I
104TH CONGRESS
1ST SESSION
H. R. 2485
To amend title XVIII of the Social Security Act to preserve and reform
the medicare program.
IN THE HOUSE OF REPRESENTATIVES
OCTOBER 17, 1995
Mr. ARCHER (for himself, Mr. BLILEY, Mr. BILIRAKIS, Mr. THOMAS, Mr.
HYDE, Mr. GREENWOOD, Mr. HASTERT, Mrs. JOHNSON of Connecticut,
and Mr. MCCRERY) introduced the following bill; which was referred to
the Committee on Ways and Means, and in addition to the Committees
on Commerce, the Judiciary, and Rules, for a period to be subsequently
determined by the Speaker, in each case for consideration of such provi-
sions as fall within the jurisdiction of the committee concerned
A BILL
To amend title XVIII of the Social Security Act to preserve
and reform the medicare program.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. PURPOSE.
The purpose of this Act is to reform the medicare
program, in order to preserve and protect the financial
stability of the program.
TITLE XV—MEDICARE
SEC. 15000. SHORT TITLE OF TITLE; AMENDMENTS AND
REFERENCES TO OBRA; TABLE OF CONTENTS
OF TITLE.
(a) SHORT TITLE.—This title may be cited as the
‘‘Medicare Preservation Act of 1995’’.
(b) AMENDMENTS TO SOCIAL SECURITY ACT.—Ex-
cept as otherwise specifically provided, whenever in this
title an amendment is expressed in terms of an amend-
ment to or repeal of a section or other provision, the ref-
erence shall be considered to be made to that section or
other provision of the Social Security Act.
(c) REFERENCES TO OBRA.—In this title, the terms
‘‘OBRA–1986’’, 
‘‘OBRA–1987’’, 
‘‘OBRA–1989’’,
‘‘OBRA–1990’’, and ‘‘OBRA–1993’’ refer to the Omnibus
Budget Reconciliation Act of 1986 (Public Law 99–509),
the Omnibus Budget Reconciliation Act of 1987 (Public
Law 100–203), the Omnibus Budget Reconciliation Act
of 1989 (Public Law 101–239), the Omnibus Budget Rec-
onciliation Act of 1990 (Public Law 101–508), and the
Omnibus Budget Reconciliation Act of 1993 (Public Law
103–66), respectively.
(d) TABLE OF CONTENTS OF TITLE.—The table of
contents of this title is as follows:
Sec. 15000. Short title of title; amendments and references to OBRA; table of
contents of title.
Subtitle A—MedicarePlus Program
PART 1—INCREASING CHOICE UNDER THE MEDICARE PROGRAM
Sec. 15001. Increasing choice under medicare.
Sec. 15002. MedicarePlus program.
‘‘PART C—PROVISIONS RELATING TO MEDICAREPLUS
‘‘Sec. 1851. Requirements for MedicarePlus organizations; high deductible/
medisave products.
‘‘Sec. 1852. Requirements relating to benefits, provision of services, enroll-
ment, and premiums.
‘‘Sec. 1853. Patient protection standards.
‘‘Sec. 1854. Provider-sponsored organizations.
‘‘Sec. 1855. Payments to MedicarePlus organizations.
‘‘Sec. 1856. Establishment of standards for MedicarePlus organizations
and products.
‘‘Sec. 1857. MedicarePlus certification.
‘‘Sec. 1858. Contracts with MedicarePlus organizations.’’
Sec. 15003. Duplication and coordination of medicare-related products.
Sec. 15004. Transitional rules for current medicare HMO program.
PART 2—SPECIAL RULES FOR MEDICAREPLUS MEDICAL SAVINGS ACCOUNTS
Sec. 15011. MedicarePlus MSA’s.
Sec. 15012. Certain rebates excluded from gross income.
PART 3—SPECIAL ANTITRUST RULE FOR PROVIDER SERVICE NETWORKS
Sec. 15021. Application of antitrust rule of reason to provider service networks.
PART 4—COMMISSIONS
Sec. 15031. Medicare Payment Review Commission.
Sec. 15032. Commission on the Effect of the Baby Boom Generation on the
Medicare Program.
Sec. 15033. Change in appointment of Administrator of HCFA.
PART 5—TREATMENT OF HOSPITALS WHICH PARTICIPATE IN PROVIDER-
SPONSORED ORGANIZATIONS
Sec. 15041. Treatment of hospitals which participate in provider-sponsored or-
ganizations.
Subtitle B—Preventing Fraud and Abuse
PART 1—GENERAL PROVISIONS
Sec. 15101. Increasing awareness of fraud and abuse.
Sec. 15102. Beneficiary incentive programs.
Sec. 15103. Intermediate sanctions for medicare health maintenance organiza-
tions.
Sec. 15104. Voluntary disclosure program.
Sec. 15105. Revisions to current sanctions.
Sec. 15106. Direct spending for anti-fraud activities under medicare.
Sec. 15107. Permitting carriers to carry out prior authorization for certain
items of durable medical equipment.
Sec. 15108. National Health Care Anti-Fraud Task Force.
Sec. 15109. Study of adequacy of private quality assurance programs.
Sec. 15110. Penalty for false certification for home health services.
Sec. 15111. Pilot projects.
PART 2—CRIMINAL LAW PROVISIONS
Sec. 15121. Offenses involving fraud, false statement, theft, or embezzlement.
Subtitle C—Regulatory Relief
PART 1—PHYSICIAN OWNERSHIP REFERRAL REFORM
Sec. 15201. Repeal of prohibitions based on compensation arrangements.
Sec. 15202. Revision of designated health services subject to prohibition.
Sec. 15203. Delay in implementation until promulgation of regulations.
Sec. 15204. Exceptions to prohibition.
Sec. 15205. Repeal of reporting requirements.
Sec. 15206. Preemption of State law.
Sec. 15207. Effective date.
PART 2—OTHER MEDICARE REGULATORY RELIEF
Sec. 15211. Repeal of Medicare and Medicaid Coverage Data Bank.
Sec. 15212. Clarification of level of intent required for imposition of sanctions.
Sec. 15213. Additional exception to anti-kickback penalties for managed care
arrangements.
Sec. 15214. Solicitation and publication of modifications to existing safe har-
bors and new safe harbors.
Sec. 15215. Issuance of advisory opinions under title XI.
Sec. 15216. Prior notice of changes in billing and claims processing require-
ments for physicians’ services.
PART 3—PROMOTING PHYSICIAN SELF-POLICING
Sec. 15221. Exemption from antitrust laws for certain activities of medical self-
regulatory entities.
Subtitle D—Medical Liability Reform
PART 1—GENERAL PROVISIONS
Sec. 15301. Federal reform of health care liability actions.
Sec. 15302. Definitions.
Sec. 15303. Effective date.
PART 2—UNIFORM STANDARDS FOR HEALTH CARE LIABILITY ACTIONS
Sec. 15311. Statute of limitations.
Sec. 15312. Calculation and payment of damages.
Sec. 15313. Alternative dispute resolution.
Subtitle E—Teaching Hospitals and Graduate Medical
Education
PART 1—TEACHING HOSPITAL AND GRADUATE MEDICAL EDUCATION TRUST
FUND
Sec. 15401. Establishment of Fund; payments to teaching hospitals.
Sec. 15502. Reductions in disproportionate share payment adjustments.
Sec. 15503. Payments for capital-related costs for inpatient hospital services.
Sec. 15504. Reduction in adjustment for indirect medical education.
Sec. 15505. Treatment of PPS-exempt hospitals.
Sec. 15506. Reduction in payments to hospitals for enrollees’ bad debts.
Sec. 15507. Permanent extension of hemophilia pass-through.
Sec. 15508. Conforming amendment to certification of Christian Science pro-
viders.
SUBPART B—PROVISIONS RELATING TO RURAL HOSPITALS
Sec. 15511. Sole community hospitals.
Sec. 15512. Clarification of treatment of EAC and RPC hospitals.
Sec. 15513. Establishment of rural emergency access care hospitals.
Sec. 15514. Classification of rural referral centers.
Sec. 15515. Floor on area wage index.
PART 2—PAYMENTS TO SKILLED NURSING FACILITIES
Sec. 15521. Payments for routine service costs.
Sec. 15522. Incentives for cost effective management of covered non-routine
services.
Sec. 15523. Payments for routine service costs.
Sec. 15524. Reductions in payment for capital-related costs.
Sec. 15525. Treatment of items and services paid for under part B.
Sec. 15526. Certification of facilities meeting revised nursing home reform
standards.
Sec. 15527. Medical review process.
Sec. 15528. Report by Medicare Payment Review Commission.
Sec. 15529. Effective date.
PART 3—CLARIFICATION OF CREDITS TO PART A TRUST FUND
Sec. 15531. Clarification of amount of taxes credited to Federal Hospital In-
surance Trust Fund.
Subtitle G—Provisions Relating to Medicare Part B
PART 1—PAYMENT REFORMS
Sec. 15601. Payments for physicians’ services.
Sec. 15602. Elimination of formula-driven overpayments for certain outpatient
hospital services.
Sec. 15603. Payments for durable medical equipment.
Sec. 15604. Reduction in updates to payment amounts for clinical diagnostic
laboratory tests.
Sec. 15605. Extension of reductions in payments for costs of hospital out-
patient services.
Sec. 15606. Freeze in payments for ambulatory surgical center services.
Sec. 15607. Rural emergency access care hospitals.
Sec. 15608. Ensuring payment for physician and nurse for jointly furnished an-
esthesia services.
Sec. 15609. Statewide fee schedule area for physicians’ services.
Sec. 15609A. Establishment of fee schedule for ambulance services.
Sec. 15609B. Standards for physical therapy services furnished by physicians.
PART 2—PART B PREMIUM
Sec. 15611. Extension of part B premium.
Sec. 15612. Income-related reduction in medicare subsidy.
PART 3—ADMINISTRATION AND BILLING OF LABORATORY SERVICES
Sec. 15621. Administrative simplification for laboratory services.
Sec. 15622. Restrictions on direct billing for laboratory services.
PART 4—QUALITY STANDARDS FOR DURABLE MEDICAL EQUIPMENT
Sec. 15631. Recommendations for quality standards for durable medicare
equipment.
Subtitle H—Provisions Relating to Medicare Parts A and B
PART 1—PAYMENT FOR HOME HEALTH SERVICES
Sec. 15701. Payment for home health services.
Sec. 15702. Maintaining savings resulting from temporary freeze on payment
increases for home health services.
Sec. 15703. Extension of waiver of presumption of lack of knowledge of exclu-
sion from coverage for home health agencies.
Sec. 15704. Report on recommendations for payments and certification for
home health services of Christian Science providers.
Sec. 15705. Extension of period of home health agency certification.
PART 2—MEDICARE SECONDARY PAYER IMPROVEMENTS
Sec. 15711. Extension and expansion of existing requirements.
Sec. 15712. Improvements in recovery of payments.
Sec. 15713. Prohibiting retroactive application of policy regarding ESRD bene-
ficiaries enrolled in primary plans.
PART 3—FAILSAFE
Sec. 15721. Failsafe budget mechanism.
PART 4—ADMINISTRATIVE SIMPLIFICATION
Sec. 15731. Standards for medicare information transactions and data ele-
ments.
PART 5—OTHER PROVISIONS RELATING TO PARTS A AND B
Sec. 15741. Clarification of medicare coverage of items and services associated
with certain medical devices approved for investigational use.
Sec. 15742. Additional exclusion from coverage.
Sec. 15743. Competitive bidding for certain items and services.
Sec. 15744. Disclosure of criminal convictions relating to provision of home
health services.
Sec. 15745. Requiring renal dialysis facilities to make services available on a
24-hour basis.
Subtitle I—Clinical Laboratories
Sec. 15801. Exemption of physician office laboratories.
Subtitle A, Part 1
Subtitle J—Lock-Box Provisions for Medicare Part B Savings
from Growth Reductions
Sec. 15901. Establishment of Medicare Growth Reduction Trust Fund for Part
B savings.
Subtitle A—MedicarePlus Program
PART 1—INCREASING CHOICE UNDER THE
MEDICARE PROGRAM
SEC. 15001. INCREASING CHOICE UNDER MEDICARE.
(a) IN GENERAL.—Title XVIII is amended by insert-
ing after section 1804 the following new section:
‘‘PROVIDING FOR CHOICE OF COVERAGE
‘‘SEC. 1805. (a) CHOICE OF COVERAGE.—
‘‘(1) IN GENERAL.—Subject to the provisions of
this section, every individual who is entitled to bene-
fits under part A and enrolled under part B shall
elect to receive benefits under this title through one
of the following:
‘‘(A) THROUGH
FEE-FOR-SERVICE
SYS-
TEM.—Through the provisions of parts A and
B.
‘‘(B) THROUGH A MEDICAREPLUS PROD-
UCT.—Through a MedicarePlus product (as de-
fined in paragraph (2)), which may be—
‘‘(i) a high deductible/medisave prod-
uct 
(and 
a 
contribution 
into 
a
MedicarePlus 
medical 
savings 
account
(MSA)),
Subtitle A, Part 1
‘‘(ii) a product offered by a provider-
sponsored organization,
‘‘(iii) a product offered by an organi-
zation that is a union, Taft-Hartley plan,
or association, or
‘‘(iv) a product providing for benefits
on a fee-for-service or other basis.
‘‘(2) MEDICAREPLUS PRODUCT DEFINED.—For
purposes this section and part C, the term
‘MedicarePlus product’ means health benefits cov-
erage offered under a policy, contract, or plan by a
MedicarePlus organization (as defined in section
1851(a)) pursuant to and in accordance with a con-
tract under section 1858.
‘‘(3) TERMINOLOGY RELATING TO OPTIONS.—
For purposes of this section and part C—
‘‘(A) NON-MEDICAREPLUS
OPTION.—An
individual who has made the election described
in paragraph (1)(A) is considered to have elect-
ed the ‘Non-MedicarePlus option’.
‘‘(B) MEDICAREPLUS
OPTION.—An indi-
vidual who has made the election described in
paragraph (1)(B) to obtain coverage through a
MedicarePlus product is considered to have
Subtitle A, Part 1
elected the ‘MedicarePlus option’ for that prod-
uct.
‘‘(b) SPECIAL RULES.—
‘‘(1) RESIDENCE
REQUIREMENT.—Except as
the Secretary may otherwise provide, an individual is
eligible to elect a MedicarePlus product offered by a
MedicarePlus organization only if the organization
in relation to the product serves the geographic area
in which the individual resides.
‘‘(2) AFFILIATION
REQUIREMENTS
FOR
CER-
TAIN PRODUCTS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), an individual is eligible to elect a
MedicarePlus product offered by a limited en-
rollment MedicarePlus organization (as defined
in section 1852(c)(4)(E)) only if—
‘‘(i) the individual is eligible under
section 1852(c)(4) to make such election,
and
‘‘(ii) in the case of a MedicarePlus or-
ganization that is a union sponsor or a
Taft-Hartley sponsor (as defined in section
1852(c)(4)), the individual elected under
this section a MedicarePlus product offered
by the sponsor during the first enrollment
Subtitle A, Part 1
period in which the individual was eligible
to make such election with respect to such
sponsor.
‘‘(B) 
NO
REELECTION
AFTER
DISENROLLMENT
FOR
CERTAIN
PRODUCTS.—
An individual is not eligible to elect a
MedicarePlus 
product 
offered 
by 
a
MedicarePlus organization that is a union spon-
sor or a Taft-Hartley sponsor if the individual
previously had elected a MedicarePlus product
offered by the organization and had subse-
quently discontinued to elect such a product of-
fered by the organization.
‘‘(3) SPECIAL
RULE
FOR
CERTAIN
ANNU-
ITANTS.—An individual is not eligible to elect a high
deductible/medisave product if the individual is enti-
tled to benefits under chapter 89 of title 5, United
States Code, as an annuitant or spouse of an annu-
itant.
‘‘(c) PROCESS FOR EXERCISING CHOICE.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish a process through which elections described in
subsection (a) are made and changed, including the
form and manner in which such elections are made
and changed. Such elections shall be made or
Subtitle A, Part 1
changed only during coverage election periods speci-
fied under subsection (e) and shall become effective
as provided in subsection (f).
‘‘(2) EXPEDITED IMPLEMENTATION.—The Sec-
retary shall establish the process of electing coverage
under this section during the transition period (as
defined in subsection (e)(1)(B)) in such an expedited
manner as will permit such an election for
MedicarePlus products in an area as soon as such
products become available in that area.
‘‘(3) COORDINATION THROUGH MEDICAREPLUS
ORGANIZATIONS.—
‘‘(A) ENROLLMENT.—Such process shall
permit an individual who wishes to elect a
MedicarePlus 
product 
offered 
by 
a
MedicarePlus organization to make such elec-
tion through the filing of an appropriate elec-
tion form with the organization.
‘‘(B) 
DISENROLLMENT.—Such 
process
shall permit an individual, who has elected a
MedicarePlus 
product 
offered 
by 
a
MedicarePlus organization and who wishes to
terminate such election, to terminate such elec-
tion through the filing of an appropriate elec-
tion form with the organization.
Subtitle A, Part 1
‘‘(4) DEFAULT.—
‘‘(A) INITIAL ELECTION.—
‘‘(i) IN GENERAL.—Subject to clause
(ii), an individual who fails to make an
election during an initial election period
under subsection (e)(1) is deemed to have
chosen the Non-MedicarePlus option.
‘‘(ii) SEAMLESS
CONTINUATION
OF
COVERAGE.—The Secretary shall establish
procedures under which individuals who
are enrolled with a MedicarePlus organiza-
tion at the time of the initial election pe-
riod and who fail to elect to receive cov-
erage other than through the organization
are deemed to have elected an appropriate
MedicarePlus product offered by the orga-
nization.
‘‘(B) CONTINUING PERIODS.—An individ-
ual who has made (or deemed to have made) an
election under this section is considered to have
continued to make such election until such time
as—
‘‘(i) the individual changes the elec-
tion under this section, or
Subtitle A, Part 1
‘‘(ii) a MedicarePlus product is dis-
continued, if the individual had elected
such product at the time of the discontinu-
ation.
‘‘(5) AGREEMENTS WITH COMMISSIONER OF SO-
CIAL SECURITY TO PROMOTE EFFICIENT ADMINIS-
TRATION.—In order to promote the efficient admin-
istration of this section and the MedicarePlus pro-
gram under part C, the Secretary may enter into an
agreement with the Commissioner of Social Security
under which the Commissioner performs administra-
tive responsibilities relating to enrollment and
disenrollment in MedicarePlus products under this
section.
‘‘(d) PROVISION OF BENEFICIARY INFORMATION TO
PROMOTE INFORMED CHOICE.—
‘‘(1) IN GENERAL.—The Secretary shall provide
for activities under this subsection to disseminate
broadly information to medicare beneficiaries (and
prospective medicare beneficiaries) on the coverage
options provided under this section in order to pro-
mote an active, informed selection among such op-
tions. Such information shall be made available on
such a timely basis (such as 6 months before the
date an individual would first attain eligibility for
Subtitle A, Part 1
medicare on the basis of age) as to permit individ-
uals to elect the MedicarePlus option during the ini-
tial election period described in subsection (e)(1).
‘‘(2) USE
OF
NONFEDERAL
ENTITIES.—The
Secretary shall, to the maximum extent feasible,
enter into contracts with appropriate non-Federal
entities to carry out activities under this subsection.
‘‘(3) SPECIFIC
ACTIVITIES.—In carrying out
this subsection, the Secretary shall provide for at
least the following activities in all areas in which
MedicarePlus products are offered:
‘‘(A) INFORMATION BOOKLET.—
‘‘(i) IN
GENERAL.—The Secretary
shall publish an information booklet and
disseminate the booklet to all individuals
eligible to elect the MedicarePlus option
under this section during coverage election
periods.
‘‘(ii) INFORMATION
INCLUDED.—The
booklet shall include information presented
in plain English and in a standardized for-
mat regarding—
‘‘(I) the benefits (including cost-
sharing) and premiums for the var-
Subtitle A, Part 1
ious MedicarePlus products in the
areas involved;
‘‘(II) the quality of such prod-
ucts, including consumer satisfaction
information; and
‘‘(III) rights and responsibilities
of medicare beneficiaries under such
products.
‘‘(iii) 
PERIODIC
UPDATING.—The
booklet shall be updated on a regular basis
(not less often than once every 12 months)
to reflect changes in the availability of
MedicarePlus products and the benefits
and premiums for such products.
‘‘(B) TOLL-FREE NUMBER.—The Secretary
shall maintain a toll-free number for inquiries
regarding MedicarePlus options and the oper-
ation of part C.
‘‘(C) GENERAL
INFORMATION
IN
MEDI-
CARE HANDBOOK.—The Secretary shall include
information about the MedicarePlus option pro-
vided under this section in the annual notice of
medicare benefits under section 1804.
‘‘(e) COVERAGE ELECTION PERIODS.—
Subtitle A, Part 1
‘‘(1) INITIAL
CHOICE
UPON
ELIGIBILITY
TO
MAKE ELECTION.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who first becomes entitled to benefits
under part A and enrolled under part B after
the beginning of the transition period (as de-
fined in subparagraph (B)), the individual shall
make the election under this section during a
period (of a duration and beginning at a time
specified by the Secretary) at the first time the
individual both is entitled to benefits under part
A and enrolled under part B. Such period shall
be specified in a manner so that, in the case of
an individual who elects a MedicarePlus prod-
uct during the period, coverage under the prod-
uct becomes effective as of the first date on
which the individual may receive such coverage.
‘‘(B) TRANSITION
PERIOD
DEFINED.—In
this subsection, the term ‘transition period’
means, with respect to an individual in an area,
the period beginning on the first day of the first
month in which a MedicarePlus product is first
made available to individuals in the area and
ending with the month preceding the beginning
Subtitle A, Part 1
of the first annual, coordinated election period
under paragraph (3).
‘‘(2) DURING TRANSITION PERIOD.—Subject to
paragraph (6)—
‘‘(A) CONTINUOUS
OPEN
ENROLLMENT
INTO A MEDICARE-PLUS OPTION.—During the
transition period, an individual who is eligible
to make an election under this section and who
has elected the non-MedicarePlus option may
change such election to a MedicarePlus option
at any time.
‘‘(B) OPEN DISENROLLMENT BEFORE END
OF TRANSITION PERIOD.—
‘‘(i) IN GENERAL.—During the transi-
tion period, an individual who has elected
a MedicarePlus option for a MedicarePlus
product may change such election to an-
other MedicarePlus product or to the non-
MedicarePlus option.
‘‘(ii) SPECIAL
RULE.—During the
transition period, an individual who has
elected a high deductible/medisave product
may not change such election to a
MedicarePlus product that is not a high
deductible/medisave product unless the in-
Subtitle A, Part 1
dividual has had such election in effect for
12 months.
‘‘(3) ANNUAL, COORDINATED
ELECTION
PE-
RIOD.—
‘‘(A) IN GENERAL.—Subject to paragraph
(5), each individual who is eligible to make an
election under this section may change such
election during annual, coordinated election pe-
riods.
‘‘(B) ANNUAL, COORDINATED
ELECTION
PERIOD.—For purposes of this section, the
term ‘annual, coordinated election period’
means, with respect to a calendar year (begin-
ning with 1998), the month of October before
such year.
‘‘(C) MEDICAREPLUS HEALTH FAIR DUR-
ING OCTOBER, 1996.—In the month of October,
1996, the Secretary shall provide for a nation-
ally coordinated educational and publicity cam-
paign to inform individuals, who are eligible to
elect MedicarePlus products, about such prod-
ucts and the election process provided under
this section (including the annual, coordinated
election periods that occur in subsequent years).
Subtitle A, Part 1
‘‘(4) SPECIAL
90-DAY
DISENROLLMENT
OP-
TION.—
‘‘(A) IN GENERAL.—In the case of the first
time an individual elects a MedicarePlus option
(other than a high deductible/medisave product)
under this section, the individual may dis-
continue such election through the filing of an
appropriate notice during the 90-day period be-
ginning on the first day on which the individ-
ual’s coverage under the MedicarePlus product
under such option becomes effective.
‘‘(B) EFFECT
OF
DISCONTINUATION
OF
ELECTION.—An individual who discontinues an
election under this paragraph shall be deemed
at the time of such discontinuation to have
elected the Non-MedicarePlus option.
‘‘(5) SPECIAL ELECTION PERIODS.—An individ-
ual may discontinue an election of a MedicarePlus
product offered by a MedicarePlus organization
other than during an annual, coordinated election
period and make a new election under this section
if—
‘‘(A) the organization’s or product’s certifi-
cation under part C has been terminated or the
Subtitle A, Part 1
organization has terminated or otherwise dis-
continued providing the product;
‘‘(B) in the case of an individual who has
elected a MedicarePlus product offered by a
MedicarePlus organization, the individual is no
longer eligible to elect the product because of a
change in the individual’s place of residence or
other change in circumstances (specified by the
Secretary, but not including termination of
membership in a qualified association in the
case of a product offered by a qualified associa-
tion or termination of the individual’s enroll-
ment on the basis described in clause (i) or (ii)
section 1852(c)(3)(B));
‘‘(C) the individual demonstrates (in ac-
cordance with guidelines established by the Sec-
retary) that—
‘‘(i) the organization offering the
product substantially violated a material
provision of the organization’s contract
under part C in relation to the individual
and the product; or
‘‘(ii) the organization (or an agent or
other entity acting on the organization’s
behalf) materially misrepresented the prod-
Subtitle A, Part 1
uct’s provisions in marketing the product
to the individual; or
‘‘(D) the individual meets such other con-
ditions as the Secretary may provide.
‘‘(6) SPECIAL RULE FOR HIGH DEDUCTIBLE/
MEDISAVE
PRODUCTS.—Notwithstanding the pre-
vious provisions of this subsection, an individual may
elect a high deductible/medisave product only during
an annual, coordinated election period described in
paragraph (3)(B) or during the month of October,
1996.
‘‘(f) EFFECTIVENESS OF ELECTIONS.—
‘‘(1) DURING INITIAL COVERAGE ELECTION PE-
RIOD.—An election of coverage made during the ini-
tial coverage election period under subsection
(e)(1)(A) shall take effect upon the date the individ-
ual becomes entitled to benefits under part A and
enrolled under part B, except as the Secretary may
provide (consistent with section 1838) in order to
prevent retroactive coverage.
‘‘(2) 
DURING
TRANSITION; 
90-DAY
DISENROLLMENT OPTION.—An election of coverage
made under subsection (e)(2) and an election to dis-
continue a MedicarePlus option under subsection
(e)(4) at any time shall take effect with the first cal-
Subtitle A, Part 1
endar month following the date on which the election
is made.
‘‘(3) ANNUAL, COORDINATED ELECTION PERIOD
AND MEDISAVE ELECTION.—An election of coverage
made during an annual, coordinated election period
(as defined in subsection (e)(3)(B)) in a year or for
a high deductible/medisave product shall take effect
as of the first day of the following year.
‘‘(4) OTHER PERIODS.—An election of coverage
made during any other period under subsection
(e)(5) shall take effect in such manner as the Sec-
retary provides in a manner consistent (to the extent
practicable) with protecting continuity of health ben-
efit coverage.
‘‘(g) EFFECT OF ELECTION OF MEDICAREPLUS OP-
TION.—Subject to the provisions of section 1855(f), pay-
ments under a contract with a MedicarePlus organization
under section 1858(a) with respect to an individual elect-
ing a MedicarePlus product offered by the organization
shall be instead of the amounts which (in the absence of
the contract) would otherwise be payable under parts A
and B for items and services furnished to the individual.
‘‘(h) ADMINISTRATION.—
‘‘(1) IN
GENERAL.—This part and sections
1805 and 1876 shall be administered through an op-
Subtitle A, Part 1
erating division (A) that is established or identified
by the Secretary in the Department of Health and
Human Services, (B) that is separate from the
Health Care Financing Administration, and (C) the
primary function of which is the administration of
this part and such sections. The director of such di-
vision shall be of equal pay and rank to that of the
individual responsible for overall administration of
parts A and B.
‘‘(2) TRANSFER
AUTHORITY.—The Secretary
shall transfer such personnel, administrative support
systems, assets, records, funds, and other resources
in the Health Care Financing Administration to the
operating division referred to in paragraph (1) as
are used in the administration of section 1876 and
as may be required to implement the provisions re-
ferred to in such paragraph promptly and effi-
ciently.’’.
SEC. 15002. MEDICAREPLUS PROGRAM.
(a) IN GENERAL.—Title XVIII is amended by redes-
ignating part C as part D and by inserting after part B
the following new part:
Subtitle A, Part 1
‘‘PART C—PROVISIONS RELATING TO MEDICAREPLUS
‘‘REQUIREMENTS FOR MEDICAREPLUS ORGANIZATIONS;
HIGH DEDUCTIBLE/MEDISAVE PRODUCTS
‘‘SEC. 1851. (a) MEDICAREPLUS ORGANIZATION DE-
FINED.—In this part, subject to the succeeding provisions
of this section, the term ‘MedicarePlus organization’
means a public or private entity that is certified under
section 1857 as meeting the requirements and standards
of this part for such an organization.
‘‘(b) ORGANIZED
AND LICENSED UNDER STATE
LAW.—
‘‘(1) IN GENERAL.—A MedicarePlus organiza-
tion shall be organized and licensed under State law
to offer health insurance or health benefits coverage
in each State in which it offers a MedicarePlus prod-
uct.
‘‘(2) EXCEPTION FOR UNION AND TAFT-HART-
LEY SPONSORS.—Paragraph (1) shall not apply to
an MedicarePlus organization that is a union spon-
sor or a Taft-Hartley sponsor (as defined in section
1852(c)(4)).
‘‘(3) EXCEPTION
FOR
PROVIDER-SPONSORED
ORGANIZATIONS.—Paragraph (1) shall not apply to
a MedicarePlus organization that is a provider-spon-
Subtitle A, Part 1
sored organization (as defined in section 1854(a))
except to the extent provided under section 1857(c).
‘‘(4) EXCEPTION
FOR
QUALIFIED
ASSOCIA-
TIONS.—Paragraph (1) shall not apply to a
MedicarePlus organization that is a qualified asso-
ciation (as defined in section 1852(c)(4)(C)).
‘‘(c) PREPAID PAYMENT.—A MedicarePlus organiza-
tion shall be compensated (except for deductibles, coinsur-
ance, and copayments) for the provision of health care
services to enrolled members 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 re-
gard to the frequency, extent, or kind of health care serv-
ice actually provided to a member.
‘‘(d) ASSUMPTION OF FULL FINANCIAL RISK.—The
MedicarePlus organization shall assume full financial risk
on a prospective basis for the provision of the health care
services (other than hospice 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
exceeds $5,000 in any year,
Subtitle A, Part 1
‘‘(2) may obtain insurance or make other ar-
rangements for the cost of such services provided to
its enrolled members other than through the organi-
zation because medical necessity required their pro-
vision before they could be secured through the orga-
nization,
‘‘(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 institu-
tions, or any combination of such individuals or in-
stitutions to assume all or part of the financial risk
on a prospective basis for the provision of basic
health services by the physicians or other health pro-
fessionals or through the institutions.
In the case of a MedicarePlus organization that is a union
sponsor (as defined in section 1852(c)(4)(A)), Taft-Hart-
ley sponsor (as defined in section 1852(c)(4)(B)), a quali-
fied association (as defined in section 1852(c)(4)(C)), this
subsection shall not apply with respect to MedicarePlus
products offered by such organization and issued by an
organization to which subsection (b)(1) applies or by a
Subtitle A, Part 1
provider-sponsored organization (as defined in section
1854(a)).
‘‘(e) PROVISION AGAINST RISK OF INSOLVENCY.—
‘‘(1) IN GENERAL.—Each MedicarePlus organi-
zation shall meet standards under section 1856 re-
lating to the financial solvency and capital adequacy
of the organization. Such standards shall take into
account the nature and type of MedicarePlus prod-
ucts offered by the organization.
‘‘(2) TREATMENT OF UNION AND TAFT-HART-
LEY SPONSORS.—An entity that is a union sponsor
or a Taft-Hartley sponsor is deemed to meet the re-
quirement of paragraph (1).
‘‘(3) TREATMENT OF CERTAIN QUALIFIED AS-
SOCIATIONS.—An entity that is a qualified associa-
tion is deemed to meet the requirement of paragraph
(1) with respect to MedicarePlus products offered by
such association and issued by an organization to
which subsection (b)(1) applies or by a provider-
sponsored organization.
‘‘(f) HIGH DEDUCTIBLE/MEDISAVE PRODUCT DE-
FINED.—
‘‘(1) IN GENERAL.—In this part, the term ‘high
deductible/medisave product’ means a MedicarePlus
product that—
Subtitle A, Part 1
‘‘(A) provides reimbursement for at least
the items and services described in section
1852(a)(1) in a year but only after the enrollee
incurs countable expenses (as specified under
the product) equal to the amount of a deduct-
ible (described in paragraph (2));
‘‘(B) counts as such expenses (for purposes
of such deductible) at least all amounts that
would have been payable under parts A and B
or by the enrollee if the enrollee had elected to
receive benefits through the provisions of such
parts; and
‘‘(C) provides, after such deductible is met
for a year and for all subsequent expenses for
benefits referred to in subparagraph (A) 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 regard to
any deductibles or coinsurance) under
parts A and B with respect to such ex-
penses,
Subtitle A, Part 1
whichever is less. Such term does not include
the MedicarePlus MSA itself or any contribu-
tion into such account.
‘‘(2) DEDUCTIBLE.—The amount of deductible
under a high deductible/medisave product—
‘‘(A) for contract year 1997 shall be not
more than $10,000; and
‘‘(B) for a subsequent contract year shall
be not more than the maximum amount of such
deductible for the previous contract year under
this paragraph increased by the national aver-
age per capita growth rate under section
1855(c)(3) for the year.
If the amount of the deductible under subparagraph
(B) is not a multiple of $50, the amount shall be
rounded to the nearest multiple of $50.
‘‘(g) ORGANIZATIONS TREATED AS MEDICAREPLUS
ORGANIZATIONS DURING TRANSITION.—Any of the fol-
lowing organizations shall be considered to qualify as a
MedicarePlus organization for contract years beginning
before January 1, 1998:
‘‘(1) 
HEALTH
MAINTENANCE
ORGANIZA-
TIONS.—An organization that is organized under the
laws of any State and that is a qualified health
maintenance organization (as defined in section
Subtitle A, Part 1
1310(d) of the Public Health Service Act), an orga-
nization recognized under State law as a health
maintenance organization, or a similar organization
regulated under State law for solvency in the same
manner and to the same extent as such a health
maintenance organization.
‘‘(2) LICENSED
INSURERS.—An organization
that is organized under the laws of any State and—
‘‘(A) is licensed by a State agency as an
insurer for the offering of health benefit cov-
erage, or
‘‘(B) is licensed by a State agency as a
service benefit plan,
but only for individuals residing in an area in which
the organization is licensed to offer health insurance
coverage.
‘‘(3) CURRENT RISK-CONTRACTORS.—An orga-
nization that is an eligible organization (as defined
in section 1876(b)) and that has a risk-sharing con-
tract in effect under section 1876 as of the date of
the enactment of this section.
‘‘(h) MEDIGRANT DEMONSTRATION PROJECTS.—
The Secretary shall provide, in at least 10 States, for dem-
onstration projects which would permit MediGrant pro-
grams under title XXI to be treated as MedicarePlus orga-
Subtitle A, Part 1
nizations under this part for individuals who are qualified
to elect the MedicarePlus option and who eligible to re-
ceive medical assistance under the MediGrant program,
for the purpose of demonstrating the delivery of primary,
acute, and long-term care through an integrated delivery
network which emphasizes noninstitutional care.
‘‘REQUIREMENTS RELATING TO BENEFITS, PROVISION OF
SERVICES, ENROLLMENT, AND PREMIUMS
‘‘SEC. 1852. (a) BENEFITS COVERED.—
‘‘(1) IN GENERAL.—Except as provided in sec-
tion 1851(f)(1) with respect to high deductible/
medisave products, each MedicarePlus product of-
fered under this part shall provide benefits for at
least the items and services for which benefits are
available under parts A and B consistent with the
standards for coverage of such items and services
applicable under this title.
‘‘(2) ORGANIZATION AS SECONDARY PAYER.—
Notwithstanding any other provision of law, a
MedicarePlus organization may (in the case of the
provision of items and services to an individual
under this part under circumstances in which pay-
ment under this title is made secondary pursuant to
section 1862(b)(2)) charge or authorize the provider
of such services to charge, in accordance with the
charges allowed under such law or policy—
Subtitle A, Part 1
‘‘(A) the insurance carrier, employer, or
other entity which under such law, plan, or pol-
icy is to pay for the provision of such services,
or
‘‘(B) such individual to the extent that the
individual has been paid under such law, plan,
or policy for such services.
‘‘(3) 
SATISFACTION
OF
REQUIREMENT.—A
MedicarePlus product (other than a high deductible/
medisave product) offered by a MedicarePlus organi-
zation satisfies paragraph (1) with respect to bene-
fits for items and services if the following require-
ments are met:
‘‘(A) FEE FOR SERVICE PROVIDERS.—In
the case of benefits furnished through a pro-
vider that does not have a contract with the or-
ganization, the product provides for at least the
dollar amount of payment for such items and
services as would otherwise be provided under
parts A and B.
‘‘(B) PARTICIPATING PROVIDERS.—In the
case of benefits furnished through a provider
that has such a contract, the individual’s liabil-
ity for payment for such items and services
does not exceed (after taking into account any
Subtitle A, Part 1
deductible, which does not exceed any deduct-
ible under parts A and B) the lesser of the fol-
lowing:
‘‘(i) 
NON-MEDICAREPLUS
LIABIL-
ITY.—The amount of the liability that the
individual would have had (based on the
provider being a participating provider) if
the 
individual 
had 
elected 
the 
non-
MedicarePlus option.
‘‘(ii) MEDICARE
COINSURANCE
AP-
PLIED
TO
PRODUCT
PAYMENT
RATES.—
The applicable coinsurance or copayment
rate (that would have applied under the
non-MedicarePlus option) of the payment
rate provided under the contract.
‘‘(b) ANTIDISCRIMINATION.—A MedicarePlus organi-
zation may not deny, limit, or condition the coverage or
provision of benefits under this part based on the health
status, claims experience, receipt of health care, medical
history, or lack of evidence of insurability, of an individual.
‘‘(c) GUARANTEED ISSUE AND RENEWAL.—
‘‘(1) IN GENERAL.—Except as provided in this
subsection, a MedicarePlus organization shall pro-
vide that at any time during which elections are ac-
cepted under section 1805 with respect to a
Subtitle A, Part 1
MedicarePlus product offered by the organization,
the organization will accept without restrictions indi-
viduals who are eligible to make such election.
‘‘(2) PRIORITY.—If the Secretary determines
that a MedicarePlus organization, in relation to a
MedicarePlus product it offers, has a capacity limit
and the number of eligible individuals who elect the
product under section 1805 exceeds the capacity
limit, the organization may limit the election of indi-
viduals of the product under such section but only
if priority in election is provided—
‘‘(A) first to such individuals as have elect-
ed the product at the time of the determination,
and
‘‘(B) then to other such individuals in such
a manner that does not discriminate among the
individuals (who seek to elect the product) on a
basis described in subsection (b).
‘‘(3) LIMITATION ON TERMINATION OF ELEC-
TION.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), a MedicarePlus organization may
not for any reason terminate the election of any
individual 
under 
section 
1805 
for 
a
MedicarePlus product it offers.
Subtitle A, Part 1
‘‘(B) BASIS FOR TERMINATION OF ELEC-
TION.—A MedicarePlus organization may ter-
minate an individual’s election under section
1805 with respect to a MedicarePlus product it
offers if—
‘‘(i) any premiums required with re-
spect to such product are not paid on a
timely basis (consistent with standards
under section 1856 that provide for a
grace period for late payment of pre-
miums),
‘‘(ii) the individual has engaged in
disruptive behavior (as specified in such
standards), or
‘‘(iii) the product is terminated with
respect to all individuals under this part.
Any individual whose election is so terminated
is deemed to have elected the Non-MedicarePlus
option (as defined in section 1805(a)(3)(A)).
‘‘(C) ORGANIZATION
OBLIGATION
WITH
RE-
SPECT TO ELECTION FORMS.—Pursuant to a con-
tract under section 1858, each MedicarePlus organi-
zation receiving an election form under section
1805(c)(2) shall transmit to the Secretary (at such
time and in such manner as the Secretary may
Subtitle A, Part 1
specify) a copy of such form or such other informa-
tion respecting the election as the Secretary may
specify.
‘‘(4) SPECIAL
RULES
FOR
LIMITED
ENROLL-
MENT MEDICAREPLUS ORGANIZATIONS.—
‘‘(A) UNIONS.—
‘‘(i) IN
GENERAL.—Subject to sub-
paragraph (D), a union sponsor (as de-
fined in clause (ii)) shall limit eligibility of
enrollees under this part for MedicarePlus
products it offers to individuals who are
members of the sponsor and affiliated with
the sponsor through an employment rela-
tionship with any employer or are the
spouses of such members.
‘‘(ii) UNION SPONSOR.—In this part
and section 1805, the term ‘union sponsor’
means an employee organization in relation
to a group health plan that is established
or maintained by the organization other
than pursuant to a collective bargaining
agreement.
‘‘(B) TAFT-HARTLEY SPONSORS.—
‘‘(i) IN
GENERAL.—Subject to sub-
paragraph (D), a MedicarePlus organiza-
Subtitle A, Part 1
tion that is a Taft-Hartley sponsor (as de-
fined in clause (ii)) shall limit eligibility of
enrollees under this part for MedicarePlus
products it offers to individuals who are
entitled to obtain benefits through such
products under the terms of an applicable
collective bargaining agreement.
‘‘(ii) TAFT-HARTLEY
SPONSOR.—In
this part and section 1805, the term ‘Taft-
Hartley sponsor’ means, in relation to a
group health plan that is established or
maintained by two or more employers or
jointly by one or more employers and one
or more employee organizations, the asso-
ciation, committee, joint board of trustees,
or other similar group of representatives of
parties who establish or maintain the plan.
‘‘(C) QUALIFIED ASSOCIATIONS.—
‘‘(i) IN
GENERAL.—Subject to sub-
paragraph (D), a MedicarePlus organiza-
tion that is a qualified association (as de-
fined in clause (iii)) shall limit eligibility of
individuals under this part for products it
offers to individuals who are members of
Subtitle A, Part 1
the association (or who are spouses of such
individuals).
‘‘(ii) LIMITATION
ON
TERMINATION
OF COVERAGE.—Such a qualifying associa-
tion offering a MedicarePlus product to an
individual may not terminate coverage of
the individual on the basis that the individ-
ual is no longer a member of the associa-
tion except pursuant to a change of elec-
tion during an open election period occur-
ring on or after the date of the termination
of membership.
‘‘(iii) QUALIFIED
ASSOCIATION.—In
this part and section 1805, the term ‘quali-
fied association’ means an association, reli-
gious fraternal organization, or other orga-
nization (which may be a trade, industry,
or professional association, a chamber of
commerce, or a public entity association)
that the Secretary finds—
‘‘(I) has been formed for pur-
poses other than the sale of any
health insurance and does not restrict
membership based on the health sta-
tus, claims experience, receipt of
Subtitle A, Part 1
health care, medical history, or lack of
evidence of insurability, of an individ-
ual,
‘‘(II) does not exist solely or
principally for the purpose of selling
insurance, and
‘‘(III) has at least 1,000 individ-
ual members or 200 employer mem-
bers.
Such term includes a subsidiary or cor-
poration that is wholly owned by one or
more qualified organizations.
‘‘(D) LIMITATION.—Rules of eligibility to
carry out the previous subparagraphs of this
paragraph shall not have the effect of denying
eligibility to individuals on the basis of health
status, claims experience, receipt of health care,
medical history, or lack of evidence of insurabil-
ity.
‘‘(E) LIMITED
ENROLLMENT
MEDICARE-
PLUS ORGANIZATION.—In this part and section
1805, 
the 
term 
‘limited 
enrollment
MedicarePlus 
organization’ 
means 
a
MedicarePlus organization that is a union spon-
Subtitle A, Part 1
sor, a Taft-Hartley sponsor, or a qualified asso-
ciation.
‘‘(F) EMPLOYER, ETC.—In this paragraph,
the terms ‘employer’, ‘employee organization’,
and ‘group health plan’ have the meanings
given such terms for purposes of part 6 of sub-
title B of title I of the Employee Retirement In-
come Security Act of 1974.
‘‘(d) SUBMISSION AND CHARGING OF PREMIUMS.—
‘‘(1) IN GENERAL.—Each MedicarePlus organi-
zation shall file with the Secretary each year, in a
form and manner and at a time specified by the Sec-
retary—
‘‘(A) the amount of the monthly premiums
for coverage under each MedicarePlus product
it offers under this part in each payment area
(as determined for purposes of section 1855) in
which the product is being offered; and
‘‘(B) the enrollment capacity in relation to
the product in each such area.
‘‘(2) AMOUNTS OF PREMIUMS CHARGED.—The
amount of the monthly premium charged by a
MedicarePlus organization for a MedicarePlus prod-
uct offered in a payment area to an individual under
Subtitle A, Part 1
this part shall be equal to the amount (if any) by
which—
‘‘(A) the amount of the monthly premium
for the product for the period involved, as es-
tablished under paragraph (3) and submitted
under paragraph (1), exceeds
‘‘(B)(i) 1⁄12 of the annual MedicarePlus
capitation rate specified in section 1855(b)(2)
for the area and period involved, or (ii) in the
case of a high deductible/medisave product, the
monthly adjusted MedicarePlus capitation rate
specified in section 1855(b)(1) for the individ-
ual and period involved.
‘‘(3) UNIFORM PREMIUM.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the premiums charged by a
MedicarePlus organization under this part may
not vary among individuals who reside in the
same payment area.
‘‘(B) EXCEPTION FOR HIGH DEDUCTIBLE/
MEDISAVE PRODUCTS.—A MedicarePlus organi-
zation shall establish premiums for any high de-
ductible/medisave product it offers in a payment
area based on each of the risk adjustment cat-
egories established for purposes of determining
Subtitle A, Part 1
the amount of the payment to MedicarePlus or-
ganizations under section 1855(b)(1) and using
the identical demographic and other adjust-
ments among such categories as are used for
such purposes.
‘‘(4) TERMS
AND
CONDITIONS
OF
IMPOSING
PREMIUMS.—Each MedicarePlus organization shall
permit the payment of monthly premiums on a
monthly basis and may terminate election of individ-
uals for a MedicarePlus product for failure to make
premium payments only in accordance with sub-
section (c)(3)(B).
‘‘(5) RELATION OF PREMIUMS AND COST-SHAR-
ING TO BENEFITS.—In no case may the portion of
a MedicarePlus organization’s premium rate and the
actuarial value of its deductibles, coinsurance, and
copayments charged (to the extent attributable to
the minimum benefits described in subsection (a)(1)
and not counting any amount attributable to balance
billing) to individuals who are enrolled under this
part with the organization exceed the actuarial value
of the coinsurance and deductibles that would be ap-
plicable on the average to individuals enrolled under
this part with the organization (or, if the Secretary
finds that adequate data are not available to deter-
Subtitle A, Part 1
mine that actuarial value, the actuarial value of the
coinsurance and deductibles applicable on the aver-
age to individuals in the area, in the State, or in the
United States, eligible to enroll under this part with
the organization, or other appropriate data) and en-
titled to benefits under part A and enrolled under
part B if they were not members of a MedicarePlus
organization.
‘‘(e) REQUIREMENT
FOR ADDITIONAL BENEFITS,
PART B PREMIUM DISCOUNT REBATES, OR BOTH.—
‘‘(1) REQUIREMENT.—
‘‘(A) IN
GENERAL.—Each MedicarePlus
organization (in relation to a MedicarePlus
product it offers) shall provide that if there is
an excess amount (as defined in subparagraph
(B)) for the product for a contract year, subject
to the succeeding provisions of this subsection,
the organization shall provide to individuals
such additional benefits (as the organization
may specify), a monetary rebate (paid on a
monthly basis) of the part B monthly premium,
or a combination thereof, in a total value which
is at least equal to the adjusted excess amount
(as defined in subparagraph (C)).
Subtitle A, Part 1
‘‘(B) EXCESS AMOUNT.—For purposes of
this paragraph, the ‘excess amount’, for an or-
ganization for a product, is the amount (if any)
by which—
‘‘(i) the average of the capitation pay-
ments made to the organization under this
part for the product at the beginning of
contract year, exceeds
‘‘(ii) the actuarial value of the mini-
mum benefits described in subsection
(a)(1) under the product for individuals
under this part, as determined based upon
an adjusted community rate described in
paragraph (5) (as reduced for the actuarial
value of the coinsurance 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 product, is
the excess amount reduced to reflect any
amount withheld and reserved for the organiza-
tion for the year under paragraph (3).
‘‘(D) NO APPLICATION TO HIGH DEDUCT-
IBLE/MEDISAVE
PRODUCT.—Subparagraph (A)
Subtitle A, Part 1
shall not apply to a high deductible/medisave
product.
‘‘(E) UNIFORM APPLICATION.—This para-
graph shall be applied uniformly for all enroll-
ees for a product in a service area.
‘‘(F) CONSTRUCTION.—Nothing in this
subsection shall be construed as preventing a
MedicarePlus 
organization 
from 
providing
health 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) LIMITATION ON AMOUNT OF PART B PRE-
MIUM
DISCOUNT
REBATE.—In no case shall the
amount of a part B premium discount rebate under
paragraph (1)(A) exceed, with respect to a month,
the amount of premiums imposed under part B (not
taking into account section 1839(b) (relating to pen-
alty for late enrollment) or 1839(h) (relating to af-
fluence testing)), for the individual for the month.
Except as provided in the previous sentence, a
MedicarePlus organization is not authorized to pro-
vide for cash or other monetary rebates as an in-
ducement for enrollment or otherwise.
Subtitle A, Part 1
‘‘(3) STABILIZATION
FUND.—A MedicarePlus
organization may provide that a part of the value of
an excess actuarial amount described in paragraph
(1) be withheld and reserved in the Federal Hospital
Insurance Trust Fund and in the Federal Supple-
mentary Medical Insurance Trust Fund (in such
proportions as the Secretary determines to be appro-
priate) by the Secretary for subsequent annual con-
tract periods, to the extent required to stabilize and
prevent undue fluctuations in the additional benefits
and rebates offered in those subsequent periods by
the organization in accordance with such paragraph.
Any of such value of amount reserved which is not
provided as additional benefits described in para-
graph 
(1)(A) 
to 
individuals 
electing 
the
MedicarePlus product in accordance with such para-
graph prior to the end of such periods, shall revert
for the use of such trust funds.
‘‘(4) DETERMINATION BASED ON INSUFFICIENT
DATA.—For purposes of this subsection, if the Sec-
retary finds that there is insufficient enrollment ex-
perience (including no enrollment experience in the
case of a provider-sponsored organization) to deter-
mine an average of the capitation payments to be
made under this part at the beginning of a contract
Subtitle A, Part 1
period, the Secretary may determine such an aver-
age based on the enrollment experience of other con-
tracts entered into under this part.
‘‘(5) ADJUSTED COMMUNITY RATE.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, subject to subparagraph (B), the
term ‘adjusted community rate’ for a service or
services 
means, 
at 
the 
election 
of 
a
MedicarePlus organization, either—
‘‘(i) the rate of payment for that serv-
ice or services which the Secretary annu-
ally determines would apply to an individ-
ual electing a MedicarePlus product under
this part if the rate of payment were deter-
mined under a ‘community rating system’
(as defined in section 1302(8) of the Pub-
lic Health Service Act, other than subpara-
graph (C)), or
‘‘(ii) such portion of the weighted ag-
gregate premium, which the Secretary an-
nually estimates would apply to such an in-
dividual, as the Secretary annually esti-
mates is attributable to that service or
services,
Subtitle A, Part 1
but adjusted for differences between the utiliza-
tion characteristics of the individuals electing
coverage under this part and the utilization
characteristics of the other enrollees with the
organization (or, if the Secretary finds that
adequate data are not available to adjust for
those differences, the differences between the
utilization characteristics of individuals select-
ing other MedicarePlus coverage, or individuals
in the area, in the State, or in the United
States, eligible to elect MedicarePlus coverage
under this part and the utilization characteris-
tics of the rest of the population in the area, in
the State, or in the United States, respectively).
‘‘(B) SPECIAL RULE FOR PROVIDER-SPON-
SORED
ORGANIZATIONS.—In the case of a
MedicarePlus organization that is a provider-
sponsored organization, the adjusted community
rate 
under 
subparagraph 
(A) 
for 
a
MedicarePlus product may be computed (in a
manner specified by the Secretary) using data
in the general commercial marketplace or (dur-
ing a transition period) based on the costs in-
curred by the organization in providing such a
product.
Subtitle A, Part 1
‘‘(f) RULES
REGARDING
PHYSICIAN
PARTICIPA-
TION.—
‘‘(1) PROCEDURES.—Each MedicarePlus orga-
nization shall establish reasonable procedures relat-
ing to the participation (under an agreement be-
tween a physician and the organization) of physi-
cians under MedicarePlus products offered by the
organization under this part. Such procedures shall
include—
‘‘(A) providing notice of the rules regard-
ing participation,
‘‘(B) providing written notice of participa-
tion decisions that are adverse to physicians,
and
‘‘(C) providing a process within the organi-
zation for appealing adverse decisions, including
the presentation of information and views of the
physician regarding such decision.
‘‘(2) CONSULTATION IN MEDICAL POLICIES.—A
MedicarePlus organization shall consult with physi-
cians who have entered into participation agree-
ments with the organization regarding the organiza-
tion’s medical policy, quality, and medical manage-
ment procedures.
Subtitle A, Part 1
‘‘(3) LIMITATIONS
ON
PHYSICIAN
INCENTIVE
PLANS.—
‘‘(A) IN
GENERAL.—Each MedicarePlus
organization may not operate any physician in-
centive plan (as defined in subparagraph (B))
unless the following requirements are met:
‘‘(i) No specific payment is made di-
rectly or indirectly under the plan to a
physician or physician group as an induce-
ment to reduce or limit medically necessary
services provided with respect to a specific
individual enrolled with the organization.
‘‘(ii) If the plan places a physician or
physician group at substantial financial
risk (as determined by the Secretary) for
services not provided by the physician or
physician group, the organization—
‘‘(I) provides stop-loss protection
for the physician or group that is ade-
quate and appropriate, based on
standards developed by the Secretary
that take into account the number of
physicians placed at such substantial
financial risk in the group or under
the plan and the number of individ-
Subtitle A, Part 1
uals enrolled with the organization
who receive services from the physi-
cian or the physician group, and
‘‘(II) conducts periodic surveys of
both individuals enrolled and individ-
uals previously enrolled with the orga-
nization to determine the degree of
access of such individuals to services
provided by the organization and sat-
isfaction with the quality of such serv-
ices.
‘‘(iii) The organization provides the
Secretary with descriptive information re-
garding the plan, sufficient to permit the
Secretary to determine whether the plan is
in compliance with the requirements of this
subparagraph.
‘‘(B) PHYSICIAN
INCENTIVE
PLAN
DE-
FINED.—In this paragraph, the term ‘physician
incentive plan’ means any compensation ar-
rangement between a MedicarePlus organiza-
tion and a physician or physician group that
may directly or indirectly have the effect of re-
ducing or limiting services provided with respect
Subtitle A, Part 1
to individuals enrolled with the organization
under this part.
‘‘(4) LIMITATION ON PROVIDER INDEMNIFICA-
TION.—A MedicarePlus organization may not pro-
vide (directly or indirectly) for a provider (or group
of providers) to indemnify the organization against
any liability resulting from a civil action brought by
or on behalf of an enrollee under this part for any
damage caused to the enrollee by the organization’s
denial of medically necessary care.
‘‘(5) EXCEPTION FOR CERTAIN FEE-FOR-SERV-
ICE PLANS.—The previous provisions of this sub-
section shall not apply in the case of a MedicarePlus
organization in relation to a MedicarePlus product if
the organization does not have agreements between
physicians and the organization for the provision of
benefits under the product.
‘‘(g) PROVISION OF INFORMATION.—A MedicarePlus
organization shall provide the Secretary with such infor-
mation on the organization and each MedicarePlus prod-
uct it offers as may be required for the preparation of
the 
information 
booklet 
described 
in 
section
1805(d)(3)(A).
‘‘(h) COORDINATED ACUTE AND LONG-TERM CARE
BENEFITS UNDER A MEDICAREPLUS PRODUCT.—Noth-
Subtitle A, Part 1
ing in this part shall be construed as preventing a State
from coordinating benefits under its MediGrant program
under title XXI with those provided under a MedicarePlus
product 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 program.
‘‘(i) TRANSITIONAL FILE AND USE FOR CERTAIN
REQUIREMENTS.—
‘‘(1) 
IN
GENERAL.—In 
the 
case 
of 
a
MedicarePlus product proposed to be offered before
the end of the transition period (as defined in sec-
tion 1805(e)(1)(B)), by a MedicarePlus organization
described 
in 
section 
1851(g)(3) 
or 
by 
a
MedicarePlus organization with a contract in effect
under section 1858, if the organization submits com-
plete information to the Secretary regarding the
product demonstrating that the product meets the
requirements and standards under subsections (a),
(d), and (e) (relating to benefits and premiums), the
product shall be deemed as meeting such require-
ments and standards under such subsections unless
the Secretary disapproves the product within 60
days after the date of submission of the complete in-
formation.
Subtitle A, Part 1
‘‘(2) CONSTRUCTION.—Nothing in paragraph
(1) shall be construed as waiving the requirement of
a contract under section 1858 or waiving require-
ments and standards not referred to in paragraph
(1).
‘‘PATIENT PROTECTION STANDARDS
‘‘SEC. 1853. (a) DISCLOSURE TO ENROLLEES.—A
MedicarePlus organization shall disclose in clear, accurate,
and standardized form, information regarding all of the
following for each MedicarePlus product it offers:
‘‘(1) Benefits under the MedicarePlus product
offered, including exclusions from coverage and, if it
is a high deductible/medisave product, a comparison
of benefits under such a product with benefits under
other MedicarePlus products.
‘‘(2) Rules regarding prior authorization or
other review requirements that could result in
nonpayment.
‘‘(3) Potential liability for cost-sharing for out-
of-network services.
‘‘(4) The number, mix, and distribution of par-
ticipating providers.
‘‘(5) The financial obligations of the enrollee,
including premiums, deductibles, co-payments, and
maximum limits on out-of-pocket losses for items
and services (both in and out of network).
Subtitle A, Part 1
‘‘(6) Statistics on enrollee satisfaction with the
product 
and 
organization, 
including 
rates 
of
reenrollment.
‘‘(7) Enrollee rights and responsibilities, includ-
ing the grievance process provided under subsection
(f).
‘‘(8) A statement that the use of the 911 emer-
gency telephone number is appropriate in emergency
situations and an explanation of what constitutes an
emergency situation.
‘‘(9) A description of the organization’s quality
assurance program under subsection (d).
Such information shall be disclosed to each enrollee under
this part at the time of enrollment and at least annually
thereafter.
‘‘(b) ACCESS TO SERVICES.—
‘‘(1) IN GENERAL.—A MedicarePlus organiza-
tion offering a MedicarePlus product may restrict
the providers from whom the benefits under the
product are provided so long as—
‘‘(A) the organization makes such benefits
available and accessible to each individual elect-
ing the product within the product service area
with reasonable promptness and in a manner
Subtitle A, Part 1
which assures continuity in the provision of
benefits;
‘‘(B) when medically necessary the organi-
zation makes such benefits available and acces-
sible 24 hours a day and 7 days a week;
‘‘(C) the product provides for reimburse-
ment with respect to services which are covered
under subparagraphs (A) and (B) and which
are provided to such an individual other than
through the organization, if—
‘‘(i) the services were medically nec-
essary and immediately required because of
an unforeseen illness, injury, or condition,
and
‘‘(ii) it was not reasonable given the
circumstances 
to 
obtain 
the 
services
through the organization; and
‘‘(D) coverage is provided for emergency
services (as defined in paragraph (4)) without
regard to prior authorization or the emergency
care provider’s contractual relationship with the
organization.
‘‘(2) MINIMUM PAYMENT LEVELS WHERE PRO-
VIDING
POINT-OF-SERVICE
COVERAGE.—If 
a
MedicarePlus product provides benefits for items
Subtitle A, Part 1
and services (not described in paragraph (1)(C))
through a network of providers and also permits
payment to be made under the product for such
items and services not provided through such a net-
work, the payment level under the product with re-
spect to such items and services furnished outside
the network shall be at least 70 percent (or, if the
effective cost-sharing rate is 50 percent, at least 40
percent) of the lesser of—
‘‘(A) the payment basis (determined with-
out regard to deductibles and cost-sharing) that
would have applied for such items and services
under parts A and B, or
‘‘(B) the amount charged by the entity fur-
nishing such items and services.
‘‘(3) PROTECTION OF ENROLLEES FOR CERTAIN
EMERGENCY SERVICES.—
‘‘(A) PARTICIPATING PROVIDERS.—In the
case of emergency services described in sub-
paragraph (C) which are furnished by a partici-
pating physician or provider of services to an
individual enrolled with a MedicarePlus organi-
zation under this section, the applicable partici-
pation agreement is deemed to provide that the
physician or provider of services will accept as
Subtitle A, Part 1
payment in full from the organization for such
emergency services described in subparagraph
(C) the amount that would be payable to the
physician or provider of services under part B
and from the individual under such part, if the
individual were not enrolled with such an orga-
nization under this part.
‘‘(B) NONPARTICIPATING PROVIDERS.—In
the case of emergency services described in sub-
paragraph (C) which are furnished by a
nonparticipating physician, the limitations on
actual charges for such services otherwise appli-
cable under part B (to services furnished by in-
dividuals not enrolled with a MedicarePlus or-
ganization under this section) shall apply in the
same manner as such limitations apply to serv-
ices furnished to individuals not enrolled with
such an organization.
‘‘(C) EMERGENCY SERVICES DESCRIBED.—
The emergency services described in this sub-
paragraph are emergency services which are
furnished to an enrollee of a MedicarePlus or-
ganization under this part by a physician or
provider of services that is not under a contract
with the organization.
Subtitle A, Part 1
‘‘(D) EXCEPTION FOR CERTAIN FEE-FOR-
SERVICE
PLANS.—The previous provisions of
this paragraph shall not apply in the case of a
MedicarePlus organization in relation to a
MedicarePlus product if the organization does
not have agreements between physicians and
the organization for the provision of benefits
under the product.
‘‘(4) DEFINITION OF EMERGENCY SERVICES.—
In this subsection, the term ‘emergency services’
means, with respect to an individual enrolled with an
organization, covered inpatient and outpatient serv-
ices that—
‘‘(A) are furnished by an appropriate
source other than the organization,
‘‘(B) are needed immediately because of an
injury or sudden illness, and
‘‘(C) are needed because the time required
to reach the organization’s providers or suppli-
ers would have meant risk of serious damage to
the patient’s health.
‘‘(c) CONFIDENTIALITY
AND ACCURACY
OF EN-
ROLLEE
RECORDS.—Each MedicarePlus organization
shall establish procedures—
Subtitle A, Part 1
‘‘(1) to safeguard the privacy of individually
identifiable enrollee information, and
‘‘(2) to maintain accurate and timely medical
records for enrollees.
‘‘(d) QUALITY ASSURANCE PROGRAM.—
‘‘(1) IN GENERAL.—Each MedicarePlus organi-
zation must have arrangements, established in ac-
cordance with regulations of the Secretary, for an
ongoing quality assurance program for health care
services it provides to such individuals.
‘‘(2) ELEMENTS OF PROGRAM.—The quality as-
surance program shall—
‘‘(A) stress health outcomes;
‘‘(B) provide for the establishment of writ-
ten protocols for utilization review, based on
current standards of medical practice;
‘‘(C) provide review by physicians and
other health care professionals of the process
followed in the provision of such health care
services;
‘‘(D) monitors and evaluates high volume
and high risk services and the care of acute and
chronic conditions;
‘‘(E) evaluates the continuity and coordi-
nation of care that enrollees receive;
Subtitle A, Part 1
‘‘(F) has mechanisms to detect both under-
utilization and overutilization of services;
‘‘(G) after identifying areas for improve-
ment, establishes or alters practice parameters;
‘‘(H) takes action to improve quality and
assesses the effectiveness of such action
through systematic follow-up;
‘‘(I) makes available information on quality
and outcomes measures to facilitate beneficiary
comparison and choice of health coverage op-
tions (in such form and on such quality and
outcomes measures as the Secretary determines
to be appropriate);
‘‘(J) is evaluated on an ongoing basis as to
its effectiveness; and
‘‘(K) provide for external accreditation or
review, by a utilization and quality control peer
review organization under part B of title XI or
other qualified independent review organization,
of the quality of services furnished by the orga-
nization meets professionally recognized stand-
ards of health care (including providing ade-
quate access of enrollees to services).
‘‘(3) EXCEPTION FOR CERTAIN FEE-FOR-SERV-
ICE PLANS.—Paragraph (1) and subsection (c)(2)
Subtitle A, Part 1
shall not apply in the case of a MedicarePlus organi-
zation in relation to a MedicarePlus product to the
extent the organization provides for coverage of ben-
efits without restrictions relating to utilization and
without regard to whether the provider has a con-
tract or other arrangement with the plan for the
provision of such benefits.
‘‘(4) TREATMENT
OF
ACCREDITATION.—The
Secretary shall provide that a MedicarePlus organi-
zation is deemed to meet the requirements of para-
graphs (1) and (2) of this subsection and subsection
(c) if the organization is accredited (and periodically
reaccredited) by a private organization under a proc-
ess that the Secretary has determined assures that
the organization meets standards that are no less
stringent than the standards established under sec-
tion 1856 to carry out this subsection and sub-
section (c).
‘‘(e) COVERAGE DETERMINATIONS.—
‘‘(1) DECISIONS ON NONEMERGENCY CARE.—A
MedicarePlus organization shall make determina-
tions regarding authorization requests for non-
emergency care on a timely basis, depending on the
urgency of the situation.
‘‘(2) APPEALS.—
Subtitle A, Part 1
‘‘(A) IN GENERAL.—Appeals from a deter-
mination of an organization denying coverage
shall be decided within 30 days of the date of
receipt of medical information, but not later
than 60 days after the date of the decision.
‘‘(B) PHYSICIAN
DECISION
ON
CERTAIN
APPEALS.—Appeal decisions relating to a deter-
mination to deny coverage based on a lack of
medical necessity shall be made only by a physi-
cian.
‘‘(C) EMERGENCY
CASES.—Appeals from
such a determination involving a life-threaten-
ing or emergency situation shall be decided on
an expedited basis.
‘‘(f) GRIEVANCES AND APPEALS.—
‘‘(1) 
GRIEVANCE
MECHANISM.—Each
MedicarePlus organization must provide meaningful
procedures for hearing and resolving grievances be-
tween the organization (including any entity or indi-
vidual through which the organization provides
health care services) and enrollees under this part.
‘‘(2) APPEALS.—An enrollee with an organiza-
tion under this part who is dissatisfied by reason of
the enrollee’s failure to receive any health service to
which the enrollee believes the enrollee is entitled
Subtitle A, Part 1
and at no greater charge than the enrollee believes
the enrollee is required to pay is entitled, if the
amount in controversy is $100 or more, to a hearing
before the Secretary to the same extent as is pro-
vided in section 205(b), and in any such hearing the
Secretary shall make the organization a party. If the
amount in controversy is $1,000 or more, the indi-
vidual or organization shall, upon notifying the other
party, be entitled to judicial review of the Sec-
retary’s final decision as provided in section 205(g),
and both the individual and the organization shall be
entitled to be parties to that judicial review. In ap-
plying sections 205(b) and 205(g) as provided in
this subparagraph, and in applying section 205(l)
thereto, any reference therein to the Commissioner
of Social Security or the Social Security Administra-
tion shall be considered a reference to the Secretary
or the Department of Health and Human Services,
respectively.
‘‘(3) INDEPENDENT REVIEW OF CERTAIN COV-
ERAGE DENIALS.—The Secretary shall contract with
an independent, outside entity to review and resolve
appeals of denials of coverage related to urgent or
emergency services with respect to MedicarePlus
products.
Subtitle A, Part 1
‘‘(4) COORDINATION
WITH
SECRETARY
OF
LABOR.—The Secretary shall consult with the Sec-
retary of Labor so as to ensure that the require-
ments of this subsection, as they apply in the case
of grievances referred to in paragraph (1) to which
section 503 of the Employee Retirement Income Se-
curity Act of 1974 applies, are applied in a manner
consistent with the requirements of such section
503.
‘‘(g) INFORMATION
ON ADVANCE DIRECTIVES.—
Each MedicarePlus organization shall meet the require-
ment of section 1866(f) (relating to maintaining written
policies and procedures respecting advance directives).
‘‘(h) APPROVAL OF MARKETING MATERIALS.—
‘‘(1) SUBMISSION.—Each MedicarePlus organi-
zation may not distribute marketing materials un-
less—
‘‘(A) at least 45 days before the date of
distribution the organization has submitted the
material to the Secretary for review, and
‘‘(B) the Secretary has not disapproved the
distribution of such material.
‘‘(2) 
REVIEW.—The 
standards 
established
under section 1856 shall include guidelines for the
review of all such material submitted and under
Subtitle A, Part 1
such guidelines the Secretary shall disapprove such
material if the material is materially inaccurate or
misleading or otherwise makes a material misrepre-
sentation.
‘‘(3) DEEMED APPROVAL (1-STOP SHOPPING).—
In the case of material that is submitted under para-
graph (1)(A) to the Secretary or a regional office of
the Department of Health and Human Services and
the Secretary or the office has not disapproved the
distribution of marketing materials under paragraph
(1)(B) with respect to a MedicarePlus product in an
area, the Secretary is deemed not to have dis-
approved such distribution in all other areas covered
by the product and organization.
‘‘(4) PROHIBITION
OF
CERTAIN
MARKETING
PRACTICES.—Each MedicarePlus organization shall
conform to fair marketing standards in relation to
MedicarePlus products offered under this part, in-
cluded in the standards established under section
1856. Such standards shall include a prohibition
against an organization (or agent of such an organi-
zation) completing any portion of any election form
under section 1805 on behalf of any individual.
‘‘PROVIDER-SPONSORED ORGANIZATIONS
‘‘SEC. 1854. (a) PROVIDER-SPONSORED ORGANIZA-
TION DEFINED.—
Subtitle A, Part 1
‘‘(1) IN GENERAL.—In this part, the term ‘pro-
vider-sponsored organization’ means a public or pri-
vate entity that (in accordance with standards estab-
lished under subsection (b)) is a provider, or group
of affiliated providers, that provides a substantial
proportion (as defined by the Secretary under such
standards) of the health care items and services
under the contract under this part directly through
the provider or affiliated group of providers.
‘‘(2) SUBSTANTIAL PROPORTION.—In defining
what is a ‘substantial proportion’ for purposes of
paragraph (1), the Secretary—
‘‘(A) shall take into account the need for
such an organization to assume responsibility
for a substantial proportion of services in order
to assure financial stability and the practical
difficulties in such an organization integrating
a very wide range of service providers; and
‘‘(B) may vary such proportion based upon
relevant differences among organizations, such
as their location in an urban or rural area.
‘‘(3) AFFILIATION.—For purposes of this sub-
section, a provider is ‘affiliated’ with another pro-
vider if, through contract, ownership, or otherwise—
Subtitle A, Part 1
‘‘(A) one provider, directly or indirectly,
controls, is controlled by, or is under common
control with the other,
‘‘(B) each provider is a participant in a
lawful combination under which each provider
shares, directly or indirectly, substantial finan-
cial risk in connection with their operations,
‘‘(C) both providers are part of a con-
trolled group of corporations under section
1563 of the Internal Revenue Code of 1986, or
‘‘(D) both providers are part of an affili-
ated service group under section 414 of such
Code.
‘‘(4) CONTROL.—For purposes of paragraph
(3), control is presumed to exist if one party, di-
rectly or indirectly, owns, controls, or holds the
power to vote, or proxies for, not less than 51 per-
cent of the voting rights or governance rights of an-
other.
‘‘(b) PROCESS FOR ESTABLISHING STANDARDS FOR
PROVIDER-SPONSORED ORGANIZATIONS.—For process of
establishing of standards for provider-sponsored organiza-
tions, see section 1856(c).
‘‘(c) PROCESS FOR STATE CERTIFICATION OF PRO-
VIDER-SPONSORED
ORGANIZATIONS.—For process of
Subtitle A, Part 1
State certification of provider-sponsored organizations, see
section 1857(c).
‘‘(d) PREEMPTION OF STATE INSURANCE LICENSING
REQUIREMENTS.—
‘‘(1) IN
GENERAL.—This section supersedes
any State law which—
‘‘(A) requires that a provider-sponsored or-
ganization meet requirements for insurers of
health services or health maintenance organiza-
tions doing business in the State with respect to
initial capitalization and establishment of finan-
cial reserves against insolvency, or
‘‘(B) imposes requirements that would
have the effect of prohibiting the organization
from complying with the applicable require-
ments of this part,
insofar as such the law applies to individuals en-
rolled with the organization under this part.
‘‘(2) EXCEPTION.—Paragraph (1) shall not
apply with respect to any State law to the extent
that such law provides standards or requirements, or
provides for enforcement thereof, so as to meet the
requirements of section 1857(c)(2) with respect to
approval by the Secretary of State certification re-
quirements thereunder.
Subtitle A, Part 1
‘‘(3) CONSTRUCTION.—Nothing in this sub-
section shall be construed as affecting the operation
of section 514 of the Employee Retirement Income
Security Act of 1974.
‘‘PAYMENTS TO MEDICAREPLUS ORGANIZATIONS
‘‘SEC. 1855. (a) PAYMENTS.—
‘‘(1) IN
GENERAL.—Under a contract under
section 1858 the Secretary shall pay to each
MedicarePlus organization, with respect to coverage
of an individual under this part in a payment area
for a month, an amount equal to the monthly ad-
justed MedicarePlus capitation rate (as provided
under subsection (b)) with respect to that individual
for that area.
‘‘(2) ANNUAL ANNOUNCEMENT.—The Secretary
shall annually determine, and shall announce (in a
manner intended to provide notice to interested par-
ties) not later than September 7 before the calendar
year concerned—
‘‘(A) the annual MedicarePlus capitation
rate for each payment area for the year, and
‘‘(B) the factors to be used in adjusting
such rates under subsection (b) for payments
for months in that year.
‘‘(3) ADVANCE
NOTICE
OF
METHODOLOGICAL
CHANGES.—At least 45 days before making the an-
Subtitle A, Part 1
nouncement under paragraph (2) for a year, the
Secretary shall provide for notice to MedicarePlus
organizations of proposed changes to be made in the
methodology or benefit coverage assumptions from
the methodology and assumptions used in the pre-
vious announcement and shall provide such organi-
zations an opportunity to comment on such proposed
changes.
‘‘(4) EXPLANATION OF ASSUMPTIONS.—In each
announcement made under paragraph (2) for a year,
the Secretary shall include an explanation of the as-
sumptions (including any benefit coverage assump-
tions) and changes in methodology used in the an-
nouncement in sufficient detail so that MedicarePlus
organizations 
can 
compute 
monthly 
adjusted
MedicarePlus capitation rates for classes of individ-
uals located in each payment area which is in whole
or in part within the service area of such an organi-
zation.
‘‘(b) MONTHLY ADJUSTED MEDICAREPLUS CAPITA-
TION RATE.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the ‘monthly adjusted MedicarePlus capitation
rate’ under this subsection, for a month in a year
for an individual in a payment area (specified under
Subtitle A, Part 1
paragraph (3)) and in a class (established under
paragraph (4)), is 1⁄12 of the annual MedicarePlus
capitation rate specified in paragraph (2) for that
area for the year, adjusted to reflect the actuarial
value of benefits under this title with respect to indi-
viduals in such class compared to the national aver-
age for individuals in all classes.
‘‘(2) 
ANNUAL
MEDICAREPLUS
CAPITATION
RATES.—For purposes of this section, the annual
MedicarePlus capitation rate for a payment area for
a year is equal to the annual MedicarePlus capita-
tion rate for the area for the previous year (or, in
the case of 1996, the average annual per capita rate
of payment described in section 1876(a)(1)(C) for
the area for 1995) increased by the per capita
growth rate for that area and year (as determined
under subsection (c)).
‘‘(3) PAYMENT AREA DEFINED.—In this sec-
tion, the term ‘payment area’ means a county (or
equivalent area specified by the Secretary), except
that in the case of the population group described in
paragraph (5)(C), the payment area shall be each
State.
‘‘(4) CLASSES.—
Subtitle A, Part 1
‘‘(A) IN GENERAL.—For purposes of this
section, the Secretary shall define appropriate
classes of enrollees, consistent with paragraph
(5), based on age, gender, welfare status, insti-
tutionalization, and such other factors as the
Secretary determines to be appropriate, so as to
ensure actuarial equivalence. The Secretary
may add to, modify, or substitute for such
classes, if such changes will improve the deter-
mination of actuarial equivalence.
‘‘(B) RESEARCH.—The Secretary shall
conduct such research as may be necessary to
provide for greater accuracy in the adjustment
of capitation rates under this subsection. Such
research may include research into the addition
or modification of classes under subparagraph
(A). The Secretary shall submit to Congress a
report on such research by not later than Janu-
ary 1, 1997.
‘‘(5) DIVISION OF MEDICARE POPULATION.—In
carrying out paragraph (4) and this section, the Sec-
retary shall recognize the following separate popu-
lation groups:
Subtitle A, Part 1
‘‘(A) AGED.—Individuals 65 years of age
or older who are not described in subparagraph
(C).
‘‘(B) 
DISABLED.—Disabled 
individuals
who are under 65 years of age and not de-
scribed in subparagraph (C).
‘‘(C) INDIVIDUALS
WITH
END
STAGE
RENAL
DISEASE.—Individuals who are deter-
mined to have end stage renal disease.
‘‘(c) PER CAPITA GROWTH RATES.—
‘‘(1) FOR 1996.—
‘‘(A) IN GENERAL.—For purposes of this
section and subject to subparagraph (B), the
per capita growth rates for 1996, for a payment
area assigned to a service utilization cohort
under subsection (d), shall be the following:
‘‘(i) LOWEST
SERVICE
UTILIZATION
COHORT.—For areas assigned to the low-
est service utilization cohort, 9.7 percent
plus the additional percent provided under
subparagraph (B)(ii).
‘‘(ii) LOWER
SERVICE
UTILIZATION
COHORT.—For areas assigned to the lower
service utilization cohort, 8.0 percent.
Subtitle A, Part 1
‘‘(iii) MEDIAN SERVICE UTILIZATION
COHORT.—For areas assigned to the me-
dian service utilization cohort, 5.1 percent.
‘‘(iv) HIGHER
SERVICE
UTILIZATION
COHORT.—For areas assigned to the high-
er service utilization cohort, 4.7 percent.
‘‘(v) HIGHEST SERVICE UTILIZATION
COHORT.—For areas assigned to the high-
est service utilization cohort, 4.0 percent.
‘‘(B) BUDGET
NEUTRAL
ADJUSTMENT.—
In order to assure that the total capitation pay-
ments under this section during 1996 are the
same as the amount such payments would have
been if the per capita growth rate for all such
areas for 1996 were equal to the national aver-
age per capita growth rate, specified in para-
graph (3) for 1996, the Secretary shall adjust
the per capita growth rates for payment areas
as follows:
‘‘(i) INCREASE
UP
TO
FLOOR
FOR
LOWEST SERVICE UTILIZATION COHORT.—
First, such additional percent increase as
may be necessary to assure that the annual
MedicarePlus capitation rate for each pay-
Subtitle A, Part 1
ment area is at least 12 times $250 for
1996.
‘‘(ii) RESIDUAL INCREASE TO LOWEST
SERVICE UTILIZATION COHORT.—Next, for
payment areas assigned to the lowest serv-
ice utilization cohort, such additional per-
cent increase as will assure that the total
capitation payments under this section
during 1996 are the same as the amount
such payments would have been if the per
capita growth rate for all such areas for
1996 were equal to the national average
per capita growth rate. The increase under
this clause may apply to a payment area
described in clause (i) and shall be applied
after the increase provided under such
clause.
‘‘(2) FOR SUBSEQUENT YEARS.—
‘‘(A) IN GENERAL.—For purposes of this
section and subject to subparagraph (B), the
Secretary shall compute a per capita growth
rate for each year after 1996, for each payment
area as assigned to a service utilization cohort
under subsection (d), consistent with the follow-
ing rules:
Subtitle A, Part 1
‘‘(i) MEDIAN
SERVICE
UTILIZATION
COHORT SET AT NATIONAL AVERAGE PER
CAPITA
GROWTH
RATE.—The per capita
growth rate for areas assigned to the me-
dian service utilization cohort for the year
shall be the national average per capita
growth rate for the year (as specified
under paragraph (3)), subject to subpara-
graph (C).
‘‘(ii) HIGHEST SERVICE UTILIZATION
COHORT
SET
AT 75 PERCENT
OF
NA-
TIONAL
AVERAGE
PER
CAPITA
GROWTH
RATE.—The per capita growth rate for
areas assigned to the highest service utili-
zation cohort for the year shall be 75 per-
cent of the national average per capita
growth rate for the year.
‘‘(iii) LOWEST SERVICE UTILIZATION
COHORT SET AT 187.5 PERCENT OF NA-
TIONAL
AVERAGE
PER
CAPITA
GROWTH
RATE.—The per capita growth rate for
areas assigned to the lowest service utiliza-
tion cohort for the year shall be 187.5 per-
cent of the national average per capita
Subtitle A, Part 1
growth rate for the year, subject to sub-
paragraph (C).
‘‘(iv) LOWER
SERVICE
UTILIZATION
COHORT
SET
AT
150
PERCENT
OF
NA-
TIONAL
AVERAGE
PER
CAPITA
GROWTH
RATE.—
‘‘(I) IN
GENERAL.—Subject to
subclause (II), the per capita growth
rate for areas assigned to the lower
service utilization cohort for the year
shall be 150 percent of the national
average per capita growth rate for the
year.
‘‘(II) ADJUSTMENT.—If the Sec-
retary has established under clause
(v) the per capita growth rate for
areas assigned to the higher service
utilization cohort for the year at 75
percent of the national average per
capita growth rate, the Secretary may
provide for a reduced per capita
growth rate under subclause (I) to the
extent necessary to comply with sub-
paragraph (B).
Subtitle A, Part 1
‘‘(v) HIGHER
SERVICE
UTILIZATION
COHORT.—The per capita growth rate for
areas assigned to the higher service utiliza-
tion cohort for the year shall be such per-
cent (not less than 75 percent) of the na-
tional average per capita growth rate, as
the Secretary may determine consistent
with subparagraph (B).
‘‘(B) AVERAGE PER CAPITA GROWTH RATE
AT
NATIONAL
AVERAGE
TO
ASSURE
BUDGET
NEUTRALITY.—The Secretary shall compute per
capita growth rates for a year under subpara-
graph (A) (before the application of subpara-
graph (C)) in a manner so that the weighted
average per capita growth rate for all areas for
the year (weighted to reflect the number of
medicare beneficiaries in each area) is equal to
the national average per capita growth rate
under paragraph (3) for the year.
‘‘(C) FINAL
ADJUSTMENT
OF
GROWTH
RATES.—After computing per capita growth
rates under the previous provisions of this para-
graph the Secretary shall—
‘‘(i) reduce the per capita growth rate
for areas assigned to the median service
Subtitle A, Part 1
utilization cohort by the ratio of .1 to 5.3,
and
‘‘(ii) increase the per capita growth
rate for areas assigned to the lowest serv-
ice utilization cohort by such proportion as
the Secretary determines will result in an
increase in outlays resulting from this
clause equal to the reduction in outlays re-
sulting from clause (i) for the year in-
volved.
‘‘(3) NATIONAL AVERAGE PER CAPITA GROWTH
RATES.—In this subsection, the ‘national average
per capita growth rate’ for—
‘‘(A) 1996 is 5.3 percent,
‘‘(B) 1997 is 3.8 percent,
‘‘(C) 1998 is 4.6 percent,
‘‘(D) 1999 is 4.3 percent,
‘‘(E) 2000 is 3.8 percent,
‘‘(F) 2001 is 5.5 percent,
‘‘(G) 2002 is 5.6 percent, and
‘‘(H) each subsequent year is 5.0 percent.
‘‘(d) ASSIGNMENT OF PAYMENT AREAS TO SERVICE
UTILIZATION COHORTS.—
‘‘(1) IN GENERAL.—For purposes of determin-
ing per capita growth rates under subsection (c) for
Subtitle A, Part 1
areas for a year, the Secretary shall assign each pay-
ment area to a service utilization cohort (based on
the service utilization index value for that area de-
termined under paragraph (2)) as follows:
‘‘(A) LOWEST
SERVICE
UTILIZATION
CO-
HORT.—Areas with a service utilization index
value of less than .80 shall be assigned to the
lowest service utilization cohort.
‘‘(B) LOWER
SERVICE
UTILIZATION
CO-
HORT.—Areas with a service utilization index
value of at least .80 but less than .90 shall be
assigned to the lower service utilization cohort.
‘‘(C) MEDIAN
SERVICE
UTILIZATION
CO-
HORT.—Areas with a service utilization index
value of at least .90 but less than 1.10 shall be
assigned to the median service utilization co-
hort.
‘‘(D) HIGHER
SERVICE
UTILIZATION
CO-
HORT.—Areas with a service utilization index
value of at least 1.10 but less than 1.20 shall
be assigned to the higher service utilization co-
hort.
‘‘(E) HIGHEST SERVICE UTILIZATION CO-
HORT.—Areas with a service utilization index
Subtitle A, Part 1
value of at least 1.20 shall be assigned to the
highest service utilization cohort.
‘‘(2) DETERMINATION OF SERVICE UTILIZATION
INDEX VALUES.—In order to determine the per cap-
ita growth rate for a payment area for each year
(beginning with 1996), the Secretary shall determine
for such area and year a service utilization index
value, which is equal to—
‘‘(A) the annual MedicarePlus capitation
rate under this section for the area for the year
in which the determination is made (or, in the
case of 1996, the average annual per capita
rate 
of 
payment 
(described 
in 
section
1876(a)(1)(C)) for the area for 1995); divided
by
‘‘(B) the input-price-adjusted annual na-
tional MedicarePlus capitation rate (as deter-
mined under paragraph (3)) for that area for
the year in which the determination is made.
‘‘(3) DETERMINATION
OF
INPUT-PRICE-AD-
JUSTED RATES.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (2), the ‘input-price-adjusted annual na-
tional MedicarePlus capitation rate’ for a pay-
ment area for a year is equal to the sum, for
Subtitle A, Part 1
all the types of medicare services (as classified
by the Secretary), of the product (for each such
type) of—
‘‘(i) 
the 
national 
standardized
MedicarePlus capitation rate (determined
under subparagraph (B)) for the year,
‘‘(ii) the proportion of such rate for
the year which is attributable to such type
of services, and
‘‘(iii) an index that reflects (for that
year and that type of services) the relative
input price of such services in the area
compared to the national average input
price of such services.
In applying clause (iii), the Secretary shall, sub-
ject to subparagraph (C), apply those indices
under this title that are used in applying (or
updating) national payment rates for specific
areas and localities.
‘‘(B) 
NATIONAL
STANDARDIZED
MEDICAREPLUS
CAPITATION
RATE.—In this
paragraph, 
the 
‘national 
standardized
MedicarePlus capitation rate’ for a year is
equal to—
Subtitle A, Part 1
‘‘(i) the sum (for all payment areas)
of 
the 
product 
of 
(I) 
the 
annual
MedicarePlus capitation rate for that year
for the area under subsection (b)(2), and
(II) the average number of medicare bene-
ficiaries residing in that area in the year;
divided by
‘‘(ii) the total average number of med-
icare beneficiaries residing in all the pay-
ment areas for that year.
‘‘(C) SPECIAL RULES FOR 1996.—In apply-
ing this paragraph for 1996—
‘‘(i) medicare services shall be divided
into 2 types of services: part A services
and part B services;
‘‘(ii) the proportions described in sub-
paragraph (A)(ii) for such types of services
shall be—
‘‘(I) for part A services, the ratio
(expressed as a percentage) of the av-
erage annual per capita rate of pay-
ment for the area for part A for 1995
to the total average annual per capita
rate of payment for the area for parts
A and B for 1995, and
Subtitle A, Part 1
‘‘(II) for part B services, 100
percent minus the ratio described in
subclause (I);
‘‘(iii) for the part A services, 70 per-
cent of payments attributable to such serv-
ices shall be adjusted by the index used
under section 1886(d)(3)(E) to adjust pay-
ment rates for relative hospital wage levels
for hospitals located in the payment area
involved;
‘‘(iv) for part B services—
‘‘(I) 66 percent of payments at-
tributable to such services shall be ad-
justed by the index of the geographic
area factors under section 1848(e)
used to adjust payment rates for phy-
sicians’ services furnished in the pay-
ment area, and
‘‘(II) of the remaining 34 percent
of the amount of such payments, 70
percent shall be adjusted by the index
described in clause (iii);
‘‘(v) the index values shall be com-
puted based only on the beneficiary popu-
lation described in subsection (b)(5)(A).
Subtitle A, Part 1
The Secretary may continue to apply the rules
described in this subparagraph (or similar
rules) for 1997.
‘‘(e) PAYMENT PROCESS.—
‘‘(1) IN GENERAL.—Subject to subsection (f),
the Secretary shall make monthly payments under
this section in advance and in accordance with the
rate determined under subsection (a) to the plan for
each individual enrolled with a MedicarePlus organi-
zation under this part.
‘‘(2) ADJUSTMENT
TO
REFLECT
NUMBER
OF
ENROLLEES.—
‘‘(A) IN GENERAL.—The amount of pay-
ment under this subsection may be retroactively
adjusted to take into account any difference be-
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
EN-
ROLLEES.—
‘‘(i) IN GENERAL.—Subject to clause
(ii), the Secretary may make retroactive
adjustments under subparagraph (A) to
Subtitle A, Part 1
take into account individuals enrolled dur-
ing the period beginning on the date on
which 
the 
individual 
enrolls 
with 
a
MedicarePlus organization under a product
operated, sponsored, or contributed to by
the individual’s employer or former em-
ployer (or the employer or former employer
of the individual’s spouse) and ending on
the date on which the individual is enrolled
in the organization under this part, except
that for purposes of making such retro-
active adjustments under this subpara-
graph, such period may not exceed 90
days.
‘‘(ii) 
EXCEPTION.—No 
adjustment
may be made under clause (i) with respect
to any individual who does not certify that
the organization provided the individual
with the disclosure statement described in
section 1853(a) at the time the individual
enrolled with the organization.
‘‘(f) SPECIAL RULES FOR INDIVIDUALS ELECTING
HIGH DEDUCTIBLE/MEDISAVE PRODUCT.—
‘‘(1) IN GENERAL.—In the case of an individual
who has elected a high deductible/medisave product,
Subtitle A, Part 1
notwithstanding the preceding provisions of this sec-
tion—
‘‘(A) the amount of the payment to the
MedicarePlus organization offering the high de-
ductible/medisave product shall not exceed the
premium for the product, and
‘‘(B) subject to paragraph (2), the dif-
ference between the amount of payment that
would otherwise be made and the amount of
payment to such organization shall be made di-
rectly into a MedicarePlus MSA established
(and, if applicable, designated) by the individual
under paragraph (2).
‘‘(2) ESTABLISHMENT
AND
DESIGNATION
OF
MEDICAREPLUS MEDICAL SAVINGS ACCOUNT AS RE-
QUIREMENT FOR PAYMENT OF CONTRIBUTION.—In
the case of an individual who has elected coverage
under a high deductible/medisave product, no pay-
ment shall be made under paragraph (1)(B) on be-
half of an individual for a month unless the individ-
ual—
‘‘(A) has established before the beginning
of the month (or by such other deadline as the
Secretary may specify) a MedicarePlus MSA
Subtitle A, Part 1
(as defined in section 137(b) of the Internal
Revenue Code of 1986), and
‘‘(B) if the individual has established more
than one MedicarePlus MSA, has designated
one of such accounts as the individual’s
MedicarePlus 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 indi-
vidual electing a high deductible/medisave product
effective beginning with a month in a year, the
amount of the contribution to the MedicarePlus
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 before the end of
a year, the Secretary shall provide for a procedure
for the recovery of deposits attributable to the re-
maining months in the year.
‘‘(g) PAYMENTS FROM TRUST FUND.—The payment
to a MedicarePlus organization under this section for indi-
viduals enrolled under this part with the organization, and
payments to a MedicarePlus MSA under subsection
Subtitle A, Part 1
(f)(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.
‘‘(h) 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 effec-
tive date of the individual’s—
‘‘(1) election under this part of a MedicarePlus
product offered by a MedicarePlus organization—
‘‘(A) payment for such services until the
date of the individual’s discharge shall be made
under this title through the MedicarePlus prod-
uct or Non-MedicarePlus option (as the case
may be) elected before the election with such
organization,
‘‘(B) the elected organization shall not be
financially responsible for payment for such
services until the date after the date of the indi-
vidual’s discharge, and
Subtitle A, Part 1
‘‘(C) the organization shall nonetheless be
paid the full amount otherwise payable to the
organization under this part; or
‘‘(2) termination of election with respect to a
MedicarePlus organization under this part—
‘‘(A) the organization shall be financially
responsible for payment for such services after
such date and until the date of the individual’s
discharge,
‘‘(B) payment for such services during the
stay shall not be made under section 1886(d) or
by any succeeding MedicarePlus organization,
and
‘‘(C) the terminated organization shall not
receive any payment with respect to the individ-
ual under this part during the period the indi-
vidual is not enrolled.
‘‘ESTABLISHMENT OF STANDARDS FOR MEDICARE-PLUS
ORGANIZATIONS AND PRODUCTS
‘‘SEC. 1856. (a) STANDARDS APPLICABLE TO STATE-
REGULATED ORGANIZATIONS AND PRODUCTS.—
‘‘(1) RECOMMENDATIONS OF NAIC.—The Sec-
retary shall request the National Association of In-
surance Commissioners to develop and submit to the
Secretary, not later than 12 months after the date
of the enactment of the Medicare Preservation Act
Subtitle A, Part 1
of 1995, proposed standards consistent with the re-
quirements of this part for MedicarePlus organiza-
tions (other than union sponsors, Taft-Hartley spon-
sors, and provider-sponsored organizations) and
MedicarePlus products offered by such organiza-
tions, except that such proposed standards may re-
late to MedicarePlus organizations that are qualified
associations only with respect to MedicarePlus prod-
ucts offered by them and only if such products are
issued by organizations to which section 1851(b)(1)
applies.
‘‘(2) REVIEW.—If the Association submits such
standards on a timely basis, the Secretary shall re-
view such standards to determine if the standards
meet the requirements of the part. The Secretary
shall complete the review of the standards not later
than 90 days after the date of their submission. The
Secretary shall promulgate such proposed standards
to apply to organizations and products described in
paragraph (1) except to the extent that the Sec-
retary modifies such proposed standards because
they do not meet such requirements.
‘‘(3) FAILURE TO SUBMIT.—If the Association
does not submit such standards on a timely basis,
the Secretary shall promulgate such standards by
Subtitle A, Part 1
not later than the date the Secretary would other-
wise have been required to promulgate standards
under paragraph (2).
‘‘(4) USE OF INTERIM RULES.—For the period
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, 1996, 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 im-
plementation of this part. Such interim standards
shall not apply after the date standards are estab-
lished under the preceding provisions of this sub-
section.
‘‘(b) UNION AND TAFT-HARTLEY SPONSORS, QUALI-
FIED ASSOCIATIONS, AND PRODUCTS.—
‘‘(1) IN GENERAL.—The Secretary shall develop
and promulgate by regulation standards consistent
with the requirements of this part for union and
Taft-Hartley sponsors, for qualified associations,
and for MedicarePlus products offered by such orga-
nizations (other than MedicarePlus products offered
by qualified associations that are issued by organiza-
tions to which section 1851(b)(1) applies).
Subtitle A, Part 1
‘‘(2) CONSULTATION WITH LABOR.—The Sec-
retary shall consult with the Secretary of Labor with
respect to such standards for such sponsors and
products.
‘‘(3) TIMING.—Standards under this subsection
shall be promulgated at or about the time standards
are promulgated under subsection (a).
‘‘(c) ESTABLISHMENT
OF STANDARDS
FOR PRO-
VIDER-SPONSORED ORGANIZATIONS.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish, on an expedited basis and using a negotiated
rulemaking process under subchapter 3 of chapter 5
of title 5, United States Code, standards that enti-
ties must meet to qualify as provider-sponsored or-
ganizations under this part.
‘‘(2) PUBLICATION
OF
NOTICE.—In carrying
out the rulemaking process under this subsection,
the Secretary, after consultation with the National
Association of Insurance Commissioners, the Amer-
ican Academy of Actuaries, organizations represent-
ative 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 Medicare Preservation Act of 1995.
Subtitle A, Part 1
‘‘(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 September 1, 1996.
‘‘(4) ABBREVIATED
PERIOD
FOR
SUBMISSION
OF COMMENTS.—In applying section 564(c) of such
title under this subsection, ‘15 days’ shall be sub-
stituted for ‘30 days’.
‘‘(5) APPOINTMENT
OF
NEGOTIATED
RULE-
MAKING COMMITTEE AND FACILITATOR.—The Sec-
retary shall provide for—
‘‘(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
Subtitle A, Part 1
later than June 1, 1996, regarding the committee’s
progress on achieving a concensus with regard to the
rulemaking proceeding and whether such consensus
is likely to occur before one 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 Sec-
retary may terminate such process and provide for
the publication of a rule under this subsection
through such other methods as the Secretary may
provide.
‘‘(7) FINAL COMMITTEE REPORT.—If the com-
mittee is not terminated under paragraph (6), the
rulemaking committee shall submit a report contain-
ing a proposed rule by not later than one month be-
fore the target publication date.
‘‘(8) INTERIM, FINAL EFFECT.—The Secretary
shall publish a rule under this subsection in the Fed-
eral Register by not later than the target publication
date. 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
Subtitle A, Part 1
shall specify the process for the timely review and
approval 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
COMMENT.—The Secretary shall provide for consid-
eration of such comments and republication of such
rule by not later than 1 year after the target publi-
cation date.
‘‘(10) PROCESS
FOR
APPROVAL
OF
APPLICA-
TIONS FOR CERTIFICATION.—
‘‘(A) IN
GENERAL.—The Secretary shall
establish a process for the receipt and approval
of applications of entities for certification as
provider-sponsored organizations under this
part. Under such process, the Secretary shall
act upon a complete application submitted with-
in 60 days after the date it is received.
‘‘(B) CIRCULATION OF PROPOSED APPLI-
CATION FORM.—By March 1, 1996, the Sec-
retary, after consultation with the negotiated
rulemaking committee, shall circulate a pro-
posed application form that could be used by
entities considering becoming certified as a pro-
vider-sponsored organization under this part.
Subtitle A, Part 1
‘‘(d) COORDINATION AMONG FINAL STANDARDS.—In
establishing standards (other than on an interim basis)
under the previous provisions of this section, the Secretary
shall seek to provide for consistency (as appropriate)
across the different types of MedicarePlus organizations,
in order to promote equitable treatment of different types
of organizations and consistent protection for individuals
who elect products offered by the different types of
MedicarePlus organizations.
‘‘(e) USE OF CURRENT STANDARDS FOR INTERIM
STANDARDS.—To the extent practicable and consistent
with the requirements of this part, standards established
on an interim basis to carry out requirements of this part
may be based on currently applicable standards, such as
the rules established under section 1876 (as in effect as
of the date of the enactment of this section) to carry out
analogous provisions of such section or standards estab-
lished or developed for application in the private health
insurance market.
‘‘(f) APPLICATION OF NEW STANDARDS TO ENTITIES
WITH A CONTRACT.—In the case of a MedicarePlus orga-
nization with a contract in effect under this part at the
time standards applicable to the organization under this
section are changed, the organization may elect not to
have such changes apply to the organization until the end
100
Subtitle A, Part 1
of the current contract 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).
‘‘(g) RELATION TO STATE LAWS.—The standards es-
tablished under this section shall supersede any State law
or regulation with respect to MedicarePlus products which
are offered by MedicarePlus organizations and are issued
by organizations to which section 1851(b)(1) applies, to
the extent such law or regulation is inconsistent with such
standards.
‘‘MEDICARE-PLUS CERTIFICATION
‘‘SEC. 1857. (a) STATE CERTIFICATION PROCESS
FOR STATE-REGULATED ORGANIZATIONS.—
‘‘(1) APPROVAL OF STATE PROCESS.—The Sec-
retary shall approve a MedicarePlus certification and
enforcement program established by a State for ap-
plying the standards established under section 1856
to MedicarePlus organizations (other than union
sponsors, Taft-Hartley sponsors, and provider-spon-
sored organizations) and MedicarePlus products of-
fered by such organizations if the Secretary deter-
mines that the program effectively provides for the
application and enforcement of such standards in
the State with respect to such organizations and
products. Such program shall provide for certifi-
cation of compliance of MedicarePlus organizations
101
Subtitle A, Part 1
and products with the applicable requirements of
this part not less often than once every 3 years.
‘‘(2) EFFECT OF CERTIFICATION UNDER STATE
PROCESS.—A 
MedicarePlus 
organization 
and
MedicarePlus product offered by such an organiza-
tion that is certified under such program is consid-
ered to have been certified under this subsection
with respect to the offering of the product to individ-
uals residing in the State.
‘‘(3) USER FEES.—The State may impose user
fees on organizations seeking certification under this
subsection in such amounts as the State deems suffi-
cient to finance the costs of such certification. Noth-
ing in this paragraph shall be construed as restrict-
ing a State’s authority to impose premium taxes,
other taxes, or other levies.
‘‘(4) REVIEW.—The Secretary periodically shall
review State programs approved under paragraph
(1) to determine if they continue to provide for cer-
tification and enforcement described in such para-
graph. If the Secretary finds that a State program
no longer so provides, before making a final deter-
mination, the Secretary shall provide the State an
opportunity to adopt such a plan of correction as
would permit the State program to meet the require-
102
Subtitle A, Part 1
ments of paragraph (1). If the Secretary makes a
final determination that the State program, after
such an opportunity, fails to meet such require-
ments, the provisions of subsection (b) shall apply to
MedicarePlus organizations and products in the
State.
‘‘(5) EFFECT OF NO STATE PROGRAM.—Begin-
ning on the date standards are established under
section 1856, in the case of organizations and prod-
ucts in States in which a certification program has
not been approved and in operation under paragraph
(1), the Secretary shall establish a process for the
certification of MedicarePlus organizations (other
than union sponsors, Taft-Hartley sponsors, and
provider-sponsored organizations) and products of
such organizations as meeting such standards.
‘‘(6) PUBLICATION
OF
LIST
OF
APPROVED
STATE
PROGRAMS.—The Secretary shall publish
(and periodically update) a list of those State pro-
grams which are approved for purposes of this sub-
section.
‘‘(b) FEDERAL CERTIFICATION PROCESS FOR UNION
SPONSORS, TAFT-HARTLEY SPONSORS, AND PROVIDER-
SPONSORED ORGANIZATIONS.—
103
Subtitle A, Part 1
‘‘(1) ESTABLISHMENT.—The Secretary shall es-
tablish a process for the certification of union spon-
sors, Taft-Hartley sponsors, and provider-sponsored
organizations and MedicarePlus products offered by
such sponsors and organizations as meeting the ap-
plicable standards established under section 1856.
‘‘(2) 
INVOLVEMENT
OF
SECRETARY
OF
LABOR.—Such process shall be established and oper-
ated in cooperation with the Secretary of Labor with
respect to union sponsors and Taft-Hartley spon-
sors.
‘‘(3) USE OF STATE LICENSING AND PRIVATE
ACCREDITATION PROCESSES.—
‘‘(A) IN
GENERAL.—The process under
this subsection shall, to the maximum extent
practicable, provide that MedicarePlus organi-
zations and products that are licensed or cer-
tified through a qualified private accreditation
process that the Secretary finds applies stand-
ards that are no less stringent than the require-
ments of this part are deemed to meet the cor-
responding requirements of this part for such
an organization or product.
‘‘(B) PERIODIC ACCREDITATION.—The use
of an accreditation under subparagraph (A)
104
Subtitle A, Part 1
shall be valid only for such period as the Sec-
retary specifies.
‘‘(4) USER FEES.—The Secretary may impose
user fees on entities seeking certification under this
subsection in such amounts as the Secretary deems
sufficient to finance the costs of such certification.
‘‘(c) CERTIFICATION OF PROVIDER-SPONSORED OR-
GANIZATIONS BY STATES.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish a process under which a State may propose to
provide for certification of entities as meeting the re-
quirements of this part to be provider-sponsored or-
ganizations.
‘‘(2) CONDITIONS
FOR
APPROVAL.—The Sec-
retary may not approve a State program for certifi-
cation under paragraph (1) unless the Secretary de-
termines that the certification program applies
standards and requirements that are identical to the
standards and requirements of this part and the ap-
plicable provisions for enforcement of such standards
and requirements do not result in a lower level or
quality of enforcement than that which is otherwise
applicable under this title.
‘‘(d) NOTICE TO ENROLLEES IN CASE OF DECERTI-
FICATION.—If a MedicarePlus organization or product is
105
Subtitle A, Part 1
decertified under this section, the organization shall notify
each enrollee with the organization and product under this
part of such decertification.
‘‘(e) QUALIFIED ASSOCIATIONS.—In the case of
MedicarePlus products offered by a MedicarePlus organi-
zation that is a qualified association (as defined in section
1854(c)(4)(C)) and issued by an organization to which
section 1851(b)(1) applies or by a provider-sponsored or-
ganization (as defined in section 1854(a)), nothing in this
section shall be construed as limiting the authority of
States to regulate such products.
‘‘CONTRACTS WITH MEDICAREPLUS ORGANIZATIONS
‘‘SEC. 1858. (a) IN GENERAL.—The Secretary shall
not permit the election under section 1805 of a
MedicarePlus product offered by a MedicarePlus organiza-
tion under this part, and no payment shall be made under
section 1856 to an organization, unless the Secretary has
entered into a contract under this section with an organi-
zation with respect to the offering of such product. Such
a contract with an organization may cover more than one
MedicarePlus product. Such contract shall provide that
the organization agrees to comply with the applicable re-
quirements and standards of this part and the terms and
conditions of payment as provided for in this part.
‘‘(b) MINIMUM ENROLLMENT REQUIREMENTS.—
106
Subtitle A, Part 1
‘‘(1) IN GENERAL.—Subject to paragraphs (1)
and (2), the Secretary may not enter into a contract
under this section with a MedicarePlus organization
(other than a union sponsor or Taft-Hartley spon-
sor) unless the organization has at least 5,000 indi-
viduals (or 1,500 individuals in the case of an orga-
nization that is a provider-sponsored organization)
who are receiving health benefits through the organi-
zation, except that the standards under section 1856
may permit the organization to have a lesser number
of beneficiaries (but not less than 500 in the case
of an organization that is a provider-sponsored orga-
nization) if the organization primarily serves individ-
uals residing outside of urbanized areas.
‘‘(2) EXCEPTION
FOR
HIGH
DEDUCTIBLE/
MEDISAVE PRODUCT.—Paragraph (1) shall not apply
with respect to a contract that relates only to a high
deductible/medisave product.
‘‘(3) ALLOWING
TRANSITION.—The Secretary
may waive the requirement of paragraph (1) during
the first 3 contract years with respect to an organi-
zation.
‘‘(c) CONTRACT PERIOD AND EFFECTIVENESS.—
‘‘(1) PERIOD.—Each contract under this sec-
tion shall be for a term of at least one year, as de-
107
Subtitle A, Part 1
termined by the Secretary, and may be made auto-
matically renewable from term to term in the ab-
sence of notice by either party of intention to termi-
nate at the end of the current term.
‘‘(2) TERMINATION
AUTHORITY.—In accord-
ance with procedures established under subsection
(h), the Secretary may at any time terminate any
such contract or may impose the intermediate sanc-
tions described in an applicable paragraph of sub-
section (g) on the MedicarePlus 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;
‘‘(C) is operating in a manner that is not
in the best interests of the individuals covered
under the contract; or
‘‘(D) no longer substantially meets the ap-
plicable conditions of this part.
‘‘(3) EFFECTIVE
DATE
OF
CONTRACTS.—The
effective 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
108
Subtitle A, Part 1
which provides for coverage under a high deductible/
medisave account be effective before January 1997
with respect to such coverage.
‘‘(4) PREVIOUS TERMINATIONS.—The Secretary
may not enter into a contract with a MedicarePlus
organization if a previous contract with that organi-
zation under this section was terminated at the re-
quest of the organization within the preceding five-
year period, except in circumstances which warrant
special consideration, as determined by the Sec-
retary.
‘‘(5) NO CONTRACTING AUTHORITY.—The au-
thority vested in the Secretary by this part may be
performed without regard to such provisions of law
or regulations relating to the making, performance,
amendment, or modification of contracts of the
United States as the Secretary may determine to be
inconsistent with the furtherance of the purpose of
this title.
‘‘(d) PROTECTIONS AGAINST FRAUD
AND BENE-
FICIARY 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—
109
Subtitle A, Part 1
‘‘(A) shall have the right to inspect or oth-
erwise evaluate (i) the quality, appropriateness,
and timeliness of services performed under the
contract and (ii) the facilities of the organiza-
tion 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
MedicarePlus organization that pertain (i) to
the ability of the organization to bear the risk
of potential financial losses, or (ii) to services
performed or determinations of amounts pay-
able under the contract.
‘‘(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
benefits under this title, to each individual enrolled
with the organization under this part.
‘‘(3) DISCLOSURE.—
‘‘(A) IN
GENERAL.—Each MedicarePlus
organization shall, in accordance with regula-
tions of the Secretary, report to the Secretary
110
Subtitle A, Part 1
financial information which shall include the
following:
‘‘(i) Such information as the Sec-
retary may require demonstrating that the
organization 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 dis-
closing entities.
‘‘(iii) A description of transactions, as
specified by the Secretary, between the or-
ganization and a party in interest. Such
transactions shall include—
‘‘(I) any sale or exchange, or
leasing of any property between the
organization 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 pro-
vided in the normal course of their
employment and health services pro-
111
Subtitle A, Part 1
vided to members by hospitals and
other providers and by staff, medical
group (or groups), individual practice
association (or associations), or any
combination thereof; and
‘‘(III) any lending of money or
other extension of credit between an
organization and a party in interest.
The Secretary may require that information re-
ported respecting an organization which con-
trols, is controlled by, or is under common con-
trol with, another entity be in the form of a
consolidated financial statement for the organi-
zation and such entity.
‘‘(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
administration of a MedicarePlus 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
112
Subtitle A, Part 1
interest secured by, and valuing more than
5 percent of the organization, and, in the
case of a MedicarePlus 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
‘‘(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 com-
mon control with an organization; and
‘‘(iv) any spouse, child, or parent of
an individual described in clause (i).
‘‘(C) ACCESS
TO
INFORMATION.—Each
MedicarePlus organization shall make the infor-
113
Subtitle A, Part 1
mation reported pursuant to subparagraph (A)
available to its enrollees upon reasonable re-
quest.
‘‘(4) LOAN INFORMATION.—The contract shall
require the organization to notify the Secretary of
loans and other special financial arrangements which
are made between the organization and subcontrac-
tors, affiliates, and related parties.
‘‘(e) ADDITIONAL CONTRACT TERMS.—The contract
shall contain such other terms and conditions not incon-
sistent with this part (including requiring the organization
to provide the Secretary with such information) as the
Secretary may find necessary and appropriate.
‘‘(f) INTERMEDIATE SANCTIONS.—
‘‘(1) IN GENERAL.—If the Secretary determines
that a MedicarePlus organization with a contract
under this section—
‘‘(A) fails substantially to provide medi-
cally necessary items and services that are re-
quired (under law or under the contract) to be
provided to an individual covered under the con-
tract, if the failure has adversely affected (or
has substantial likelihood of adversely affecting)
the individual;
114
Subtitle A, Part 1
‘‘(B) imposes premiums on individuals en-
rolled under this part in excess of the 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 de-
nying or discouraging enrollment (except as
permitted by this part) by eligible individuals
with the organization whose medical condition
or history indicates a need for substantial fu-
ture medical 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(f)(3); or
‘‘(G) employs or contracts with any indi-
vidual or entity that is excluded from participa-
tion under this title under section 1128 or
1128A for the provision of health care, utiliza-
115
Subtitle A, Part 1
tion review, medical social work, or administra-
tive 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 determina-
tion under subparagraph (D) or (E)(i) of such
paragraph, of not more than $100,000 for each
such determination, plus, with respect to a de-
termination 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 re-
spect to a determination under paragraph
(1)(D), $15,000 for each individual not enrolled
as a result of the practice involved,
116
Subtitle A, Part 1
‘‘(B) suspension of enrollment of individ-
uals under this part after the date the Sec-
retary notifies the organization of a determina-
tion under paragraph (1) and until the Sec-
retary is satisfied that the basis for such deter-
mination has been corrected and is not likely to
recur, or
‘‘(C) suspension of payment to the organi-
zation under this part for individuals enrolled
after the date the Secretary notifies the organi-
zation 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 MedicarePlus organization for which
the Secretary makes a determination under sub-
section (c)(2) the basis of which is not described in
paragraph (1), the Secretary may apply the follow-
ing intermediate sanctions:
‘‘(A) civil money penalties of not more
than $25,000 for each determination under
subsection (c)(2) if the deficiency that is the
basis of the determination has directly adversely
affected (or has the substantial likelihood of ad-
117
Subtitle A, Part 1
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 (h) during which the deficiency that
is the basis of a determination under subsection
(c)(2) exists; and
‘‘(C) suspension of enrollment of individ-
uals under this part after the date the Sec-
retary notifies the organization of a determina-
tion under subsection (c)(2) and until the Sec-
retary is satisfied that the deficiency that is the
basis for the determination has been corrected
and is not likely to recur.
‘‘(4) 
PROCEDURES
FOR
IMPOSING
SANC-
TIONS.—The provisions of section 1128A (other
than subsections (a) and (b)) shall apply to a civil
money penalty under paragraph (1) or (2) in the
same manner as they apply to a civil money penalty
or proceeding under section 1128A(a).
‘‘(g) PROCEDURES FOR IMPOSING SANCTIONS.—The
Secretary may terminate a contract with a MedicarePlus
organization under this section or may impose the inter-
mediate sanctions described in subsection (f) on the orga-
118
Subtitle A, Part 1
nization in accordance with formal investigation and com-
pliance procedures established by the Secretary under
which—
‘‘(1) the Secretary provides the organization
with the opportunity to develop and implement a
corrective action plan to correct the deficiencies that
were the basis of the Secretary’s determination
under subsection (c)(2);
‘‘(2) the Secretary shall impose more severe
sanctions on organizations that have a history of de-
ficiencies or that have not taken steps to correct de-
ficiencies the Secretary has brought to their atten-
tion;
‘‘(3) there are no unreasonable or unnecessary
delays between the finding of a deficiency and the
imposition of sanctions; and
‘‘(4) the Secretary provides the organization
with reasonable notice and opportunity for hearing
(including the right to appeal an initial decision) be-
fore imposing any sanction or terminating the con-
tract.’’.
(b) 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 So-
119
Subtitle A, Part 1
cial Security Act is deemed a reference to part D of such
title (as in effect after such date).
(c) USE
OF INTERIM, FINAL REGULATIONS.—In
order to carry out the amendment made by subsection (a)
in a timely manner, the Secretary of Health and Human
Services may promulgate regulations that take effect on
an interim basis, after notice and pending opportunity for
public comment.
(d) ADVANCE DIRECTIVES.—Section 1866(f) (42
U.S.C. 1395cc(f)) is amended—
(1) in paragraph (1)—
(A) 
by 
inserting 
‘‘1853(g),’’ 
after
‘‘1833(s),’’, and
(B) by inserting ‘‘, MedicarePlus organiza-
tion,’’ after ‘‘provider of services’’, and
(2) by adding at the end the following new
paragraph:
‘‘(4) Nothing in this subsection shall be construed to
require the provision of information regarding assisted
suicide, euthanasia, or mercy killing.’’.
(e) 
CONFORMING
AMENDMENT.—Section
1866(a)(1)(O) (42 U.S.C. 1395cc(a)(1)(O)) is amended
by inserting before the semicolon at the end the following:
‘‘and in the case of hospitals to accept as payment in full
for inpatient hospital services that are emergency services
120
Subtitle A, Part 1
(as defined in section 1853(b)(4)) that are covered under
this title and are furnished to any individual enrolled
under part C with a MedicarePlus organization which does
not have a contract establishing payment amounts for
services furnished to members of the organization the
amounts that would be made as a payment in full under
this title if the individuals were not so enrolled’’.
SEC. 15003. DUPLICATION AND COORDINATION OF MEDI-
CARE-RELATED PRODUCTS.
(a) TREATMENT OF CERTAIN HEALTH INSURANCE
POLICIES AS NONDUPLICATIVE.—
(1) IN GENERAL.—Effective as if included in
the enactment of section 4354 of the Omnibus
Budget 
Reconciliation 
Act 
of 
1990, 
section
1882(d)(3)(A) (42 U.S.C. 1395ss(d)(3)(A)) is
amended—
(A) by amending clause (i) to read as fol-
lows:
‘‘(i) It is unlawful for a person to sell or issue to an
individual entitled to benefits under part A or enrolled
under part B of this title or electing a MedicarePlus prod-
uct under section 1805—
‘‘(I) a health insurance policy (other than a
medicare supplemental policy) with knowledge that
the policy duplicates health benefits to which the in-
121
Subtitle A, Part 1
dividual is otherwise entitled under this title or title
XIX,
‘‘(II) in the case of an individual not electing a
MedicarePlus product, a medicare supplemental pol-
icy with knowledge that the individual is entitled to
benefits under another medicare supplemental policy,
or
‘‘(III) in the case of an individual electing a
MedicarePlus product, a medicare supplemental pol-
icy with knowledge that the policy duplicates health
benefits to which the individual is otherwise entitled
under this title or under another medicare supple-
mental policy.’’;
(B) in clause (iii), by striking ‘‘clause (i)’’
and inserting ‘‘clause (i)(II)’’; and
(C) by adding at the end the following new
clauses:
‘‘(iv) For purposes of this subparagraph a health in-
surance policy shall be considered to ‘duplicate’ benefits
under this title only when, under its terms, the policy pro-
vides specific reimbursement for identical items and serv-
ices to the extent paid for under this title, and a health
insurance policy providing for benefits which are payable
to or on behalf of an individual without regard to other
122
Subtitle A, Part 1
health benefit coverage of such individual is not considered
to ‘duplicate’ any health benefits under this title.
‘‘(v) For purposes of this subparagraph, a health in-
surance policy (or a rider to an insurance contract which
is not a health insurance policy), including a policy (such
as a long-term care insurance contract described in section
7702B(b) of the Internal Revenue Code of 1986, as added
by the Contract with America Tax Relief Act of 1995
(H.R. 1215)) providing benefits for long-term care, nurs-
ing home care, home health care, or community-based
care, that coordinates against or excludes items and serv-
ices available or paid for under this title and (for policies
sold or issued after January 1, 1996) that discloses such
coordination or exclusion in the policy’s outline of cov-
erage, is not considered to ‘duplicate’ health benefits
under this title. For purposes of this clause, the terms ‘co-
ordinates’ and ‘coordination’ mean, with respect to a pol-
icy in relation to health benefits under this title, that the
policy under its terms is secondary to, or excludes from
payment, items and services to the extent available or paid
for under this title.
‘‘(vi) Notwithstanding any other provision of law, no
criminal or civil penalty may be imposed at any time under
this subparagraph and no legal action may be brought or
continued at any time in any Federal or State court if
123
Subtitle A, Part 1
the penalty or action is based on an act or omission that
occurred after November 5, 1991, and before the date of
the enactment of this clause, and relates to the sale, issu-
ance, or renewal of any health insurance policy during
such period, if such policy meets the requirements of
clause (iv) or (v).
‘‘(vii) A State may not impose, with respect to the
sale or issuance of a policy (or rider) that meets the re-
quirements of this title pursuant to clause (iv) or (v) to
an individual entitled to benefits under part A or enrolled
under part B or enrolled under a MedicarePlus product
under part C, any requirement based on the premise that
such a policy or rider duplicates health benefits to which
the individual is otherwise entitled under this title.’’.
(2) 
CONFORMING
AMENDMENTS.—Section
1882(d)(3) (42 U.S.C. 1395ss(d)(3)) is amended—
(A) in subparagraph (B), by inserting
‘‘(including any MedicarePlus product)’’ after
‘‘health insurance policies’’;
(B) in subparagraph (C)—
(i) by striking ‘‘with respect to (i)’’
and inserting ‘‘with respect to’’, and
(ii) by striking ‘‘, (ii) the sale’’ and all
that follows up to the period at the end;
and
124
Subtitle A, Part 1
(C) by striking subparagraph (D).
(3) MEDICAREPLUS PRODUCTS NOT TREATED
AS MEDICARE SUPPLEMENTARY POLICIES.—Section
1882(g) (42 U.S.C. 1395ss(g)) is amended by in-
serting ‘‘a MedicarePlus product or’’ after ‘‘and does
not include’’
(4) REPORT ON DUPLICATION AND COORDINA-
TION OF HEALTH INSURANCE POLICIES THAT ARE
NOT
MEDICARE
SUPPLEMENTAL
POLICIES.—Not
later than 3 years after the date of the enactment
of this Act, the Secretary of Health and Human
Services shall prepare and submit to Congress a re-
port on the advisability and feasibility of restricting
the sale to medicare beneficiaries of health insurance
policies that duplicate (within the meaning of section
1882(d)(3)(A) of the Social Security Act) other
health insurance policies that such a beneficiary may
have. In preparing such report, the Secretary shall
seek the advice of the National Association of Insur-
ance Commissioners and shall take into account the
standards established under section 1807 of the So-
cial Security Act for the electronic coordination of
benefits.
(b) ADDITIONAL RULES RELATING TO INDIVIDUALS
ENROLLED
IN
MEDICAREPLUS
PRODUCTS.—Section
125
Subtitle A, Part 1
1882 (42 U.S.C. 1395ss) is further amended by adding
at the end the following new subsection:
‘‘(u)(1) Notwithstanding the previous provisions of
this section, the following provisions shall not apply to a
health insurance policy (other than a medicare supple-
mental policy) provided to an individual who has elected
the MedicarePlus option under section 1805:
‘‘(A) Subsections (o)(1), (o)(2), (p)(1)(A)(i),
(p)(2), (p)(3), (p)(8), and (p)(9) (insofar as they re-
late to limitations on benefits or groups of benefits
that may be offered).
‘‘(B) Subsection (r) (relating to loss-ratios).
‘‘(2)(A) It is unlawful for a person to sell or issue
a policy described in subparagraph (B) to an individual
with knowledge that the individual has in effect under sec-
tion 1805 an election of a high deductible/medisave prod-
uct.
‘‘(B) 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
high deductible/medisave product.’’.
SEC. 15004. TRANSITIONAL RULES FOR CURRENT MEDI-
CARE HMO PROGRAM.
(a) TRANSITION FROM CURRENT CONTRACTS.—
126
Subtitle A, Part 1
(1) LIMITATION ON NEW CONTRACTS.—
(A) NO
NEW
RISK-SHARING
CONTRACTS
AFTER
NEW
STANDARDS
ESTABLISHED.—The
Secretary of Health and Human Services (in
this section referred to as the ‘‘Secretary’’)
shall not enter into any risk-sharing contract
under section 1876 of the Social Security Act
with an eligible organization for any contract
year beginning on or after the date standards
for MedicarePlus organizations and products
are first established under section 1856(a) of
such Act with respect to MedicarePlus organi-
zations that are insurers or health maintenance
organizations unless such a contract had been
in effect under section 1876 of such Act for the
organization for the previous contract year.
(B) NO NEW COST REIMBURSEMENT CON-
TRACTS.—The Secretary shall not enter into
any cost reimbursement contract under section
1876 of the Social Security Act beginning for
any contract year beginning on or after the
date of the enactment of this Act.
(2) TERMINATION OF CURRENT CONTRACTS.—
(A) RISK-SHARING CONTRACTS.—Notwith-
standing any other provision of law, the Sec-
127
Subtitle A, Part 1
retary shall not extend or continue any risk-
sharing contract with an eligible organization
under section 1876 of the Social Security Act
(for which a contract was entered into consist-
ent with paragraph (1)(A)) for any contract
year beginning on or after 1 year after the date
standards described in paragraph (1)(A) are es-
tablished.
(B) COST REIMBURSEMENT CONTRACTS.—
The Secretary shall not extend or continue any
reasonable cost reimbursement contract with an
eligible organization under section 1876 of the
Social Security Act for any contract year begin-
ning on or after January 1, 1998.
(b) CONFORMING PAYMENT RATES.—
(1) RISK-SHARING CONTRACTS.—Notwithstand-
ing any other provision of law, the Secretary shall
provide that payment amounts under risk-sharing
contracts under section 1876(a) of the Social Secu-
rity Act for months in a year (beginning with Janu-
ary 1996) shall be computed—
(A) with respect to individuals entitled to
benefits under both parts A and B of title
XVIII of such Act, by substituting payment
rates under section 1855(a) of such Act for the
129
Subtitle A, Part 2
(c) ELIMINATION OF 50:50 RULE.—
(1) IN
GENERAL.—Section 1876 (42 U.S.C.
1395mm) is amended by striking subsection (f).
(2) CONFORMING AMENDMENTS.—Section 1876
is further amended—
(A) in subsection (c)(3)(A)(i), by striking
‘‘would result in failure to meet the require-
ments of subsection (f) or’’, and
(B) in subsection (i)(1)(C), by striking
‘‘(e), and (f)’’ and inserting ‘‘and (e)’’.
(3) EFFECTIVE DATE.—The amendments made
by this section shall apply to contract years begin-
ning on or after January 1, 1996.
PART 2—SPECIAL RULES FOR MEDICAREPLUS
MEDICAL SAVINGS ACCOUNTS
SEC. 15011. MEDICAREPLUS MSA’S.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
amounts specifically excluded from gross income) is
amended by redesignating section 137 as section 138 and
by inserting after section 136 the following new section:
‘‘SEC. 137. MEDICAREPLUS MSA’S.
‘‘(a) EXCLUSION.—Gross income shall not include
any payment to the MedicarePlus MSA of an individual
130
Subtitle A, Part 2
by the Secretary of Health and Human Services under
section 1855(f)(1)(B) of the Social Security Act.
‘‘(b) MEDICAREPLUS MSA.—For purposes of this
section—
‘‘(1) 
MEDICAREPLUS
MSA.—The 
term
‘MedicarePlus MSA’ means a trust created or orga-
nized in the United States exclusively for the pur-
pose of paying the qualified medical expenses of the
account holder, but only if the written governing in-
strument creating the trust meets the following re-
quirements:
‘‘(A) Except in the case of a trustee-to-
trustee transfer described in subsection (d)(4),
no contribution will be accepted unless it is
made by the Secretary of Health and Human
Services under section 1855(f)(1)(B) of the So-
cial Security Act.
‘‘(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as de-
fined in section 816), or another person who
demonstrates to the satisfaction of the Sec-
retary that the manner in which such person
will administer the trust will be consistent with
the requirements of this section.
131
Subtitle A, Part 2
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts.
‘‘(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(E) The interest of an individual in the
balance in his account is nonforfeitable.
‘‘(F) Trustee-to-trustee transfers described
in subsection (d)(4) may be made to and from
the trust.
‘‘(2) QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
medical expenses’ means, with respect to an ac-
count holder, amounts paid by such holder—
‘‘(i) for medical care (as defined in
section 213(d)) for the account holder, but
only to the extent such amounts are not
compensated for by insurance or otherwise,
or
‘‘(ii) for long-term care insurance for
the account holder.
‘‘(B) HEALTH
INSURANCE
MAY
NOT
BE
PURCHASED
FROM
ACCOUNT.—Subparagraph
132
Subtitle A, Part 2
(A)(i) shall not apply to any payment for insur-
ance.
‘‘(3) ACCOUNT
HOLDER.—The term ‘account
holder’ means the individual on whose behalf the
MedicarePlus MSA is maintained.
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar
to the rules of subsections (g) and (h) of section 408
shall apply for purposes of this section.
‘‘(c) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—A MedicarePlus MSA is ex-
empt from taxation under this subtitle unless such
MSA has ceased to be a MedicarePlus MSA by rea-
son of paragraph (2). Notwithstanding the preceding
sentence, any such MSA is subject to the taxes im-
posed by section 511 (relating to imposition of tax
on unrelated business income of charitable, etc. or-
ganizations).
‘‘(2) ACCOUNT ASSETS TREATED AS DISTRIB-
UTED IN THE CASE OF PROHIBITED TRANSACTIONS
OR ACCOUNT PLEDGED AS SECURITY FOR LOAN.—
Rules similar to the rules of paragraphs (2) and (4)
of section 408(e) shall apply to MedicarePlus
MSA’s, and any amount treated as distributed under
such rules shall be treated as not used to pay quali-
fied medical expenses.
133
Subtitle A, Part 2
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION OF AMOUNTS NOT USED FOR
QUALIFIED MEDICAL EXPENSES.—No amount shall
be included in the gross income of the account hold-
er by reason of a payment or distribution from a
MedicarePlus MSA which is used exclusively to pay
the qualified medical expenses of the account holder.
Any 
amount 
paid 
or 
distributed 
from 
a
MedicarePlus MSA which is not so used shall be in-
cluded in the gross income of such holder.
‘‘(2) PENALTY FOR DISTRIBUTIONS NOT USED
FOR
QUALIFIED
MEDICAL
EXPENSES
IF
MINIMUM
BALANCE NOT MAINTAINED.—
‘‘(A) IN GENERAL.—The tax imposed by
this chapter for any taxable year in which there
is 
a 
payment 
or 
distribution 
from 
a
MedicarePlus MSA which is not used exclu-
sively to pay the qualified medical expenses of
the account holder shall be increased by 50 per-
cent of the excess (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 the MedicarePlus MSA as of
134
Subtitle A, Part 2
the close of the calendar year preced-
ing the calendar year in which the
taxable year begins, over
‘‘(II) an amount equal to 60 per-
cent of the deductible under the high
deductible/medisave product covering
the account holder as of January 1 of
the calendar year in which the taxable
year begins.
‘‘(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
meaning of section 72(m)(7), or
‘‘(ii) dies.
‘‘(C) SPECIAL
RULES.—For purposes of
subparagraph (A)—
‘‘(i) all MedicarePlus MSA’s of the ac-
count 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
during any taxable year shall be treated as
1 distribution, and
135
Subtitle A, Part 2
‘‘(iii) any distribution of property
shall be taken into account at its fair mar-
ket value on the date of the distribution.
‘‘(3) WITHDRAWAL OF ERRONEOUS CONTRIBU-
TIONS.—Paragraphs (1) and (2) shall not apply to
any payment or distribution from a MedicarePlus
MSA to the Secretary of Health and Human Serv-
ices of an erroneous contribution to such MSA and
of the net income attributable to such contribution.
‘‘(4) 
TRUSTEE-TO-TRUSTEE
TRANSFERS.—
Paragraphs (1) and (2) shall not apply to any trust-
ee-to-trustee transfer from a MedicarePlus MSA of
an account holder to another MedicarePlus MSA of
such account holder.
‘‘(5) COORDINATION WITH MEDICAL EXPENSE
DEDUCTION.—For purposes of section 213, any pay-
ment or distribution out of a MedicarePlus MSA for
qualified medical expenses shall not be treated as an
expense paid for medical care.
‘‘(e) TREATMENT OF ACCOUNT AFTER DEATH OF
ACCOUNT HOLDER.—
‘‘(1) TREATMENT IF DESIGNATED BENEFICIARY
IS SPOUSE.—
‘‘(A) IN GENERAL.—In the case of an ac-
count holder’s interest in a MedicarePlus MSA
136
Subtitle A, Part 2
which is payable to (or for the benefit of) such
holder’s spouse upon the death of such holder,
such MedicarePlus MSA shall be treated as a
MedicarePlus MSA of such spouse as of the
date of such death.
‘‘(B) SPECIAL RULES IF SPOUSE NOT MED-
ICARE ELIGIBLE.—If, as of the date of such
death, such spouse is not entitled to benefits
under title XVIII of the Social Security Act,
then after the date of such death—
‘‘(i) the Secretary of Health and
Human Services may not make any pay-
ments to such MedicarePlus MSA, other
than payments attributable to periods be-
fore such date,
‘‘(ii) in applying subsection (b)(2)
with respect to such MedicarePlus MSA,
references to the account holder shall be
treated as including references to any de-
pendent (as defined in section 152) of such
spouse and any subsequent spouse of such
spouse, and
‘‘(iii) in lieu of applying subsection
(d)(2), the rules of section 220(f)(2) shall
apply.
137
Subtitle A, Part 2
‘‘(2) TREATMENT IF DESIGNATED BENEFICIARY
IS NOT SPOUSE.—In the case of an account holder’s
interest in a MedicarePlus MSA which is payable to
(or for the benefit of) any person other than such
holder’s spouse upon the death of such holder—
‘‘(A) such account shall cease to be a
MedicarePlus MSA as of the date of death, and
‘‘(B) an amount equal to the fair market
value of the assets in such account on such date
shall be includible—
‘‘(i) if such person is not the estate of
such holder, in such person’s gross income
for the taxable year which includes such
date, or
‘‘(ii) if such person is the estate of
such holder, in such holder’s gross income
for last taxable year of such holder.
‘‘(f) REPORTS.—
‘‘(1) 
IN
GENERAL.—The 
trustee 
of 
a
MedicarePlus MSA shall make such reports regard-
ing such account to the Secretary and to the account
holder with respect to—
‘‘(A) the fair market value of the assets in
such MedicarePlus MSA as of the close of each
calendar year, and
138
Subtitle A, Part 2
‘‘(B) contributions, distributions, and other
matters,
as the Secretary may require by regulations.
‘‘(2) TIME AND MANNER OF REPORTS.—The re-
ports required by this subsection—
‘‘(A) shall be filed at such time and in
such manner as the Secretary prescribes in
such regulations, and
‘‘(B) shall be furnished to the account
holder—
‘‘(i) not later than January 31 of the
calendar year following the calendar year
to which such reports relate, and
‘‘(ii) in such manner as the Secretary
prescribes in such regulations.’’
(b) EXCLUSION OF MEDICAREPLUS MSA’S FROM
ESTATE TAX.—Part IV of subchapter A of chapter 11 of
such Code is amended by adding at the end the following
new section:
‘‘SEC. 2057. MEDICAREPLUS MSA’S.
‘‘For purposes of the tax imposed by section 2001,
the value of the taxable estate shall be determined by de-
ducting from the value of the gross estate an amount
equal to the value of any MedicarePlus MSA (as defined
in section 137(b)) included in the gross estate.’’
139
Subtitle A, Part 2
(c) TAX ON PROHIBITED TRANSACTIONS.—
(1) Section 4975 of such Code (relating to tax
on prohibited transactions) is amended by adding at
the end of subsection (c) the following new para-
graph:
‘‘(4) 
SPECIAL
RULE
FOR
MEDICAREPLUS
MSA’S.—An 
individual 
for 
whose 
benefit 
a
MedicarePlus MSA (within the meaning of section
137(b)) is established shall be exempt from the tax
imposed by this section with respect to any trans-
action concerning such account (which would other-
wise be taxable under this section) if, with respect
to such transaction, the account ceases to be a
MedicarePlus MSA by reason of the application of
section 137(c)(2) to such account.’’
(2) Paragraph (1) of section 4975(e) of such
Code is amended to read as follows:
‘‘(1) PLAN.—For purposes of this section, the
term ‘plan’ means—
‘‘(A) a trust described in section 401(a)
which forms a part of a plan, or a plan de-
scribed in section 403(a), which trust or plan is
exempt from tax under section 501(a),
‘‘(B) an individual retirement account de-
scribed in section 408(a),
140
Subtitle A, Part 2
‘‘(C) an individual retirement annuity de-
scribed in section 408(b),
‘‘(D) a medical savings account described
in section 220(d),
‘‘(E) a MedicarePlus MSA described in
section 137(b), or
‘‘(F) a trust, plan, account, or annuity
which, at any time, has been determined by the
Secretary to be described in any preceding sub-
paragraph of this paragraph.’’
(d) 
FAILURE
TO
PROVIDE
REPORTS
ON
MEDICAREPLUS MSA’S.—
(1) Subsection (a) of section 6693 of such Code
(relating to failure to provide reports on individual
retirement accounts or annuities) is amended to read
as follows:
‘‘(a) REPORTS.—
‘‘(1) IN GENERAL.—If a person required to file
a report under a provision referred to in paragraph
(2) fails to file such report at the time and in the
manner required by such provision, such person
shall pay a penalty of $50 for each failure unless it
is shown that such failure is due to reasonable
cause.
141
Subtitle A, Part 2
‘‘(2) PROVISIONS.—The provisions referred to
in this paragraph are—
‘‘(A) subsections (i) and (l) of section 408
(relating to individual retirement plans),
‘‘(B) section 220(h) (relating to medical
savings accounts), and
‘‘(C) 
section 
137(f) 
(relating 
to
MedicarePlus MSA’s).’’
(2) The section heading for section 6693 of
such Code is amended to read as follows:
‘‘SEC. 6693. FAILURE TO FILE REPORTS ON INDIVIDUAL RE-
TIREMENT PLANS AND CERTAIN OTHER TAX-
FAVORED ACCOUNTS; PENALTIES RELATING
TO 
DESIGNATED 
NONDEDUCTIBLE 
CON-
TRIBUTIONS.’’
(e) CLERICAL AMENDMENTS.—
(1) 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. 137. MedicarePlus MSA’s.
‘‘Sec. 138. Cross references to other Acts.’’
(2) The table of sections for part 1 of sub-
chapter B of chapter 68 of such Code is amended
142
Subtitle A, Part 2
by striking the item relating to section 6693 and in-
serting the following new item:
‘‘Sec. 6693. Failure to file reports on individual retirement plans
and certain other tax-favored accounts; penalties re-
lating to designated nondeductible contributions.’’
(3) The table of sections for part IV of sub-
chapter A of chapter 11 of such Code is amended by
adding at the end the following new item:
‘‘Sec. 2057. MedicarePlus MSA’s.’’
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 15012. CERTAIN REBATES EXCLUDED FROM GROSS
INCOME.
(a) IN GENERAL.—Section 105 of the Internal Reve-
nue Code of 1986 (relating to amounts received under ac-
cident and health plans) is amended by adding at the end
the following new subsection:
‘‘(j) CERTAIN REBATES UNDER SOCIAL SECURITY
ACT.—Gross income does not include any rebate received
under section 1852(e)(1)(A) of the Social Security Act
during the taxable year.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to amounts received after the
date of the enactment of this Act.
143
Subtitle A, Part 3
PART 3—SPECIAL ANTITRUST RULE FOR
PROVIDER SERVICE NETWORKS
SEC. 15021. APPLICATION OF ANTITRUST RULE OF REASON
TO PROVIDER SERVICE NETWORKS.
(a) RULE OF REASON STANDARD.—In any action
under the antitrust laws, or under any State law similar
to the antitrust laws—
(1) the conduct of a provider service network in
negotiating, making, or performing a contract (in-
cluding the establishment and modification of a fee
schedule and the development of a panel of physi-
cians), to the extent such contract is for the purpose
of providing health care services to individuals under
the terms of a MedicarePlus PSO product, and
(2) the conduct of any member of such network
for the purpose of providing such health care serv-
ices under such contract to such extent,
shall not be deemed illegal per se. Such conduct shall be
judged on the basis of its reasonableness, taking into ac-
count all relevant factors affecting competition, including
the effects on competition in properly defined markets.
(b) DEFINITIONS.—For purposes of subsection (a):
(1) ANTITRUST
LAWS.—The term ‘‘antitrust
laws’’ has the meaning given it in subsection (a) of
the first section of the Clayton Act (15 U.S.C. 12),
except that such term includes section 5 of the Fed-
144
Subtitle A, Part 3
eral Trade Commission Act (15 U.S.C. 45) to the
extent that such section 5 applies to unfair methods
of competition.
(2) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means any individual or en-
tity that is engaged in the delivery of health care
services in a State and that 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.
(3) HEALTH CARE SERVICE.—The term ‘‘health
care service’’ means any service for which payment
may be made under a MedicarePlus PSO product in-
cluding services related to the delivery or adminis-
tration of such service.
(4) 
MEDICAREPLUS
PROGRAM.—The 
term
‘‘MedicarePlus program’’ means the program under
part C of title XVIII of the Social Security Act.
(5) MEDICAREPLUS PSO PRODUCT.—The term
‘‘MedicarePlus PSO product’’ means a MedicarePlus
product offered by a provider-sponsored organization
under part C of title XVIII of the Social Security
Act.
145
Subtitle A, Part 3
(6) PROVIDER SERVICE NETWORK.—The term
‘‘provider service network’’ means an organization
that—
(A) is organized by, operated by, and com-
posed of members who are health care providers
and for purposes that include providing health
care services,
(B) is funded in part by capital contribu-
tions made by the members of such organiza-
tion,
(C) with respect to each contract made by
such organization for the purpose of providing
a type of health care service to individuals
under the terms of a MedicarePlus PSO prod-
uct—
(i) requires all members of such orga-
nization who engage in providing such type
of health care service to agree to provide
health care services of such type under
such contract,
(ii) receives the compensation paid for
the health care services of such type pro-
vided under such contract by such mem-
bers, and
146
Subtitle A, Part 3
(iii) provides for the distribution of
such compensation,
(D) has established, consistent with the re-
quirements of the MedicarePlus program for
provider-sponsored organizations, a program to
review, pursuant to written guidelines, the qual-
ity, efficiency, and appropriateness of treatment
methods and setting of services for all health
care providers and all patients participating in
such product, along with internal procedures to
correct identified deficiencies relating to such
methods and such services,
(E) has established, consistent with the re-
quirements of the MedicarePlus program for
provider-sponsored organizations, a program to
monitor and control utilization of health care
services provided under such product, for the
purpose of improving efficient, appropriate care
and eliminating the provision of unnecessary
health care services,
(F) has established a management pro-
gram to coordinate the delivery of health care
services for all health care providers and all pa-
tients participating in such product, for the
147
Subtitle A, Part 3
purpose of achieving efficiencies and enhancing
the quality of health care services provided, and
(G) has established, consistent with the re-
quirements of the MedicarePlus program for
provider-sponsored organizations, a grievance
and appeal process for such organization de-
signed to review and promptly resolve bene-
ficiary or patient grievances and complaints.
Such term may include a provider-sponsored organi-
zation.
(7) PROVIDER-SPONSORED
ORGANIZATION.—
The term ‘‘provider-sponsored organization’’ means
a MedicarePlus organization under the MedicarePlus
program that is a provider-sponsored organization
(as defined in section ll of the Social Security
Act).
(8) STATE.—The term ‘‘State’’ has the mean-
ing given it in section 4G(2) of the Clayton Act (15
U.S.C. 15g(2)).
(c) ISSUANCE OF GUIDELINES.—Not later than 120
days after the date of the enactment of this Act, the Attor-
ney General and the Federal Trade Commission shall
issue jointly guidelines specifying the enforcement policies
and analytical principles that will be applied by the De-
148
Subtitle A, Part 4
partment of Justice and the Commission with respect to
the operation of subsection (a).
PART 4—COMMISSIONS
SEC. 15031. MEDICARE PAYMENT REVIEW COMMISSION.
(a) IN GENERAL.—Title XVIII, as amended by sec-
tion 15001(a), is amended by inserting after section 1805
the following new section:
‘‘MEDICARE PAYMENT REVIEW COMMISSION
‘‘SEC. 1806. (a) ESTABLISHMENT.—There is hereby
established the Medicare Payment Review Commission (in
this section referred to as the ‘Commission’).
‘‘(b) DUTIES.—
‘‘(1) GENERAL DUTIES AND REPORTS.—
‘‘(A) IN GENERAL.—The Commission shall
review, and make recommendations to Congress
concerning, payment policies under this title.
‘‘(B) ANNUAL
REPORTS.—By not later
than June 1 of each year, the Commission shall
submit a report to Congress containing an ex-
amination of issues affecting the medicare pro-
gram, including the implications of changes in
health care delivery in the United States and in
the market for health care services on the medi-
care program.
‘‘(C) ADDITIONAL
REPORTS.—The Com-
mission may submit to Congress from time to
149
Subtitle A, Part 4
time such other reports as the Commission
deems appropriate. By not later than May 1,
1997, the Commission shall submit to Congress
a report on the matter described in paragraph
(2)(G).
‘‘(D) SECRETARIAL
RESPONSE
IN
RULE-
MAKING.—The Secretary shall respond to rec-
ommendations of the Commission in notices of
rulemaking proceedings under this title.
‘‘(2) 
SPECIFIC
DUTIES
RELATING
TO
MEDICAREPLUS
PROGRAM.—Specifically, the Com-
mission 
shall 
review, 
with 
respect 
to 
the
MedicarePlus program under part C—
‘‘(A) the appropriateness of the methodol-
ogy for making payment to plans under such
program, including the making of differential
payments and the distribution of differential
updates among different payment areas);
‘‘(B) the appropriateness of the mecha-
nisms used to adjust payments for risk and the
need to adjust such mechanisms to take into ac-
count health status of beneficiaries;
‘‘(C) the implications of risk selection both
among MedicarePlus organizations and between
150
Subtitle A, Part 4
the 
MedicarePlus 
option 
and 
the 
non-
MedicarePlus option;
‘‘(D) in relation to payment under part C,
the development and implementation of mecha-
nisms to assure the quality of care for those en-
rolled with MedicarePlus organizations;
‘‘(E) the impact of the MedicarePlus pro-
gram on access to care for medicare bene-
ficiaries;
‘‘(F) the feasibility and desirability of ex-
tending the rules for open enrollment that apply
during the transition period to apply in each
county during the first 2 years in which
MedicarePlus products are made available to in-
dividuals residing in the county; and
‘‘(G) other major issues in implementation
and further development of the MedicarePlus
program.
‘‘(3) SPECIFIC
DUTIES
RELATING
TO
THE
FAILSAFE
BUDGET
MECHANISM.—Specifically, the
Commission shall review, with respect to the failsafe
budget mechanism described in section 1895—
‘‘(A) the appropriateness of the expendi-
ture projections by the Secretary under section
1895(c) for each medicare sector;
151
Subtitle A, Part 4
‘‘(B) the appropriateness of the growth
factors for each sector and the ability to take
into account substitution across sectors;
‘‘(C) the appropriateness of the mecha-
nisms for implementing reductions in payment
amounts for different sectors, including any ad-
justments to reflect changes in volume or inten-
sity resulting for any payment reductions;
‘‘(D) the impact of the mechanism on pro-
vider participation in parts A and B and in the
MedicarePlus program; and
‘‘(E) the appropriateness of the medicare
benefit budget (under section 1895(c)(2)(C) of
the Social Security Act), particularly for fiscal
years after fiscal year 2002.
‘‘(4) SPECIFIC DUTIES RELATING TO THE FEE-
FOR-SERVICE SYSTEM.—Specifically, the Commission
shall review payment policies under parts A and B,
including—
‘‘(A) the factors affecting expenditures for
services in different sectors, including the proc-
ess for updating hospital, physician, and other
fees,
‘‘(B) payment methodologies; and
152
Subtitle A, Part 4
‘‘(C) the impact of payment policies on ac-
cess and quality of care for medicare bene-
ficiaries.
‘‘(5) SPECIFIC
DUTIES
RELATING
TO
INTER-
ACTION OF PAYMENT POLICIES WITH HEALTH CARE
DELIVERY
GENERALLY.—Specifically the Commis-
sion shall review the effect of payment policies under
this title on the delivery of health care services
under this title and assess the implications of
changes in the health services market on the medi-
care program.
‘‘(c) MEMBERSHIP.—
‘‘(1) NUMBER AND APPOINTMENT.—The Com-
mission shall be composed of 15 members appointed
by the Comptroller General.
‘‘(2) QUALIFICATIONS.—The membership of the
Commission shall include individuals with national
recognition for their expertise in health finance and
economics, actuarial science, health facility manage-
ment, health plans and integrated delivery systems,
reimbursement of health facilities, allopathic and os-
teopathic physicians, and other providers of services,
and other related fields, who provide a mix of dif-
ferent professionals, broad geographic representa-
tion, and a balance between urban and rural rep-
153
Subtitle A, Part 4
resentatives, including physicians and other health
professionals, employers, third party payors, individ-
uals skilled in the conduct and interpretation of bio-
medical, health services, and health economics re-
search and expertise in outcomes and effectiveness
research and technology assessment. Such member-
ship shall also include representatives of consumers
and the elderly.
‘‘(3) CONSIDERATIONS
IN
INITIAL
APPOINT-
MENT.—To the extent possible, in first appointing
members to the Commission the Comptroller Gen-
eral shall consider appointing individuals who (as of
the date of the enactment of this section) were serv-
ing on the Prospective Payment Assessment Com-
mission or the Physician Payment Review Commis-
sion.
‘‘(4) TERMS.—
‘‘(A) IN GENERAL.—The terms of mem-
bers of the Commission shall be for 3 years ex-
cept that the Comptroller General shall des-
ignate 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
154
Subtitle A, Part 4
was appointed shall be appointed only for the
remainder of that term. A member may serve
after the expiration of that member’s term until
a successor has taken office. A vacancy in the
Commission shall be filled in the manner in
which the original appointment was made.
‘‘(5) COMPENSATION.—While serving on the
business 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
section 5315 of title 5, United States Code; and
while so serving away from home and member’s reg-
ular place of business, a member may be allowed
travel expenses, as authorized by the Chairman of
the Commission. Physicians serving as personnel of
the Commission may be provided a physician com-
parability allowance by the Commission in the same
manner as Government physicians may be provided
such an allowance 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 Com-
mission in the same manner as it applies to the Ten-
nessee Valley Authority. For purposes of pay (other
than pay of members of the Commission) and em-
155
Subtitle A, Part 4
ployment benefits, rights, and privileges, all person-
nel of the Commission shall be treated as if they
were employees of the United States Senate.
‘‘(6) CHAIRMAN; VICE CHAIRMAN.—The Comp-
troller General shall designate a member of the
Commission, at the time of appointment of the mem-
ber, as Chairman and a member as Vice Chairman
for that term of appointment.
‘‘(7) MEETINGS.—The Commission shall meet
at the call of the Chairman.
‘‘(d) DIRECTOR AND STAFF; EXPERTS AND CON-
SULTANTS.—Subject to such review as the Comptroller
General deems necessary to assure the efficient adminis-
tration of the Commission, the Commission may—
‘‘(1) employ and fix the compensation of an Ex-
ecutive Director (subject to the approval of the
Comptroller General) and such other personnel as
may be necessary to carry out its duties (without re-
gard to the provisions of title 5, United States Code,
governing appointments in the competitive service);
‘‘(2) seek such assistance and support as may
be required in the performance of its duties from ap-
propriate Federal departments and agencies;
‘‘(3) enter into contracts or make other ar-
rangements, as may be necessary for the conduct of
156
Subtitle A, Part 4
the work of the Commission (without regard to sec-
tion 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 organi-
zation and operation of the Commission.
‘‘(e) POWERS.—
‘‘(1) OBTAINING
OFFICIAL
DATA.—The Com-
mission 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 Com-
mission on an agreed upon schedule.
‘‘(2) DATA COLLECTION.—In order to carry out
its functions, the Commission shall collect and as-
sess information to—
‘‘(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,
157
Subtitle A, Part 4
‘‘(B) carry out, or award grants or con-
tracts for, original research and experimen-
tation, where existing information is inad-
equate, 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 data of the Com-
mission, immediately upon request.
‘‘(4) PERIODIC AUDIT.—The Commission shall
be subject to periodic audit by the General Account-
ing Office.
‘‘(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 ap-
propriated for the Commission shall be separate
from amounts appropriated for the Comptroller Gen-
eral.
‘‘(2) AUTHORIZATION.—There are authorized to
be appropriated such sums as may be necessary to
158
Subtitle A, Part 4
carry out the provisions of this section. 60 percent
of such appropriation shall be payable from the Fed-
eral Hospital Insurance Trust Fund, and 40 percent
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 Commis-
sion’’ each place it appears in subsection
(a)(1)(D) and subsection (i) and inserting
‘‘Medicare Payment Review Commission’’.
(2) PPRC.—
(A) IN GENERAL.—Title XVIII is amended
by striking section 1845 (42 U.S.C. 1395w–1).
(B) CONFORMING AMENDMENTS.—
159
Subtitle A, Part 4
(i) Section 1834(b)(2) (42 U.S.C.
1395m(b)(2)) is amended by striking
‘‘Physician Payment Review Commission’’
and inserting ‘‘Medicare Payment Review
Commission’’.
(ii) 
Section 
1842(b) 
(42 
U.S.C.
1395u(b)) is amended by striking ‘‘Physi-
cian Payment Review Commission’’ each
place it appears in paragraphs (9)(D) and
(14)(C)(i) and inserting ‘‘Medicare Pay-
ment Review Commission’’.
(iii) Section 1848 (42 U.S.C. 1395w–
4) is amended by striking ‘‘Physician Pay-
ment Review Commission’’ and inserting
‘‘Medicare Payment Review Commission’’
each 
place 
it 
appears 
in 
paragraph
(2)(A)(ii), (2)(B)(iii), and (5) of subsection
(c), 
subsection 
(d)(2)(F), 
paragraphs
(1)(B), (3), and (4)(A) of subsection (f),
and paragraphs (6)(C) and (7)(C) of sub-
section (g).
(c) EFFECTIVE DATE; TRANSITION.—
(1) IN
GENERAL.—The Comptroller General
shall first provide for appointment of members to
the Medicare Payment Review Commission (in this
160
Subtitle A, Part 4
subsection referred to as ‘‘MPRC’’) by not later
than March 31, 1996.
(2) TRANSITION.—Effective on a date (not later
than 30 days after the date a majority of members
of the MPRC have first been appointed, the Pro-
spective Payment Assessment Commission (in this
subsection referred to as ‘‘ProPAC’’) and the Physi-
cian Payment Review Commission (in this subsection
referred to as ‘‘PPRC’’), and amendments made by
subsection (b), are terminated. The Comptroller
General, to the maximum extent feasible, shall pro-
vide for the transfer to the MPRC of assets and
staff of ProPAC and PPRC, without any loss of
benefits or seniority by virtue of such transfers.
Fund balances available to the ProPAC or PPRC
for any period shall be available to the MPRC for
such period for like purposes.
(3) CONTINUING
RESPONSIBILITY
FOR
RE-
PORTS.—The MPRC shall be responsible for the
preparation and submission of reports required by
law to be submitted (and which have not been sub-
mitted by the date of establishment of the MPRC)
by the ProPAC and PPRC, and, for this purpose,
any reference in law to either such Commission is
161
Subtitle A, Part 4
deemed, after the appointment of the MPRC, to
refer to the MPRC.
SEC. 15032. COMMISSION ON THE EFFECT OF THE BABY
BOOM GENERATION ON THE MEDICARE PRO-
GRAM.
(a) ESTABLISHMENT.—There is established a com-
mission to be known as the Commission on the Effect of
the Baby Boom Generation on the Medicare Program (in
this section referred to as the ‘‘Commission’’).
(b) DUTIES.—
(1) IN GENERAL.—The Commission shall—
(A) examine the financial impact on the
medicare program of the significant increase in
the number of medicare eligible individuals
which will occur beginning approximately dur-
ing 2010 and lasting for approximately 25
years, and
(B) make specific recommendations to the
Congress respecting a comprehensive approach
to preserve the medicare program for the period
during which such individuals are eligible for
medicare.
(2) 
CONSIDERATIONS
IN
MAKING
REC-
OMMENDATIONS.—In making its recommendations,
the Commission shall consider the following:
162
Subtitle A, Part 4
(A) The amount and sources of Federal
funds to finance the medicare program, includ-
ing the potential use of innovative financing
methods.
(B) The most efficient and effective man-
ner of administering the program, including the
appropriateness of continuing the application of
the failsafe budget mechanism under section
1895 of the Social Security Act for fiscal years
after fiscal year 2002 and the appropriate long-
term growth rates for contributions electing
coverage under MedicarePlus under part C of
title XVIII of such Act.
(C) Methods used by other nations to re-
spond to comparable demographic patterns in
eligibility for health care benefits for elderly
and disabled individuals.
(D) Modifying age-based eligibility to cor-
respond to changes in age-based eligibility
under the OASDI program.
(E) Trends in employment-related health
care for retirees, including the use of medical
savings accounts and similar financing devices.
(c) MEMBERSHIP.—
163
Subtitle A, Part 4
(1) APPOINTMENT.—The Commission shall be
composed of 15 members appointed as follows:
(A) The President shall appoint 3 mem-
bers.
(B) The Majority Leader of the Senate
shall appoint, after consultation with the minor-
ity leader of the Senate, 6 members, of whom
not more than 4 may be of the same political
party.
(C) The Speaker of the House of Rep-
resentatives shall appoint, after consultation
with the minority leader of the House of Rep-
resentatives, 6 members, of whom not more
than 4 may be of the same political party.
(2) CHAIRMAN
AND
VICE
CHAIRMAN.—The
Commission shall elect a Chairman and Vice Chair-
man from among its members.
(3) VACANCIES.—Any vacancy in the member-
ship of the Commission shall be filled in the manner
in which the original appointment was made and
shall not affect the power of the remaining members
to execute the duties of the Commission.
(4) QUORUM.—A quorum shall consist of 8
members of the Commission, except that 4 members
may conduct a hearing under subsection (e).
164
Subtitle A, Part 4
(5) MEETINGS.—The Commission shall meet at
the call of its Chairman or a majority of its mem-
bers.
(6) COMPENSATION AND REIMBURSEMENT OF
EXPENSES.—Members of the Commission are not
entitled to receive compensation for service on the
Commission. Members may be reimbursed for travel,
subsistence, and other necessary expenses incurred
in carrying out the duties of the Commission.
(d) STAFF AND CONSULTANTS.—
(1) STAFF.—The Commission may appoint and
determine the compensation of such staff as may be
necessary to carry out the duties of the Commission.
Such appointments and compensation may be made
without regard to the provisions of title 5, United
States Code, that govern appointments in the com-
petitive services, and the provisions of chapter 51
and subchapter III of chapter 53 of such title that
relate to classifications and the General Schedule
pay rates.
(2) CONSULTANTS.—The Commission may pro-
cure such temporary and intermittent services of
consultants under section 3109(b) of title 5, United
States Code, as the Commission determines to be
necessary to carry out the duties of the Commission.
165
Subtitle A, Part 4
(e) POWERS.—
(1) HEARINGS
AND
OTHER
ACTIVITIES.—For
the purpose of carrying out its duties, the Commis-
sion may hold such hearings and undertake such
other activities as the Commission determines to be
necessary to carry out its duties.
(2) STUDIES BY GAO.—Upon the request of the
Commission, the Comptroller General shall conduct
such studies or investigations as the Commission de-
termines to be necessary to carry out its duties.
(3) COST
ESTIMATES
BY
CONGRESSIONAL
BUDGET OFFICE.—
(A) Upon the request of the Commission,
the Director of the Congressional Budget Office
shall provide to the Commission such cost esti-
mates as the Commission determines to be nec-
essary to carry out its duties.
(B) The Commission shall reimburse the
Director of the Congressional Budget Office for
expenses relating to the employment in the of-
fice of the Director of such additional staff as
may be necessary for the Director to comply
with requests by the Commission under sub-
paragraph (A).
166
Subtitle A, Part 4
(4) DETAIL OF FEDERAL EMPLOYEES.—Upon
the request of the Commission, the head of any Fed-
eral agency is authorized to detail, without reim-
bursement, any of the personnel of such agency to
the Commission to assist the Commission in carry-
ing out its duties. Any such detail shall not interrupt
or otherwise affect the civil service status or privi-
leges of the Federal employee.
(5) TECHNICAL
ASSISTANCE.—Upon the re-
quest of the Commission, the head of a Federal
agency shall provide such technical assistance to the
Commission as the Commission determines to be
necessary to carry out its duties.
(6) USE OF MAILS.—The Commission may use
the United States mails in the same manner and
under the same conditions as Federal agencies and
shall, for purposes of the frank, be considered a
commission of Congress as described in section 3215
of title 39, United States Code.
(7) OBTAINING
INFORMATION.—The Commis-
sion may secure directly from any Federal agency
information necessary to enable it to carry out its
duties, if the information may be disclosed under
section 552 of title 5, United States Code. Upon re-
quest of the Chairman of the Commission, the head
167
Subtitle A, Part 4
of such agency shall furnish such information to the
Commission.
(8) ADMINISTRATIVE
SUPPORT
SERVICES.—
Upon the request of the Commission, the Adminis-
trator of General Services shall provide to the Com-
mission on a reimbursable basis such administrative
support services as the Commission may request.
(9) ACCEPTANCE OF DONATIONS.—The Com-
mission may accept, use, and dispose of gifts or do-
nations of services or property.
(10) PRINTING.—For purposes of costs relating
to printing and binding, including the cost of per-
sonnel detailed from the Government Printing Of-
fice, the Commission shall be deemed to be a com-
mittee of the Congress.
(f) REPORT.—Not later than May 1, 1997, the Com-
mission shall submit to Congress a report containing its
findings and recommendations regarding how to protect
and preserve the medicare program in a financially solvent
manner until 2030 (or, if later, throughout the period of
projected solvency of the Federal Old-Age and Survivors
Insurance Trust Fund). The report shall include detailed
recommendations for appropriate legislative initiatives re-
specting how to accomplish this objective.
168
Subtitle A, Part 5
(g) TERMINATION.—The Commission shall terminate
60 days after the date of submission of the report required
in subsection (f).
(h) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated $1,500,000 to carry out
this section. Amounts appropriated to carry out this sec-
tion shall remain available until expended.
SEC. 15033. CHANGE IN APPOINTMENT OF ADMINISTRATOR
OF HCFA.
(a) IN GENERAL.—Section 1117 (42 U.S.C. 1317)
is amended by striking ‘‘President by and with the advice
and consent of the Senate’’ and inserting ‘‘Secretary of
Health and Human Services’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on the date of the enact-
ment of this Act and shall apply to Administrators ap-
pointed on or after the date of the enactment of this Act.
PART 5—TREATMENT OF HOSPITALS WHICH PAR-
TICIPATE IN PROVIDER-SPONSORED ORGA-
NIZATIONS
SEC. 15041. TREATMENT OF HOSPITALS WHICH PARTICI-
PATE IN PROVIDER-SPONSORED ORGANIZA-
TIONS.
(a) IN GENERAL.—Section 501 of the Internal Reve-
nue Code of 1986 (relating to exemption from tax on cor-
169
Subtitle A, Part 5
porations, certain trusts, etc.) is amended by redesignat-
ing subsection (n) as subsection (o) and by inserting after
subsection (m) the following new subsection:
‘‘(n) TREATMENT OF HOSPITALS PARTICIPATING IN
PROVIDER-SPONSORED ORGANIZATIONS.—An organiza-
tion shall not fail to be treated as organized and operated
exclusively for a charitable purpose for purposes of sub-
section (c)(3) solely because a hospital which is owned and
operated by such organization participates in a provider-
sponsored organization (as defined in section 1854(a)(1)
of the Social Security Act), whether or not the provider-
sponsored organization is exempt from tax. For purposes
of subsection (c)(3), any person with a material financial
interest in such a provider-sponsored organization shall be
treated as a private shareholder or individual with respect
to the hospital.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on the date of the enact-
ment of this Act.
170
Subtitle B, Part 1
Subtitle B—Preventing Fraud and
Abuse
PART 1—GENERAL PROVISIONS
SEC. 15101. INCREASING AWARENESS OF FRAUD AND
ABUSE.
(a) BENEFICIARY OUTREACH EFFORTS.—The Sec-
retary of Health and Human Services (acting through the
Administrator of the Health Care Financing Administra-
tion and the Inspector General of the Department of
Health and Human Services) shall make ongoing efforts
(through public service announcements, publications, and
other appropriate methods) to alert individuals entitled to
benefits under the medicare program of the existence of
fraud and abuse committed against the program and the
costs to the program of such fraud and abuse, and of the
existence of the toll-free telephone line operated by the
Secretary to receive information on fraud and abuse com-
mitted against the program.
(b) CLARIFICATION OF REQUIREMENT TO PROVIDE
EXPLANATION OF MEDICARE BENEFITS.—The Secretary
shall provide an explanation of benefits under the medi-
care program with respect to each item or service for
which payment may be made under the program which
is furnished to an individual, without regard to whether
171
Subtitle B, Part 1
or not a deductible or coinsurance may be imposed against
the individual with respect to the item or service.
(c) PROVIDER OUTREACH EFFORTS; PUBLICATION
OF FRAUD ALERTS.—
(1) SPECIAL FRAUD ALERTS.—
(A) IN GENERAL.—
(i) REQUEST
FOR
SPECIAL
FRAUD
ALERTS.—Any person may present, at any
time, a request to the Secretary to issue
and publish a special fraud alert.
(ii) 
SPECIAL
FRAUD
ALERT
DE-
FINED.—In this section, a ‘‘special fraud
alert’’ is a notice which informs the public
of practices which the Secretary considers
to be suspect or of particular concern
under the medicare program or a State
health care program (as defined in section
1128(h) of the Social Security Act).
(B) ISSUANCE AND PUBLICATION OF SPE-
CIAL FRAUD ALERTS.—
(i) INVESTIGATION.—Upon receipt of
a request for a special fraud alert under
subparagraph (A), the Secretary shall in-
vestigate the subject matter of the request
to determine whether a special fraud alert
172
Subtitle B, Part 1
should be issued. If appropriate, the Sec-
retary (in consultation with the Attorney
General) shall issue a special fraud alert in
response to the request. All special fraud
alerts issued pursuant to this subpara-
graph shall be published in the Federal
Register.
(ii) CRITERIA FOR ISSUANCE.—In de-
termining whether to issue a special fraud
alert upon a request under subparagraph
(A), the Secretary may consider—
(I) whether and to what extent
the practices that would be identified
in the special fraud alert may result
in any of the consequences described
in 15214(b); and
(II) the extent and frequency of
the conduct that would be identified
in the special fraud alert.
(2) PUBLICATION OF ALL HCFA FRAUD ALERTS
IN FEDERAL REGISTER.—Each notice issued by the
Health Care Financing Administration which in-
forms the public of practices which the Secretary
considers to be suspect or of particular concern
under the medicare program or a State health care
173
Subtitle B, Part 1
program (as defined in section 1128(h) of the Social
Security Act) shall be published in the Federal Reg-
ister, without regard to whether or not the notice
is issued by a regional office of the Health Care Fi-
nancing Administration.
SEC. 15102. BENEFICIARY INCENTIVE PROGRAMS.
(a) PROGRAM TO COLLECT INFORMATION ON FRAUD
AND ABUSE.—
(1) ESTABLISHMENT OF PROGRAM.—Not later
than 3 months after the date of the enactment of
this Act, the Secretary of Health and Human Serv-
ices (hereinafter in this subtitle referred to as the
‘‘Secretary’’) shall establish a program under which
the Secretary shall encourage individuals to report
to the Secretary information on individuals and enti-
ties who are engaging or who have engaged in acts
or omissions which constitute grounds for the impo-
sition of a sanction under section 1128, section
1128A, or section 1128B of the Social Security Act,
or who have otherwise engaged in fraud and abuse
against the medicare program for which there is a
sanction provided under law. The program shall dis-
courage provision of, and not consider, information
which is frivolous or otherwise not relevant or mate-
rial to the imposition of such a sanction.
174
Subtitle B, Part 1
(2) PAYMENT OF PORTION OF AMOUNTS COL-
LECTED.—If an individual reports information to
the Secretary under the program established under
paragraph (1) which serves as the basis for the col-
lection by the Secretary or the Attorney General of
any amount of at least $100 (other than any
amount paid as a penalty under section 1128B of
the Social Security Act), the Secretary may pay a
portion of the amount collected to the individual
(under procedures similar to those applicable under
section 7623 of the Internal Revenue Code of 1986
to payments to individuals providing information on
violations of such Code).
(b) PROGRAM TO COLLECT INFORMATION ON PRO-
GRAM EFFICIENCY.—
(1) ESTABLISHMENT OF PROGRAM.—Not later
than 3 months after the date of the enactment of
this Act, the Secretary shall establish a program
under which the Secretary shall encourage individ-
uals to submit to the Secretary suggestions on meth-
ods to improve the efficiency of the medicare pro-
gram.
(2) PAYMENT OF PORTION OF PROGRAM SAV-
INGS.—If an individual submits a suggestion to the
Secretary under the program established under
175
Subtitle B, Part 1
paragraph (1) which is adopted by the Secretary and
which results in savings to the program, the Sec-
retary may make a payment to the individual of
such amount as the Secretary considers appropriate.
SEC. 15103. INTERMEDIATE SANCTIONS FOR MEDICARE
HEALTH MAINTENANCE ORGANIZATIONS.
(a) APPLICATION OF INTERMEDIATE SANCTIONS FOR
ANY PROGRAM VIOLATIONS.—
(1) IN
GENERAL.—Section 1876(i)(1) (42
U.S.C. 1395mm(i)(1)) is amended by striking ‘‘the
Secretary may terminate’’ and all that follows and
inserting the following: ‘‘in accordance with proce-
dures established under paragraph (9), the Secretary
may at any time terminate any such contract or may
impose the intermediate sanctions described in para-
graph (6)(B) or (6)(C) (whichever is applicable) on
the eligible 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 manner
inconsistent with the efficient and effective adminis-
tration of this section;
176
Subtitle B, Part 1
‘‘(C) is operating in a manner that is not in the
best interests of the individuals covered under the
contract; or
‘‘(D) no longer substantially meets the applica-
ble conditions of subsections (b), (c), and (e).’’.
(2) OTHER
INTERMEDIATE
SANCTIONS
FOR
MISCELLANEOUS
PROGRAM
VIOLATIONS.—Section
1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is amended by
adding at the end the following new subparagraph:
‘‘(C) In the case of an eligible organization for which
the Secretary makes a determination under paragraph (1)
the basis of which is not described in subparagraph (A),
the Secretary may apply the following intermediate sanc-
tions:
‘‘(i) civil money penalties of not more than
$25,000 for each determination under paragraph (1)
if the deficiency that is the basis of the determina-
tion has directly adversely affected (or has the sub-
stantial likelihood of adversely affecting) an individ-
ual covered under the organization’s contract;
‘‘(ii) civil money penalties of not more than
$10,000 for each week beginning after the initiation
of procedures by the Secretary under paragraph (9)
during which the deficiency that is the basis of a de-
termination under paragraph (1) exists; and
177
Subtitle B, Part 1
‘‘(iii) suspension of enrollment of individuals
under this section after the date the Secretary noti-
fies the organization of a determination under para-
graph (1) 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.’’.
(3) PROCEDURES FOR IMPOSING SANCTIONS.—
Section 1876(i) (42 U.S.C. 1395mm(i)) is amended
by adding at the end the following new paragraph:
‘‘(9) The Secretary may terminate a contract with an
eligible organization under this section or may impose the
intermediate sanctions described in paragraph (6) on the
organization in accordance with formal investigation and
compliance procedures established by the Secretary under
which—
‘‘(A) the Secretary provides the organization
with the opportunity to develop and implement a
corrective action plan to correct the deficiencies that
were the basis of the Secretary’s determination
under paragraph (1);
‘‘(B) the Secretary shall impose more severe
sanctions on organizations that have a history of de-
ficiencies or that have not taken steps to correct de-
ficiencies the Secretary has brought to their atten-
tion;
178
Subtitle B, Part 1
‘‘(C) there are no unreasonable or unnecessary
delays between the finding of a deficiency and the
imposition of sanctions; and
‘‘(D) the Secretary provides the organization
with reasonable notice and opportunity for hearing
(including the right to appeal an initial decision) be-
fore imposing any sanction or terminating the con-
tract.’’.
(4) CONFORMING AMENDMENTS.—(A) Section
1876(i)(6)(B) (42 U.S.C. 1395mm(i)(6)(B)) is
amended by striking the second sentence.
(B) 
Section 
1876(i)(6) 
(42 
U.S.C.
1395mm(i)(6)) is further amended by adding at the
end the following new subparagraph:
‘‘(D) The provisions of section 1128A (other than
subsections (a) and (b)) shall apply to a civil money pen-
alty under subparagraph (A) or (B) in the same manner
as they apply to a civil money penalty or proceeding under
section 1128A(a).’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to contract years be-
ginning on or after January 1, 1996.
SEC. 15104. VOLUNTARY DISCLOSURE PROGRAM.
Title XI (42 U.S.C. 1301 et seq.) is amended by in-
serting after section 1128B the following new section:
179
Subtitle B, Part 1
‘‘VOLUNTARY DISCLOSURE OF ACTS OR OMISSIONS
‘‘SEC. 1129. (a) ESTABLISHMENT OF VOLUNTARY
DISCLOSURE PROGRAM.—Not later than 3 months after
the date of the enactment of this section, the Secretary
shall establish a program to encourage individuals and en-
tities to voluntarily disclose to the Secretary information
on acts or omissions of the individual or entity which con-
stitute grounds for the imposition of a sanction described
in section 1128, 1128A, or 1128B.
‘‘(b) EFFECT OF VOLUNTARY DISCLOSURE.—If an
individual or entity voluntarily discloses information with
respect to an act or omission to the Secretary under sub-
section (a), the following rules shall apply:
‘‘(1) The Secretary may waive, reduce, or other-
wise mitigate any sanction which would otherwise be
applicable to the individual or entity under section
1128, 1128A, or 1128B as a result of the act or
omission involved.
‘‘(2) No qui tam action may be brought pursu-
ant to chapter 37 of title 31, United States Code,
against the individual or entity with respect to the
act or omission involved.’’.
SEC. 15105. REVISIONS TO CURRENT SANCTIONS.
(a) DOUBLING THE AMOUNT OF CIVIL MONETARY
PENALTIES.—The maximum amount of civil monetary
180
Subtitle B, Part 1
penalties specified in section 1128A of the Social Security
Act or under title XVIII of such Act (as in effect on the
day before the date of the enactment of this Act) shall,
effective for violations occurring after the date of the en-
actment of this Act, be double the amount otherwise pro-
vided as of such date.
(b) ESTABLISHMENT OF MINIMUM PERIOD OF EX-
CLUSION FOR CERTAIN INDIVIDUALS AND ENTITIES SUB-
JECT TO PERMISSIVE EXCLUSION.—Section 1128(c)(3)
(42 U.S.C. 1320a–7(c)(3)) is amended by adding at the
end the following new subparagraphs:
‘‘(D) In the case of an exclusion of an individual or
entity under paragraph (1), (2), or (3) of subsection (b),
the period of the exclusion shall be 3 years, unless the
Secretary determines in accordance with regulations that
a shorter period is appropriate because of mitigating cir-
cumstances or that a longer period is appropriate because
of aggravating circumstances.
‘‘(E) In the case of an exclusion of an individual or
entity under subsection (b)(4) or (b)(5), the period of the
exclusion shall not be less than the period during which
the individual’s or entity’s license to provide health care
is revoked, suspended, or surrendered, or the individual
or the entity is excluded or suspended from a Federal or
State health care program.
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‘‘(F) In the case of an exclusion of an individual or
entity under subsection (b)(6)(B), the period of the exclu-
sion shall be not less than 1 year.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to acts or omissions
occurring on or after January 1, 1996.
SEC. 15106. DIRECT SPENDING FOR ANTI-FRAUD ACTIVI-
TIES UNDER MEDICARE.
(a) ESTABLISHMENT OF MEDICARE INTEGRITY PRO-
GRAM.—Title XVIII is amended by adding at the end the
following new section:
‘‘MEDICARE INTEGRITY PROGRAM
‘‘SEC. 1893. (a) ESTABLISHMENT OF PROGRAM.—
There is hereby established the Medicare Integrity Pro-
gram (hereafter in this section referred to as the ‘Pro-
gram’) under which the Secretary shall promote the integ-
rity of the medicare program by entering into contracts
in accordance with this section with eligible private entities
to carry out the activities described in subsection (b).
‘‘(b) ACTIVITIES DESCRIBED.—The activities de-
scribed in this subsection are as follows:
‘‘(1) Review of activities of providers of services
or other individuals and entities furnishing items
and services for which payment may be made under
this title (including skilled nursing facilities and
home health agencies), including medical and utiliza-
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Subtitle B, Part 1
tion review and fraud review (employing similar
standards, processes, and technologies used by pri-
vate health plans, including equipment and software
technologies which surpass the capability of the
equipment and technologies used in the review of
claims under this title as of the date of the enact-
ment of this section).
‘‘(2) Audit of cost reports.
‘‘(3) Determinations as to whether payment
should not be, or should not have been, made under
this title by reason of section 1862(b), and recovery
of payments that should not have been made.
‘‘(4) Education of providers of services, bene-
ficiaries, and other persons with respect to payment
integrity and benefit quality assurance issues.
‘‘(c) ELIGIBILITY OF ENTITIES.—An entity is eligible
to enter into a contract under the Program to carry out
any of the activities described in subsection (b) if—
‘‘(1) the entity has demonstrated capability to
carry out such activities;
‘‘(2) in carrying out such activities, the entity
agrees to cooperate with the Inspector General of
the Department of Health and Human Services, the
Attorney General of the United States, and other
law enforcement agencies, as appropriate, in the in-
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Subtitle B, Part 1
vestigation and deterrence of fraud and abuse in re-
lation to this title and in other cases arising out of
such activities;
‘‘(3) the entity’s financial holdings, interests, or
relationships will not interfere with its ability to per-
form the functions to be required by the contract in
an effective and impartial manner; and
‘‘(4) the entity meets such other requirements
as the Secretary may impose.
‘‘(d) PROCESS FOR ENTERING INTO CONTRACTS.—
The Secretary shall enter into contracts under the Pro-
gram in accordance with such procedures as the Secretary
may by regulation establish, except that such procedures
shall include the following:
‘‘(1) The Secretary shall determine the appro-
priate number of separate contracts which are nec-
essary to carry out the Program and the appropriate
times at which the Secretary shall enter into such
contracts.
‘‘(2) The provisions of section 1153(e)(1) shall
apply to contracts and contracting authority under
this section, except that competitive procedures must
be used when entering into new contracts under this
section, or at any other time considered appropriate
by the Secretary.