IIA
104TH CONGRESS
1ST SESSION
H. R. 2425
IN THE SENATE OF THE UNITED STATES
OCTOBER 20 (legislative day, OCTOBER 18), 1995
Received; read twice and referred to the Committee on Finance
AN ACT
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,
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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.
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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—REVISIONS TO CRIMINAL LAW
Sec. 15121. Definition of Federal health care offence.
Sec. 15122. Health care fraud.
Sec. 15123. Theft or embezzlement.
Sec. 15124. False statements.
Sec. 15125. Bribery and graft.
Sec. 15126. Illegal remuneration with respect to health care benefit programs.
Sec. 15127. Obstruction of criminal investigations of health care offenses.
Sec. 15128. Civil penalties for violations of Federal health care offenses.
Sec. 15129. Injunctive relief relating to health care offenses.
Sec. 15130. Authorized investigative demand procedures.
Sec. 15131. Grand jury disclosure.
Sec. 15132. Miscellaneous amendments to title 18, United States Code.
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
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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.
‘‘TITLE XXII—TEACHING HOSPITAL AND GRADUATE MEDICAL
EDUCATION TRUST FUND
‘‘PART A—ESTABLISHMENT OF FUND
‘‘Sec. 2201. Establishment of Fund.
‘‘PART B—PAYMENTS TO TEACHING HOSPITALS
‘‘Subpart 1—Requirement of Payments
‘‘Sec. 2211. Formula payments to teaching hospitals.
‘‘Subpart 2—Amount Relating to Indirect Costs of Graduate Medical
Education
‘‘Sec. 2221. Determination of amount relating to indirect costs.
‘‘Sec. 2222. Indirect costs; special rules regarding determination of hos-
pital-specific percentage.
‘‘Sec. 2223. Indirect costs; alternative payments regarding teaching hos-
pitals in certain States.
‘‘Subpart 3—Amount Relating to Direct Costs of Graduate Medical
Education
‘‘Sec. 2231. Determination of amount relating to direct costs.
‘‘Sec. 2232. Direct costs; special rules regarding determination of hospital-
specific percentage.
‘‘Sec. 2233. Direct costs; authority for payments to consortia of providers.
‘‘Sec. 2234. Direct costs; alternative payments regarding teaching hos-
pitals in certain States.
‘‘Subpart 4—General Provisions
‘‘Sec. 2241. Adjustments in payment amounts.’’
PART 2—AMENDMENTS TO MEDICARE PROGRAM
Sec. 15411. Transfers to Teaching Hospital and Graduate Medical Education
Trust Fund.
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Sec. 15412. Modification in payment policies regarding graduate medical edu-
cation.
PART 3—REFORM OF FEDERAL POLICIES REGARDING TEACHING HOSPITALS
AND GRADUATE MEDICAL EDUCATION
Sec. 15421. Establishment of advisory panel for recommending policies.
‘‘PART C—OTHER MATTERS
‘‘Sec. 2251. Advisory Panel on Reform in Financing of Teaching Hospitals
and Graduate Medical Education.’’
Subtitle F—Provisions Relating to Medicare Part A
PART 1—HOSPITALS
SUBPART A—GENERAL PROVISIONS RELATING TO HOSPITALS
Sec. 15501. Reductions in inflation updates for PPS 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
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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.
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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 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.
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‘‘(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)),
‘‘(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
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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
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
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‘‘(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
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.
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‘‘(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
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.
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‘‘(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.
‘‘(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.
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‘‘(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
‘‘(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
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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
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.
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‘‘(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-
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.
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‘‘(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.—
‘‘(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’
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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
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.
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‘‘(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-
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-
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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).
‘‘(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
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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
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
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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-
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.
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‘‘(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-
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
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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-
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.’’.
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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:
‘‘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)).
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‘‘(3) EXCEPTION
FOR
PROVIDER-SPONSORED
ORGANIZATIONS.—Paragraph (1) shall not apply to
a MedicarePlus organization that is a provider-spon-
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
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member such services the aggregate value of which
exceeds $5,000 in any year,
‘‘(2) may obtain insurance or make other ar-
rangements for the cost of such services provided to
its enrolled members other than through the 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
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products offered by such organization and issued by an
organization to which subsection (b)(1) applies or by a
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.—
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‘‘(1) IN GENERAL.—In this part, the term ‘high
deductible/medisave product’ means a MedicarePlus
product that—
‘‘(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
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parts A and B with respect to such ex-
penses,
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
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laws of any State and that is a qualified health
maintenance organization (as defined in section
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-
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onstration projects which would permit MediGrant pro-
grams under title XXI to be treated as MedicarePlus orga-
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
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of such services to charge, in accordance with the
charges allowed under such law or policy—
‘‘(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-
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ity for payment for such items and services
does not exceed (after taking into account any
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-
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vide that at any time during which elections are ac-
cepted under section 1805 with respect to a
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
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individual 
under 
section 
1805 
for 
a
MedicarePlus product it offers.
‘‘(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
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1805(c)(2) shall transmit to the Secretary (at such
time and in such manner as the Secretary may
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.—
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offers to individuals who are members of
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-
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tus, claims experience, receipt of
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-
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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
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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
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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-
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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)).
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‘‘(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)
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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.
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‘‘(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
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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,
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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.
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‘‘(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.
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‘‘(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-
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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
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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-
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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.
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‘‘(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).
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‘‘(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
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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
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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
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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.
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‘‘(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—
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‘‘(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;
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‘‘(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)
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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.—
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‘‘(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
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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.
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‘‘(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
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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.—
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‘‘(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—
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‘‘(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
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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.
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‘‘(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-
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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
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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.—
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‘‘(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:
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‘‘(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, 9.0 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.
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‘‘(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-
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ment area is at least 12 times $300 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 subparagraphs (B) and
(C), the Secretary shall compute a per capita
growth rate for each year after 1996, for each
payment area as assigned to a service utiliza-
tion cohort under subsection (d), consistent
with the following rules:
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‘‘(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
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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).
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‘‘(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 for a year, the Secretary shall—
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‘‘(i) reduce the per capita growth rate
for areas assigned to the median service
utilization cohort by the ratio of .1 to 5.3;
‘‘(ii) if the year is 1997, increase per
capita growth rates for payment areas to
extent necessary to assure that the annual
MedicarePlus capitation rate for each pay-
ment area for such year is at least 12
times $320; and
‘‘(iii) adjust (consistent with clause
(ii)) the per capita growth rate for areas
assigned to the lowest service utilization
cohort by such proportion as the Secretary
determines will result in no net increase in
outlays resulting from the application of
this subparagraph for the year involved.
‘‘(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,
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‘‘(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
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
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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
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.
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‘‘(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
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.
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‘‘(B) 
NATIONAL
STANDARDIZED
MEDICAREPLUS
CAPITATION
RATE.—In this
paragraph, 
the 
‘national 
standardized
MedicarePlus capitation rate’ for a year is
equal to—
‘‘(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-
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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
‘‘(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
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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).
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.
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‘‘(B) SPECIAL
RULE
FOR
CERTAIN
EN-
ROLLEES.—
‘‘(i) IN GENERAL.—Subject to clause
(ii), the Secretary may make retroactive
adjustments under subparagraph (A) to
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
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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,
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-
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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
(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
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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
(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,
230
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‘‘(9) SERVICES FURNISHED IN A COMPREHEN-
SIVE
OUTPATIENT
REHABILITATION
FACILITY.—In
the case of a designated health service furnished in
a comprehensive outpatient rehabilitation facility (as
defined in section 1861(cc)(2)).’’.
(i) 
DEFINITION
OF
REFERRAL.—Section
1877(h)(5)(A) (42 U.S.C. 1395nn(h)(5)(A)) is amend-
ed—
(1) by striking ‘‘an item or service’’ and insert-
ing ‘‘a designated health service’’, and
(2) by striking ‘‘the item or service’’ and insert-
ing ‘‘the designated health service’’.
SEC. 15205. REPEAL OF REPORTING REQUIREMENTS.
Section 1877 (42 U.S.C. 1395nn) is amended—
(1) by striking subsection (f); and
(2) by striking subsection (g)(5).
SEC. 15206. PREEMPTION OF STATE LAW.
Section 1877 (42 U.S.C. 1395nn) is amended by add-
ing at the end the following new subsection:
‘‘(i) PREEMPTION OF STATE LAW.—This section pre-
empts State law to the extent State law is inconsistent
with this section.’’.
SEC. 15207. EFFECTIVE DATE.
Except as provided in section 15203(b), the amend-
ments made by this part shall apply to referrals made on