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provision of law that applies to such a payment with
respect to an individual entitled to benefits under this
title (but not enrolled with a MedicarePlus organiza-
tion under this part) also applies with respect to an
individual so enrolled.
‘‘(2) EXCEPTION
FOR
MSA
PLANS
AND
UNRE-
STRICTED FEE-FOR-SERVICE PLANS.—Paragraph (1)
shall not apply to an MSA plan or an unrestricted
fee-for-service plan.
‘‘PAYMENTS TO MEDICARE CHOICE ORGANIZATIONS
‘‘SEC. 1853. (a) PAYMENTS TO ORGANIZATIONS.—
‘‘(1) MONTHLY PAYMENTS.—
‘‘(A) IN GENERAL.—Under a contract under
section 1857 and subject to subsections (e) and
(f), the Secretary shall make monthly payments
under this section in advance to each Medicare
Choice organization, with respect to coverage of
an individual under this part in a Medicare
Choice payment area for a month, in an amount
equal to 1⁄12 of the annual Medicare Choice capi-
tation rate (as calculated under subsection (c))
with respect to that individual for that area, ad-
justed for such risk factors as age, disability sta-
tus, gender, institutional status, and such other
factors as the Secretary determines to be appro-
priate, so as to ensure actuarial equivalence. The
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Secretary may add to, modify, or substitute for
such factors, if such changes will improve the de-
termination of actuarial equivalence.
‘‘(B) SPECIAL RULE FOR END-STAGE RENAL
DISEASE.—The Secretary shall establish separate
rates of payment to a Medicare Choice organiza-
tion with respect to classes of individuals deter-
mined to have end-stage renal disease and en-
rolled in a Medicare Choice plan of the organiza-
tion. Such rates of payment shall be actuarially
equivalent to rates paid to other enrollees in the
Medicare Choice payment area (or such other
area as specified by the Secretary). In accord-
ance with regulations, the Secretary shall pro-
vide for the application of the seventh sentence of
section 1881(b)(7) to payments under this sec-
tion covering the provision of renal dialysis
treatment in the same manner as such sentence
applies to composite rate payments described in
such sentence.
‘‘(2) ADJUSTMENT TO REFLECT NUMBER OF EN-
ROLLEES.—
‘‘(A) IN
GENERAL.—The amount of pay-
ment under this subsection may be retroactively
adjusted to take into account any difference be-
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tween the actual number of individuals enrolled
with an organization under this part and the
number of such individuals estimated to be so
enrolled in determining the amount of the ad-
vance payment.
‘‘(B) SPECIAL RULE FOR CERTAIN ENROLL-
EES.—
‘‘(i) IN
GENERAL.—Subject to clause
(ii), the Secretary may make retroactive ad-
justments under subparagraph (A) to take
into account individuals enrolled during the
period beginning on the date on which the
individual enrolls with a Medicare Choice
organization under a plan operated, spon-
sored, or contributed to by the individual’s
employer or former employer (or the em-
ployer or former employer of the individ-
ual’s spouse) and ending on the date on
which the individual is enrolled in the orga-
nization under this part, except that for
purposes of making such retroactive adjust-
ments under this subparagraph, such period
may not exceed 90 days.
‘‘(ii) EXCEPTION.—No adjustment may
be made under clause (i) with respect to
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any individual who does not certify that the
organization provided the individual with
the disclosure statement described in section
1852(c) at the time the individual enrolled
with the organization.
‘‘(3) ESTABLISHMENT
OF
RISK
ADJUSTMENT
FACTORS.—
‘‘(A) IN GENERAL.—The Secretary shall de-
velop and implement a method of risk adjust-
ment of payment rates under this section that
accounts for variations in per capita costs based
on health status. Such method shall not be imple-
mented before the Secretary receives an evalua-
tion by an outside, independent actuary of the
actuarial soundness of such method.
‘‘(B) DATA COLLECTION.—In order to carry
out this paragraph, the Secretary shall require
Medicare Choice organizations (and eligible or-
ganizations with risk-sharing contracts under
section 1876) to submit, for periods beginning on
or after January 1, 1998, data regarding inpa-
tient hospital services and other services and
other information the Secretary deems necessary.
‘‘(4) INTERIM RISK ADJUSTMENT.—
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‘‘(A) IN GENERAL.—In the case of an appli-
cable enrollee in a Medicare Choice plan, the
payment to the Medicare Choice organization
under this section shall be reduced by an amount
equal to the applicable percentage of the amount
of such payment (determined without regard to
this paragraph).
‘‘(B) APPLICABLE
ENROLLEE.—For pur-
poses of this paragraph—
‘‘(i) IN GENERAL.—The term ‘applica-
ble enrollee’ means, with respect to any
month, a medicare eligible individual
who—
‘‘(I) is enrolled in a Medicare
Choice plan, and
‘‘(II) has not been enrolled in
Medicare Choice plans and plans oper-
ated by eligible organizations with
risk-sharing contracts under section
1876 for an aggregate number of
months greater than 60 (including the
month for which the determination is
being made).
‘‘(ii) EXCEPTION FOR BENEFICIARIES
MAINTAINING
ENROLLMENT
IN
CERTAIN
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PLANS.—The term ‘applicable enrollee’ shall
not include any individual enrolled in a
Medicare Choice plan offered by a Medicare
Choice organization if such individual was
enrolled in a health plan (other than a Med-
icare Choice plan) offered by such organiza-
tion at the time of the individual’s initial
election period under section 1851(e)(1) and
has been continuously enrolled in such Med-
icare Choice plan (or another Medicare
Choice plan offered by such organization)
since such election period.
‘‘(C) APPLICABLE PERCENTAGE.—For pur-
poses of this paragraph, the applicable percent-
age shall be determined in accordance with the
following table:
Applicable
‘‘Months enrolled in HMOs:
percentage:
1–12 ................................................................................................
13–24 ..............................................................................................
25–36 ..............................................................................................
37–48 ..............................................................................................
49–60 ..............................................................................................
1.
‘‘(D) EXCEPTION
FOR
NEW
PLANS.—This
paragraph shall not apply to applicable enrollees
in a Medicare Choice plan for any month if—
‘‘(i) such month occurs during the first
12 months during which the plan enrolls
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Medicare Choice eligible individuals in the
Medicare Choice payment area, and
‘‘(ii) the annual Medicare Choice capi-
tation rate for such area for the calendar
year preceding the calendar year in which
such 12-month period begins is less than the
annual national Medicare Choice capitation
rate (as determined under subsection (c)(4))
for such preceding calendar year.
In the case of 1998, clause (ii) shall be applied
by using the adjusted average per capita cost
under section 1876 for 1997 rather than such
capitation rate.
‘‘(E) TERMINATION.—This paragraph shall
not apply to any month beginning on or after
the first day of the first month to which the
method for risk adjustment described in para-
graph (3) applies.
‘‘(b) ANNUAL ANNOUNCEMENT OF PAYMENT RATES.—
‘‘(1) ANNUAL
ANNOUNCEMENT.—The Secretary
shall annually determine, and shall announce (in a
manner intended to provide notice to interested par-
ties) not later than August 1 before the calendar year
concerned—
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‘‘(A) the annual Medicare Choice capitation
rate for each Medicare Choice payment area for
the year, and
‘‘(B) the risk and other factors to be used in
adjusting such rates under subsection (a)(1)(A)
for payments for months in that year.
‘‘(2) ADVANCE
NOTICE
OF
METHODOLOGICAL
CHANGES.—At least 45 days before making the an-
nouncement under paragraph (1) for a year, the Sec-
retary shall provide for notice to Medicare Choice or-
ganizations of proposed changes to be made in the
methodology from the methodology and assumptions
used in the previous announcement and shall provide
such organizations an opportunity to comment on
such proposed changes.
‘‘(3) EXPLANATION OF ASSUMPTIONS.—In each
announcement made under paragraph (1), the Sec-
retary shall include an explanation of the assump-
tions and changes in methodology used in the an-
nouncement in sufficient detail so that Medicare
Choice organizations can compute monthly adjusted
Medicare Choice capitation rates for individuals in
each Medicare Choice payment area which is in whole
or in part within the service area of such an organi-
zation.
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‘‘(c) CALCULATION
OF ANNUAL MEDICARE CHOICE
CAPITATION RATES.—
‘‘(1) IN GENERAL.—For purposes of this part,
each annual Medicare Choice capitation rate, for a
Medicare Choice payment area for a contract year
consisting of a calendar year, is equal to the largest
of the amounts specified in the following subpara-
graph (A), (B), or (C):
‘‘(A) BLENDED
CAPITATION
RATE.—The
sum of—
‘‘(i) the area-specific percentage for the
year (as specified under paragraph (2) for
the year) of the annual area-specific Medi-
care Choice capitation rate for the year for
the Medicare Choice payment area, as deter-
mined under paragraph (3), and
‘‘(ii) the national percentage (as speci-
fied under paragraph (2) for the year) of
the annual national Medicare Choice capi-
tation rate for the year, as determined
under paragraph (4),
multiplied by the payment adjustment factors
described in subparagraphs (A) and (B) of para-
graph (5).
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‘‘(B) MINIMUM AMOUNT.—Subject to para-
graph (8)—
‘‘(i) For 1998, $4,200 (but not to ex-
ceed, in the case of an area outside the 50
States and the District of Columbia, 150
percent of the annual per capita rate of
payment for 1997 determined under section
1876(a)(1)(C) for the area).
‘‘(ii) For each subsequent year, 101
percent of the amount in effect under this
subparagraph for the previous year.
‘‘(C) MINIMUM
PERCENTAGE
INCREASE.—
Subject to paragraph (8)—
‘‘(i) For 1998, 101 percent of the an-
nual per capita rate of payment for 1997
determined under section 1876(a)(1)(C) for
the Medicare Choice payment area.
‘‘(ii) For each subsequent year, 101
percent of the annual Medicare Choice capi-
tation rate under this paragraph for the
area for the previous year.
‘‘(2) AREA-SPECIFIC
AND
NATIONAL
PERCENT-
AGES.—For purposes of paragraph (1)(A)—
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‘‘(A) for 1998, the ‘area-specific percentage’
is 90 percent and the ‘national percentage’ is 10
percent,
‘‘(B) for 1999, the ‘area-specific percentage’
is 80 percent and the ‘national percentage’ is 20
percent,
‘‘(C) for 2000, the ‘area-specific percentage’
is 70 percent and the ‘national percentage’ is 30
percent,
‘‘(D) for 2001, the ‘area-specific percentage’
is 60 percent and the ‘national percentage’ is 40
percent, and
‘‘(E) for a year after 2001, the ‘area-specific
percentage’ is 50 percent and the ‘national per-
centage’ is 50 percent.
‘‘(3) ANNUAL AREA-SPECIFIC MEDICARE CHOICE
CAPITATION RATE.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1)(A), the annual area-specific Medicare
Choice capitation rate for a Medicare Choice
payment area—
‘‘(i) for 1998 is the modified annual
per capita rate of payment for 1997 deter-
mined under section 1876(a)(1)(C) for the
area, increased by the national average per
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capita growth percentage for 1998 (as de-
fined in paragraph (6)); or
‘‘(ii) for a subsequent year is the an-
nual area-specific Medicare Choice capita-
tion rate for the previous year determined
under this paragraph for the area, increased
by the national average per capita growth
percentage for such subsequent year.
‘‘(B) MODIFIED ANNUAL PER CAPITA RATE
OF
PAYMENT.—For purposes of subparagraph
(A), the modified annual per capita rate of pay-
ment for a Medicare Choice payment area for
1997 shall be equal to the annual per capita rate
of payment for such area for such year which
would have been determined under section
1876(a)(1)(C) if 25 percent of any payments at-
tributable to sections 1886(d)(5)(B), 1886(h),
and 1886(d)(5)(F) (relating to IME, GME, and
DSH payments) were not taken into account.
‘‘(C) SPECIAL RULES FOR 1999, 2000, AND
2001.—In applying subparagraph (A)(ii) for
1999, 2000, and 2001, the annual area-specific
Medicare Choice capitation rate for the preced-
ing calendar year shall be the amount which
would have been determined if subparagraph (B)
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had been applied by substituting the following
percentages for ‘25 percent’:
‘‘(i) In 1999, 50 percent.
‘‘(ii) In 2000, 75 percent.
‘‘(iii) In 2001, 100 percent.
‘‘(4) ANNUAL NATIONAL MEDICARE CHOICE CAPI-
TATION RATE.—For purposes of paragraph (1)(A), the
annual national Medicare Choice capitation rate for
a Medicare Choice payment area for a year is equal
to—
‘‘(A) the sum (for all Medicare Choice pay-
ment areas) of the product of—
‘‘(i) the annual area-specific Medicare
Choice capitation rate for that year for the
area under paragraph (3), and
‘‘(ii) the average number of medicare
beneficiaries residing in that area in the
year; divided by
‘‘(B) the sum of the amounts described in
subparagraph (A)(ii) for all Medicare Choice
payment areas for that year.
‘‘(5) PAYMENT ADJUSTMENT BUDGET NEUTRAL-
ITY FACTORS.—For purposes of paragraph (1)(A)—
‘‘(A) BLENDED
RATE
PAYMENT
ADJUST-
MENT
FACTOR.—For each year, the Secretary
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shall compute a blended rate payment adjust-
ment factor such that, not taking into account
subparagraphs (B) and (C) of paragraph (1)
and the application of the payment adjustment
factor described in subparagraph (B) but taking
into account paragraph (7), the aggregate of the
payments that would be made under this part is
equal to the aggregate payments that would have
been made under this part (not taking into ac-
count such subparagraphs and such other adjust-
ment factor) if the area-specific percentage under
paragraph (1) for the year had been 100 percent
and the national percentage had been 0 percent.
‘‘(B) 
FLOOR-AND-MINIMUM-UPDATE
PAY-
MENT ADJUSTMENT FACTOR.—For each year, the
Secretary shall compute a floor-and-minimum-
update payment adjustment factor so that, tak-
ing into account the application of the blended
rate payment adjustment factor under subpara-
graph (A) and subparagraphs (B) and (C) of
paragraph (1) and the application of the adjust-
ment factor under this subparagraph, the aggre-
gate of the payments under this part shall not
exceed the aggregate payments that would have
been made under this part if subparagraphs (B)
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and (C) of paragraph (1) did not apply and if
the floor-and-minimum-update payment adjust-
ment factor under this subparagraph was 1.
‘‘(6) NATIONAL AVERAGE PER CAPITA GROWTH
PERCENTAGE DEFINED.—In this part, the ‘national
average per capita growth percentage’ for any year
(beginning with 1998) is equal to the sum of—
‘‘(A) the percentage increase in the gross do-
mestic product per capita for the 12-month pe-
riod ending on June 30 of the preceding year,
plus
‘‘(B) 0.5 percentage points.
‘‘(7) TREATMENT OF AREAS WITH HIGHLY VARI-
ABLE PAYMENT RATES.—In the case of a Medicare
Choice payment area for which the annual per capita
rate 
of 
payment 
determined 
under 
section
1876(a)(1)(C) for 1997 varies by more than 20 per-
cent from such rate for 1996, for purposes of this sub-
section the Secretary may substitute for such rate for
1997 a rate that is more representative of the costs of
the enrollees in the area.
‘‘(8) ADJUSTMENTS TO MINIMUM AMOUNTS AND
MINIMUM PERCENTAGE INCREASES.—After computing
all amounts under this subsection (without regard to
this paragraph) for any year, the Secretary shall—
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‘‘(A) redetermine the amount under para-
graph (1)(C) for such year by substituting ‘100
percent’ for ‘101 percent’ each place it appears,
and
‘‘(B) increase the minimum amount under
paragraph (1)(B) to an amount equal to the less-
er of—
‘‘(i) the amount the Secretary esti-
mates will result in increased payments
under such paragraph equal to the decrease
in payments by reason of the redetermina-
tion under subparagraph (A), or
‘‘(ii) an amount equal to 85 percent of
the annual national Medicare Choice capi-
tation rate determined under paragraph
(4).
‘‘(9) STUDY OF LOCAL PRICE INDICATORS.—The
Secretary and the Medicare Payment Advisory Com-
mission shall each conduct a study with respect to ap-
propriate measures for adjusting the annual Medicare
Choice capitation rates determined under this section
to reflect local price indicators, including the medi-
care hospital wage index and the case-mix of a geo-
graphic region. The Secretary and the Advisory Com-
mission shall report the results of such study to the
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appropriate committees of Congress, including rec-
ommendations (if any) for legislation.
‘‘(d) MEDICARE CHOICE PAYMENT AREA DEFINED.—
‘‘(1) IN GENERAL.—In this part, except as pro-
vided in paragraph (3), the term ‘Medicare Choice
payment area’ means a county, or equivalent area
specified by the Secretary.
‘‘(2) RULE FOR ESRD BENEFICIARIES.—In the
case of individuals who are determined to have end
stage renal disease, the Medicare Choice payment area
shall be a State or such other payment area as the
Secretary specifies.
‘‘(3) GEOGRAPHIC ADJUSTMENT.—
‘‘(A) IN GENERAL.—Upon written request of
the chief executive officer of a State for a con-
tract year (beginning after 1998) made at least
7 months before the beginning of the year, the
Secretary shall make a geographic adjustment to
a Medicare Choice payment area in the State
otherwise determined under paragraph (1)—
‘‘(i) to a single statewide Medicare
Choice payment area,
‘‘(ii) to the metropolitan based system
described in subparagraph (C), or
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‘‘(iii) to consolidating into a single
Medicare Choice payment area noncontig-
uous counties (or equivalent areas described
in paragraph (1)) within a State.
Such adjustment shall be effective for payments
for months beginning with January of the year
following the year in which the request is re-
ceived.
‘‘(B) BUDGET NEUTRALITY ADJUSTMENT.—
In the case of a State requesting an adjustment
under this paragraph, the Secretary shall adjust
the payment rates otherwise established under
this section for Medicare Choice payment areas
in the State in a manner so that the aggregate
of the payments under this section in the State
shall not exceed the aggregate payments that
would have been made under this section for
Medicare Choice payment areas in the State in
the absence of the adjustment under this para-
graph.
‘‘(C) METROPOLITAN BASED SYSTEM.—The
metropolitan based system described in this sub-
paragraph is one in which—
‘‘(i) all the portions of each metropoli-
tan statistical area in the State or in the
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case of a consolidated metropolitan statis-
tical area, all of the portions of each pri-
mary metropolitan statistical area within
the consolidated area within the State, are
treated as a single Medicare Choice pay-
ment area, and
‘‘(ii) all areas in the State that do not
fall within a metropolitan statistical area
are treated as a single Medicare Choice pay-
ment area.
‘‘(D) AREAS.—In subparagraph (C), the
terms ‘metropolitan statistical area’, ‘consoli-
dated metropolitan statistical area’, and ‘pri-
mary metropolitan statistical area’ mean any
area designated as such by the Secretary of Com-
merce.
‘‘(e) SPECIAL RULES
FOR INDIVIDUALS ELECTING
MSA PLANS.—
‘‘(1) IN GENERAL.—If the amount of the monthly
premium for an MSA plan for a Medicare Choice
payment area for a year is less than 1⁄12 of the an-
nual Medicare Choice capitation rate applied under
this section for the area and year involved, the Sec-
retary shall deposit an amount equal to 100 percent
of such difference in a Medicare Choice MSA estab-
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lished (and, if applicable, designated) by the individ-
ual under paragraph (2).
‘‘(2) ESTABLISHMENT
AND
DESIGNATION
OF
MEDICARE CHOICE MEDICAL SAVINGS ACCOUNT AS RE-
QUIREMENT FOR PAYMENT OF CONTRIBUTION.—In the
case of an individual who has elected coverage under
an MSA plan, no payment shall be made under para-
graph (1) on behalf of an individual for a month un-
less the individual—
‘‘(A) has established before the beginning of
the month (or by such other deadline as the Sec-
retary may specify) a Medicare Choice MSA (as
defined in section 138(b)(2) of the Internal Reve-
nue Code of 1986), and
‘‘(B) if the individual has established more
than one such Medicare Choice MSA, has des-
ignated one of such accounts as the individual’s
Medicare Choice MSA for purposes of this part.
Under rules under this section, such an individual
may change the designation of such account under
subparagraph (B) for purposes of this part.
‘‘(3) LUMP-SUM DEPOSIT OF MEDICAL SAVINGS
ACCOUNT CONTRIBUTION.—In the case of an individ-
ual electing an MSA plan effective beginning with a
month in a year, the amount of the contribution to
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the Medicare Choice MSA on behalf of the individual
for that month and all successive months in the year
shall be deposited during that first month. In the case
of a termination of such an election as of a month be-
fore the end of a year, the Secretary shall provide for
a procedure for the recovery of deposits attributable to
the remaining months in the year.
‘‘(4) SPECIAL
RULE
FOR
APPLICABLE
EN-
ROLLEE.—In the case of an enrollee in a MSA plan
for any month who is an applicable enrollee for such
month under section 1853(a)(4)(B), the amount of the
deposit under paragraph (1) for such month shall be
reduced by the applicable percentage (as defined in
section 1853(a)(4)(C)) of the amount of such deposit
(determined without regard to this paragraph).
‘‘(f) PAYMENTS FROM TRUST FUND.—The payment to
a Medicare Choice organization under this section for indi-
viduals enrolled under this part with the organization and
payments to a Medicare Choice MSA under subsection
(e)(1)(B) shall be made from the Federal Hospital Insur-
ance Trust Fund and the Federal Supplementary Medical
Insurance Trust Fund in such proportion as the Secretary
determines reflects the relative weight that benefits under
part A and under part B represents of the actuarial value
of the total benefits under this title. Monthly payments oth-
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erwise payable under this section for October 2001 shall be
paid on the last business day of September 2001. Monthly
payments otherwise payable under this section for October
2006 shall be paid on the first business day of October 2006.
‘‘(g) SPECIAL RULE FOR CERTAIN INPATIENT HOS-
PITAL STAYS.—In the case of an individual who is receiv-
ing inpatient hospital services from a subsection (d) hos-
pital (as defined in section 1886(d)(1)(B)) as of the effective
date of the individual’s—
‘‘(1) election under this part of a Medicare
Choice plan offered by a Medicare Choice organiza-
tion—
‘‘(A) payment for such services until the
date of the individual’s discharge shall be made
under this title through the Medicare Choice plan
or the traditional medicare fee-for-service pro-
gram option described in section 1851(a)(1)(A)
(as the case may be) elected before the election
with such organization,
‘‘(B) the elected organization shall not be fi-
nancially responsible for payment for such serv-
ices until the date after the date of the individ-
ual’s discharge, and
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under each Medicare Choice plan it offers under
this part in each Medicare Choice payment area
(as defined in section 1853(d)) in which the plan
is being offered; and
‘‘(B) the enrollment capacity in relation to
the plan in each such area.
‘‘(2) TERMINOLOGY.—In this part—
‘‘(A) the term ‘monthly premium’ means,
with respect to a Medicare Choice plan offered by
a Medicare Choice organization, the monthly
premium filed under paragraph (1), not taking
into account the amount of any payment made
toward the premium under section 1853; and
‘‘(B) the term ‘net monthly premium’
means, with respect to such a plan and an indi-
vidual enrolled with the plan, the premium (as
defined in subparagraph (A)) for the plan re-
duced by the amount of payment made toward
such premium under section 1853.
‘‘(b) MONTHLY PREMIUM CHARGED.—The monthly
amount of the premium charged by a Medicare Choice orga-
nization for a Medicare Choice plan offered in a Medicare
Choice payment area to an individual under this part shall
be equal to the net monthly premium plus any monthly pre-
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mium charged in accordance with subsection (e)(2) for sup-
plemental benefits.
‘‘(c) UNIFORM PREMIUM.—The monthly premium and
monthly amount charged under subsection (b) of a Medicare
Choice organization under this part may not vary among
individuals who reside in the same Medicare Choice pay-
ment area.
‘‘(d) TERMS
AND CONDITIONS
OF IMPOSING PRE-
MIUMS.—Each Medicare Choice organization shall permit
the payment of net monthly premiums on a monthly basis
and may terminate election of individuals for a Medicare
Choice plan for failure to make premium payments only
in accordance with section 1851(g)(3)(B)(i). A Medicare
Choice organization is not authorized to provide for cash
or other monetary rebates as an inducement for enrollment
or otherwise.
‘‘(e) LIMITATION ON ENROLLEE COST-SHARING.—
‘‘(1) FOR BASIC AND ADDITIONAL BENEFITS.—
Except as provided in paragraph (2), in no event
may—
‘‘(A) the net monthly premium (multiplied
by 12) and the actuarial value of the deductibles,
coinsurance, and copayments applicable on aver-
age to individuals enrolled under this part with
a Medicare Choice plan of an organization with
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respect to required benefits described in section
1852(a)(1) and additional benefits (if any) re-
quired under subsection (f)(1) for a year, exceed
‘‘(B) the actuarial value of the deductibles,
coinsurance, and copayments that would be ap-
plicable on average to individuals entitled to
benefits under part A and enrolled under part B
if they were not members of a Medicare Choice
organization for the year.
‘‘(2) FOR
SUPPLEMENTAL
BENEFITS.—If the
Medicare Choice organization provides to its members
enrolled under this part supplemental benefits de-
scribed in section 1852(a)(3), the sum of the monthly
premium rate (multiplied by 12) charged for such
supplemental benefits and the actuarial value of its
deductibles, coinsurance, and copayments charged
with respect to such benefits may not exceed the ad-
justed community rate for such benefits (as defined in
subsection (f)(4)).
‘‘(3) EXCEPTION
FOR
MSA
PLANS
AND
UNRE-
STRICTED FEE-FOR-SERVICE PLANS.—Paragraphs (1)
and (2) do not apply to an MSA plan or an unre-
stricted fee-for-service plan.
‘‘(4) DETERMINATION ON OTHER BASIS.—If the
Secretary determines that adequate data are not
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available to determine the actuarial value under
paragraph (1)(A) or (2), the Secretary may determine
such amount with respect to all individuals in the
Medicare Choice payment area, the State, or in the
United States, eligible to enroll in the Medicare
Choice plan involved under this part or on the basis
of other appropriate data.
‘‘(f) REQUIREMENT FOR ADDITIONAL BENEFITS.—
‘‘(1) REQUIREMENT.—
‘‘(A) IN GENERAL.—Each Medicare Choice
organization (in relation to a Medicare Choice
plan it offers) shall provide that if there is an
excess amount (as defined in subparagraph (B))
for the plan for a contract year, subject to the
succeeding provisions of this subsection, the orga-
nization shall provide to individuals such addi-
tional benefits (as the organization may specify)
in a value which is at least equal to the adjusted
excess amount (as defined in subparagraph (C)).
‘‘(B) EXCESS
AMOUNT.—For purposes of
this paragraph, the ‘excess amount’, for an orga-
nization for a plan, is the amount (if any) by
which—
‘‘(i) the average of the capitation pay-
ments made to the organization under sec-
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tion 1853 for the plan at the beginning of
contract year, exceeds
‘‘(ii) the actuarial value of the required
benefits described in section 1852(a)(1)
under the plan for individuals under this
part, as determined based upon an adjusted
community rate described in paragraph (4)
(as reduced for the actuarial value of the co-
insurance and deductibles under parts A
and B).
‘‘(C) ADJUSTED
EXCESS
AMOUNT.—For
purposes of this paragraph, the ‘adjusted excess
amount’, for an organization for a plan, is the
excess amount reduced to reflect any amount
withheld and reserved for the organization for
the year under paragraph (3).
‘‘(D) NO
APPLICATION
TO
MSA
PLANS.—
Subparagraph (A) shall not apply to an MSA
plan.
‘‘(E) UNIFORM
APPLICATION.—This para-
graph shall be applied uniformly for all enrollees
for a plan in a Medicare Choice payment area.
‘‘(F) CONSTRUCTION.—Nothing in this sub-
section shall be construed as preventing a Medi-
care Choice organization from providing health
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care benefits that are in addition to the benefits
otherwise required to be provided under this
paragraph and from imposing a premium for
such additional benefits.
‘‘(2) STABILIZATION FUND.—A Medicare Choice
organization may provide that a part of the value of
an excess amount described in paragraph (1) be with-
held and reserved in the Federal Hospital Insurance
Trust Fund and in the Federal Supplementary Medi-
cal Insurance Trust Fund (in such proportions as the
Secretary determines to be appropriate) by the Sec-
retary for subsequent annual contract periods, to the
extent required to stabilize and prevent undue fluc-
tuations in the additional benefits offered in those
subsequent periods by the organization in accordance
with such paragraph. Any of such value of the
amount reserved which is not provided as additional
benefits described in paragraph (1)(A) to individuals
electing the Medicare Choice plan of the organization
in accordance with such paragraph prior to the end
of such periods, shall revert for the use of such trust
funds.
‘‘(3) DETERMINATION BASED ON INSUFFICIENT
DATA.—For purposes of this subsection, if the Sec-
retary finds that there is insufficient enrollment expe-
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transition period) based on the costs incurred by
the organization in providing such a plan.
‘‘(g) PERIODIC AUDITING.—The Secretary shall pro-
vide for the annual auditing of the financial records (in-
cluding data relating to medicare utilization, costs, and
computation of the adjusted community rate) of at least
one-third of the Medicare Choice organizations offering
Medicare Choice plans under this part. The Comptroller
General shall monitor auditing activities conducted under
this subsection.
‘‘(h) PROHIBITION OF STATE IMPOSITION OF PREMIUM
TAXES.—No State may impose a premium tax or similar
tax with respect to payments on Medicare Choice plans or
the offering of such plans.
‘‘ORGANIZATIONAL
AND
FINANCIAL
REQUIREMENTS
FOR
MEDICARE CHOICE ORGANIZATIONS; PROVIDER-SPON-
SORED ORGANIZATIONS
‘‘SEC. 1855. (a) ORGANIZED AND LICENSED UNDER
STATE LAW.—
‘‘(1) IN GENERAL.—Subject to paragraphs (2)
and (3), a Medicare Choice organization shall be or-
ganized and licensed under State law as a risk-bear-
ing entity eligible to offer health insurance or health
benefits coverage in each State in which it offers a
Medicare Choice plan.
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‘‘(2) SPECIAL EXCEPTION BEFORE 2001 FOR PRO-
VIDER-SPONSORED ORGANIZATIONS.—
‘‘(A) IN GENERAL.—In the case of a pro-
vider-sponsored organization that seeks to offer a
Medicare Choice plan in a State, the Secretary
shall waive the requirement of paragraph (1)
that the organization be licensed in that State
for any year before 2001 if—
‘‘(i) the organization files an applica-
tion for such waiver with the Secretary, and
‘‘(ii) the contract with the organization
under section 1857 requires the organiza-
tion to meet all requirements of State law
which relate to the licensing of the organiza-
tion (other than solvency requirements or a
prohibition on licensure for such organiza-
tion).
‘‘(B) TREATMENT OF WAIVER.—
‘‘(i) IN GENERAL.—In the case of a
waiver granted under this paragraph for a
provider-sponsored organization—
‘‘(I) the waiver shall be effective
for the years specified in the waiver,
except it may be renewed based on a
subsequent application, and
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‘‘(II) subject to subparagraph
(A)(ii), any provisions of State law
which would otherwise prohibit the or-
ganization from providing coverage
pursuant to a contract under this part
shall be superseded.
‘‘(ii) TERMINATION.—A waiver grant-
ed under this paragraph shall in no event
extend beyond the earlier of—
‘‘(I) December 31, 2000; or
‘‘(II) the date on which the Sec-
retary determines that the State has in
effect solvency standards identical to
the standards established under section
1856(a).
‘‘(C) PROMPT
ACTION
ON
APPLICATION.—
The Secretary shall grant or deny such a waiver
application within 60 days after the date the
Secretary determines that a substantially com-
plete application has been filed.
‘‘(D) ENFORCEMENT
OF
STATE
STAND-
ARDS.—
‘‘(i) IN GENERAL.—The Secretary shall
enter into agreements with States subject to
a waiver under this paragraph to ensure the
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adequate enforcement of standards incor-
porated into the contract under subpara-
graph (A)(ii). Such agreements shall pro-
vide methods by which States may notify
the Secretary of any failure by an organiza-
tion to comply with such standards.
‘‘(ii) ENFORCEMENT.—If the Secretary
determines that an organization is not in
compliance with the standards described in
clause (i), the Secretary shall take appro-
priate actions under subsections (g) and (h)
with respect to civil penalties and termi-
nation of the contract. The Secretary shall
allow an organization 60 days to comply
with the standards after notification of fail-
ure.
‘‘(E) REPORT.—The Secretary shall, not
later than December 31, 1998, report to Congress
on the waiver procedure in effect under this
paragraph. Such report shall include an analysis
of State efforts to adopt regulatory standards
that take into account health plan sponsors that
provide services directly to enrollees through af-
filiated providers.
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‘‘(3) EXCEPTION IF REQUIRED TO OFFER MORE
THAN
MEDICARE
CHOICE
PLANS.—Paragraph (1)
shall not apply to a Medicare Choice organization in
a State if the State requires the organization, as a
condition of licensure, to offer any product or plan
other than a Medicare Choice plan.
‘‘(4) LICENSURE DOES NOT SUBSTITUTE FOR OR
CONSTITUTE CERTIFICATION.—The fact that an orga-
nization is licensed in accordance with paragraph (1)
does not deem the organization to meet other require-
ments imposed under this part.
‘‘(b) PREPAID PAYMENT.—A Medicare Choice organi-
zation shall be compensated (except for premiums,
deductibles, coinsurance, and copayments) for the provision
of health care services to enrolled members under the con-
tract under this part by a payment which is paid on a
periodic basis without regard to the date the health care
services are provided and which is fixed without regard to
the frequency, extent, or kind of health care service actually
provided to a member.
‘‘(c) ASSUMPTION OF FULL FINANCIAL RISK.—The
Medicare Choice organization shall assume full financial
risk on a prospective basis for the provision of the health
care services (except, at the election of the organization, hos-
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pice care) for which benefits are required to be provided
under section 1852(a)(1), except that the organization—
‘‘(1) may obtain insurance or make other ar-
rangements for the cost of providing to any enrolled
member such services the aggregate value of which for
any year exceeds the applicable amount determined
under the last sentence of this subsection for the year,
‘‘(2) may obtain insurance or make other ar-
rangements for the cost of such services provided to its
enrolled members other than through the organization
because medical necessity required their provision be-
fore they could be secured through the organization,
‘‘(3) may obtain insurance or make other ar-
rangements for not more than 90 percent of the
amount by which its costs for any of its fiscal years
exceed 115 percent of its income for such fiscal year,
and
‘‘(4) may make arrangements with physicians or
other health professionals, health care institutions, or
any combination of such individuals or institutions
to assume all or part of the financial risk on a pro-
spective basis for the provision of basic health services
by the physicians or other health professionals or
through the institutions.
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For purposes of paragraph (1), the applicable amount for
1998 is the amount established by the Secretary, and for
1999 and any succeeding year is the amount in effect for
the previous year increased by the percentage change in the
Consumer Price Index for all urban consumers (U.S. city
average) for the 12-month period ending with June of the
previous year.
‘‘(d) CERTIFICATION OF PROVISION AGAINST RISK OF
INSOLVENCY FOR PSOS.—
‘‘(1) IN GENERAL.—Each Medicare Choice orga-
nization that is a provider-sponsored organization
with a waiver in effect under subsection (a)(2) shall
meet the standards established under section 1856(a)
with respect to the financial solvency and capital ade-
quacy of the organization.
‘‘(2) CERTIFICATION
PROCESS
FOR
SOLVENCY
STANDARDS FOR PSOS.—The Secretary shall establish
a process for the receipt and approval of applications
of a provider-sponsored organization for certification
(and periodic recertification) of the organization as
meeting such solvency standards. Under such process,
the Secretary shall act upon such an application not
later than 60 days after the date the application has
been received.
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‘‘(e) 
PROVIDER-SPONSORED
ORGANIZATION
DE-
FINED.—
‘‘(1) IN GENERAL.—In this part, the term ‘pro-
vider-sponsored organization’ means a public or pri-
vate entity—
‘‘(A) that is established or organized and
operated by a local health care provider, or local
group of affiliated health care providers,
‘‘(B) that provides a substantial proportion
(as defined by the Secretary in accordance with
paragraph (2)) of the health care items and serv-
ices under the contract under this part directly
through the provider or affiliated group of pro-
viders, and
‘‘(C) with respect to which those affiliated
providers that share, directly or indirectly, sub-
stantial financial risk with respect to the provi-
sion of such items and services have at least a
majority financial interest in the entity.
‘‘(2) SUBSTANTIAL
PROPORTION.—In defining
what is a ‘substantial proportion’ for purposes of
paragraph (1)(B), the Secretary—
‘‘(A) shall take into account the need for
such an organization to assume responsibility for
providing—
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‘‘(i) significantly more than the major-
ity of the items and services under the con-
tract under this section through its own af-
filiated providers; and
‘‘(ii) most of the remainder of the
items and services under the contract
through providers with which the organiza-
tion has an agreement to provide such items
and services,
in order to assure financial stability and to ad-
dress the practical considerations involved in in-
tegrating the delivery of a wide range of service
providers;
‘‘(B) shall take into account the need for
such an organization to provide a limited pro-
portion of the items and services under the con-
tract through providers that are neither affiliated
with nor have an agreement with the organiza-
tion; and
‘‘(C) may allow for variation in the defini-
tion of substantial proportion among such orga-
nizations based on relevant differences among the
organizations, such as their location in an urban
or rural area.
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‘‘(3) AFFILIATION.—For purposes of this sub-
section, a provider is ‘affiliated’ with another pro-
vider if, through contract, ownership, or otherwise—
‘‘(A) one provider, directly or indirectly,
controls, is controlled by, or is under common
control with the other,
‘‘(B) both providers are part of a controlled
group of corporations under section 1563 of the
Internal Revenue Code of 1986,
‘‘(C) each provider is a participant in a
lawful combination under which each provider
shares substantial financial risk in connection
with the organization’s operations, or
‘‘(D) both providers are part of an affiliated
service group under section 414 of such Code.
‘‘(4) CONTROL.—For purposes of paragraph (3),
control is presumed to exist if one party, directly or
indirectly, owns, controls, or holds the power to vote,
or proxies for, not less than 51 percent of the voting
rights or governance rights of another.
‘‘(5) HEALTH
CARE
PROVIDER
DEFINED.—In
this subsection, the term ‘health care provider’
means—
‘‘(A) any individual who is engaged in the
delivery of health care services in a State and
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who is required by State law or regulation to be
licensed or certified by the State to engage in the
delivery of such services in the State, and
‘‘(B) any entity that is engaged in the de-
livery of health care services in a State and that,
if it is required by State law or regulation to be
licensed or certified by the State to engage in the
delivery of such services in the State, is so li-
censed.
‘‘(6) REGULATIONS.—The Secretary shall issue
regulations to carry out this subsection.
‘‘ESTABLISHMENT OF STANDARDS
‘‘SEC. 1856. (a) ESTABLISHMENT
OF
SOLVENCY
STANDARDS
FOR
PROVIDER-SPONSORED
ORGANIZA-
TIONS.—
‘‘(1) ESTABLISHMENT.—
‘‘(A) IN GENERAL.—The Secretary shall es-
tablish, on an expedited basis and using a nego-
tiated rulemaking process under subchapter III
of chapter 5 of title 5, United States Code, stand-
ards described in section 1855(d)(1) (relating to
the financial solvency and capital adequacy of
the organization) that entities must meet to
qualify 
as 
provider-sponsored 
organizations
under this part.
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‘‘(B) FACTORS TO CONSIDER FOR SOLVENCY
STANDARDS.—In establishing solvency standards
under subparagraph (A) for provider-sponsored
organizations, the Secretary shall consult with
interested parties and shall take into account—
‘‘(i) the delivery system assets of such
an organization and ability of such an or-
ganization to provide services directly to en-
rollees through affiliated providers,
‘‘(ii) alternative means of protecting
against insolvency, including reinsurance,
unrestricted surplus, letters of credit, guar-
antees, organizational insurance coverage,
partnerships with other licensed entities,
and valuation attributable to the ability of
such an organization to meet its service ob-
ligations through direct delivery of care,
and
‘‘(iii) any standards developed by the
National Association of Insurance Commis-
sioners specifically for risk-based health care
delivery organizations.
‘‘(C) ENROLLEE PROTECTION AGAINST IN-
SOLVENCY.—Such standards shall include provi-
sions to prevent enrollees from being held liable
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to any person or entity for the Medicare Choice
organization’s debts in the event of the organiza-
tion’s insolvency.
‘‘(2) PUBLICATION OF NOTICE.—In carrying out
the rulemaking process under this subsection, the Sec-
retary, after consultation with the National Associa-
tion of Insurance Commissioners, the American Acad-
emy of Actuaries, organizations representative of
medicare beneficiaries, and other interested parties,
shall publish the notice provided for under section
564(a) of title 5, United States Code, by not later
than 45 days after the date of the enactment of this
section.
‘‘(3) TARGET
DATE
FOR
PUBLICATION
OF
RULE.—As part of the notice under paragraph (2),
and for purposes of this subsection, the ‘target date
for publication’ (referred to in section 564(a)(5) of
such title) shall be April 1, 1998.
‘‘(4) ABBREVIATED PERIOD FOR SUBMISSION OF
COMMENTS.—In applying section 564(c) of such title
under this subsection, ‘15 days’ shall be substituted
for ‘30 days’.
‘‘(5) APPOINTMENT
OF
NEGOTIATED
RULE-
MAKING
COMMITTEE
AND
FACILITATOR.—The Sec-
retary shall provide for—
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‘‘(A) the appointment of a negotiated rule-
making committee under section 565(a) of such
title by not later than 30 days after the end of
the comment period provided for under section
564(c) of such title (as shortened under para-
graph (4)), and
‘‘(B) the nomination of a facilitator under
section 566(c) of such title by not later than 10
days after the date of appointment of the com-
mittee.
‘‘(6) PRELIMINARY
COMMITTEE
REPORT.—The
negotiated rulemaking committee appointed under
paragraph (5) shall report to the Secretary, by not
later than January 1, 1998, regarding the commit-
tee’s progress on achieving a consensus with regard to
the rulemaking proceeding and whether such consen-
sus is likely to occur before 1 month before the target
date for publication of the rule. If the committee re-
ports that the committee has failed to make signifi-
cant progress towards such consensus or is unlikely to
reach such consensus by the target date, the Secretary
may terminate such process and provide for the publi-
cation of a rule under this subsection through such
other methods as the Secretary may provide.
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‘‘(7) FINAL COMMITTEE REPORT.—If the commit-
tee is not terminated under paragraph (6), the rule-
making committee shall submit a report containing a
proposed rule by not later than 1 month before the
target date of publication.
‘‘(8) INTERIM, FINAL
EFFECT.—The Secretary
shall publish a rule under this subsection in the Fed-
eral Register by not later than the target date of pub-
lication. Such rule shall be effective and final imme-
diately on an interim basis, but is subject to change
and revision after public notice and opportunity for
a period (of not less than 60 days) for public com-
ment. In connection with such rule, the Secretary
shall specify the process for the timely review and ap-
proval of applications of entities to be certified as
provider-sponsored organizations pursuant to such
rules and consistent with this subsection.
‘‘(9) PUBLICATION OF RULE AFTER PUBLIC COM-
MENT.—The Secretary shall provide for consideration
of such comments and republication of such rule by
not later than 1 year after the target date of publica-
tion.
‘‘(b) ESTABLISHMENT OF OTHER STANDARDS.—
‘‘(1) IN GENERAL.—The Secretary shall establish
by regulation other standards (not described in sub-
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section (a)) for Medicare Choice organizations and
plans consistent with, and to carry out, this part.
‘‘(2) USE OF CURRENT STANDARDS.—Consistent
with the requirements of this part, standards estab-
lished under this subsection shall be based on stand-
ards established under section 1876 to carry out anal-
ogous provisions of such section.
‘‘(3) USE OF INTERIM STANDARDS.—For the pe-
riod in which this part is in effect and standards are
being developed and established under the preceding
provisions of this subsection, the Secretary shall pro-
vide by not later than June 1, 1998, for the applica-
tion of such interim standards (without regard to any
requirements for notice and public comment) as may
be appropriate to provide for the expedited implemen-
tation of this part. Such interim standards shall not
apply after the date standards are established under
the preceding provisions of this subsection.
‘‘(4) APPLICATION OF NEW STANDARDS TO ENTI-
TIES WITH A CONTRACT.—In the case of a Medicare
Choice organization with a contract in effect under
this part at the time standards applicable to the orga-
nization under this section are changed, the organiza-
tion may elect not to have such changes apply to the
organization until the end of the current contract
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year (or, if there is less than 6 months remaining in
the contract year, until 1 year after the end of the
current contract year).
‘‘(5) RELATION TO STATE LAWS.—The standards
established under this subsection shall supersede any
State law or regulation with respect to Medicare
Choice plans which are offered by Medicare Choice or-
ganizations under this part to the extent such law or
regulation is inconsistent with such standards.
‘‘CONTRACTS WITH MEDICARE CHOICE ORGANIZATIONS
‘‘SEC. 1857. (a) IN GENERAL.—The Secretary shall
not permit the election under section 1851 of a Medicare
Choice plan offered by a Medicare Choice organization
under this part, and no payment shall be made under sec-
tion 1853 to an organization, unless the Secretary has en-
tered into a contract under this section with the organiza-
tion with respect to the offering of such plan. Such a con-
tract with an organization may cover more than 1 Medicare
Choice plan. Such contract shall provide that the organiza-
tion agrees to comply with the applicable requirements and
standards of this part and the terms and conditions of pay-
ment as provided for in this part.
‘‘(b) MINIMUM ENROLLMENT REQUIREMENTS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), the
Secretary may not enter into a contract under this
section with a Medicare Choice organization unless
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the organization has at least 1,500 individuals who
are receiving health benefits through the organization
(500 such individuals if the organization primarily
serves individuals residing outside of urbanized
areas).
‘‘(2) ALLOWING
TRANSITION.—The Secretary
may waive the requirement of paragraph (1) during
the first 2 contract years with respect to an organiza-
tion.
‘‘(3) SPECIAL RULE FOR PSO.—In the case of a
Medicare Choice organization which is a provider-
sponsored organization, paragraph (1) shall be ap-
plied by taking into account individuals for whom the
organization has assumed substantial financial risk.
‘‘(c) CONTRACT PERIOD AND EFFECTIVENESS.—
‘‘(1) PERIOD.—Each contract under this section
shall be for a term of at least 1 year, as determined
by the Secretary, and may be made automatically re-
newable from term to term in the absence of notice by
either party of intention to terminate at the end of
the current term.
‘‘(2) TERMINATION AUTHORITY.—In accordance
with procedures established under subsection (h), the
Secretary may at any time terminate any such con-
tract, or may impose the intermediate sanctions de-
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scribed in an applicable paragraph of subsection
(g)(3) on the Medicare Choice organization, if the
Secretary determines that the organization—
‘‘(A) has failed substantially to carry out
the contract;
‘‘(B) is carrying out the contract in a man-
ner inconsistent with the efficient and effective
administration of this part; or
‘‘(C) no longer substantially meets the ap-
plicable conditions of this part.
‘‘(3) EFFECTIVE DATE OF CONTRACTS.—The ef-
fective date of any contract executed pursuant to this
section shall be specified in the contract, except that
in no case shall a contract under this section which
provides for coverage under an MSA plan be effective
before January 1999 with respect to such coverage.
‘‘(4) PREVIOUS TERMINATIONS.—The Secretary
may not enter into a contract with a Medicare Choice
organization if a previous contract with that organi-
zation under this section was terminated at the re-
quest of the organization within the preceding 5-year
period, except in circumstances which warrant special
consideration, as determined by the Secretary.
‘‘(5) NO CONTRACTING AUTHORITY.—The author-
ity vested in the Secretary by this part may be per-
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formed without regard to such provisions of law or
regulations relating to the making, performance,
amendment, or modification of contracts of the Unit-
ed States as the Secretary may determine to be incon-
sistent with the furtherance of the purpose of this
title.
‘‘(d) PROTECTIONS AGAINST FRAUD AND BENEFICIARY
PROTECTIONS.—
‘‘(1) INSPECTION
AND
AUDIT.—Each contract
under this section shall provide that the Secretary, or
any person or organization designated by the Sec-
retary—
‘‘(A) shall have the right to inspect or other-
wise evaluate (i) the quality, appropriateness,
and timeliness of services performed under the
contract and (ii) the facilities of the organization
when there is reasonable evidence of some need
for such inspection, and
‘‘(B) shall have the right to audit and in-
spect any books and records of the Medicare
Choice organization that pertain (i) to the abil-
ity of the organization to bear the risk of poten-
tial financial losses, or (ii) to services performed
or determinations of amounts payable under the
contract.
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‘‘(2) ENROLLEE
NOTICE
AT
TIME
OF
TERMI-
NATION.—Each contract under this section shall re-
quire the organization to provide (and pay for) writ-
ten notice in advance of the contract’s termination, as
well as a description of alternatives for obtaining ben-
efits under this title, to each individual enrolled with
the organization under this part.
‘‘(3) DISCLOSURE.—
‘‘(A) IN GENERAL.—Each Medicare Choice
organization shall, in accordance with regula-
tions of the Secretary, report to the Secretary fi-
nancial information which shall include the fol-
lowing:
‘‘(i) Such information as the Secretary
may require demonstrating that the organi-
zation has a fiscally sound operation.
‘‘(ii) A copy of the report, if any, filed
with the Health Care Financing Adminis-
tration containing the information required
to be reported under section 1124 by disclos-
ing entities.
‘‘(iii) A description of transactions, as
specified by the Secretary, between the orga-
nization and a party in interest. Such
transactions shall include—
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‘‘(I) any sale or exchange, or leas-
ing of any property between the orga-
nization and a party in interest;
‘‘(II) any furnishing for consider-
ation of goods, services (including
management services), or facilities be-
tween the organization and a party in
interest, but not including salaries
paid to employees for services provided
in the normal course of their employ-
ment and health services provided to
members by hospitals and other pro-
viders and by staff, medical group (or
groups), individual practice associa-
tion (or associations), or any combina-
tion thereof; and
‘‘(III) any lending of money or
other extension of credit between an or-
ganization and a party in interest.
The Secretary may require that information re-
ported respecting an organization which controls,
is controlled by, or is under common control
with, another entity be in the form of a consoli-
dated financial statement for the organization
and such entity.
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‘‘(B) PARTY IN INTEREST DEFINED.—For
the purposes of this paragraph, the term ‘party
in interest’ means—
‘‘(i) any director, officer, partner, or
employee responsible for management or ad-
ministration of a Medicare Choice organiza-
tion, any person who is directly or indi-
rectly the beneficial owner of more than 5
percent of the equity of the organization,
any person who is the beneficial owner of a
mortgage, deed of trust, note, or other inter-
est secured by, and valuing more than 5
percent of the organization, and, in the case
of a Medicare Choice organization orga-
nized as a nonprofit corporation, an incor-
porator or member of such corporation
under applicable State corporation law;
‘‘(ii) any entity in which a person de-
scribed in clause (i)—
‘‘(I) is an officer or director;
‘‘(II) is a partner (if such entity
is organized as a partnership);
‘‘(III) has directly or indirectly a
beneficial interest of more than 5 per-
cent of the equity; or
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‘‘(IV) has a mortgage, deed of
trust, note, or other interest valuing
more than 5 percent of the assets of
such entity;
‘‘(iii) any person directly or indirectly
controlling, controlled by, or under common
control with an organization; and
‘‘(iv) any spouse, child, or parent of an
individual described in clause (i).
‘‘(C) ACCESS TO INFORMATION.—Each Med-
icare Choice organization shall make the infor-
mation reported pursuant to subparagraph (A)
available to its enrollees upon reasonable request.
‘‘(4) LOAN INFORMATION.—The contract shall re-
quire the organization to notify the Secretary of loans
and other special financial arrangements which are
made between the organization and subcontractors,
affiliates, and related parties.
‘‘(e) ADDITIONAL CONTRACT TERMS.—
‘‘(1) IN GENERAL.—The contract shall contain
such other terms and conditions not inconsistent with
this part (including requiring the organization to
provide the Secretary with such information) as the
Secretary may find necessary and appropriate.
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‘‘(2) COST-SHARING
IN
ENROLLMENT-RELATED
COSTS.—The contract with a Medicare Choice organi-
zation shall require the payment to the Secretary for
the organization’s pro rata share (as determined by
the Secretary) of the estimated costs to be incurred by
the Secretary in carrying out section 1851 (relating
to enrollment and dissemination of information).
Such payments are appropriated to defray the costs
described in the preceding sentence, to remain avail-
able until expended.
‘‘(3) NOTICE TO ENROLLEES IN CASE OF DECER-
TIFICATION.—If a contract with a Medicare Choice
organization is terminated under this section, the or-
ganization shall notify each enrollee with the organi-
zation under this part of such termination.
‘‘(f) PROMPT PAYMENT BY MEDICARE CHOICE ORGA-
NIZATION.—
‘‘(1) REQUIREMENT.—A contract under this part
shall require a Medicare Choice organization to pro-
vide prompt payment (consistent with the provisions
of sections 1816(c)(2) and 1842(c)(2)) of claims sub-
mitted for services and supplies furnished to individ-
uals pursuant to the contract, if the services or sup-
plies are not furnished under a contract between the
organization and the provider or supplier.
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tial likelihood of adversely affecting) the individ-
ual;
‘‘(B) imposes net monthly premiums on in-
dividuals enrolled under this part in excess of
the net monthly premiums permitted;
‘‘(C) acts to expel or to refuse to re-enroll an
individual in violation of the provisions of this
part;
‘‘(D) engages in any practice that would
reasonably be expected to have the effect of deny-
ing or discouraging enrollment (except as per-
mitted by this part) by eligible individuals with
the organization whose medical condition or his-
tory indicates a need for substantial future medi-
cal services;
‘‘(E) misrepresents or falsifies information
that is furnished—
‘‘(i) to the Secretary under this part,
or
‘‘(ii) to an individual or to any other
entity under this part;
‘‘(F) fails to comply with the requirements
of section 1852(j)(3); or
‘‘(G) employs or contracts with any indi-
vidual or entity that is excluded from participa-
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tion under this title under section 1128 or 1128A
for the provision of health care, utilization re-
view, medical social work, or administrative
services or employs or contracts with any entity
for the provision (directly or indirectly) through
such an excluded individual or entity of such
services;
the Secretary may provide, in addition to any other
remedies authorized by law, for any of the remedies
described in paragraph (2).
‘‘(2) REMEDIES.—The remedies described in this
paragraph are—
‘‘(A) civil money penalties of not more than
$25,000 for each determination under paragraph
(1) or, with respect to a determination under
subparagraph (D) or (E)(i) of such paragraph,
of not more than $100,000 for each such deter-
mination, plus, with respect to a determination
under paragraph (1)(B), double the excess
amount charged in violation of such paragraph
(and the excess amount charged shall be deducted
from the penalty and returned to the individual
concerned), and plus, with respect to a deter-
mination under paragraph (1)(D), $15,000 for
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each individual not enrolled as a result of the
practice involved,
‘‘(B) suspension of enrollment of individ-
uals under this part after the date the Secretary
notifies the organization of a determination
under paragraph (1) and until the Secretary is
satisfied that the basis for such determination
has been corrected and is not likely to recur, or
‘‘(C) suspension of payment to the organiza-
tion under this part for individuals enrolled
after the date the Secretary notifies the organiza-
tion of a determination under paragraph (1)
and until the Secretary is satisfied that the basis
for such determination has been corrected and is
not likely to recur.
‘‘(3) OTHER INTERMEDIATE SANCTIONS.—In the
case of a Medicare Choice organization for which the
Secretary makes a determination under subsection
(c)(2) the basis of which is not described in para-
graph (1), the Secretary may apply the following in-
termediate sanctions:
‘‘(A) Civil money penalties of not more
than $25,000 for each determination under sub-
section (c)(2) if the deficiency that is the basis
of the determination has directly adversely af-
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fected (or has the substantial likelihood of ad-
versely affecting) an individual covered under
the organization’s contract.
‘‘(B) Civil money penalties of not more
than $10,000 for each week beginning after the
initiation of procedures by the Secretary under
subsection (g) during which the deficiency that is
the basis of a determination under subsection
(c)(2) exists.
‘‘(C) Suspension of enrollment of individ-
uals under this part after the date the Secretary
notifies the organization of a determination
under subsection (c)(2) and until the Secretary
is satisfied that the deficiency that is the basis
for the determination has been corrected and is
not likely to recur.
‘‘(4) CIVIL MONEY PENALTIES.—The provisions
of section 1128A (other than subsections (a) and (b))
shall apply to a civil money penalty under subsection
(f) or under paragraph (2) or (3) of this subsection
in the same manner as they apply to a civil money
penalty or proceeding under section 1128A(a).
‘‘(h) PROCEDURES FOR TERMINATION.—
‘‘(1) IN GENERAL.—The Secretary may termi-
nate a contract with a Medicare Choice organization
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under this section in accordance with formal inves-
tigation and compliance procedures established by the
Secretary under which—
‘‘(A) the Secretary provides the organiza-
tion with the reasonable opportunity to develop
and implement a corrective action plan to cor-
rect the deficiencies that were the basis of the
Secretary’s 
determination 
under 
subsection
(c)(2);
‘‘(B) the Secretary shall impose more severe
sanctions on an organization that has a history
of deficiencies or that has not taken steps to cor-
rect deficiencies the Secretary has brought to the
organization’s attention;
‘‘(C) there are no unreasonable or unneces-
sary delays between the finding of a deficiency
and the imposition of sanctions; and
‘‘(D) the Secretary provides the organiza-
tion with reasonable notice and opportunity for
hearing (including the right to appeal an initial
decision) before terminating the contract.
‘‘(2) EXCEPTION FOR IMMINENT AND SERIOUS
RISK TO HEALTH.—Paragraph (1) shall not apply if
the Secretary determines that a delay in termination,
resulting from compliance with the procedures speci-
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fied in such paragraph prior to termination, would
pose an imminent and serious risk to the health of in-
dividuals enrolled under this part with the organiza-
tion.
‘‘DEFINITIONS; MISCELLANEOUS PROVISIONS
‘‘SEC. 1859. (a) DEFINITIONS RELATING TO MEDI-
CARE CHOICE ORGANIZATIONS.—In this part—
‘‘(1) MEDICARE
CHOICE
ORGANIZATION.—The
term ‘Medicare Choice organization’ means a public
or private entity that is certified under section 1856
as meeting the requirements and standards of this
part for such an organization.
‘‘(2) PROVIDER-SPONSORED
ORGANIZATION.—
The term ‘provider-sponsored organization’ is defined
in section 1855(e)(1).
‘‘(b) DEFINITIONS RELATING TO MEDICARE CHOICE
PLANS.—
‘‘(1) MEDICARE CHOICE PLAN.—The term ‘Medi-
care Choice plan’ means health benefits coverage of-
fered under a policy, contract, or plan by a Medicare
Choice organization pursuant to and in accordance
with a contract under section 1857.
‘‘(2) MEDICARE CHOICE
UNRESTRICTED
FEE-
FOR-SERVICE PLAN.—The term ‘Medicare Choice un-
restricted fee-for-service plan’ means a Medicare
Choice plan that provides for coverage of benefits
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without restrictions relating to utilization and with-
out regard to whether the provider has a contract or
other arrangement with the organization offering the
plan for the provision of such benefits.
‘‘(3) MSA PLAN.—
‘‘(A) IN GENERAL.—The term ‘MSA plan’
means a Medicare Choice plan that—
‘‘(i) provides reimbursement for at
least the items and services described in sec-
tion 1852(a)(1) in a year but only after the
enrollee incurs countable expenses (as speci-
fied under the plan) equal to the amount of
an annual deductible (described in subpara-
graph (B));
‘‘(ii) counts as such expenses (for pur-
poses of such deductible) at least all
amounts that would have been payable
under parts A and B, and that would have
been payable by the enrollee as deductibles,
coinsurance, or copayments, if the enrollee
had elected to receive benefits through the
provisions of such parts;
‘‘(iii) subject to clause (iv), provides,
after such deductible is met for a year and
for all subsequent expenses for items and
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services referred to in clause (i) in the year,
for a level of reimbursement that is not less
than—
‘‘(I) 100 percent of such expenses,
or
‘‘(II) 100 percent of the amounts
that would have been paid (without re-
gard to any deductibles or coinsurance)
under parts A and B with respect to
such expenses,
whichever is less; and
‘‘(iv) provides that the annual out-of-
pocket expenses required to be paid under
the plan (other than for premiums) for cov-
ered benefits does not exceed the amount in
effect under section 220(c)(2)(A)(iii)(I) of
the Internal Revenue Code of 1986 for the
year.
‘‘(B) DEDUCTIBLE.—The amount of annual
deductible under an MSA plan shall not be less
than or more than the amounts in excess under
section 220(c)(2)(A)(i) of the Internal Revenue
Code of 1986 for the year.
‘‘(c) OTHER REFERENCES TO OTHER TERMS.—
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‘‘(1) MEDICARE CHOICE ELIGIBLE INDIVIDUAL.—
The term ‘Medicare Choice eligible individual’ is de-
fined in section 1851(a)(3).
‘‘(2) MEDICARE
CHOICE
PAYMENT
AREA.—The
term ‘Medicare Choice payment area’ is defined in
section 1853(d).
‘‘(3) NATIONAL AVERAGE PER CAPITA GROWTH
PERCENTAGE.—The ‘national average per capita
growth percentage’ is defined in section 1853(c)(6).
‘‘(4) MONTHLY PREMIUM; NET MONTHLY PRE-
MIUM.—The terms ‘monthly premium’ and ‘net
monthly premium’ are defined in section 1854(a)(2).
‘‘(d) COORDINATED ACUTE
AND LONG-TERM CARE
BENEFITS UNDER A MEDICARE CHOICE PLAN.—Nothing
in this part shall be construed as preventing a State from
coordinating benefits under a medicaid plan under title
XIX with those provided under a Medicare Choice plan in
a manner that assures continuity of a full-range of acute
care and long-term care services to poor elderly or disabled
individuals eligible for benefits under this title and under
such plan.
‘‘(e) RESTRICTION
ON ENROLLMENT
FOR CERTAIN
MEDICARE CHOICE PLANS.—
‘‘(1) IN GENERAL.—In the case of a Medicare
Choice religious fraternal benefit society plan de-
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scribed in paragraph (2), notwithstanding any other
provision of this part to the contrary and in accord-
ance with regulations of the Secretary, the society of-
fering the plan may restrict the enrollment of individ-
uals under this part to individuals who are members
of the church, convention, or group described in para-
graph (3)(B) with which the society is affiliated.
‘‘(2) MEDICARE CHOICE RELIGIOUS FRATERNAL
BENEFIT SOCIETY PLAN DESCRIBED.—For purposes of
this subsection, a Medicare Choice religious fraternal
benefit society plan described in this paragraph is a
Medicare 
Choice 
plan 
described 
in 
section
1851(a)(2)(A) that—
‘‘(A) is offered by a religious fraternal bene-
fit society described in paragraph (3) only to
members of the church, convention, or group de-
scribed in paragraph (3)(B); and
‘‘(B) permits all such members to enroll
under the plan without regard to health status-
related factors.
Nothing in this subsection shall be construed as
waiving any plan requirements relating to financial
solvency. In developing solvency standards under sec-
tion 1856, the Secretary shall take into account open
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contract and assessment features characteristic of fra-
ternal insurance certificates.
‘‘(3) RELIGIOUS FRATERNAL BENEFIT SOCIETY
DEFINED.—For purposes of paragraph (2)(A), a ‘reli-
gious fraternal benefit society’ described in this sec-
tion is an organization that—
‘‘(A) is exempt from Federal income tax-
ation under section 501(c)(8) of the Internal
Revenue Code of 1986;
‘‘(B) is affiliated with, carries out the tenets
of, and shares a religious bond with, a church or
convention or association of churches or an af-
filiated group of churches;
‘‘(C) offers, in addition to a Medicare
Choice religious fraternal benefit society plan, at
least the same level of health coverage to individ-
uals not entitled to benefits under this title who
are members of such church, convention, or
group; and
‘‘(D) does not impose any limitation on
membership in the society based on any health
status-related factor.
‘‘(4) PAYMENT ADJUSTMENT.—Under regulations
of the Secretary, in the case of individuals enrolled
under this part under a Medicare Choice religious
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fraternal benefit society plan described in paragraph
(2), the Secretary shall provide for such adjustment to
the payment amounts otherwise established under sec-
tion 1854 as may be appropriate to assure an appro-
priate payment level, taking into account the actuar-
ial characteristics and experience of such individ-
uals.’’.
SEC. 5002. TRANSITIONAL RULES FOR CURRENT MEDICARE
HMO PROGRAM.
(a) AUTHORIZING TRANSITIONAL WAIVER OF 50:50
RULE.—Section 1876(f) (42 U.S.C. 1395mm(f)) is amend-
ed—
(1) in paragraph (1)—
(A) by striking ‘‘Each’’ and inserting ‘‘For
contract periods beginning before January 1,
1999, each’’; and
(B) by striking ‘‘or under a State plan ap-
proved under title XIX’’;
(2) in paragraph (2), by striking ‘‘The Sec-
retary’’ and inserting ‘‘Subject to paragraph (4), the
Secretary’’, and
(3) by adding at the end the following:
‘‘(4) The Secretary may waive the requirement im-
posed by paragraph (1) if the Secretary determines that the
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plan meets all other beneficiary protections and quality
standards under this section.’’.
(b) TRANSITION.—Section 1876 (42 U.S.C. 1395mm)
is amended by adding at the end the following new sub-
section:
‘‘(k)(1) Except as provided in paragraph (2) or (3),
the Secretary shall not enter into, renew, or continue any
risk-sharing contract under this section with an eligible or-
ganization for any contract year beginning on or after—
‘‘(A) the date standards for Medicare Choice or-
ganizations and plans are first established under sec-
tion 1856 with respect to Medicare Choice organiza-
tions that are insurers or health maintenance organi-
zations, or
‘‘(B) in the case of such an organization with
such a contract in effect as of the date such standards
were first established, 1 year after such date.
‘‘(2) The Secretary shall not enter into, renew, or con-
tinue any risk-sharing contract under this section with an
eligible organization for any contract year beginning on or
after January 1, 2000.
‘‘(3) An individual who is enrolled in part B only and
is enrolled in an eligible organization with a risk-sharing
contract under this section on December 31, 1998, may con-
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tinue enrollment in such organization in accordance with
regulations issued by not later than July 1, 1998.
‘‘(4) Notwithstanding subsection (a), the Secretary
shall provide that payment amounts under risk-sharing
contracts under this section for months in a year (beginning
with January 1998) shall be computed—
‘‘(A) with respect to individuals entitled to bene-
fits under both parts A and B, by substituting pay-
ment rates under section 1853(a) for the payment
rates otherwise established under section 1876(a), and
‘‘(B) with respect to individuals only entitled to
benefits under part B, by substituting an appropriate
proportion of such rates (reflecting the relative pro-
portion of payments under this title attributable to
such part) for the payment rates otherwise established
under subsection (a).
For purposes of carrying out this paragraph for payments
for months in 1998, the Secretary shall compute, announce,
and apply the payment rates under section 1853(a) (not-
withstanding any deadlines specified in such section) in as
timely a manner as possible and may (to the extent nec-
essary) provide for retroactive adjustment in payments
made under this section not in accordance with such
rates.’’.
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(c) ENROLLMENT TRANSITION RULE.—An individual
who is enrolled on December 31, 1998, with an eligible orga-
nization under section 1876 of the Social Security Act (42
U.S.C. 1395mm) shall be considered to be enrolled with that
organization on January 1, 1999, under part C of title
XVIII of such Act if that organization has a contract under
that part for providing services on January 1, 1999 (unless
the individual has disenrolled effective on that date).
(d) ADVANCE
DIRECTIVES.—Section 1866(f) (42
U.S.C. 1395cc(f)) is amended—
(1) in paragraph (1)—
(A) by inserting ‘‘1855(i),’’ after ‘‘1833(s),’’,
and
(B) by inserting ‘‘, Medicare Choice organi-
zation,’’ after ‘‘provider of services’’; and
(2) in paragraph (2)(E), by inserting ‘‘or a
Medicare 
Choice 
organization’’ 
after 
‘‘section
1833(a)(1)(A)’’.
(e) EXTENSION OF PROVIDER REQUIREMENT.—Sec-
tion 1866(a)(1)(O) (42 U.S.C. 1395cc(a)(1)(O)) is amend-
ed—
(1) by striking ‘‘in the case of hospitals and
skilled nursing facilities,’’;
(2) by striking ‘‘inpatient hospital and extended
care’’;
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(3) by inserting ‘‘with a Medicare Choice organi-
zation under part C or’’ after ‘‘any individual en-
rolled’’; and
(4) by striking ‘‘(in the case of hospitals) or lim-
its (in the case of skilled nursing facilities)’’.
(f) ADDITIONAL CONFORMING CHANGES.—
(1) CONFORMING
REFERENCES
TO
PREVIOUS
PART C.—Any reference in law (in effect before the
date of the enactment of this Act) to part C of title
XVIII of the Social Security Act is deemed a reference
to part D of such title (as in effect after such date).
(2) SECRETARIAL SUBMISSION OF LEGISLATIVE
PROPOSAL.—Not later than 90 days after the date of
the enactment of this Act, the Secretary of Health and
Human Services shall submit to the appropriate com-
mittees of Congress a legislative proposal providing
for such technical and conforming amendments in the
law as are required by the provisions of this chapter.
(g) IMMEDIATE EFFECTIVE DATE FOR CERTAIN RE-
QUIREMENTS FOR DEMONSTRATIONS.—Section 1857(e)(2)
of the Social Security Act (requiring contribution to certain
costs related to the enrollment process comparative mate-
rials) applies to demonstrations with respect to which en-
rollment is effected or coordinated under section 1851 of
such Act.
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(h) USE OF INTERIM, FINAL REGULATIONS.—In order
to carry out the amendments made by this chapter in a
timely manner, the Secretary of Health and Human Serv-
ices may promulgate regulations that take effect on an in-
terim basis, after notice and pending opportunity for public
comment.
(i) TRANSITION RULE FOR PSO ENROLLMENT.—In
applying subsection (g)(1) of section 1876 of the Social Se-
curity Act (42 U.S.C. 1395mm) to a risk-sharing contract
entered into with an eligible organization that is a pro-
vider-sponsored organization (as defined in section
1855(e)(1) of such Act, as inserted by section 5001) for a
contract year beginning on or after January 1, 1998, there
shall be substituted for the minimum number of enrollees
provided under such section the minimum number of enroll-
ees permitted under section 1857(b)(1) of such Act (as so
inserted).
SEC. 5003. CONFORMING CHANGES IN MEDIGAP PROGRAM.
(a) CONFORMING AMENDMENTS TO MEDICARE CHOICE
CHANGES.—
(1) IN GENERAL.—Section 1882(d)(3)(A)(i) (42
U.S.C. 1395ss(d)(3)(A)(i)) is amended—
(A) in the matter before subclause (I), by
inserting ‘‘(including an individual electing a
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Medicare Choice plan under section 1851)’’ after
‘‘of this title’’; and
(B) in subclause (II)—
(i) by inserting ‘‘in the case of an in-
dividual not electing a Medicare Choice
plan’’ after ‘‘(II)’’, and
(ii) by inserting before the comma at
the end the following: ‘‘or in the case of an
individual electing a Medicare Choice plan,
a medicare supplemental policy with knowl-
edge that the policy duplicates health bene-
fits to which the individual is otherwise en-
titled under the Medicare Choice plan or
under another medicare supplemental pol-
icy’’.
(2) 
CONFORMING
AMENDMENTS.—Section
1882(d)(3)(B)(i)(I) (42 U.S.C. 1395ss(d)(3)(B)(i)(I))
is amended by inserting ‘‘(including any Medicare
Choice plan)’’ after ‘‘health insurance policies’’.
(3) MEDICARE CHOICE PLANS NOT TREATED AS
MEDICARE
SUPPLEMENTARY
POLICIES.—Section
1882(g)(1) (42 U.S.C. 1395ss(g)(1)) is amended by
inserting ‘‘or a Medicare Choice plan or’’ after ‘‘does
not include’’.
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(b) ADDITIONAL RULES RELATING TO INDIVIDUALS
ENROLLED
IN MSA PLANS.—Section 1882 (42 U.S.C.
1395ss) is further amended by adding at the end the follow-
ing new subsection:
‘‘(u)(1) It is unlawful for a person to sell or issue a
policy described in paragraph (2) to an individual with
knowledge that the individual has in effect under section
1851 an election of an MSA plan.
‘‘(2) A policy described in this subparagraph is a
health insurance policy that provides for coverage of ex-
penses that are otherwise required to be counted toward
meeting the annual deductible amount provided under the
MSA plan.’’.
Subchapter B—Special Rules for Medicare
Choice Medical Savings Accounts
SEC. 5006. MEDICARE CHOICE MSA.
(a) IN GENERAL.—Part III of subchapter B of chapter
1 of the Internal Revenue Code of 1986 (relating to amounts
specifically excluded from gross income) is amended by re-
designating section 138 as section 139 and by inserting
after section 137 the following new section:
‘‘SEC. 138. MEDICARE CHOICE MSA.
‘‘(a) EXCLUSION.—Gross income shall not include any
payment to the Medicare Choice MSA of an individual by
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the Secretary of Health and Human Services under part
C of title XVIII of the Social Security Act.
‘‘(b) MEDICARE CHOICE MSA.—For purposes of this
section, the term ‘Medicare Choice MSA’ means a medical
savings account (as defined in section 220(d))—
‘‘(1) which is designated as a Medicare Choice
MSA,
‘‘(2) with respect to which no contribution may
be made other than—
‘‘(A) a contribution made by the Secretary
of Health and Human Services pursuant to part
C of title XVIII of the Social Security Act, or
‘‘(B) a trustee-to-trustee transfer described
in subsection (c)(4),
‘‘(3) the governing instrument of which provides
that trustee-to-trustee transfers described in subsection
(c)(4) may be made to and from such account, and
‘‘(4) which is established in connection with an
MSA plan described in section 1859(b)(3) of the So-
cial Security Act.
‘‘(c) SPECIAL RULES FOR DISTRIBUTIONS.—
‘‘(1) DISTRIBUTIONS
FOR
QUALIFIED
MEDICAL
EXPENSES.—In applying section 220 to a Medicare
Choice MSA—
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‘‘(A) qualified medical expenses shall not
include amounts paid for medical care for any
individual other than the account holder, and
‘‘(B) section 220(d)(2)(C) shall not apply.
‘‘(2) PENALTY FOR DISTRIBUTIONS FROM MEDI-
CARE CHOICE MSA NOT USED FOR QUALIFIED MEDI-
CAL
EXPENSES
IF
MINIMUM
BALANCE
NOT
MAIN-
TAINED.—
‘‘(A) IN
GENERAL.—The tax imposed by
this chapter for any taxable year in which there
is a payment or distribution from a Medicare
Choice MSA which is not used exclusively to pay
the qualified medical expenses of the account
holder shall be increased by 50 percent of the ex-
cess (if any) of—
‘‘(i) the amount of such payment or
distribution, over
‘‘(ii) the excess (if any) of—
‘‘(I) the fair market value of the
assets in such MSA as of the close of
the calendar year preceding the cal-
endar year in which the taxable year
begins, over
‘‘(II) an amount equal to 60 per-
cent of the deductible under the Medi-
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care Choice MSA plan covering the ac-
count holder as of January 1 of the
calendar year in which the taxable
year begins.
Section 220(f)(2) shall not apply to any pay-
ment or distribution from a Medicare Choice
MSA.
‘‘(B) 
EXCEPTIONS.—Subparagraph 
(A)
shall not apply if the payment or distribution is
made on or after the date the account holder—
‘‘(i) becomes disabled within the mean-
ing of section 72(m)(7), or
‘‘(ii) dies.
‘‘(C) SPECIAL RULES.—For purposes of sub-
paragraph (A)—
‘‘(i) all Medicare Choice MSAs of the
account holder shall be treated as 1 account,
‘‘(ii) all payments and distributions
not used exclusively to pay the qualified
medical expenses of the account holder dur-
ing any taxable year shall be treated as 1
distribution, and
‘‘(iii) any distribution of property
shall be taken into account at its fair mar-
ket value on the date of the distribution.
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‘‘(3) WITHDRAWAL
OF
ERRONEOUS
CONTRIBU-
TIONS.—Section 220(f)(2) and paragraph (2) of this
subsection shall not apply to any payment or dis-
tribution from a Medicare Choice MSA to the Sec-
retary of Health and Human Services of an erroneous
contribution to such MSA and of the net income at-
tributable to such contribution.
‘‘(4) TRUSTEE-TO-TRUSTEE
TRANSFERS.—Sec-
tion 220(f)(2) and paragraph (2) of this subsection
shall not apply to any trustee-to-trustee transfer from
a Medicare Choice MSA of an account holder to an-
other Medicare Choice MSA of such account holder.
‘‘(d) SPECIAL RULES FOR TREATMENT OF ACCOUNT
AFTER DEATH OF ACCOUNT HOLDER.—In applying sec-
tion 220(f)(8)(A) to an account which was a Medicare
Choice MSA of a decedent, the rules of section 220(f) shall
apply in lieu of the rules of subsection (c) of this section
with respect to the spouse as the account holder of such Med-
icare Choice MSA.
‘‘(e) REPORTS.—In the case of a Medicare Choice
MSA, the report under section 220(h)—
‘‘(1) shall include the fair market value of the as-
sets in such Medicare Choice MSA as of the close of
each calendar year, and
‘‘(2) shall be furnished to the account holder—
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‘‘(A) not later than January 31 of the cal-
endar year following the calendar year to which
such reports relate, and
‘‘(B) in such manner as the Secretary pre-
scribes in such regulations.
‘‘(f) COORDINATION WITH LIMITATION ON NUMBER OF
TAXPAYERS HAVING MEDICAL SAVINGS ACCOUNTS.—Sub-
section (i) of section 220 shall not apply to an individual
with respect to a Medicare Choice MSA, and Medicare
Choice MSA’s shall not be taken into account in determin-
ing whether the numerical limitations under section 220(j)
are exceeded.’’.
(b) TECHNICAL AMENDMENTS.—
(1) The last sentence of section 4973(d) of such
Code is amended by inserting ‘‘or section 138(c)(3)’’
after ‘‘section 220(f)(3)’’.
(2) Subsection (b) of section 220 of such Code is
amended by adding at the end the following new
paragraph:
‘‘(7) MEDICARE
ELIGIBLE
INDIVIDUALS.—The
limitation under this subsection for any month with
respect to an individual shall be zero for the first
month such individual is entitled to benefits under
title XVIII of the Social Security Act and for each
month thereafter.’’.
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(3) The table of sections for part III of sub-
chapter B of chapter 1 of such Code is amended by
striking the last item and inserting the following:
‘‘Sec. 138. Medicare Choice MSA.
‘‘Sec. 139. Cross references to other Acts.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1998.
CHAPTER 2—INTEGRATED LONG-TERM
CARE PROGRAMS
Subchapter A—Programs of All-Inclusive
Care for the Elderly (PACE)
SEC. 5011. COVERAGE OF PACE UNDER THE MEDICARE PRO-
GRAM.
Title XVIII of the Social Security Act (42 U.S.C. 1395
et seq.) is amended by adding at the end the following new
section:
‘‘PAYMENTS TO, AND COVERAGE OF BENEFITS UNDER, PRO-
GRAMS OF ALL-INCLUSIVE CARE FOR THE ELDERLY
(PACE)
‘‘SEC. 1894. (a) RECEIPT OF BENEFITS THROUGH EN-
ROLLMENT IN PACE PROGRAM; DEFINITIONS FOR PACE
PROGRAM RELATED TERMS.—
‘‘(1) BENEFITS
THROUGH
ENROLLMENT
IN
A
PACE PROGRAM.—In accordance with this section, in
the case of an individual who is entitled to benefits
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under part A or enrolled under part B and who is
a PACE program eligible individual (as defined in
paragraph (5)) with respect to a PACE program of-
fered by a PACE provider under a PACE program
agreement—
‘‘(A) the individual may enroll in the pro-
gram under this section; and
‘‘(B) so long as the individual is so enrolled
and in accordance with regulations—
‘‘(i) the individual shall receive bene-
fits under this title solely through such pro-
gram; and
‘‘(ii) the PACE provider is entitled to
payment under and in accordance with this
section and such agreement for provision of
such benefits.
‘‘(2) PACE PROGRAM DEFINED.—For purposes
of this section and section 1932, the term ‘PACE pro-
gram’ means a program of all-inclusive care for the
elderly that meets the following requirements:
‘‘(A) OPERATION.—The entity operating the
program is a PACE provider (as defined in
paragraph (3)).
‘‘(B) 
COMPREHENSIVE
BENEFITS.—The
program provides comprehensive health care
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services to PACE program eligible individuals in
accordance with the PACE program agreement
and regulations under this section.
‘‘(C) TRANSITION.—In the case of an indi-
vidual who is enrolled under the program under
this section and whose enrollment ceases for any
reason (including that the individual no longer
qualifies as a PACE program eligible individual,
the termination of a PACE program agreement,
or otherwise), the program provides assistance to
the individual in obtaining necessary transi-
tional care through appropriate referrals and
making the individual’s medical records avail-
able to new providers.
‘‘(3) PACE PROVIDER DEFINED.—
‘‘(A) IN
GENERAL.—For purposes of this
section, the term ‘PACE provider’ means an en-
tity that—
‘‘(i) subject to subparagraph (B), is (or
is a distinct part of) a public entity or a
private, nonprofit entity organized for char-
itable purposes under section 501(c)(3) of
the Internal Revenue Code of 1986; and
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‘‘(ii) has entered into a PACE pro-
gram agreement with respect to its oper-
ation of a PACE program.
‘‘(B) TREATMENT OF PRIVATE, FOR-PROFIT
PROVIDERS.—Clause (i) of subparagraph (A)
shall not apply—
‘‘(i) to entities subject to a demonstra-
tion project waiver under subsection (h);
and
‘‘(ii) after the date the report under
section 5013(b) of the Balanced Budget Act
of 1997 is submitted, unless the Secretary
determines that any of the findings de-
scribed in subparagraph (A), (B), (C), or
(D) of paragraph (2) of such section are
true.
‘‘(4) PACE PROGRAM AGREEMENT DEFINED.—
For purposes of this section, the term ‘PACE program
agreement’ means, with respect to a PACE provider,
an agreement, consistent with this section, section
1932 (if applicable), and regulations promulgated to
carry out such sections, between the PACE provider
and the Secretary, or an agreement between the
PACE provider and a State administering agency for
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first 3 contract years under such agreement with
respect to such program.
‘‘(B) TREATMENT OF ENTITIES PREVIOUSLY
OPERATING PACE DEMONSTRATION WAIVER PRO-
GRAMS.—Each contract year (including a year
occurring before the effective date of this section)
during which an entity has operated a PACE
demonstration waiver program shall be counted
under subparagraph (A) as a contract year dur-
ing which the entity operated a PACE program
as a PACE provider under a PACE program
agreement.
‘‘(10) REGULATIONS.—For purposes of this sec-
tion, the term ‘regulations’ refers to interim final or
final regulations promulgated under subsection (f) to
carry out this section and section 1932.
‘‘(b) SCOPE
OF
BENEFITS; BENEFICIARY
SAFE-
GUARDS.—
‘‘(1) IN
GENERAL.—Under a PACE program
agreement, a PACE provider shall—
‘‘(A) provide to PACE program eligible in-
dividuals, regardless of source of payment and
directly or under contracts with other entities, at
a minimum—
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‘‘(i) all items and services covered
under this title (for individuals enrolled
under this section) and all items and serv-
ices covered under title XIX, but without
any limitation or condition as to amount,
duration, or scope and without application
of deductibles, copayments, coinsurance, or
other cost-sharing that would otherwise
apply under this title or such title, respec-
tively; and
‘‘(ii) all additional items and services
specified in regulations, based upon those
required under the PACE protocol;
‘‘(B) provide such enrollees access to nec-
essary covered items and services 24 hours per
day, every day of the year;
‘‘(C) provide services to such enrollees
through 
a 
comprehensive, 
multidisciplinary
health and social services delivery system which
integrates acute and long-term care services pur-
suant to regulations; and
‘‘(D) specify the covered items and services
that will not be provided directly by the entity,
and to arrange for delivery of those items and
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services through contracts meeting the require-
ments of regulations.
‘‘(2) 
QUALITY
ASSURANCE; 
PATIENT
SAFE-
GUARDS.—The PACE program agreement shall re-
quire the PACE provider to have in effect at a mini-
mum—
‘‘(A) a written plan of quality assurance
and improvement, and procedures implementing
such plan, in accordance with regulations; and
‘‘(B) written safeguards of the rights of en-
rolled participants (including a patient bill of
rights and procedures for grievances and ap-
peals) in accordance with regulations and with
other requirements of this title and Federal and
State law that are designed for the protection of
patients.
‘‘(c) ELIGIBILITY DETERMINATIONS.—
‘‘(1) IN GENERAL.—The determination of wheth-
er an individual is a PACE program eligible individ-
ual—
‘‘(A) shall be made under and in accordance
with the PACE program agreement; and
‘‘(B) who is entitled to medical assistance
under title XIX, shall be made (or who is not so
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entitled, may be made) by the State administer-
ing agency.
‘‘(2) CONDITION.—An individual is not a PACE
program eligible individual (with respect to payment
under this section) unless the individual’s health sta-
tus has been determined by the Secretary or the State
administering agency, in accordance with regulations,
to be comparable to the health status of individuals
who have participated in the PACE demonstration
waiver programs. Such determination shall be based
upon information on health status and related indica-
tors (such as medical diagnoses and measures of ac-
tivities of daily living, instrumental activities of
daily living, and cognitive impairment) that are part
of a uniform minimum data set collected by PACE
providers on potential eligible individuals.
‘‘(3) ANNUAL ELIGIBILITY RECERTIFICATIONS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), the determination described in sub-
section (a)(5)(B) for an individual shall be re-
evaluated at least annually.
‘‘(B) EXCEPTION.—The requirement of an-
nual reevaluation under subparagraph (A) may
be waived during a period in accordance with
regulations in those cases where the State admin-
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istering agency determines that there is no rea-
sonable expectation of improvement or signifi-
cant change in an individual’s condition during
the period because of the advanced age, severity
of the advanced age, severity of chronic condi-
tion, or degree of impairment of functional ca-
pacity of the individual involved.
‘‘(4) CONTINUATION OF ELIGIBILITY.—An indi-
vidual who is a PACE program eligible individual
may be deemed to continue to be such an individual
notwithstanding a determination that the individual
no longer meets the requirement of subsection
(a)(5)(B) if, in accordance with regulations, in the
absence of continued coverage under a PACE program
the individual reasonably would be expected to meet
such requirement within the succeeding 6-month pe-
riod.
‘‘(5) ENROLLMENT; DISENROLLMENT.—The en-
rollment and disenrollment of PACE program eligible
individuals in a PACE program shall be pursuant to
regulations and the PACE program agreement and
shall permit enrollees to voluntarily disenroll without
cause at any time. Such regulations and agreement
shall provide that the PACE program may not
disenroll a PACE program eligible individual on the
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ground that the individual has engaged in noncompli-
ant behavior if such behavior is related to a mental
or physical condition of the individual. For purposes
of the preceding sentence, the term ‘noncompliant be-
havior’ includes repeated noncompliance with medical
advice and repeated failure to appear for appoint-
ments.
‘‘(d) 
PAYMENTS
TO
PACE 
PROVIDERS
ON
A
CAPITATED BASIS.—
‘‘(1) IN GENERAL.—In the case of a PACE pro-
vider with a PACE program agreement under this
section, except as provided in this subsection or by
regulations, the Secretary shall make prospective
monthly payments of a capitation amount for each
PACE program eligible individual enrolled under the
agreement under this section in the same manner and
from the same sources as payments are made to an
eligible organization under a risk-sharing contract
under section 1876. Such payments shall be subject to
adjustment in the manner described in section
1876(a)(1)(E).
‘‘(2) 
CAPITATION
AMOUNT.—The 
capitation
amount to be applied under this subsection for a pro-
vider for a contract year shall be an amount specified
in the PACE program agreement for the year. Such
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amount shall be based upon payment rates established
under section 1876 for risk-sharing contracts and
shall be adjusted to take into account the comparative
frailty of PACE enrollees and such other factors as
the Secretary determines to be appropriate. Such
amount under such an agreement shall be computed
in a manner so that the total payment level for all
PACE program eligible individuals enrolled under a
program is less than the projected payment under this
title for a comparable population not enrolled under
a PACE program.
‘‘(e) PACE PROGRAM AGREEMENT.—
‘‘(1) REQUIREMENT.—
‘‘(A) IN GENERAL.—The Secretary, in close
cooperation with the State administering agency,
shall establish procedures for entering into, ex-
tending, and terminating PACE program agree-
ments for the operation of PACE programs by
entities that meet the requirements for a PACE
provider under this section, section 1932, and
regulations.
‘‘(B) NUMERICAL LIMITATION.—
‘‘(i) IN GENERAL.—The Secretary shall
not permit the number of PACE providers
with which agreements are in effect under
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this section or under section 9412(b) of the
Omnibus Budget Reconciliation Act of 1986
to exceed—
‘‘(I) 40 as of the date of the enact-
ment of this section; or
‘‘(II) as of each succeeding anni-
versary of such date, the numerical
limitation under this subparagraph for
the preceding year plus 20.
Subclause (II) shall apply without regard to
the actual number of agreements in effect as
of a previous anniversary date.
‘‘(ii) TREATMENT
OF
CERTAIN
PRI-
VATE, FOR-PROFIT
PROVIDERS.—The nu-
merical limitation in clause (i) shall not
apply to a PACE provider that—
‘‘(I) is operating under a dem-
onstration project waiver under sub-
section (h); or
‘‘(II) was operating under such a
waiver and subsequently qualifies for
PACE provider status pursuant to sub-
section (a)(3)(B)(ii).
‘‘(2) SERVICE AREA AND ELIGIBILITY.—
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‘‘(A) IN
GENERAL.—A PACE program
agreement for a PACE program—
‘‘(i) shall designate the service area of
the program;
‘‘(ii) may provide additional require-
ments for individuals to qualify as PACE
program eligible individuals with respect to
the program;
‘‘(iii) shall be effective for a contract
year, but may be extended for additional
contract years in the absence of a notice by
a party to terminate and is subject to ter-
mination by the Secretary and the State
administering agency at any time for cause
(as provided under the agreement);
‘‘(iv) shall require a PACE provider to
meet all applicable State and local laws
and requirements; and
‘‘(v) shall have such additional terms
and conditions as the parties may agree to,
provided that such terms and conditions are
consistent with this section and regulations.
‘‘(B) SERVICE
AREA
OVERLAP.—In des-
ignating a service area under a PACE program
agreement under subparagraph (A)(i), the Sec-
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retary (in consultation with the State admin-
istering agency) may exclude from designation
an area that is already covered under another
PACE program agreement, in order to avoid un-
necessary duplication of services and avoid im-
pairing the financial and service viability of an
existing program.
‘‘(3) DATA COLLECTION; DEVELOPMENT OF OUT-
COME MEASURES.—
‘‘(A) DATA COLLECTION.—
‘‘(i) IN
GENERAL.—Under a PACE
program agreement, the PACE provider
shall—
‘‘(I) collect data;
‘‘(II) maintain, and afford the
Secretary and the State administering
agency access to, the records relating to
the program, including pertinent fi-
nancial, 
medical, 
and 
personnel
records; and
‘‘(III) make to the Secretary and
the State administering agency reports
that the Secretary finds (in consulta-
tion with State administering agen-
cies) necessary to monitor the oper-
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ation, cost, and effectiveness of the
PACE program under this Act.
‘‘(ii) REQUIREMENTS
DURING
TRIAL
PERIOD.—During the first 3 years of oper-
ation of a PACE program (either under this
section or under a PACE demonstration
waiver program), the PACE provider shall
provide such additional data as the Sec-
retary specifies in regulations in order to
perform the oversight required under para-
graph (4)(A).
‘‘(B) DEVELOPMENT
OF
OUTCOME
MEAS-
URES.—Under a PACE program agreement, the
PACE provider, the Secretary, and the State ad-
ministering agency shall jointly cooperate in the
development and implementation of health status
and quality of life outcome measures with respect
to PACE program eligible individuals.
‘‘(4) OVERSIGHT.—
‘‘(A) ANNUAL, CLOSE
OVERSIGHT
DURING
TRIAL PERIOD.—During the trial period (as de-
fined in subsection (a)(9)) with respect to a
PACE program operated by a PACE provider,
the Secretary (in cooperation with the State ad-
ministering agency) shall conduct a comprehen-
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sive annual review of the operation of the PACE
program by the provider in order to assure com-
pliance with the requirements of this section and
regulations. Such a review shall include—
‘‘(i) an on-site visit to the program
site;
‘‘(ii) comprehensive assessment of a
provider’s fiscal soundness;
‘‘(iii) comprehensive assessment of the
provider’s capacity to provide all PACE
services to all enrolled participants;
‘‘(iv) detailed analysis of the entity’s
substantial compliance with all significant
requirements of this section and regulations;
and
‘‘(v) any other elements the Secretary
or State agency considers necessary or ap-
propriate.
‘‘(B) CONTINUING
OVERSIGHT.—After the
trial period, the Secretary (in cooperation with
the State administering agency) shall continue
to conduct such review of the operation of PACE
providers and PACE programs as may be appro-
priate, taking into account the performance level
of a provider and compliance of a provider with
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all significant requirements of this section and
regulations.
‘‘(C) DISCLOSURE.—The results of reviews
under this paragraph shall be reported promptly
to the PACE provider, along with any rec-
ommendations for changes to the provider’s pro-
gram, and shall be made available to the public
upon request.
‘‘(5) TERMINATION OF PACE PROVIDER AGREE-
MENTS.—
‘‘(A) IN GENERAL.—Under regulations—
‘‘(i) the Secretary or a State admin-
istering agency may terminate a PACE
program agreement for cause; and
‘‘(ii) a PACE provider may terminate
an agreement after appropriate notice to the
Secretary, the State agency, and enrollees.
‘‘(B) CAUSES
FOR
TERMINATION.—In ac-
cordance with regulations establishing procedures
for termination of PACE program agreements,
the Secretary or a State administering agency
may terminate a PACE program agreement with
a PACE provider for, among other reasons, the
fact that—
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‘‘(i) the Secretary or State administer-
ing agency determines that—
‘‘(I) there are significant defi-
ciencies in the quality of care provided
to enrolled participants; or
‘‘(II) the provider has failed to
comply substantially with conditions
for a program or provider under this
section or section 1932; and
‘‘(ii) the entity has failed to develop
and successfully initiate, within 30 days of
the receipt of written notice of such a deter-
mination, a plan to correct the deficiencies,
or has failed to continue implementation of
such a plan.
‘‘(C) TERMINATION AND TRANSITION PROCE-
DURES.—An entity whose PACE provider agree-
ment is terminated under this paragraph shall
implement the transition procedures required
under subsection (a)(2)(C).
‘‘(6) SECRETARY’S
OVERSIGHT; ENFORCEMENT
AUTHORITY.—
‘‘(A) IN
GENERAL.—Under regulations, if
the Secretary determines (after consultation with
the State administering agency) that a PACE
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provider is failing substantially to comply with
the requirements of this section and regulations,
the Secretary (and the State administering agen-
cy) may take any or all of the following actions:
‘‘(i) Condition the continuation of the
PACE program agreement upon timely exe-
cution of a corrective action plan.
‘‘(ii) Withhold some or all further pay-
ments under the PACE program agreement
under this section or section 1932 with re-
spect to PACE program services furnished
by such provider until the deficiencies have
been corrected.
‘‘(iii) Terminate such agreement.
‘‘(B) APPLICATION OF INTERMEDIATE SANC-
TIONS.—Under regulations, the Secretary may
provide for the application against a PACE pro-
vider 
of 
remedies 
described 
in 
section
1876(i)(6)(B) or 1903(m)(5)(B) in the case of
violations by the provider of the type described
in section 1876(i)(6)(A) or 1903(m)(5)(A), re-
spectively (in relation to agreements, enrollees,
and requirements under this section or section
1932, respectively).
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‘‘(7) PROCEDURES FOR TERMINATION OR IMPOSI-
TION OF SANCTIONS.—Under regulations, the provi-
sions of section 1876(i)(9) shall apply to termination
and sanctions respecting a PACE program agreement
and PACE provider under this subsection in the same
manner as they apply to a termination and sanctions
with respect to a contract and an eligible organiza-
tion under section 1876.
‘‘(8) TIMELY CONSIDERATION OF APPLICATIONS
FOR PACE PROGRAM PROVIDER STATUS.—In consider-
ing an application for PACE provider program sta-
tus, the application shall be deemed approved unless
the Secretary, within 90 days after the date of the
submission of the application to the Secretary, either
denies such request in writing or informs the appli-
cant in writing with respect to any additional infor-
mation that is needed in order to make a final deter-
mination with respect to the application. After the
date the Secretary receives such additional informa-
tion, the application shall be deemed approved unless
the Secretary, within 90 days of such date, denies
such request.
‘‘(f) REGULATIONS.—
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‘‘(1) IN GENERAL.—The Secretary shall issue in-
terim final or final regulations to carry out this sec-
tion and section 1932.
‘‘(2) USE OF PACE PROTOCOL.—
‘‘(A) IN GENERAL.—In issuing such regula-
tions, the Secretary shall, to the extent consistent
with the provisions of this section, incorporate
the requirements applied to PACE demonstra-
tion waiver programs under the PACE protocol.
‘‘(B) FLEXIBILITY.—In order to provide for
reasonable flexibility in adapting the PACE
service delivery model to the needs of particular
organizations (such as those in rural areas or
those that may determine it appropriate to use
nonstaff physicians according to State licensing
law requirements) under this section and section
1932, the Secretary (in close consultation with
State administering agencies) may modify or
waive provisions of the PACE protocol so long as
any such modification or waiver is not inconsist-
ent with and would not impair the essential ele-
ments, objectives, and requirements of this sec-
tion, but may not modify or waive any of the
following provisions:
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‘‘(i) The focus on frail elderly qualify-
ing individuals who require the level of care
provided in a nursing facility.
‘‘(ii) The delivery of comprehensive, in-
tegrated acute and long-term care services.
‘‘(iii) The interdisciplinary team ap-
proach to care management and service de-
livery.
‘‘(iv) Capitated, integrated financing
that allows the provider to pool payments
received from public and private programs
and individuals.
‘‘(v) The assumption by the provider of
full financial risk.
‘‘(3) APPLICATION OF CERTAIN ADDITIONAL BEN-
EFICIARY AND PROGRAM PROTECTIONS.—
‘‘(A) IN GENERAL.—In issuing such regula-
tions and subject to subparagraph (B), the Sec-
retary may apply with respect to PACE pro-
grams, providers, and agreements such require-
ments of sections 1876 and 1903(m) relating to
protection of beneficiaries and program integrity
as would apply to eligible organizations under
risk-sharing contracts under section 1876 and to
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health maintenance organizations under prepaid
capitation agreements under section 1903(m).
‘‘(B) CONSIDERATIONS.—In issuing such
regulations, the Secretary shall—
‘‘(i) take into account the differences
between populations served and benefits
provided under this section and under sec-
tions 1876 and 1903(m);
‘‘(ii) not include any requirement that
conflicts with carrying out PACE programs
under this section; and
‘‘(iii) not include any requirement re-
stricting the proportion of enrollees who are
eligible for benefits under this title or title
XIX.
‘‘(g) WAIVERS OF REQUIREMENTS.—With respect to
carrying out a PACE program under this section, the fol-
lowing requirements of this title (and regulations relating
to such requirements) are waived and shall not apply:
‘‘(1) Section 1812, insofar as it limits coverage
of institutional services.
‘‘(2) Sections 1813, 1814, 1833, and 1886, inso-
far as such sections relate to rules for payment for
benefits.
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‘‘(3) Sections 1814(a)(2)(B), 1814(a)(2)(C), and
1835(a)(2)(A), insofar as they limit coverage of ex-
tended care services or home health services.
‘‘(4) Section 1861(i), insofar as it imposes a 3-
day prior hospitalization requirement for coverage of
extended care services.
‘‘(5) Paragraphs (1) and (9) of section 1862(a),
insofar as they may prevent payment for PACE pro-
gram services to individuals enrolled under PACE
programs.
‘‘(h) DEMONSTRATION PROJECT FOR FOR-PROFIT EN-
TITIES.—
‘‘(1) IN GENERAL.—In order to demonstrate the
operation of a PACE program by a private, for-profit
entity, the Secretary (in close consultation with State
administering agencies) shall grant waivers from the
requirement under subsection (a)(3) that a PACE
provider may not be a for-profit, private entity.
‘‘(2) SIMILAR TERMS AND CONDITIONS.—
‘‘(A) IN
GENERAL.—Except as provided
under subparagraph (B), and paragraph (1), the
terms and conditions for operation of a PACE
program by a provider under this subsection
shall be the same as those for PACE providers
that are nonprofit, private organizations.
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‘‘(B) NUMERICAL LIMITATION.—The number
of programs for which waivers are granted under
this subsection shall not exceed 10. Programs
with waivers granted under this subsection shall
not be counted against the numerical limitation
specified in subsection (e)(1)(B).
‘‘(i) MISCELLANEOUS PROVISIONS.—Nothing in this
section or section 1932 shall be construed as preventing a
PACE provider from entering into contracts with other gov-
ernmental or nongovernmental payers for the care of PACE
program eligible individuals who are not eligible for bene-
fits under part A, or enrolled under part B, or eligible for
medical assistance under title XIX.’’.
SEC. 5012. EFFECTIVE DATE; TRANSITION.
(a) TIMELY ISSUANCE OF REGULATIONS; EFFECTIVE
DATE.—The Secretary of Health and Human Services shall
promulgate regulations to carry out this subtitle in a timely
manner. Such regulations shall be designed so that entities
may establish and operate PACE programs under sections
1894 and 1932 of the Social Security Act (as added by sec-
tions 5011 and 5751 of this Act) for periods beginning not
later than 1 year after the date of the enactment of this
Act.
(b) EXPANSION AND TRANSITION FOR PACE DEM-
ONSTRATION PROJECT WAIVERS.—
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(1) EXPANSION IN CURRENT NUMBER OF DEM-
ONSTRATION PROJECTS.—Section 9412(b) of the Om-
nibus Budget Reconciliation Act of 1986, as amended
by section 4118(g) of the Omnibus Budget Reconcili-
ation Act of 1987, is amended—
(A) in paragraph (1), by inserting before
the period at the end the following: ‘‘, except that
the Secretary shall grant waivers of such require-
ments up to the applicable numerical limitation
specified in section 1894(e)(1)(B) of the Social
Security Act’’; and
(B) in paragraph (2)—
(i) in subparagraph (A), by striking ‘‘,
including permitting the organization to as-
sume progressively (over the initial 3-year
period of the waiver) the full financial
risk’’; and
(ii) in subparagraph (C), by adding at
the end the following: ‘‘In granting further
extensions, an organization shall not be re-
quired to provide for reporting of informa-
tion which is only required because of the
demonstration nature of the project.’’.
(2) ELIMINATION
OF
REPLICATION
REQUIRE-
MENT.—Subparagraph (B) of paragraph (2) of such
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section shall not apply to waivers granted under such
section after the date of the enactment of this Act.
(3) TIMELY CONSIDERATION OF APPLICATIONS.—
In considering an application for waivers under such
section before the effective date of repeals made under
subsection (d), subject to the numerical limitation
under the amendment made by paragraph (1), the
application shall be deemed approved unless the Sec-
retary of Health and Human Services, within 90
days after the date of its submission to the Secretary,
either denies such request in writing or informs the
applicant in writing with respect to any additional
information which is needed in order to make a final
determination with respect to the application. After
the date the Secretary receives such additional infor-
mation, the application shall be deemed approved un-
less the Secretary, within 90 days of such date, denies
such request.
(c) PRIORITY AND SPECIAL CONSIDERATION IN APPLI-
CATION.—During the 3-year period beginning on the date
of enactment of this Act:
(1) PROVIDER STATUS.—The Secretary of Health
and Human Services shall give priority, in process-
ing applications of entities to qualify as PACE pro-
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grams under section 1894 or 1932 of the Social Secu-
rity Act—
(A) first, to entities that are operating a
PACE demonstration waiver program (as de-
fined in section 1894(a)(7) of such Act); and
(B) then entities that have applied to oper-
ate such a program as of May 1, 1997.
(2) NEW
WAIVERS.—The Secretary shall give
priority, in the awarding of additional waivers under
section 9412(b) of the Omnibus Budget Reconciliation
Act of 1986—
(A) to any entities that have applied for
such waivers under such section as of May 1,
1997; and
(B) to any entity that, as of May 1, 1997,
has formally contracted with a State to provide
services for which payment is made on a
capitated basis with an understanding that the
entity was seeking to become a PACE provider.
(3) SPECIAL
CONSIDERATION.—The Secretary
shall give special consideration, in the processing of
applications described in paragraph (1) and the
awarding of waivers described in paragraph (2), to
an entity which as of May 1, 1997 through formal ac-
tivities (such as entering into contracts for feasibility
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studies) has indicated a specific intent to become a
PACE provider.
(d) REPEAL
OF CURRENT PACE DEMONSTRATION
PROJECT WAIVER AUTHORITY.—
(1) IN GENERAL.—Subject to paragraph (2), the
following provisions of law are repealed:
(A) Section 603(c) of the Social Security
Amendments of 1983 (Public Law 98–21).
(B) Section 9220 of the Consolidated Omni-
bus Budget Reconciliation Act of 1985 (Public
Law 99–272).
(C) Section 9412(b) of the Omnibus Budget
Reconciliation Act of 1986 (Public Law 99–509).
(2) DELAY IN APPLICATION.—
(A) IN GENERAL.—Subject to subparagraph
(B), the repeals made by paragraph (1) shall not
apply to waivers granted before the initial effec-
tive date of regulations described in subsection
(a).
(B) APPLICATION TO APPROVED WAIVERS.—
Such repeals shall apply to waivers granted be-
fore such date only after allowing such organiza-
tions a transition period (of up to 24 months) in
order to permit sufficient time for an orderly
transition from demonstration project authority
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to general authority provided under the amend-
ments made by this subtitle.
SEC. 5013. STUDY AND REPORTS.
(a) STUDY.—
(1) IN GENERAL.—The Secretary of Health and
Human Services (in close consultation with State ad-
ministering agencies, as defined in section 1894(a)(8)
of the Social Security Act) shall conduct a study of
the quality and cost of providing PACE program
services under the medicare and medicaid programs
under the amendments made by this subtitle.
(2) STUDY
OF
PRIVATE, FOR-PROFIT
PROVID-
ERS.—Such study shall specifically compare the costs,
quality, and access to services by entities that are pri-
vate, for-profit entities operating under demonstra-
tion projects waivers granted under section 1894(h) of
the Social Security Act with the costs, quality, and
access to services of other PACE providers.
(b) REPORT.—
(1) IN GENERAL.—Not later than 4 years after
the date of enactment of this Act, the Secretary shall
provide for a report to Congress on the impact of such
amendments on quality and cost of services. The Sec-
retary shall include in such report such recommenda-
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tions for changes in the operation of such amend-
ments as the Secretary deems appropriate.
(2) TREATMENT OF PRIVATE, FOR-PROFIT PRO-
VIDERS.—The report shall include specific findings on
whether any of the following findings is true:
(A) The number of covered lives enrolled
with entities operating under demonstration
project waivers under section 1894(h) of the So-
cial Security Act is fewer than 800 (or such less-
er number as the Secretary may find statis-
tically sufficient to make determinations respect-
ing findings described in the succeeding subpara-
graphs).
(B) The population enrolled with such enti-
ties is less frail than the population enrolled
with other PACE providers.
(C) Access to or quality of care for individ-
uals enrolled with such entities is lower than
such access or quality for individuals enrolled
with other PACE providers.
(D) The application of such section has re-
sulted in an increase in expenditures under the
medicare or medicaid programs above the ex-
penditures that would have been made if such
section did not apply.
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(c) INFORMATION
INCLUDED
IN
ANNUAL
REC-
OMMENDATIONS.—The Physician Payment Review Com-
mission shall include in its annual recommendations under
section 1845(b) of the Social Security Act (42 U.S.C.
1395w–1), and the Prospective Payment Review Commis-
sion shall include in its annual recommendations reported
under section 1886(e)(3)(A) of such Act (42 U.S.C.
1395ww(e)(3)(A)), recommendations on the methodology
and level of payments made to PACE providers under sec-
tion 1894(d) of such Act and on the treatment of private,
for-profit entities as PACE providers. References in the pre-
ceding sentence to the Physician Payment Review Commis-
sion and the Prospective Payment Review Commission shall
be deemed to be references to the Medicare Payment Advi-
sory Commission (MedPAC) established under section
5022(a) after the termination of the Physician Payment Re-
view Commission and the Prospective Payment Review
Commission provided for in section 5022(c)(2).
Subchapter B—Social Health Maintenance
Organizations
SEC. 5015. SOCIAL HEALTH MAINTENANCE ORGANIZATIONS
(SHMOS).
(a) EXTENSION OF DEMONSTRATION PROJECT AU-
THORITIES.—Section 4018(b) of the Omnibus Budget Rec-
onciliation Act of 1987 is amended—
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(1) in paragraph (1), by striking ‘‘1997’’ and in-
serting ‘‘2000’’, and
(2) in paragraph (4), by striking ‘‘1998’’ and in-
serting ‘‘2001’’.
(b) EXPANSION OF CAP.—Section 13567(c) of the Om-
nibus Budget Reconciliation Act of 1993 is amended by
striking ‘‘12,000’’ and inserting ‘‘36,000’’.
(c) REPORT ON INTEGRATION AND TRANSITION.—
(1) IN GENERAL.—The Secretary of Health and
Human Services shall submit to Congress, by not
later than January 1, 1999, a plan for the integra-
tion of health plans offered by social health mainte-
nance organizations (including SHMO I and SHMO
II sites developed under section 2355 of the Deficit
Reduction Act of 1984 and under the amendment
made by section 4207(b)(3)(B)(i) of OBRA–1990, re-
spectively) and similar plans as an option under the
Medicare Choice program under part C of title XVIII
of the Social Security Act.
(2) PROVISION
FOR
TRANSITION.—Such plan
shall include a transition for social health mainte-
nance organizations operating under demonstration
project authority under such section.
(3) PAYMENT POLICY.—The report shall also in-
clude recommendations on appropriate payment levels
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for plans offered by such organizations, including an
analysis of the application of risk adjustment factors
appropriate to the population served by such organi-
zations.
Subchapter C—Other Programs
SEC. 5018. EXTENSION OF CERTAIN MEDICARE COMMUNITY
NURSING ORGANIZATION DEMONSTRATION
PROJECTS.
Notwithstanding any other provision of law, dem-
onstration projects conducted under section 4079 of the Om-
nibus Budget Reconciliation Act of 1987 may be conducted
for an additional period of 2 years, and the deadline for
any report required relating to the results of such projects
shall be not later than 6 months before the end of such addi-
tional period.
CHAPTER 3—COMMISSIONS
SEC. 5021. NATIONAL BIPARTISAN COMMISSION ON THE FU-
TURE OF MEDICARE.
(a) ESTABLISHMENT.—There is established a commis-
sion to be known as the National Bipartisan Commission
on the Future of Medicare (in this section referred to as
the ‘‘Commission’’).
(b) FINDINGS.—Congress finds that—
(1) the medicare program under title XVIII of
the Social Security Act (42 U.S.C. 1395 et seq.) pro-
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vides essential health care coverage to this Nation’s
senior citizens and to individuals with disabilities;
(2) the Federal Hospital Insurance Trust Fund
established under that Act has been spending more
than it receives since 1995, and will be bankrupt in
the year 2001;
(3) the Federal Hospital Insurance Trust Fund
faces even greater solvency problems in the long run
with the aging of the baby boom generation and the
continuing decline in the number of workers paying
into the medicare program for each medicare bene-
ficiary;
(4) the trustees of the trust funds of the medicare
program have reported that growth in spending with-
in the Federal Supplementary Medical Insurance
Trust 
Fund 
established 
under 
that 
Act 
is
unsustainable; and
(5) expeditious action is needed in order to re-
store the financial integrity of the medicare program
and to maintain this Nation’s commitment to senior
citizens and to individuals with disabilities.
(c) DUTIES OF THE COMMISSION.—The Commission
shall—
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(1) review and analyze the long-term financial
condition of the medicare program under title XVIII
of the Social Security Act (42 U.S.C. 1395 et seq.);
(2) identify problems that threaten the financial
integrity of the Federal Hospital Insurance Trust
Fund and the Federal Supplementary Medical Insur-
ance Trust Fund established under that title (42
U.S.C. 1395i, 1395t), including the extent to which
current medicare update indexes do not accurately re-
flect inflation;
(3) analyze potential solutions to the problems
identified under paragraph (2) that will ensure both
the financial integrity of the medicare program and
the provision of appropriate benefits under such pro-
gram;
(4) make recommendations to restore the solvency
of the Federal Hospital Insurance Trust Fund and
the financial integrity of the Federal Supplementary
Medical Insurance Trust Fund through the year 2030,
when the last of the baby boomers reaches age 65;
(5) make recommendations for establishing the
appropriate financial structure of the medicare pro-
gram as a whole;
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(6) make recommendations for establishing the
appropriate balance of benefits covered and bene-
ficiary contributions to the medicare program;
(7) make recommendations for the time periods
during which the recommendations described in para-
graphs (4), (5), and (6) should be implemented;
(8) make recommendations regarding the financ-
ing of graduate medical education (GME), including
consideration of alternative broad-based sources of
funding for such education and funding for institu-
tions not currently eligible for such GME support
under the medicare program that conduct approved
graduate medical residency programs, such as chil-
dren’s hospitals;
(9) make recommendations on the feasibility of
allowing individuals between the age of 62 and the
medicare eligibility age to buy into the medicare pro-
gram;
(10) make recommendations on the impact of
chronic disease and disability trends on future costs
and quality of services under the current benefit, fi-
nancing, and delivery system structure of the medi-
care program; and
(11) review and analyze such other matters as
the Commission deems appropriate.
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(d) MEMBERSHIP.—
(1) NUMBER AND APPOINTMENT.—The Commis-
sion shall be composed of 15 members, of whom—
(A) three shall be appointed by the Presi-
dent;
(B) six shall be appointed by the Majority
Leader of the Senate, in consultation with the
Minority Leader of the Senate, of whom not
more than 4 shall be of the same political party;
and
(C) six shall be appointed by the Speaker of
the House of Representatives, in consultation
with the Minority Leader of the House of Rep-
resentatives, of whom not more than 4 shall be
of the same political party.
(2) COMPTROLLER GENERAL.—The Comptroller
General of the United States shall advise the Commis-
sion on the methodology to be used in identifying
problems and analyzing potential solutions in accord-
ance with the duties of the Commission described in
subsection (c).
(3) TERMS
OF
APPOINTMENT.—The members
shall serve on the Commission for the life of the Com-
mission.
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(4) MEETINGS.—The Commission shall locate its
headquarters in the District of Columbia, and shall
meet at the call of the Chairperson.
(5) QUORUM.—Ten members of the Commission
shall constitute a quorum, but a lesser number may
hold hearings.
(6) CHAIRPERSON.—The Speaker of the House of
Representatives, in consultation with the Majority
Leader of the Senate, shall designate 1 of the members
appointed under paragraph (1) as Chairperson of the
Commission.
(7) VACANCIES.—A vacancy on the Commission
shall be filled in the same manner in which the origi-
nal appointment was made not later than 30 days
after the Commission is given notice of the vacancy.
(8) COMPENSATION.—Members of the Commis-
sion shall receive no additional pay, allowances, or
benefits by reason of their service on the Commission.
(9) EXPENSES.—Each member of the Commis-
sion shall receive travel expenses and per diem in lieu
of subsistence in accordance with sections 5702 and
5703 of title 5, United States Code.
(e) STAFF AND SUPPORT SERVICES.—
(1) EXECUTIVE DIRECTOR.—
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(A) APPOINTMENT.—The Chairperson shall
appoint an executive director of the Commission.
(B) COMPENSATION.—The executive director
shall be paid the rate of basic pay for level V of
the Executive Schedule.
(2) STAFF.—With the approval of the Commis-
sion, the executive director may appoint such person-
nel as the executive director considers appropriate.
(3) APPLICABILITY OF CIVIL SERVICE LAWS.—
The staff of the Commission shall be appointed with-
out regard to the provisions of title 5, United States
Code, governing appointments in the competitive serv-
ice, and shall be paid without regard to the provisions
of chapter 51 and subchapter III of chapter 53 of such
title (relating to classification and General Schedule
pay rates).
(4) EXPERTS AND CONSULTANTS.—With the ap-
proval of the Commission, the executive director may
procure temporary and intermittent services under
section 3109(b) of title 5, United States Code.
(5) STAFF OF FEDERAL AGENCIES.—Upon the
request of the Commission, the head of any Federal
agency may detail any of the personnel of such agen-
cy to the Commission to assist in carrying out the du-
ties of the Commission.
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(6) OTHER RESOURCES.—The Commission shall
have reasonable access to materials, resources, statis-
tical data, and other information from the Library of
Congress and agencies and elected representatives of
the executive and legislative branches of the Federal
Government. The Chairperson of the Commission
shall make requests for such access in writing when
necessary.
(7) PHYSICAL
FACILITIES.—The Administrator
of the General Services Administration shall locate
suitable office space for the operation of the Commis-
sion. The facilities shall serve as the headquarters of
the Commission and shall include all necessary equip-
ment and incidentals required for the proper func-
tioning of the Commission.
(f) POWERS OF COMMISSION.—
(1) HEARINGS.—The Commission may conduct
public hearings or forums at the discretion of the
Commission, at any time and place the Commission
is able to secure facilities and witnesses, for the pur-
pose of carrying out the duties of the Commission.
(2) GIFTS.—The Commission may accept, use,
and dispose of gifts or donations of services or prop-
erty.
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(3) MAILS.—The Commission may use the Unit-
ed States mails in the same manner and under the
same conditions as other Federal agencies.
(g) REPORT.—Not later than 1 year after the date of
the enactment of this Act, the Commission shall submit a
report to the President and Congress which shall contain
a detailed statement of the recommendations, findings, and
conclusions of the Commission.
(h) TERMINATION.—The Commission shall terminate
on the date which is 30 days after the date the Commission
submits its report to the President and to Congress under
subsection (g).
(i) FUNDING.—There is authorized to be appropriated
to the Commission such sums as are necessary to carry out
the purposes of this section. Sums appropriated under this
subsection shall be paid equally from the Federal Hospital
Insurance Trust Fund and from the Federal Supple-
mentary Medical Insurance Trust Fund under title XVIII
of the Social Security Act (42 U.S.C. 1395i, 1395t).
SEC. 5022. MEDICARE PAYMENT ADVISORY COMMISSION.
(a) IN GENERAL.—Title XVIII is amended by insert-
ing after section 1804 the following new section:
‘‘MEDICARE PAYMENT ADVISORY COMMISSION
‘‘SEC. 1805. (a) ESTABLISHMENT.—There is hereby es-
tablished the Medicare Payment Advisory Commission (in
this section referred to as the ‘Commission’).
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‘‘(b) DUTIES.—
‘‘(1) REVIEW OF PAYMENT POLICIES AND ANNUAL
REPORTS.—The Commission shall—
‘‘(A) review payment policies under this
title, including the topics described in paragraph
(2);
‘‘(B) make recommendations to Congress
concerning such payment policies;
‘‘(C) by not later than March 1 of each year
(beginning with 1998), submit a report to Con-
gress containing the results of such reviews and
its recommendations concerning such policies;
and
‘‘(D) by not later than June 1 of each year
(beginning with 1998), submit a report to Con-
gress containing an examination of issues affect-
ing the medicare program, including the impli-
cations of changes in health care delivery in the
United States and in the market for health care
services on the medicare program.
‘‘(2) SPECIFIC TOPICS TO BE REVIEWED.—
‘‘(A) MEDICARE
CHOICE
PROGRAM.—Spe-
cifically, the Commission shall review, with re-
spect to the Medicare Choice program under part
C, the following:
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‘‘(i) The methodology for making pay-
ment to plans under such program, includ-
ing the making of differential payments and
the distribution of differential updates
among different payment areas.
‘‘(ii) The mechanisms used to adjust
payments for risk and the need to adjust
such mechanisms to take into account health
status of beneficiaries.
‘‘(iii) The implications of risk selection
both among Medicare Choice organizations
and between the Medicare Choice option
and the traditional medicare fee-for-service
option.
‘‘(iv) The development and implemen-
tation of mechanisms to assure the quality
of care for those enrolled with Medicare
Choice organizations.
‘‘(v) The impact of the Medicare Choice
program on access to care for medicare
beneficiaries.
‘‘(vi) Other major issues in implemen-
tation and further development of the Medi-
care Choice program.
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‘‘(B) TRADITIONAL
MEDICARE
FEE-FOR-
SERVICE SYSTEM.—Specifically, the Commission
shall review payment policies under parts A and
B, including—
‘‘(i) the factors affecting expenditures
for services in different sectors, including
the process for updating hospital, skilled
nursing facility, physician, and other fees,
‘‘(ii) payment methodologies, and
‘‘(iii) their relationship to access and
quality of care for medicare beneficiaries.
‘‘(C) INTERACTION OF MEDICARE PAYMENT
POLICIES WITH HEALTH CARE DELIVERY GEN-
ERALLY.—Specifically, the Commission shall re-
view the effect of payment policies under this
title on the delivery of health care services other
than under this title and assess the implications
of changes in health care delivery in the United
States and in the general market for health care
services on the medicare program.
‘‘(3) COMMENTS ON CERTAIN SECRETARIAL RE-
PORTS.—If the Secretary submits to Congress (or a
committee of Congress) a report that is required by
law and that relates to payment policies under this
title, the Secretary shall transmit a copy of the report
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to the Commission. The Commission shall review the
report and, not later than 6 months after the date of
submittal of the Secretary’s report to Congress, shall
submit to the appropriate committees of Congress
written comments on such report. Such comments
may include such recommendations as the Commis-
sion deems appropriate.
‘‘(4) AGENDA AND ADDITIONAL REVIEWS.—The
Commission shall consult periodically with the chair-
men and ranking minority members of the appro-
priate committees of Congress regarding the Commis-
sion’s agenda and progress towards achieving the
agenda. The Commission may conduct additional re-
views, and submit additional reports to the appro-
priate committees of Congress, from time to time on
such topics relating to the program under this title as
may be requested by such chairmen and members and
as the Commission deems appropriate.
‘‘(5) AVAILABILITY OF REPORTS.—The Commis-
sion shall transmit to the Secretary a copy of each re-
port submitted under this subsection and shall make
such reports available to the public.
‘‘(6) 
APPROPRIATE
COMMITTEES
OF
CON-
GRESS.—For purposes of this section, the term ‘ap-
propriate committees of Congress’ means the Commit-
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tees on Ways and Means and Commerce of the House
of Representatives and the Committee on Finance of
the Senate.
‘‘(c) MEMBERSHIP.—
‘‘(1) NUMBER AND APPOINTMENT.—The Commis-
sion shall be composed of 15 members appointed by
the Comptroller General.
‘‘(2) QUALIFICATIONS.—
‘‘(A) IN GENERAL.—The membership of the
Commission shall include individuals with na-
tional recognition for their expertise in health fi-
nance and economics, actuarial science, health
facility management, health plans and inte-
grated delivery systems, reimbursement of health
facilities, allopathic and osteopathic physicians,
and other providers of health services, and other
related fields, who provide a mix of different pro-
fessionals, broad geographic representation, and
a balance between urban and rural representa-
tives.
‘‘(B) INCLUSION.—The membership of the
Commission shall include (but not be limited to)
physicians and other health professionals, em-
ployers, third-party payers, individuals skilled
in the conduct and interpretation of biomedical,
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health services, and health economics research
and expertise in outcomes and effectiveness re-
search and technology assessment. Such member-
ship shall also include representatives of consum-
ers and the elderly.
‘‘(C) MAJORITY
NONPROVIDERS.—Individ-
uals who are directly involved in the provision,
or management of the delivery, of items and
services covered under this title shall not con-
stitute a majority of the membership of the Com-
mission.
‘‘(D) ETHICAL
DISCLOSURE.—The Comp-
troller General shall establish a system for public
disclosure by members of the Commission of fi-
nancial and other potential conflicts of interest
relating to such members.
‘‘(3) TERMS.—
‘‘(A) IN GENERAL.—The terms of members
of the Commission shall be for 3 years except
that the Comptroller General shall designate
staggered terms for the members first appointed.
‘‘(B) VACANCIES.—Any member appointed
to fill a vacancy occurring before the expiration
of the term for which the member’s predecessor
was appointed shall be appointed only for the re-
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mainder of that term. A member may serve after
the expiration of that member’s term until a suc-
cessor has taken office. A vacancy in the Com-
mission shall be filled in the manner in which
the original appointment was made.
‘‘(4) COMPENSATION.—While serving on the busi-
ness of the Commission (including traveltime), a
member of the Commission shall be entitled to com-
pensation at the per diem equivalent of the rate pro-
vided for level IV of the Executive Schedule under sec-
tion 5315 of title 5, United States Code; and while so
serving away from home and the member’s regular
place of business, a member may be allowed travel ex-
penses, as authorized by the Chairman of the Com-
mission. Physicians serving as personnel of the Com-
mission may be provided a physician comparability
allowance by the Commission in the same manner as
Government physicians may be provided such an al-
lowance by an agency under section 5948 of title 5,
United States Code, and for such purpose subsection
(i) of such section shall apply to the Commission in
the same manner as it applies to the Tennessee Valley
Authority. For purposes of pay (other than pay of
members of the Commission) and employment bene-
fits, rights, and privileges, all personnel of the Com-
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mission shall be treated as if they were employees of
the United States Senate.
‘‘(5) CHAIRMAN; VICE CHAIRMAN.—The Comp-
troller General shall designate a member of the Com-
mission, at the time of appointment of the member,
as Chairman and a member as Vice Chairman for
that term of appointment.
‘‘(6) MEETINGS.—The Commission shall meet at
the call of the Chairman.
‘‘(d) DIRECTOR AND STAFF; EXPERTS AND CONSULT-
ANTS.—Subject to such review as the Comptroller General
deems necessary to assure the efficient administration of the
Commission, the Commission may—
‘‘(1) employ and fix the compensation of an Ex-
ecutive Director (subject to the approval of the Comp-
troller General) and such other personnel as may be
necessary to carry out its duties (without regard to
the provisions of title 5, United States Code, govern-
ing appointments in the competitive service);
‘‘(2) seek such assistance and support as may be
required in the performance of its duties from appro-
priate Federal departments and agencies;
‘‘(3) enter into contracts or make other arrange-
ments, as may be necessary for the conduct of the
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work of the Commission (without regard to section
3709 of the Revised Statutes (41 U.S.C. 5));
‘‘(4) make advance, progress, and other pay-
ments which relate to the work of the Commission;
‘‘(5) provide transportation and subsistence for
persons serving without compensation; and
‘‘(6) prescribe such rules and regulations as it
deems necessary with respect to the internal organiza-
tion and operation of the Commission.
‘‘(e) POWERS.—
‘‘(1) OBTAINING OFFICIAL DATA.—The Commis-
sion may secure directly from any department or
agency of the United States information necessary to
enable it to carry out this section. Upon request of the
Chairman, the head of that department or agency
shall furnish that information to the Commission on
an agreed upon schedule.
‘‘(2) DATA COLLECTION.—In order to carry out
its functions, the Commission shall—
‘‘(A) utilize existing information, both pub-
lished and unpublished, where possible, collected
and assessed either by its own staff or under
other arrangements made in accordance with
this section,
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‘‘(B) carry out, or award grants or con-
tracts for, original research and experimentation,
where existing information is inadequate, and
‘‘(C) adopt procedures allowing any inter-
ested party to submit information for the Com-
mission’s use in making reports and rec-
ommendations.
‘‘(3) ACCESS
OF
GAO
TO
INFORMATION.—The
Comptroller General shall have unrestricted access to
all deliberations, records, and nonproprietary data of
the Commission, immediately upon request.
‘‘(4) PERIODIC AUDIT.—The Commission shall be
subject to periodic audit by the Comptroller General.
‘‘(f) AUTHORIZATION OF APPROPRIATIONS.—
‘‘(1) 
REQUEST
FOR
APPROPRIATIONS.—The
Commission shall submit requests for appropriations
in the same manner as the Comptroller General sub-
mits requests for appropriations, but amounts appro-
priated for the Commission shall be separate from
amounts appropriated for the Comptroller General.
‘‘(2) AUTHORIZATION.—There are authorized to
be appropriated such sums as may be necessary to
carry out the provisions of this section. Sixty percent
of such appropriation shall be payable from the Fed-
eral Hospital Insurance Trust Fund, and 40 percent
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of such appropriation shall be payable from the Fed-
eral Supplementary Medical Insurance Trust Fund.’’.
(b) ABOLITION OF PROPAC AND PPRC.—
(1) PROPAC.—
(A) IN
GENERAL.—Section 1886(e) (42
U.S.C. 1395ww(e)) is amended—
(i) by striking paragraphs (2) and (6);
and
(ii) in paragraph (3), by striking ‘‘(A)
The Commission’’ and all that follows
through ‘‘(B)’’.
(B) 
CONFORMING
AMENDMENT.—Section
1862 (42 U.S.C. 1395y) is amended by striking
‘‘Prospective Payment Assessment Commission’’
each place it appears in subsection (a)(1)(D)
and subsection (i) and inserting ‘‘Medicare Pay-
ment Advisory Commission’’.
(2) PPRC.—
(A) IN GENERAL.—Title XVIII is amended
by striking section 1845 (42 U.S.C. 1395w–1).
(B) ELIMINATION OF CERTAIN REPORTS.—
Section 1848 (42 U.S.C. 1395w–4) is amended—
(i) by striking subparagraph (F) of
subsection (d)(2),
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(ii) by striking subparagraph (B) of
subsection (f)(1), and
(iii) in subsection (f)(3), by striking
‘‘Physician Payment Review Commission,’’.
(C) CONFORMING
AMENDMENTS.—Section
1848 (42 U.S.C. 1395w–4) is amended by strik-
ing ‘‘Physician Payment Review Commission’’
and inserting ‘‘Medicare Payment Advisory
Commission’’ each place it appears in sub-
sections (c)(2)(B)(iii), (g)(6)(C), and (g)(7)(C).
(c) EFFECTIVE DATE; TRANSITION.—
(1) IN GENERAL.—The Comptroller General shall
first provide for appointment of members to the Medi-
care Payment Advisory Commission (in this sub-
section referred to as ‘‘MedPAC’’) by not later than
September 30, 1997.
(2) TRANSITION.—As quickly as possible after
the date a majority of members of MedPAC are first
appointed, the Comptroller General, in consultation
with the Prospective Payment Assessment Commis-
sion (in this subsection referred to as ‘‘ProPAC’’) and
the Physician Payment Review Commission (in this
subsection referred to as ‘‘PPRC’’), shall provide for
the termination of the ProPAC and the PPRC. As of
the date of termination of the respective Commissions,
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the amendments made by paragraphs (1) and (2), re-
spectively, of subsection (b) become effective. The
Comptroller General, to the extent feasible, shall pro-
vide for the transfer to the MedPAC of assets and staff
of the ProPAC and the PPRC, without any loss of
benefits or seniority by virtue of such transfers. Fund
balances available to the ProPAC or the PPRC for
any period shall be available to the MedPAC for such
period for like purposes.
(3) 
CONTINUING
RESPONSIBILITY
FOR
RE-
PORTS.—The MedPAC shall be responsible for the
preparation and submission of reports required by
law to be submitted (and which have not been submit-
ted by the date of establishment of the MedPAC) by
the ProPAC and the PPRC, and, for this purpose,
any reference in law to either such Commission is
deemed, after the appointment of the MedPAC, to
refer to the MedPAC.
CHAPTER 4—MEDIGAP PROTECTIONS
SEC. 5031. MEDIGAP PROTECTIONS.
(a) GUARANTEEING ISSUE WITHOUT PREEXISTING
CONDITIONS
FOR
CONTINUOUSLY
COVERED
INDIVID-
UALS.—Section 1882(s) (42 U.S.C. 1395ss(s)) is amend-
ed—
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(1) in paragraph (3), by striking ‘‘paragraphs
(1) and (2)’’ and inserting ‘‘this subsection’’,
(2) by redesignating paragraph (3) as para-
graph (4), and
(3) by inserting after paragraph (2) the follow-
ing new paragraph:
‘‘(3)(A) The issuer of a medicare supplemental pol-
icy—
‘‘(i) may not deny or condition the issuance or
effectiveness of a medicare supplemental policy de-
scribed in subparagraph (C) that is offered and is
available for issuance to new enrollees by such issuer;
‘‘(ii) may not discriminate in the pricing of such
policy, because of health status, claims experience, re-
ceipt of health care, or medical condition; and
‘‘(iii) may not impose an exclusion of benefits
based on a pre-existing condition under such policy,
in the case of an individual described in subparagraph (B)
who seeks to enroll under the policy not later than 63 days
after the date of the termination of enrollment described in
such subparagraph and who submits evidence of the date
of termination or disenrollment along with the application
for such medicare supplemental policy.
‘‘(B) An individual described in this subparagraph is
an individual described in any of the following clauses:
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‘‘(i) The individual is enrolled under an em-
ployee welfare benefit plan that provides health bene-
fits that supplement the benefits under this title and
the plan terminates or ceases to provide all such sup-
plemental health benefits to the individual.
‘‘(ii) The individual is enrolled with a Medicare
Choice organization under a Medicare Choice plan
under part C, and there are circumstances permitting
discontinuance of the individual’s election of the plan
under section 1851(e)(4).
‘‘(iii) The individual is enrolled with an eligible
organization under a contract under section 1876, a
similar organization operating under demonstration
project authority, with an organization under an
agreement under section 1833(a)(1)(A), or with an
organization under a policy described in subsection
(t), and such enrollment ceases under the same cir-
cumstances that would permit discontinuance of an
individual’s election of coverage under section
1851(c)(4) and, in the case of a policy described in
subsection (t), there is no provision under applicable
State law for the continuation of coverage under such
policy.
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‘‘(iv) The individual is enrolled under a medi-
care supplemental policy under this section and such
enrollment ceases because—
‘‘(I) of the bankruptcy or insolvency of the
issuer or because of other involuntary termi-
nation of coverage or enrollment under such pol-
icy and there is no provision under applicable
State law for the continuation of such coverage;
‘‘(II) the issuer of the policy substantially
violated a material provision of the policy; or
‘‘(III) the issuer (or an agent or other en-
tity acting on the issuer’s behalf) materially mis-
represented the policy’s provisions in marketing
the policy to the individual.
‘‘(v) The individual—
‘‘(I) was enrolled under a medicare supple-
mental policy under this section,
‘‘(II) subsequently terminates such enroll-
ment and enrolls, for the first time, with any
Medicare Choice organization under a Medicare
Choice plan under part C, any eligible organiza-
tion under a contract under section 1876, any
similar organization operating under demonstra-
tion project authority, any organization under
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an agreement under section 1833(a)(1)(A), or
any policy described in subsection (t), and
‘‘(III) the subsequent enrollment under sub-
clause (II) is terminated by the enrollee during
the first 12 months of such enrollment.
‘‘(vi) The individual, upon first becoming eligi-
ble for medicare at age 65, enrolls in a Medicare
Choice plan and within 12 months of such enroll-
ment, disenrolls from such plan.
‘‘(C)(i) Subject to clauses (ii), a medicare supple-
mental policy described in this subparagraph is a policy
the benefits under which are comparable or lessor in rela-
tion to the benefits under the plan, policy, or contract de-
scribed in the applicable clause of subparagraph (B).
‘‘(ii) Only for purposes of an individual described in
subparagraph (B)(vi), a medicare supplemental policy de-
scribed in this subparagraph shall include any medicare
supplemental policy.
‘‘(D) At the time of an event described in subpara-
graph (B) because of which an individual ceases enrollment
or loses coverage or benefits under a contract or agreement,
policy, or plan, the organization that offers the contract or
agreement, the insurer offering the policy, or the adminis-
trator of the plan, respectively, shall notify the individual
of the rights of the individual, and obligations of issuers
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of medicare supplemental policies, under subparagraph
(A).’’.
(b) LIMITATION ON IMPOSITION OF PREEXISTING CON-
DITION EXCLUSION DURING INITIAL OPEN ENROLLMENT
PERIOD.—Section 1882(s)(2) (42 U.S.C. 1395ss(s)(2)) is
amended—
(1) in subparagraph (B), by striking ‘‘subpara-
graph (C)’’ and inserting ‘‘subparagraphs (C) and
(D)’’, and
(2) by adding at the end the following new sub-
paragraph:
‘‘(D) In the case of a policy issued during the 6-month
period described in subparagraph (A) to an individual who
is 65 years of age or older as of the date of issuance and
who as of the date of the application for enrollment has
a continuous period of creditable coverage (as defined in
section 2701(c) of the Public Health Service Act) of—
‘‘(i) at least 6 months, the policy may not ex-
clude benefits based on a pre-existing condition; or
‘‘(ii) less than 6 months, if the policy excludes
benefits based on a preexisting condition, the policy
shall reduce the period of any preexisting condition
exclusion by the aggregate of the periods of creditable
coverage (if any, as so defined) applicable to the indi-
vidual as of the enrollment date.
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The Secretary shall specify the manner of the reduction
under clause (ii), based upon the rules used by the Secretary
in carrying out section 2701(a)(3) of such Act.’’.
(c) EXTENDING 6-MONTH INITIAL ENROLLMENT PE-
RIOD TO NON-ELDERLY MEDICARE BENEFICIARIES.—Sec-
tion 1882(s)(2)(A)(ii) of (42 U.S.C. 1395ss(s)(2)(A)) is
amended by striking ‘‘is submitted’’ and all that follows and
inserting the following: ‘‘is submitted—
‘‘(I) before the end of the 6-month period begin-
ning with the first month as of the first day on which
the individual is 65 years of age or older and is en-
rolled for benefits under part B; and
‘‘(II) at the time the individual first becomes eli-
gible for benefits under part A pursuant to section
226(b) and is enrolled for benefits under part B, be-
fore the end of the 6-month period beginning with the
first month as of the first day on which the individ-
ual is so eligible and so enrolled.’’.
(d) EFFECTIVE DATES.—
(1) GUARANTEED ISSUE.—The amendment made
by subsection (a) shall take effect on July 1, 1998.
(2) LIMIT ON PREEXISTING CONDITION EXCLU-
SIONS.—The amendment made by subsection (b) shall
apply to policies issued on or after July 1, 1998.
(3) NONELDERLY MEDICARE BENEFICIARIES.—
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(A) IN
GENERAL.—The amendment made
by subsection (c) shall apply to policies issued on
and after July 1, 1998.
(B) TRANSITION RULE.—In the case of an
individual who first became eligible for benefits
under part A of title XVIII of the Social Secu-
rity Act pursuant to section 226(b) of such Act
and enrolled for benefits under part B of such
title before July 1, 1998, the 6-month period de-
scribed in section 1882(s)(2)(A) of such Act shall
begin on July 1, 1998. Before July 1, 1998, the
Secretary of Health and Human Services shall
notify any individual described in the previous
sentence of their rights in connection with medi-
care supplemental policies under section 1882 of
such Act, by reason of the amendment made by
subsection (c).
(e) TRANSITION PROVISIONS.—
(1) IN GENERAL.—If the Secretary of Health and
Human Services identifies a State as requiring a
change to its statutes or regulations to conform its
regulatory program to the changes made by this sec-
tion, the State regulatory program shall not be con-
sidered to be out of compliance with the requirements
of section 1882 of the Social Security Act due solely
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to failure to make such change until the date specified
in paragraph (4).
(2) NAIC STANDARDS.—If, within 9 months
after the date of the enactment of this Act, the Na-
tional Association of Insurance Commissioners (in
this subsection referred to as the ‘‘NAIC’’) modifies its
NAIC Model regulation relating to section 1882 of the
Social Security Act (referred to in such section as the
1991 NAIC Model Regulation, as modified pursuant
to section 171(m)(2) of the Social Security Act
Amendments of 1994 (Public Law 103–432) and as
modified pursuant to section 1882(d)(3)(A)(vi)(IV) of
the Social Security Act, as added by section 271(a)
of the Health Insurance Portability and Accountabil-
ity Act of 1996 (Public Law 104–191) to conform to
the amendments made by this section, such revised
regulation incorporating the modifications shall be
considered to be the applicable NAIC model regulation
(including the revised NAIC model regulation and the
1991 NAIC Model Regulation) for the purposes of
such section.
(3) SECRETARY STANDARDS.—If the NAIC does
not make the modifications described in paragraph
(2) within the period specified in such paragraph, the
Secretary of Health and Human Services shall make
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the modifications described in such paragraph and
such revised regulation incorporating the modifica-
tions shall be considered to be the appropriate Regu-
lation for the purposes of such section.
(4) DATE SPECIFIED.—
(A) IN GENERAL.—Subject to subparagraph
(B), the date specified in this paragraph for a
State is the earlier of—
(i) the date the State changes its stat-
utes or regulations to conform its regulatory
program to the changes made by this sec-
tion, or
(ii) 1 year after the date the NAIC or
the Secretary first makes the modifications
under paragraph (2) or (3), respectively.
(B) ADDITIONAL LEGISLATIVE ACTION RE-
QUIRED.—In the case of a State which the Sec-
retary identifies as—
(i) requiring State legislation (other
than legislation appropriating funds) to
conform its regulatory program to the
changes made in this section, but
(ii) having a legislature which is not
scheduled to meet in 1999 in a legislative
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session in which such legislation may be
considered,
the date specified in this paragraph is the first
day of the first calendar quarter beginning after
the close of the first legislative session of the
State legislature that begins on or after July 1,
1999. For purposes of the previous sentence, in
the case of a State that has a 2-year legislative
session, each year of such session shall be deemed
to be a separate regular session of the State legis-
lature.
SEC. 5032. ADDITION OF HIGH DEDUCTIBLE MEDIGAP POL-
ICY.
(a) IN
GENERAL.—Section 1882(p) (42 U.S.C.
1395ss(p)) is amended by adding at the end the following:
‘‘(11)(A) On and after the date specified in sub-
paragraph (C)—
‘‘(i) each State with an approved regulatory
program, and
‘‘(ii) in the case of a State without an ap-
proved regulatory program, the Secretary,
shall, in addition to the 10 policies allowed under
paragraph (2)(C), allow at least 1 other policy de-
scribed in subparagraph (B).
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‘‘(B)(i) A policy is described in this subpara-
graph if it consists of—
‘‘(I) one of the 10 benefit packages described
in paragraph (2)(C), and
‘‘(II) a high deductible feature.
‘‘(ii) For purposes of clause (i), a high deductible
feature is one which requires the beneficiary of the
policy to pay annual out-of-pocket expenses (other
than premiums) of $1,500 before the policy begins
payment of benefits.
‘‘(C)(i) Subject to clause (ii), the date described
in this subparagraph is one year after the date of the
enactment of this paragraph.
‘‘(ii) In the case of a State which the Secretary
identifies as—
‘‘(I) requiring State legislation (other than
legislation appropriating funds) in order to meet
the requirements of this paragraph, but
‘‘(II) having a legislature which is not
scheduled to meet in 1997 in a legislative session
in which such legislation may be considered,
the date specified in this subparagraph is the first
day of the first calendar quarter beginning after the
close of the first legislative session of the State legisla-
ture that begins on or after January 1, 1998. For
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purposes of the previous sentence, in the case of a
State that has a 2-year legislative session, each year
of such session shall be deemed to be a separate regu-
lar session of the State legislature.’’.
(b) 
CONFORMING
AMENDMENT.—Section
1882(p)(2)(C) (42 U.S.C. 1395ss(p)(2)(C)) is amended by
inserting ‘‘or (11)’’ after ‘‘paragraph (4)(B)’’.
CHAPTER 5—DEMONSTRATIONS
Subchapter A—Medicare Choice Competitive
Pricing Demonstration Project
PART I—IN GENERAL
SEC. 5041. MEDICARE CHOICE COMPETITIVE PRICING DEM-
ONSTRATION PROJECT.
(a) ESTABLISHMENT.—The Secretary of Health and
Human Services (in this subchapter referred to as the ‘‘Sec-
retary’’) shall, beginning January 1, 1999, conduct dem-
onstration projects in applicable areas (in this section re-
ferred to as the ‘‘project’’) for the purpose of—
(1) applying a pricing methodology for pay-
ments to Medicare Choice organizations under part C
of title XVIII of the Social Security Act (as amended
by section 5001 of this Act) that uses the competitive
market approach described in section 5042;
(2) applying a benefit structure and beneficiary
premium structure described in section 5043;
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(3) applying the information and quality pro-
grams under part II; and
(4) evaluating the effects of the methodology and
structures described in the preceding paragraphs on
medicare fee-for-service spending under parts A and
B of the Social Security Act in the project area.
(b) APPLICABLE AREA DEFINED.—
(1) IN GENERAL.—In subsection (a), the term
‘‘applicable area’’ means, as determined by the Sec-
retary—
(A) 10 urban areas with respect to which
less than 25 percent of medicare beneficiaries are
enrolled with an eligible organization under sec-
tion 1876 of the Social Security Act (42 U.S.C.
1395mm); and
(B) 3 rural areas not described in para-
graph (1).
(2) TREATMENT AS MEDICARE CHOICE PAYMENT
AREA.—For purposes of this subchapter and part C
of title XVIII of the Social Security Act, any applica-
ble area shall be treated as a Medicare Choice pay-
ment area (hereinafter referred to as the ‘‘applicable
Medicare Choice payment area’’).
(c) TECHNICAL ADVISORY GROUP.—Upon the selection
of an area for inclusion in the project, the Secretary shall
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(D) An evaluation as to whether the method
of payment under section 5042 which was used
in the demonstration projects for payment to
Medicare Choice plans should be extended to the
entire medicare population and if such evalua-
tion determines that such method should not be
extended, legislative recommendations to modify
such method so that it may be applied to the en-
tire medicare population.
(3) SUBMISSION TO CONGRESS.—The President
shall submit the report under paragraph (2) to the
Congress and if the President determines appropriate,
any legislative recommendations for extending the
project to the entire medicare population.
(e) WAIVER AUTHORITY.—The Secretary shall waive
compliance with the requirements of titles XI, XVIII, and
XIX of the Social Security Act (42 U.S.C. 1301 et seq., 1395
et seq., 1396 et seq.) to such extent and for such period as
the Secretary determines is necessary to conduct demonstra-
tion projects.
SEC. 5042. DETERMINATION OF ANNUAL MEDICARE CHOICE
CAPITATION RATES.
(a) IN GENERAL.—In the case of an applicable Medi-
care Choice payment area within which a project is being
conducted under section 5041, the annual Medicare Choice
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capitation rate under part C of title XVIII of the Social
Security Act for Medicare Choice plans within such area
shall be the standardized payment amount determined
under this section rather than the amount determined under
section 1853 of such Act.
(b) DETERMINATION
OF STANDARDIZED PAYMENT
AMOUNT.—
(1) SUBMISSION AND CHARGING OF PREMIUMS.—
(A) IN GENERAL.—Not later than June 1 of
each calendar year, each Medicare Choice orga-
nization offering one or more Medicare Choice
plans in an applicable Medicare Choice payment
area shall file with the Secretary, in a form and
manner and at a time specified by the Secretary,
a bid which contains the amount of the monthly
premium for coverage under each such Medicare
Choice plan.
(B) UNIFORM
PREMIUM.—The premiums
charged by a Medicare Choice plan sponsor
under this part may not vary among individuals
who reside in the same applicable Medicare
Choice payment area.
(C) TERMS AND CONDITIONS OF IMPOSING
PREMIUMS.—Each Medicare Choice organization
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shall permit the payment of premiums on a
monthly basis.
(2) ANNOUNCEMENT OF STANDARDIZED PAYMENT
AMOUNT.—
(A) AUTHORITY TO NEGOTIATE.—After bids
are submitted under paragraph (1), the Sec-
retary may negotiate with Medicare Choice orga-
nizations in order to modify such bids if the Sec-
retary determined that the bids do not provide
enough revenues to ensure the plan’s actuarial
soundness, are too high relative to the applicable
Medicare Choice payment area, foster adverse se-
lection, or otherwise require renegotiation under
this paragraph.
(B) IN GENERAL.—Not later than July 31
of each calendar year (beginning with 1998), the
Secretary shall determine, and announce in a
manner intended to provide notice to interested
parties, a standardized payment amount deter-
mined in accordance with this paragraph for the
following calendar year for each applicable Med-
icare Choice payment area.
(3) CALCULATION OF PAYMENT AMOUNTS.—
(A) IN GENERAL.—The standardized pay-
ment amount for a calendar year after 1998 for
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any applicable Medicare Choice payment area
shall be equal to the maximum premium deter-
mined for such area under subparagraph (B).
(B) MAXIMUM
PREMIUM.—The maximum
premium for any applicable Medicare Choice
payment area shall be equal to the amount deter-
mined under subparagraph (C) for the payment
area, but in no case shall such amount be greater
than the sum of—
(i) the average per capita amount, as de-
termined by the Secretary as appropriate
for the population eligible to enroll in Medi-
care Choice plans in such payment area, for
such calendar year that the Secretary would
have expended for an individual in such
payment area enrolled under the medicare
fee-for-service program under parts A and
B, plus
(ii) the amount equal to the actuarial
value of deductibles, coinsurance, and co-
payments charged an individual for services
provided under the medicare fee-for-service
program (as determined by the Secretary).
(C) DETERMINATION OF AMOUNT.—
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(i) IN GENERAL.—The Secretary shall
determine for each applicable Medicare
Choice payment area for each calendar year
an amount equal to the average of the bids
(weighted based on capacity) submitted to
the Secretary under paragraph (1)(A) for
that payment area.
(ii) DISREGARD CERTAIN PLANS.—In
determining the amount under clause (i),
the Secretary may disregard any plan that
the Secretary determines would unreason-
ably distort the amount determined under
such subparagraph.
(4) ADJUSTMENTS
FOR
PAYMENTS
TO
PLAN
SPONSORS.—
(A) IN GENERAL.—For purposes of deter-
mining the amount of payment under part C of
title XVIII of the Social Security Act to a Medi-
care Choice organization with respect to any
Medicare Choice eligible individual enrolled in a
Medicare Choice plan of the sponsor, the stand-
ardized payment amount for the applicable Med-
icare Choice payment area and the premium
charged by the plan sponsor shall be adjusted
with respect to such individual for such risk fac-
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tors as age, disability status, gender, institu-
tional status, health status, and such other fac-
tors as the Secretary determines to be appro-
priate, so as to ensure actuarial equivalence. The
Secretary may add to, modify, or substitute for
such classes, if such changes will improve the de-
termination of actuarial equivalence.
(B) RECOMMENDATIONS.—
(i) IN GENERAL.—In addition to any
other duties required by law, the Physician
Payment Review Commission and the Pro-
spective Payment Assessment Commission
(or their successors) shall each develop rec-
ommendations on—
(I) the risk factors that the Sec-
retary should use in adjusting the
standardized payment amount and
premium under subparagraph (A), and
(II) the methodology that the Sec-
retary should use in determining the
risk factors to be used in adjusting the
standardized payment amount and
premium under subparagraph (A).
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(ii) TIME.—The recommendations de-
scribed in clause (i) shall be developed not
later than January 1, 1999.
(iii) ANNUAL REPORT.—The Physician
Payment Review Commission and the Pro-
spective Payment Assessment Commission
(or their successors) shall include the rec-
ommendations described in clause (i) in
their respective annual reports to Congress.
(c) PAYMENTS TO PLAN SPONSORS.—
(1) MONTHLY PAYMENTS.—
(A) IN
GENERAL.—Subject to paragraph
(4), for each individual enrolled with a plan
under this subchapter, the Secretary shall make
monthly payments in advance to the Medicare
Choice organization of the Medicare Choice plan
with which the individual is enrolled in an
amount equal to 1⁄12 of the amount determined
under paragraph (2).
(B) 
RETROACTIVE
ADJUSTMENTS.—The
amount of payment under this paragraph may
be retroactively adjusted to take into account any
difference between the actual number of individ-
uals enrolled in the plan under this section and
the number of such individuals estimated to be
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so enrolled in determining the amount of the ad-
vance payment.
(2) AMOUNT OF PAYMENT TO MEDICARE CHOICE
PLANS.—The amount determined under this para-
graph with respect to any individual shall be equal
to the sum of—
(A) the lesser of—
(i) the standardized payment amount
for the applicable Medicare Choice payment
area, as adjusted for such individual under
subsection (a)(4), or
(ii) the premium charged by the plan
for such individual, as adjusted for such in-
dividual under section (a)(4), minus
(B) the amount such individual paid to the
plan pursuant to section 5043 (relating to 10
percent of the premium).
(3) PAYMENTS FROM TRUST FUNDS.—The pay-
ment to a Medicare Choice organization or to a Medi-
care Choice account under this section for a medicare-
eligible individual shall be made from the Federal
Hospital Insurance Trust Fund and the Federal Sup-
plementary Medical Insurance Trust Fund in such
proportion as the Secretary determines reflects the rel-
ative weight that benefits under parts A and B are
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representative of the actuarial value of the total bene-
fits under this part.
(4) LIMITATION ON AMOUNTS AN OUT-OF-PLAN
PHYSICIAN OR OTHER ENTITY MAY COLLECT.—A phy-
sician or other entity (other than a provider of serv-
ices) that does not have a contract establishing pay-
ment amounts for services furnished to an individual
enrolled under this subchapter with a Medicare
Choice organization shall accept as payment in full
for services that are furnished to such an individual
the amounts that the physician or other entity could
collect if the individual were not so enrolled. Any
penalty or other provision of law that applies to such
a payment with respect to an individual entitled to
benefits under this title (but not enrolled with a Medi-
care Choice organization under this part) also applies
with respect to an individual so enrolled.
(d) OFFICE OF COMPETITION.—
(1) ESTABLISHMENT.—There is established with-
in the Department of Health and Human Services an
office to be known as the ‘Office of Competition’.
(2) DIRECTOR.—The Secretary shall appoint the
Director of the Office of Competition.
(3) DUTIES.—
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(A) IN GENERAL.—The Director shall ad-
minister this subchapter and so much of part C
of title XVIII of the Social Security Act as re-
lates to this subchapter.
(B) TRANSFER AUTHORITY.—The Secretary
shall transfer such personnel, administrative
support systems, assets, records, funds, and other
resources in the Health Care Financing Admin-
istration to the Office of Competition as are used
in the administration of section 1876 and as
may be required to implement the provisions of
this part promptly and efficiently.
(4) USE OF NON-FEDERAL ENTITIES.—The Sec-
retary shall, to the maximum extent feasible, enter
into contracts with appropriate non-Federal entities
to carry out activities under this subchapter.
SEC. 5043. BENEFITS AND BENEFICIARY PREMIUMS.
(a) BENEFITS PROVIDED TO INDIVIDUALS.—
(1) BASIC
BENEFIT
PLAN.—Each Medicare
Choice plan in an applicable Medicare Choice pay-
ment area shall provide to members enrolled under
this subchapter, through providers and other persons
that meet the applicable requirements of title XVIII
of the Social Security Act and part A of title XI of
such Act—
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(A) those items and services covered under
parts A and B of title XVIII of such Act which
are available to individuals residing in such
area, subject to nominal copayments as deter-
mined by the Secretary,
(B) prescription drugs, subject to such lim-
its as established by the Secretary, and
(C) additional health services as the Sec-
retary may approve.
(2) SUPPLEMENTAL BENEFITS.—
(A) IN
GENERAL.—Each Medicare Choice
plan may offer any of the optional supplemental
benefit plans described in subparagraph (B) to
an individual enrolled in the basic benefit plan
offered by such organization under this sub-
chapter for an additional premium amount. If
the supplemental benefits are offered only to in-
dividuals enrolled in the sponsor’s plan under
this subchapter, the additional premium amount
shall be the same for all enrolled individuals in
the applicable Medicare Choice payment area.
Such benefits may be marketed and sold by the
Medicare Choice organization outside of the en-
rollment process described in part C of title
XVIII of the Social Security Act.
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(B) OPTIONAL
SUPPLEMENTAL
BENEFIT
PLANS DESCRIBED.—The Secretary shall provide
for 2 optional supplemental benefit plans. Such
plans shall include such standardized items and
services that the Secretary determines must be
provided to enrollees of such plans described in
order to offer the plans to Medicare Choice eligi-
ble individuals.
(C) LIMITATION.—A Medicare Choice orga-
nization may not offer an optional benefit plan
to a Medicare Choice eligible individual unless
such individual is enrolled in a basic benefit
plan offered by such organization.
(D) LIMITATION ON PREMIUM.—If a Medi-
care Choice organization provides to individuals
enrolled in a Medicare Choice plan supplemental
benefits described in subparagraph (A), the sum
of—
(i) the annual premiums for such bene-
fits, plus
(ii) 
the 
actuarial 
value 
of 
any
deductibles, coinsurance, and copayments
charged with respect to such benefits for the
year,
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shall not exceed the amount that would have been
charged for a plan in the applicable Medicare
Choice payment area which is not a Medicare
Choice plan (adjusted in such manner as the
Secretary may prescribe to reflect that only med-
icare beneficiaries are enrolled in such plan).
The Secretary shall negotiate the limitation
under this subparagraph with each plan to
which this paragraph applies.
(3) OTHER RULES.—Rules similar to rules of
paragraphs (3) and (4) of section 1852 of the Social
Security Act (relating to national coverage deter-
minations and secondary payor provisions) shall
apply for purposes of this subchapter.
(b) PREMIUM REQUIREMENTS FOR BENEFICIARIES.—
(1) PREMIUM
DIFFERENTIALS.—If a Medicare
Choice eligible individual enrolls in a Medicare
Choice plan under this subchapter, the individual
shall be required to pay—
(A) 10 percent of the plan’s premium;
(B) if the premium of the plan is higher
than the standardized payment amount (as de-
termined under section 5042), 100 percent of
such difference; and
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(C) an amount equal to cost-sharing under
the medicare fee-for-service program, except that
such amount shall not exceed the actuarial value
of the deductibles and coinsurance under such
program less the actual value of nominal copay-
ments for benefits under such plan for basic ben-
efits described in subsection (a)(1).
(2) PART B PREMIUM.—An individual enrolled
in a Medicare Choice plan under this subchapter shall
not be required to pay the premium amount (deter-
mined under section 1839 of the Social Security Act)
under part B of title XVIII of such Act for so long
as such individual is so enrolled.
PART II—INFORMATION AND QUALITY
STANDARDS
Subpart A—Information
SEC. 5044. INFORMATION REQUIREMENTS.
(a) IN GENERAL.—The Secretary shall provide that in
the case of a demonstration plan conducted under part I,
the information and comparative reports described in this
section shall be used in lieu of that provided under part
C of title XVIII of the Social Security Act.
(b) SECRETARY’S MATERIALS; CONTENTS.—The notice
and informational materials mailed by the Secretary under
this part shall be written and formatted in the most easily
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understandable manner possible, and shall include, at a
minimum, the following:
(1) GENERAL INFORMATION.—General informa-
tion with respect to coverage under this part during
the next calendar year, including—
(A) the part B premium rates that will be
charged for part B coverage, and a statement of
the fact that enrollees in demonstration plans are
not required to pay such premium,
(B) the deductible, copayment, and coinsur-
ance amounts for coverage under the traditional
medicare program,
(C) a description of the coverage under the
traditional medicare program and any changes
in coverage under the program from the prior
year,
(D) a description of the individual’s medi-
care payment area, and the standardized medi-
care payment amount available with respect to
such individual,
(E) information and instructions on how to
enroll in a demonstration plan,
(F) the right of each demonstration plan
sponsor by law to terminate or refuse to renew
its contract and the effect the termination or
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nonrenewal of its contract may have on individ-
uals enrolled with the demonstration plan under
this part,
(G) appeal rights of enrollees, including the
right to address grievances to the Secretary or
the applicable external review entity, and
(H) the benefits offered by plans in basic
benefit plans under section 1895H(a), and how
those benefits differ from the benefits offered
under parts A and B.
(2) COMPARATIVE REPORT.—A copy of the most
recent comparative report (as established by the Sec-
retary under subsection (c)) for the demonstration
plans in the individual’s medicare payment area.
(c) COMPARATIVE REPORT.—
(1) IN GENERAL.—The Secretary shall develop
an understandable standardized comparative report
on the demonstration plans offered by demonstration
plan sponsors, that will assist demonstration eligible
individuals in their decisionmaking regarding medi-
cal care and treatment by allowing such individuals
to compare the demonstration plans that such indi-
viduals are eligible to enroll with. In developing such
report the Secretary shall consult with outside organi-
zations, including groups representing the elderly,
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demonstration plan sponsors, providers of services,
and physicians and other health care professionals, in
order to assist the Secretary in developing the report.
(2) REPORT.—The report described in paragraph
(1) shall include a comparison for each demonstration
plan of—
(A) the plan’s medicare service area;
(B) coverage by the plan of emergency serv-
ices and urgently needed care;
(C) the amount of any deductibles, coinsur-
ance, or any monetary limits on benefits;
(D) 
the 
number 
of 
individuals 
who
disenrolled from the plan within 3 months of en-
rollment during the previous fiscal year (exclud-
ing individuals whose disenrollment was due to
death or moving outside of the plan’s service
area) stated as percentages of the total number
of individuals in the plan;
(E) process, outcome, and enrollee satisfac-
tion measures, as recommended by the Quality
Advisory Institute as established under section
5044B;
(F) information on access and quality of
services obtained from the analysis described in
section 5044B;
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(G) the procedures used by the plan to con-
trol utilization of services and expenditures, in-
cluding any financial incentives;
(H) the number of applications during the
previous fiscal year requesting that the plan
cover or pay for certain medical services that
were denied by the plan (and the number of such
denials that were subsequently reversed by the
plan), stated as a percentage of the total number
of applications during such period requesting
that the plan cover such services;
(I) the number of times during the previous
fiscal year (after an appeal was filed with the
Secretary) that the Secretary upheld or reversed
a denial of a request that the plan cover certain
medical services;
(J) the restrictions (if any) on payment for
services provided outside the plan’s health care
provider network;
(K) the process by which services may be ob-
tained through the plan’s health care provider
network;
(L) coverage for out-of-area services;
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(M) any exclusions in the types of health
care providers participating in the plan’s health
care provider network;
(N) whether the plan is, or has within the
past two years been, out-of-compliance with any
requirements of this part (as determined by the
Secretary);
(O) the plan’s premium price for the basic
benefit plan submitted under part C of title
XVIII of the Social Security Act, an indication
of the difference between such premium price and
the standardized medicare payment amount, and
the portion of the premium an individual must
pay out of pocket;
(P) whether the plan offers any of the op-
tional supplemental benefit plans, and if so, the
plan’s premium price for such benefits; and
(Q) any additional information that the
Secretary determines would be helpful for dem-
onstration eligible individuals to compare the
demonstration plans that such individuals are
eligible to enroll with.
(3) ADDITIONAL
INFORMATION.—The compara-
tive report shall also include—
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(A) a comparison of each demonstration
plan to the fee-for-service program under parts A
and B of title XVIII of the Social Security Act;
(B) an explanation of medicare supple-
mental policies under section 1882 of such Act
and how to obtain specific information regard-
ing such policies; and
(C) a phone number for each demonstration
plan that will enable demonstration eligible indi-
viduals to call to receive a printed listing of all
health care providers participating in the plan’s
health care provider network.
(4) UPDATE.—The Secretary shall, not less than
annually, update each comparative report.
(5) DEFINITIONS.—In this subsection—
(A) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means anyone licensed
under State law to provide health care services
under part A or B.
(B) 
NETWORK.—The 
term 
‘‘network’’
means, with respect to a demonstration plan
sponsor, the health care providers who have en-
tered into a contract or agreement with the plan
sponsor under which such providers are obligated
to provide items, treatment, and services under
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this section to individuals enrolled with the plan
sponsor under this part.
(C) OUT-OF-NETWORK.—The term ‘‘out-of-
network’’ means services provided by health care
providers who have not entered into a contract
agreement with the demonstration plan sponsor
under which such providers are obligated to pro-
vide items, treatment, and services under this
section to individuals enrolled with the plan
sponsor under this part.
(6) COST SHARING.—Each demonstration plan
sponsor shall pay to the Secretary its pro rata share
of the estimated costs incurred by the Secretary in
carrying out the requirements of this section and sec-
tion 4360 of the Omnibus Reconciliation Act of 1990.
There are hereby appropriated to the Secretary the
amount of the payments under this paragraph for
purposes of defraying the cost described in the preced-
ing sentence. Such amounts shall remain available
until expended.
Subpart B—Quality in Demonstration Plans
SEC. 5044A. DEFINITIONS.
In this subpart:
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(1) COMPARATIVE
REPORT.—The term ‘‘com-
parative report’’ means the comparative report devel-
oped under section 5044.
(2) DIRECTOR.—The term ‘‘Director’’ means the
Director of the Office of Competition within the De-
partment of Health and Human Services as estab-
lished under part I.
(3) MEDICARE PROGRAM.—The term ‘‘medicare
program’’ means the program of health care benefits
provided under title XVIII of the Social Security Act
(42 U.S.C. 1395 et seq.).
(4) DEMONSTRATION
PLAN.—The term ‘‘dem-
onstration plan’’ means a plan established under part
I.
(5) DEMONSTRATION PLAN SPONSOR.—The term
‘‘demonstration plan sponsor’’ means a sponsor of a
demonstration plan.
SEC. 5044B. QUALITY ADVISORY INSTITUTE.
(a) ESTABLISHMENT.—There is established an Insti-
tute to be known as the ‘‘Quality Advisory Institute’’ (in
this subpart referred to as the ‘‘Institute’’) to make rec-
ommendations to the Director concerning licensing and cer-
tification criteria and comparative measurement methods
under this subpart.
(b) MEMBERSHIP.—
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(1) COMPOSITION.—The Institute shall be com-
posed of 5 members to be appointed by the Director
from among individuals who have demonstrable ex-
pertise in—
(A) health care quality measurement;
(B) health plan certification criteria set-
ting;
(C) the analysis of information that is use-
ful to consumers in making choices regarding
health coverage options, health plans, health care
providers, and decisions regarding health treat-
ments; and
(D) the analysis of health plan operations.
(2) TERMS AND VACANCIES.—The members of the
Institute shall be appointed for 5-year terms with the
terms of the initial members staggered as determined
appropriate by the Director. Vacancies shall be filled
in a manner provided for by the Director.
(c) DUTIES.—The Institute shall—
(1) not later than 1 year after the date on which
all members of the Institute are appointed under sub-
section (b)(2), provide advice to the Director concern-
ing the initial set of criteria for the certification of
demonstration plans;
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(2) analyze the use of the criteria for the certifi-
cation of demonstration plans implemented by the Di-
rector under this subpart and recommend modifica-
tions in such criteria as needed;
(3) analyze the use of the comparative measure-
ments implemented by the Director in developing
comparative reports and recommend modifications in
such measurements as needed;
(4) perform, or enter into contracts with other
entities for the performance of, an analysis of access
to services and clinical outcomes based on patient en-
counter data;
(5) enter into contracts with other entities for the
development of such criteria and measurements and
to otherwise carry out its duties under this section;
and
(6) carry out any other activities determined ap-
propriate by the Institute to carry out its duties
under this section.
The analysis described in paragraph (4) should focus on
conditions and procedures of significance to beneficiaries
under the medicare program, as determined by the Insti-
tute, and should be designed, and the results summarized,
in a manner that facilitates comparisons across health
plans.
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SEC. 5044C. DUTIES OF DIRECTOR.
(a) IN GENERAL.—The Director shall—
(1) adopt, adapt, or develop criteria in accord-
ance with sections 5044F through 5044I to be used in
the licensing of certifying entities and in the certifi-
cation of demonstration plans, including any mini-
mum criteria needed for the operation of demonstra-
tion plans during the transition period described in
section 5044F(c);
(2) issue licenses to certifying entities that meet
the criteria developed under paragraph (1) for the
purpose of enabling such entities to certify demonstra-
tion plans in accordance with this subpart;
(3) develop comparative health care measures in
addition to those implemented by the Director in de-
veloping comparative reports in order to guide
consumer choice under the medicare program and to
improve the delivery of quality health care under such
program;
(4) develop procedures, consistent with section
5044A, for the dissemination of certification and com-
parative quality information provided to the Director;
(5) contract with an independent entity for the
conduct of audits concerning certification and quality
measurement and require that as part of the certifi-
cation process performed by licensed certification en-
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tities that there include an onsite evaluation, using
performance-based standards, of the providers of items
and services under a demonstration plan;
(6) at least quarterly, meet jointly with the
Agency for Health Care Policy and Research to re-
view innovative health outcomes measures, new meas-
urement processes, and other matters determined ap-
propriate by the Director;
(7) at least annually, meet with the Institute
concerning certification criteria;
(8) not later than January 1, 1999, and each
January 1 thereafter, prepare and submit to dem-
onstration plan sponsors and to Congress, a report
concerning the activities of the Director for the pre-
vious year;
(9) advise the President and Congress concerning
health insurance and health care provided under dem-
onstration plans and make recommendations concern-
ing measures that may be implemented to protect the
health of all enrollees in demonstration plans; and
(10) carry out other activities determined appro-
priate by the Director.
(b) RULE OF CONSTRUCTION.—Nothing in this section
shall be construed to limit the authority of the Director or
the Secretary of Health and Human Services with respect
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to requirements other than those applied under this subpart
with respect to demonstration plans.
SEC. 5044D. COMPLIANCE.
(a) IN GENERAL.—Not later than January 1, 1999,
the Director shall ensure that a demonstration plan may
not be offered unless it has been certified in accordance with
this subpart.
(b) CONTRACTS OR REIMBURSEMENTS.—In carrying
out subsection (a), the Director—
(1) may not enter into a contract with a dem-
onstration plan sponsor for the provision of a dem-
onstration plan unless the demonstration plan is cer-
tified in accordance with this subpart;
(2) may not reimburse a demonstration plan
sponsor for items and services provided under a dem-
onstration plan unless the demonstration plan is cer-
tified in accordance with this subpart; and
(3) shall, after providing notice to the dem-
onstration plan sponsor operating a demonstration
plan and an opportunity for such demonstration plan
to be certified, and in accordance with any applicable
grievance and appeals procedures under section
5044I, terminate any contract with a demonstration
plan sponsor for the operation of a demonstration
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plan if such demonstration plan is not certified in ac-
cordance with this subpart.
SEC. 5044E. PAYMENTS FOR VALUE.
(a) ESTABLISHMENT
OF PROGRAM.—The Director
shall establish a program under which payments are made
to various demonstration plans to reward such plans for
meeting or exceeding quality targets.
(b) PERFORMANCE MEASURES.—In carrying out the
program under subsection (a), the Director shall establish
broad categories of quality targets and performance meas-
ures. Such targets and measures shall be designed to permit
the Director to determine whether a demonstration plan is
being operated in a manner consistent with this subpart.
(c) USE OF FUNDS.—
(1) IN GENERAL.—The Secretary shall withhold
0.50 percent from any payment that a demonstration
plan sponsor receives with respect to an individual
enrolled with such plan under part I.
(2) PAYMENTS.—The Director shall use amounts
collected under paragraph (1) to make annual pay-
ments to those demonstration plans that have been de-
termined by the Director to meet or exceed the quality
targets and performance measures established under
subsection (b). Any amounts collected under such
paragraph for a fiscal year and remaining available
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after payments are made under subsection (d), shall
be used for deficit reduction.
(d) AMOUNT OF PAYMENT.—
(1) FORMULA.—The amount of any payment
made to a demonstration plan under this section shall
be determined in accordance with a formula to be de-
veloped by the Director. The formula shall ensure that
a payment made to a demonstration plan under this
section be in an amount equal to—
(A) with respect to a demonstration plan
that is determined to be in the first quintile, 1
percent of the amount allocated to the plan
under this subpart;
(B) with respect to a demonstration plan
that is determined to be in the second quintile,
0.75 percent of the amount allocated to the plan
under this subpart;
(C) with respect to a demonstration plan
that is determined to be in the third quintile,
0.50 percent of the amount allocated by the plan
under this subpart; and
(D) with respect to a demonstration plan
that is determined to be in the fourth quintile,
0.25 percent of the amount allocated by the plan
under this subpart.
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(2) NO PAYMENT.—A demonstration plan that is
determined by the Director to be in the fifth quintile
shall not be eligible to receive a payment under this
section.
(3) DETERMINATION OF QUINTILES.—Not later
than April 30 of each calendar year, the Director
shall rank each demonstration plan based on the per-
formance of the plan during the preceding year as de-
termined using the quality targets and performance
measures established under subsection (b). Such
rankings shall be divided into quintiles with the first
quintile containing the highest ranking plans and the
fifth quintile containing the lowest ranking plans.
Each such quintile shall contain plans that in the ag-
gregate cover an equal number of beneficiaries as
compared to another quintile.
SEC. 5044F. CERTIFICATION REQUIREMENT.
(a) IN GENERAL.—To be eligible to enter into a con-
tract with the Director to enroll individuals in a dem-
onstration plan, a demonstration plan sponsor shall par-
ticipate in the certification process and have the demonstra-
tion plans offered by such plan sponsor certified in accord-
ance with this subpart.
(b) EFFECT OF MERGERS OR PURCHASE.—
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(1) CERTIFIED PLANS.—Where 2 or more dem-
onstration plan sponsors offering certified demonstra-
tion plans are merged or where 1 such plan sponsor
is purchased by another plan sponsor, the resulting
plan sponsor may continue to operate and enroll in-
dividuals for coverage under the demonstration plan
as if the demonstration plan involved were certified.
The certification of any resulting demonstration plan
shall be reviewed by the applicable certifying entity to
ensure the continued compliance of the contract with
the certification criteria.
(2) NONCERTIFIED PLANS.—The certification of
a demonstration plan shall be terminated upon the
merger of the demonstration plan sponsor involved or
the purchase of the plan sponsor by another entity
that does not offer any certified demonstration plans.
Any demonstration plans offered through the resulting
plan sponsor may reapply for certification after the
completion of the merger or purchase.
(c) TRANSITION FOR NEW PLANS.—
(1) IN GENERAL.—A demonstration plan that
has not provided health insurance coverage to indi-
viduals prior to the effective date of this Act shall be
permitted to contract with the Director and operate
and enroll individuals under a demonstration plan
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without being certified for the 2-year period begin-
ning on the date on which such demonstration plan
sponsor enrolls the first individual in the demonstra-
tion plan. Such demonstration plan must be certified
in order to continue to provide coverage under the
contract after such period.
(2) LIMITATION.—A new demonstration plan de-
scribed in paragraph (1) shall, during the period re-
ferred to in paragraph (1) prior to certification, com-
ply with the minimum criteria developed by the Di-
rector under section 5044F(a)(1).
SEC. 5044G. LICENSING OF CERTIFICATION ENTITIES.
(a) IN GENERAL.—The Director shall develop proce-
dures for the licensing of entities to certify demonstration
plans under this subpart.
(b) REQUIREMENTS.—The procedures developed under
subsection (a) shall ensure that—
(1) to be licensed under this section a certifi-
cation entity shall apply the requirements of this sub-
part to demonstration plans seeking certification;
(2) a certification entity has procedures in place
to suspend or revoke the certification of a demonstra-
tion plan that is failing to comply with the certifi-
cation requirements; and
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(3) the Director will give priority to licensing
entities that are accrediting health plans that con-
tract with the Director on the date of enactment of
this Act.
SEC. 5044H. CERTIFICATION CRITERIA.
(a) ESTABLISHMENT.—The Director shall establish
minimum criteria under this section to be used by licensed
certifying entities in the certification of demonstration
plans under this subpart.
(b) REQUIREMENTS.—Criteria established by the Di-
rector under subsection (a) shall require that, in order to
be certified, a demonstration plan shall comply at a mini-
mum with the following:
(1) QUALITY
IMPROVEMENT
PLAN.—The dem-
onstration plan shall implement a total quality im-
provement plan that is designed to improve the clini-
cal and administrative processes of the demonstration
plan on an ongoing basis and demonstrate that im-
provements in the quality of items and services pro-
vided under the demonstration plan have occurred as
a result of such improvement plan.
(2) PROVIDER
CREDENTIALS.—The demonstra-
tion plan shall compile and annually provide to the
licensed certifying entity documentation concerning
the credentials of the hospitals, physicians, and other
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health care professionals reimbursed under the dem-
onstration plan.
(3) COMPARATIVE
INFORMATION.—The dem-
onstration plan shall compile and provide, as re-
quested by the Secretary of Health and Human Serv-
ices, to the such Secretary the information necessary
to develop a comparative report.
(4) ENCOUNTER DATA.—The demonstration plan
shall maintain patient encounter data in accordance
with standards established by the Institute, and shall
provide these data, as requested by the Institute, to
the Institute in support of conducting the analysis de-
scribed in section 5044B(c)(4).
(5) OTHER REQUIREMENTS.—The demonstration
plan shall comply with other requirements authorized
under this subpart and implemented by the Director.
SEC. 5044I. GRIEVANCE AND APPEALS.
The Director shall develop grievance and appeals pro-
cedures under which a demonstration plan that is denied
certification under this subpart may appeal such denial to
the Director.
Subchapter B—Other Projects
SEC. 
5045. 
MEDICARE 
ENROLLMENT 
DEMONSTRATION
PROJECT.
(a) DEMONSTRATION PROJECT.—
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(1) ESTABLISHMENT.—The Secretary of Health
and Human Services (in this section referred to as
the ‘‘Secretary’’) shall implement a demonstration
project (in this section referred to as the ‘‘project’’) for
the purpose of evaluating the use of a third-party con-
tractor to conduct the Medicare Choice plan enroll-
ment and disenrollment functions, as described in
part C of the Social Security Act (as added by section
5001 of this Act), in an area.
(2) CONSULTATION.—Before implementing the
project under this section, the Secretary shall consult
with affected parties on—
(A) the design of the project;
(B) the selection criteria for the third-party
contractor; and
(C) the establishment of performance stand-
ards, as described in paragraph (3).
(3) PERFORMANCE STANDARDS.—
(A) IN GENERAL.—The Secretary shall es-
tablish performance standards for the accuracy
and timeliness of the Medicare Choice plan en-
rollment and disenrollment functions performed
by the third-party contractor.
(B) NONCOMPLIANCE.—If the Secretary de-
termines that a third-party contractor is out of
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compliance with the performance standards es-
tablished under subparagraph (A), such enroll-
ment and disenrollment functions shall be per-
formed by the Medicare Choice plan until the
Secretary appoints a new third-party contractor.
(C) DISPUTE.—In the event that there is a
dispute between the Secretary and a Medicare
Choice plan regarding whether or not the third-
party contractor is in compliance with the per-
formance 
standards, 
such 
enrollment 
and
disenrollment functions shall be performed by the
Medicare Choice plan.
(b) REPORT TO CONGRESS.—The Secretary shall peri-
odically report to Congress on the progress of the project
conducted pursuant to this section.
(c) WAIVER AUTHORITY.—The Secretary shall waive
compliance with the requirements of part C of the Social
Security Act (as amended by section 5001 of this Act) to
such extent and for such period as the Secretary determines
is necessary to conduct the project.
(d) DURATION.—A demonstration project under this
section shall be conducted for a 3-year period.
(e) 
SEPARATE
FROM
OTHER
DEMONSTRATION
PROJECTS.—A project implemented by the Secretary under
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this section shall not be conducted in conjunction with any
other demonstration project.
SEC. 5046. MEDICARE COORDINATED CARE DEMONSTRA-
TION PROJECT.
(a) DEMONSTRATION PROJECTS.—
(1) IN GENERAL.—The Secretary of Health and
Human Services (in this section referred to as the
‘‘Secretary’’) shall conduct demonstration projects for
the purpose of evaluating methods, such as case man-
agement and other models of coordinated care, that—
(A) improve the quality of items and serv-
ices provided to target individuals; and
(B) reduce expenditures under the medicare
program under title XVIII of the Social Security
Act (42 U.S.C. 1395 et seq.) for items and serv-
ices provided to target individuals.
(2) TARGET INDIVIDUAL DEFINED.—In this sec-
tion, the term ‘‘target individual’’ means an individ-
ual that has a chronic illness, as defined and identi-
fied by the Secretary, and is enrolled under the fee-
for-service program under parts A and B of title
XVIII of the Social Security Act (42 U.S.C. 1395c et
seq.; 1395j et seq.).
(b) PROGRAM DESIGN.—
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(1) INITIAL DESIGN.—The Secretary shall evalu-
ate best practices in the private sector of methods of
coordinated care for a period of 1 year and design the
demonstration project based on such evaluation.
(2) NUMBER AND PROJECT AREAS.—Not later
than 2 years after the date of enactment of this Act,
the Secretary shall implement at least 9 demonstra-
tion projects, including—
(A) 6 projects in urban areas; and
(B) 3 projects in rural areas.
(3) EXPANSION OF PROJECTS; IMPLEMENTATION
OF DEMONSTRATION PROJECT RESULTS.—
(A) EXPANSION OF PROJECTS.—If the ini-
tial report under subsection (c) contains an eval-
uation that demonstration projects—
(i) reduce expenditures under the medi-
care program; or
(ii) do not increase expenditures under
the medicare program and increase the
quality of health care services provided to
target individuals and satisfaction of bene-
ficiaries and health care providers;
the Secretary shall continue the existing dem-
onstration projects and may expand the number
of demonstration projects.
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(B) IMPLEMENTATION OF DEMONSTRATION
PROJECT RESULTS.—If a report under subsection
(c) contains an evaluation as described in sub-
paragraph (A), the Secretary may issue regula-
tions to implement, on a permanent basis, the
components of the demonstration project that are
beneficial to the medicare program.
(c) REPORT TO CONGRESS.—
(1) IN GENERAL.—Not later than 2 years after
the Secretary implements the initial demonstration
projects under this section, and biannually thereafter,
the Secretary shall submit to Congress a report re-
garding the demonstration projects conducted under
this section.
(2) CONTENTS OF REPORT.—The report in para-
graph (1) shall include the following:
(A) A description of the demonstration
projects conducted under this section.
(B) An evaluation of—
(i) the cost-effectiveness of the dem-
onstration projects;
(ii) the quality of the health care serv-
ices provided to target individuals under
the demonstration projects; and
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(iii) beneficiary and health care pro-
vider satisfaction under the demonstration
project.
(C) Any other information regarding the
demonstration projects conducted under this sec-
tion that the Secretary determines to be appro-
priate.
(d) WAIVER AUTHORITY.—The Secretary shall waive
compliance with the requirements of titles XI, XVIII, and
XIX of the Social Security Act (42 U.S.C. 1301 et seq., 1395
et seq., 1396 et seq.) to such extent and for such period as
the Secretary determines is necessary to conduct demonstra-
tion projects.
(e) FUNDING.—
(1) DEMONSTRATION PROJECTS.—
(A) IN GENERAL.—The Secretary shall pro-
vide for the transfer from the Federal Hospital
Insurance Trust Fund and the Federal Supple-
mentary Insurance Trust Fund under title
XVIII of the Social Security Act (42 U.S.C.
1395i, 1395t), in such proportions as the Sec-
retary determines to be appropriate, of such
funds as are necessary for the costs of carrying
out the demonstration projects under this section.