402
Subtitle H, Part 1
(2) TREATMENT OF ITEMS AND SERVICES PAID
UNDER PART B.—
(A) PAYMENTS UNDER PART B.—Section
1833(a)(2) (42 U.S.C. 1395l(a)(2)) is amend-
ed—
(i) by amending subparagraph (A) to
read as follows:
‘‘(A) with respect to home health serv-
ices—
‘‘(i) that are a type of home health
service described in section 1894(a)(2),
and which are furnished to an individual
who (at the time the item or service is fur-
nished) is under a plan of care of a home
health agency, the amount determined
under section 1894; or
‘‘(ii) that are not described in clause
(i) (other than a covered osteoporosis
drug) (as defined in section 1861(kk)), the
lesser of—
‘‘(I) the reasonable cost of such
services, as determined under section
1861(v), or
‘‘(II) the customary charges with
respect to such services;’’.
403
Subtitle H, Part 1
(ii) by striking ‘‘and’’ at the end of
subparagraph (E);
(iii) by adding ‘‘and’’ at the end of
subparagraph (F); and
(iv) by adding at the end the following
new subparagraph:
‘‘(G) with respect to items and services de-
scribed in section 1861(s)(10)(A), the lesser
of—
‘‘(i) the reasonable cost of such serv-
ices, as determined under section 1861(v),
or
‘‘(ii) the customary charges with re-
spect to such services,
or, if such services are furnished by a public
provider of services, or by another provider
which demonstrates to the satisfaction of the
Secretary that a significant portion of its pa-
tients are low-income (and requests that pay-
ment be made under this provision), free of
charge or at nominal charges to the public, the
amount determined in accordance with section
1814(b)(2);’’.
(B) REQUIRING PAYMENT FOR ALL ITEMS
AND SERVICES TO BE MADE TO AGENCY.—
404
Subtitle H, Part 1
(i) IN GENERAL.—The first sentence
of 
section 
1842(b)(6) 
(42 
U.S.C.
1395u(b)(6)), as amended by section
15525(a)(1), is amended—
(I) by striking ‘‘and (E)’’ and in-
serting ‘‘(E)’’; and
(II) by striking the period at the
end and inserting the following: ‘‘,
and (F) in the case of types of home
health services described in section
1894(a)(2) furnished to an individual
who (at the time the item or service is
furnished) is under a plan of care of
a home health agency, payment shall
be made to the agency (without re-
gard to whether or not the item or
service was furnished by the agency,
by others under arrangement with
them made by the agency, or other-
wise).’’.
(ii) CONFORMING AMENDMENT.—Sec-
tion 1832(a)(1) (42 U.S.C. 1395k(a)(1)),
as amended by section 15525(a)(3), is
amended 
by 
striking 
‘‘section
1842(b)(6)(E);’’ and inserting ‘‘subpara-
405
Subtitle H, Part 1
graphs 
(E) 
and 
(F) 
of 
section
1842(b)(6);’’.
(C) EXCLUSIONS FROM COVERAGE.—Sec-
tion 1862(a) (42 U.S.C. 1395y(a)), as amended
by section 15525(a)(2) and section 15609B(a),
is amended—
(i) by striking ‘‘or’’ at the end of
paragraph (16);
(ii) by striking the period at the end
of paragraph (17) and inserting ‘‘; or’’;
and
(iii) by adding at the end the follow-
ing new paragraph:
‘‘(18) where such expenses are for home health
services furnished to an individual who is under a
plan of care of the home health agency if the claim
for payment for such services is not submitted by
the agency.’’.
(3) SUNSET
OF
REASONABLE
COST
LIMITA-
TIONS.—Section 
1861(v)(1)(L) 
(42 
U.S.C.
1395x(v)(1)(L)) is amended by adding at the end
the following new clause:
‘‘(iv) This subparagraph shall apply only to services
furnished by home health agencies during cost reporting
periods ending on or before September 30, 1996.’’.
406
Subtitle H, Part 1
(d) LIMITATION ON PART A COVERAGE.—
(1) IN
GENERAL.—Section 1812(a)(3) (42
U.S.C. 1395d(a)(3)) is amended by striking the
semicolon and inserting ‘‘for up to 165 days during
any spell of illness;’’.
(2) 
CONFORMING
AMENDMENT.—Section
1812(b) (42 U.S.C. 1395d(b)) is amended—
(A) by striking ‘‘or’’ at the end of para-
graph (2),
(B) by striking the period at the end of
paragraph (3) and inserting ‘‘; or’’, and
(C) by adding at the end the following new
paragraph:
‘‘(4) home health services furnished to the indi-
vidual during such spell after such services have
been furnished to the individual for 165 days during
such spell.’’.
(3) EXCLUSION OF ADDITIONAL PART B COSTS
FROM DETERMINATION OF PART B MONTHLY PRE-
MIUM.—Section 1839(a) (42 U.S.C. 1395r(a)) is
amended—
(A) in the second sentence of paragraph
(1), by striking ‘‘enrollees.’’ and inserting ‘‘en-
rollees (except as provided in paragraph (5)).’’;
and
407
Subtitle H, Part 1
(B) by adding at the end the following new
paragraph:
‘‘(5) In estimating the benefits and administrative
costs which will be payable from the Federal Supple-
mentary Medical Insurance Trust Fund for a year (begin-
ning with 1996), the Secretary shall exclude an estimate
of any benefits and costs attributable to home health serv-
ices for which payment would have been made under part
A during the year but for paragraph (4) of section
1812(b).’’.
(4) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to spells of illness be-
ginning on or after October 1, 1995.
(e) EFFECTIVE DATE.—Except as provided in sub-
section (d)(4), the amendments made by this section shall
apply to cost reporting periods beginning on or after Octo-
ber 1, 1996.
SEC. 15702. MAINTAINING SAVINGS RESULTING FROM TEM-
PORARY FREEZE ON PAYMENT INCREASES
FOR HOME HEALTH SERVICES.
(a) BASING UPDATES TO PER VISIT COST LIMITS ON
LIMITS
FOR
FISCAL
YEAR
1993.—Section
1861(v)(1)(L)(iii) (42 U.S.C. 1395x(v)(1)(L)(iii)) is
amended by adding at the end the following sentence: ‘‘In
establishing limits under this subparagraph, the Secretary
408
Subtitle H, Part 1
may not take into account any changes in the costs of
the provision of services furnished by home health agencies
with respect to cost reporting periods which began on or
after July 1, 1994, and before July 1, 1996.’’.
(b) NO EXCEPTIONS PERMITTED BASED ON AMEND-
MENT.—The Secretary of Health and Human Services
shall not consider the amendment made by subsection (a)
in making any exemptions and exceptions pursuant to sec-
tion 1861(v)(1)(L)(ii) of the Social Security Act.
SEC. 15703. EXTENSION OF WAIVER OF PRESUMPTION OF
LACK OF KNOWLEDGE OF EXCLUSION FROM
COVERAGE FOR HOME HEALTH AGENCIES.
Section 9305(g)(3) of OBRA–1986, as amended by
section 426(d) of the Medicare Catastrophic Coverage Act
of 1988 and section 4207(b)(3) of OBRA–1990 (as re-
numbered by section 160(d)(4) of the Social Security Act
Amendments of 1994), is amended by striking ‘‘December
31, 1995’’ and inserting ‘‘September 30, 1996’’.
SEC. 15704. REPORT ON RECOMMENDATIONS FOR PAY-
MENTS 
AND 
CERTIFICATION 
FOR 
HOME
HEALTH SERVICES OF CHRISTIAN SCIENCE
PROVIDERS.
Not later than July 1, 1996, the Secretary of Health
and Human Services shall submit recommendations to
Congress regarding an appropriate methodology for mak-
409
Subtitle H, Part 2
ing payments under the medicare program for home
health services furnished by Christian Science providers
who meet applicable requirements of the First Church of
Christ, Scientist, Boston, Massachusetts, and appropriate
criteria for the certification of such providers for purposes
of the medicare program.
SEC. 15705. EXTENSION OF PERIOD OF HOME HEALTH
AGENCY CERTIFICATION.
Section 1891(c)(2)(A) (42 U.S.C. 1395bbb(c)(2)(A))
is amended—
(1) by striking ‘‘15 months’’ and inserting ‘‘36
months’’; and
(2) by striking the second sentence and insert-
ing the following: ‘‘The Secretary shall establish a
frequency for surveys of home health agencies within
this 36-month interval commensurate with the need
to assure the delivery of quality home health serv-
ices.’’.
PART 2—MEDICARE SECONDARY PAYER
IMPROVEMENTS
SEC. 15711. EXTENSION AND EXPANSION OF EXISTING RE-
QUIREMENTS.
(a) DATA MATCH.—
(1) 
Section 
1862(b)(5)(C) 
(42 
U.S.C.
1395y(b)(5)(C)) is amended by striking clause (iii).
410
Subtitle H, Part 2
(2) Section 6103(l)(12) of the Internal Revenue
Code of 1986 is amended by striking subparagraph
(F).
(b) APPLICATION
TO DISABLED INDIVIDUALS
IN
LARGE GROUP HEALTH PLANS.—
(1) IN GENERAL.—Section 1862(b)(1)(B) (42
U.S.C. 1395y(b)(1)(B)) is amended—
(A) in clause (i), by striking ‘‘clause (iv)’’
and inserting ‘‘clause (iii)’’,
(B) by striking clause (iii), and
(C) by redesignating clause (iv) as clause
(iii).
(2) CONFORMING
AMENDMENTS.—Paragraphs
(1) through (3) of section 1837(i) (42 U.S.C.
1395p(i)) and the second sentence of section
1839(b) (42 U.S.C. 1395r(b)) are each amended by
striking ‘‘1862(b)(1)(B)(iv)’’ each place it appears
and inserting ‘‘1862(b)(1)(B)(iii)’’.
(c) EXPANSION OF PERIOD OF APPLICATION TO IN-
DIVIDUALS WITH END STAGE RENAL DISEASE.—Section
1862(b)(1)(C) (42 U.S.C. 1395y(b)(1)(C)) is amended—
(1) in the first sentence, by striking ‘‘12-
month’’ each place it appears and inserting ‘‘24-
month’’, and
(2) by striking the second sentence.
411
Subtitle H, Part 2
SEC. 15712. IMPROVEMENTS IN RECOVERY OF PAYMENTS.
(a) PERMITTING RECOVERY AGAINST THIRD PARTY
ADMINISTRATORS
OF
PRIMARY
PLANS.—Section
1862(b)(2)(B)(ii) (42 U.S.C. 1395y(b)(2)(B)(ii)) is
amended—
(1) by striking ‘‘under this subsection to pay’’
and inserting ‘‘(directly, as a third-party adminis-
trator, or otherwise) to make payment’’, and
(2) by adding at the end the following: ‘‘The
United States may not recover from a third-party
administrator under this clause in cases where the
third-party administrator would not be able to re-
cover the amount at issue from the employer or
group health plan for whom it provides administra-
tive services due to the insolvency or bankruptcy of
the employer or plan.’’.
(b) EXTENSION OF CLAIMS FILING PERIOD.—Sec-
tion 1862(b)(2)(B) (42 U.S.C. 1395y(b)(2)(B)) is amend-
ed by adding at the end the following new clause:
‘‘(v) CLAIMS-FILING
PERIOD.—Not-
withstanding any other time limits that
may exist for filing a claim under an em-
ployer group health plan, the United
States may seek to recover conditional pay-
ments in accordance with this subpara-
graph where the request for payment is
412
Subtitle H, Part 3
submitted to the entity required or respon-
sible under this subsection to pay with re-
spect to the item or service (or any portion
thereof) under a primary plan within the
3-year period beginning on the date on
which the item or service was furnished.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after the date of the enactment of this Act.
SEC. 15713. PROHIBITING RETROACTIVE APPLICATION OF
POLICY REGARDING ESRD BENEFICIARIES
ENROLLED IN PRIMARY PLANS.
For purposes of carrying out section 1862(b)(1)(C)
of the Social Security Act, the Secretary of Health and
Human Services shall apply the policy directive issued by
the Administrator of the Health Care Financing Adminis-
tration on April 24, 1995, only with respect to items and
services furnished on or after such date.
PART 3—FAILSAFE
SEC. 15721. FAILSAFE BUDGET MECHANISM.
(a) IN GENERAL.—Title XVIII, as amended by sec-
tions 15106(a) and 15701(a), is amended by adding at
the end the following new section:
‘‘FAILSAFE BUDGET MECHANISM
‘‘SEC. 1895. (a) REQUIREMENT OF PAYMENT AD-
JUSTMENTS
TO
ACHIEVE
MEDICARE
BUDGET
TAR-
413
Subtitle H, Part 3
GETS.—If the Secretary determines under subsection
(e)(3)(C) before a fiscal year (beginning with fiscal year
1998) that—
‘‘(1) the fee-for-service expenditures (as defined
in subsection (f)) for a sector of medicare services
(as defined in subsection (b)) for the fiscal year, will
exceed
‘‘(2) the allotment specified under subsection
(c)(2) for such fiscal year (taking into account any
adjustment in the allotment under subsection (h) for
that fiscal year),
then, notwithstanding any other provision of this title,
there shall be an adjustment (consistent with subsection
(d)) in applicable payment rates or payments for items
and services included in the sector in the fiscal year so
that such expenditures for the sector for the year will be
reduced by 1331⁄3 percent of the amount of such excess.
‘‘(b) 
SECTORS
OF
MEDICARE
SERVICES
DE-
SCRIBED.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, items and services included under each of the
following subparagraphs shall be considered to be a
separate ‘sector’ of medicare services:
‘‘(A) Inpatient hospital services.
‘‘(B) Home health services.
414
Subtitle H, Part 3
‘‘(C) Extended care services (for inpatients
of skilled nursing facilities).
‘‘(D) Hospice care.
‘‘(E) Physicians’ services (including serv-
ices 
and 
supplies 
described 
in 
section
1861(s)(2)(A)) and services of other health care
professionals 
(including 
certified 
registered
nurse anesthetists, nurse practitioners, physi-
cian assistants, and clinical psychologists) for
which separate payment is made under this
title.
‘‘(F) Outpatient hospital services and am-
bulatory facility services.
‘‘(G) Durable medical equipment and sup-
plies, including prosthetic devices and orthotics.
‘‘(H) Diagnostic tests (including clinical
laboratory services and x-ray services).
‘‘(I) Other items and services.
‘‘(2) CLASSIFICATION
OF
ITEMS
AND
SERV-
ICES.—The Secretary shall classify each type of
items and services covered and paid for separately
under this title into one of the sectors specified in
paragraph (1). After publication of such classifica-
tion under subsection (e)(1), the Secretary is not au-
415
Subtitle H, Part 3
thorized to make substantive changes in such classi-
fication.
‘‘(c) ALLOTMENT.—
‘‘(1) ALLOTMENTS
FOR
EACH
SECTOR.—For
purposes of this section, subject to subsection (h)(1),
the allotment for a sector of medicare services for
a fiscal year is equal to the product of—
‘‘(A) the total allotment for the fiscal year
established under paragraph (2), and
‘‘(B) the allotment proportion (specified
under paragraph (3)) for the sector and fiscal
year involved.
‘‘(2) TOTAL ALLOTMENT.—
‘‘(A) IN GENERAL.—For purposes of this
section, the total allotment for a fiscal year is
equal to—
‘‘(i) the medicare benefit budget for
the fiscal year (as specified under subpara-
graph (B)), reduced by
‘‘(ii) the amount of payments the Sec-
retary estimates will be made in the fiscal
year under the MedicarePlus program
under part C.
In making the estimate under clause (ii), the
Secretary shall take into account estimated en-
416
Subtitle H, Part 3
rollment and demographic profile of individuals
electing MedicarePlus products.
‘‘(B) MEDICARE BENEFIT BUDGET.—For
purposes of this subsection, subject to subpara-
graph (C), the ‘medicare benefit budget’—
‘‘(i) for fiscal year 1997 is $208.0 bil-
lion;
‘‘(ii) for fiscal year 1998 is $217.1
billion;
‘‘(iii) for fiscal year 1999 is $228.4
billion;
‘‘(iv) for fiscal year 2000 is $246.4
billion;
‘‘(v) for fiscal year 2001 is $265.5 bil-
lion;
‘‘(vi) for fiscal year 2002 is $288.0
billion; and
‘‘(vii) for a subsequent fiscal year is
equal to the medicare benefit budget under
this subparagraph for the preceding fiscal
year increased by the product of (I) 1.05,
and (II) 1 plus the annual percentage in-
crease in the average number of medicare
beneficiaries from the previous fiscal year
to the fiscal year involved.
417
Subtitle H, Part 3
‘‘(3) MEDICARE ALLOTMENT PROPORTION DE-
FINED.—
‘‘(A) IN GENERAL.—For purposes of this
section and with respect to a sector of medicare
services for a fiscal year, the term ‘medicare al-
lotment proportion’ means the ratio of—
‘‘(i) the baseline-projected medicare
expenditures (as determined under sub-
paragraph (B)) for the sector for the fiscal
year, to
‘‘(ii) the sum of such baseline expendi-
tures for all such sectors for the fiscal
year.
‘‘(B) 
BASELINE-PROJECTED
MEDICARE
EXPENDITURES.—In this paragraph, the ‘base-
line, projected medicare expenditures’ for a sec-
tor of medicare services—
‘‘(i) for fiscal year 1996 is equal to
fee-for-service expenditures for such sector
during fiscal year 1995, increased by the
baseline annual growth rate for such sector
of medicare services for fiscal year 1996
(as specified in table in subparagraph (C));
and
418
Subtitle H, Part 3
‘‘(ii) for a subsequent fiscal year is
equal to the baseline-projected medicare
expenditures under this subparagraph for
the sector for the previous fiscal year in-
creased by the baseline annual growth rate
for such sector for the fiscal year involved
(as specified in such table).
‘‘(C) 
BASELINE
ANNUAL
GROWTH
RATES.—The following table specifies the base-
line annual growth rates for each of the sectors
for different fiscal years:
‘‘For the following sector—
Baseline annual growth rates for fiscal year—
1996
1997
1998
1999
2000
2001
2002
and
there-
after
(A) Inpatient hospital services .........
5.7%
5.6%
6.0%
6.1%
5.7%
5.5%
5.2%
(B) Home health services .................
17.2%
15.1%
11.7%
9.1%
8.4%
8.1%
7.9%
(C) Extended care services ..............
19.7%
12.3%
9.3%
8.7%
8.6%
8.4%
8.0%
(D) Hospice care ..............................
32.0%
24.0%
18.0%
15.0%
12.0%
10.0%
9.0%
(E) Physicians’ services ...................
12.4%
9.7%
8.7%
9.0%
9.3%
9.6%
10.1%
(F) Outpatient hospital services ......
14.7%
13.9%
14.5%
15.0%
14.1%
13.9%
14.0%
(G) Durable medical equipment and
supplies .............................................
16.1%
15.5%
13.7%
12.4%
13.2%
13.9%
14.5%
(H) Diagnostic tests .........................
13.1%
11.3%
11.0%
11.4%
11.4%
11.5%
11.9%
(I) Other items and services ............
11.2%
10.2%
10.9%
12.0%
11.6%
11.6%
11.8%
‘‘(d) MANNER OF PAYMENT ADJUSTMENT.—
‘‘(1) IN GENERAL.—Subject to the succeeding
provisions of this subsection, the Secretary shall
apply a payment reduction for a sector for a fiscal
year in such a manner as to—
‘‘(A) make a change in payment rates (to
the maximum extent practicable) at the time
419
Subtitle H, Part 3
payment rates are otherwise changed or subject
to change for that fiscal year; and
‘‘(B) provide for the full appropriate ad-
justment so that the fee-for-service expenditures
for the sector for the fiscal year will approxi-
mate (and not exceed) the allotment for the sec-
tor for the fiscal year.
‘‘(2) TAKING
INTO
ACCOUNT
VOLUME
AND
CASH
FLOW.—In providing for an adjustment in
payments under this subsection for a sector for a
fiscal year, the Secretary shall take into account (in
a manner consistent with actuarial projections)—
‘‘(A) the impact of such an adjustment on
the volume or type of services provided in such
sector (and other sectors), and
‘‘(B) the fact that an adjustment may
apply to items and services furnished in a fiscal
year (payment for which may occur in a subse-
quent fiscal year),
in a manner that is consistent with assuring that
total fee-for-services expenditures for each sector for
the fiscal year will not exceed the allotment under
subsection (c)(1) for such sector for such year.
‘‘(3) PROPORTIONALITY OF REDUCTIONS WITH-
IN A SECTOR.—In making adjustments under this
420
Subtitle H, Part 3
subsection in payment for items and services in-
cluded within a sector of medicare services for a fis-
cal year, the Secretary shall provide for such an ad-
justment that results (to the maximum extent fea-
sible) in the same percentage reductions in aggre-
gate Federal payments under parts A and B for the
different classes of items and services included with-
in the sector for the fiscal year.
‘‘(4) APPLICATION TO PAYMENTS MADE BASED
ON PROSPECTIVE PAYMENT RATES DETERMINED ON
A FISCAL YEAR BASIS.—
‘‘(A) IN GENERAL.—In applying subsection
(a) with respect to items and services for which
payment is made under part A or B on the
basis of rates that are established on a prospec-
tive basis for (and in advance of) a fiscal year,
the Secretary shall provide for the payment ad-
justment under such subsection through an ap-
propriate reduction in such rates established for
items and services furnished (or, in the case of
payment for operating costs of inpatient hos-
pital services of subsection (d) hospitals and
subsection (d) Puerto Rico hospitals (as defined
in paragraphs (1)(B) and (9)(A) of section
421
Subtitle H, Part 3
1886(d)), discharges occurring) during such
year.
‘‘(B) DESCRIPTION
OF
APPLICATION
TO
SPECIFIC SERVICES.—The payment adjustment
described in subparagraph (A) applies for a fis-
cal year to at least the following:
‘‘(i) UPDATE FACTOR FOR PAYMENT
FOR
OPERATING
COSTS
OF
INPATIENT
HOSPITAL SERVICES OF PPS HOSPITALS.—
To the computation of the applicable per-
centage 
increase 
specified 
in 
section
1886(d)(3)(B)(i) for discharges occurring
in the fiscal year.
‘‘(ii) HOME
HEALTH
SERVICES.—To
the extent payment amounts for home
health services are based on per visit pay-
ment rates under section 1894, to the com-
putation of the increase in the national per
visit payment rates established for the year
under section 1894(b)(2)(B).
‘‘(iii) HOSPICE CARE.—To the update
of payment rates for hospice care under
section 1814(i) for services furnished dur-
ing the fiscal year.
422
Subtitle H, Part 3
‘‘(iv) UPDATE FACTOR FOR PAYMENT
OF OPERATING COSTS OF INPATIENT HOS-
PITAL
SERVICES
OF
PPS-EXEMPT
HOS-
PITALS.—To the computation of the target
amount under section 1886(b)(3) for dis-
charges occurring during the fiscal year.
‘‘(v) COVERED
NON-ROUTINE
SERV-
ICES OF SKILLED NURSING FACILITIES.—
To the computation of the facility per stay
limits for the year under section 1888A(d)
for covered non-routine services of a skilled
nursing facility (as described in such sec-
tion).
‘‘(5) APPLICATION TO PAYMENTS MADE BASED
ON PROSPECTIVE PAYMENT RATES DETERMINED ON
A CALENDAR YEAR BASIS.—
‘‘(A) IN GENERAL.—In applying subsection
(a) for a fiscal year with respect to items and
services for which payment is made under part
A or B on the basis of rates that are estab-
lished on a prospective basis for (and in ad-
vance of) a calendar year, the Secretary shall
provide for the payment adjustment under such
subsection through an appropriate reduction in
such rates established for items and services
423
Subtitle H, Part 3
furnished at any time during such calendar
year as follows:
‘‘(i) For fiscal year 1997, the reduc-
tion shall be made for payment rates dur-
ing calendar year 1997 in a manner so as
to achieve the necessary payment reduc-
tions for such fiscal year for items and
services furnished during the first 3 quar-
ters of calendar year 1997.
‘‘(ii) For a subsequent fiscal year, the
reduction shall be made for payment rates
during the calendar year in which the fis-
cal year ends in a manner so as to achieve
the necessary payment reductions for such
fiscal year for items and services furnished
during the first 3 quarters of the calendar
year, but also taking into account the pay-
ment reductions made in the first quarter
of the fiscal year resulting from payment
reductions made under this paragraph for
the previous calendar year.
‘‘(iii) Payment rate reductions ef-
fected under this subparagraph for a cal-
endar year and applicable to the last 3
quarters of the fiscal year in which the cal-
424
Subtitle H, Part 3
endar year ends shall continue to apply
during the first quarter of the succeeding
fiscal year.
‘‘(B) APPLICATION IN SPECIFIC CASES.—
The payment adjustment described in subpara-
graph (A) applies for a fiscal year to at least
the following:
‘‘(i) UPDATE IN CONVERSION FACTOR
FOR PHYSICIANS’ SERVICES.—To the com-
putation of the conversion factor under
subsection (d) of section 1848 used in the
fee schedule established under subsection
(b) of such section, for items and services
furnished during the calendar year in
which the fiscal year ends.
‘‘(ii) PAYMENT
RATES
FOR
OTHER
HEALTH
CARE
PROFESSIONALS.—To the
computation of payments for professional
services of certified registered nurse anes-
thetists under section 1833(l), nurse mid-
wives, physician assistants, nurse practi-
tioners and clinical nurse specialists under
section 1833(r), clinical psychologists, clin-
ical social workers, physical or occupational
therapists, and any other health profes-
425
Subtitle H, Part 3
sionals for which payment rates are based
(in whole or in part) on payments for phy-
sicians’ services, for services furnished dur-
ing the calendar year in which the fiscal
year ends.
‘‘(iii) UPDATE
IN
LAB
FEE
SCHED-
ULE.—To the computation of the fee
schedule amount under section 1833(h)(2)
for clinical diagnostic laboratory services
furnished during the calendar year in
which the fiscal year ends.
‘‘(iv) 
UPDATE
IN
REASONABLE
CHARGES
FOR
VACCINES.—To the com-
putation of the reasonable charge for vac-
cines described in section 1861(s)(10) for
vaccines furnished during the calendar
year in which the fiscal year ends.
‘‘(v) DURABLE MEDICAL EQUIPMENT-
RELATED ITEMS.—To the computation of
the 
payment 
basis 
under 
section
1834(a)(1)(B) for covered items described
in section 1834(a)(13), for items furnished
during the calendar year in which the fis-
cal year ends.
426
Subtitle H, Part 3
‘‘(vi) 
RADIOLOGIST
SERVICES.—To
the computation of conversion factors for
radiologist services under section 1834(b),
for services furnished during the calendar
year in which the fiscal year ends.
‘‘(vii) SCREENING
MAMMOGRAPHY.—
To the computation of payment rates for
screening mammography under section
1834(c)(1)(C)(ii), for screening mammog-
raphy performed during the calendar year
in which the fiscal year ends.
‘‘(viii) 
PROSTHETICS
AND
ORTHOTICS.—To the computation of the
amount to be recognized under section
1834(h) for payment for prosthetic devices
and orthotics and prosthetics, for items
furnished during the calendar year in
which the fiscal year ends.
‘‘(ix) SURGICAL DRESSINGS.—To the
computation of the payment amount re-
ferred to in section 1834(i)(1)(B) for sur-
gical dressings, for items furnished during
the calendar year in which the fiscal year
ends.
427
Subtitle H, Part 3
‘‘(x) PARENTERAL AND ENTERAL NU-
TRITION.—To the computation of reason-
able charge screens for payment for paren-
teral and enteral nutrition under section
1834(h), for nutrients furnished during the
calendar year in which the fiscal year ends.
‘‘(xi) AMBULANCE SERVICES.—To the
computation 
of 
limits 
on 
reasonable
charges for ambulance services, for services
furnished during the calendar year in
which the fiscal year ends.
‘‘(6) APPLICATION TO PAYMENTS MADE BASED
ON COSTS DURING A COST REPORTING PERIOD.—
‘‘(A) IN GENERAL.—In applying subsection
(a) for a fiscal year with respect to items and
services for which payment is made under part
A or B on the basis of costs incurred for items
and services in a cost reporting period, the Sec-
retary shall provide for the payment adjustment
under such subsection for a fiscal year through
an appropriate proportional reduction in the
payment for costs for such items and services
incurred at any time during each cost reporting
period any part of which occurs during the fis-
cal year involved, but only (for each such cost
428
Subtitle H, Part 3
reporting period) in the same proportion as the
fraction of the cost reporting period that occurs
during the fiscal year involved.
‘‘(B) APPLICATION IN SPECIFIC CASES.—
The payment adjustment described in subpara-
graph (A) applies for a fiscal year to at least
the following:
‘‘(i) CAPITAL-RELATED
COSTS
OF
HOSPITAL SERVICES.—To the computation
of payment amounts for inpatient and out-
patient hospital services under sections
1886(g) and 1861(v) for portions of cost
reporting periods occurring during the fis-
cal year.
‘‘(ii) OPERATING COSTS FOR PPS-EX-
EMPT HOSPITALS.—To the computation of
payment amounts under section 1886(b)
for operating costs of inpatient hospital
services of PPS-exempt hospitals for por-
tions of cost reporting periods occurring
during the fiscal year.
‘‘(iii) DIRECT
GRADUATE
MEDICAL
EDUCATION.—To the computation of pay-
ment amounts under section 1886(h) for
reasonable costs of direct graduate medical
429
Subtitle H, Part 3
education costs for portions of cost report-
ing periods occurring during the fiscal
year.
‘‘(iv) INPATIENT
RURAL
PRIMARY
CARE HOSPITAL SERVICES.—To the com-
putation of payment amounts under sec-
tion 1814(j) for inpatient rural primary
care hospital services for portions of cost
reporting periods occurring during the fis-
cal year.
‘‘(v) EXTENDED CARE SERVICES OF A
SKILLED NURSING FACILITY.—To the com-
putation of payment amounts under sec-
tion 1861(v) for post-hospital extended
care services of a skilled nursing facility
(other than covered non-routine services
subject to section 1888A) for portions of
cost reporting periods occurring during the
fiscal year.
‘‘(vi) 
REASONABLE
COST
CON-
TRACTS.—To the computation of payment
amounts under section 1833(a)(1)(A) for
organizations for portions of cost reporting
periods occurring during the fiscal year.
430
Subtitle H, Part 3
‘‘(vii) HOME
HEALTH
SERVICES.—
Subject to paragraph (4)(B)(ii), for pay-
ment amounts for home health services, for
portions of cost reporting periods occurring
during such fiscal year.
‘‘(7) OTHER.—In applying subsection (a) for a
fiscal year with respect to items and services for
which payment is made under part A or B on a
basis not described in a previous paragraph of this
subsection, the Secretary shall provide for the pay-
ment adjustment under such subsection through an
appropriate proportional reduction in the payments
(or payment bases for items and services furnished)
during the fiscal year.
‘‘(8) ADJUSTMENT OF PAYMENT LIMITS.—The
Secretary shall provide for such proportional adjust-
ment in any limits on payment established under
part A or B for payment for items and services with-
in a sector as may be appropriate based on (and in
order to properly carry out) the adjustment on the
amount of payment under this subsection in the sec-
tor.
‘‘(9) REFERENCES TO PAYMENT RATES.—Ex-
cept as the Secretary may provide, any reference in
this title (other than this section) to a payment rate
431
Subtitle H, Part 3
is deemed a reference to such a rate as adjusted
under this subsection.
‘‘(e) PUBLICATION OF DETERMINATIONS; JUDICIAL
REVIEW.—
‘‘(1) ONE-TIME PUBLICATION OF SECTORS AND
GENERAL PAYMENT ADJUSTMENT METHODOLOGY.—
Not later than October 1, 1996, the Secretary shall
publish in the Federal Register the classification of
medicare items and services into the sectors of medi-
care services under subsection (b) and the general
methodology to be used in applying payment adjust-
ments to the different classes of items and services
within the sectors.
‘‘(2) INCLUSION
OF
INFORMATION
IN
PRESI-
DENT’S BUDGET.—
‘‘(A) IN GENERAL.—With respect to fiscal
years beginning with fiscal year 1999, the
President shall include in the budget submitted
under section 1105 of title 31, United States
Code, information on—
‘‘(i) the fee-for-service expenditures,
within each sector, for the second previous
fiscal year, and how such expenditures
compare to the adjusted sector allotment
for that sector for that fiscal year; and
432
Subtitle H, Part 3
‘‘(ii) actual annual growth rates for
fee-for-service expenditures in the different
sectors in the second previous fiscal year.
‘‘(B) 
RECOMMENDATIONS
REGARDING
GROWTH FACTORS.—The President may include
in such budget for a fiscal year (beginning with
fiscal year 1998) recommendations regarding
percentages that should be applied (for one or
more fiscal years beginning with that fiscal
year) instead of the baseline annual growth
rates under subsection (c)(3)(C). Such rec-
ommendations shall take into account medically
appropriate practice patterns.
‘‘(3) DETERMINATIONS CONCERNING PAYMENT
ADJUSTMENTS.—
‘‘(A) RECOMMENDATIONS
OF
COMMIS-
SION.—By not later than March 1 of each year
(beginning with 1997), the Medicare Payment
Review Commission shall submit to the Sec-
retary and the Congress a report that analyzes
the previous operation (if any) of this section
and that includes recommendations concerning
the manner in which this section should be ap-
plied for the following fiscal year.
433
Subtitle H, Part 3
‘‘(B) 
PRELIMINARY
NOTICE
BY
SEC-
RETARY.—Not later than May 15 preceding the
beginning of each fiscal year (beginning with
fiscal year 1998), the Secretary shall publish in
the Federal Register a notice containing the
Secretary’s preliminary determination, for each
sector of medicare services, concerning the fol-
lowing:
‘‘(i) The projected allotment under
subsection (c) for such sector for the fiscal
year.
‘‘(ii) Whether there will be a payment
adjustment for items and services included
in such sector for the fiscal year under
subsection (a).
‘‘(iii) If there will be such an adjust-
ment, the size of such adjustment and the
methodology to be used in making such a
payment adjustment for classes of items
and services included in such sector.
‘‘(iv) Beginning with fiscal year 1999,
the fee-for-service expenditures for such
sector for the second preceding fiscal year.
Such notice shall include an explanation of the
basis for such determination. Determinations