I
106TH CONGRESS
1ST SESSION
H. R. 3075
To amend title XVIII of the Social Security Act to make corrections and
refinements in the Medicare Program as revised by the Balanced Budget
Act of 1997.
IN THE HOUSE OF REPRESENTATIVES
OCTOBER 14, 1999
Mr. THOMAS (for himself, Mr. ARCHER, Mr. CRANE, Mr. SHAW, Mrs. JOHN-
SON of Connecticut, Mr. HOUGHTON, Mr. HERGER, Mr. MCCRERY, Mr.
CAMP, Mr. RAMSTAD, Mr. NUSSLE, Mr. SAM JOHNSON of Texas, Ms.
DUNN, Mr. COLLINS, Mr. PORTMAN, Mr. ENGLISH, Mr. WATKINS, Mr.
HAYWORTH, Mr. WELLER, Mr. HULSHOF, Mr. MCINNIS, Mr. LEWIS of
Kentucky, Mr. FOLEY, Mr. BLUNT, Mr. THUNE, Mr. RYAN of Wisconsin,
Mr. HUTCHINSON, Mr. RILEY, Mr. PETERSON of Pennsylvania, Mr.
LATHAM, Mr. STUMP, Mr. SMITH of Michigan, Mr. WALDEN of Oregon,
Ms. DANNER, Mr. SWEENEY, Mr. HASTINGS of Washington, Mr. BACH-
US, Mr. KOLBE, Mr. LATOURETTE, Mr. BASS, Mr. PICKERING, Mr.
SHAYS, Mr. MORAN of Kansas, Mr. LUCAS of Oklahoma, and Ms. PRYCE
of Ohio) introduced the following bill; which was referred to the Com-
mittee on Ways and Means, and in addition to the Committee on Com-
merce, for a period to be subsequently determined by the Speaker, in
each case for consideration of such provisions as fall within the jurisdic-
tion of the committee concerned
A BILL
To amend title XVIII of the Social Security Act to make
corrections and refinements in the Medicare Program
as revised by the Balanced Budget Act of 1997.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECU-
RITY ACT; REFERENCES TO BBA; TABLE OF
CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Medicare Balanced Budget Refinement Act of 1999’’.
(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 BALANCED BUDGET ACT OF
1997.—In this Act, the term ‘‘BBA’’ means the Balanced
Budget Act of 1997 (Public Law 105–33).
(d) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; amendments to Social Security Act; references to BBA;
table of contents.
Sec. 2. Congressional policies regarding implementation of certain provisions.
TITLE I—PROVISIONS RELATING TO PART A
Subtitle A—PPS Hospitals
Sec. 101. One-year delay in transition for indirect medical education (IME)
percentage adjustment.
Subtitle B—PPS Exempt Hospitals
Sec. 111. Wage adjustment of percentile cap for PPS-exempt hospitals.
Sec. 112. Enhanced payments for long-term care and psychiatric hospitals until
development of prospective payment systems for those hos-
pitals.
Sec. 113. Per discharge prospective payment system for long-term care hos-
pitals.
Sec. 114. Per diem prospective payment system for psychiatric hospitals.
Subtitle C—Adjustments to PPS Payments for Skilled Nursing
Facilities
Sec. 121. Temporary increase in payment for certain high cost patients.
Sec. 122. Market basket increase.
Sec. 123. Authorizing for facilities to elect immediate transition to federal rate.
Sec. 124. Part a pass-through payment for certain ambulance services, pros-
theses, and chemotherapy drugs.
Sec. 125. Provision for part B add-ons for facilities participating in the
NHCMQ demonstration project.
TITLE II—PROVISIONS RELATING TO PART B
Subtitle A—Adjustments to Physician Payment Updates
Sec. 201. Modification of update adjustment factor provisions to reduce update
oscillations and allow for estimate revisions.
Subtitle B—Hospital Outpatient Services
Sec. 211. Outlier adjustment and transitional pass-through for certain medical
devices, drugs, and biologicals.
Sec. 212. Establishing a transitional corridor for application of OPD PPS.
Subtitle C—Other
Sec. 221. Application of separate caps to physical and speech therapy services.
Sec. 222. Optional exemption of certain high acuity facility patients.
Sec. 223. Update in renal dialysis composite rate.
Sec. 224. Temporary update in durable medical equipment and oxygen rates.
TITLE III—PROVISIONS RELATING TO PARTS A AND B
Subtitle A—Home Health Services
Sec. 301. Adjustment to reflect administrative costs not included in the interim
payment system.
Sec. 302. Delay in application of 15 percent reduction in payment rates for
home health services until 1 year after implementation of pro-
spective payment system.
Subtitle B—Direct Graduate Medical Education
Sec. 311. Use of national average payment methodology in computing direct
graduate medical education (DGME) payments.
TITLE IV—RURAL PROVIDER PROVISIONS
Sec. 401. Permitting reclassification of certain urban hospitals as rural hos-
pitals.
Sec. 402. Update of standards applied for geographic reclassification for certain
hospitals.
Sec. 403. Improvements in the critical access hospital (CAH) program.
Sec. 404. 5-year extension of medicare dependent hospital (MDH) program.
Sec. 405. Rebasing for certain sole community hospitals.
Sec. 406. Increased flexibility in providing graduate physician training in rural
areas.
Sec. 407. Elimination of certain restrictions with respect to hospital swing bed
program.
Sec. 408. Grant program for rural hospital transition to prospective payment.
Sec. 409. MedPAC study of rural providers.
TITLE V—PROVISIONS RELATING TO PART C
(MEDICARE+CHOICE PROGRAM)
Subtitle A—Medicare+Choice
Sec. 501. Phase-in of new risk adjustment methodology.
Sec. 502. Encouraging offering of medicare+choice plans in areas without
plans.
Sec. 503. Modification of 5-year re-entry rule for contract terminations.
Sec. 504. Continued computation and publication of AAPCC data.
Sec. 505. Permitting enrollment in alternative medicare+choice plans and
medigap coverage in case of involuntary termination of
medicare+choice enrollment.
Sec. 506. Allowing variation in premium waivers within a service area if
Medicare+Choice payment rates vary within the area.
Sec. 507. Delay in deadline for submission of adjusted community rates and re-
lated information.
Sec. 508. 2 year extension of medicare cost contracts.
Sec. 509. Miscellaneous changes.
Sec. 510. MedPAC report on medicare MSA (medical savings account) plans.
Subtitle B—Social Health Maintenance Organizations (SHMOs)
Sec. 511. Extension of social health maintenance organization demonstration
project authority.
SEC. 2. CONGRESSIONAL POLICIES REGARDING IMPLE-
MENTATION OF CERTAIN PROVISIONS.
(a) INTENTION TO MAKE 1999 BASELINE BUDGET
NEUTRAL
IN APPLYING
THE HOSPITAL OUTPATIENT
PROSPECTIVE PAYMENT SYSTEM.—With respect to deter-
mining the amount of copayments described in paragraph
(3)(a)(ii) of section 1833(t) of the Social Security Act, as
added by section 4523(a) of Balanced Budget Act of 1997,
Congress finds that such amount should be determined in
a budget neutral manner without regard to such section
and that the Secretary of Health and Human Services has
the authority to determine such amount without regard
to such section.
(b) INTENTION TO USE CURRENT RISK ADJUST-
MENT
AND CONTINUOUS OPEN ENROLLMENT UNDER
THE FRAIL ELDERLY DEMONSTRATION PROJECT.—Con-
gress finds that, in any period in which the demonstration
project (known as the ‘‘EverCare’’ project) to demonstrate
the application of capitation payment rates for frail elderly
medicare beneficiaries under a specialized program that
utilizes a specialized interdisciplinary team is in effect,
with respect to a nursing facility which is participating
in such project as of the date of the enactment of this
Act, the Secretary of Health and Human Services has the
authority to provide, and the Secretary should provide,
that the risk-adjustment described in section 1853(c)(3)
of such Act will not apply to a frail elderly
Medicare+Choice beneficiary who is receiving services
from the facility under the demonstration project.
(c) INTENTION TO USE REGULATORY PROCESS FOR
IMPLEMENTING INHERENT REASONABLENESS POLICY.—
Congress finds that the Secretary of Health and Human
Services should not use, or permit fiscal intermediaries or
carriers to use, the inherent reasonableness authority
under part B of title XVIII of such Act until the Secretary
has published proposed and final rules outlining the proc-
ess for the exercise of such authority.
(d) INTENTION TO DELAY VOLUME CAPS FOR HOS-
PITAL OUTPATIENT SERVICES.—Congress finds that the
Secretary of Health and Human Services has the author-
ity to delay, and should delay for a period of 2 years, im-
plementation of a volume cap for hospital outpatient serv-
ices under part B of title XVIII of such Act.
(e) INTENTION TO PROTECT HOSPITALS FROM
RECOUPMENT RESULTING FROM ERRORS
BY FISCAL
INTERMEDIARIES IN CERTAIN DSH DETERMINATIONS.—
(1) IN GENERAL.—Congress finds that the Sec-
retary of Health and Human Services has the au-
thority to not seek recoupment of (or otherwise to
reduce, disallow, or adjust payments), and should
not seek to recoup, payments that result from an
error of a fiscal intermediary in providing for the
treatment described in paragraph (2) for discharges
occurring before October 1, 1998.
(2) TREATMENT
DESCRIBED.—The treatment
described in this paragraph is that, in calculating
the disproportionate patient percentage (as defined
in section 1886(d)(5)(F)(vi) of such Act) of a hos-
pital, patient days for individuals eligible for general
assistance under the laws of the State in which the
hospital is located, for purposes of subclause (II) of
such section, consist of patients who (for such days)
were eligible for medical assistance under a State
plan approved under title XIX of such Act.
TITLE I—PROVISIONS RELATING
TO PART A
Subtitle A—PPS Hospitals
SEC. 101. ONE-YEAR DELAY IN TRANSITION FOR INDIRECT
MEDICAL EDUCATION (IME) PERCENTAGE
ADJUSTMENT.
(a) IN GENERAL.—Section 1886(d)(5)(B)(ii) (42
U.S.C. 1395ww(d)(5)(B)(ii)), as amended by section
4621(a)(1) of BBA, is amended—
(1) in subclause (IV), by inserting ‘‘and 2001’’
after ‘‘2000’’; and
(2) by striking ‘‘2000’’ in subclause (V) and in-
serting ‘‘2001’’.
(b) CONFORMING AMENDMENT RELATING TO DE-
TERMINATION
OF
STANDARDIZED
AMOUNT.—Section
1886(d)(2)(C)(i) (42 U.S.C. 1395ww(d)(2)(C)(i)), as
amended by section 4621(a)(2) of BBA, is amended by
inserting ‘‘or any additional payments under such para-
graph resulting from the amendment made by section
101(a) of Medicare Balanced Budget Refinement Act of
1999’’ after ‘‘Balanced Budget Act of 1997’’.
Subtitle B—PPS Exempt Hospitals
SEC. 111. WAGE ADJUSTMENT OF PERCENTILE CAP FOR
PPS-EXEMPT HOSPITALS.
(a) IN GENERAL.—Section 1886(b)(3)(H) (42 U.S.C.
1395ww(b)(3)(H)), as amended by section 4414 of BBA,
is amended—
(1) in clause (i), by inserting ‘‘, as adjusted
under clause (iii)’’,
(2) in clause (ii), by striking ‘‘clause (i)’’ and
‘‘such clause’’ and inserting ‘‘subclause (I)’’ and
‘‘such subclause’’ respectively,
(3) by striking ‘‘(H)(i)’’ and inserting ‘‘(ii)(I)’’,
(4) by redesignating clauses (ii) and (iii) as
subclauses (II) and (III),
(5) by inserting after clause (ii), as so redesig-
nated, the following new clause:
‘‘(iii) In applying clause (ii)(I) in the case of a hos-
pital or unit, the Secretary shall provide for an appro-
priate adjustment to the labor-related portion of the
amount determined under such subparagraph to take into
account differences between average wage-related costs in
the area of the hospital and the national average of such
costs within the same class of hospital.’’,
and
(6) by inserting before clause (ii), as so redesig-
nated, the following new clause:
‘‘(H)(i) In the case of a hospital or unit that is within
a class of hospital described in clause (iv), for a cost re-
porting period beginning during fiscal years 1998 through
2002, the target amount for such a hospital or unit may
not exceed the amount as updated up to or for such cost
reporting period under clause (ii).’’
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) apply to cost reporting periods beginning
on or after October 1, 1999.
SEC. 112. ENHANCED PAYMENTS FOR LONG-TERM CARE
AND PSYCHIATRIC HOSPITALS UNTIL DEVEL-
OPMENT OF PROSPECTIVE PAYMENT SYS-
TEMS FOR THOSE HOSPITALS.
Section 1886(b)(2) (42 U.S.C. 1395ww(b)(2)), as
added by section 4415(b) of BBA, is amended—
(1) in subparagraph (A), by striking ‘‘In addi-
tion to’’ and inserting ‘‘Except as provided in sub-
paragraph (E), in addition to’’; and
(2) by adding at the end the following new sub-
paragraph:
‘‘(E)(i) In the case of an eligible hospital that is a
hospital or unit that is within a class of hospital described
in clause (ii) with a 12-month cost reporting period begin-
ning before the enactment of this subparagraph, in deter-
mining the amount of the increase under subparagraph
(A), the Secretary shall substitute for the percentage of
the target amount applicable under subparagraph
(A)(ii)—
‘‘(I) for a cost reporting period beginning on or
after October 1, 2000, and before September 30,
2001, 1.5 percent; and
‘‘(II) for a cost reporting period beginning on
or after October 1, 2001, and before September 30,
2002, 2 percent.
‘‘(ii) For purposes of clause (i), each of the following
shall be treated as a separate class of hospital:
‘‘(I) Hospitals described in clause (i) of sub-
section (d)(1)(B) and psychiatric units described in
the matter following clause (v) of such subsection.
‘‘(II) Hospitals described in clause (iv) of such
subsection.’’.
SEC. 113. PER DISCHARGE PROSPECTIVE PAYMENT SYS-
TEM FOR LONG-TERM CARE HOSPITALS.
(a) DEVELOPMENT OF SYSTEM.—
(1) IN GENERAL.—The Secretary of Health and
Human Services shall develop a per discharge pro-
spective payment system for payment for inpatient
hospital services of long-term care hospitals de-
scribed in section 1886(d)(1)(B)(iv) of the Social Se-
curity Act (42 U.S.C. 1395ww(d)(1)(B)(iv)) under
the medicare program. Such system shall include an
adequate patient classification system that reflects
the differences in patient resource use and costs and
shall maintain budget neutrality.
(2) COLLECTION OF DATA AND EVALUATION.—
In developing the system described in paragraph (1),
the Secretary may require such long-term care hos-
pitals to submit such information to the Secretary as
the Secretary may require to develop the system.
(b) REPORT.—Not later than October 1, 2001, the
Secretary shall submit to the appropriate committees of
Congress a report that includes a description of the system
developed under subsection (a)(1).
(c) IMPLEMENTATION
OF PROSPECTIVE PAYMENT
SYSTEM.—Notwithstanding section 1886(b)(3) of the So-
cial Security Act (42 U.S.C. 1395ww(b)(3)), the Secretary
shall provide, for cost reporting periods beginning on or
after October 1, 2002, for payments for inpatient hospital
services furnished by long-term care hospitals and units
under title XVIII of the Social Security Act (42 U.S.C.
1395 et seq.) in accordance with the system described in
subsection (a).
SEC. 114. PER DIEM PROSPECTIVE PAYMENT SYSTEM FOR
PSYCHIATRIC HOSPITALS.
(a) DEVELOPMENT OF SYSTEM.—
(1) IN GENERAL.—The Secretary of Health and
Human Services shall develop a per diem prospective
payment system for payment for inpatient hospital
services of psychiatric hospitals and units (as de-
fined in paragraph (3)) under the medicare pro-
gram. Such system shall include an adequate patient
classification system that reflects the differences in
patient resource use and costs among such hospitals
and shall maintain budget neutrality.
(2) COLLECTION OF DATA AND EVALUATION.—
In developing the system described in paragraph (1),
the Secretary may require such psychiatric hospitals
and units to submit such information to the Sec-
retary as the Secretary may require to develop the
system.
(3) DEFINITION.—In this section, the term
‘‘psychiatric hospitals and units’’ means a psy-
chiatric hospital described in clause (i) of section
1886(d)(1)(B) of the Social Security Act (42 U.S.C.
1395ww(d)(1)(B)) and psychiatric units described in
the matter following clause (v) of such section.
(b) REPORT.—Not later than October 1, 2001, the
Secretary shall submit to the appropriate committees of
Congress a report that includes a description of the system
developed under subsection (a)(1).
(c) IMPLEMENTATION
OF PROSPECTIVE PAYMENT
SYSTEM.—Notwithstanding section 1886(b)(3) of the So-
cial Security Act (42 U.S.C. 1395ww(b)(3)), the Secretary
shall provide, for cost reporting periods beginning on or
after October 1, 2002, for payments for inpatient hospital
services furnished by psychiatric hospitals and units under
title XVIII of the Social Security Act (42 U.S.C. 1395
et seq.) in accordance with the prospective payment sys-
tem established by the Secretary under this section.
Subtitle C—Adjustments to PPS
Payments for Skilled Nursing
Facilities
SEC. 121. TEMPORARY INCREASE IN PAYMENT FOR CER-
TAIN HIGH COST PATIENTS.
(a) ADJUSTMENT
FOR MEDICALLY COMPLEX PA-
TIENTS UNTIL ESTABLISHMENT OF REFINED CASE-MIX
ADJUSTMENT.—For purposes of computing payments for
covered skilled nursing facility payments under paragraph
(1) of section 1888(e) of the Social Security Act (42
U.S.C. 1395yy(e)), as added by section 4432(a) of BBA,
for such services furnished on or after April 1, 2000, and
before October 1, 2000, the Secretary of Health and
Human Services shall increase by 10 percent the adjusted
Federal per diem rate otherwise determined under para-
graph (4) of such section (but for this section) for covered
skilled nursing facility services for RUG–III groups de-
scribed in subsection (b) furnished to an individual enti-
tled to benefits under part A of title XVIII of such Act
during the period in which such individual is classified in
such a RUG–III category.
(b) GROUPS DESCRIBED.—The RUG–III groups for
which the adjustment described in subsection (a) applies
are SE3, SE2, SE1, SSC, SSB, SSA, CC2, CC1, CB2,
CB1, CA2, and CA1, as specified in Tables 3 and 4 of
the final rule published in the Federal Register by the
Health Care Financing Administration on July 30, 1999
(64 FR 41684).
SEC. 122. MARKET BASKET INCREASE.
Section 
1888(e)(4)(E)(ii) 
(42 
U.S.C.
1395yy(e)(4)(E)(ii)) is amended—
(1) by redesignating subclause (III) as sub-
clause (IV); and
(2) by striking subclause (II) and inserting
after subclause (I) the following:
‘‘(II) for fiscal year 2001, the
rate computed for fiscal year 2000
(determined without regard to section
121 of the Medicare Balanced Budget
Refinement Act of 1999) increased by
the skilled nursing facility market
basket percentage change for the fis-
cal year involved plus 0.8 percentage
point;
‘‘(III) for fiscal year 2002, the
rate computed for the previous fiscal
year increased by the skilled nursing
facility 
market 
basket 
percentage
change for the fiscal year involved
minus 1 percentage point; and’’.
SEC. 123. AUTHORIZING FACILITIES TO ELECT IMMEDIATE
TRANSITION TO FEDERAL RATE.
(a) IN
GENERAL.—Section 1888(e) (42 U.S.C.
1395yy(e)), as added by section 4432(a) of BBA, is
amended—
(1) in paragraph (1), in the matter preceding
subparagraph (A), by striking ‘‘paragraph (7)’’ and
inserting ‘‘paragraphs (7) and (11)’’; and
(2) by adding at the end the following new
paragraph:
‘‘(11) PERMITTING
FACILITIES
TO
WAIVE
3-
YEAR
TRANSITION.—Notwithstanding 
paragraph
(1)(A), a facility may elect to have the amount of
the payment for all costs of covered skilled nursing
facility services for each day of such services fur-
nished in cost reporting periods beginning after the
date of such election determined pursuant to sub-
paragraph (B) of paragraph (1).’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to elections made more than 60
days after the date of enactment of this Act.
SEC. 124. PART A PASS-THROUGH PAYMENT FOR CERTAIN
AMBULANCE SERVICES, PROSTHESES, AND
CHEMOTHERAPY DRUGS.
(a) IN
GENERAL.—Section 1888(e) (42 U.S.C.
1395yy(e)), as added by section 4432(a) of BBA, is
amended—
(1) in paragraph (2)(A)(i)(II), by striking
‘‘services described in clause (ii)’’ and inserting
‘‘items and services described in clauses (ii) and
(iii)’’;
(2) by adding at the end of paragraph (2)(A)
the following new clause:
‘‘(iii) EXCLUSION OF CERTAIN ADDI-
TIONAL
ITEMS.—Items described in this
clause are the following:
‘‘(I) 
Ambulance 
services 
de-
scribed in section 1861(s)(2)(F) fur-
nished to an individual in conjunction
renal dialysis services.
‘‘(II) Chemotherapy items (iden-
tified as of July 1, 1999, by HCPCS
codes J9000–J9020; J9040–J9151;
J9170–J9185; J9200–J9201; J9206–
J9208; J9211; J9230–J9245; and
J9265–J9600 (and as subsequently
modified by the Secretary)).
‘‘(III) Chemotherapy administra-
tion services (identified as of July 1,
1999, by HCPCS codes 36260–
36262; 36489; 36530–36535; 36640;
36823; and 96405–96542 (and as
subsequently modified by the Sec-
retary)).
‘‘(IV) 
Radioisotope 
services
(identified as of July 1, 1999, by
HCPCS codes 79030–79440 (and as
subsequently modified by the Sec-
retary)).
‘‘(V) Durable medical equipment
(commonly known as artificial limbs)
classified as customized prosthetic de-
vices under the following HCPCS
codes (as of July 1, 1999 (and as sub-
sequently modified by the Secretary))
if delivered to an inpatient for use
during the stay in the extended care
facility and intended to be used by the
patient after discharge from the facil-
ity: 
L5050–L5340; 
L5500–L5610;
L5613–L5986; 
L5988; 
L6050–
L6370; 
L6400–L6880; 
L6920–
L7274; and L7362–7366.’’; and
(3) by adding at the end of paragraph (9), the
following: ‘‘In the case of an item described in clause
(iii) of paragraph (2)(A) that would be payable
under part A but for the exclusion of such item
under such clause, payment shall be made in an
amount otherwise provided under this title for the
item from the Federal Hospital Insurance Trust
Fund under section 1817 (rather than from the
Federal Supplementary Medical Insurance Trust
Fund under section 1841).’’.
(b) CONFORMING FOR BUDGET NEUTRALITY FOR
FISCAL YEAR 2001.—Section 1888(e)(4)(G) (42 U.S.C.
1395yy(e)(4)(G)) is amended by adding at the end the fol-
lowing new clause:
‘‘(iii) ADJUSTMENT
FOR
EXCLUSION
OF
CERTAIN
ADDITIONAL
ITEMS.—The
Secretary shall provide for an appropriate
proportional reduction in payments so that
beginning with fiscal year 2001, the aggre-
gate amount of such reductions is equal to
the aggregate increase in payments attrib-
utable to the exclusion effected under
clause (iii) of paragraph (2)(A).’’.
(c) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to payments made for items fur-
nished on or after April 1, 2000.
SEC. 125. PROVISION FOR PART B ADD-ONS FOR FACILI-
TIES PARTICIPATING IN THE NHCMQ DEM-
ONSTRATION PROJECT.
(a) IN GENERAL.—Subsection 1888(e)(3) (42 U.S.C.
1395yy(e)(3)), as added by section 4432(a) of BBA, is
amended—
(1) in subparagraph (A)—
(A) in clause (i), by inserting ‘‘or, in the
case of a facility participating in the Nursing
Home Case-Mix and Quality Demonstration
(RUGS–III), the RUGS–III rate received by
the facility during the cost reporting period be-
ginning in 1997’’ after ‘‘to nonsettled cost re-
ports’’; and
(B) in clause (ii), by striking ‘‘furnished
during such period’’ and inserting ‘‘furnished
during the applicable cost reporting period de-
scribed in clause (i)’’.
(2) in subparagraph (B), to read as follows:
‘‘(B) UPDATE TO FIRST COST REPORTING
PERIOD.—The Secretary shall update the
amount determined under subparagraph (A),
for each cost reporting period after the applica-
ble cost reporting period described in subpara-
graph (A)(i) and up to the first cost reporting
period by a factor equal to the skilled nursing
facility market basket percentage increase
minus 1 percentage point (except that for the
cost reporting period beginning in fiscal year
2001, the factor shall be equal to such market
basket percentage plus 0.8 percentage point).’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall be effective as if included in the enact-
ment of section 4432(a) of BBA.
TITLE II—PROVISIONS
RELATING TO PART B
Subtitle A—Adjustments to
Physician Payment Updates
SEC. 201. MODIFICATION OF UPDATE ADJUSTMENT FAC-
TOR PROVISIONS TO REDUCE UPDATE OSCIL-
LATIONS AND ALLOW FOR ESTIMATE REVI-
SIONS.
(a) UPDATE ADJUSTMENT FACTOR.—
(1) IN GENERAL.—Section 1848(d) (42 U.S.C.
1395w–4(d)) is amended—
(A) in paragraph (3)—
(i) in the heading, by inserting ‘‘FOR
1999’’ after ‘‘UPDATE’’;
(ii) in subparagraph (A), by striking
‘‘a year beginning with 1999’’ and insert-
ing ‘‘1999’’; and
(iii) in subparagraph (C), by inserting
‘‘and paragraph (4)’’ after ‘‘For purposes
of this paragraph’’; and
(B) by adding at the end the following new
paragraph:
‘‘(4) UPDATE
FOR
YEARS
BEGINNING
WITH
2000.—
‘‘(A) IN GENERAL.—Unless otherwise pro-
vided by law, subject to the budget-neutrality
factor determined by the Secretary under sub-
section (c)(2)(B)(ii), the update to the single
conversion factor established in paragraph
(1)(C) for a year beginning with 2000 is equal
to the product of—
‘‘(i) 1 plus the Secretary’s estimate of
the percentage increase in the MEI (as de-
fined in section 1842(i)(3)) for the year
(divided by 100), and
‘‘(ii) 1 plus the Secretary’s estimate of
the update adjustment factor under sub-
paragraph (B) for the year.
‘‘(B) UPDATE ADJUSTMENT FACTOR.—For
purposes of subparagraph (A)(ii), subject to
subparagraph (D), the ‘update adjustment fac-
tor’ for a year is equal (as estimated by the
Secretary) to the sum of the following:—
‘‘(i) PAST
YEAR
ADJUSTMENT.—An
amount determined by—
‘‘(I) computing the difference
(which may be positive or negative)
between the amount of the allowed ex-
penditures for physicians’ services for
the prior year (as determined under
subparagraph (C)) and the amount of
the actual expenditures for such serv-
ices for that year;
‘‘(II) dividing that difference by
the amount of the actual expenditures
for such services for that year; and
‘‘(III) multiplying that quotient
by 0.75.
‘‘(ii) CUMULATIVE ADJUSTMENT.—An
amount determined by—
‘‘(I) computing the difference
(which may be positive or negative)
between the amount of the allowed ex-
penditures for physicians’ services (as
determined under subparagraph (C))
from April 1, 1996, through the end
of the prior year and the amount of
the actual expenditures for such serv-
ices during that period;
‘‘(II) dividing that difference by
actual expenditures for such services
for the prior year as increased by the
sustainable growth rate under sub-
section (f) for the year for which the
update adjustment factor is to be de-
termined; and
‘‘(III) multiplying that quotient
by 0.33.
‘‘(C) DETERMINATION
OF
ALLOWED
EX-
PENDITURES.—For 
purposes 
of 
this
paragraph—
‘‘(i) PERIOD UP TO APRIL 1, 1999.—
The allowed expenditures for physicians’
services for periods before April 1, 1999,
shall be the Secretary’s estimate of the
amount of the allowed expenditures as de-
termined under paragraph (3)(C).
‘‘(ii) TRANSITION IN CALENDAR YEAR
1999.—The allowed expenditures for—
‘‘(I) the 9-month period begin-
ning April 1, 1999, shall be the Sec-
retary’s estimate of the amount of the
allowed expenditures that would be
permitted under paragraph (3)(C) for
such period; and
‘‘(II) the year of 1999, shall be
the 
Secretary’s 
estimate 
of 
the
amount of the allowed expenditures
that would be permitted under para-
graph (3)(C) for such year.
The Secretary shall estimate the amounts
under subclauses (I) and (II) of this clause
in a manner so that the expenditures
under this part for physicians’ services be-
ginning with 2000 are not greater or less
than the expenditures that would have
been made under this part for such serv-
ices if the amendments made by section
201 of the Medicare Balanced Budget Re-
finement Act of 1999 had been enacted.
‘‘(iii) YEARS BEGINNING WITH 2000.—
The allowed expenditures for a year (be-
ginning with 2000) is equal to the allowed
expenditures for physicians’ services for
the previous year, increased by the sustain-
able growth rate under subsection (f) for
the year involved.
‘‘(D) RESTRICTION ON UPDATE ADJUST-
MENT FACTOR.—The update adjustment factor
determined under subparagraph (B) for a year
may not be less than -0.07 or greater than
0.03.’’.
(2) PUBLICATION CHANGE.—
(A) IN GENERAL.—Section 1848(d)(1) (42
U.S.C. 1395w–4(d)(1)) by amending subpara-
graph (E) to read as follows:
‘‘(E) PUBLICATION.—The Secretary shall
cause to have published in the Federal Register
not later than—
‘‘(i) November 1 of each year (begin-
ning with 1999) the conversion factor
which will apply to physicians’ services for
the succeeding year and the update deter-
mined under paragraph (4) for such suc-
ceeding year and the allowed expenditures
under such paragraph for such succeeding
year; and
‘‘(ii) April 1 of each year (beginning
with 2000) an estimate of the conversion
factor which will apply to physicians’ serv-
ices for the succeeding year.
Such publication under clause (i) for November
1, 1999, shall include the allowed expenditures
for the 9-month period beginning on April 1,
1999, and for 1999, as described in subclauses
(I) and (II) of paragraph (4)(C)(ii), and the es-
timated actual expenditures for 1999.’’.
(B) MEDPAC REVIEW
OF
CONVER-
SION
FACTOR
ESTIMATES.—Section
1805(b)(1)(D) 
(42 
U.S.C. 
1395b–
6(b)(1)(D)) is amended by inserting ‘‘and
including a review of the estimate of the
conversion factor submitted under section
1848(d)(1)(E)(ii)’’ before the period at the
end.
(3) CONFORMING AMENDMENTS.—
(A) Section 1848 (42 U.S.C. 1395w–4) is
amended—
(i) in subsection (d)(1)(A), by insert-
ing ‘‘(for years before 2000) and, for years
beginning with 2000, multiplied by the up-
date (established under paragraph (4)) for
the year involved’’ after ‘‘for the year in-
volved’’; and
(ii) in subsection (f)(2)(D), by insert-
ing ‘‘or (d)(4)(B), as the case may be’’
after ‘‘(d)(3)(B)’’.
(B) Section 1842(k)(4)(A)(i)(VII) (42
U.S.C. 1395u(k)(4)(A)(i)(VII)) is amended by
striking ‘‘1848(d)(3)’’ and inserting ‘‘1848(d)’’.
(b) SUSTAINABLE GROWTH RATES.—Section 1848(f)
(42 U.S.C. 1395w–4(f)) is amended—
(1) by amending paragraph (1) to read as fol-
lows:
‘‘(1) PUBLICATION.—The Secretary shall cause
to have published in the Federal Register not later
than—
‘‘(A) November 1, 1999, the sustainable
growth rate for 2000;
‘‘(B) November 1, 2000, the sustainable
growth rate for 2000 and 2001; and
‘‘(C) November 1 of each succeeding year
the sustainable growth rate for such succeeding
year and each of the preceding 2 years.’’;
(2) in paragraph (2)—
(A) in the matter before subparagraph (A),
by striking ‘‘fiscal year 1998)’’ and inserting
‘‘fiscal year 1998 and ending with fiscal year
2000) and for a year beginning with 2000’’;
(B) in subparagraph (A), by inserting ‘‘or
year’’ after ‘‘fiscal year’’;
(C) in subparagraphs (B) and (C), by in-
serting ‘‘or from the previous year to the year
involved (as the case may be)’’ after ‘‘fiscal year
involved’’; and
(D) in subparagraph (D), by inserting ‘‘in
the year (compared with the previous year), as
the case may be,’’ after ‘‘in the fiscal year
(compared with the previous fiscal year)’’;
(3) by redesignating paragraph (3) as para-
graph (4); and
(4) by inserting after paragraph (3) the fol-
lowing new paragraph:
‘‘(3) DATA TO BE USED.—For purposes of de-
termining the update adjustment factor under sub-
section (d)(4)(B) and allowed expenditures under
subsection (d)(4)(C) for a year beginning with 2000,
the sustainable growth rate for each year taken into
consideration in the determination under paragraph
(2) shall be determined as follows:
‘‘(A) FOR 2000.—For purposes of such cal-
culations for 2000, the sustainable growth rate
for such year shall be determined on the basis
of the best data available to the Secretary as of
September 1, 1999.
‘‘(B) FOR 2001.—For purposes of such cal-
culations for 2001, the sustainable growth rate
for 2000 and 2001 shall be determined on the
basis of the best data available to the Secretary
as of September 1, 2000.
‘‘(C) FOR 2002.—For purposes of such cal-
culations for 2002, the sustainable growth rate
for 2000, 2001, and 2002 shall be determined
on the basis of the best data available to the
Secretary as of September 1, 2001.
‘‘(D) FOR 2003 AND SUCCEEDING YEARS.—
For purposes of such calculations for a year
after 2002, the sustainable growth rate for—
‘‘(i) that year and the preceding 2
years shall be determined on the basis of
the best data available to the Secretary as
of September 1 of the year preceding the
year for which the calculation is made; and
‘‘(ii) any year before a year described
in clause (i) shall be the rate as most re-
cently determined for that year under sub-
paragraph (C) or clause (i) of this sub-
paragraph (as the case may be) and shall
not be changed based upon any change in
the data available.
Nothing in this paragraph shall be construed as af-
fecting the sustainable growth rates established for
years before 2000.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall be effective in determining the conversion
factor under section 1848(d) of the Social Security Act
for years beginning with 2000 and shall not apply to or
affect any update (or any update adjustment factor) for
any year before 2000.
Subtitle B—Hospital Outpatient
Services
SEC. 211. OUTLIER ADJUSTMENT AND TRANSITIONAL PASS-
THROUGH FOR CERTAIN MEDICAL DEVICES,
DRUGS, AND BIOLOGICALS.
(a) OUTLIER ADJUSTMENT.—Section 1833(t) (42
U.S.C. 1395l(t)), as added by section 4523(a) of BBA,
is amended—
(1) by redesignating paragraphs (5) through
(9) as paragraphs (7) through (11), respectively;
and
(2) by inserting after paragraph (4) the fol-
lowing new paragraph:
‘‘(5) OUTLIER ADJUSTMENT.—
‘‘(A) IN
GENERAL.—The Secretary shall
provide for an additional payment for each cov-
ered OPD service (or group of services) for
which a hospital’s charges, adjusted to cost,
exceed—
‘‘(i) a fixed multiple of the sum of—
‘‘(I) 
the 
applicable 
Medicare
OPD fee schedule amount determined
under paragraph (3)(D), as adjusted
under paragraph (4)(A) (other than
for adjustments under this paragraph
or paragraph (6)); and
‘‘(II) 
any 
transitional 
pass-
through payment under paragraph
(6); and
‘‘(ii) at the option of the Secretary,
such fixed dollar amount as the Secretary
may establish.
‘‘(B) AMOUNT
OF
ADJUSTMENT.—The
amount of the additional payment under sub-
paragraph (A) shall be determined by the Sec-
retary and shall approximate the marginal cost
of care beyond the applicable cutoff point under
such subparagraph.
‘‘(C) LIMIT ON AGGREGATE OUTLIER AD-
JUSTMENTS.—
‘‘(i) IN GENERAL.—The total of the
additional payments made under this para-
graph for covered OPD services furnished
in a year (as projected or estimated by the
Secretary before the beginning of the year)
may not exceed the applicable percentage
(specified in clause (ii)) of the total pro-
gram payments projected or estimated to
be made under this subsection for all cov-
ered OPD services furnished in that year.
If this paragraph is first applied to less
than a full year, the previous sentence
shall apply only to the portion of such
year.
‘‘(ii) APPLICABLE PERCENTAGE.—For
purposes of clause (i), the term ‘applicable
percentage’ means a percentage specified
by the Secretary up to (but not to ex-
ceed)—
‘‘(I) for a year (or portion of a
year) before 2004, 2.5 percent; and
‘‘(II) for 2004 and thereafter,
3.0 percent.’’.
(b) TRANSITIONAL PASS-THROUGH FOR ADDITIONAL
COSTS OF INNOVATIVE MEDICAL DEVICES, DRUGS, AND
BIOLOGICALS.—Such section is further amended by in-
serting after paragraph (5) the following new paragraph:
‘‘(6) TRANSITIONAL PASS-THROUGH FOR ADDI-
TIONAL COSTS OF INNOVATIVE MEDICAL DEVICES,
DRUGS, AND BIOLOGICALS.—
‘‘(A) IN
GENERAL.—The Secretary shall
provide for an additional payment under this
paragraph for a covered OPD service (or group
(1) IN
GENERAL.—Section 1833(t)(6)(A) (42
U.S.C. 1395l(t)(6)(A)) is amended by striking ‘‘may
periodically review’’ and inserting ‘‘shall review not
less often than annually’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) applies beginning with 2002.
(i) EFFECTIVE DATE.—Except as provided in this
section, the amendments made by this section shall be ef-
fective as if included in the enactment of BBA.
SEC. 212. ESTABLISHING A TRANSITIONAL CORRIDOR FOR
APPLICATION OF OPD PPS.
(a) IN
GENERAL.—Section 1833(t) (42 U.S.C.
1395l(t)), as amended by section 211(a), is further
amended—
(1) in paragraph (4), in the matter before sub-
paragraph (A), by inserting ‘‘, subject to paragraph
(7),’’ after ‘‘is determined’’; and
(2) by redesignating paragraphs (7) through
(11) as paragraphs (8) through (12), respectively;
and
(3) by inserting after paragraph (6), as inserted
by section 211(b), the following new paragraph:
‘‘(7) TRANSITIONAL ADJUSTMENT TO LIMIT DE-
CLINE IN PAYMENT.—