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on a timely basis consistent with section 1943 and under
the claims payment procedures described in section
1902(a)(37)(A), unless the health care provider and the
managed care entity agree to an alternate payment sched-
ule.
‘‘(b) PHYSICIAN INCENTIVE PLANS.—Each medicaid
managed care organization shall require that any physi-
cian incentive plan covering physicians who are participat-
ing in the medicaid managed care organization shall meet
the requirements of section 1876(i)(8) and comparable re-
quirements under part C of title XVIII.
‘‘(c) WRITTEN
PROVIDER
PARTICIPATION
AGREE-
MENTS FOR CERTAIN PROVIDERS.—
‘‘(1) IN
GENERAL.—Each medicaid managed
care organization that enters into a written provider
participation agreement with a provider described in
paragraph (2) shall—
‘‘(A) include terms and conditions that are
no more restrictive than the terms and condi-
tions that the medicaid managed care organiza-
tion includes in its agreements with other par-
ticipating providers with respect to—
‘‘(i) the scope of covered services for
which payment is made to the provider;
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‘‘(ii) the assignment of enrollees by the
organization to the provider;
‘‘(iii) the limitation on financial risk
or availability of financial incentives to the
provider;
‘‘(iv) accessibility of care;
‘‘(v) professional credentialing and
recredentialing;
‘‘(vi) licensure;
‘‘(vii) quality and utilization manage-
ment;
‘‘(viii) 
confidentiality 
of 
patient
records;
‘‘(ix) grievance procedures; and
‘‘(x) indemnification arrangements be-
tween the organizations and providers; and
‘‘(B) provide for payment to the provider on
a basis that is comparable to the basis on which
other providers are paid.
‘‘(2) PROVIDERS DESCRIBED.—The providers de-
scribed in this paragraph are the following:
‘‘(A) Rural health clinics, as defined in sec-
tion 1905(l)(1).
‘‘(B) Federally-qualified health centers, as
defined in section 1905(l)(2)(B).
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‘‘(C) Clinics which are eligible to receive
payment for services provided under title X of
the Public Health Service Act.
‘‘(d) PAYMENTS
TO RURAL HEALTH CLINICS
AND
FEDERALLY-QUALIFIED HEALTH CENTERS.—Each medic-
aid managed care organization that has a contract under
this title with respect to the provision of services of a rural
health clinic or a Federally-qualified health center shall
provide, at the election of such clinic or center, that the
organization shall provide payments to such a clinic or cen-
ter for services described in 1905(a)(2)(C) at the rates of
payment specified in section 1902(a)(13)(E).
‘‘(e) ANTIDISCRIMINATION.—A managed care entity
shall not discriminate with respect to participation, reim-
bursement, or indemnification as to any provider who is
acting within the scope of the provider’s license or certifi-
cation under applicable State law, solely on the basis of
such license or certification. This subsection shall not be
construed to prohibit a managed care entity from including
providers only to the extent necessary to meet the needs of
the entity’s enrollees or from establishing any measure de-
signed to maintain quality and control costs consistent with
the responsibilities of the entity.
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‘‘SEC. 1947. ASSURING ADEQUACY OF PAYMENTS TO MEDIC-
AID MANAGED CARE ORGANIZATIONS AND
ENTITIES.
A State shall find, determine, and make assurances
satisfactory to the Secretary that the rates it pays a man-
aged care entity for individuals eligible under the State
plan have been determined by an independent actuary that
meets the standards for qualification and practice estab-
lished by the Actuarial Standards Board, to be sufficient
and not excessive with respect to the estimated costs of the
services provided.
‘‘SEC. 1948. FRAUD AND ABUSE.
‘‘(a) PROVISIONS APPLICABLE TO MANAGED CARE EN-
TITIES.—
‘‘(1) PROHIBITING AFFILIATIONS WITH INDIVID-
UALS DEBARRED BY FEDERAL AGENCIES.—
‘‘(A) IN GENERAL.—A managed care entity
may not knowingly—
‘‘(i) have a person described in sub-
paragraph (C) as a director, officer, part-
ner, or person with beneficial ownership of
more than 5 percent of the entity’s equity,
or
‘‘(ii) have an employment, consulting,
or other agreement with a person described
in such subparagraph for the provision of
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items and services that are significant and
material to the entity’s obligations under its
contract with the State.
‘‘(B) EFFECT
OF
NONCOMPLIANCE.—If a
State finds that a managed care entity is not in
compliance with clause (i) or (ii) of subpara-
graph (A), the State—
‘‘(i) shall notify the Secretary of such
noncompliance,
‘‘(ii) may continue an existing agree-
ment with the entity unless the Secretary
(in consultation with the Inspector General
of the Department of Health and Human
Services) directs otherwise, and
‘‘(iii) may not renew or otherwise ex-
tend the duration of an existing agreement
with the entity unless the Secretary (in con-
sultation with the Inspector General of the
Department of Health and Human Serv-
ices) provides to the State and to the Con-
gress a written statement describing compel-
ling reasons that exist for renewing or ex-
tending the agreement.
‘‘(C) PERSONS
DESCRIBED.—A person is
described in this subparagraph if such person—
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‘‘(i) is debarred, suspended, or other-
wise excluded from participating in pro-
curement activities under any Federal pro-
curement or nonprocurement program or
activity, as provided for in the Federal Ac-
quisition Streamlining Act of 1994 (Public
Law 103–355; 108 Stat. 3243), or
‘‘(ii) is an affiliate (as defined in such
Act) of a person described in clause (i).
‘‘(2) RESTRICTIONS ON MARKETING.—
‘‘(A) DISTRIBUTION OF MATERIALS.—
‘‘(i) IN
GENERAL.—A managed care
entity may not distribute directly or
through any agent or independent contrac-
tor marketing materials within any State—
‘‘(I) without the prior approval of
the State, and
‘‘(II) that contain false or materi-
ally misleading information.
‘‘(ii) CONSULTATION
IN
REVIEW
OF
MARKET MATERIALS.—In the process of re-
viewing and approving such materials, the
State shall provide for consultation with a
medical care advisory committee.
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‘‘(iii) PROHIBITION.—The State may
not enter into or renew a contract with a
managed care entity for the provision of
services to individuals enrolled under the
State plan under this title if the State de-
termines that the entity distributed directly
or through any agent or independent con-
tractor marketing materials in violation of
clause (i).
‘‘(B) SERVICE MARKET.—A managed care
entity shall distribute marketing materials to the
entire service area of such entity.
‘‘(C) PROHIBITION OF TIE-INS.—A managed
care entity, or any agency of such entity, may
not seek to influence an individual’s enrollment
with the entity in conjunction with the sale of
any other insurance.
‘‘(D) PROHIBITING
MARKETING
FRAUD.—
Each managed care entity shall comply with
such procedures and conditions as the Secretary
prescribes in order to ensure that, before an indi-
vidual is enrolled with the entity, the individual
is provided accurate oral and written and suffi-
cient information to make an informed decision
whether or not to enroll.
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‘‘(E) PROHIBITION OF COLD CALL MARKET-
ING.—Each managed care entity shall not, di-
rectly or indirectly, conduct door-to-door, tele-
phonic, or other ‘cold call’ marketing of enroll-
ment under this title.
‘‘(b) PROVISIONS APPLICABLE ONLY
TO MEDICAID
MANAGED CARE ORGANIZATIONS.—
‘‘(1) STATE CONFLICT-OF-INTEREST SAFEGUARDS
IN MEDICAID RISK CONTRACTING.—A medicaid man-
aged care organization may not enter into a contract
with any State under section 1941(a)(1)(B) unless the
State has in effect conflict-of-interest safeguards with
respect to officers and employees of the State with re-
sponsibilities relating to contracts with such organi-
zations or to the default enrollment process described
in section 1941(a)(1)(F) that are at least as effective
as the Federal safeguards provided under section 27
of the Office of Federal Procurement Policy Act (41
U.S.C. 423), against conflicts of interest that apply
with respect to Federal procurement officials with
comparable responsibilities with respect to such con-
tracts.
‘‘(2) REQUIRING DISCLOSURE OF FINANCIAL IN-
FORMATION.—In addition to any requirements appli-
cable under paragraph (27) or (35) of section
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1902(a), a medicaid managed care organization
shall—
‘‘(A) report to the State such financial in-
formation as the State may require to dem-
onstrate that—
‘‘(i) the organization has the ability to
bear the risk of potential financial losses
and otherwise has a fiscally sound oper-
ation;
‘‘(ii) the organization uses the funds
paid to it by the State for activities consist-
ent with the requirements of this title and
the contract between the State and organi-
zation; and
‘‘(iii) the organization does not place
an individual physician, physician group,
or other health care provider at substantial
risk for services not provided by such physi-
cian, group, or health care provider, by pro-
viding adequate protection to limit the li-
ability of such physician, group, or health
care provider, through measures such as
stop loss insurance or appropriate risk cor-
ridors,
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‘‘(B) agree that the Secretary and the State
(or any person or organization designated by ei-
ther) shall have the right to audit and inspect
any books and records of the organization (and
of any subcontractor) relating to the information
reported pursuant to subparagraph (A) and any
information required to be furnished under sec-
tion paragraphs (27) or (35) of section 1902(a),
‘‘(C) make available to the Secretary and
the State a description of each transaction de-
scribed in subparagraphs (A) through (C) of sec-
tion 1318(a)(3) of the Public Health Service Act
between the organization and a party in interest
(as defined in section 1318(b) of such Act),
‘‘(D) agree to make available to its enrollees
upon reasonable request—
‘‘(i) the information reported pursuant
to subparagraph (A); and
‘‘(ii) the information required to be
disclosed under sections 1124 and 1126,
‘‘(E) comply with subsections (a) and (c) of
section 1318 of the Public Health Service Act
(relating to disclosure of certain financial infor-
mation) and with the requirement of section
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1301(c)(8) of such Act (relating to liability ar-
rangements to protect members), and
‘‘(F) notify the State of loans and other spe-
cial financial arrangements which are made be-
tween the organization and subcontractors, affili-
ates, and related parties.
Each State is required to conduct audits on the books
and records of at least 1 percent of the number of
medicaid managed care organizations operating in
the State.
‘‘(3) ADEQUATE PROVISION AGAINST RISK OF IN-
SOLVENCY.—
‘‘(A) ESTABLISHMENT OF STANDARDS.—The
Secretary shall establish standards, including
appropriate equity standards, under which each
medicaid managed care organization shall make
adequate provision against the risk of insolvency.
‘‘(B) CONSIDERATION
OF
OTHER
STAND-
ARDS.—In establishing the standards described
in subparagraph (A), the Secretary shall con-
sider solvency standards applicable to eligible or-
ganizations with a risk-sharing contract under
section 1876 or under part C of title XVIII.
‘‘(C) MODEL CONTRACT ON SOLVENCY.—At
the earliest practicable time after the date of the
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enactment of this section, the Secretary shall
issue guidelines concerning solvency standards
for risk contracting entities and subcontractors
of such risk contracting entities. Such guidelines
shall take into account characteristics that may
differ among risk contracting entities, including
whether such an entity is at risk for inpatient
hospital services.
‘‘(4) REQUIRING REPORT ON NET EARNINGS AND
ADDITIONAL
BENEFITS.—Each medicaid managed
care organization shall submit a report to the State
not later than 12 months after the close of a contract
year containing the most recent audited financial
statement of the organization’s net earnings and con-
sistent with generally accepted accounting principles.
‘‘(c) DISCLOSURE OF OWNERSHIP AND RELATED IN-
FORMATION.—Each medicaid managed care organization
shall provide for disclosure of information in accordance
with section 1124.
‘‘(d) DISCLOSURE OF TRANSACTION INFORMATION.—
‘‘(1) IN
GENERAL.—Each medicaid managed
care organization which is not a qualified health
maintenance organization (as defined in section
1310(d) of the Public Health Service Act) shall report
to the State and, upon request, to the Secretary, the
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Inspector General of the Department of Health and
Human Services, and the Comptroller General, a de-
scription of transactions between the organization
and a party in interest (as defined in section 1318(b)
of such Act), including the following transactions:
‘‘(A) Any sale or exchange, or leasing of
any property between the organization and such
a party.
‘‘(B) Any furnishing for consideration of
goods, services (including management services),
or facilities between the organization and such a
party, but not including salaries paid to employ-
ees for services provided in the normal course of
their employment.
‘‘(C) Any lending of money or other exten-
sion of credit between the organization and such
a party.
The State or Secretary may require that information
reported respecting an organization which controls, or
is controlled by, or is under common control with, an-
other entity be in the form of a consolidated financial
statement for the organization and such entity.
‘‘(2) DISCLOSURE TO ENROLLEES.—Each such
organization shall make the information reported
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pursuant to paragraph (1) available to its enrollees
upon reasonable request.
‘‘(e) CONTRACT OVERSIGHT.—
‘‘(1) IN GENERAL.—The Secretary must provide
prior review and approval for contracts under this
part with a medicaid managed care organization pro-
viding for expenditures under this title in excess of
$1,000,000.
‘‘(2) INSPECTOR GENERAL REVIEW.—As part of
such approval process, the Inspector General in the
Department of Health and Human Services, effective
October 1, 1997, shall make a determination (to the
extent practicable) as to whether persons with an
ownership interest (as defined in section 1124(a)(3))
or an officer, director, agent, or managing employee
(as defined in section 1126(b)) of the organization are
or have been described in subsection (a)(1)(C) based
on a ground relating to fraud, theft, embezzlement,
breach of fiduciary responsibility, or other financial
misconduct or obstruction of an investigation.
‘‘(f) LIMITATION ON AVAILABILITY OF FFP FOR USE
OF ENROLLMENT BROKERS.—Amounts expended by a State
for the use of an enrollment broker in marketing managed
care entities to eligible individuals under this title shall be
considered, for purposes of section 1903(a)(7), to be nec-
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essary for the proper and efficient administration of the
State plan but only if the following conditions are met with
respect to the broker:
‘‘(1) The broker is independent of any such en-
tity and of any health care providers (whether or not
any such provider participates in the State plan
under this title) that provide coverage of services in
the same State in which the broker is conducting en-
rollment activities.
‘‘(2) No person who is an owner, employee, con-
sultant, or has a contract with the broker either has
any direct or indirect financial interest with such an
entity or health care provider or has been excluded
from participation in the program under this title or
title XVIII or debarred by any Federal agency, or
subject to a civil money penalty under this Act.
‘‘(g) USE OF UNIQUE PHYSICIAN IDENTIFIER FOR
PARTICIPATING
PHYSICIANS.—Each medicaid managed
care organization shall require each physician providing
services to enrollees eligible for medical assistance under the
State plan under this title to have a unique identifier in
accordance with the system established under section
1173(b).
‘‘(h) SECRETARIAL RECOVERY OF FFP FOR CAPITA-
TION PAYMENTS FOR INSOLVENT MANAGED CARE ENTI-
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TIES.—The Secretary shall provide for the recovery and off-
set against any amount owed a State under section
1903(a)(1) in an amount equal to the amounts paid to the
State for medical assistance provided under such section,
for expenditures for capitation payments to a managed care
entity that becomes insolvent or for services contracted for
with, but not provided by, such organization.
‘‘SEC. 1949. SANCTIONS FOR NONCOMPLIANCE BY MAN-
AGED CARE ENTITIES.
‘‘(a) USE
OF INTERMEDIATE SANCTIONS
BY
THE
STATE TO ENFORCE REQUIREMENTS.—
‘‘(1) IN GENERAL.—Each State shall establish
intermediate sanctions, which may include any of the
types described in subsection (b) other than the termi-
nation of a contract with a managed care entity,
which the State may impose against a managed care
entity with a contract under section 1941(a)(1)(B) if
the entity—
‘‘(A) fails substantially to provide medically
necessary items and services that are required
(under law or under such entity’s contract with
the State) to be provided to an enrollee covered
under the contract,
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‘‘(B) imposes premiums or charges on en-
rollees in excess of the premiums or charges per-
mitted under this title,
‘‘(C) acts to discriminate among enrollees
on the basis of their health status or require-
ments for health care services, including expul-
sion or refusal to reenroll an individual, except
as permitted by this part, or engaging in any
practice that would reasonably be expected to
have the effect of denying or discouraging enroll-
ment with the entity by eligible individuals
whose medical condition or history indicates a
need for substantial future medical services,
‘‘(D) misrepresents or falsifies information
that is furnished—
‘‘(i) to the Secretary or the State under
this part; or
‘‘(ii) to an enrollee, potential enrollee,
or a health care provider under such sec-
tions, or
‘‘(E) fails to comply with the requirements
of section 1876(i)(8) (or comparable require-
ments under part C of title XVIII) or this part.
‘‘(2) RULE OF CONSTRUCTION.—For purposes of
paragraph (1)(A), the term ‘medically necessary’ shall
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not be construed as requiring an abortion be per-
formed for any individual, except if necessary to save
the life of the mother or if a pregnancy is the result
of an act of rape or incest.
‘‘(b) INTERMEDIATE SANCTIONS.—The sanctions de-
scribed in this subsection are as follows:
‘‘(1) Civil money penalties as follows:
‘‘(A) Except as provided in subparagraph
(B), (C), or (D), not more than $25,000 for each
determination under subsection (a).
‘‘(B) With respect to a determination under
paragraph (3) or (4)(A) of subsection (a), not
more than $100,000 for each such determination.
‘‘(C) With respect to a determination under
subsection (a)(2), double the excess amount
charged in violation of such subsection (and the
excess amount charged shall be deducted from the
penalty and returned to the individual con-
cerned).
‘‘(D) Subject to subparagraph (B), with re-
spect to a determination under subsection (a)(3),
$15,000 for each individual not enrolled as a re-
sult of a practice described in such subsection.
‘‘(2) The appointment of temporary manage-
ment—
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‘‘(A) to oversee the operation of the medic-
aid-only managed care entity upon a finding by
the State that there is continued egregious behav-
ior by the plan, or
‘‘(B) to assure the health of the entity’s en-
rollees, if there is a need for temporary manage-
ment while—
‘‘(i) there is an orderly termination or
reorganization of the managed care entity;
or
‘‘(ii) improvements are made to rem-
edy the violations found under subsection
(a),
except that temporary management under this para-
graph may not be terminated until the State has de-
termined that the managed care entity has the capa-
bility to ensure that the violations shall not recur.
‘‘(3) Permitting individuals enrolled with the
managed care entity to terminate enrollment without
cause, and notifying such individuals of such right to
terminate enrollment.
‘‘(4) Suspension or default of all enrollment of
individuals under this title after the date the Sec-
retary or the State notifies the entity of a determina-
tion of a violation of any requirement of this part.
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‘‘(5) Suspension of payment to the entity under
this title for individuals enrolled after the date the
Secretary or State notifies the entity of such a deter-
mination and until the Secretary or State is satisfied
that the basis for such determination has been cor-
rected and is not likely to recur.
‘‘(c) TREATMENT OF CHRONIC SUBSTANDARD ENTI-
TIES.—In the case of a managed care entity which has re-
peatedly failed to meet the requirements of sections 1942
through 1946, the State shall (regardless of what other sanc-
tions are provided) impose the sanctions described in para-
graphs (2) and (3) of subsection (b).
‘‘(d) AUTHORITY TO TERMINATE CONTRACT.—In the
case of a managed care entity which has failed to meet the
requirements of this part, the State shall have the authority
to terminate its contract with such entity under section
1941(a)(1)(B) and to enroll such entity’s enrollees with
other managed care entities (or to permit such enrollees to
receive medical assistance under the State plan under this
title other than through a managed care entity).
‘‘(e) AVAILABILITY
OF SANCTIONS
TO
THE SEC-
RETARY.—
‘‘(1) INTERMEDIATE SANCTIONS.—In addition to
the sanctions described in paragraph (2) and any
other sanctions available under law, the Secretary
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may provide for any of the sanctions described in
subsection (b) if the Secretary determines that a man-
aged care entity with a contract under section
1941(a)(1)(B) fails to meet any of the requirements of
this part.
‘‘(2) DENIAL OF PAYMENTS TO THE STATE.—The
Secretary may deny payments to the State for medi-
cal assistance furnished under the contract under sec-
tion 1941(a)(1)(B) for individuals enrolled after the
date the Secretary notifies a managed care entity of
a determination under subsection (a) and until the
Secretary is satisfied that the basis for such deter-
mination has been corrected and is not likely to recur.
‘‘(f) DUE PROCESS FOR MANAGED CARE ENTITIES.—
‘‘(1) AVAILABILITY OF HEARING PRIOR TO TER-
MINATION OF CONTRACT.—A State may not terminate
a contract with a managed care entity under section
1941(a)(1)(B) unless the entity is provided with a
hearing prior to the termination.
‘‘(2) NOTICE TO ENROLLEES OF TERMINATION
HEARING.—A State shall notify all individuals en-
rolled with a managed care entity which is the subject
of a hearing to terminate the entity’s contract with
the State of the hearing and that the enrollees may
immediately disenroll with the entity without cause.
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‘‘(3) OTHER PROTECTIONS FOR MANAGED CARE
ENTITIES AGAINST SANCTIONS IMPOSED BY STATE.—
Before imposing any sanction against a managed
care entity other than termination of the entity’s con-
tract, the State shall provide the entity with notice
and such other due process protections as the State
may provide, except that a State may not provide a
managed care entity with a pre-termination hearing
before imposing the sanction described in subsection
(b)(2).
‘‘(4) IMPOSITION OF CIVIL MONETARY PENALTIES
BY
SECRETARY.—The provisions of section 1128A
(other than subsections (a) and (b)) shall apply with
respect to a civil money penalty imposed by the Sec-
retary under subsection (b)(1) in the same manner as
such provisions apply to a penalty or proceeding
under section 1128A.
‘‘SEC. 1950. DEFINITIONS; MISCELLANEOUS PROVISIONS.
‘‘(a) DEFINITIONS.—For purposes of this title:
‘‘(1) MANAGED CARE ENTITY.—The term ‘man-
aged care entity’ means—
‘‘(A) a medicaid managed care organiza-
tion; or
‘‘(B) a primary care case manager.
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‘‘(2) MEDICAID
MANAGED
CARE
ORGANIZA-
TION.—The term ‘medicaid managed care organiza-
tion’ means a health maintenance organization, an
eligible organization with a contract under section
1876 or under part C of title XVIII, a provider spon-
sored network, or any other organization which is or-
ganized under the laws of a State, has made adequate
provision (as determined under standards established
for purposes of eligible organizations under section
1876 or under part C of title XVIII, and through its
capitalization or otherwise) against the risk of insol-
vency, and provides or arranges for the provision of
one or more items and services to individuals eligible
for medical assistance under the State plan under
this title in accordance with a contract with the State
under section 1941(a)(1)(B).
‘‘(3) PRIMARY CARE CASE MANAGER.—
‘‘(A) IN GENERAL.—The term ‘primary care
case manager’ has the meaning given such term
in section 1905(t)(2).’’.
(b) STUDIES AND REPORTS.—
(1) REPORT ON PUBLIC HEALTH SERVICES.—
(A) IN GENERAL.—Not later than January
1, 1998, the Secretary of Health and Human
Services (in this subsection referred to as the
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‘‘Secretary’’) shall report to the Committee on
Finance of the Senate and the Committee on
Commerce of the House of Representatives on the
effect of managed care entities (as defined in sec-
tion 1950(a)(1) of the Social Security Act) on
the delivery of and payment for the services tra-
ditionally provided through providers described
in section 1941(a)(2)(B)(i) of such Act.
(B) CONTENTS OF REPORT.—The report re-
ferred to in subparagraph (A) shall include—
(i) information on the extent to which
enrollees with eligible managed care entities
seek services at local health departments,
public hospitals, and other facilities that
provide care without regard to a patient’s
ability to pay;
(ii) information on the extent to which
the facilities described in clause (i) provide
services to enrollees with eligible managed
care entities without receiving payment;
(iii) information on the effectiveness of
systems implemented by facilities described
in clause (i) for educating such enrollees on
services that are available through eligible
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managed care entities with which such en-
rollees are enrolled;
(iv) to the extent possible, identifica-
tion of the types of services most frequently
sought by such enrollees at such facilities;
and
(v) recommendations about how to en-
sure the timely delivery of the services tra-
ditionally provided through providers de-
scribed in section 1941(a)(2)(B)(i) of the
Social Security Act to enrollees of managed
care entities and how to ensure that local
health departments, public hospitals, and
other facilities are adequately compensated
for the provision of such services to such en-
rollees.
(2) REPORT ON PAYMENTS TO HOSPITALS.—
(A) IN GENERAL.—Not later than October 1
of each year, beginning with October 1, 1998, the
Secretary and the Comptroller General shall
analyze and submit a report to the Committee on
Finance of the Senate and the Committee on
Commerce of the House of Representatives on
rates paid for hospital services under managed
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care entities under contracts under section
1941(a)(1)(B) of the Social Security Act.
(B) CONTENTS OF REPORT.—The informa-
tion in the report described in subparagraph (A)
shall—
(i) be organized by State, type of hos-
pital, type of service; and
(ii) include a comparison of rates paid
for hospital services under managed care
entities with rates paid for hospital services
furnished to individuals who are entitled to
benefits under a State plan under title XIX
of the Social Security Act and are not en-
rolled with such entities.
(3) REPORTS
BY
STATES.—Each State shall
transmit to the Secretary, at such time and in such
manner as the Secretary determines appropriate, the
information on hospital rates submitted to such State
under section 1947(b)(2) of the Social Security Act.
(4) INDEPENDENT STUDY AND REPORT ON QUAL-
ITY ASSURANCE AND ACCREDITATION STANDARDS.—
The Institute of Medicine of the National Academy of
Sciences shall conduct a study and analysis of the
quality assurance programs and accreditation stand-
ards applicable to managed care entities operating in
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the private sector or to such entities that operate
under contracts under the medicare program under
title XVIII of the Social Security Act to determine if
such programs and standards include consideration of
the accessibility and quality of the health care items
and services delivered under such contracts to low-in-
come individuals.
(c) CONFORMING AMENDMENTS.—
(1) REPEAL OF CURRENT REQUIREMENTS.—
(A) IN GENERAL.—Except as provided in
subparagraph (B), section 1903(m) (42 U.S.C.
1396b(m)) is repealed on the date of the enact-
ment of this Act.
(B) EXISTING CONTRACTS.—In the case of
any contract under section 1903(m) of such Act
which is in effect on the day before the date of
the enactment of this Act, the provisions of such
section shall apply to such contract until the ear-
lier of—
(i) the day after the date of the expira-
tion of the contract; or
(ii) the date which is 1 year after the
date of the enactment of this Act.
(2) FEDERAL FINANCIAL PARTICIPATION.—
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(A) CLARIFICATION OF APPLICATION OF FFP
DENIAL RULES TO PAYMENTS MADE PURSUANT
TO MANAGED CARE ENTITIES.—Section 1903(i)
(42 U.S.C. 1396b(i)) is amended by adding at
the end the following new sentence: ‘‘Paragraphs
(1)(A), (1)(B), (2), (5), and (12) shall apply
with respect to items or services furnished and
amounts expended by or through a managed care
entity (as defined in section 1950(a)(1)) in the
same manner as such paragraphs apply to items
or services furnished and amounts expended di-
rectly by the State.’’.
(B) FFP FOR EXTERNAL QUALITY REVIEW
ORGANIZATIONS.—Section 
1903(a)(3)(C) 
(42
U.S.C. 1396b(a)(3)(C)) is amended—
(i) by inserting ‘‘(i)’’ after ‘‘(C)’’, and
(ii) by adding at the end the following
new clause:
‘‘(ii) 75 percent of the sums expended with
respect to costs incurred during such quarter (as
found necessary by the Secretary for the proper
and efficient administration of the State plan)
as are attributable to the performance of inde-
pendent external reviews of managed care enti-
ties (as defined in section 1950(a)(1)) by exter-
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nal quality review organizations, but only if
such organizations conduct such reviews under
protocols approved by the Secretary and only in
the case of such organizations that meet stand-
ards established by the Secretary relating to the
independence of such organizations from agencies
responsible for the administration of this title or
eligible managed care entities; and’’.
(3) EXCLUSION OF CERTAIN INDIVIDUALS AND
ENTITIES FROM PARTICIPATION IN PROGRAM.—Sec-
tion 1128(b)(6)(C) (42 U.S.C. 1320a–7(b)(6)(C)) is
amended—
(A) in clause (i), by striking ‘‘a health
maintenance organization (as defined in section
1903(m))’’ and inserting ‘‘a managed care en-
tity, as defined in section 1950(a)(1),’’; and
(B) in clause (ii), by inserting ‘‘section
1115 or’’ after ‘‘approved under’’.
(4) STATE PLAN REQUIREMENTS.—Section 1902
(42 U.S.C. 1396a) is amended—
(A) in subsection (a)(30)(C), by striking
‘‘section 
1903(m)’’ 
and 
inserting 
‘‘section
1941(a)(1)(B)’’; and
(B) in subsection (a)(57), by striking
‘‘health maintenance organization (as defined in
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HR 2015 EAS
section 1903(m)(1)(A))’’ and inserting ‘‘managed
care entity, as defined in section 1950(a)(1)’’;
(C) in subsection (e)(2)(A), by striking ‘‘or
with 
an 
entity 
described 
in 
paragraph
(2)(B)(iii), (2)(E), (2)(G), or (6) of section
1903(m) under a contract described in section
1903(m)(2)(A)’’ and inserting ‘‘or with a man-
aged 
care 
entity, 
as 
defined 
in 
section
1950(a)(1);
(D) in subsection (p)(2)—
(i) by striking ‘‘a health maintenance
organization 
(as 
defined 
in 
section
1903(m))’’ and inserting ‘‘a managed care
entity, as defined in section 1950(a)(1),’’;
(ii) by striking ‘‘an organization’’ and
inserting ‘‘an entity’’; and
(iii) by striking ‘‘any organization’’
and inserting ‘‘any entity’’; and
(E) in subsection (w)(1), by striking ‘‘sec-
tions 1903(m)(1)(A) and’’ and inserting ‘‘sec-
tion’’.
(5) 
PAYMENT
TO
STATES.—Section
1903(w)(7)(A)(viii) (42 U.S.C. 1396b(w)(7)(A)(viii))
is amended to read as follows:
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‘‘(viii) Services of a managed care en-
tity 
with 
a 
contract 
under 
section
1941(a)(1)(B).’’.
(6) USE
OF
ENROLLMENT
FEES
AND
OTHER
CHARGES.—Section 1916 (42 U.S.C. 1396o) is
amended in subsections (a)(2)(D) and (b)(2)(D) by
striking ‘‘a health maintenance organization (as de-
fined in section 1903(m))’’ and inserting ‘‘a managed
care entity, as defined in section 1950(a)(1),’’ each
place it appears.
(7) EXTENSION
OF
ELIGIBILITY
FOR
MEDICAL
ASSISTANCE.—Section 1925(b)(4)(D)(iv) (42 U.S.C.
1396r–6(b)(4)(D)(iv)) is amended to read as follows:
‘‘(iv) ENROLLMENT
WITH
MANAGED
CARE ENTITY.—Enrollment of the caretaker
relative and dependent children with a
managed care entity, as defined in section
1950(a)(1), less than 50 percent of the mem-
bership (enrolled on a prepaid basis) of
which consists of individuals who are eligi-
ble to receive benefits under this title (other
than because of the option offered under this
clause). The option of enrollment under this
clause is in addition to, and not in lieu of,
any enrollment option that the State might
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offer under subparagraph (A)(i) with re-
spect to receiving services through a man-
aged care entity in accordance with part
B.’’.
(8) 
PAYMENT
FOR
COVERED
OUTPATIENT
DRUGS.—Section 1927(j)(1) (42 U.S.C. 1396r–8(j)(1))
is amended by striking ‘‘***Health Maintenance Or-
ganizations, including those organizations that con-
tract under section 1903(m),’’ and inserting ‘‘health
maintenance organizations and medicaid managed
care organizations, as defined in section 1950(a)(2),’’.
(9) APPLICATION OF SANCTIONS FOR BALANCED
BILLING
THROUGH
SUBCONTRACTORS.—(A) Section
1128A(b)(2)(B) (42 U.S.C. 1320a–7a(b)) is amended
by inserting ‘‘, including section 1944(b)’’ after ‘‘title
XIX’’.
(B) Section 1128B(d)(1) (42 U.S.C. 1320a–
7b(d)(1)) is amended by inserting ‘‘or, in the case of
an individual enrolled with a managed care entity
under part B of title XIX, the applicable rates estab-
lished by the entity under the agreement with the
State agency under such part’’ after ‘‘established by
the State’’.
(10) REPEAL OF CERTAIN RESTRICTIONS ON OB-
STETRICAL
AND
PEDIATRIC
PROVIDERS.—Section
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HR 2015 EAS
1903(i) (42 U.S.C. 1396b(i)) is amended by striking
paragraph (12).
(11) DEMONSTRATION PROJECTS TO STUDY EF-
FECT OF ALLOWING STATES TO EXTEND MEDICAID
COVERAGE
FOR
CERTAIN
FAMILIES.—Section
4745(a)(5)(A) of the Omnibus Budget Reconciliation
Act of 1990 (42 U.S.C. 1396a note) is amended by
striking ‘‘(except section 1903(m)’’ and inserting
‘‘(except part B)’’.
(12) CONFORMING AMENDMENT FOR DISCLOSURE
REQUIREMENTS FOR MANAGED CARE ENTITIES.—Sec-
tion 1124(a)(2)(A) (42 U.S.C. 1320a–3(a)(2)(A)) is
amended by inserting ‘‘managed care entity under
title XIX,’’ after ‘‘renal dialysis facility,’’.
(13) ELIMINATION
OF
REGULATORY
PAYMENT
CAP.—The Secretary of Health and Human Services
may 
not, 
under 
the 
authority 
of 
section
1902(a)(30)(A) of the Social Security Act or any
other provision of title XIX of such Act, impose a
limit by regulation on the amount of the capitation
payments that a State may make to qualified entities
under such title, and section 447.361 of title 42, Code
of Federal Regulations (relating to upper limits of
payment: risk contracts), is hereby nullified.
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(14) CONTINUATION
OF
ELIGIBILITY.—Section
1902(e)(2) (42 U.S.C. 1396a(e)(2)) is amended to
read as follows:
‘‘(2) For provision providing for extended liability in
the case of certain beneficiaries enrolled with managed care
entities, see section 1941(c).’’.
(15) CONFORMING AMENDMENTS TO FREEDOM-
OF-CHOICE
PROVISIONS.—Section 1902(a)(23) (42
U.S.C. 1396a(a)(23)) is amended—
(A) in the matter preceding subparagraph
(A), by striking ‘‘subsection (g) and in section
1915’’ and inserting ‘‘subsection (g), section
1915, and section 1941,’’; and
(B) in subparagraph (B), by striking ‘‘a
health maintenance organization, or a’’ and in-
serting ‘‘or with a managed care entity, as de-
fined in section 1950(a)(1), or’’.
(d) EFFECTIVE DATE; STATUS OF WAIVERS.—
(1) EFFECTIVE DATE.—Except as provided in
paragraph (2), the amendments made by this section
shall apply to medical assistance furnished—
(A) during quarters beginning on or after
October 1, 1997; or
(B) in the case of assistance furnished
under 
a 
contract 
described 
in 
subsection
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HR 2015 EAS
(c)(1)(B), during quarters beginning after the
earlier of—
(i) the date of the expiration of the
contract; or
(ii) the expiration of the 1-year period
which begins on the date of the enactment
of this Act.
(2) APPLICATION TO WAIVERS.—If any waiver
granted to a State under section 1115 or 1915 of the
Social Security Act (42 U.S.C. 1315, 1396n), or oth-
erwise, which relates to the provision of medical as-
sistance under a State plan under title XIX of the
such Act (42 U.S.C. 1396 et seq.), is in effect or ap-
proved by the Secretary of Health and Human Serv-
ices as of the applicable effective date described in
paragraph (1), the amendments made by this section
shall not apply with respect to the State before the ex-
piration (determined without regard to any exten-
sions) of the waiver to the extent such amendments
are inconsistent with the terms of the waiver.
SEC. 5702. PRIMARY CARE CASE MANAGEMENT SERVICES
AS STATE OPTION WITHOUT NEED FOR WAIV-
ER.
(a) OPTIONAL COVERAGE AS PART OF MEDICAL AS-
SISTANCE.—
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(1) IN GENERAL.—Section 1905(a) (42 U.S.C.
1396d(a)) is amended—
(A) by striking ‘‘and’’ at the end of para-
graph (24);
(B) by redesignating paragraph (25) as
paragraph (26); and
(C) by inserting after paragraph (24) the
following new paragraph:
‘‘(25) primary care case management services
(as defined in subsection (t)); and’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 1902(a)(10)(C)(iv) (42 U.S.C.
1396a(a)(10)(C)(iv)) is amended by striking
‘‘through (24)’’ and inserting ‘‘through (25)’’.
(B) Section 1902(j) (42 U.S.C. 1396a(j)) is
amended by striking ‘‘through (25)’’ and insert-
ing ‘‘through (26)’’.
(b) PRIMARY CARE CASE MANAGEMENT SERVICES DE-
FINED.—Section 1905 (42 U.S.C. 1396d)) is amended by
adding at the end the following new subsection:
‘‘(t)(1) The term ‘primary care case management serv-
ices’ means case-management related services (including co-
ordination and monitoring of health care services) provided
by a primary care case manager under a primary care case
management contract.
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HR 2015 EAS
‘‘(2)(A) The term ‘primary care case manager’ means,
with respect to a primary care case management contract,
a provider described in subparagraph (B).
‘‘(B) A provider described in this subparagraph is—
‘‘(i) a physician, a physician group practice, or
an entity employing or having other arrangements
with physicians who provide case management serv-
ices; or
‘‘(ii) at State option—
‘‘(I) a nurse practitioner (as described in
section 1905(a)(21));
‘‘(II) a certified nurse-midwife (as defined
in section 1861(gg)(2)); or
‘‘(III) a physician assistant (as defined in
section 1861(aa)(5)).
‘‘(3) The term ‘primary care case management con-
tract’ means a contract with a State agency under which
a primary care case manager undertakes to locate, coordi-
nate, and monitor covered primary care, covered primary
care (and such other covered services as may be specified
under the contract) to all individuals enrolled with the pri-
mary care case manager, and that provides for—
‘‘(A) reasonable and adequate hours of operation,
including 24-hour availability of information, refer-
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ral, and treatment with respect to medical emer-
gencies;
‘‘(B) restriction of enrollment to individuals re-
siding sufficiently near a service delivery site of the
entity to be able to reach that site within a reasonable
time using available and affordable modes of trans-
portation;
‘‘(C) employment of, or contracts or other ar-
rangements with, sufficient numbers of physicians
and other appropriate health care professionals to en-
sure that services under the contract can be furnished
to enrollees promptly and without compromise to
quality of care;
‘‘(D) a prohibition on discrimination on the
basis of health status or requirements for health serv-
ices in the enrollment or disenrollment of individuals
eligible for medical assistance under this title; and
‘‘(E) a right for an enrollee to terminate enroll-
ment without cause during the first month of each en-
rollment period, which period shall not exceed 6
months in duration, and to terminate enrollment at
any time for cause.
‘‘(4) For purposes of this subsection, the term ‘primary
care’ includes all health care services customarily provided
in accordance with State licensure and certification laws
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HR 2015 EAS
and regulations, and all laboratory services customarily
provided by or through, a general practitioner, family med-
icine physician, internal medicine physician, obstetrician/
gynecologist, or pediatrician.’’.
(c) CONFORMING AMENDMENT.—Section 1915(b)(1)
(42 U.S.C. 1396n(b)(1)) is repealed.
(d) EFFECTIVE DATE.—The amendments made by this
section apply to primary care case management services
furnished on or after October 1, 1997.
SEC. 5703. ADDITIONAL REFORMS TO EXPAND AND SIM-
PLIFY MANAGED CARE.
(a) ELIMINATION OF 75:25 RESTRICTION ON RISK
CONTRACTS.—
(1) 75 PERCENT LIMIT ON MEDICARE AND MED-
ICAID ENROLLMENT.—
(A) IN
GENERAL.—Section 1903(m)(2)(A)
(42 U.S.C. 1396b(m)(2)(A)) is amended by strik-
ing clause (ii).
(B) CONFORMING AMENDMENTS.—
(i) Section 1903(m)(2) (42 U.S.C.
1396b(m)(2)) is amended—
(I) by striking subparagraphs (C),
(D), and (E); and
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HR 2015 EAS
(II) in subparagraph (G), by
striking ‘‘clauses (i) and (ii)’’ and in-
serting ‘‘clause (i)’’.
(ii) Section 1902(e)(2)(A) (42 U.S.C.
1396a(e)(2)(A)) is amended by striking
‘‘(2)(E),’’.
(2) EFFECTIVE DATE.—The amendments made
by paragraph (1) shall apply on and after June 20,
1997.
(b) ELIMINATION OF PROHIBITION ON COPAYMENTS
FOR SERVICES FURNISHED BY HEALTH MAINTENANCE OR-
GANIZATIONS.—Section 1916 (42 U.S.C. 1396o) is amend-
ed—
(1) in subsection (a)(2)(D), by striking ‘‘or serv-
ices furnished’’ and all that follows through ‘‘en-
rolled,’’; and
(2) in subsection (b)(2)(D), by striking ‘‘or (at
the option’’ and all that follows through ‘‘enrolled,’’.
Subchapter B—Management Flexibility
Reforms
SEC. 5711. ELIMINATION OF BOREN AMENDMENT REQUIRE-
MENTS FOR PROVIDER PAYMENT RATES.
(a) PLAN
AMENDMENTS.—Section 1902(a)(13) is
amended—
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(1) by striking all that precedes subparagraph
(D) and inserting the following:
‘‘(13) provide—
‘‘(A) for a public process for determination
of rates of payment under the plan for hospital
services (and which, in the case of hospitals, take
into account the situation of hospitals which
serve a disproportionate number of low income
patients with special needs), nursing facility
services, services provided in intermediate care
facilities for the mentally retarded, and home
and community-based services, under which—
‘‘(i) proposed rates, the methodologies underlying
the establishment of such rates, and a description of
how such methodologies will affect access to services,
quality of services, and safety of beneficiaries are pub-
lished, and providers, beneficiaries and their rep-
resentatives, and other concerned State residents are
given a reasonable opportunity for review and com-
ment on such proposed rates, methodologies, and de-
scription; and
‘‘(ii) final rates, the methodologies underlying
the establishment of such rates, and justifications for
such rates (that may take into account public com-
ments received by the State (if any) are published in
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1 or more daily newspapers of general circulation in
the State or in any publication used by the State to
publish State statutes or rules); and’’;
(2) by redesignating subparagraphs (D) and (E)
as subparagraphs (B) and (C), respectively;
(3) in subparagraph (B), as so redesignated, by
adding ‘‘and’’ at the end; and
(4) by striking subparagraph (F).
(b) STUDY AND REPORT.—
(1) STUDY.—The Secretary of Health and
Human Services shall study the effect on access to
services, the quality of services, and the safety of serv-
ices provided to beneficiaries of the rate-setting meth-
ods used by States pursuant to section 1902(a)(13) of
the Social Security Act (42 U.S.C. 1396a(a)(13), as
amended by subsection (a).
(2) REPORT.—Not later than 4 years after the
date of enactment of this Act, the Secretary of Health
and Human Services shall submit a report to the ap-
propriate committees of Congress on the conclusions of
the study conducted under paragraph (1), together
with any recommendations for legislation as a result
of such conclusions.
(c) CONFORMING AMENDMENTS.—
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HR 2015 EAS
(1) 
Section 
1903(m)(2)(A)(ix) 
(42 
U.S.C.
1396b(m)(2)(A)(ix)) 
is 
amended 
by 
striking
‘‘1902(a)(13)(E)’’ each place it appears and inserting
‘‘1902(a)(13)(C)’’.
(2) Section 1905(o)(3) (42 U.S.C. 1396d(o)(3)) is
amended by striking ‘‘amount described in section
1902(a)(13)(D)’’ and inserting ‘‘amount determined
in section 1902(a)(13)(B)’’.
(3) Section 1913(b)(3) (42 U.S.C. 1396l(b)(3)) is
amended by striking ‘‘1902(a)(13)(A)’’ and inserting
‘‘1902(a)(13)’’.
(4) Section 1923 (42 U.S.C. 1396r–4) is amend-
ed in subsections (a)(1) and (e)(1), by striking
‘‘1902(a)(13)(A)’’ each place it appears and inserting
‘‘1902(a)(13)’’.
SEC. 5712. MEDICAID PAYMENT RATES FOR QUALIFIED
MEDICARE BENEFICIARIES.
(a) IN
GENERAL.—Section 1902(n) (42 U.S.C.
1396a(n)) is amended—
(1) by inserting ‘‘(1)’’ after ‘‘(n)’’, and
(2) by adding at the end the following:
‘‘(2) In carrying out paragraph (1), a State is not re-
quired to provide any payment for any expenses incurred
relating to payment for a coinsurance or copayment for
medicare cost-sharing if the amount of the payment under
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title XVIII for the service exceeds the payment amount that
otherwise would be made under the State plan under this
title for such service.
‘‘(3) In the case in which a State’s payment for medi-
care cost-sharing for a qualified medicare beneficiary with
respect to an item or service is reduced or eliminated
through the application of paragraph (1) or (2) of this sub-
section—
‘‘(A) for purposes of applying any limitation
under title XVIII on the amount that the beneficiary
may be billed or charged for the service, the amount
of payment made under title XVIII plus the amount
of payment (if any) under the State plan shall be
considered to be payment in full for the service,
‘‘(B) the beneficiary shall not have any legal li-
ability to make payment to a provider or managed
care entity (as defined in section 1950(a)(1)) for the
service, and
‘‘(C) any lawful sanction that may be imposed
upon a provider or managed care entity (as defined
in section 1950(a)(1)) for excess charges under this
title or title XVIII shall apply to the imposition of
any charge on the individual in such case.
This paragraph shall not be construed as preventing pay-
ment of any medicare cost-sharing by a medicare supple-
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mental policy or an employer retiree health plan on behalf
of an individual.’’.
(b) LIMITATION
IN MEDICARE PROVIDER AGREE-
MENTS.—Section 
1866(a)(1)(A) 
(42 
U.S.C.
1395cc(a)(1)(A)) is amended—
(1) by inserting ‘‘(i)’’ after ‘‘(A)’’, and
(2) by inserting before the comma at the end the
following: ‘‘, and (ii) not to impose any charge that
may not be charged under section 1902(n)(3)’’.
(c) LIMITATION ON NONPARTICIPATING PROVIDERS.—
Section 1848(g)(3)(A) (42 U.S.C. 1395w–4(g)(3)(A)) is
amended by inserting before the period at the end the follow-
ing: ‘‘and the provisions of section 1902(n)(3)(A) apply to
further limit permissible charges under this section’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to payment for items and services fur-
nished on or after the later of—
(1) October 1, 1997; or
(2) the termination date of a provider agreement
under the medicare program under title XVIII or
under a State plan under title XIX that is in effect
on the date of the enactment of this Act.
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Subchapter C—Reduction of Disproportionate
Share Hospital (DSH) Payments
SEC. 5721. DISPROPORTIONATE SHARE HOSPITAL (DSH)
PAYMENTS.
(a) REDUCTION OF PAYMENTS.—Section 1923(f) (42
U.S.C. 1396r–4(f)) is amended to read as follows:
‘‘(f) LIMITATION ON FEDERAL FINANCIAL PARTICIPA-
TION.—
‘‘(1) IN GENERAL.—Beginning with fiscal year
1998, payment under section 1903(a) shall not be
made to a State with respect to any payment adjust-
ment made under this section for hospitals in a State
for quarters in a fiscal year in excess of the dis-
proportionate share hospital (in this subsection re-
ferred to as ‘DSH’) allotment for the State for the fis-
cal year, as specified in paragraphs (2), (3), (4), and
(5).
‘‘(2) DETERMINATION
OF
STATE
DSH
ALLOT-
MENTS FOR FISCAL YEAR 1998.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B) and paragraph (4), the DSH
allotment for a State for fiscal year 1998 is
equal to the State 1995 DSH spending amount.
‘‘(B) HIGH DSH STATES.—In the case of
any State that is a high DSH State, the DSH
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HR 2015 EAS
allotment for that State for fiscal year 1998 is
equal to the sum of—
‘‘(i) the Federal share of payment ad-
justments made to hospitals in the State
under subsection (c) that are attributable to
the 1995 DSH allotment for inpatient hos-
pital services provided (based on reporting
data specified by the State on HCFA Form
64 as inpatient DSH, and as approved by
the Secretary); and
‘‘(ii) 70 percent of the Federal share of
payment adjustments made to hospitals in
the State under subsection (c) that are at-
tributable to the 1995 DSH allotment for
payments to institutions for mental diseases
and other mental health facilities (based on
reporting data specified by the State on
HCFA Form 64 as mental health DSH,
and as approved by the Secretary).
‘‘(3) DETERMINATION
OF
STATE
DSH
ALLOT-
MENTS FOR FISCAL YEARS 1999 THROUGH 2002.—
‘‘(A) NON HIGH DSH STATES.—
‘‘(i) IN GENERAL.—Except as provided
in subparagraph (B) and paragraph (4),
the DSH allotment for a State for each of
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fiscal years 1999 through 2002 is equal to
the applicable percentage of the State 1995
DSH spending amount.
‘‘(ii) APPLICABLE
PERCENTAGE.—For
purposes of clause (i), the applicable per-
centage with respect to a State described in
that clause is—
‘‘(I) for fiscal year 1999, 98 per-
cent;
‘‘(II) for fiscal year 2000, 95 per-
cent;
‘‘(III) for fiscal year 2001, 90
percent; and
‘‘(IV) for fiscal year 2002, 85 per-
cent.
‘‘(B) HIGH DSH STATES.—
‘‘(i) IN GENERAL.—In the case of any
State that is a high DSH State, the DSH
allotment for that State for each of fiscal
years 1999 through 2002 is equal to the ap-
plicable reduction percentage of the high
DSH State modified 1995 spending amount
for that fiscal year.
‘‘(ii) HIGH DSH STATE MODIFIED 1995
SPENDING AMOUNT.—
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‘‘(I) IN GENERAL.—For purposes
of clause (i), the high DSH State
modified 
1995 
spending 
amount
means, with respect to a State and a
fiscal year, the sum of—
‘‘(aa) the Federal share of
payment adjustments made to
hospitals in the State under sub-
section (c) that are attributable to
the 1995 DSH allotment for inpa-
tient hospital services provided
(based on reporting data specified
by the State on HCFA Form 64
as inpatient DSH, and as ap-
proved by the Secretary); and
‘‘(bb) the applicable mental
health percentage for such fiscal
year of the Federal share of pay-
ment adjustments made to hos-
pitals in the State under sub-
section (c) that are attributable to
the 1995 DSH allotment for pay-
ments to institutions for mental
diseases and other mental health
facilities (based on reporting data
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specified by the State on HCFA
Form 64 as mental health DSH,
and as approved by the Sec-
retary).
‘‘(II) 
APPLICABLE
MENTAL
HEALTH
PERCENTAGE.—For purposes
of subclause (I)(bb), the applicable
mental health percentage for such fiscal
year is—
‘‘(aa) for fiscal year 1999, 50
percent;
‘‘(bb) for fiscal year 2000, 20
percent; and
‘‘(cc) for fiscal years 2001
and 2002, 0 percent.
‘‘(iii) APPLICABLE
REDUCTION
PER-
CENTAGE.—For purposes of clause (i), the
applicable reduction percentage described in
that clause is—
‘‘(I) for fiscal year 1999, 92 per-
cent;
‘‘(II) for fiscal year 2000, 85 per-
cent; and
‘‘(III) for fiscal years 2001 and
2002, 80 percent.
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‘‘(4) EXCEPTIONS.—
‘‘(A) CERTAIN STATES WITHOUT 1995 MEN-
TAL HEALTH DSH SPENDING.—In the case of any
State with a State 1995 DSH spending amount
that exceeds 12 percent of the Federal medical
assistance percentage of expenditures made under
the State plan under this title for medical assist-
ance during fiscal year 1995 and that, during
such fiscal year, did not make any payment ad-
justments to hospitals in the State under sub-
section (c) that are attributable to the 1995 DSH
allotment for payments to institutions for mental
diseases and other mental health facilities (based
on reporting data specified by the State on
HCFA Form 64 as mental health DSH, and as
approved by the Secretary), the DSH allotment
for that State for each of fiscal years 1998
through 2002 is equal to the average of the State
1995 DSH spending amount and the State 1996
DSH spending amount.
‘‘(B) STATES WITH LOW STATE 1995 DSH
SPENDING AMOUNTS.—In the case of any State
with a State 1995 DSH spending amount that
is less than 3 percent of the Federal medical as-
sistance percentage of expenditures made under
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the State plan under this title for medical assist-
ance during fiscal year 1995, the DSH allotment
for that State for each of fiscal years 1998
through 2002 is equal to the State 1995 DSH
spending amount.
‘‘(C) STATES WITH STATE 1995 DSH SPEND-
ING AMOUNTS ABOVE 3 PERCENT.—In the case of
any State with a State 1995 DSH spending
amount that is more than 3 percent of the Fed-
eral medical assistance percentage of expendi-
tures made under the State plan under this title
for medical assistance during fiscal year 1995,
the DSH allotment for that State for each of fis-
cal years 1999 through 2002 is equal to the
greater of—
‘‘(i) the amount otherwise determined
for such State under paragraph (3); or
‘‘(ii) 50 percent of the State 1995 DSH
spending amount.
‘‘(5) DETERMINATION
OF
STATE
DSH
ALLOT-
MENTS FOR FISCAL YEAR 2003 AND THEREAFTER.—
The DSH allotment for any State for fiscal year 2003
and each fiscal year thereafter is equal to the DSH
allotment for the State for the preceding fiscal year,
increased by the estimated percentage change in the
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consumer price index for medical services (as deter-
mined by the Bureau of Labor Statistics).
‘‘(6) DEFINITIONS.—
‘‘(A) HIGH
DSH
STATE.—The term ‘high
DSH State’ means a State that, with respect to
fiscal year 1997, had a State base allotment
under this section that exceeded 12 percent of the
Federal medical assistance percentage of expend-
itures made under the State plan under this title
for medical assistance during such fiscal year, as
determined using the preliminary State DSH al-
lotment for the State for fiscal year 1997, as
published in the Federal Register on January
31, 1997.
‘‘(B) STATE.—In this subsection, the term
‘State’ means the 50 States and the District of
Columbia.’’.
‘‘(C) STATE 1995 DSH SPENDING AMOUNT.—
The term ‘State 1995 DSH spending amount’
means, with respect to a State, the Federal medi-
cal assistance percentage of payment adjustments
made under subsection (c) under the State plan
that are attributable to the fiscal year 1995
DSH allotment, as reported by the State not
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later than January 1, 1997, on HCFA Form 64,
and as approved by the Secretary.
‘‘(D) STATE 1996 DSH SPENDING AMOUNT.—
The term ‘State 1996 DSH spending amount’
means, with respect to a State, the Federal share
of payment adjustments made under subsection
(c) under the State plan during fiscal year 1996
as reported by the State not later than December
31, 1997, on HCFA Form 64, and as approved
by the Secretary.’’.
(b) LIMITATION ON PAYMENTS TO INSTITUTIONS FOR
MENTAL DISEASES.—Section 1923 of the Social Security
Act (42 U.S.C. 1396r–4) is amended by adding at the end
the following:
‘‘(h) LIMITATION ON CERTAIN STATE DSH EXPENDI-
TURES.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of this section, payment under section
1903(a) shall not be made to a State with respect to
any payment adjustments made under this section for
quarters in a fiscal year to institutions for mental
diseases or other mental health facilities, in excess
of—
‘‘(A) the total State DSH expenditures that
are attributable to fiscal year 1995 for payments
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to institutions for mental diseases and other
mental health facilities (based on reporting data
specified by the State on HCFA Form 64 as
mental health DSH, and as approved by the Sec-
retary); or
‘‘(B) the amount of such payment adjust-
ment which is equal to the applicable percentage
of the Federal share of payment adjustments
made to hospitals in the State under subsection
(c) that are attributable to the 1995 DSH allot-
ment for payments to institutions for mental dis-
eases and other mental health facilities (based on
reporting data specified by the State on HCFA
Form 64 as mental health DSH, and as ap-
proved by the Secretary).
‘‘(2) APPLICABLE PERCENTAGE.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the applicable percentage with respect
to a fiscal year is the lesser of the percentage de-
termined under subparagraph (B) or—
‘‘(i) for fiscal year 2001, 50 percent;
‘‘(ii) for fiscal year 2002, 40 percent;
and
‘‘(iii) for fiscal year 2003 and there-
after, 33 percent.
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‘‘(B) 1995 PERCENTAGE.—The percentage
determined under this subparagraph is the ratio
(determined as a percentage) of the Federal share
of payment adjustments made to hospitals in the
State under subsection (c) that are attributable
to the 1995 DSH allotment for payments to in-
stitutions for mental diseases and other mental
health facilities, to the State 1995 DSH spending
amount, as defined under subsection (f)(6)(C).’’.
(c) TARGETING PAYMENTS.—Section 1923(a)(2) (42
U.S.C. 1396r–4(a)(2)) is amended by adding at the end the
following:
‘‘(D) A State plan under this title shall not be
considered to meet the requirements of section
1902(a)(13)(A) (insofar as it requires payments to
hospitals to take into account the situation of hos-
pitals that serve a disproportionate number of low-in-
come patients with special needs), as of October 1,
1998, unless the State has provided assurances to the
Secretary that the State has developed a methodology
for prioritizing payments to disproportionate share
hospitals, including children’s hospitals, on the basis
of the proportion of low-income and medicaid pa-
tients served by such hospitals. In making such assur-
ances, the State plan shall provide a definition of
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‘‘(7) PACE DEMONSTRATION WAIVER PROGRAM
DEFINED.—For purposes of this section, the term
‘PACE demonstration waiver program’ means a dem-
onstration program under either of the following sec-
tions (as in effect before the date of their repeal):
‘‘(A) Section 603(c) of the Social Security
Amendments of 1983 (Public Law 98–21), as ex-
tended by section 9220 of the Consolidated Om-
nibus Budget Reconciliation Act of 1985 (Public
Law 99–272).
‘‘(B) Section 9412(b) of the Omnibus Budg-
et Reconciliation Act of 1986 (Public Law 99–
509).
‘‘(8) STATE ADMINISTERING AGENCY DEFINED.—
For purposes of this section, the term ‘State admin-
istering agency’ means, with respect to the operation
of a PACE program in a State, the agency of that
State (which may be the single agency responsible for
administration of the State plan under this title in
the State) responsible for administering PACE pro-
gram agreements under this section and section 1894
in the State.
‘‘(9) TRIAL PERIOD DEFINED.—
‘‘(A) IN
GENERAL.—For purposes of this
section, the term ‘trial period’ means, with re-