to the amount of the payment that would otherwise be 
made if such services were inpatient hospital services of 
a distinct part psychiatric or rehabilitation unit, respec-
tively, described in the matter following clause (v) of sec-
tion 1886(d)(1)(B).’’.
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to cost reporting peri-
ods beginning on or after October 1, 2004. 
(h) WAIVER AUTHORITY.—
(1) IN GENERAL.—Section 1820(c)(2)(B)(i)(II) 
(42 U.S.C. 1395i–4(c)(2)(B)(i)(II)) is amended by 
inserting ‘‘before January 1, 2006,’’ after ‘‘is cer-
tified’’. 
(2) GRANDFATHERING WAIVER AUTHORITY FOR 
CERTAIN FACILITIES.—Section 1820(h) (42 U.S.C. 
1395i–4(h)) is amended—
(A) in the heading preceding paragraph 
(1), by striking ‘‘OF CERTAIN FACILITIES’’ and 
inserting ‘‘PROVISIONS’’; and 
(B) by adding at the end the following new 
paragraph: 
‘‘(3) STATE
AUTHORITY
TO
WAIVE
35-MILE 
RULE.—In the case of a facility that was designated 
as a critical access hospital before January 1, 2006, 
and was certified by the State as being a necessary
provider of health care services to residents in the 
area under subsection (c)(2)(B)(i)(II), as in effect 
before such date, the authority under such sub-
section with respect to any redesignation of such fa-
cility shall continue to apply notwithstanding the 
amendment made by section 105(h)(1) of the Rural 
Healthcare Improvement Act of 2003.’’. 
SEC. 106. MEDICARE INPATIENT HOSPITAL PAYMENT AD-
JUSTMENT FOR LOW-VOLUME HOSPITALS. 
(a) IN
GENERAL.—Section 1886(d) (42 U.S.C. 
1395ww(d)) is amended by adding at the end the following 
new paragraph: 
‘‘(12) PAYMENT
ADJUSTMENT
FOR
LOW-VOL-
UME HOSPITALS.—
‘‘(A) IN
GENERAL.—In addition to any 
payments calculated under this section for a 
subsection (d) hospital, for discharges occurring 
during a fiscal year (beginning with fiscal year 
2005), the Secretary shall provide for an addi-
tional payment amount to each low-volume hos-
pital (as defined in subparagraph (C)(i)) for 
discharges occurring during that fiscal year 
that is equal to the applicable percentage in-
crease (determined under subparagraph (B) for 
the hospital involved) in the amount paid to
such hospital under this section for such dis-
charges (determined without regard to this 
paragraph). 
‘‘(B) 
APPLICABLE
PERCENTAGE
IN-
CREASE.—The Secretary shall determine an ap-
plicable percentage increase for purposes of 
subparagraph (A) as follows: 
‘‘(i) The Secretary shall determine the 
empirical relationship for subsection (d) 
hospitals between the standardized cost-
per-case for such hospitals and the total 
number of discharges of such hospitals and 
the amount of the additional incremental 
costs (if any) that are associated with such 
number of discharges. 
‘‘(ii) The applicable percentage in-
crease shall be determined based upon 
such relationship in a manner that reflects, 
based upon the number of such discharges 
for a subsection (d) hospital, such addi-
tional incremental costs. 
‘‘(iii) In no case shall the applicable 
percentage increase exceed 25 percent. 
‘‘(C) DEFINITIONS.—
‘‘(i) LOW-VOLUME
HOSPITAL.—For 
purposes of this paragraph, the term ‘low-
volume hospital’ means, for a fiscal year, a 
subsection (d) hospital (as defined in para-
graph (1)(B)) that the Secretary deter-
mines is located more than 25 road miles 
from another subsection (d) hospital and 
has less than 800 discharges during the 
fiscal year. 
‘‘(ii) DISCHARGE.—For purposes of 
subparagraph (B) and clause (i), the term 
‘discharge’ means an inpatient acute care 
discharge of an individual regardless of 
whether the individual is entitled to bene-
fits under part A.’’. 
(b) JUDICIAL REVIEW.—Section 1886(d)(7)(A) (42 
U.S.C. 1395ww(d)(7)(A)) is amended by inserting after 
‘‘to subsection (e)(1)’’ the following: ‘‘or the determination 
of the applicable percentage increase under paragraph 
(12)(A)(ii)’’.
SEC. 107. TREATMENT OF MISSING COST REPORTING PERI-
ODS FOR SOLE COMMUNITY HOSPITALS. 
(a) IN GENERAL.—Section 1886(b)(3)(I) (42 U.S.C. 
1395ww(b)(3)(I)) is amended by adding at the end the 
following new clause:
‘‘(iii) In no case shall a hospital be denied treatment 
as a sole community hospital or payment (on the basis 
of a target rate as such as a hospital) because data are 
unavailable for any cost reporting period due to changes 
in ownership, changes in fiscal intermediaries, or other ex-
traordinary circumstances, so long as data for at least one 
applicable base cost reporting period is available.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to cost reporting periods begin-
ning on or after January 1, 2004. 
SEC. 108. RECOGNITION OF ATTENDING NURSE PRACTI-
TIONERS AS ATTENDING PHYSICIANS TO 
SERVE HOSPICE PATIENTS. 
(a) IN
GENERAL.—Section 1861(dd)(3)(B) (42 
U.S.C. 1395x(dd)(3)(B)) is amended by inserting ‘‘or 
nurse practitioner (as defined in subsection (aa)(5))’’ after 
‘‘the physician (as defined in subsection (r)(1))’’. 
(b) CLARIFICATION OF HOSPICE ROLE OF NURSE 
PRACTITIONERS.—Section 1814(a)(7)(A)(i)(I) (42 U.S.C. 
1395f(a)(7)(A)(i)(I)) is amended by inserting ‘‘(which for 
purposes of this subparagraph does not include a nurse 
practitioner)’’ after ‘‘attending physician (as defined in 
section 1861(dd)(3)(B))’’.
SEC. 109. RURAL HOSPICE DEMONSTRATION PROJECT. 
(a) IN GENERAL.—The Secretary shall conduct a 
demonstration project for the delivery of hospice care to 
medicare beneficiaries in rural areas. Under the project 
medicare beneficiaries who are unable to receive hospice 
care in the facility for lack of an appropriate caregiver 
are provided such care in a facility of 20 or fewer beds 
which offers, within its walls, the full range of services 
provided by hospice programs under section 1861(dd) of 
the Social Security Act (42 U.S.C. 1395x(dd)). 
(b) SCOPE OF PROJECT.—The Secretary shall con-
duct the project under this section with respect to no more 
than 3 hospice programs over a period of not longer than 
5 years each. 
(c) COMPLIANCE WITH CONDITIONS.—Under the 
demonstration project—
(1) the hospice program shall comply with oth-
erwise applicable requirements, except that it shall 
not be required to offer services outside of the home 
or 
to 
meet 
the 
requirements 
of 
section 
1861(dd)(2)(A)(iii) of the Social Security Act; and 
(2) payments for hospice care shall be made at 
the rates otherwise applicable to such care under 
title XVIII of such Act. 
The Secretary may require the program to comply with 
such additional quality assurance standards for its provi-
sion of services in its facility as the Secretary deems ap-
propriate. 
(d) REPORT.—Upon completion of the project, the 
Secretary shall submit a report to Congress on the project 
and shall include in the report recommendations regarding 
extension of such project to hospice programs serving 
rural areas. 
SEC. 110. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC 
AND FEDERALLY QUALIFIED HEALTH CEN-
TER SERVICES FROM THE PROSPECTIVE PAY-
MENT SYSTEM FOR SKILLED NURSING FA-
CILITIES. 
(a) IN GENERAL.—Section 1888(e)(2)(A) (42 U.S.C. 
1395yy(e)(2)(A)) is amended—
(1) in clause (i)(II), by striking ‘‘clauses (ii) 
and (iii)’’ and inserting ‘‘clauses (ii), (iii), and (iv)’’; 
and 
(2) by adding at the end the following new 
clause: 
‘‘(iv) EXCLUSION OF CERTAIN RURAL 
HEALTH CLINIC AND FEDERALLY QUALI-
FIED
HEALTH
CENTER
SERVICES.—Serv-
ices described in this clause are—
‘‘(I) rural health clinic services 
(as defined in paragraph (1) of sec-
tion 1861(aa)); and 
‘‘(II) Federally qualified health 
center services (as defined in para-
graph (3) of such section); 
that would be described in clause (ii) if 
such services were not furnished by an in-
dividual affiliated with a rural health clinic 
or a Federally qualified health center.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall apply to services furnished on or after 
January 1, 2005. 
SEC. 111. RURAL COMMUNITY HOSPITAL DEMONSTRATION 
PROGRAM. 
(a) ESTABLISHMENT OF RURAL COMMUNITY HOS-
PITAL (RCH) DEMONSTRATION PROGRAM.—
(1) IN GENERAL.—The Secretary shall establish 
a demonstration program to test the feasibility and 
advisability of the establishment of rural community 
hospitals (as defined in subsection (f)(1)) to furnish 
covered inpatient hospital services (as defined in 
subsection (f)(2)) to medicare beneficiaries. 
(2) DEMONSTRATION
AREAS.—The program 
shall be conducted in rural areas selected by the Sec-
retary in States with low population densities, as de-
termined by the Secretary. 
(3) APPLICATION.—Each rural community hos-
pital that is located in a demonstration area selected 
under paragraph (2) that desires to participate in 
the demonstration program under this section shall 
submit an application to the Secretary at such time, 
in such manner, and containing such information as 
the Secretary may require. 
(4) SELECTION OF HOSPITALS.—The Secretary 
shall select from among rural community hospitals 
submitting applications under paragraph (3) not 
more than 15 of such hospitals to participate in the 
demonstration program under this section. 
(5) DURATION.—The Secretary shall conduct 
the demonstration program under this section for a 
5-year period. 
(6) IMPLEMENTATION.—The Secretary shall 
implement the demonstration program not later than 
January 1, 2005, but may not implement the pro-
gram before October 1, 2004. 
(b) PAYMENT.—
(1) IN
GENERAL.—The amount of payment 
under the demonstration program for covered inpa-
tient hospital services furnished in a rural commu-
nity hospital, other than such services furnished in 
a psychiatric or rehabilitation unit of the hospital 
which is a distinct part, is—
(A) for discharges occurring in the first 
cost reporting period beginning on or after the 
implementation of the demonstration program, 
the reasonable costs of providing such services; 
and 
(B) for discharges occurring in a subse-
quent cost reporting period under the dem-
onstration program, the lesser of—
(i) the reasonable costs of providing 
such services in the cost reporting period 
involved; or 
(ii) the target amount (as defined in 
paragraph (2), applicable to the cost re-
porting period involved. 
(2) TARGET AMOUNT.—For purposes of para-
graph (1)(B)(ii), the term ‘‘target amount’’ means, 
with respect to a rural community hospital for a 
particular 12-month cost reporting period—
(A) in the case of the second such report-
ing period for which this subsection is in effect, 
the reasonable costs of providing such covered
inpatient hospital services as determined under 
paragraph (1)(A), and 
(B) in the case of a later reporting period, 
the target amount for the preceding 12-month 
cost reporting period, 
increased by the applicable percentage increase 
(under clause (i) of section 1886(b)(3)(B) of the So-
cial Security Act (42 U.S.C. 1395ww(b)(3)(B))) in 
the market basket percentage increase (as defined in 
clause (iii) of such section) for that particular cost 
reporting period. 
(c) FUNDING.—
(1) IN GENERAL.—The Secretary shall provide 
for the transfer from the Federal Hospital Insurance 
Trust Fund under section 1817 of the Social Secu-
rity Act (42 U.S.C. 1395i) of such funds as are nec-
essary for the costs of carrying out the demonstra-
tion program under this section. 
(2) BUDGET NEUTRALITY.—In conducting the 
demonstration program under this section, the Sec-
retary shall ensure that the aggregate payments 
made by the Secretary do not exceed the amount 
which the Secretary would have paid if the dem-
onstration program under this section was not im-
plemented.
SEC. 117. STUDY ON PORTABLE DIAGNOSTIC ULTRASOUND 
SERVICES FOR BENEFICIARIES IN SKILLED 
NURSING FACILITIES. 
(a) STUDY.—The Comptroller General of the United 
States shall conduct a study of portable diagnostic 
ultrasound services furnished to medicare beneficiaries in 
skilled nursing facilities. Such study shall consider the fol-
lowing: 
(1) TYPES
OF
EQUIPMENT; TRAINING.—The 
types of portable diagnostic ultrasound services fur-
nished to such beneficiaries, the types of portable 
ultrasound equipment used to furnish such services, 
and the technical skills, or training, or both, re-
quired for technicians to furnish such services. 
(2) CLINICAL APPROPRIATENESS.—The clinical 
appropriateness of transporting portable diagnostic 
ultrasound diagnostic and technicians to patients in 
skilled nursing facilities as opposed to transporting 
such patients to a hospital or other facility that fur-
nishes diagnostic ultrasound services. 
(3) FINANCIAL IMPACT.—The financial impact 
if Medicare were make a separate payment for port-
able ultrasound diagnostic services, including the im-
pact of separate payments—
(A) for transportation and technician serv-
ices for residents during a resident in a part A