnished. 
(b) REPORT.—Not later than 1 year after 
the date of the enactment of this Act, the Sec-
retary shall submit to Congress a report on
1019
the study conducted under subsection (a), and 
shall include any recommendations for legis-
lation or administrative change as the Sec-
retary determines appropriate. 
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 fol-
lows: 
‘‘(12) ADJUSTMENT FOR RESIDENTS WITH 
AIDS.—
‘‘(A) IN GENERAL.—Subject to sub-
paragraph (B), in the case of a resi-
dent of a skilled nursing facility who 
is afflicted with acquired immune de-
ficiency syndrome (AIDS), the per 
diem amount of payment otherwise 
applicable shall be increased by 128 
percent to reflect increased costs as-
sociated with such residents. 
‘‘(B) SUNSET.—Subparagraph (A) 
shall not apply on and after such date 
as the Secretary certifies that there is
1020
an appropriate adjustment in the 
case mix under paragraph (4)(G)(i) to 
compensate for the increased costs 
associated with residents described 
in such subparagraph.’’. 
(b) EFFECTIVE
DATE.—The amendment 
made by paragraph (1) shall apply to services 
furnished on or after October 1, 2003. 
SEC. 512. COVERAGE OF HOSPICE CONSULTATION SERV-
ICES. 
(a) COVERAGE
OF HOSPICE CONSULTATION 
SERVICES.—Section 1812(a) (42 U.S.C. 1395d(a)) 
is amended—
(1) by striking ‘‘and’’ at the end of 
paragraph (3); 
(2) by striking the period at the end 
of paragraph (4) and inserting ‘‘; and’’; 
and 
(3) by inserting after paragraph (4) 
the following new paragraph: 
‘‘(5) for individuals who are termi-
nally 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-
1021
cian who is either the medical director or 
an employee of a hospice program and 
that consist of—
‘‘(A) an evaluation of the individ-
ual’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 re-
garding advanced care planning.’’. 
(b) PAYMENT.—Section 1814(i) (42 U.S.C. 
l395f(i)) is amended by adding at the end the 
following new paragraph: 
‘‘(4) The amount paid to a hospice pro-
gram with respect to the services under sec-
tion 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 eval-
uation and management associated with pre-
senting problems of moderate severity under 
the fee schedule established under section 
1848(b), other than the portion of such
1022
amount attributable 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.
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 es-
tablished in paragraph (1)(C) for each of 
2004 and 2005 shall be not less than 1.5 
percent.’’.
1023
(2) CONFORMING
AMENDMENT.—Para-
graph (4)(B) of such section is amended, 
in the matter before clause (i), by insert-
ing ‘‘and paragraph (5)’’ after ‘‘subpara-
graph (D)’’. 
(3) NOT TREATED AS CHANGE IN LAW AND 
REGULATION IN SUSTAINABLE GROWTH RATE 
DETERMINATION.—The amendments made 
by this subsection shall not be treated as 
a change in law for purposes of applying 
section 1848(f)(2)(D) of the Social Secu-
rity Act (42 U.S.C. 1395w–4(f)(2)(D)). 
(b) USE OF 10-YEAR ROLLING AVERAGE IN 
COMPUTING 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 in-
serting ‘‘annual average’’; and 
(B) by striking ‘‘from the previous 
applicable period to the applicable 
period involved’’ and inserting ‘‘dur-
ing the 10-year period ending with 
the applicable period involved’’.
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall apply to
1024
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 
PHYSICIANS’ SERVICES.—
(1) STUDY.—The Comptroller General 
of the United States shall conduct a study 
on access of medicare beneficiaries to 
physicians’ services under the medicare 
program. The study shall include—
(A) an assessment of the use by 
beneficiaries 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 pa-
tients. 
(2) REPORT.—Not later than 18 months 
after the date of the enactment of this 
Act, the Comptroller General shall submit
1025
to Congress a report on the study con-
ducted under paragraph (1). The report 
shall include a determination whether—
(A) data from claims submitted by 
physicians under part B of the medi-
care program indicate potential ac-
cess problems for medicare bene-
ficiaries in certain geographic areas; 
and 
(B) access by medicare bene-
ficiaries to physicians’ services may 
have improved, remained constant, or 
deteriorated over time.
(b) STUDY AND REPORT ON SUPPLY OF PHYSI-
CIANS.—
(1) STUDY.—The Secretary shall re-
quest the Institute of Medicine of the Na-
tional 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 supply. 
(2) REPORT
TO
CONGRESS.—Not later 
than 2 years after the date of enactment 
of this section, the Secretary shall submit
1026
to Congress a report on the results of the 
study described in paragraph (1), includ-
ing any recommendations for legislation. 
(c) GAO STUDY OF MEDICARE PAYMENT FOR 
INHALATION THERAPY.—
(1) STUDY.—The Comptroller General 
of the United States shall conduct a study 
to examine the adequacy of current reim-
bursements for inhalation therapy under 
the medicare program. 
(2) REPORT.—Not later than May 1, 
2004, the Comptroller General shall sub-
mit to Congress a report 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 enact-
ment of this Act, the Medicare Payment Advi-
sory Commission shall submit 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 payment system in 2002, 
under section 1848 of the Social Security Act
1027
(42 U.S.C. 1395w–4). Such report shall exam-
ine the following matters by physician spe-
cialty: 
(1) The effect of such refinements on 
payment for physicians’ services. 
(2) The interaction of the practice ex-
pense component with other components 
of and adjustments to payment for physi-
cians’ services under such section. 
(3) 
The 
appropriateness 
of 
the 
amount of compensation by reason of 
such refinements. 
(4) The effect of such refinements on 
access to care by medicare beneficiaries 
to physicians’ services. 
(5) The effect of such refinements on 
physician participation under the medi-
care program. 
(b) VOLUME OF PHYSICIAN SERVICES.—The 
Medicare 
Payment 
Advisory 
Commission 
shall submit to Congress a report on the ex-
tent to which increases in the volume of phy-
sicians’ services under part B of the medicare 
program are a result of care that improves the 
health and well-being of medicare bene-
1028
ficiaries. The study shall include the fol-
lowing: 
(1) An analysis of recent and historic 
growth in the components that the Sec-
retary 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 
beneficiaries 
and 
other populations. 
(3) An analysis of the degree to which 
new technology, including coverage de-
terminations of the Centers for Medicare 
& Medicaid Services, has affected the vol-
ume of physicians’ services. 
(4) An examination of the impact on 
volume of demographic changes. 
(5) An examination of shifts in the 
site of service of services that influence 
the number and intensity of services fur-
nished in physicians’ offices and the ex-
tent to which changes in reimbursement 
rates to other providers have affected 
these changes.
1029
(6) An evaluation of the extent to 
which the Centers for Medicare & Med-
icaid Services takes into account the im-
pact of law and regulations on the sus-
tainable growth rate. 
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 subparagraph: 
‘‘(W) an initial preventive physical ex-
amination 
(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 phys-
ical examination’ means physicians’ services
1030
consisting of a physical examination with the 
goal of health promotion and disease detec-
tion and includes items and services (exclud-
ing clinical laboratory tests), as determined 
by the Secretary, consistent with the rec-
ommendations of the United States Preven-
tive Services Task Force.’’. 
(c) WAIVER OF DEDUCTIBLE AND COINSUR-
ANCE.—
(1) DEDUCTIBLE.—The first sentence of 
section 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 preventive phys-
ical examination (as defined in sec-
tion 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 physical examination, as
1031
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 physical examination, as 
defined in section 1861(ww))’’ after 
‘‘80 percent’’. 
(d) PAYMENT
AS PHYSICIANS’ SERVICES.—
Section 1848(j)(3) (42 U.S.C. 1395w–4(j)(3)) is 
amended by inserting ‘‘(2)(W),’’ after ‘‘(2)(S),’’. 
(e) OTHER
CONFORMING
AMENDMENTS.—
Section 1862(a) (42 U.S.C. 1395y(a)) is amend-
ed—
(1) in paragraph (1)—
(A) by striking ‘‘and’’ at the end of 
subparagraph (H); 
(B) by striking the semicolon at 
the end of subparagraph (I) and in-
serting ‘‘, and’’; and 
(C) by adding at the end the fol-
lowing new subparagraph: 
‘‘(J) in the case of an initial preven-
tive physical examination, which is per-
formed not later than 6 months after the
1032
date the individual’s first coverage pe-
riod begins under part B;’’; and 
(2) in paragraph (7), by striking ‘‘or 
(H)’’ and inserting ‘‘(H), or (J)’’. 
(f) EFFECTIVE
DATE.—The amendments 
made by this section shall apply to services 
furnished on or after January 1, 2004, but 
only for individuals whose coverage period 
begins on or after such date. 
SEC. 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 subparagraph: 
‘‘(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
1033
amended by adding 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 detection 
of abnormal cholesterol and other lipid levels. 
‘‘(2) The Secretary shall establish stand-
ards, in consultation with appropriate organi-
zations, regarding the frequency and type of 
cholesterol and other blood lipid screening 
tests, except that such frequency may not be 
more often than once every 2 years.’’. 
(c) FREQUENCY.—Section 1862(a)(1) (42 
U.S.C. 1395y(a)(1)), as amended by section 
611(e), is amended—
(1) by striking ‘‘and’’ at the end of 
subparagraph (I); 
(2) by striking the semicolon at the 
end of subparagraph (J) and inserting ‘‘; 
and’’; and 
(3) by adding at the end the following 
new subparagraph:
1034
‘‘(K) in the case of a cholesterol and 
other blood lipid screening test (as de-
fined in section 1861(xx)(1)), which is per-
formed more frequently than is covered 
under section 1861(xx)(2).’’. 
(d) EFFECTIVE
DATE.—The amendments 
made by this section shall apply to tests fur-
nished on or after January 1, 2005. 
SEC. 613. WAIVER OF DEDUCTIBLE FOR COLORECTAL CAN-
CER SCREENING TESTS. 
(a) IN GENERAL.—The first sentence of sec-
tion 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 de-
ductible shall not apply with respect to 
colorectal cancer screening tests (as de-
scribed in section 1861(pp)(1))’’. 
(b) 
CONFORMING
AMENDMENTS.—Para-
graphs (2)(C)(ii) and (3)(C)(ii) of section 
1834(d) (42 U.S.C. 1395m(d)) are each amend-
ed—
(1) by striking ‘‘DEDUCTIBLE
AND’’ in 
the heading; and
1035
(2) in subclause (I), by striking ‘‘de-
ductible or’’ each place it appears. 
(c) 
EFFECTIVE
DATE.—The 
amendment 
made by this section shall apply to items and 
services furnished on or after January 1, 2004.
SEC. 614. IMPROVED PAYMENT FOR CERTAIN MAMMOG-
RAPHY SERVICES. 
(a) EXCLUSION FROM OPD FEE SCHEDULE.—
Section 
1833(t)(1)(B)(iv) 
(42 
U.S.C. 
1395l(t)(1)(B)(iv)) is amended by inserting be-
fore the period at the end the following: ‘‘and 
does not include screening mammography (as 
defined in section 1861(jj)) and unilateral and 
bilateral diagnostic mammography’’. 
(b) ADJUSTMENT
TO
TECHNICAL
COMPO-
NENT.—For diagnostic mammography per-
formed on or after January 1, 2004, for which 
payment is made under the physician fee 
schedule under section 1848 of the Social Se-
curity Act (42 U.S.C. 1395w–4), the Secretary, 
based on the most recent cost data available, 
shall provide for an appropriate adjustment 
in the payment amount for the technical com-
ponent of the diagnostic mammography.
1068
medical 
assistance 
under 
section 
1902(a)(10)(A) or 1902(a)(10)(C) or to be a 
qualified medicare beneficiary (as de-
fined in section 1905(p)(1)), a specified 
low-income 
medicare 
beneficiary 
de-
scribed 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. 
‘‘(B)(i) The Secretary shall estimate, be-
fore the beginning 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 payment 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 review under section 1869, 1878, or