that any provider-sponsored organization with a full
risk contract under section 1876(g) may (with the
concurrence of the Secretary) obtain insurance or
make other arrangements for covering costs in ex-
cess of those permitted to be covered by such insur-
ance 
and 
arrangements 
under 
section
1876(b)(2)(D)(iii).
‘‘(4) TREATMENT OF MEETING FINANCIAL SOL-
VENCY REQUIREMENT.—
‘‘(A) IN GENERAL.—For purposes of carry-
ing out subsection (a)(1)(C), a provider-spon-
sored organization shall be treated as meeting
the requirement of subsection (b)(2)(E) (relat-
ing to adequate provision against risk of insol-
vency) of section 1876 if the organization is fis-
cally sound.
‘‘(B) FISCAL
SOUNDNESS.—A provider-
sponsored organization shall be treated as fis-
cally sound for purposes of subparagraph (A) if
the organization—
‘‘(i) has a net worth that is not less
than the required net worth (as defined in
clause (i) or (ii) of subparagraph (C), as
the case may be), and
‘‘(ii) has established adequate claims
reserves (as defined in subparagraph (D)).
‘‘(C) REQUIRED NET WORTH DEFINED.—
For purposes of subparagraph (B)(i)—
‘‘(i) FULL
RISK
CONTRACTS.—The
term ‘required net worth’ means, in the
case of an organization with a full risk
contract under section 1876(g), a net
worth (determined in accordance with stat-
utory accounting principles for insurance
companies and health maintenance organi-
zations) that is not less than the greatest
of the following:
‘‘(I) $1,500,000 at the time of
application and $1,000,000 thereafter.
‘‘(II) The sum of 8 percent of the
cost of health services that are not
provided directly by the organization
or its affiliated providers to enrollees,
plus 4 percent of the estimated annual
costs of health services provided di-
rectly by the organization or its affili-
ated providers to enrollees.
‘‘(III) 3 months of uncovered ex-
penditures.
‘‘(ii) PARTIAL RISK CONTRACTS.—The
term ‘required net worth’ means, in the
case of an organization with a partial risk
contract under section 1876(i), an amount
determined in accordance with clause (i),
except that in applying subclause (II) of
such clause, the Secretary shall substitute
for the percentages specified in such sub-
clause such lower percentages as are ap-
propriate to reflect the risk-sharing ar-
rangements under the contract.
‘‘(D) ADEQUATE CLAIMS RESERVES.—For
purposes of subparagraph (B)(ii), the term
‘adequate claims reserves’ means, with respect
to an organization, reserves for claims that
are—
‘‘(i) incurred but not reported, or
‘‘(ii) reported but unpaid,
that are determined in accordance with statu-
tory accounting principles for insurance compa-
nies and health maintenance organizations and
with professional standards of actuarial practice
and that are certified by an independent actu-
ary as adequate in light of the operations and
contracts of the organization.
‘‘(E) APPLICATION OF ACCOUNTING PRIN-
CIPLES.—In 
applying 
statutory 
accounting
principles for purposes of determining the net
worth of an organization under subparagraph
(B)(i), the Secretary shall—
‘‘(i) treat as ‘admitted assets’—
‘‘(I) land, buildings, and equip-
ment of the organization used for the
direct provision of health care serv-
ices,
‘‘(II) any receivables from gov-
ernmental programs due for more
than 90 days, and
‘‘(III) any other assets des-
ignated by the Secretary; and
‘‘(ii) recognize, as a contribution to
surplus, amounts received under subordi-
nated debt (meeting such requirements as
the Secretary may specify).
‘‘(F) METHODS OF DEMONSTRATING COM-
PLIANCE.—The Secretary shall recognize ways
of complying with the requirement of subpara-
graph (A) other than by means of subpara-
graph (B), including (alone or in combina-
tion)—
‘‘(i) letters of credit from a bank,
‘‘(ii) financial guarantees from finan-
cially strong parties including affiliates,
‘‘(iii) unrestricted fund balances,
‘‘(iv) diversity of lines of business and
presence of non risk related revenue,
‘‘(v) certification by an independent
actuary,
‘‘(vi) reinsurance ceded to, or stop
loss insurance purchased through, a recog-
nized commercial insurance company, and
‘‘(vii) other methods acceptable to the
Secretary.
‘‘(d) REQUIREMENT FOR ONGOING QUALITY ASSUR-
ANCE PROGRAM.—
‘‘(1) IN GENERAL.—A provider-sponsored orga-
nization shall not be treated as meeting the require-
ments of subsection (c)(6) (relating to an ongoing
quality assurance program) of section 1876 unless
the quality assurance program of the organization
meets the requirements of paragraphs (2) and (3).
‘‘(2) REQUIRED ELEMENTS OF QUALITY ASSUR-
ANCE
PROGRAM.—A quality assurance program
meets the requirements of this paragraph if the pro-
gram—
‘‘(A) stresses health outcomes;
‘‘(B) provides opportunities for input by
physicians and other health care professionals;
‘‘(C) monitors and evaluates high volume
and high risk services and the care of acute and
chronic conditions;
‘‘(D) evaluates the continuity and coordi-
nation of care that enrollees receive;
‘‘(E) establishes mechanisms to detect both
underutilization and overutilization of services;
‘‘(F) after identifying areas for improve-
ment, establishes or alters practice parameters;
‘‘(G) takes action to improve quality and
assess the effectiveness of such action through
systematic follow up;
‘‘(H) makes available information on qual-
ity and outcomes measures to facilitate bene-
ficiary comparison and choice of health cov-
erage options (in such form and on such quality
and outcomes measures as the Secretary deter-
mines to be appropriate); and
‘‘(I) is evaluated on an ongoing basis as to
its effectiveness.
‘‘(3) TREATMENT
OF
CASE-BY-CASE
UTILIZA-
TION REVIEW.—If a provider-sponsored organization
utilizes case-by-case utilization review in its quality
assurance program, the organization shall—
‘‘(A) base such review on written protocols
developed on the basis of current standards of
medical practice; and
‘‘(B) implement a plan under which—
‘‘(i) such review is coordinated with
the quality assurance program of the orga-
nization, and
‘‘(ii) a transition is made from relying
predominantly on case-by-case review to
review focusing on patterns of care.
‘‘(4) 
COMPLIANCE
THROUGH
ACCREDITA-
TION.—A provider-sponsored organization shall be
treated as meeting the requirements of paragraphs
(2) and (3) of this subsection and the requirements
of section 1876(c)(6) if the organization is accred-
ited (and periodically reaccredited) by a private or-
ganization under a process that the Secretary has
determined assures that the organization meets
standards for quality assurance programs that are
no less stringent than the standards established for
such programs under subsection (g) to carry out this
subsection and section 1876(c).
‘‘(e) REQUIREMENT
FOR PARTICIPATION PROCE-
DURES.—A provider-sponsored organization shall not be
treated as meeting the requirements of this section un-
less—
‘‘(1) the organization establishes reasonable
procedures relating to the participation (under an
agreement between a physician or group of physi-
cians and the organization) of physicians under con-
tracts under section 1876 and such procedures in-
clude—
‘‘(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; and
‘‘(2) the organization consults with physicians
who have entered into participation agreements with
the organization regarding the organization’s medi-
cal policy, quality, and medical management proce-
dures.
Paragraph (1)(C) shall not be construed as requiring a
live evidentiary hearing, a verbatim record, or representa-
tion of the appealing party by legal counsel.
‘‘(f) OTHER SPECIAL RULES FOR TREATMENT OF
PROVIDER-SPONSORED ORGANIZATIONS.—
‘‘(1) 
WAIVER
OF
MINIMUM
ENROLLMENT
RULES.—In the case of a provider-sponsored organi-
zation, paragraph (1) of section 1876(g)—
‘‘(A) shall not apply for the first 3 con-
tract years of the organization under section
1876, and
‘‘(B) shall be applied for contract years
thereafter—
‘‘(i) by substituting ‘1500’ for ‘5000’,
and
‘‘(ii) by substituting ‘at least 500’ for
‘fewer’.
‘‘(2) ADJUSTED
COMMUNITY
RATE.—In the
case of a provider-sponsored organization, the ad-
justed community rate under subsections (e)(3) and
(g)(2) of section 1876 may be computed (in a man-
ner specified by the Secretary) using data in the
general commercial marketplace or (during a transi-
tion period) based on the costs incurred by the orga-
nization in providing such a product.
‘‘(g) ESTABLISHMENT OF STANDARDS FOR QUALI-
FIED PROVIDER-SPONSORED ORGANIZATIONS.—
‘‘(1) INTERIM STANDARDS.—
‘‘(A) IN
GENERAL.—The Secretary shall
issue regulations regarding standards for quali-
fied provider-sponsored organizations within
180 days after the date of the enactment of this
section. Such regulations shall be issued on an
interim basis, but shall become effective upon
publication and shall be effective through De-
cember 31, 2001.
‘‘(B) SOLICITATION OF VIEWS.—In devel-
oping standards under this paragraph, the Sec-
retary shall solicit the views of the National As-
sociation of Insurance Commissioners, the
American Academy of Actuaries, State health
departments, associations representing provider-
sponsored organizations, quality experts (in-
cluding private accreditation organizations),
and medicare beneficiaries.
‘‘(C) CONTRACTS TO MONITOR PERFORM-
ANCE.—The Secretary shall enter into contracts
with appropriate State agencies to monitor per-
formance and beneficiary access to services
under this title during the period in which in-
terim standards are in effect under this para-
graph.
‘‘(2) PERMANENT STANDARDS.—
‘‘(A) IN GENERAL.—Not later than July 1,
2001, the Secretary shall issue permanent
standards under this paragraph.
‘‘(B) 
CONSULTATION.—In 
developing
standards under this paragraph, the Secretary
shall consult with the organizations and individ-
uals referred to in paragraph (1)(B).
‘‘(C) EFFECTIVE
DATE.—The standards
under this paragraph shall be effective for peri-
ods after December 31, 2001.
‘‘(3) PREEMPTION.—The standards established
under this subsection shall supersede any State law
or regulation with respect to qualified provider-spon-
sored organizations insofar as such law or regula-
tion—
‘‘(A) applies to individuals enrolled with
such an organization under a contract under
section 1876, and
‘‘(B) does not meet the requirements of
subsection (b)(2).
‘‘(h) CERTIFICATION.—
‘‘(1) ESTABLISHMENT OF PROCESS.—The Sec-
retary shall establish a process for the certification
of provider-sponsored organizations as qualified pro-
vider-sponsored organizations under this section.
Such process shall provide that an application for
certification shall be approved or denied not later
than 90 days after the date of receipt of the applica-
tion.
‘‘(2) APPLICATION OF ACCREDITATION.—
‘‘(A) IN
GENERAL.—The process under
this subsection shall, to the maximum extent
practical, provide that provider-sponsored orga-
nizations that are accredited by a qualified pri-
vate accreditation process that the Secretary
finds applies standards that are no less strin-
gent than the standards established under sub-
section (g) are deemed to meet the correspond-
ing standards of this title.
‘‘(B) PERIOD OF VALIDITY OF ACCREDITA-
TION.—The use of an accreditation under sub-
paragraph (A) shall be valid only for such pe-
riod as the Secretary specifies.
‘‘(3) IMPOSITION OF CERTIFICATION FEE.—The
Secretary may impose user fees on entities seeking
certification under this subsection in such amounts
as the Secretary deems sufficient to finance the
costs of such certification.
‘‘(4) DECERTIFICATION.—If a provider-spon-
sored organization is decertified under this sub-
section, the organization shall notify each enrollee
with the organization under section 1876 of such de-
certification.’’.
(b) EFFECTIVE DATE; USE OF INTERIM REGULA-
TIONS.—
(1) IN GENERAL.—The amendments made by
this section shall become effective on the date of the
enactment of this Act and apply to contract years
beginning on or after January 1, 1998.
(2) USE OF INTERIM FINAL REGULATIONS.—In
order to carry out the amendments made by this
section in a timely manner, the Secretary of Health
and Human Services may promulgate regulations
that take effect on an interim basis, after notice and
pending opportunity for public comment.
SEC. 
3. 
AUTHORIZING 
PAYMENT 
OF 
ALL 
MEDICARE
HEALTH PLANS ON A PARTIAL RISK BASIS.
(a) IN GENERAL.—Section 1876 of the Social Secu-
rity Act (42 U.S.C. 1395mm) is amended—
(1) by redesignating subsections (i) and (j) as
subsections (k) and (l), respectively, and
(2) by inserting after subsection (h) the follow-
ing:
‘‘(i) The Secretary may enter into a partial risk con-
tract with an eligible organization under which—
‘‘(1) notwithstanding subsection (b)(2)(D), the
organization and the program established under this
title share the financial risk associated with the serv-
ices the organization provides to individuals entitled
to benefits under part A and enrolled under part B
or enrolled under part B only;
‘‘(2) notwithstanding subsections (a)(1) and
(h)(2), payment is based on—
‘‘(A) a blend of—
(i) the payments that would otherwise
be made to such organization under a risk-
sharing contract under subsection (g), and
‘‘(ii) the payments that would be
made to such organization under a reason-
able cost reimbursement contract under
subsection (h), or
‘‘(B) any other methodology agreed upon
by the Secretary and the organization; and
‘‘(3) adjustments, if appropriate, are made to
the payments under this section to the organization
to reflect any risk assumed by such program.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall become effective on the date of the
enactment of this Act and apply to contract years begin-
ning on or after January 1, 1998.
SEC. 4. ELIMINATION OF ENROLLMENT COMPOSITION RE-
QUIREMENT FOR ELIGIBLE ORGANIZATIONS
MEETING ENHANCED QUALITY STANDARDS.
(a) IN GENERAL.—Section 1876 of the Social Secu-
rity Act (42 U.S.C. 1395mm), as amended by section 3,
is amended by inserting after subsection (i) the following:
‘‘(j)(1) An eligible organization shall be treated as
meeting the requirement of section 1876(f) (relating to en-
rollment composition) if the organization demonstrates
that it—
‘‘(A) is capable of providing coordinated care in
accordance with the quality assurance standards es-
tablished under subsection (c)(6) and paragraph (2)
of section 1889(d), and
‘‘(B) has experience, under a past or present
arrangement, providing coordinated care to individ-
uals (other than individuals who are entitled to bene-
fits under this title) who are enrollees, participants,
or beneficiaries of a health plan or a State plan ap-
proved under title XIX.
‘‘(2) An eligible organization shall be treated as meet-
ing the standards referred to in paragraph (1)(A) if the
organization is accredited (and periodically reaccredited)
by a private organization under a process that the Sec-
retary has determined assures that the organization meets
standards for quality assurance programs that are no less
stringent than the standards established for such pro-
grams under subsection (c) and section 1889(g).
‘‘(3) DEFINITIONS.—For purposes of this subsection:
‘‘(A) HEALTH PLAN.—The term ‘health plan’
means—
‘‘(i) any contract of insurance, including
any hospital or medical service policy or certifi-
cate, hospital or medical service plan contract,
or health maintenance organization contract,
that is provided by a carrier (as defined in sub-
paragraph (B)), and
‘‘(ii) an employee welfare benefit plan inso-
far as the plan provides health benefits and is
funded in a manner other than through the
purchase of one or more policies or contracts
described in clause (i).
‘‘(B) CARRIER.—The term ‘carrier’ means a li-
censed insurance company, a hospital or medical
service corporation (including an existing Blue Cross
or Blue Shield organization), or other entity licensed
or certified by a State to provide health insurance or
health benefits.
(b) EFFECTIVE DATE.—The amendments made by
this subsection shall become effective on the date of the
enactment of this Act and apply to contract years begin-
ning on or after January 1, 1998.
SEC. 5. CLARIFICATION OF USE OF PROVIDER-SPONSORED
ORGANIZATIONS 
UNDER 
MEDICAID 
PRO-
GRAM.
Section 1903(m)(1)(A) of the Social Security Act (42
U.S.C. 1396b(m)(1)(A)) is amended, in the matter before
clause (i), by inserting ‘‘(which may be a provider-spon-
sored organization, as defined in section 1889(a)(2))’’
after ‘‘public or private organization’’.
SEC. 6. DEMONSTRATION OF COORDINATED ACUTE AND
LONG-TERM CARE BENEFITS UNDER MEDI-
CARE AND MEDICAID PROGRAMS.
The Secretary of Health and Human Services shall
provide, in at least 10 States, for demonstration projects
that permit Medicaid programs under title XIX to be
treated as eligible organizations under section 1876 for
individuals who are eligible to enroll with an organization
under such section and are eligible to receive medical as-
sistance under a State program approved under title XIX,
for the purpose of demonstrating the delivery of primary,
acute, and long-term care through an integrated delivery
network that emphasizes noninstitutional care.
SEC. 7. RULES ON COVERAGE OF EMERGENCY SERVICES
BY ALL MEDICARE HEALTH PLANS.
(a) IN GENERAL.—Section 1876(c) of the Social Se-
curity Act (42 U.S.C. 1395mm(c)) is amended—
(1) in paragraph (4)—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (A), and
(B) by striking subparagraph (B) and in-
serting in lieu thereof the following:
‘‘(B) provide for reimbursement with respect to
services which are covered under subparagraph (A)
which are provided to such an individual other than
through the organization, if—
‘‘(i) the services were medically necessary
and immediately required because of an unfore-
seen illness, injury, or condition, and
‘‘(ii) it was not reasonable given the cir-
cumstances to obtain the services through the
organization;
‘‘(C) provide coverage for emergency services
(as defined in paragraph (9))—
‘‘(i) without regard to prior authorization,
and
‘‘(ii) subject to the requirement of sub-
paragraph (B)(ii), without regard to the emer-
gency care provider’s contractual relationship
with the organization; and
‘‘(D) make available 24 hours a day and 7 days
a week a person authorized to make any prior au-
thorization determination that is required by the or-
ganization as a condition of coverage or payment for
items and services included in the benefits described
in paragraph (2)(A) that are furnished with respect
to—
‘‘(i) a medical condition that is—
‘‘(I) identified pursuant to an appro-
priate screening examination (as described
in section 1867(a)), and
‘‘(II) not an emergency medical condi-
tion (as defined in section 1867(e)(1)), or
‘‘(ii) an emergency medical condition (as so
defined) after that condition has been stabilized
(as defined in section 1867(e)(3)(B)),
and makes such determinations within a period of
time that meets standards established by the Sec-
retary.’’; and
(2) by adding at the end the following:
‘‘(9) In this subsection, the term ‘emergency services’
means—
‘‘(A) an appropriate medical screening examina-
tion and related ancillary services (as described in
section 1867(a)) furnished in a hospital emergency
department, and
‘‘(B) necessary stabilizing examination and
treatment services (as described in section 1867(b))
for an emergency medical condition (as defined in
section 1867(e)(1)).’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall become effective on the date of the
enactment of this Act and shall apply to contract years
beginning on or after January 1, 1998.
SEC. 8. PREEMPTION OF STATE LAW RESTRICTIONS ON
MANAGED CARE ARRANGEMENTS.
(a) LIMITATION OF STATE LAW RESTRICTIONS ON
MANAGED CARE ARRANGEMENTS.—Effective as of Janu-
ary 1, 1998—
(1) a State may not prohibit a carrier or group
health plan providing health coverage from including
incentives for enrollees to use the services of partici-
pating providers;
(2) a State may not prohibit such a carrier or
plan from limiting coverage of services to those pro-
vided by a participating provider;
(3) a State may not prohibit the negotiation of
rates and forms of payments for providers by such
a carrier or plan with respect to health coverage;
(4) a State may not prohibit such a carrier or
plan from limiting the number of participating pro-
viders;
(5) a State may not prohibit such a carrier or
plan from requiring that services be provided (or au-
thorized) by a practitioner selected by the enrollee
from a list of available participating providers or, ex-
cept for services of a physician who specializes in ob-
stetrics and gynecology, from requiring enrollees to
obtain referral in order to have coverage for treat-
ment by a specialist or health institution;
(6) a State may not prohibit or limit the cor-
porate practice of medicine; and
(7) a State may not prohibit the adoption and
operation of a utilization review program.
(b) DEFINITIONS.—In this section:
(1) MANAGED
CARE
COVERAGE.—The term
‘‘managed care coverage’’ means health coverage to
the extent the coverage is provided through a man-
aged care arrangement (as defined in paragraph
(3)).
(2) 
PARTICIPATING
PROVIDER.—The 
term
‘‘participating provider’’ means an entity or individ-
ual which provides, sells, or leases health care serv-
ices as part of a provider network (as defined in
paragraph (4)).
(3) MANAGED CARE ARRANGEMENT.—The term
‘‘managed care arrangement’’ means, with respect to
a group health plan or under health insurance cov-
erage, an arrangement under such plan or coverage
under which providers agree to provide items and
services covered under the arrangement to individ-
uals covered under the plan or who have such cov-
erage.
(4) PROVIDER NETWORK.—The term ‘‘provider
network’’ means, with respect to a group health plan
or health insurance coverage, providers who have en-
tered into an agreement described in paragraph (3).
(5) UTILIZATION REVIEW PROGRAM.—The term
‘‘utilization review program’’ means a system of re-
viewing the medical necessity and appropriateness of
patient services (which may include inpatient and
outpatient services) using specified guidelines. Such
a system may include pattern analysis, preadmission
certification, the application of practice guidelines,
continued 
stay 
review, 
discharge 
planning,
preauthorization of ambulatory procedures, and ret-
rospective review.
(6) STATE.—The term ‘‘State’’ includes the
District of Columbia, Puerto Rico, Guam, the Virgin
Islands, the Northern Mariana Islands, and Amer-
ican Samoa.
(c) EXEMPTION OF LAWS PREVENTING DENIAL OF
LIFE SAVING MEDICAL TREATMENT PENDING TRANSFER
TO ANOTHER HEALTH CARE PROVIDER.—Nothing in this
section shall be construed to invalidate any State law that
has the effect of preventing involuntary denial of life-pre-
serving medical treatment when such denial would cause
the involuntary death of the patient pending transfer of
the patient to a health care provider willing to provide
such treatment.
(d) PURPOSE; RULE OF CONSTRUCTION.—The pur-
pose of this section is to permit use of the mechanisms
specified in paragraphs (1) through (7) of subsection (a)
in the States. Nothing in this section shall be construed
as prohibiting a State from regulating or limiting abusive
arrangements or practices that act inappropriately to
withhold, limit, or delay access to covered services.
SEC. 9. PUBLICATION OF ANTITRUST GUIDELINES ON AC-
TIVITIES OF PROVIDER-SPONSORED ORGANI-
ZATIONS.
(a) IN GENERAL.—The Department of Justice and
the Federal Trade Commission shall jointly provide for the
development and publication of explicit guidelines on the
application of antitrust laws to the activities of provider-
sponsored organizations (as defined in section 1889(a)(2)
of the Social Security Act). The guidelines shall—
(1) address issues relating to the formation, de-
velopment, and operation of such organizations, and
(2) be designed to facilitate the development
and operation of such organizations.
(b) EFFECT OF GUIDELINES.—The guidelines estab-
lished under subsection (a) shall—
(1) be binding on all enforcement activities un-
dertaken pursuant to the antitrust laws, and
(2) serve as guidance to the attorneys general
and courts of the States in interpreting and applying
the antitrust laws of the States to provider-spon-
sored organizations.
(c) DEFINITION.—For purposes of this section, the
term ‘‘antitrust laws’’ has the meaning given to such term
in the first section of the Clayton Act (15 U.S.C. 12), ex-
cept that such term includes section 5 of the Federal
Trade Commission Act (15 U.S.C. 45) to the extent such
section applies to unfair competition.
(d) DEADLINE; ANNUAL UPDATES.—The guidelines
required by subsection (a) shall be published not later
than 180 days after the date of the enactment of this Act
and shall be updated at least annually thereafter based
on consultations with interested parties.
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