‘‘(E) inpatient critical access hospital services;’’.
(b) CONDITION FOR APPLICATION OF SPECIAL PHYSICIAN
PAYMENT
ADJUSTMENT.—Section 1834(g)(2) (42 U.S.C.
1395m(g)(2)) is amended by adding after and below subpara-
graph (B) the following:
‘‘The Secretary may not require, as a condition for apply-
ing subparagraph (B) with respect to a critical access hos-
pital, that each physician providing professional services in
the hospital must assign billing rights with respect to such
services, except that such subparagraph shall not apply to
those physicians who have not assigned such billing
rights.’’.
(c) FLEXIBILITY
IN BED LIMITATION
FOR HOSPITALS
WITH STRONG SEASONAL CENSUS FLUCTUATIONS.—Section
1820 (42 U.S.C. 1395i–4) is amended—
(1) in subsection (c)(2)(B)(iii), by inserting ‘‘subject
to paragraph (3)’’ after ‘‘(iii) provides’’;
(2) by adding at the end of subsection (c) the fol-
lowing new paragraph:
‘‘(3) INCREASE IN MAXIMUM NUMBER OF BEDS FOR
HOSPITALS
WITH
STRONG
SEASONAL
CENSUS
FLUCTUA-
TIONS.—
‘‘(A) IN GENERAL.—In the case of a hospital that
demonstrates that it meets the standards established
under subparagraph (B), the bed limitations otherwise
applicable under paragraph (2)(B)(iii) and subsection
(f) shall be increased by 5 beds.
‘‘(B) STANDARDS.—The Secretary shall specify
standards for determining whether a critical access hos-
pital has sufficiently strong seasonal variations in pa-
tient admissions to justify the increase in bed limitation
provided under subparagraph (A).’’; and
(3) in subsection (f), by adding at the end the fol-
lowing new sentence: ‘‘The limitations in numbers of beds
under the first sentence are subject to adjustment under
subsection (c)(3).’’.
(d) 5-YEAR EXTENSION OF THE AUTHORIZATION FOR AP-
PROPRIATIONS
FOR GRANT PROGRAM.—Section 1820(j) (42
U.S.C. 1395i–4(j)) is amended by striking ‘‘through 2002’’ and
inserting ‘‘through 2007’’.
(e) EFFECTIVE DATES.—
(1) REINSTATEMENT OF PIP.—The amendments made
by subsection (a) shall apply to payments made on or after
January 1, 2003.
(2) PHYSICIAN PAYMENT ADJUSTMENT CONDITION.—
The amendment made by subsection (b) shall be effective
as if included in the enactment of section 403(d) of the
Medicare, Medicaid, and SCHIP Balanced Budget Refine-
ment Act of 1999 (113 Stat. 1501A–371).
(3) FLEXIBILITY IN BED LIMITATION.—The amend-
ments made by subsection (c) shall apply to designations
made on or after January 1, 2003, but shall not apply to
critical access hospitals that were designated as of such
date.
SEC. 306. EXTENSION OF TEMPORARY INCREASE FOR
HOME HEALTH SERVICES FURNISHED IN A
RURAL AREA.
(a) IN
GENERAL.—Section 508(a) BIPA (114 Stat.
2763A–533) is amended—
(1) by striking ‘‘24-MONTH INCREASE BEGINNING
APRIL 1, 2001’’ and inserting ‘‘IN GENERAL’’; and
(2) by striking ‘‘April 1, 2003’’ and inserting ‘‘Janu-
ary 1, 2005’’.
(b) CONFORMING
AMENDMENT.—Section 547(c)(2) of
BIPA (114 Stat. 2763A–553) is amended by striking ‘‘the pe-
riod beginning on April 1, 2001, and ending on September 30,
2002,’’ and inserting ‘‘a period under such section’’.
SEC. 307. REFERENCE TO 10 PERCENT INCREASE IN
PAYMENT FOR HOSPICE CARE FURNISHED
IN A FRONTIER AREA AND RURAL HOSPICE
DEMONSTRATION PROJECT.
For—
(1) provision of 10 percent increase in payment for
hospice care furnished in a frontier area, see section 422;
and
(2) provision of a rural hospice demonstration project,
see section 423.
SEC. 308. REFERENCE TO PRIORITY FOR HOSPITALS LO-
CATED IN RURAL OR SMALL URBAN AREAS
IN REDISTRIBUTION OF UNUSED GRADUATE
MEDICAL EDUCATION RESIDENCIES.
For provision providing priority for hospitals located in
rural or small urban areas in redistribution of unused graduate
medical education residencies, see section 612.
SEC. 309. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN
PAYMENTS FOR PHYSICIANS’ SERVICES.
(a) STUDY.—The Comptroller General of the United
States shall conduct a study of differences in payment amounts
under the physician fee schedule under section 1848 of the So-
cial Security Act (42 U.S.C. 1395w–4) for physicians’ services
in different geographic areas. Such study shall include—
(1) an assessment of the validity of the geographic ad-
justment factors used for each component of the fee sched-
ule;
(2) an evaluation of the measures used for such ad-
justment, including the frequency of revisions; and
(3) an evaluation of the methods used to determine
professional liability insurance costs used in computing the
malpractice component, including a review of increases in
professional liability insurance premiums and variation in
such increases by State and physician specialty and meth-
ods used to update the geographic cost of practice index
and relative weights for the malpractice component.
(b) REPORT.—Not later than 1 year after the date of the
enactment of this Act, the Comptroller General shall submit to
Congress a report on the study conducted under subsection (a).
The report shall include recommendations regarding the use of
more current data in computing geographic cost of practice in-
dices as well as the use of data directly representative of physi-
cians’ costs (rather than proxy measures of such costs).
SEC. 310. PROVIDING SAFE HARBOR FOR CERTAIN COL-
LABORATIVE EFFORTS THAT BENEFIT MEDI-
CALLY UNDERSERVED POPULATIONS.
(a) IN
GENERAL.—Section 1128B(b)(3) (42 U.S.C.
1320a–7(b)(3)) is amended—
(1) in subparagraph (E), by striking ‘‘and’’ after the
semicolon at the end;
(2) in subparagraph (F), by striking the period at the
end and inserting ‘‘; and’’; and
(3) by adding at the end the following new subpara-
graph:
‘‘(G) any remuneration between a public or non-
profit private health center entity described under
clause (i) or (ii) of section 1905(l)(2)(B) and any indi-
vidual or entity providing goods, items, services, dona-
tions or loans, or a combination thereof, to such health
center entity pursuant to a contract, lease, grant, loan,
or other agreement, if such agreement contributes to
the ability of the health center entity to maintain or in-
crease the availability, or enhance the quality, of serv-
ices provided to a medically underserved population
served by the health center entity.’’.
(b) RULEMAKING FOR EXCEPTION FOR HEALTH CENTER
ENTITY ARRANGEMENTS.—
(1) ESTABLISHMENT.—
(A) IN GENERAL.—The Secretary of Health and
Human Services (in this subsection referred to as the
‘‘Secretary’’) shall establish, on an expedited basis,
standards relating to the exception described in section
1128B(b)(3)(G) of the Social Security Act, as added by
subsection (a), for health center entity arrangements to
the antikickback penalties.
(B) FACTORS TO CONSIDER.—The Secretary shall
consider the following factors, among others, in estab-
lishing standards relating to the exception for health
center entity arrangements under subparagraph (A):
(i) Whether the arrangement between the
health center entity and the other party results in
savings of Federal grant funds or increased reve-
nues to the health center entity.
(ii) Whether the arrangement between the
health center entity and the other party expands or
enhances a patient’s freedom of choice.
(iii) Whether the arrangement between the
health center entity and the other party protects a
health care professional’s independent medical
judgment regarding medically appropriate treat-
ment.
The Secretary may also include other standards and
criteria that are consistent with the intent of Congress
in enacting the exception established under this section.
(2) INTERIM FINAL EFFECT.—No later than 180 days
after the date of enactment of this Act, the Secretary shall
publish a rule in the Federal Register consistent with the
factors under paragraph (1)(B). Such rule shall be effective
and final immediately on an interim basis, subject to such
change and revision, after public notice and opportunity
(for a period of not more than 60 days) for public com-
ment, as is consistent with this subsection.
TITLE IV—PROVISIONS RELATING
TO PART A
Subtitle A—Inpatient Hospital
Services
SEC. 401. REVISION OF ACUTE CARE HOSPITAL PAY-
MENT UPDATES.
Subclause (XVIII) of section 1886(b)(3)(B)(i) (42 U.S.C.
1395ww(b)(3)(B)(i)) is amended to read as follows:
‘‘(XVIII) for fiscal year 2003, the market basket per-
centage increase for sole community hospitals and such in-
crease minus 0.25 percentage points for other hospitals,
and’’.
SEC. 402. 2-YEAR INCREASE IN LEVEL OF ADJUSTMENT
FOR INDIRECT COSTS OF MEDICAL EDU-
CATION (IME).
Section 1886(d)(5)(B)(ii) (42 U.S.C. 1395ww(d)(5)(B)(ii))
is amended—
(1) in subclause (VI) by striking ‘‘and’’ at the end;
(2) by redesignating subclause (VII) as subclause
(IX);
(3) in subclause (VIII) as so redesignated, by striking
‘‘2002’’ and inserting ‘‘2004’’; and
(4) by inserting after subclause (VI) the following new
subclause:
‘‘(VII) during fiscal year 2003, ‘c’ is equal to 1.47;
‘‘(VIII) during fiscal year 2004, ‘c’ is equal to
1.45; and’’.
SEC. 403. RECOGNITION OF NEW MEDICAL TECH-
NOLOGIES 
UNDER 
INPATIENT 
HOSPITAL
PPS.
(a) IMPROVING TIMELINESS OF DATA COLLECTION.—Sec-
tion 1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is amended
by adding at the end the following new clause:
‘‘(vii) Under the mechanism under this subparagraph, the
Secretary shall provide for the addition of new diagnosis and
procedure codes in April 1 of each year, but the addition of
such codes shall not require the Secretary to adjust the pay-
ment (or diagnosis-related group classification) under this sub-
section until the fiscal year that begins after such date.’’.
(b) ELIGIBILITY STANDARD.—
(1) MINIMUM
PERIOD
FOR
RECOGNITION
OF
NEW
TECHNOLOGIES.—Section 1886(d)(5)(K)(vi) (42 U.S.C.
1395ww(d)(5)(K)(vi)) is amended—
(A) by inserting ‘‘(I)’’ after ‘‘(vi)’’; and
(B) by adding at the end the following new sub-
clause:
‘‘(II) Under such criteria, a service or technology shall not
be denied treatment as a new service or technology on the basis
of the period of time in which the service or technology has
been in use if such period ends before the end of the 2-to-3-
year period that begins on the effective date of implementation
of a code under ICD–9–CM (or a successor coding method-
ology) that enables the identification of a significant sample of
specific discharges in which the service or technology has been
used.’’.
(2) 
ADJUSTMENT
OF
THRESHOLD.—Section
1886(d)(5)(K)(ii)(I) (42 U.S.C. 1395ww(d)(5)(K)(ii)(I)) is
amended by inserting ‘‘(applying a threshold specified by
the Secretary that is the lesser of 50 percent of the na-
tional average standardized amount for operating costs of
inpatient hospital services for all hospitals and all diag-
nosis-related groups or one standard deviation for the diag-
nosis-related group involved)’’ after ‘‘is inadequate’’.
(3) CRITERION FOR SUBSTANTIAL IMPROVEMENT.—
Section 
1886(d)(5)(K)(vi) 
(42 
U.S.C.
1395ww(d)(5)(K)(vi)), as amended by paragraph (1), is
further amended by adding at the end the following sub-
clause:
‘‘(III) The Secretary shall by regulation provide for fur-
ther clarification of the criteria applied to determine whether
a new service or technology represents an advance in medical
technology that substantially improves the diagnosis or treat-
ment of beneficiaries. Under such criteria, in determining
whether a new service or technology represents an advance in
medical technology that substantially improves the diagnosis or
treatment of beneficiaries, the Secretary shall deem a service
or technology as meeting such requirement if the service or
technology is a drug or biological that is designated under sec-
tion 506 or 526 of the Federal Food, Drug, and Cosmetic Act,
approved under section 314.510 or 601.41 of title 21, Code of
Federal Regulations, or designated for priority review when the
marketing application for such drug or biological was filed or
is a medical device for which an exemption has been granted
under section 520(m) of such Act, for which priority review has
been provided under section 515(d)(5) of such Act, or is a sub-
stantially equivalent device for which an expedited review is
provided under section 513(f) of such Act.’’.
(4) 
PROCESS
FOR
PUBLIC
INPUT.—Section
1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)), as amended
by paragraph (1), is amended—
(A) in clause (i), by adding at the end the fol-
lowing: ‘‘Such mechanism shall be modified to meet the
requirements of clause (viii).’’; and
(B) by adding at the end the following new clause:
‘‘(viii) The mechanism established pursuant to clause (i)
shall be adjusted to provide, before publication of a proposed
rule, for public input regarding whether a new service or tech-
nology not described in the second sentence of clause (vi)(III)
represents an advance in medical technology that substantially
improves the diagnosis or treatment of beneficiaries as follows:
‘‘(I) The Secretary shall make public and periodically
update a list of all the services and technologies for which
an application for additional payment under this subpara-
graph is pending.
‘‘(II) The Secretary shall accept comments, rec-
ommendations, and data from the public regarding whether
the service or technology represents a substantial improve-
ment.
‘‘(III) The Secretary shall provide for a meeting at
which organizations representing hospitals, physicians,
medicare beneficiaries, manufacturers, and any other inter-
ested party may present comments, recommendations, and
data to the clinical staff of the Centers for Medicare &
Medicaid Services before publication of a notice of proposed
rulemaking regarding whether service or technology rep-
resents a substantial improvement.’’.
(c) PREFERENCE FOR USE OF DRG ADJUSTMENT.—Sec-
tion 1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is further
amended by adding at the end the following new clause:
‘‘(ix) Before establishing any add-on payment under this
subparagraph with respect to a new technology, the Secretary
shall seek to identify one or more diagnosis-related groups as-
sociated with such technology, based on similar clinical or ana-
tomical characteristics and the cost of the technology. Within
100
such groups the Secretary shall assign an eligible new tech-
nology into a diagnosis-related group where the average costs
of care most closely approximate the costs of care of using the
new technology. In such case, no add-on payment under this
subparagraph shall be made with respect to such new tech-
nology and this clause shall not affect the application of para-
graph (4)(C)(iii).’’.
(d) IMPROVEMENT
IN
PAYMENT
FOR
NEW
TECH-
NOLOGY.—Section 
1886(d)(5)(K)(ii)(III) 
(42 
U.S.C.
1395ww(d)(5)(K)(ii)(III)) is amended by inserting after ‘‘the
estimated average cost of such service or technology’’ the fol-
lowing: ‘‘(based on the marginal rate applied to costs under
subparagraph (A))’’.
(e) EFFECTIVE DATE.—
(1) IN GENERAL.—The Secretary shall implement the
amendments made by this section so that they apply to
classification for fiscal years beginning with fiscal year
2004.
(2) RECONSIDERATIONS OF APPLICATIONS FOR FISCAL
YEAR 2003 THAT ARE DENIED.—In the case of an applica-
tion for a classification of a medical service or technology
as a new medical service or technology under section
1886(d)(5)(K) of the Social Security Act (42 U.S.C.
1395ww(d)(5)(K)) that was filed for fiscal year 2003 and
that is denied—
(A) the Secretary shall automatically reconsider
the application as an application for fiscal year 2004
under the amendments made by this section; and
(B) the maximum time period otherwise permitted
for such classification of the service or technology shall
be extended by 12 months.
SEC. 404. PHASE-IN OF FEDERAL RATE FOR HOSPITALS
IN PUERTO RICO.
Section 
1886(d)(9) 
(42 
U.S.C. 
1395ww(d)(9)) 
is
amended—
(1) in subparagraph (A)—
101
(A) in clause (i), by striking ‘‘for discharges begin-
ning on or after October 1, 1997, 50 percent (and for
discharges between October 1, 1987, and September
30, 1997, 75 percent)’’ and inserting ‘‘the applicable
Puerto Rico percentage (specified in subparagraph
(E))’’; and
(B) in clause (ii), by striking ‘‘for discharges be-
ginning in a fiscal year beginning on or after October
1, 1997, 50 percent (and for discharges between Octo-
ber 1, 1987, and September 30, 1997, 25 percent)’’
and inserting ‘‘the applicable Federal percentage (spec-
ified in subparagraph (E))’’; and
(2) by adding at the end the following new subpara-
graph:
‘‘(E) For purposes of subparagraph (A), for discharges
occurring—
‘‘(i) between October 1, 1987, and September 30,
1997, the applicable Puerto Rico percentage is 75 percent
and the applicable Federal percentage is 25 percent;
‘‘(ii) on or after October 1, 1997, and before October
1, 2003, the applicable Puerto Rico percentage is 50 per-
cent and the applicable Federal percentage is 50 percent;
‘‘(iii) during fiscal year 2004, the applicable Puerto
Rico percentage is 45 percent and the applicable Federal
percentage is 55 percent;
‘‘(iv) during fiscal year 2005, the applicable Puerto
Rico percentage is 40 percent and the applicable Federal
percentage is 60 percent;
‘‘(v) during fiscal year 2006, the applicable Puerto
Rico percentage is 35 percent and the applicable Federal
percentage is 65 percent;
‘‘(vi) during fiscal year 2007, the applicable Puerto
Rico percentage is 30 percent and the applicable Federal
percentage is 70 percent; and
‘‘(vii) on or after October 1, 2007, the applicable
Puerto Rico percentage is 25 percent and the applicable
Federal percentage is 75 percent.’’.
102
SEC. 405. REFERENCE TO PROVISION RELATING TO EN-
HANCED DISPROPORTIONATE SHARE HOS-
PITAL (DSH) PAYMENTS FOR RURAL HOS-
PITALS 
AND 
URBAN 
HOSPITALS 
WITH
FEWER THAN 100 BEDS.
For provision enhancing disproportionate share hospital
(DSH) treatment for rural hospitals and urban hospitals with
fewer than 100 beds, see section 302.
SEC. 406. REFERENCE TO PROVISION RELATING TO 2-
YEAR PHASED-IN INCREASE IN THE STAND-
ARDIZED AMOUNT IN RURAL AND SMALL
URBAN AREAS TO ACHIEVE A SINGLE, UNI-
FORM STANDARDIZED AMOUNT.
For provision phasing in over a 2-year period an increase
in the standardized amount for rural and small urban areas to
achieve a single, uniform, standardized amount, see section
303.
SEC. 407. REFERENCE TO PROVISION FOR MORE FRE-
QUENT UPDATES IN THE WEIGHTS USED IN
HOSPITAL MARKET BASKET.
For provision providing for more frequent updates in the
weights used in hospital market basket, see section 304.
SEC. 408. REFERENCE TO PROVISION MAKING IMPROVE-
MENTS TO CRITICAL ACCESS HOSPITAL PRO-
GRAM.
For provision providing making improvements to critical
access hospital program, see section 305.
Subtitle B—Skilled Nursing Facility
Services
SEC. 411. PAYMENT FOR COVERED SKILLED NURSING
FACILITY SERVICES.
(a) TEMPORARY INCREASE IN NURSING COMPONENT OF
PPS FEDERAL RATE.—Section 312(a) of BIPA is amended by
adding at the end the following new sentence: ‘‘The Secretary
of Health and Human Services shall increase by 8 percent the
nursing component of the case-mix adjusted Federal prospec-
tive payment rate specified in Tables 3 and 4 of the final rule
published in the Federal Register by the Health Care Financ-
ing Administration on July 31, 2000 (65 Fed. Reg. 46770) and
103
as subsequently updated under section 1888(e)(4)(E)(ii) of the
Social Security Act (42 U.S.C. 1395yy(e)(4)(E)(ii)), effective
for services furnished on or after October 1, 2002, and before
October 1, 2005.’’.
(b) ADJUSTMENT TO RUGS FOR AIDS RESIDENTS.—
(1) IN GENERAL.—Paragraph (12) of section 1888(e)
(42 U.S.C. 1395yy(e)) is amended to read as follows:
‘‘(12) ADJUSTMENT FOR RESIDENTS WITH AIDS.—
‘‘(A) IN GENERAL.—Subject to subparagraph (B),
in the case of a resident of a skilled nursing facility
who is afflicted with acquired immune deficiency syn-
drome (AIDS), the per diem amount of payment other-
wise applicable shall be increased by 128 percent to re-
flect increased costs associated with such residents.
‘‘(B) SUNSET.—Subparagraph (A) shall not apply
on and after such date as the Secretary certifies that
there is an appropriate adjustment in the case mix
under paragraph (4)(G)(i) to compensate for the in-
creased costs associated with residents described in
such subparagraph.’’.
(2) EFFECTIVE
DATE.—The amendment made by
paragraph (1) shall apply to services furnished on or after
October 1, 2003.
Subtitle C—Hospice
SEC. 421. COVERAGE OF HOSPICE CONSULTATION SERV-
ICES.
(a) COVERAGE OF HOSPICE CONSULTATION SERVICES.—
Section 1812(a) (42 U.S.C. 1395d(a)) is amended—
(1) by striking ‘‘and’’ at the end of paragraph (3);
(2) by striking the period at the end of paragraph (4)
and inserting ‘‘; and’’; and
(3) by inserting after paragraph (4) the following new
paragraph:
‘‘(5) for individuals who are terminally ill, have not
made an election under subsection (d)(1), and have not
have previously received services under this paragraph,
services that are furnished by a physician who is the med-
104
ical director or an employee of a hospice program and that
consist of—
‘‘(A) an evaluation of the individual’s need for
pain and symptom management;
‘‘(B) counseling the individual with respect to end-
of-life issues and care options; and
‘‘(C) advising the individual regarding advanced
care planning.’’.
(b) PAYMENT.—Section 1814(i) (42 U.S.C. l395f(i)) is
amended by adding at the end the following new paragraph:
‘‘(4) The amount paid to a hospice program with respect
to the services under section 1812(a)(5) for which payment
may be made under this part shall be equal to an amount
equivalent to the amount established for an office or other out-
patient visit for evaluation and management associated with
presenting problems of moderate severity under the fee sched-
ule established under section 1848(b), other than the portion
of such amount attributable to the practice expense compo-
nent.’’.
(c) 
CONFORMING
AMENDMENT.—Section
1861(dd)(2)(A)(i) (42 U.S.C. 1395x(dd)(2)(A)(i)) is amended
by inserting before the comma at the end the following: ‘‘and
services described in section 1812(a)(5)’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to services provided by a hospice program
on or after January 1, 2004.
SEC. 422. 10 PERCENT INCREASE IN PAYMENT FOR HOS-
PICE CARE FURNISHED IN A FRONTIER
AREA.
(a) 
IN
GENERAL.—Section 
1814(i)(1) 
(42 
U.S.C.
1395f(i)(1)) is amended by adding at the end the following new
subparagraph:
‘‘(D) With respect to hospice care furnished in a frontier
area on or after January 1, 2003, and before January 1, 2008,
the payment rates otherwise established for such care shall be
increased by 10 percent. For purposes of this subparagraph,
105
the term ‘frontier area’ means a county in which the population
density is less than 7 persons per square mile.’’.
(b) REPORT ON COSTS.—Not later than January 1, 2007,
the Comptroller General of the United States shall submit to
Congress a report on the costs of furnishing hospice care in
frontier areas. Such report shall include recommendations re-
garding the appropriateness of extending, and modifying, the
payment increase provided under the amendment made by sub-
section (a).
SEC. 423. RURAL HOSPICE DEMONSTRATION PROJECT.
(a) IN GENERAL.—The Secretary shall conduct a dem-
onstration project for the delivery of hospice care to medicare
beneficiaries in rural areas. Under the project medicare bene-
ficiaries who are unable to receive hospice care in the home for
lack of an appropriate caregiver are provided such care in a fa-
cility of 20 or fewer beds which offers, within its walls, the full
range of services provided by hospice programs under section
1861(dd) of the Social Security Act (42 U.S.C. 1395x(dd)).
(b) SCOPE OF PROJECT.—The Secretary shall conduct the
project under this section with respect to no more than 3 hos-
pice programs over a period of not longer than 5 years each.
(c) COMPLIANCE
WITH CONDITIONS.—Under the dem-
onstration project—
(1) the hospice program shall comply with otherwise
applicable requirements, except that it shall not be required
to offer services outside of the home or to meet the require-
ments of section 1861(dd)(2)(A)(iii) of the Social Security
Act; and
(2) payments for hospice care shall be made at the
rates otherwise applicable to such care under title XVIII of
such Act.
The Secretary may require the program to comply with such
additional quality assurance standards for its provision of serv-
ices in its facility as the Secretary deems appropriate.
(d) REPORT.—Upon completion of the project, the Sec-
retary shall submit a report to Congress on the project and
106
shall include in the report recommendations regarding exten-
sion of such project to hospice programs serving rural areas.
Subtitle D—Other Provisions
SEC. 431. DEMONSTRATION PROJECT FOR USE OF RE-
COVERY AUDIT CONTRACTORS.
(a) IN GENERAL.—The Secretary of Health and Human
Services shall conduct a demonstration project under this sec-
tion (in this section referred to as the ‘‘project’’) to dem-
onstrate the use of recovery audit contractors under the Medi-
care Integrity Program in identifying and recouping overpay-
ments under the medicare program for services for which pay-
ment is made under part A of title XVIII of the Social Security
Act. Under the project—
(1) payment may be made to such a contractor on a
contingent basis;
(2) a percentage of the amount recovered may be re-
tained by the Secretary and shall be available to the pro-
gram management account of the Centers for Medicare &
Medicaid Services; and
(3) the Secretary shall examine the efficacy of such
use with respect to duplicative payments, accuracy of cod-
ing, and other payment policies in which overpayments
arise.
(b) SCOPE AND DURATION.—The project shall cover at
least 2 States and at least 3 contractors and shall last for not
longer than 3 years.
(c) WAIVER.—The Secretary of Health and Human Serv-
ices shall waive such provisions of title XVIII of the Social Se-
curity Act as may be necessary to provide for payment for serv-
ices under the project in accordance with subsection (a).
(d) QUALIFICATIONS OF CONTRACTORS.—
(1) IN GENERAL.—The Secretary shall enter into a re-
covery audit contract under this section with an entity only
if the entity has staff that has knowledge of and experience
with the payment rules and regulations under the medicare
program or the entity has or will contract with another en-
tity that has such knowledgeable and experienced staff.
107
(2) INELIGIBILITY OF CERTAIN CONTRACTORS.—The
Secretary may not enter into a recovery audit contract
under this section with an entity to the extent that the en-
tity is a fiscal intermediary under section 1816 of the So-
cial Security Act (42 U.S.C. 1395h), a carrier under sec-
tion 1842 of such Act (42 U.S.C. 1395u), or a Medicare
Administrative Contractor under section 1874A of such
Act, or any other entity that carries out the type of activi-
ties with respect to providers of services under part A that
would constitute a conflict of interest, as determined by the
Secretary.
(3) 
PREFERENCE
FOR
ENTITIES
WITH
DEM-
ONSTRATED
PROFICIENCY
WITH
PRIVATE
INSURERS.—In
awarding contracts to recovery audit contractors under this
section, the Secretary shall give preference to those entities
that the Secretary determines have demonstrated pro-
ficiency in recovery audits with private insurers or under
the medicaid program under title XIX of such Act.
(e) REPORT.—The Secretary of Health and Human Serv-
ices shall submit to Congress a report on the project not later
than 6 months after the date of its completion. Such reports
shall include information on the impact of the project on sav-
ings to the medicare program and recommendations on the
cost-effectiveness of extending or expanding the project.
TITLE V—PROVISIONS RELATING
TO PART B
Subtitle A—Physicians’ Services
SEC. 501. REVISION OF UPDATES FOR PHYSICIANS’
SERVICES.
(a) UPDATE FOR 2003 THROUGH 2005.—
(1) IN
GENERAL.—Section 1848(d) (42 U.S.C.
1395w–4(d)) is amended by adding at the end the following
new paragraphs:
‘‘(5) UPDATE FOR 2003.—The update to the single
conversion factor established in paragraph (1)(C) for 2003
is 2 percent.
108
‘‘(6) SPECIAL
RULES
FOR
UPDATE
FOR
2004
AND
2005.—The following rules apply in determining the update
adjustment factors under paragraph (4)(B) for 2004 and
2005:
‘‘(A) USE OF 2002 DATA IN DETERMINING ALLOW-
ABLE COSTS.—
‘‘(i) The reference in clause (ii)(I) of such
paragraph to April 1, 1996, is deemed to be a ref-
erence to January 1, 2002.
‘‘(ii) The allowed expenditures for 2002 is
deemed to be equal to the actual expenditures for
physicians’ services furnished during 2002, as esti-
mated by the Secretary.
‘‘(B) 1 PERCENTAGE
POINT
INCREASE
IN
GDP
UNDER SGR.—The annual average percentage growth
in real gross domestic product per capita under sub-
section (f)(2)(C) for each of 2003, 2004, and 2005 is
deemed to be increased by 1 percentage point.’’.
(2) CONFORMING AMENDMENT.—Paragraph (4)(B) of
such section is amended, in the matter before clause (i), by
inserting ‘‘and paragraph (6)’’ after ‘‘subparagraph (D)’’.
(b) USE OF 10-YEAR ROLLING AVERAGE IN COMPUTING
GROSS DOMESTIC PRODUCT.—
(1) IN GENERAL.—Section 1848(f)(2)(C) (42 U.S.C.
1395w–4(f)(2)(C)) is amended—
(A) by striking ‘‘projected’’ and inserting ‘‘annual
average’’; and
(B) by striking ‘‘from the previous applicable pe-
riod to the applicable period involved’’ and inserting
‘‘during the 10-year period ending with the applicable
period involved’’.
(2) EFFECTIVE
DATE.—The amendment made by
paragraph (1) shall apply to computations of the sustain-
able growth rate for years beginning with 2002.
(c) ELIMINATION OF TRANSITIONAL ADJUSTMENT.—Sec-
tion 1848(d)(4)(F) (42 U.S.C. 1395w–4(d)(4)(F)) is amended
by striking ‘‘subparagraph (A)’’ and all that follows and insert-
109
ing ‘‘subparagraph (A), for each of 2001 and 2002, of ¥0.2
percent.’’
SEC. 502. STUDIES ON ACCESS TO PHYSICIANS’ SERV-
ICES.
(a) GAO STUDY
ON BENEFICIARY ACCESS
TO PHYSI-
CIANS’ SERVICES.—
(1) STUDY.—The Comptroller General of the United
States shall conduct a study on access of medicare bene-
ficiaries to physicians’ services under the medicare pro-
gram. The study shall include—
(A) an assessment of the use by beneficiaries of
such services through an analysis of claims submitted
by physicians for such services under part B of the
medicare program;
(B) an examination of changes in the use by bene-
ficiaries of physicians’ services over time;
(C) an examination of the extent to which physi-
cians are not accepting new medicare beneficiaries as
patients.
(2) REPORT.—Not later than 1 year after the date of
the enactment of this Act, the Comptroller General shall
submit to Congress a report on the study conducted under
paragraph (1). The report shall include a determination
whether—
(A) data from claims submitted by physicians
under part B of the medicare program indicate poten-
tial access problems for medicare beneficiaries in cer-
tain geographic areas; and
(B) access by medicare beneficiaries to physicians’
services may have improved, remained constant, or de-
teriorated over time.
(b) STUDY AND REPORT ON SUPPLY OF PHYSICIANS.—
(1) STUDY.—The Secretary shall request the Institute
of Medicine of the National Academy of Sciences to con-
duct a study on the adequacy of the supply of physicians
(including specialists) in the United States and the factors
that affect such supply.
110
(2) REPORT TO CONGRESS.—Not later than 2 years
after the date of enactment of this section, the Secretary
shall submit to Congress a report on the results of the
study described in paragraph (1), including any rec-
ommendations for legislation.
SEC. 503. MEDPAC REPORT ON PAYMENT FOR PHYSI-
CIANS’ SERVICES.
Not later than 1 year after the date of the enactment of
this Act, the Medicare Payment Advisory Commission shall
submit to Congress a report on the effect of refinements to the
practice expense component of payments for physicians’ serv-
ices in the case of services for which there are no physician
work relative value units, after the transition to a full resource-
based payment system in 2002, under section 1848 of the So-
cial Security Act (42 U.S.C. 1395w–4). Such report shall ex-
amine the following matters by physician specialty:
(1) The effect of such refinements on payment for
physicians’ services.
(2) The interaction of the practice expense component
with other components of and adjustments to payment for
physicians’ services under such section.
(3) The appropriateness of the amount of compensa-
tion by reason of such refinements.
(4) The effect of such refinements on access to care
by medicare beneficiaries to physicians’ services.
(5) The effect of such refinements on physician par-
ticipation under the medicare program.
Subtitle B—Other Services
SEC. 511. COMPETITIVE ACQUISITION OF CERTAIN
ITEMS AND SERVICES.
(a) IN GENERAL.—Section 1847 (42 U.S.C. 1395w–3) is
amended to read as follows:
‘‘COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND SERVICES
‘‘SEC. 1847. (a) ESTABLISHMENT OF COMPETITIVE AC-
QUISITION PROGRAMS.—
‘‘(1) IMPLEMENTATION OF PROGRAMS.—
111
‘‘(A) IN GENERAL.—The Secretary shall establish
and implement programs under which competitive ac-
quisition areas are established throughout the United
States for contract award purposes for the furnishing
under this part of competitively priced items and serv-
ices (described in paragraph (2)) for which payment is
made under this part. Such areas may differ for dif-
ferent items and services.
‘‘(B) PHASED-IN
IMPLEMENTATION.—The pro-
grams shall be phased-in among competitive acquisition
areas over a period of not longer than 3 years in a
manner so that the competition under the programs oc-
curs in—
‘‘(i) at least 1⁄3 of such areas in 2004; and
‘‘(ii) at least 2⁄3 of such areas in 2005.
‘‘(C) WAIVER OF CERTAIN PROVISIONS.—In car-
rying out the programs, the Secretary may waive such
provisions of the Federal Acquisition Regulation as are
necessary for the efficient implementation of this sec-
tion, other than provisions relating to confidentiality of
information and such other provisions as the Secretary
determines appropriate.
‘‘(2) ITEMS AND SERVICES DESCRIBED.—The items
and services referred to in paragraph (1) are the following:
‘‘(A) DURABLE MEDICAL EQUIPMENT AND INHA-
LATION DRUGS USED IN CONNECTION WITH DURABLE
MEDICAL EQUIPMENT.—Covered items (as defined in
section 1834(a)(13)) for which payment is otherwise
made under section 1834(a), other than items used in
infusion, and inhalation drugs used in conjunction with
durable medical equipment.
‘‘(B) OFF-THE-SHELF ORTHOTICS.—Orthotics (de-
scribed in section 1861(s)(9)) for which payment is
otherwise made under section 1834(h) which require
minimal self-adjustment for appropriate use and does
not require expertise in trimming, bending, molding,
assembling, or customizing to fit to the patient.
112
‘‘(3) EXEMPTION
AUTHORITY.—In carrying out the
programs under this section, the Secretary may exempt—
‘‘(A) areas that are not competitive due to low
population density; and
‘‘(B) items and services for which the application
of competitive acquisition is not likely to result in sig-
nificant savings.
‘‘(b) PROGRAM REQUIREMENTS.—
‘‘(1) IN
GENERAL.—The Secretary shall conduct a
competition among entities supplying items and services de-
scribed in subsection (a)(2) for each competitive acquisition
area in which the program is implemented under subsection
(a) with respect to such items and services.
‘‘(2) CONDITIONS FOR AWARDING CONTRACT.—
‘‘(A) IN GENERAL.—The Secretary may not award
a contract to any entity under the competition con-
ducted in an competitive acquisition area pursuant to
paragraph (1) to furnish such items or services unless
the Secretary finds all of the following:
‘‘(i) The entity meets quality and financial
standards specified by the Secretary or developed
by accreditation entities or organizations recognized
by the Secretary.
‘‘(ii) The total amounts to be paid under the
contract (including costs associated with the ad-
ministration of the contract) are expected to be less
than the total amounts that would otherwise be
paid.
‘‘(iii) Beneficiary access to a choice of multiple
suppliers in the area is maintained.
‘‘(iv) Beneficiary liability is limited to the ap-
plicable percentage of contract award price.
‘‘(B) QUALITY STANDARDS.—The quality stand-
ards specified under subparagraph (A)(i) shall not be
less than the quality standards that would otherwise
apply if this section did not apply and shall include
consumer services standards. The Secretary shall con-
113
sult with an expert outside advisory panel composed of
an appropriate selection of representatives of physi-
cians, practitioners, and suppliers to review (and advise
the Secretary concerning) such quality standards.
‘‘(3) CONTENTS OF CONTRACT.—
‘‘(A) IN GENERAL.—A contract entered into with
an entity under the competition conducted pursuant to
paragraph (1) is subject to terms and conditions that
the Secretary may specify.
‘‘(B) TERM OF CONTRACTS.—The Secretary shall
rebid contracts under this section not less often than
once every 3 years.
‘‘(4) LIMIT ON NUMBER OF CONTRACTORS.—
‘‘(A) IN GENERAL.—The Secretary may limit the
number of contractors in a competitive acquisition area
to the number needed to meet projected demand for
items and services covered under the contracts. In
awarding contracts, the Secretary shall take into ac-
count the ability bidding entities to furnish items or
services in sufficient quantities to meet the anticipated
needs of beneficiaries for such items or services in the
geographic area covered under the contract on a timely
basis.
‘‘(B) MULTIPLE WINNERS.—The Secretary shall
award contracts to more than one entity submitting a
bid in each area for an item or service.
‘‘(5) PARTICIPATING
CONTRACTORS.—Payment shall
not be made for items and services described in subsection
(a)(2) furnished by a contractor and for which competition
is conducted under this section unless—
‘‘(A) the contractor has submitted a bid for such
items and services under this section; and
‘‘(B) the Secretary has awarded a contract to the
contractor for such items and services under this sec-
tion.
‘‘(6) AUTHORITY TO CONTRACT FOR EDUCATION, OUT-
REACH
AND
COMPLAINT
SERVICES.—The Secretary may
114
enter into a contract with an appropriate entity to address
complaints from beneficiaries who receive items and serv-
ices from an entity with a contract under this section and
to conduct appropriate education of and outreach to such
beneficiaries with respect to the program.
‘‘(c) ANNUAL REPORTS.—The Secretary shall submit to
Congress an annual management report on the programs under
this section. Each such report shall include information on sav-
ings, reductions in cost-sharing, access to items and services,
and beneficiary satisfaction.
‘‘(d) DEMONSTRATION PROJECT FOR CLINICAL LABORA-
TORY SERVICES.—
‘‘(1) IN
GENERAL.—The Secretary shall conduct a
demonstration project on the application of competitive ac-
quisition under this section to clinical diagnostic laboratory
tests—
‘‘(A) for which payment is otherwise made under
section 1833(h) or 1834(d)(1) (relating to colorectal
cancer screening tests); and
‘‘(B) which are furnished without a face-to-face
encounter between the individual and the hospital or
physician ordering the tests.
‘‘(2) TERMS AND CONDITIONS.—Such project shall be
under the same conditions as are applicable to items and
services described in subsection (a)(2).
‘‘(3) 
REPORT.—The 
Secretary 
shall 
submit 
to
Congress—
‘‘(A) an initial report on the project not later than
December 31, 2004; and
‘‘(B) such progress and final reports on the
project after such date as the Secretary determines ap-
propriate.’’.
(b) 
CONTINUATION
OF
CERTAIN
DEMONSTRATION
PROJECTS.—Notwithstanding the amendment made by sub-
section (a), with respect to demonstration projects implemented
by the Secretary under section 1847 of the Social Security Act
(42 U.S.C. 1395w–3) (relating to the establishment of competi-
115
tive acquisition areas) that was in effect on the day before the
date of the enactment of this Act, each such demonstration
project may continue under the same terms and conditions ap-
plicable under that section as in effect on that date.
(c) REPORT ON DIFFERENCES IN PAYMENT FOR LABORA-
TORY SERVICES.—Not later than 18 months after the date of
the enactment of this Act, the Comptroller General of the
United States shall submit to Congress a report that analyzes
differences in reimbursement between public and private payors
for clinical diagnostic laboratory services.
SEC. 512. PAYMENT FOR AMBULANCE SERVICES.
(a) PHASE-IN PROVIDING FLOOR USING BLEND OF FEE
SCHEDULE AND REGIONAL FEE SCHEDULES.—Section 1834(l)
(42 U.S.C. 1395m(l)) is amended—
(1) in paragraph (2)(E), by inserting ‘‘consistent with
paragraph (10)’’ after ‘‘in an efficient and fair manner’’;
(2) by redesignating the paragraph (8) added by sec-
tion 221(a) of BIPA as paragraph (9); and
(3) by adding at the end the following new paragraph:
‘‘(10) PHASE-IN PROVIDING FLOOR USING BLEND OF
FEE SCHEDULE AND REGIONAL FEE SCHEDULES.—In car-
rying out the phase-in under paragraph (2)(E) for each
level of service furnished in a year before January 1, 2007,
the portion of the payment amount that is based on the fee
schedule shall not be less than the following blended rate
of the fee schedule under paragraph (1) and of a regional
fee schedule for the region involved:
‘‘(A) For 2003, the blended rate shall be based 20
percent on the fee schedule under paragraph (1) and
80 percent on the regional fee schedule.
‘‘(B) For 2004, the blended rate shall be based 40
percent on the fee schedule under paragraph (1) and
60 percent on the regional fee schedule.
‘‘(C) For 2005, the blended rate shall be based 60
percent on the fee schedule under paragraph (1) and
40 percent on the regional fee schedule.
116
‘‘(D) For 2006, the blended rate shall be based 80
percent on the fee schedule under paragraph (1) and
20 percent on the regional fee schedule.
For purposes of this paragraph, the Secretary shall estab-
lish a regional fee schedule for each of the 9 Census divi-
sions using the methodology (used in establishing the fee
schedule under paragraph (1)) to calculate a regional con-
version factor and a regional mileage payment rate and
using the same payment adjustments and the same relative
value units as used in the fee schedule under such para-
graph.’’.
(b) ADJUSTMENT
IN
PAYMENT
FOR
CERTAIN
LONG
TRIPS.—Section 1834(l), as amended by subsection (a), is fur-
ther amended by adding at the end the following new para-
graph:
‘‘(11) ADJUSTMENT IN PAYMENT FOR CERTAIN LONG
TRIPS.—In the case of ground ambulance services fur-
nished on or after January 1, 2003, and before January 1,
2008, regardless of where the transportation originates, the
fee schedule established under this subsection shall provide
that, with respect to the payment rate for mileage for a
trip above 50 miles the per mile rate otherwise established
shall be increased by 1⁄4 of the payment per mile otherwise
applicable to such miles.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to ambulance services furnished on or after
January 1, 2003.
SEC. 513. 1-YEAR EXTENSION OF MORATORIUM ON
THERAPY CAPS; PROVISIONS RELATING TO
REPORTS.
(a) 1-YEAR EXTENSION OF MORATORIUM ON THERAPY
CAPS.—Section 1833(g)(4) (42 U.S.C. 1395l(g)(4)) is amended
by striking ‘‘and 2002’’ and inserting ‘‘2002 and 2003’’.
(b) PROMPT SUBMISSION OF OVERDUE REPORTS ON PAY-
MENT
AND UTILIZATION
OF OUTPATIENT THERAPY SERV-
ICES.—Not later than December 31, 2002, the Secretary shall
submit to Congress the reports required under section
117
4541(d)(2) of the Balanced Budget Act of 1997 (relating to al-
ternatives to a single annual dollar cap on outpatient therapy)
and under section 221(d) of the Medicare, Medicaid, and
SCHIP Balanced Budget Refinement Act of 1999 (relating to
utilization patterns for outpatient therapy).
(c) IDENTIFICATION OF CONDITIONS AND DISEASES JUS-
TIFYING WAIVER OF THERAPY CAP.—
(1) STUDY.—The Secretary shall request the Institute
of Medicine of the National Academy of Sciences to identify
conditions or diseases that should justify conducting an as-
sessment of the need to waive the therapy caps under sec-
tion 1833(g)(4) of the Social Security Act (42 U.S.C.
1395l(g)(4)).
(2) REPORTS TO CONGRESS.—Not later than July 1,
2003, the Secretary shall submit to Congress a preliminary
report on the conditions and diseases identified under para-
graph (1) and not later than September 1, 2003, a final
report on the conditions and diseases so identified.
(d) GAO STUDY
OF PATIENT ACCESS
TO PHYSICAL
THERAPIST SERVICES.—
(1) STUDY.—The Comptroller General of the United
States shall conduct a study on access to physical therapist
services in States authorizing such services without a physi-
cian referral and in States that require such a physician re-
ferral. The study shall—
(A) examine the use of and referral patterns for
physical therapist services for patients age 50 and older
in States that authorize such services without a physi-
cian referral and in States that require such a physi-
cian referral;
(B) examine the use of and referral patterns for
physical therapist services for patients who are medi-
care beneficiaries; and
(C) examine the delivery of physical therapists’
services within the facilities of Department of Defense;
and