192
‘‘(D) With respect to hospice care furnished in a fron-
tier 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, 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 regarding the appropriateness of extend-
ing, and modifying, the payment increase provided under
the amendment made by subsection (a).
SEC. 423. RURAL HOSPICE DEMONSTRATION PROJECT.
(a) IN GENERAL.—The Secretary shall conduct a
demonstration project for the delivery of hospice care to
medicare beneficiaries in rural areas. Under the project
medicare beneficiaries who are unable to receive hospice
care in the home for lack of an appropriate caregiver are
provided such care in a facility of 20 or fewer beds which
offers, within its walls, the full range of services provided
by hospice programs under section 1861(dd) of the Social
Security Act (42 U.S.C. 1395x(dd)).
193
(b) SCOPE OF PROJECT.—The Secretary shall con-
duct the project under this section with respect to no more
than 3 hospice programs over a period of not longer than
5 years each.
(c) COMPLIANCE
WITH CONDITIONS.—Under the
demonstration project—
(1) the hospice program shall comply with oth-
erwise applicable requirements, except that it shall
not be required to offer services outside of the home
or 
to 
meet 
the 
requirements 
of 
section
1861(dd)(2)(A)(iii) of the Social Security Act; and
(2) payments for hospice care shall be made at
the rates otherwise applicable to such care under
title XVIII of such Act.
The Secretary may require the program to comply with
such additional quality assurance standards for its provi-
sion of services in its facility as the Secretary deems ap-
propriate.
(d) REPORT.—Upon completion of the project, the
Secretary shall submit a report to Congress on the project
and shall include in the report recommendations regarding
extension of such project to hospice programs serving
rural areas.
194
Subtitle D—Other Provisions
SEC. 431. DEMONSTRATION PROJECT FOR USE OF RECOV-
ERY AUDIT CONTRACTORS.
(a) IN GENERAL.—The Secretary of Health and
Human Services shall conduct a demonstration project
under this section (in this section referred to as the
‘‘project’’) to demonstrate the use of recovery audit con-
tractors under the Medicare Integrity Program in identi-
fying underpayments and overpayments and recouping
overpayments under the medicare program for services for
which payment 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 retained by the Secretary and shall be available
to the program 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, accu-
racy of coding, and other payment policies in which
inaccurate payments 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.
195
(c) WAIVER.—The Secretary of Health and Human
Services shall waive such provisions of title XVIII of the
Social Security Act as may be necessary to provide for
payment for services under the project in accordance with
subsection (a).
(d) QUALIFICATIONS OF CONTRACTORS.—
(1) IN
GENERAL.—The Secretary shall enter
into a recovery 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 entity that
has such knowledgeable and experienced staff.
(2) INELIGIBILITY
OF
CERTAIN
CONTRAC-
TORS.—The Secretary may not enter into a recovery
audit contract under this section with an entity to
the extent that the entity is a fiscal intermediary
under section 1816 of the Social Security Act (42
U.S.C. 1395h), a carrier under section 1842 of such
Act (42 U.S.C. 1395u), or a Medicare Administra-
tive Contractor under section 1874A of such Act.
(3) PREFERENCE
FOR
ENTITIES
WITH
DEM-
ONSTRATED
PROFICIENCY
WITH
PRIVATE
INSUR-
ERS.—In awarding contracts to recovery audit con-
tractors under this section, the Secretary shall give
196
preference to those entities that the Secretary deter-
mines have demonstrated proficiency in recovery au-
dits with private insurers or under the medicaid pro-
gram under title XIX of such Act.
(e) REPORT.—The Secretary of Health and Human
Services 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 savings to the medicare program and rec-
ommendations on the cost-effectiveness of extending or ex-
panding the project.
TITLE V—PROVISIONS
RELATING TO PART B
Subtitle A—Physicians’ Services
SEC. 501. REVISION OF UPDATES FOR PHYSICIANS’ SERV-
ICES.
(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.
‘‘(6) SPECIAL
RULES
FOR
UPDATE
FOR
2004
AND 2005.—The following rules apply in determining
197
the update adjustment factors under paragraph
(4)(B) for 2004 and 2005:
‘‘(A) USE OF 2002 DATA IN DETERMINING
ALLOWABLE COSTS.—
‘‘(i) The reference in clause (ii)(I) of
such paragraph to April 1, 1996, is
deemed to be a reference to January 1,
2002.
‘‘(ii) The allowed expenditures for
2002 is deemed to be equal to the actual
expenditures for physicians’ services fur-
nished during 2002, as estimated by the
Secretary.
‘‘(B) 1 PERCENTAGE POINT INCREASE IN
GDP UNDER SGR.—The annual average percent-
age growth in real gross domestic product per
capita under subsection (f)(2)(C) for each of
2003, 2004, and 2005 is deemed to be in-
creased by 1 percentage point.’’.
(2) 
CONFORMING
AMENDMENT.—Paragraph
(4)(B) of such section is amended, in the matter be-
fore clause (i), by inserting ‘‘and paragraph (6)’’
after ‘‘subparagraph (D)’’.
(3) NOT TREATED AS CHANGE IN LAW AND
REGULATION IN SUSTAINABLE GROWTH RATE DE-
198
TERMINATION.—The amendments made by this sub-
section shall not be treated as a change in law for
purposes of applying section 1848(f)(2)(D) of the
Social Security Act (42 U.S.C. 1395w–4(f)(2)(D)).
(b) USE OF 10-YEAR ROLLING AVERAGE IN COM-
PUTING 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 applica-
ble period 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
sustainable growth rate for years beginning with
2002.
(c) ELIMINATION OF TRANSITIONAL ADJUSTMENT.—
Section 1848(d)(4)(F) (42 U.S.C. 1395w–4(d)(4)(F)) is
amended by striking ‘‘subparagraph (A)’’ and all that fol-
lows and inserting ‘‘subparagraph (A), for each of 2001
and 2002, of ¥0.2 percent.’’.
(d) GAO STUDY OF MEDICARE PAYMENT FOR INHA-
LATION THERAPY.—
199
(1) STUDY.—The Comptroller General of the
United States shall conduct a study to examine the
adequacy of current reimbursements for inhalation
therapy under the medicare program.
(2) REPORT.—Not later than May 1, 2003, the
Comptroller General shall submit to Congress a re-
port on the study conducted under paragraph (1).
SEC. 502. STUDIES ON ACCESS TO PHYSICIANS’ SERVICES.
(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 beneficiaries to physicians’ services under
the medicare program. The study shall include—
(A) an assessment of the use by bene-
ficiaries 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 beneficiaries of physicians’ services over
time;
(C) an examination of the extent to which
physicians are not accepting new medicare
beneficiaries as patients.
200
(2) REPORT.—Not later than 18 months after
the date of the enactment of this Act, the Comp-
troller General shall submit to Congress a report on
the study conducted under paragraph (1). The re-
port shall include a determination whether—
(A) data from claims submitted by physi-
cians under part B of the medicare program in-
dicate potential access problems for medicare
beneficiaries in certain geographic areas; and
(B) access by medicare beneficiaries to
physicians’ services may have improved, re-
mained constant, or deteriorated over time.
(b) STUDY
AND REPORT
ON SUPPLY
OF PHYSI-
CIANS.—
(1) STUDY.—The Secretary shall request the
Institute of Medicine of the National Academy of
Sciences to conduct a study on the adequacy of the
supply of physicians (including specialists) in the
United States and the factors that affect such sup-
ply.
(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), in-
cluding any recommendations for legislation.
201
SEC. 503. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS’
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 refine-
ments to the practice expense component of payments for
physicians’ services, after the transition to a full resource-
based payment system in 2002, under section 1848 of the
Social Security Act (42 U.S.C. 1395w–4). Such report
shall examine the following matters by physician specialty:
(1) The effect of such refinements on payment
for physicians’ services.
(2) The interaction of the practice expense com-
ponent with other components of and adjustments to
payment for physicians’ services under such section.
(3) The appropriateness of the amount of com-
pensation by reason of such refinements.
(4) The effect of such refinements on access to
care by medicare beneficiaries to physicians’ serv-
ices.
(5) The effect of such refinements on physician
participation under the medicare program.
202
SEC. 504. 1-YEAR EXTENSION OF TREATMENT OF CERTAIN
PHYSICIAN PATHOLOGY SERVICES UNDER
MEDICARE.
Section 542(c) of BIPA is amended by striking ‘‘2-
year period’’ and inserting ‘‘3-year period’’.
SEC. 505. PHYSICIAN FEE SCHEDULE WAGE INDEX REVI-
SION.
(a) INDEX REVISION.—
(1) IN GENERAL.—Subject to paragraph (2),
notwithstanding any other provision of law, for pur-
poses of payment under the physician fee schedule
under section 1848 of the Social Security Act (42
U.S.C. 1395w–4) for physicians’ services furnished
during 2004, in no case may the work geographic
index 
otherwise 
calculated 
under 
subsection
(e)(1)(A)(iii) of such section be less than 0.985.
(2) SECRETARIAL DISCRETION.—Paragraph (1)
shall not take effect or be in force if the Secretary
determines, taking into account the report of the
Comptroller General under subsection (b)(2), that
there is no sound economic rationale for the imple-
mentation of such paragraph.
(3) EXEMPTION FROM LIMITATION ON ANNUAL
ADJUSTMENTS.—Any increase in expenditures at-
tributable to paragraph (1) during 2004 shall not be
taken 
into 
account 
in 
applying 
section
203
1848(c)(2)(B)(ii)(II) of the Social Security Act (42
U.S.C. 1395w–4(c)(2)(B)(ii)(II)) for that year.
(b) GAO REPORT.—
(1) EVALUATION.—As part of the study on geo-
graphic differences in payments for physicians’ serv-
ices conducted under section 309, the Comptroller
General shall evaluate the following:
(A) Whether there is a sound economic
basis for the implementation of the adjustment
under subsection (a)(1) in those areas in which
the adjustment applies.
(B) The effect of such adjustment on phy-
sician location and retention in areas affected
by such adjustment, taking into account—
(i) differences in recruitment costs
and retention rates for physicians, includ-
ing specialists, between large urban areas
and other areas; and
(ii) the mobility of physicians, includ-
ing specialists, over the last decade.
(C) The appropriateness of establishing a
floor of 1.0 for the work geographic index.
(2) REPORT.—By not later than September 1,
2003, the Comptroller General shall submit to Con-
204
gress and to the Secretary a report on the evaluation
conducted under paragraph (1).
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
ACQUISITION PROGRAMS.—
‘‘(1) IMPLEMENTATION OF PROGRAMS.—
‘‘(A) IN
GENERAL.—The Secretary shall
establish and implement programs under which
competitive acquisition areas are established
throughout the United States for contract
award purposes for the furnishing under this
part of competitively priced items and services
(described in paragraph (2)) for which payment
is made under this part. Such areas may differ
for different items and services.
‘‘(B) PHASED-IN IMPLEMENTATION.—The
programs shall be phased-in among competitive
acquisition areas over a period of not longer
than 3 years in a manner so that the competi-
tion under the programs occurs in—
205
‘‘(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 carrying out the programs, the Secretary
may waive such provisions of the Federal Ac-
quisition Regulation as are necessary for the ef-
ficient implementation of this section, other
than provisions relating to confidentiality of in-
formation and such other provisions as the Sec-
retary determines appropriate.
‘‘(2) ITEMS AND SERVICES DESCRIBED.—The
items and services referred to in paragraph (1) are
the following:
‘‘(A) DURABLE MEDICAL EQUIPMENT AND
INHALATION
DRUGS
USED
IN
CONNECTION
WITH
DURABLE
MEDICAL
EQUIPMENT.—Cov-
ered items (as defined in section 1834(a)(13))
for which payment is otherwise made under sec-
tion 1834(a), other than items used in infusion,
and inhalation drugs used in conjunction with
durable medical equipment.
‘‘(B) 
OFF-THE-SHELF
ORTHOTICS.—
Orthotics (described in section 1861(s)(9)) for
206
which payment is otherwise made under section
1834(h) which require minimal self-adjustment
for appropriate use and does not require exper-
tise in trimming, bending, molding, assembling,
or customizing to fit to the patient.
‘‘(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 ap-
plication of competitive acquisition is not likely
to result in significant savings.
‘‘(b) PROGRAM REQUIREMENTS.—
‘‘(1) IN GENERAL.—The Secretary shall con-
duct a competition among entities supplying items
and services described 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 conducted in an competitive acqui-
sition area pursuant to paragraph (1) to fur-
207
nish such items or services unless the Secretary
finds all of the following:
‘‘(i) The entity meets quality and fi-
nancial standards specified by the Sec-
retary or developed by accreditation enti-
ties or organizations recognized by the Sec-
retary.
‘‘(ii) The total amounts to be paid
under the contract (including costs associ-
ated with the administration of the con-
tract) 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 main-
tained.
‘‘(iv) Beneficiary liability is limited to
the applicable percentage of contract
award price.
‘‘(B) QUALITY STANDARDS.—The quality
standards 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 consult with an
expert outside advisory panel composed of an
208
appropriate selection of representatives of phy-
sicians, 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 con-
ducted pursuant to paragraph (1) is subject to
terms and conditions that the Secretary may
specify.
‘‘(B) TERM
OF
CONTRACTS.—The Sec-
retary 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 account the ability of
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 con-
tract on a timely basis.
209
‘‘(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 sec-
tion 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 section.
‘‘(6) AUTHORITY
TO
CONTRACT
FOR
EDU-
CATION, OUTREACH
AND
COMPLAINT
SERVICES.—
The Secretary may enter into a contract with an ap-
propriate entity to address complaints from bene-
ficiaries who receive items and services from an enti-
ty with a contract under this section and to conduct
appropriate education of and outreach to such bene-
ficiaries with respect to the program.
‘‘(c) ANNUAL REPORTS.—The Secretary shall submit
to Congress an annual management report on the pro-
210
grams under this section. Each such report shall include
information on savings, reductions in cost-sharing, access
to items and services, and beneficiary satisfaction.
‘‘(d) DEMONSTRATION PROJECT FOR CLINICAL LAB-
ORATORY SERVICES.—
‘‘(1) IN GENERAL.—The Secretary shall con-
duct a demonstration project on the application of
competitive acquisition 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 de-
termines appropriate.’’.
211
(b) CONTINUATION OF CERTAIN DEMONSTRATION
PROJECTS.—Notwithstanding the amendment made by
subsection (a), with respect to demonstration projects im-
plemented by the Secretary under section 1847 of the So-
cial Security Act (42 U.S.C. 1395w–3) (relating to the es-
tablishment of competitive 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 applicable under that sec-
tion as in effect on that date.
(c) REPORT
ON DIFFERENCES
IN PAYMENT
FOR
LABORATORY 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.—Sec-
tion 1834(l) (42 U.S.C. 1395m(l)) is amended—
(1) in paragraph (2)(E), by inserting ‘‘con-
sistent with paragraph (10)’’ after ‘‘in an efficient
and fair manner’’;
212
(2) by redesignating the paragraph (8) added
by section 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 carrying 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 re-
gional 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.
213
‘‘(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
establish a regional fee schedule for each of the 9
Census divisions using the methodology (used in es-
tablishing the fee schedule under paragraph (1)) to
calculate a regional conversion 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 paragraph.’’.
(b) ADJUSTMENT IN PAYMENT FOR CERTAIN LONG
TRIPS.—Section 1834(l), as amended by subsection (a),
is further amended by adding at the end the following new
paragraph:
‘‘(11) ADJUSTMENT IN PAYMENT FOR CERTAIN
LONG
TRIPS.—In the case of ground ambulance
services furnished on or after January 1, 2003, and
before January 1, 2008, regardless of where the
transportation originates, the fee schedule estab-
lished 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 estab-
214
lished 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. 2-YEAR EXTENSION OF MORATORIUM ON THER-
APY CAPS; PROVISIONS RELATING TO RE-
PORTS.
(a) 2-YEAR EXTENSION OF MORATORIUM ON THER-
APY CAPS.—Section 1833(g)(4) (42 U.S.C. 1395l(g)(4))
is amended by striking ‘‘and 2002’’ and inserting ‘‘2002,
2003, and 2004’’.
(b) PROMPT SUBMISSION OF OVERDUE REPORTS ON
PAYMENT AND UTILIZATION OF OUTPATIENT THERAPY
SERVICES.—Not later than December 31, 2002, the Sec-
retary shall submit to Congress the reports required under
section 4541(d)(2) of the Balanced Budget Act of 1997
(relating to alternatives to a single annual dollar cap on
outpatient therapy) and under section 221(d) of the Medi-
care, Medicaid, and SCHIP Balanced Budget Refinement
Act of 1999 (relating to utilization patterns for outpatient
therapy).
(c) IDENTIFICATION OF CONDITIONS AND DISEASES
JUSTIFYING WAIVER OF THERAPY CAP.—
215
(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 assessment of the need
to waive the therapy caps under section 1833(g)(4)
of the Social Security Act (42 U.S.C. 1395l(g)(4)).
(2) REPORTS TO CONGRESS.—Not later than
September 1, 2003, the Secretary shall submit to
Congress a preliminary report on the conditions and
diseases identified under paragraph (1) and not later
than December 31, 2003, a final report on the con-
ditions 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 physician referral and in States
that require such a physician referral. The study
shall—
(A) examine the use of and referral pat-
terns for physical therapist services for patients
age 50 and older in States that authorize such
services without a physician referral and in
States that require such a physician referral;
216
(B) examine the use of and referral pat-
terns for physical therapist services for patients
who are medicare beneficiaries;
(C) examine the potential effect of prohib-
iting a physician from referring patients to
physical therapy services owned by the physi-
cian and provided in the physician’s office;
(D) examine the delivery of physical thera-
pists’ services within the facilities of Depart-
ment of Defense; and
(E) analyze the potential impact on medi-
care beneficiaries and on expenditures under
the medicare program of eliminating the need
for a physician referral and physician certifi-
cation for physical therapist services under the
medicare program.
(2) REPORT.—The Comptroller General shall
submit to Congress a report on the study conducted
under paragraph (1) by not later than 1 year after
the date of the enactment of this Act.
SEC. 514. COVERAGE OF AN INITIAL PREVENTIVE PHYS-
ICAL EXAMINATION.
(a) COVERAGE.—Section 1861(s)(2) (42 U.S.C.
1395x(s)(2)) is amended—
217
(1) in subparagraph (U), by striking ‘‘and’’ at
the end;
(2) in subparagraph (V), by inserting ‘‘and’’ at
the end; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(W) an initial preventive physical examination
(as defined in subsection (ww));’’.
(b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C.
1395x) is amended by adding at the end the following new
subsection:
‘‘Initial Preventive Physical Examination
‘‘(ww) The term ‘initial preventive physical examina-
tion’ means physicians’ services consisting of a physical
examination with the goal of health promotion and disease
detection and includes items and services (excluding clin-
ical laboratory tests), as determined by the Secretary, con-
sistent with the recommendations of the United States
Preventive Services Task Force.’’.
(c) WAIVER OF DEDUCTIBLE AND COINSURANCE.—
(1) DEDUCTIBLE.—The first sentence of sec-
tion 1833(b) (42 U.S.C. 1395l(b)) is amended—
(A) by striking ‘‘and’’ before ‘‘(6)’’, and
(B) by inserting before the period at the
end the following: ‘‘, and (7) such deductible
218
shall not apply with respect to an initial preven-
tive physical examination (as defined in section
1861(ww))’’.
(2) COINSURANCE.—Section 1833(a)(1) (42
U.S.C. 1395l(a)(1)) is amended—
(A) in clause (N), by inserting ‘‘(or 100
percent in the case of an initial preventive phys-
ical 
examination, 
as 
defined 
in 
section
1861(ww))’’ after ‘‘80 percent’’; and
(B) in clause (O), by inserting ‘‘(or 100
percent in the case of an initial preventive phys-
ical 
examination, 
as 
defined 
in 
section
1861(ww))’’ after ‘‘80 percent’’.
(d) PAYMENT AS PHYSICIANS’ SERVICES.—Section
1848(j)(3) (42 U.S.C. 1395w–4(j)(3)) is amended by in-
serting ‘‘(2)(W),’’ after ‘‘(2)(S),’’.
(e) OTHER CONFORMING AMENDMENTS.—Section
1862(a) (42 U.S.C. 1395y(a)) is amended—
(1) in paragraph (1)—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (H);
(B) by striking the semicolon at the end of
subparagraph (I) and inserting ‘‘, and’’; and
(C) by adding at the end the following new
subparagraph:
219
‘‘(J) in the case of an initial preventive physical
examination, which is performed not later than 6
months after the date the individual’s first coverage
period begins under part B;’’; and
(2) in paragraph (7), by striking ‘‘or (H)’’ and
inserting ‘‘(H), or (J)’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to services furnished on or after
January 1, 2004, but only for individuals whose coverage
period begins on or after such date.
SEC. 515. RENAL DIALYSIS SERVICES.
(a) REPORT ON DIFFERENCES IN COSTS IN DIF-
FERENT SETTINGS.—Not later than 1 year after the date
of the enactment of this Act, the Comptroller General of
the United States shall submit to Congress a report
containing—
(1) an analysis of the differences in costs of
providing renal dialysis services under the medicare
program in home settings and in facility settings;
(2) an assessment of the percentage of overhead
costs in home settings and in facility settings; and
(3) an evaluation of whether the charges for
home dialysis supplies and equipment are reasonable
and necessary.
220
(b) RESTORING COMPOSITE RATE EXCEPTIONS FOR
PEDIATRIC FACILITIES.—
(1) IN GENERAL.—Section 422(a)(2) of BIPA
is amended—
(A) in subparagraph (A), by striking ‘‘and
(C)’’ and inserting ‘‘, (C), and (D)’’;
(B) in subparagraph (B), by striking ‘‘In
the case’’ and inserting ‘‘Subject to subpara-
graph (D), in the case’’; and
(C) by adding at the end the following new
subparagraph:
‘‘(D) INAPPLICABILITY TO PEDIATRIC FA-
CILITIES.—Subparagraphs (A) and (B) shall
not apply, as of October 1, 2002, to pediatric
facilities that do not have an exception rate de-
scribed in subparagraph (C) in effect on such
date. For purposes of this subparagraph, the
term ‘pediatric facility’ means a renal facility at
least 50 percent of whose patients are individ-
uals under 18 years of age.’’.
(2) CONFORMING
AMENDMENT.—The fourth
sentence 
of 
section 
1881(b)(7) 
(42 
U.S.C.
1395rr(b)(7)) is amended by striking ‘‘The Sec-
retary’’ and inserting ‘‘Subject to section 422(a)(2)
of the Medicare, Medicaid, and SCHIP Benefits Im-
221
provement and Protection Act of 2000, the Sec-
retary’’.
(c) INCREASE IN RENAL DIALYSIS COMPOSITE RATE
FOR SERVICES FURNISHED IN 2004.—Notwithstanding
any other provision of law, with respect to payment under
part B of title XVIII of the Social Security Act for renal
dialysis services furnished in 2004, the composite payment
rate otherwise established under section 1881(b)(7) of
such Act (42 U.S.C. 1395rr(b)(7)) shall be increased by
1.2 percent.
SEC. 516. IMPROVED PAYMENT FOR CERTAIN MAMMOG-
RAPHY SERVICES.
(a) EXCLUSION FROM OPD FEE SCHEDULE.—Sec-
tion 1833(t)(1)(B)(iv) (42 U.S.C. 1395l(t)(1)(B)(iv)) is
amended by inserting before the period at the end the fol-
lowing: ‘‘and does not include screening mammography (as
defined in section 1861(jj)) and unilateral and bilateral
diagnostic mammography’’.
(b) ADJUSTMENT TO TECHNICAL COMPONENT.—For
diagnostic mammography performed on or after January
1, 2004, for which payment is made under the physician
fee schedule under section 1848 of the Social Security Act
(42 U.S.C. 1395w–4), the Secretary, based on the most
recent cost data available, shall provide for an appropriate
222
adjustment in the payment amount for the technical com-
ponent of the diagnostic mammography.
(c) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to mammography performed on
or after January 1, 2004.
SEC. 517. WAIVER OF PART B LATE ENROLLMENT PENALTY
FOR CERTAIN MILITARY RETIREES; SPECIAL
ENROLLMENT PERIOD.
(a) WAIVER OF PENALTY.—
(1) IN GENERAL.—Section 1839(b) (42 U.S.C.
1395r(b)) is amended by adding at the end the fol-
lowing new sentence: ‘‘No increase in the premium
shall be effected for a month in the case of an indi-
vidual who is 65 years of age or older, who enrolls
under this part during 2001, 2002, or 2003, and
who demonstrates to the Secretary before December
31, 2003, that the individual is a covered beneficiary
(as defined in section 1072(5) of title 10, United
States Code). The Secretary of Health and Human
Services shall consult with the Secretary of Defense
in identifying individuals described in the previous
sentence.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to premiums for
months beginning with January 2003. The Secretary
223
of Health and Human Services shall establish a
method for providing rebates of premium penalties
paid for months on or after January 2003 for which
a penalty does not apply under such amendment but
for which a penalty was previously collected.
(b) MEDICARE PART B SPECIAL ENROLLMENT PE-
RIOD.—
(1) IN GENERAL.—In the case of any individual
who, as of the date of the enactment of this Act, is
65 years of age or older, is eligible to enroll but is
not enrolled under part B of title XVIII of the So-
cial Security Act, and is a covered beneficiary (as
defined in section 1072(5) of title 10, United States
Code), the Secretary of Health and Human Services
shall provide for a special enrollment period during
which the individual may enroll under such part.
Such period shall begin as soon as possible after the
date of the enactment of this Act and shall end on
December 31, 2003.
(2) COVERAGE PERIOD.—In the case of an indi-
vidual who enrolls during the special enrollment pe-
riod provided under paragraph (1), the coverage pe-
riod under part B of title XVIII of the Social Secu-
rity Act shall begin on the first day of the month
following the month in which the individual enrolls.
224
SEC. 518. COVERAGE OF CHOLESTEROL AND BLOOD LIPID
SCREENING.
(a) COVERAGE.—Section 1861(s)(2) (42 U.S.C.
1395x(s)(2)), as amended by section 514(a), is amended—
(1) in subparagraph (V), by striking ‘‘and’’ at
the end;
(2) in subparagraph (W), by inserting ‘‘and’’ at
the end; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(X) cholesterol and other blood lipid
screening tests (as defined in subsection
(XX));’’.
(b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C.
1395x), as amended by section 514(b), is amended by add-
ing at the end the following new subsection:
‘‘Cholesterol and Other Blood Lipid Screening Test
‘‘(xx)(1) The term ‘cholesterol and other blood lipid
screening test’ means diagnostic testing of cholesterol and
other lipid levels of the blood for the purpose of early de-
tection of abnormal cholesterol and other lipid levels.
‘‘(2) The Secretary shall establish standards, in con-
sultation with appropriate organizations, regarding the
frequency and type of cholesterol and other blood lipid
screening tests, except that such frequency may not be
more often than once every 2 years.’’.
225
(c) FREQUENCY.—Section 1862(a)(1) (42 U.S.C.
1395y(a)(1)), 
as 
amended 
by 
section 
514(e), 
is
amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (I);
(2) by striking the semicolon at the end of sub-
paragraph (J) and inserting ‘‘; and’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(K) in the case of a cholesterol and other
blood lipid screening test (as defined in section
1861(xx)(1)), which is performed more frequently
than is covered under section 1861(xx)(2).’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to tests furnished on or after Janu-
ary 1, 2004.
TITLE VI—PROVISIONS
RELATING TO PARTS A AND B
Subtitle A—Home Health Services
SEC. 601. ELIMINATION OF 15 PERCENT REDUCTION IN
PAYMENT RATES UNDER THE PROSPECTIVE
PAYMENT SYSTEM.
(a) IN GENERAL.—Section 1895(b)(3)(A) (42 U.S.C.
1395fff(b)(3)(A)) is amended to read as follows:
226
‘‘(A) INITIAL BASIS.—Under such system
the Secretary shall provide for computation of
a standard prospective payment amount (or
amounts) as follows:
‘‘(i) Such amount (or amounts) shall
initially be based on the most current au-
dited cost report data available to the Sec-
retary and shall be computed in a manner
so that the total amounts payable under
the system for fiscal year 2001 shall be
equal to the total amount that would have
been made if the system had not been in
effect and if section 1861(v)(1)(L)(ix) had
not been enacted.
‘‘(ii) For fiscal year 2002 and for the
first quarter of fiscal year 2003, such
amount (or amounts) shall be equal to the
amount (or amounts) determined under
this paragraph for the previous fiscal year,
updated under subparagraph (B).
‘‘(iii) For 2003, such amount (or
amounts) shall be equal to the amount (or
amounts) determined under this paragraph
for fiscal year 2002, updated under sub-
paragraph (B) for 2003.
227
‘‘(iv) For 2004 and each subsequent
year, such amount (or amounts) shall be
equal to the amount (or amounts) deter-
mined under this paragraph for the pre-
vious year, updated under subparagraph
(B).
Each such amount shall be standardized in a
manner that eliminates the effect of variations
in relative case mix and area wage adjustments
among different home health agencies in a
budget neutral manner consistent with the case
mix and wage level adjustments provided under
paragraph (4)(A). Under the system, the Sec-
retary may recognize regional differences or dif-
ferences based upon whether or not the services
or agency are in an urbanized area.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect as if included in the
amendments made by section 501 of the Medicare, Med-
icaid, and SCHIP Benefits Improvement and Protection
Act of 2000 (as enacted into law by section 1(a)(6) of
Public Law 106–554).
SEC. 602. UPDATE IN HOME HEALTH SERVICES.
(a) CHANGE TO CALENDAR YEAR UPDATE.—
228
(1) IN GENERAL.—Section 1895(b) (42 U.S.C.
1395fff(b)(3)) is amended—
(A) in paragraph (3)(B)(i)—
(i) by striking ‘‘each fiscal year (be-
ginning with fiscal year 2002)’’ and insert-
ing ‘‘fiscal year 2002 and for each subse-
quent year (beginning with 2003)’’; and
(ii) by inserting ‘‘or year’’ after ‘‘the
fiscal year’’;
(B) in paragraph (3)(B)(ii)—
(i) in subclause (II), by striking ‘‘fis-
cal year’’ and inserting ‘‘year’’ and by re-
designating such subclause as subclause
(III); and
(ii) in subclause (I), by striking ‘‘each
of fiscal years 2002 and 2003’’ and insert-
ing the following: ‘‘fiscal year 2002, the
home health market basket percentage in-
crease (as defined in clause (iii)) minus 1.1
percentage points;
‘‘(II) 2003’’;
(C) in paragraph (3)(B)(iii), by inserting
‘‘or year’’ after ‘‘fiscal year’’ each place it ap-
pears;
(D) in paragraph (3)(B)(iv)—
229
(i) by inserting ‘‘or year’’ after ‘‘fiscal
year’’ each place it appears; and
(ii) by inserting ‘‘or years’’ after ‘‘fis-
cal years’’; and
(E) in paragraph (5), by inserting ‘‘or
year’’ after ‘‘fiscal year’’.
(2) TRANSITION RULE.—The standard prospec-
tive payment amount (or amounts) under section
1895(b)(3) of the Social Security Act for the cal-
endar quarter beginning on October 1, 2002, shall
be such amount (or amounts) for the previous cal-
endar quarter.
(b) CHANGES IN UPDATES FOR 2003, 2004, AND
2005.—Section 
1895(b)(3)(B)(ii) 
(42 
U.S.C.
1395fff(b)(3)(B)(ii)), as amended by subsection (a)(1)(B),
is amended—
(1) in subclause (II), by striking ‘‘the home
health market basket percentage increase (as defined
in clause (iii)) minus 1.1 percentage points’’ and in-
serting ‘‘2.0 percentage points’’;
(2) by striking ‘‘or’’ at the end of subclause
(II);
(3) by redesignating subclause (III) as sub-
clause (V); and
230
(4) by inserting after subclause (II) the fol-
lowing new subclause:
‘‘(III) 
2004, 
1.1 
percentage
points;
‘‘(IV) 
2005, 
2.7 
percentage
points; or’’.
(c) PAYMENT ADJUSTMENT.—
(1) IN
GENERAL.—Section 1895(b)(5) (42
U.S.C. 1395fff(b)(5)) is amended by striking ‘‘5 per-
cent’’ and inserting ‘‘3 percent’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to years beginning with
2003.
SEC. 603. OASIS TASK FORCE; SUSPENSION OF CERTAIN
OASIS DATA COLLECTION REQUIREMENTS
PENDING TASK FORCE SUBMITTAL OF RE-
PORT.
(a) ESTABLISHMENT.—The Secretary of Health and
Human Services shall establish and appoint a task force
(to be known as the ‘‘OASIS Task Force’’) to examine
the data collection and reporting requirements under
OASIS. For purposes of this section, the term ‘‘OASIS’’
means the Outcome and Assessment Information Set re-
quired by reason of section 4602(e) of Balanced Budget
Act of 1997 (42 U.S.C. 1395fff note).
231
(b) COMPOSITION.—The OASIS Task Force shall be
composed of the following:
(1) Staff of the Centers for Medicare & Med-
icaid Services with expertise in post-acute care.
(2) Representatives of home health agencies.
(3) Health care professionals and research and
health care quality experts outside the Federal Gov-
ernment with expertise in post-acute care.
(4) Advocates for individuals requiring home
health services.
(c) DUTIES.—
(1) REVIEW
AND
RECOMMENDATIONS.—The
OASIS Task Force shall review and make rec-
ommendations to the Secretary regarding changes in
OASIS to improve and simplify data collection for
purposes of—
(A) assessing the quality of home health
services; and
(B) providing consistency in classification
of patients into home health resource groups
(HHRGs) for payment under section 1895 of
the Social Security Act (42 U.S.C. 1395fff).
(2) SPECIFIC ITEMS.—In conducting the review
under paragraph (1), the OASIS Task Force shall
specifically examine—
232
(A) the 41 outcome measures currently in
use;
(B) the timing and frequency of data col-
lection; and
(C) the collection of information on
comorbidities and clinical indicators.
(3) REPORT.—The OASIS Task Force shall
submit a report to the Secretary containing its find-
ings and recommendations for changes in OASIS by
not later than 18 months after the date of the enact-
ment of this Act.
(d) SUNSET.—The OASIS Task Force shall termi-
nate 60 days after the date on which the report is sub-
mitted under subsection (c)(2).
(e) NONAPPLICATION OF FACA.—The provisions of
the Federal Advisory Committee Act shall not apply to
the OASIS Task Force.
(f) SUSPENSION OF OASIS REQUIREMENT FOR COL-
LECTION OF DATA ON NON-MEDICARE AND NON-MED-
ICAID PATIENTS PENDING TASK FORCE REPORT.—
(1) IN GENERAL.—During the period described
in paragraph (2), the Secretary of Health and
Human Services may not require, under section
4602(e) of the Balanced Budget Act of 1997 or oth-
erwise under OASIS, a home health agency to gath-
233
er or submit information that relates to an indi-
vidual who is not eligible for benefits under either
title XVIII or title XIX of the Social Security Act.
(2) PERIOD OF SUSPENSION.—The period de-
scribed in this paragraph—
(A) begins on January 1, 2003, and
(B) ends on the last day of the 2nd month
beginning after the date the report is submitted
under subsection (c)(2).
SEC. 604. MEDPAC STUDY ON MEDICARE MARGINS OF
HOME HEALTH AGENCIES.
(a) STUDY.—The Medicare Payment Advisory Com-
mission shall conduct a study of payment margins of home
health agencies under the home health prospective pay-
ment system under section 1895 of the Social Security Act
(42 U.S.C. 1395fff). Such study shall examine whether
systematic differences in payment margins are related to
differences in case mix (as measured by home health re-
source groups (HHRGs)) among such agencies. The study
shall use the partial or full-year cost reports filed by home
health agencies.
(b) REPORT.—Not later than 2 years after the date
of the enactment of this Act, the Commission shall submit
to Congress a report on the study under subsection (a).
234
SEC. 605. CLARIFICATION OF TREATMENT OF OCCASIONAL
ABSENCES IN DETERMINING WHETHER AN
INDIVIDUAL IS CONFINED TO THE HOME.
(a) IN GENERAL.—The penultimate sentence of sec-
tion 1814(a) (42 U.S.C. 1395f(a) and the penultimate
sentence of section 1835(a) (42 U.S.C. 1395n(a)) are each
amended to read as follows: ‘‘Any other absence of an indi-
vidual from the home shall not so disqualify the individual
if the absence is infrequent or of relatively short duration,
such as an occasional trip to the barber or a walk around
the block, and is not inconsistent with the assessment un-
derlying the individual’s plan of care for home health serv-
ices.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall take effect on the date of the enact-
ment of this Act.
Subtitle B—Direct Graduate
Medical Education
SEC. 611. EXTENSION OF UPDATE LIMITATION ON HIGH
COST PROGRAMS.
Section 
1886(h)(2)(D)(iv) 
(42 
U.S.C.
1395ww(h)(2)(D)(iv)) is amended—
(1) in subclause (I)—
(A) by striking ‘‘AND 2002’’ and inserting
‘‘THROUGH 2012’’;
235
(B) by striking ‘‘during fiscal year 2001 or
fiscal year 2002’’ and inserting ‘‘during the pe-
riod beginning with fiscal year 2001 and ending
with fiscal year 2012’’; and
(C) by striking ‘‘subject to subclause
(III),’’;
(2) by striking subclause (II); and
(3) in subclause (III)—
(A) by redesignating such subclause as
subclause (II); and
(B) by striking ‘‘or (II)’’.
SEC. 612. REDISTRIBUTION OF UNUSED RESIDENT POSI-
TIONS.
(a) IN GENERAL.—Section 1886(h)(4) (42 U.S.C.
1395ww(h)(4)) is amended—
(1) in subparagraph (F)(i), by inserting ‘‘sub-
ject to subparagraph (I),’’ after ‘‘October 1, 1997,’’;
(2) in subparagraph (H)(i), by inserting ‘‘sub-
ject to subparagraph (I),’’ after ‘‘subparagraphs (F)
and (G),’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(I) REDISTRIBUTION
OF
UNUSED
RESI-
DENT POSITIONS.—
236
‘‘(i) REDUCTION IN LIMIT BASED ON
UNUSED POSITIONS.—
‘‘(I) IN
GENERAL.—If a hos-
pital’s resident level (as defined in
clause (iii)(I)) is less than the other-
wise applicable resident limit (as de-
fined in clause (iii)(II)) for each of
the reference periods (as defined in
subclause (II)), effective for cost re-
porting periods beginning on or after
January 1, 2003, the otherwise appli-
cable resident limit shall be reduced
by 75 percent of the difference be-
tween such limit and the reference
resident level specified in subclause
(III) (or subclause (IV) if applicable).
‘‘(II) REFERENCE PERIODS DE-
FINED.—In this clause, the term ‘ref-
erence periods’ means, for a hospital,
the 3 most recent consecutive cost re-
porting periods of the hospital for
which cost reports have been settled
(or, if not, submitted) on or before
September 30, 2001.
237
‘‘(III) 
REFERENCE
RESIDENT
LEVEL.—Subject to subclause (IV),
the reference resident level specified in
this subclause for a hospital is the
highest resident level for the hospital
during any of the reference periods.
‘‘(IV) ADJUSTMENT PROCESS.—
Upon the timely request of a hospital,
the Secretary may adjust the ref-
erence resident level for a hospital to
be the resident level for the hospital
for the cost reporting period that in-
cludes July 1, 2002.
‘‘(ii) REDISTRIBUTION.—
‘‘(I) IN
GENERAL.—The Sec-
retary is authorized to increase the
otherwise applicable resident limits for
hospitals by an aggregate number es-
timated by the Secretary that does
not exceed the aggregate reduction in
such limits attributable to clause (i)
(without taking into account any ad-
justment under subclause (IV) of such
clause).
238
‘‘(II) EFFECTIVE DATE.—No in-
crease under subclause (I) shall be
permitted or taken into account for a
hospital for any portion of a cost re-
porting period that occurs before July
1, 2003, or before the date of the hos-
pital’s application for an increase
under this clause. No such increase
shall be permitted for a hospital un-
less the hospital has applied to the
Secretary for such increase by Decem-
ber 31, 2004.
‘‘(III) CONSIDERATIONS
IN
RE-
DISTRIBUTION.—In determining for
which hospitals the increase in the
otherwise applicable resident limit is
provided under subclause (I), the Sec-
retary shall take into account the
need for such an increase by specialty
and location involved, consistent with
subclause (IV).
‘‘(IV) PRIORITY FOR RURAL AND
SMALL
URBAN
AREAS.—In 
deter-
mining for which hospitals and resi-
dency training programs an increase
239
in the otherwise applicable resident
limit is provided under subclause (I),
the Secretary shall first distribute the
increase to programs of hospitals lo-
cated in rural areas or in urban areas
that are not large urban areas (as de-
fined for purposes of subsection (d))
on a first-come-first-served basis (as
determined by the Secretary) based on
a demonstration that the hospital will
fill the positions made available under
this clause and not to exceed an in-
crease of 25 full-time equivalent posi-
tions with respect to any hospital.
‘‘(V) APPLICATION OF LOCALITY
ADJUSTED
NATIONAL
AVERAGE
PER
RESIDENT AMOUNT.—With respect to
additional residency positions in a
hospital attributable to the increase
provided under this clause, notwith-
standing any other provision of this
subsection, the approved FTE resi-
dent amount is deemed to be equal to
the locality adjusted national average
240
per resident amount computed under
subparagraph (E) for that hospital.
‘‘(VI) CONSTRUCTION.—Nothing
in this clause shall be construed as
permitting the redistribution of reduc-
tions in residency positions attrib-
utable to voluntary reduction pro-
grams under paragraph (6) or as af-
fecting the ability of a hospital to es-
tablish new medical residency training
programs under subparagraph (H).
‘‘(iii) RESIDENT
LEVEL
AND
LIMIT
DEFINED.—In this subparagraph:
‘‘(I) 
RESIDENT
LEVEL.—The
term ‘resident level’ means, with re-
spect to a hospital, the total number
of full-time equivalent residents, be-
fore the application of weighting fac-
tors (as determined under this para-
graph), in the fields of allopathic and
osteopathic medicine for the hospital.
‘‘(II) OTHERWISE
APPLICABLE
RESIDENT
LIMIT.—The term ‘other-
wise applicable resident limit’ means,
with respect to a hospital, the limit
241
otherwise applicable under subpara-
graphs (F)(i) and (H) on the resident
level for the hospital determined with-
out regard to this subparagraph.’’.
(b) NO APPLICATION OF INCREASE TO IME.—Sec-
tion 1886(d)(5)(B)(v) (42 U.S.C. 1395ww(d)(5)(B)(v)) is
amended by adding at the end the following: ‘‘The provi-
sions of clause (i) of subparagraph (I) of subsection (h)(4)
shall apply with respect to the first sentence of this clause
in the same manner as it applies with respect to subpara-
graph (F) of such subsection, but the provisions of clause
(ii) of such subparagraph shall not apply.’’.
(c) REPORT
ON
EXTENSION
OF
APPLICATIONS
UNDER REDISTRIBUTION PROGRAM.—Not later than July
1, 2004, the Secretary shall submit to Congress a report
containing recommendations regarding whether to extend
the deadline for applications for an increase in resident
limits under section 1886(h)(4)(I)(ii)(II) of the Social Se-
curity Act (as added by subsection (a)).
Subtitle C—Other Provisions
SEC. 621. MODIFICATIONS TO MEDICARE PAYMENT ADVI-
SORY COMMISSION (MEDPAC).
(a) EXAMINATION OF BUDGET CONSEQUENCES.—
Section 1805(b) (42 U.S.C. 1395b–6(b)) is amended by
adding at the end the following new paragraph:
242
‘‘(8) 
EXAMINATION
OF
BUDGET
CON-
SEQUENCES.—Before making any recommendations,
the Commission shall examine the budget con-
sequences of such recommendations, directly or
through consultation with appropriate expert enti-
ties.’’.
(b) CONSIDERATION OF EFFICIENT PROVISION OF
SERVICES.—Section 1805(b)(2)(B)(i) (42 U.S.C. 1395b–
6(b)(2)(B)(i)) is amended by inserting ‘‘the efficient provi-
sion of’’ after ‘‘expenditures for’’.
(c) ADDITIONAL REPORTS.—
(1) DATA NEEDS AND SOURCES.—The Medicare
Payment Advisory Commission shall conduct a
study, and submit a report to Congress by not later
than June 1, 2003, on the need for current data,
and sources of current data available, to determine
the solvency and financial circumstances of hospitals
and other medicare providers of services. The Com-
mission shall examine data on uncompensated care,
as well as the share of uncompensated care ac-
counted for by the expenses for treating illegal
aliens.
(2) USE
OF
TAX-RELATED
RETURNS.—Using
return information provided under Form 990 of the
Internal Revenue Service, the Commission shall sub-
243
mit to Congress, by not later than June 1, 2003, a
report on the following:
(A) Investments and capital financing of
hospitals participating under the medicare pro-
gram and related foundations.
(B) Access to capital financing for private
and for not-for-profit hospitals.
SEC. 622. DEMONSTRATION PROJECT FOR DISEASE MAN-
AGEMENT FOR CERTAIN MEDICARE BENE-
FICIARIES WITH DIABETES.
(a) IN GENERAL.—The Secretary of Health and
Human Services shall conduct a demonstration project
under this section (in this section referred to as the
‘‘project’’) to demonstrate the impact on costs and health
outcomes of applying disease management to certain medi-
care beneficiaries with diagnosed diabetes. In no case may
the number of participants in the project exceed 30,000
at any time.
(b) VOLUNTARY PARTICIPATION.—
(1) ELIGIBILITY.—Medicare beneficiaries are
eligible to participate in the project only if—
(A) they are a member of a health dis-
parity 
population 
(as 
defined 
in 
section
485E(d) of the Public Health Service Act),
such as Hispanics;
244
(B) they meet specific medical criteria
demonstrating the appropriate diagnosis and
the advanced nature of their disease;
(C) their physicians approve of participa-
tion in the project; and
(D) 
they 
are 
not 
enrolled 
in 
a
Medicare+Choice plan.
(2) BENEFITS.—A medicare beneficiary who is
enrolled in the project shall be eligible—
(A) for disease management services re-
lated to their diabetes; and
(B) for payment for all costs for prescrip-
tion drugs without regard to whether or not
they relate to the diabetes, except that the
project may provide for modest cost-sharing
with respect to prescription drug coverage.
(c) CONTRACTS WITH DISEASE MANAGEMENT ORGA-
NIZATIONS.—
(1) IN GENERAL.—The Secretary of Health and
Human Services shall carry out the project through
contracts with up to three disease management orga-
nizations. The Secretary shall not enter into such a
contract with an organization unless the organiza-
tion demonstrates that it can produce improved
245
health outcomes and reduce aggregate medicare ex-
penditures consistent with paragraph (2).
(2) 
CONTRACT
PROVISIONS.—Under 
such
contracts—
(A) such an organization shall be required
to provide for prescription drug coverage de-
scribed in subsection (b)(2)(B);
(B) such an organization shall be paid a
fee negotiated and established by the Secretary
in a manner so that (taking into account sav-
ings in expenditures under parts A and B of
the medicare program under title XVIII of the
Social Security Act) there will be no net in-
crease, and to the extent practicable, there will
be a net reduction in expenditures under the
medicare program as a result of the project;
and
(C) such an organization shall guarantee,
through an appropriate arrangement with a re-
insurance company or otherwise, the prohibition
on net increases in expenditures described in
subparagraph (B).
(3) PAYMENTS.—Payments to such organiza-
tions shall be made in appropriate proportion from
246
the Trust Funds established under title XVIII of the
Social Security Act.
(d) APPLICATION
OF MEDIGAP PROTECTIONS
TO
DEMONSTRATION PROJECT ENROLLEES.—(1) Subject to
paragraph (2), the provisions of section 1882(s)(3) (other
than clauses (i) through (iv) of subparagraph (B)) and
1882(s)(4) of the Social Security Act shall apply to enroll-
ment (and termination of enrollment) in the demonstra-
tion project under this section, in the same manner as they
apply to enrollment (and termination of enrollment) with
a Medicare+Choice organization in a Medicare+Choice
plan.
(2) In applying paragraph (1)—
(A) any reference in clause (v) or (vi) of section
1882(s)(3)(B) of such Act to 12 months is deemed
a reference to the period of the demonstration
project; and
(B) the notification required under section
1882(s)(3)(D) of such Act shall be provided in a
manner specified by the Secretary of Health and
Human Services.
(e) DURATION.—The project shall last for not longer
than 3 years.
(f) WAIVER.—The Secretary of Health and Human
Services shall waive such provisions of title XVIII of the
247
Social Security Act as may be necessary to provide for
payment for services under the project in accordance with
subsection (c)(3).
(g) REPORT.—The Secretary of Health and Human
Services shall submit to Congress an interim report on the
project not later than 2 years after the date it is first im-
plemented and a final 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
costs and health outcomes and recommendations on the
cost-effectiveness of extending or expanding the project.
(h) WORKING GROUP ON MEDICARE DISEASE MAN-
AGEMENT
PROGRAMS.—The Secretary shall establish
within the Department of Health and Human Services a
working group consisting of employees of the Department
to carry out the following:
(1) To oversee the project.
(2) To establish policy and criteria for medicare
disease management programs within the Depart-
ment, including the establishment of policy and cri-
teria for such programs.
(3) To identify targeted medical conditions and
targeted individuals.
(4) To select areas in which such programs are
carried out.
248
(5) To monitor health outcomes under such
programs.
(6) To measure the effectiveness of such pro-
grams in meeting any budget neutrality require-
ments.
(7) Otherwise to serve as a central focal point
within the Department for dissemination of informa-
tion on medicare disease management programs.
(i) GAO STUDY ON DISEASE MANAGEMENT PRO-
GRAMS.—The Comptroller General of the United States
shall conduct a study that compares disease management
programs under title XVIII of the Social Security Act with
such programs conducted in the private sector, including
the prevalence of such programs and programs for case
management. The study shall identify the cost-effective-
ness of such programs and any savings achieved by such
programs. The Comptroller General shall submit a report
on such study to Congress by not later than 18 months
after the date of the enactment of this Act.
SEC. 623. DEMONSTRATION PROJECT FOR MEDICAL ADULT
DAY CARE SERVICES.
(a) ESTABLISHMENT.—Subject to the succeeding
provisions of this section, the Secretary of Health and
Human Services shall establish a demonstration project
(in this section referred to as the ‘‘demonstration project’’)
249
under which the Secretary shall, as part of a plan of an
episode of care for home health services established for
a medicare beneficiary, permit a home health agency, di-
rectly or under arrangements with a medical adult day
care facility, to provide medical adult day care services as
a substitute for a portion of home health services that
would otherwise be provided in the beneficiary’s home.
(b) PAYMENT.—
(1) IN GENERAL.—The amount of payment for
an episode of care for home health services, a por-
tion of which consists of substitute medical adult
day care services, under the demonstration project
shall be made at a rate equal to 95 percent of the
amount that would otherwise apply for such home
health services under section 1895 of the Social Se-
curity Act (42 u.s.c. 1395fff). In no case may a
home health agency, or a medical adult day care fa-
cility under arrangements with a home health agen-
cy, separately charge a beneficiary for medical adult
day care services furnished under the plan of care.
(2) BUDGET
NEUTRALITY
FOR
DEMONSTRA-
TION PROJECT.—Notwithstanding any other provi-
sion of law, the Secretary shall provide for an appro-
priate reduction in the aggregate amount of addi-
tional payments made under section 1895 of the So-
250
cial Security Act (42 U.S.C. 1395fff) to reflect any
increase in amounts expended from the Trust Funds
as a result of the demonstration project conducted
under this section.
(c) DEMONSTRATION PROJECT SITES.—The project
established under this section shall be conducted in not
more than 5 States selected by the Secretary that license
or certify providers of services that furnish medical adult
day care services.
(d) DURATION.—The Secretary shall conduct the
demonstration project for a period of 3 years.
(e) VOLUNTARY PARTICIPATION.—Participation of
medicare beneficiaries in the demonstration project shall
be voluntary. The total number of such beneficiaries that
may participate in the project at any given time may not
exceed 15,000.
(f) PREFERENCE IN SELECTING AGENCIES.—In se-
lecting home health agencies to participate under the dem-
onstration project, the Secretary shall give preference to
those agencies that are currently licensed or certified
through common ownership and control to furnish medical
adult day care services.
(g) WAIVER AUTHORITY.—The Secretary may waive
such requirements of title XVIII of the Social Security Act
as may be necessary for the purposes of carrying out the
251
demonstration project, other than waiving the requirement
that an individual be homebound in order to be eligible
for benefits for home health services.
(h) EVALUATION AND REPORT.—The Secretary shall
conduct an evaluation of the clinical and cost effectiveness
of the demonstration project. Not later 30 months after
the commencement of the project, the Secretary shall sub-
mit to Congress a report on the evaluation, and shall in-
clude in the report the following:
(1) An analysis of the patient outcomes and
costs of furnishing care to the medicare beneficiaries
participating in the project as compared to such out-
comes and costs to beneficiaries receiving only home
health services for the same health conditions.
(2) Such recommendations regarding the exten-
sion, expansion, or termination of the project as the
Secretary determines appropriate.
(i) DEFINITIONS.—In this section:
(1) HOME HEALTH AGENCY.—The term ‘‘home
health agency’’ has the meaning given such term in
section 1861(o) of the Social Security Act (42
U.S.C. 1395x(o)).
(2) MEDICAL ADULT DAY CARE FACILITY.—The
term ‘‘medical adult day care facility’’ means a facil-
ity that—
252
(A) has been licensed or certified by a
State to furnish medical adult day care services
in the State for a continuous 2-year period;
(B) is engaged in providing skilled nursing
services and other therapeutic services directly
or under arrangement with a home health agen-
cy;
(C) meets such standards established by
the Secretary to assure quality of care and such
other requirements as the Secretary finds nec-
essary in the interest of the health and safety
of individuals who are furnished services in the
facility; and
(D) provides medical adult day care serv-
ices.
(3) MEDICAL
ADULT
DAY
CARE
SERVICES.—
The term ‘‘medical adult day care services’’ means—
(A) home health service items and services
described in paragraphs (1) through (7) of sec-
tion 1861(m) furnished in a medical adult day
care facility;
(B) a program of supervised activities fur-
nished in a group setting in the facility that—
(i) meet such criteria as the Secretary
determines appropriate; and
253
(ii) is designed to promote physical
and mental health of the individuals; and
(C) such other services as the Secretary
may specify.
(4) 
MEDICARE
BENEFICIARY.—The 
term
‘‘medicare beneficiary’’ means an individual entitled
to benefits under part A of this title, enrolled under
part B of this title, or both.
SEC. 624. PUBLICATION ON FINAL WRITTEN GUIDANCE
CONCERNING PROHIBITIONS AGAINST DIS-
CRIMINATION BY NATIONAL ORIGIN WITH
RESPECT TO HEALTH CARE SERVICES.
Not later than January 1, 2003, the Secretary shall
issue final written guidance concerning the application of
the prohibition in title VI of the Civil Rights Act of 1964
against national origin discrimination as it affects persons
with limited English proficiency with respect to access to
health care services under the medicare program.
TITLE VII—MEDICARE BENEFITS
ADMINISTRATION
SEC. 701. ESTABLISHMENT OF MEDICARE BENEFITS AD-
MINISTRATION.
(a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et
seq.), as amended by section 105, is amended by inserting
after 1806 the following new section:
254
‘‘MEDICARE BENEFITS ADMINISTRATION
‘‘SEC. 1808. (a) ESTABLISHMENT.—There is estab-
lished within the Department of Health and Human Serv-
ices an agency to be known as the Medicare Benefits Ad-
ministration.
‘‘(b) ADMINISTRATOR; DEPUTY
ADMINISTRATOR;
CHIEF ACTUARY.—
‘‘(1) ADMINISTRATOR.—
‘‘(A) IN GENERAL.—The Medicare Bene-
fits Administration shall be headed by an ad-
ministrator to be known as the ‘Medicare Bene-
fits Administrator’ (in this section referred to
as the ‘Administrator’) who shall be appointed
by the President, by and with the advice and
consent of the Senate. The Administrator shall
be in direct line of authority to the Secretary.
‘‘(B) COMPENSATION.—The Administrator
shall be paid at the rate of basic pay payable
for level III of the Executive Schedule under
section 5314 of title 5, United States Code.
‘‘(C) TERM
OF
OFFICE.—The Adminis-
trator shall be appointed for a term of 5 years.
In any case in which a successor does not take
office at the end of an Administrator’s term of
office, that Administrator may continue in of-
255
fice until the entry upon office of such a suc-
cessor. An Administrator appointed to a term of
office after the commencement of such term
may serve under such appointment only for the
remainder of such term.
‘‘(D) GENERAL AUTHORITY.—The Admin-
istrator shall be responsible for the exercise of
all powers and the discharge of all duties of the
Administration, and shall have authority and
control over all personnel and activities thereof.
‘‘(E) RULEMAKING AUTHORITY.—The Ad-
ministrator may prescribe such rules and regu-
lations as the Administrator determines nec-
essary or appropriate to carry out the functions
of the Administration. The regulations pre-
scribed by the Administrator shall be subject to
the rulemaking procedures established under
section 553 of title 5, United States Code.
‘‘(F) AUTHORITY TO ESTABLISH ORGANI-
ZATIONAL UNITS.—The Administrator may es-
tablish, alter, consolidate, or discontinue such
organizational units or components within the
Administration as the Administrator considers
necessary or appropriate, except as specified in
this section.
256
‘‘(G) AUTHORITY TO DELEGATE.—The Ad-
ministrator may assign duties, and delegate, or
authorize successive redelegations of, authority
to act and to render decisions, to such officers
and employees of the Administration as the Ad-
ministrator may find necessary. Within the lim-
itations of such delegations, redelegations, or
assignments, all official acts and decisions of
such officers and employees shall have the same
force and effect as though performed or ren-
dered by the Administrator.
‘‘(2) DEPUTY ADMINISTRATOR.—
‘‘(A) IN GENERAL.—There shall be a Dep-
uty Administrator of the Medicare Benefits Ad-
ministration who shall be appointed by the
President, by and with the advice and consent
of the Senate.
‘‘(B) COMPENSATION.—The Deputy Ad-
ministrator shall be paid at the rate of basic
pay payable for level IV of the Executive Sched-
ule under section 5315 of title 5, United States
Code.
‘‘(C) TERM OF OFFICE.—The Deputy Ad-
ministrator shall be appointed for a term of 5
years. In any case in which a successor does not
257
take office at the end of a Deputy Administra-
tor’s term of office, such Deputy Administrator
may continue in office until the entry upon of-
fice of such a successor. A Deputy Adminis-
trator appointed to a term of office after the
commencement of such term may serve under
such appointment only for the remainder of
such term.
‘‘(D) DUTIES.—The Deputy Administrator
shall perform such duties and exercise such
powers as the Administrator shall from time to
time assign or delegate. The Deputy Adminis-
trator shall be Acting Administrator of the Ad-
ministration during the absence or disability of
the Administrator and, unless the President
designates another officer of the Government as
Acting Administrator, in the event of a vacancy
in the office of the Administrator.
‘‘(3) CHIEF ACTUARY.—
‘‘(A) IN GENERAL.—There is established in
the Administration the position of Chief Actu-
ary. The Chief Actuary shall be appointed by,
and in direct line of authority to, the Adminis-
trator of such Administration. The Chief Actu-
ary shall be appointed from among individuals
258
who have demonstrated, by their education and
experience, superior expertise in the actuarial
sciences. The Chief Actuary may be removed
only for cause.
‘‘(B) COMPENSATION.—The Chief Actuary
shall be compensated at the highest rate of
basic pay for the Senior Executive Service
under section 5382(b) of title 5, United States
Code.
‘‘(C) DUTIES.—The Chief Actuary shall
exercise such duties as are appropriate for the
office of the Chief Actuary and in accordance
with professional standards of actuarial inde-
pendence.
‘‘(4) SECRETARIAL COORDINATION OF PROGRAM
ADMINISTRATION.—The Secretary shall ensure ap-
propriate coordination between the Administrator
and the Administrator of the Centers for Medicare
& Medicaid Services in carrying out the programs
under this title.
‘‘(c) DUTIES; ADMINISTRATIVE PROVISIONS.—
‘‘(1) DUTIES.—
‘‘(A) GENERAL
DUTIES.—The Adminis-
trator shall carry out parts C and D,
including—
259
‘‘(i) negotiating, entering into, and en-
forcing, contracts with plans for the offer-
ing of Medicare+Choice plans under part
C, including the offering of qualified pre-
scription drug coverage under such plans;
and
‘‘(ii) negotiating, entering into, and
enforcing, contracts with PDP sponsors for
the offering of prescription drug plans
under part D.
‘‘(B) OTHER DUTIES.—The Administrator
shall carry out any duty provided for under
part C or part D, including demonstration
projects carried out in part or in whole under
such parts, the programs of all-inclusive care
for the elderly (PACE program) under section
1894, the social health maintenance organiza-
tion (SHMO) demonstration projects (referred
to in section 4104(c) of the Balanced Budget
Act of 1997), and through a Medicare+Choice
project that demonstrates the application of
capitation payment rates for frail elderly medi-
care beneficiaries through the use of a inter-
disciplinary team and through the provision of
primary care services to such beneficiaries by
260
means of such a team at the nursing facility in-
volved).
‘‘(C) PRESCRIPTION
DRUG
CARD.—The
Administrator shall carry out section 1807 (re-
lating to the medicare prescription drug dis-
count card endorsement program).
‘‘(D) 
NONINTERFERENCE.—In 
carrying
out its duties with respect to the provision of
qualified prescription drug coverage to bene-
ficiaries under this title, the Administrator may
not—
‘‘(i) require a particular formulary or
institute a price structure for the reim-
bursement of covered outpatient drugs;
‘‘(ii) interfere in any way with nego-
tiations 
between 
PDP 
sponsors 
and
Medicare+Choice organizations and drug
manufacturers, wholesalers, or other sup-
pliers of covered outpatient drugs; and
‘‘(iii) otherwise interfere with the
competitive nature of providing such cov-
erage through such sponsors and organiza-
tions.
‘‘(E) ANNUAL REPORTS.—Not later March
31 of each year, the Administrator shall submit
261
to Congress and the President a report on the
administration of parts C and D during the
previous fiscal year.
‘‘(2) STAFF.—
‘‘(A) IN
GENERAL.—The Administrator,
with the approval of the Secretary, may employ,
without regard to chapter 31 of title 5, United
States Code, other than sections 3110 and
3112, such officers and employees as are nec-
essary to administer the activities to be carried
out through the Medicare Benefits Administra-
tion. The Administrator shall employ staff with
appropriate and necessary expertise in negoti-
ating contracts in the private sector.
‘‘(B) FLEXIBILITY WITH RESPECT TO COM-
PENSATION.—
‘‘(i) IN GENERAL.—The staff of the
Medicare Benefits Administration shall,
subject to clause (ii), be paid without re-
gard to the provisions of chapter 51 (other
than section 5101) and chapter 53 (other
than section 5301) of such title (relating to
classification and schedule pay rates).
‘‘(ii) MAXIMUM
RATE.—In no case
may the rate of compensation determined
262
under clause (i) exceed the rate of basic
pay payable for level IV of the Executive
Schedule under section 5315 of title 5,
United States Code.
‘‘(C) LIMITATION ON FULL-TIME EQUIVA-
LENT STAFFING FOR CURRENT CMS FUNCTIONS
BEING TRANSFERRED.—The Administrator may
not employ under this paragraph a number of
full-time equivalent employees, to carry out
functions that were previously conducted by the
Centers for Medicare & Medicaid Services and
that are conducted by the Administrator by rea-
son of this section, that exceeds the number of
such full-time equivalent employees authorized
to be employed by the Centers for Medicare &
Medicaid Services to conduct such functions as
of the date of the enactment of this Act.
‘‘(3) REDELEGATION OF CERTAIN FUNCTIONS
OF THE CENTERS FOR MEDICARE & MEDICAID SERV-
ICES.—
‘‘(A) IN
GENERAL.—The Secretary, the
Administrator, and the Administrator of the
Centers for Medicare & Medicaid Services shall
establish an appropriate transition of responsi-
bility in order to redelegate the administration
263
of part C from the Secretary and the Adminis-
trator of the Centers for Medicare & Medicaid
Services to the Administrator as is appropriate
to carry out the purposes of this section.
‘‘(B) TRANSFER OF DATA AND INFORMA-
TION.—The Secretary shall ensure that the Ad-
ministrator of the Centers for Medicare & Med-
icaid Services transfers to the Administrator of
the Medicare Benefits Administration such in-
formation and data in the possession of the Ad-
ministrator of the Centers for Medicare & Med-
icaid Services as the Administrator of the Medi-
care Benefits Administration requires to carry
out the duties described in paragraph (1).
‘‘(C) CONSTRUCTION.—Insofar as a re-
sponsibility of the Secretary or the Adminis-
trator of the Centers for Medicare & Medicaid
Services is redelegated to the Administrator
under this section, any reference to the Sec-
retary or the Administrator of the Centers for
Medicare & Medicaid Services in this title or
title XI with respect to such responsibility is
deemed to be a reference to the Administrator.
‘‘(d) OFFICE OF BENEFICIARY ASSISTANCE.—
264
‘‘(1) ESTABLISHMENT.—The Secretary shall es-
tablish within the Medicare Benefits Administration
an Office of Beneficiary Assistance to coordinate
functions relating to outreach and education of
medicare beneficiaries under this title, including the
functions described in paragraph (2). The Office
shall be separate operating division within the Ad-
ministration.
‘‘(2) DISSEMINATION
OF
INFORMATION
ON
BENEFITS AND APPEALS RIGHTS.—
‘‘(A) DISSEMINATION OF BENEFITS INFOR-
MATION.—The Office of Beneficiary Assistance
shall disseminate, directly or through contract,
to medicare beneficiaries, by mail, by posting on
the Internet site of the Medicare Benefits Ad-
ministration and through a toll-free telephone
number, information with respect to the fol-
lowing:
‘‘(i) Benefits, and limitations on pay-
ment (including cost-sharing, stop-loss pro-
visions, and formulary restrictions) under
parts C and D.
‘‘(ii) Benefits, and limitations on pay-
ment under parts A and B, including in-
265
formation on medicare supplemental poli-
cies under section 1882.
Such information shall be presented in a man-
ner so that medicare beneficiaries may compare
benefits under parts A, B, D, and medicare
supplemental 
policies 
with 
benefits 
under
Medicare+Choice plans under part C.
‘‘(B) DISSEMINATION OF APPEALS RIGHTS
INFORMATION.—The Office of Beneficiary As-
sistance shall disseminate to medicare bene-
ficiaries in the manner provided under subpara-
graph (A) a description of procedural rights (in-
cluding grievance and appeals procedures) of
beneficiaries under the original medicare fee-
for-service program under parts A and B, the
Medicare+Choice program under part C, and
the Voluntary Prescription Drug Benefit Pro-
gram under part D.
‘‘(e) MEDICARE POLICY ADVISORY BOARD.—
‘‘(1) ESTABLISHMENT.—There is established
within the Medicare Benefits Administration the
Medicare Policy Advisory Board (in this section re-
ferred to the ‘Board’). The Board shall advise, con-
sult with, and make recommendations to the Admin-
istrator of the Medicare Benefits Administration
266
with respect to the administration of parts C and D,
including the review of payment policies under such
parts.
‘‘(2) REPORTS.—
‘‘(A) IN GENERAL.—With respect to mat-
ters of the administration of parts C and D, the
Board shall submit to Congress and to the Ad-
ministrator of the Medicare Benefits Adminis-
tration such reports as the Board determines
appropriate. Each such report may contain such
recommendations as the Board determines ap-
propriate 
for 
legislative 
or 
administrative
changes to improve the administration of such
parts, including the topics described in subpara-
graph (B). Each such report shall be published
in the Federal Register.
‘‘(B) TOPICS
DESCRIBED.—Reports re-
quired under subparagraph (A) may include the
following topics:
‘‘(i) FOSTERING COMPETITION.—Rec-
ommendations or proposals to increase
competition under parts C and D for serv-
ices furnished to medicare beneficiaries.
‘‘(ii) 
EDUCATION
AND
ENROLL-
MENT.—Recommendations for the im-
267
provement to efforts to provide medicare
beneficiaries information and education on
the program under this title, and specifi-
cally parts C and D, and the program for
enrollment under the title.
‘‘(iii) IMPLEMENTATION OF RISK-AD-
JUSTMENT.—Evaluation of the implemen-
tation under section 1853(a)(3)(C) of the
risk adjustment methodology to payment
rates 
under 
that 
section 
to
Medicare+Choice organizations offering
Medicare+Choice plans that accounts for
variations in per capita costs based on
health status and other demographic fac-
tors.
‘‘(iv) DISEASE
MANAGEMENT
PRO-
GRAMS.—Recommendations on the incor-
poration of disease management programs
under parts C and D.
‘‘(v) RURAL
ACCESS.—Recommenda-
tions to improve competition and access to
plans under parts C and D in rural areas.
‘‘(C) MAINTAINING
INDEPENDENCE
OF
BOARD.—The Board shall directly submit to
Congress reports required under subparagraph
268
(A). No officer or agency of the United States
may require the Board to submit to any officer
or agency of the United States for approval,
comments, or review, prior to the submission to
Congress of such reports.
‘‘(3) DUTY OF ADMINISTRATOR OF MEDICARE
BENEFITS ADMINISTRATION.—With respect to any
report submitted by the Board under paragraph
(2)(A), not later than 90 days after the report is
submitted, the Administrator of the Medicare Bene-
fits Administration shall submit to Congress and the
President an analysis of recommendations made by
the Board in such report. Each such analysis shall
be published in the Federal Register.
‘‘(4) MEMBERSHIP.—
‘‘(A) APPOINTMENT.—Subject to the suc-
ceeding provisions of this paragraph, the Board
shall consist of seven members to be appointed
as follows:
‘‘(i) Three members shall be ap-
pointed by the President.
‘‘(ii) Two members shall be appointed
by the Speaker of the House of Represent-
atives, with the advice of the chairmen and
the ranking minority members of the Com-
269
mittees on Ways and Means and on En-
ergy and Commerce of the House of Rep-
resentatives.
‘‘(iii) Two members shall be appointed
by the President pro tempore of the Senate
with the advice of the chairman and the
ranking minority member of the Senate
Committee on Finance.
‘‘(B) 
QUALIFICATIONS.—The 
members
shall be chosen on the basis of their integrity,
impartiality, and good judgment, and shall be
individuals who are, by reason of their edu-
cation and experience in health care benefits
management, exceptionally qualified to perform
the duties of members of the Board.
‘‘(C) PROHIBITION ON INCLUSION OF FED-
ERAL EMPLOYEES.—No officer or employee of
the United States may serve as a member of
the Board.
‘‘(5) COMPENSATION.—Members of the Board
shall receive, for each day (including travel time)
they are engaged in the performance of the functions
of the board, compensation at rates not to exceed
the daily equivalent to the annual rate in effect for
270
level IV of the Executive Schedule under section
5315 of title 5, United States Code.
‘‘(6) TERMS OF OFFICE.—
‘‘(A) IN GENERAL.—The term of office of
members of the Board shall be 3 years.
‘‘(B) TERMS OF INITIAL APPOINTEES.—As
designated by the President at the time of ap-
pointment, of the members first appointed—
‘‘(i) one shall be appointed for a term
of 1 year;
‘‘(ii) three shall be appointed for
terms of 2 years; and
‘‘(iii) three shall be appointed for
terms of 3 years.
‘‘(C) REAPPOINTMENTS.—Any person ap-
pointed as a member of the Board may not
serve for more than 8 years.
‘‘(D) VACANCY.—Any member appointed
to fill a vacancy occurring before the expiration
of the term for which the member’s predecessor
was appointed shall be appointed only for the
remainder of that term. A member may serve
after the expiration of that member’s term until
a successor has taken office. A vacancy in the
271
Board shall be filled in the manner in which the
original appointment was made.
‘‘(7) CHAIR.—The Chair of the Board shall be
elected by the members. The term of office of the
Chair shall be 3 years.
‘‘(8) MEETINGS.—The Board shall meet at the
call of the Chair, but in no event less than three
times during each fiscal year.
‘‘(9) DIRECTOR AND STAFF.—
‘‘(A) APPOINTMENT
OF
DIRECTOR.—The
Board shall have a Director who shall be ap-
pointed by the Chair.
‘‘(B) IN GENERAL.—With the approval of
the Board, the Director may appoint, without
regard to chapter 31 of title 5, United States
Code, such additional personnel as the Director
considers appropriate.
‘‘(C) FLEXIBILITY WITH RESPECT TO COM-
PENSATION.—
‘‘(i) IN GENERAL.—The Director and
staff of the Board shall, subject to clause
(ii), be paid without regard to the provi-
sions of chapter 51 and chapter 53 of such
title (relating to classification and schedule
pay rates).
272
‘‘(ii) MAXIMUM
RATE.—In no case
may the rate of compensation determined
under clause (i) exceed the rate of basic
pay payable for level IV of the Executive
Schedule under section 5315 of title 5,
United States Code.
‘‘(D) ASSISTANCE
FROM
THE
ADMINIS-
TRATOR OF THE MEDICARE BENEFITS ADMINIS-
TRATION.—The Administrator of the Medicare
Benefits Administration shall make available to
the Board such information and other assist-
ance as it may require to carry out its func-
tions.
‘‘(10) CONTRACT AUTHORITY.—The Board may
contract with and compensate government and pri-
vate agencies or persons to carry out its duties
under this subsection, without regard to section
3709 of the Revised Statutes (41 U.S.C. 5).
‘‘(f) FUNDING.—There is authorized to be appro-
priated, in appropriate part from the Federal Hospital In-
surance Trust Fund and from the Federal Supplementary
Medical Insurance Trust Fund (including the Medicare
Prescription Drug Account), such sums as are necessary
to carry out this section.’’.
(b) EFFECTIVE DATE.—
273
(1) IN
GENERAL.—The amendment made by
subsection (a) shall take effect on the date of the en-
actment of this Act.
(2) TIMING OF INITIAL APPOINTMENTS.—The
Administrator and Deputy Administrator of the
Medicare Benefits Administration may not be ap-
pointed before March 1, 2003.
(3) DUTIES WITH RESPECT TO ELIGIBILITY DE-
TERMINATIONS
AND
ENROLLMENT.—The Adminis-
trator of the Medicare Benefits Administration shall
carry out enrollment under title XVIII of the Social
Security Act, make eligibility determinations under
such title, and carry out part C of such title for
years beginning or after January 1, 2005.
(4) TRANSITION.—Before the date the Adminis-
trator of the Medicare Benefits Administration is
appointed and assumes responsibilities under this
section and section 1807 of the Social Security Act,
the Secretary of Health and Human Services shall
provide for the conduct of any responsibilities of
such Administrator that are otherwise provided
under law.
(c) 
MISCELLANEOUS
ADMINISTRATIVE
PROVI-
SIONS.—
274
(1) ADMINISTRATOR
AS
MEMBER
OF
THE
BOARD
OF
TRUSTEES
OF
THE
MEDICARE
TRUST
FUNDS.—Section 1817(b) and section 1841(b) (42
U.S.C. 1395i(b), 1395t(b)) are each amended by
striking ‘‘and the Secretary of Health and Human
Services, all ex officio,’’ and inserting ‘‘the Secretary
of Health and Human Services, and the Adminis-
trator of the Medicare Benefits Administration, all
ex officio,’’.
(2) INCREASE IN GRADE TO EXECUTIVE LEVEL
III FOR THE ADMINISTRATOR OF THE CENTERS FOR
MEDICARE & MEDICAID SERVICES; LEVEL FOR MEDI-
CARE BENEFITS ADMINISTRATOR.—
(A) IN GENERAL.—Section 5314 of title 5,
United States Code, by adding at the end the
following:
‘‘Administrator of the Centers for Medicare &
Medicaid Services.
‘‘Administrator of the Medicare Benefits Ad-
ministration.’’.
(B) CONFORMING
AMENDMENT.—Section
5315 of such title is amended by striking ‘‘Ad-
ministrator of the Health Care Financing Ad-
ministration.’’.
275
(C) EFFECTIVE DATE.—The amendments
made by this paragraph take effect on January
1, 2003.
TITLE 
VIII—REGULATORY 
RE-
DUCTION AND CONTRACTING
REFORM
Subtitle A—Regulatory Reform
SEC. 801. CONSTRUCTION; DEFINITION OF SUPPLIER.
(a) CONSTRUCTION.—Nothing in this title shall be
construed—
(1) to compromise or affect existing legal rem-
edies for addressing fraud or abuse, whether it be
criminal prosecution, civil enforcement, or adminis-
trative remedies, including under sections 3729
through 3733 of title 31, United States Code
(known as the False Claims Act); or
(2) to prevent or impede the Department of
Health and Human Services in any way from its on-
going efforts to eliminate waste, fraud, and abuse in
the medicare program.
Furthermore, the consolidation of medicare administrative
contracting set forth in this Act does not constitute con-
solidation of the Federal Hospital Insurance Trust Fund
and the Federal Supplementary Medical Insurance Trust
Fund or reflect any position on that issue.
276
(b) DEFINITION OF SUPPLIER.—Section 1861 (42
U.S.C. 1395x) is amended by inserting after subsection
(c) the following new subsection:
‘‘Supplier
‘‘(d) The term ‘supplier’ means, unless the context
otherwise requires, a physician or other practitioner, a fa-
cility, or other entity (other than a provider of services)
that furnishes items or services under this title.’’.
SEC. 802. ISSUANCE OF REGULATIONS.
(a) CONSOLIDATION OF PROMULGATION TO ONCE A
MONTH.—
(1) IN
GENERAL.—Section 1871 (42 U.S.C.
1395hh) is amended by adding at the end the fol-
lowing new subsection:
‘‘(d)(1) Subject to paragraph (2), the Secretary shall
issue proposed or final (including interim final) regula-
tions to carry out this title only on one business day of
every month.
‘‘(2) The Secretary may issue a proposed or final reg-
ulation described in paragraph (1) on any other day than
the day described in paragraph (1) if the Secretary—
‘‘(A) finds that issuance of such regulation on
another day is necessary to comply with require-
ments under law; or
277
‘‘(B) finds that with respect to that regulation
the limitation of issuance on the date described in
paragraph (1) is contrary to the public interest.
If the Secretary makes a finding under this paragraph,
the Secretary shall include such finding, and brief state-
ment of the reasons for such finding, in the issuance of
such regulation.
‘‘(3) The Secretary shall coordinate issuance of new
regulations described in paragraph (1) relating to a cat-
egory of provider of services or suppliers based on an anal-
ysis of the collective impact of regulatory changes on that
category of providers or suppliers.’’.
(2) GAO REPORT ON PUBLICATION OF REGULA-
TIONS ON A QUARTERLY BASIS.—Not later than 3
years after the date of the enactment of this Act, the
Comptroller General of the United States shall sub-
mit to Congress a report on the feasibility of requir-
ing that regulations described in section 1871(d) of
the Social Security Act be promulgated on a quar-
terly basis rather than on a monthly basis.
(3) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to regulations promul-
gated on or after the date that is 30 days after the
date of the enactment of this Act.
278
(b) REGULAR
TIMELINE
FOR
PUBLICATION
OF
FINAL RULES.—
(1) IN GENERAL.—Section 1871(a) (42 U.S.C.
1395hh(a)) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(3)(A) The Secretary, in consultation with the Di-
rector of the Office of Management and Budget, shall es-
tablish and publish a regular timeline for the publication
of final regulations based on the previous publication of
a proposed regulation or an interim final regulation.
‘‘(B) Such timeline may vary among different regula-
tions based on differences in the complexity of the regula-
tion, the number and scope of comments received, and
other relevant factors, but shall not be longer than 3 years
except under exceptional circumstances. If the Secretary
intends to vary such timeline with respect to the publica-
tion of a final regulation, the Secretary shall cause to have
published in the Federal Register notice of the different
timeline by not later than the timeline previously estab-
lished with respect to such regulation. Such notice shall
include a brief explanation of the justification for such
variation.
‘‘(C) In the case of interim final regulations, upon
the expiration of the regular timeline established under
this paragraph for the publication of a final regulation
279
after opportunity for public comment, the interim final
regulation shall not continue in effect unless the Secretary
publishes (at the end of the regular timeline and, if appli-
cable, at the end of each succeeding 1-year period) a notice
of continuation of the regulation that includes an expla-
nation of why the regular timeline (and any subsequent
1-year extension) was not complied with. If such a notice
is published, the regular timeline (or such timeline as pre-
viously extended under this paragraph) for publication of
the final regulation shall be treated as having been ex-
tended for 1 additional year.
‘‘(D) The Secretary shall annually submit to Con-
gress a report that describes the instances in which the
Secretary failed to publish a final regulation within the
applicable regular timeline under this paragraph and that
provides an explanation for such failures.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall take effect on the date of the
enactment of this Act. The Secretary shall provide
for an appropriate transition to take into account
the backlog of previously published interim final reg-
ulations.
(c) LIMITATIONS ON NEW MATTER IN FINAL REGU-
LATIONS.—
280
(1) IN GENERAL.—Section 1871(a) (42 U.S.C.
1395hh(a)), as amended by subsection (b), is further
amended by adding at the end the following new
paragraph:
‘‘(4) If the Secretary publishes notice of proposed
rulemaking relating to a regulation (including an interim
final regulation), insofar as such final regulation includes
a provision that is not a logical outgrowth of such notice
of proposed rulemaking, that provision shall be treated as
a proposed regulation and shall not take effect until there
is the further opportunity for public comment and a publi-
cation of the provision again as a final regulation.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to final regulations
published on or after the date of the enactment of
this Act.
SEC. 803. COMPLIANCE WITH CHANGES IN REGULATIONS
AND POLICIES.
(a) NO
RETROACTIVE
APPLICATION
OF
SUB-
STANTIVE CHANGES.—
(1) IN
GENERAL.—Section 1871 (42 U.S.C.
1395hh), as amended by section 802(a), is amended
by adding at the end the following new subsection:
‘‘(e)(1)(A) A substantive change in regulations, man-
ual instructions, interpretative rules, statements of policy,
281
or guidelines of general applicability under this title shall
not be applied (by extrapolation or otherwise) retroactively
to items and services furnished before the effective date
of the change, unless the Secretary determines that—
‘‘(i) such retroactive application is necessary to
comply with statutory requirements; or
‘‘(ii) failure to apply the change retroactively
would be contrary to the public interest.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to substantive changes
issued on or after the date of the enactment of this
Act.
(b) TIMELINE FOR COMPLIANCE WITH SUBSTANTIVE
CHANGES AFTER NOTICE.—
(1) IN
GENERAL.—Section 1871(e)(1), as
added by subsection (a), is amended by adding at
the end the following:
‘‘(B)(i) Except as provided in clause (ii), a sub-
stantive change referred to in subparagraph (A) shall not
become effective before the end of the 30-day period that
begins on the date that the Secretary has issued or pub-
lished, as the case may be, the substantive change.
‘‘(ii) The Secretary may provide for such a sub-
stantive change to take effect on a date that precedes the
end of the 30-day period under clause (i) if the Secretary
282
finds that waiver of such 30-day period is necessary to
comply with statutory requirements or that the application
of such 30-day period is contrary to the public interest.
If the Secretary provides for an earlier effective date pur-
suant to this clause, the Secretary shall include in the
issuance or publication of the substantive change a finding
described in the first sentence, and a brief statement of
the reasons for such finding.
‘‘(C) No action shall be taken against a provider of
services or supplier with respect to noncompliance with
such a substantive change for items and services furnished
before the effective date of such a change.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to compliance actions
undertaken on or after the date of the enactment of
this Act.
(c) RELIANCE ON GUIDANCE.—
(1) IN GENERAL.—Section 1871(e), as added
by subsection (a), is further amended by adding at
the end the following new paragraph:
‘‘(2)(A) If—
‘‘(i) a provider of services or supplier follows
the written guidance (which may be transmitted
electronically) provided by the Secretary or by a
medicare contractor (as defined in section 1889(g))
283
acting within the scope of the contractor’s contract
authority, with respect to the furnishing of items or
services and submission of a claim for benefits for
such items or services with respect to such provider
or supplier;
‘‘(ii) the Secretary determines that the provider
of services or supplier has accurately presented the
circumstances relating to such items, services, and
claim to the contractor in writing; and
‘‘(iii) the guidance was in error;
the provider of services or supplier shall not be subject
to any sanction (including any penalty or requirement for
repayment of any amount) if the provider of services or
supplier reasonably relied on such guidance.
‘‘(B) Subparagraph (A) shall not be construed as pre-
venting the recoupment or repayment (without any addi-
tional penalty) relating to an overpayment insofar as the
overpayment was solely the result of a clerical or technical
operational error.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall take effect on the date of the
enactment of this Act but shall not apply to any
sanction for which notice was provided on or before
the date of the enactment of this Act.
284
SEC. 804. REPORTS AND STUDIES RELATING TO REGU-
LATORY REFORM.
(a) GAO STUDY ON ADVISORY OPINION AUTHOR-
ITY.—
(1) STUDY.—The Comptroller General of the
United States shall conduct a study to determine the
feasibility and appropriateness of establishing in the
Secretary authority to provide legally binding advi-
sory opinions on appropriate interpretation and ap-
plication of regulations to carry out the medicare
program under title XVIII of the Social Security
Act. Such study shall examine the appropriate time-
frame for issuing such advisory opinions, as well as
the need for additional staff and funding to provide
such opinions.
(2) REPORT.—The Comptroller General shall
submit to Congress a report on the study conducted
under paragraph (1) by not later than January 1,
2004.
(b) REPORT ON LEGAL AND REGULATORY INCON-
SISTENCIES.—Section 1871 (42 U.S.C. 1395hh), as
amended by section 803(a), is amended by adding at the
end the following new subsection:
‘‘(f)(1) Not later than 2 years after the date of the
enactment of this subsection, and every 2 years thereafter,
the Secretary shall submit to Congress a report with re-
285
spect to the administration of this title and areas of incon-
sistency or conflict among the various provisions under
law and regulation.
‘‘(2) In preparing a report under paragraph (1), the
Secretary shall collect—
‘‘(A) information from individuals entitled to
benefits under part A or enrolled under part B, or
both, providers of services, and suppliers and from
the Medicare Beneficiary Ombudsman and the Medi-
care Provider Ombudsman with respect to such
areas of inconsistency and conflict; and
‘‘(B) information from medicare contractors
that tracks the nature of written and telephone in-
quiries.
‘‘(3) A report under paragraph (1) shall include a de-
scription of efforts by the Secretary to reduce such incon-
sistency or conflicts, and recommendations for legislation
or administrative action that the Secretary determines ap-
propriate to further reduce such inconsistency or con-
flicts.’’.
Subtitle B—Contracting Reform
SEC. 811. INCREASED FLEXIBILITY IN MEDICARE ADMINIS-
TRATION.
(a) CONSOLIDATION AND FLEXIBILITY IN MEDICARE
ADMINISTRATION.—
286
(1) IN GENERAL.—Title XVIII is amended by
inserting after section 1874 the following new sec-
tion:
‘‘CONTRACTS WITH MEDICARE ADMINISTRATIVE
CONTRACTORS
‘‘SEC. 1874A. (a) AUTHORITY.—
‘‘(1) 
AUTHORITY
TO
ENTER
INTO
CON-
TRACTS.—The Secretary may enter into contracts
with any eligible entity to serve as a medicare ad-
ministrative contractor with respect to the perform-
ance of any or all of the functions described in para-
graph (4) or parts of those functions (or, to the ex-
tent provided in a contract, to secure performance
thereof by other entities).
‘‘(2) ELIGIBILITY OF ENTITIES.—An entity is
eligible to enter into a contract with respect to the
performance of a particular function described in
paragraph (4) only if—
‘‘(A) the entity has demonstrated capa-
bility to carry out such function;
‘‘(B) the entity complies with such conflict
of interest standards as are generally applicable
to Federal acquisition and procurement;
‘‘(C) the entity has sufficient assets to fi-
nancially support the performance of such func-
tion; and
287
‘‘(D) the entity meets such other require-
ments as the Secretary may impose.
‘‘(3) MEDICARE ADMINISTRATIVE CONTRACTOR
DEFINED.—For purposes of this title and title XI—
‘‘(A) IN
GENERAL.—The term ‘medicare
administrative contractor’ means an agency, or-
ganization, or other person with a contract
under this section.
‘‘(B) APPROPRIATE
MEDICARE
ADMINIS-
TRATIVE
CONTRACTOR.—With respect to the
performance of a particular function in relation
to an individual entitled to benefits under part
A or enrolled under part B, or both, a specific
provider of services or supplier (or class of such
providers of services or suppliers), the ‘appro-
priate’ medicare administrative contractor is the
medicare administrative contractor that has a
contract under this section with respect to the
performance of that function in relation to that
individual, provider of services or supplier or
class of provider of services or supplier.
‘‘(4) FUNCTIONS
DESCRIBED.—The functions
referred to in paragraphs (1) and (2) are payment
functions, provider services functions, and functions
relating to services furnished to individuals entitled
288
to benefits under part A or enrolled under part B,
or both, as follows:
‘‘(A) 
DETERMINATION
OF
PAYMENT
AMOUNTS.—Determining (subject to the provi-
sions of section 1878 and to such review by the
Secretary as may be provided for by the con-
tracts) the amount of the payments required
pursuant to this title to be made to providers
of services, suppliers and individuals.
‘‘(B) MAKING
PAYMENTS.—Making pay-
ments described in subparagraph (A) (including
receipt, disbursement, and accounting for funds
in making such payments).
‘‘(C) BENEFICIARY
EDUCATION
AND
AS-
SISTANCE.—Providing education and outreach
to individuals entitled to benefits under part A
or enrolled under part B, or both, and pro-
viding assistance to those individuals with spe-
cific issues, concerns or problems.
‘‘(D) PROVIDER
CONSULTATIVE
SERV-
ICES.—Providing consultative services to insti-
tutions, agencies, and other persons to enable
them to establish and maintain fiscal records
necessary for purposes of this title and other-
289
wise to qualify as providers of services or sup-
pliers.
‘‘(E) 
COMMUNICATION
WITH
PRO-
VIDERS.—Communicating to providers of serv-
ices and suppliers any information or instruc-
tions furnished to the medicare administrative
contractor by the Secretary, and facilitating
communication between such providers and sup-
pliers and the Secretary.
‘‘(F) PROVIDER
EDUCATION
AND
TECH-
NICAL ASSISTANCE.—Performing the functions
relating to provider education, training, and
technical assistance.
‘‘(G) 
ADDITIONAL
FUNCTIONS.—Per-
forming such other functions as are necessary
to carry out the purposes of this title.
‘‘(5) RELATIONSHIP TO MIP CONTRACTS.—
‘‘(A) NONDUPLICATION
OF
DUTIES.—In
entering into contracts under this section, the
Secretary shall assure that functions of medi-
care administrative contractors in carrying out
activities under parts A and B do not duplicate
activities carried out under the Medicare Integ-
rity Program under section 1893. The previous
sentence shall not apply with respect to the ac-
290
tivity described in section 1893(b)(5) (relating
to prior authorization of certain items of dura-
ble 
medical 
equipment 
under 
section
1834(a)(15)).
‘‘(B) CONSTRUCTION.—An entity shall not
be treated as a medicare administrative con-
tractor merely by reason of having entered into
a contract with the Secretary under section
1893.
‘‘(6) APPLICATION
OF
FEDERAL
ACQUISITION
REGULATION.—Except to the extent inconsistent
with a specific requirement of this title, the Federal
Acquisition Regulation applies to contracts under
this title.
‘‘(b) CONTRACTING REQUIREMENTS.—
‘‘(1) USE OF COMPETITIVE PROCEDURES.—
‘‘(A) IN GENERAL.—Except as provided in
laws with general applicability to Federal acqui-
sition and procurement or in subparagraph (B),
the Secretary shall use competitive procedures
when entering into contracts with medicare ad-
ministrative contractors under this section, tak-
ing into account performance quality as well as
price and other factors.
291
‘‘(B) RENEWAL OF CONTRACTS.—The Sec-
retary may renew a contract with a medicare
administrative contractor under this section
from term to term without regard to section 5
of title 41, United States Code, or any other
provision of law requiring competition, if the
medicare administrative contractor has met or
exceeded the performance requirements applica-
ble with respect to the contract and contractor,
except that the Secretary shall provide for the
application of competitive procedures under
such a contract not less frequently than once
every five years.
‘‘(C) TRANSFER
OF
FUNCTIONS.—The
Secretary may transfer functions among medi-
care administrative contractors consistent with
the provisions of this paragraph. The Secretary
shall ensure that performance quality is consid-
ered in such transfers. The Secretary shall pro-
vide public notice (whether in the Federal Reg-
ister or otherwise) of any such transfer (includ-
ing a description of the functions so trans-
ferred, a description of the providers of services
and suppliers affected by such transfer, and
292
contact information for the contractors in-
volved).
‘‘(D) INCENTIVES
FOR
QUALITY.—The
Secretary shall provide incentives for medicare
administrative contractors to provide quality
service and to promote efficiency.
‘‘(2) COMPLIANCE WITH REQUIREMENTS.—No
contract under this section shall be entered into with
any medicare administrative contractor unless the
Secretary finds that such medicare administrative
contractor will perform its obligations under the con-
tract efficiently and effectively and will meet such
requirements as to financial responsibility, legal au-
thority, quality of services provided, and other mat-
ters as the Secretary finds pertinent.
‘‘(3) PERFORMANCE REQUIREMENTS.—
‘‘(A) DEVELOPMENT
OF
SPECIFIC
PER-
FORMANCE
REQUIREMENTS.—In 
developing
contract performance requirements, the Sec-
retary shall develop performance requirements
applicable to functions described in subsection
(a)(4).
‘‘(B) CONSULTATION.— In developing such
requirements, the Secretary may consult with
providers of services and suppliers, organiza-
293
tions representing individuals entitled to bene-
fits under part A or enrolled under part B, or
both, and organizations and agencies per-
forming functions necessary to carry out the
purposes of this section with respect to such
performance requirements.
‘‘(C) INCLUSION IN CONTRACTS.—All con-
tractor performance requirements shall be set
forth in the contract between the Secretary and
the appropriate medicare administrative con-
tractor. Such performance requirements—
‘‘(i) shall reflect the performance re-
quirements developed under subparagraph
(A), but may include additional perform-
ance requirements;
‘‘(ii) shall be used for evaluating con-
tractor performance under the contract;
and
‘‘(iii) shall be consistent with the writ-
ten statement of work provided under the
contract.
‘‘(4) INFORMATION REQUIREMENTS.—The Sec-
retary shall not enter into a contract with a medi-
care administrative contractor under this section un-
less the contractor agrees—
294
‘‘(A) to furnish to the Secretary such time-
ly information and reports as the Secretary may
find necessary in performing his functions
under this title; and
‘‘(B) to maintain such records and afford
such access thereto as the Secretary finds nec-
essary to assure the correctness and verification
of the information and reports under subpara-
graph (A) and otherwise to carry out the pur-
poses of this title.
‘‘(5) SURETY BOND.—A contract with a medi-
care administrative contractor under this section
may require the medicare administrative contractor,
and any of its officers or employees certifying pay-
ments or disbursing funds pursuant to the contract,
or otherwise participating in carrying out the con-
tract, to give surety bond to the United States in
such amount as the Secretary may deem appro-
priate.
‘‘(c) TERMS AND CONDITIONS.—
‘‘(1) IN GENERAL.—A contract with any medi-
care administrative contractor under this section
may contain such terms and conditions as the Sec-
retary finds necessary or appropriate and may pro-
vide for advances of funds to the medicare adminis-
295
trative contractor for the making of payments by it
under subsection (a)(4)(B).
‘‘(2) PROHIBITION ON MANDATES FOR CERTAIN
DATA COLLECTION.—The Secretary may not require,
as a condition of entering into, or renewing, a con-
tract under this section, that the medicare adminis-
trative contractor match data obtained other than in
its activities under this title with data used in the
administration of this title for purposes of identi-
fying situations in which the provisions of section
1862(b) may apply.
‘‘(d) LIMITATION ON LIABILITY OF MEDICARE AD-
MINISTRATIVE CONTRACTORS AND CERTAIN OFFICERS.—
‘‘(1) CERTIFYING OFFICER.—No individual des-
ignated pursuant to a contract under this section as
a certifying officer shall, in the absence of gross neg-
ligence or intent to defraud the United States, be
liable with respect to any payments certified by the
individual under this section.
‘‘(2) DISBURSING OFFICER.—No disbursing of-
ficer shall, in the absence of gross negligence or in-
tent to defraud the United States, be liable with re-
spect to any payment by such officer under this sec-
tion if it was based upon an authorization (which
meets the applicable requirements for such internal
296
controls established by the Comptroller General) of
a certifying officer designated as provided in para-
graph (1) of this subsection.
‘‘(3) LIABILITY OF MEDICARE ADMINISTRATIVE
CONTRACTOR.—No medicare administrative con-
tractor shall be liable to the United States for a pay-
ment by a certifying or disbursing officer unless in
connection with such payment or in the supervision
of or selection of such officer the medicare adminis-
trative contractor acted with gross negligence.
‘‘(4) INDEMNIFICATION BY SECRETARY.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graphs (B) and (D), in the case of a medicare
administrative contractor (or a person who is a
director, officer, or employee of such a con-
tractor or who is engaged by the contractor to
participate directly in the claims administration
process) who is made a party to any judicial or
administrative proceeding arising from or relat-
ing directly to the claims administration process
under this title, the Secretary may, to the ex-
tent the Secretary determines to be appropriate
and as specified in the contract with the con-
tractor, indemnify the contractor and such per-
sons.
297
‘‘(B) CONDITIONS.—The Secretary may
not provide indemnification under subparagraph
(A) insofar as the liability for such costs arises
directly from conduct that is determined by the
judicial proceeding or by the Secretary to be
criminal in nature, fraudulent, or grossly neg-
ligent. If indemnification is provided by the Sec-
retary with respect to a contractor before a de-
termination that such costs arose directly from
such conduct, the contractor shall reimburse the
Secretary for costs of indemnification.
‘‘(C) SCOPE
OF
INDEMNIFICATION.—In-
demnification by the Secretary under subpara-
graph (A) may include payment of judgments,
settlements (subject to subparagraph (D)),
awards, and costs (including reasonable legal
expenses).
‘‘(D) WRITTEN
APPROVAL
FOR
SETTLE-
MENTS.—A contractor or other person de-
scribed in subparagraph (A) may not propose to
negotiate a settlement or compromise of a pro-
ceeding described in such subparagraph without
the prior written approval of the Secretary to
negotiate such settlement or compromise. Any
indemnification under subparagraph (A) with
298
respect to amounts paid under a settlement or
compromise of a proceeding described in such
subparagraph are conditioned upon prior writ-
ten approval by the Secretary of the final settle-
ment or compromise.
‘‘(E) CONSTRUCTION.—Nothing in this
paragraph shall be construed—
‘‘(i) to change any common law immu-
nity that may be available to a medicare
administrative contractor or person de-
scribed in subparagraph (A); or
‘‘(ii) to permit the payment of costs
not otherwise allowable, reasonable, or allo-
cable under the Federal Acquisition Regu-
lations.’’.
(2) CONSIDERATION
OF
INCORPORATION
OF
CURRENT LAW STANDARDS.—In developing contract
performance requirements under section 1874A(b)
of the Social Security Act, as inserted by paragraph
(1), the Secretary shall consider inclusion of the per-
formance standards described in sections 1816(f)(2)
of such Act (relating to timely processing of recon-
siderations and applications for exemptions) and sec-
tion 1842(b)(2)(B) of such Act (relating to timely
review of determinations and fair hearing requests),
299
as such sections were in effect before the date of the
enactment of this Act.
(b) CONFORMING AMENDMENTS TO SECTION 1816
(RELATING TO FISCAL INTERMEDIARIES).—Section 1816
(42 U.S.C. 1395h) is amended as follows:
(1) The heading is amended to read as follows:
‘‘PROVISIONS RELATING TO THE ADMINISTRATION OF
PART A’’.
(2) Subsection (a) is amended to read as fol-
lows:
‘‘(a) The administration of this part shall be con-
ducted through contracts with medicare administrative
contractors under section 1874A.’’.
(3) Subsection (b) is repealed.
(4) Subsection (c) is amended—
(A) by striking paragraph (1); and
(B) in each of paragraphs (2)(A) and
(3)(A), by striking ‘‘agreement under this sec-
tion’’ and inserting ‘‘contract under section
1874A that provides for making payments
under this part’’.
(5) Subsections (d) through (i) are repealed.
(6) Subsections (j) and (k) are each amended—
(A) by striking ‘‘An agreement with an
agency or organization under this section’’ and
inserting ‘‘A contract with a medicare adminis-
300
trative contractor under section 1874A with re-
spect to the administration of this part’’; and
(B) by striking ‘‘such agency or organiza-
tion’’ and inserting ‘‘such medicare administra-
tive contractor’’ each place it appears.
(7) Subsection (l) is repealed.
(c) CONFORMING AMENDMENTS TO SECTION 1842
(RELATING
TO CARRIERS).—Section 1842 (42 U.S.C.
1395u) is amended as follows:
(1) The heading is amended to read as follows:
‘‘PROVISIONS RELATING TO THE ADMINISTRATION OF
PART B’’.
(2) Subsection (a) is amended to read as fol-
lows:
‘‘(a) The administration of this part shall be con-
ducted through contracts with medicare administrative
contractors under section 1874A.’’.
(3) Subsection (b) is amended—
(A) by striking paragraph (1);
(B) in paragraph (2)—
(i) by striking subparagraphs (A) and
(B);
(ii) in subparagraph (C), by striking
‘‘carriers’’ and inserting ‘‘medicare admin-
istrative contractors’’; and
301
(iii) by striking subparagraphs (D)
and (E);
(C) in paragraph (3)—
(i) in the matter before subparagraph
(A), by striking ‘‘Each such contract shall
provide that the carrier’’ and inserting
‘‘The Secretary’’;
(ii) by striking ‘‘will’’ the first place it
appears in each of subparagraphs (A), (B),
(F), (G), (H), and (L) and inserting
‘‘shall’’;
(iii) in subparagraph (B), in the mat-
ter before clause (i), by striking ‘‘to the
policyholders and subscribers of the car-
rier’’ and inserting ‘‘to the policyholders
and subscribers of the medicare adminis-
trative contractor’’;
(iv) by striking subparagraphs (C),
(D), and (E);
(v) in subparagraph (H)—
(I) by striking ‘‘if it makes deter-
minations or payments with respect to
physicians’ services,’’ in the matter
preceding clause (i); and
302
(II) by striking ‘‘carrier’’ and in-
serting ‘‘medicare administrative con-
tractor’’ in clause (i);
(vi) by striking subparagraph (I);
(vii) in subparagraph (L), by striking
the semicolon and inserting a period;
(viii) in the first sentence, after sub-
paragraph (L), by striking ‘‘and shall con-
tain’’ and all that follows through the pe-
riod; and
(ix) in the seventh sentence, by insert-
ing ‘‘medicare administrative contractor,’’
after ‘‘carrier,’’; and
(D) by striking paragraph (5);
(E) in paragraph (6)(D)(iv), by striking
‘‘carrier’’ and inserting ‘‘medicare administra-
tive contractor’’; and
(F) in paragraph (7), by striking ‘‘the car-
rier’’ and inserting ‘‘the Secretary’’ each place
it appears.
(4) Subsection (c) is amended—
(A) by striking paragraph (1);
(B) in paragraph (2)(A), by striking ‘‘con-
tract under this section which provides for the
disbursement of funds, as described in sub-
303
section (a)(1)(B),’’ and inserting ‘‘contract
under section 1874A that provides for making
payments under this part’’;
(C) in paragraph (3)(A), by striking ‘‘sub-
section 
(a)(1)(B)’’ 
and 
inserting 
‘‘section
1874A(a)(3)(B)’’;
(D) in paragraph (4), in the matter pre-
ceding subparagraph (A), by striking ‘‘carrier’’
and inserting ‘‘medicare administrative con-
tractor’’; and
(E) by striking paragraphs (5) and (6).
(5) Subsections (d), (e), and (f) are repealed.
(6) Subsection (g) is amended by striking ‘‘car-
rier or carriers’’ and inserting ‘‘medicare administra-
tive contractor or contractors’’.
(7) Subsection (h) is amended—
(A) in paragraph (2)—
(i) by striking ‘‘Each carrier having
an agreement with the Secretary under
subsection (a)’’ and inserting ‘‘The Sec-
retary’’; and
(ii) by striking ‘‘Each such carrier’’
and inserting ‘‘The Secretary’’;
(B) in paragraph (3)(A)—
304
(i) by striking ‘‘a carrier having an
agreement with the Secretary under sub-
section (a)’’ and inserting ‘‘medicare ad-
ministrative contractor having a contract
under section 1874A that provides for
making payments under this part’’; and
(ii) by striking ‘‘such carrier’’ and in-
serting ‘‘such contractor’’;
(C) in paragraph (3)(B)—
(i) by striking ‘‘a carrier’’ and insert-
ing ‘‘a medicare administrative contractor’’
each place it appears; and
(ii) by striking ‘‘the carrier’’ and in-
serting ‘‘the contractor’’ each place it ap-
pears; and
(D) in paragraphs (5)(A) and (5)(B)(iii),
by striking ‘‘carriers’’ and inserting ‘‘medicare
administrative contractors’’ each place it ap-
pears.
(8) Subsection (l) is amended—
(A) in paragraph (1)(A)(iii), by striking
‘‘carrier’’ and inserting ‘‘medicare administra-
tive contractor’’; and
305
(B) in paragraph (2), by striking ‘‘carrier’’
and inserting ‘‘medicare administrative con-
tractor’’.
(9) Subsection (p)(3)(A) is amended by striking
‘‘carrier’’ and inserting ‘‘medicare administrative
contractor’’.
(10) Subsection (q)(1)(A) is amended by strik-
ing ‘‘carrier’’.
(d) EFFECTIVE DATE; TRANSITION RULE.—
(1) EFFECTIVE DATE.—
(A) IN
GENERAL.—Except as otherwise
provided in this subsection, the amendments
made by this section shall take effect on Octo-
ber 1, 2004, and the Secretary is authorized to
take such steps before such date as may be nec-
essary to implement such amendments on a
timely basis.
(B) CONSTRUCTION
FOR
CURRENT
CON-
TRACTS.—Such amendments shall not apply to
contracts in effect before the date specified
under subparagraph (A) that continue to retain
the terms and conditions in effect on such date
(except as otherwise provided under this Act,
other than under this section) until such date
306
as the contract is let out for competitive bid-
ding under such amendments.
(C) DEADLINE
FOR
COMPETITIVE
BID-
DING.—The Secretary shall provide for the let-
ting by competitive bidding of all contracts for
functions of medicare administrative contrac-
tors for annual contract periods that begin on
or after October 1, 2009.
(D) WAIVER
OF
PROVIDER
NOMINATION
PROVISIONS DURING TRANSITION.—During the
period beginning on the date of the enactment
of this Act and before the date specified under
subparagraph (A), the Secretary may enter into
new agreements under section 1816 of the So-
cial Security Act (42 U.S.C. 1395h) without re-
gard to any of the provider nomination provi-
sions of such section.
(2) GENERAL
TRANSITION
RULES.—The Sec-
retary shall take such steps, consistent with para-
graph (1)(B) and (1)(C), as are necessary to provide
for an appropriate transition from contracts under
section 1816 and section 1842 of the Social Security
Act (42 U.S.C. 1395h, 1395u) to contracts under
section 1874A, as added by subsection (a)(1).
307
(3) AUTHORIZING
CONTINUATION
OF
MIP
FUNCTIONS
UNDER
CURRENT
CONTRACTS
AND
AGREEMENTS AND UNDER ROLLOVER CONTRACTS.—
The provisions contained in the exception in section
1893(d)(2) of the Social Security Act (42 U.S.C.
1395ddd(d)(2)) shall continue to apply notwith-
standing the amendments made by this section, and
any reference in such provisions to an agreement or
contract shall be deemed to include a contract under
section 1874A of such Act, as inserted by subsection
(a)(1), that continues the activities referred to in
such provisions.
(e) REFERENCES.—On and after the effective date
provided under subsection (d)(1), any reference to a fiscal
intermediary or carrier under title XI or XVIII of the So-
cial Security Act (or any regulation, manual instruction,
interpretative rule, statement of policy, or guideline issued
to carry out such titles) shall be deemed a reference to
an appropriate medicare administrative contractor (as
provided under section 1874A of the Social Security Act).
(f) REPORTS ON IMPLEMENTATION.—
(1) PLAN FOR IMPLEMENTATION.—By not later
than October 1, 2003, the Secretary shall submit a
report to Congress and the Comptroller General of
the United States that describes the plan for imple-
308
mentation of the amendments made by this section.
The Comptroller General shall conduct an evaluation
of such plan and shall submit to Congress, not later
than 6 months after the date the report is received,
a report on such evaluation and shall include in such
report such recommendations as the Comptroller
General deems appropriate.
(2) STATUS OF IMPLEMENTATION.—The Sec-
retary shall submit a report to Congress not later
than October 1, 2007, that describes the status of
implementation of such amendments and that in-
cludes a description of the following:
(A) The number of contracts that have
been competitively bid as of such date.
(B) The distribution of functions among
contracts and contractors.
(C) A timeline for complete transition to
full competition.
(D) A detailed description of how the Sec-
retary has modified oversight and management
of medicare contractors to adapt to full com-
petition.
309
SEC. 812. REQUIREMENTS FOR INFORMATION SECURITY
FOR MEDICARE ADMINISTRATIVE CONTRAC-
TORS.
(a) IN GENERAL.—Section 1874A, as added by sec-
tion 811(a)(1), is amended by adding at the end the fol-
lowing new subsection:
‘‘(e) REQUIREMENTS
FOR
INFORMATION
SECU-
RITY.—
‘‘(1) DEVELOPMENT
OF
INFORMATION
SECU-
RITY
PROGRAM.—A medicare administrative con-
tractor that performs the functions referred to in
subparagraphs (A) and (B) of subsection (a)(4) (re-
lating to determining and making payments) shall
implement a contractor-wide information security
program to provide information security for the op-
eration and assets of the contractor with respect to
such functions under this title. An information secu-
rity program under this paragraph shall meet the re-
quirements for information security programs im-
posed on Federal agencies under section 3534(b)(2)
of title 44, United States Code (other than require-
ments under subparagraphs (B)(ii), (F)(iii), and
(F)(iv) of such section).
‘‘(2) INDEPENDENT AUDITS.—
‘‘(A) PERFORMANCE OF ANNUAL EVALUA-
TIONS.—Each year a medicare administrative
310
contractor that performs the functions referred
to in subparagraphs (A) and (B) of subsection
(a)(4) (relating to determining and making pay-
ments) shall undergo an evaluation of the infor-
mation security of the contractor with respect
to such functions under this title. The evalua-
tion shall—
‘‘(i) be performed by an entity that
meets such requirements for independence
as the Inspector General of the Depart-
ment of Health and Human Services may
establish; and
‘‘(ii) test the effectiveness of informa-
tion security control techniques for an ap-
propriate subset of the contractor’s infor-
mation systems (as defined in section
3502(8) of title 44, United States Code)
relating to such functions under this title
and an assessment of compliance with the
requirements of this subsection and related
information security policies, procedures,
standards and guidelines.
‘‘(B) DEADLINE
FOR
INITIAL
EVALUA-
TION.—
311
‘‘(i) NEW CONTRACTORS.—In the case
of a medicare administrative contractor
covered by this subsection that has not
previously performed the functions referred
to in subparagraphs (A) and (B) of sub-
section (a)(4) (relating to determining and
making payments) as a fiscal intermediary
or carrier under section 1816 or 1842, the
first independent evaluation conducted
pursuant subparagraph (A) shall be com-
pleted prior to commencing such functions.
‘‘(ii) OTHER
CONTRACTORS.—In the
case of a medicare administrative con-
tractor covered by this subsection that is
not described in clause (i), the first inde-
pendent evaluation conducted pursuant
subparagraph (A) shall be completed with-
in 1 year after the date the contractor
commences functions referred to in clause
(i) under this section.
‘‘(C) REPORTS ON EVALUATIONS.—
‘‘(i) TO THE INSPECTOR GENERAL.—
The results of independent evaluations
under subparagraph (A) shall be submitted
promptly to the Inspector General of the
312
Department of Health and Human Serv-
ices.
‘‘(ii) TO
CONGRESS.—The Inspector
General of Department of Health and
Human Services shall submit to Congress
annual reports on the results of such eval-
uations.’’.
(b) APPLICATION
OF REQUIREMENTS
TO FISCAL
INTERMEDIARIES AND CARRIERS.—
(1) IN
GENERAL.—The provisions of section
1874A(e)(2) of the Social Security Act (other than
subparagraph (B)), as added by subsection (a), shall
apply to each fiscal intermediary under section 1816
of the Social Security Act (42 U.S.C. 1395h) and
each carrier under section 1842 of such Act (42
U.S.C. 1395u) in the same manner as they apply to
medicare administrative contractors under such pro-
visions.
(2) DEADLINE FOR INITIAL EVALUATION.—In
the case of such a fiscal intermediary or carrier with
an agreement or contract under such respective sec-
tion in effect as of the date of the enactment of this
Act, 
the 
first 
evaluation 
under 
section
1874A(e)(2)(A) of the Social Security Act (as added
by subsection (a)), pursuant to paragraph (1), shall
313
be completed (and a report on the evaluation sub-
mitted to the Secretary) by not later than 1 year
after such date.
Subtitle C—Education and
Outreach
SEC. 821. PROVIDER EDUCATION AND TECHNICAL ASSIST-
ANCE.
(a) COORDINATION OF EDUCATION FUNDING.—
(1) IN GENERAL.—The Social Security Act is
amended by inserting after section 1888 the fol-
lowing new section:
‘‘PROVIDER EDUCATION AND TECHNICAL ASSISTANCE
‘‘SEC. 1889. (a) COORDINATION
OF EDUCATION
FUNDING.—The Secretary shall coordinate the edu-
cational activities provided through medicare contractors
(as defined in subsection (g), including under section
1893) in order to maximize the effectiveness of Federal
education efforts for providers of services and suppliers.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall take effect on the date of the
enactment of this Act.
(3) REPORT.—Not later than October 1, 2003,
the Secretary shall submit to Congress a report that
includes a description and evaluation of the steps
taken to coordinate the funding of provider edu-
314
cation under section 1889(a) of the Social Security
Act, as added by paragraph (1).
(b) INCENTIVES TO IMPROVE CONTRACTOR PER-
FORMANCE.—
(1) IN GENERAL.—Section 1874A, as added by
section 811(a)(1) and as amended by section 812(a),
is amended by adding at the end the following new
subsection:
‘‘(f) INCENTIVES TO IMPROVE CONTRACTOR PER-
FORMANCE IN PROVIDER EDUCATION AND OUTREACH.—
In order to give medicare administrative contractors an
incentive to implement effective education and outreach
programs for providers of services and suppliers, the Sec-
retary shall develop and implement a methodology to
measure the specific claims payment error rates of such
contractors in the processing or reviewing of medicare
claims.’’.
(2) APPLICATION TO FISCAL INTERMEDIARIES
AND CARRIERS.—The provisions of section 1874A(f)
of the Social Security Act, as added by paragraph
(1), shall apply to each fiscal intermediary under
section 1816 of the Social Security Act (42 U.S.C.
1395h) and each carrier under section 1842 of such
Act (42 U.S.C. 1395u) in the same manner as they
315
apply to medicare administrative contractors under
such provisions.
(3) GAO REPORT ON ADEQUACY OF METHOD-
OLOGY.—Not later than October 1, 2003, the Comp-
troller General of the United States shall submit to
Congress and to the Secretary a report on the ade-
quacy of the methodology under section 1874A(f) of
the Social Security Act, as added by paragraph (1),
and shall include in the report such recommenda-
tions as the Comptroller General determines appro-
priate with respect to the methodology.
(4) REPORT ON USE OF METHODOLOGY IN AS-
SESSING
CONTRACTOR
PERFORMANCE.—Not later
than October 1, 2003, the Secretary shall submit to
Congress a report that describes how the Secretary
intends to use such methodology in assessing medi-
care contractor performance in implementing effec-
tive education and outreach programs, including
whether to use such methodology as a basis for per-
formance bonuses. The report shall include an anal-
ysis of the sources of identified errors and potential
changes in systems of contractors and rules of the
Secretary that could reduce claims error rates.
316
(c) PROVISION OF ACCESS TO AND PROMPT RE-
SPONSES FROM MEDICARE ADMINISTRATIVE CONTRAC-
TORS.—
(1) IN GENERAL.—Section 1874A, as added by
section 811(a)(1) and as amended by section 812(a)
and subsection (b), is further amended by adding at
the end the following new subsection:
‘‘(g) COMMUNICATIONS WITH BENEFICIARIES, PRO-
VIDERS OF SERVICES AND SUPPLIERS.—
‘‘(1) COMMUNICATION
STRATEGY.—The Sec-
retary shall develop a strategy for communications
with individuals entitled to benefits under part A or
enrolled under part B, or both, and with providers
of services and suppliers under this title.
‘‘(2) RESPONSE TO WRITTEN INQUIRIES.—Each
medicare administrative contractor shall, for those
providers of services and suppliers which submit
claims to the contractor for claims processing and
for those individuals entitled to benefits under part
A or enrolled under part B, or both, with respect to
whom claims are submitted for claims processing,
provide general written responses (which may be
through electronic transmission) in a clear, concise,
and accurate manner to inquiries of providers of
services, suppliers and individuals entitled to bene-
317
fits under part A or enrolled under part B, or both,
concerning the programs under this title within 45
business days of the date of receipt of such inquiries.
‘‘(3) RESPONSE
TO
TOLL-FREE
LINES.—The
Secretary shall ensure that each medicare adminis-
trative contractor shall provide, for those providers
of services and suppliers which submit claims to the
contractor for claims processing and for those indi-
viduals entitled to benefits under part A or enrolled
under part B, or both, with respect to whom claims
are submitted for claims processing, a toll-free tele-
phone number at which such individuals, providers
of services and suppliers may obtain information re-
garding billing, coding, claims, coverage, and other
appropriate information under this title.
‘‘(4) 
MONITORING
OF
CONTRACTOR
RE-
SPONSES.—
‘‘(A) IN GENERAL.—Each medicare admin-
istrative contractor shall, consistent with stand-
ards developed by the Secretary under subpara-
graph (B)—
‘‘(i) maintain a system for identifying
who provides the information referred to in
paragraphs (2) and (3); and
318
‘‘(ii) monitor the accuracy, consist-
ency, and timeliness of the information so
provided.
‘‘(B) DEVELOPMENT OF STANDARDS.—
‘‘(i) IN
GENERAL.—The Secretary
shall establish and make public standards
to monitor the accuracy, consistency, and
timeliness of the information provided in
response to written and telephone inquiries
under this subsection. Such standards shall
be consistent with the performance require-
ments established under subsection (b)(3).
‘‘(ii) 
EVALUATION.—In 
conducting
evaluations of individual medicare adminis-
trative contractors, the Secretary shall
take into account the results of the moni-
toring conducted under subparagraph (A)
taking into account as performance re-
quirements 
the 
standards 
established
under clause (i). The Secretary shall, in
consultation 
with 
organizations 
rep-
resenting providers of services, suppliers,
and individuals entitled to benefits under
part A or enrolled under part B, or both,
establish standards relating to the accu-
319
racy, consistency, and timeliness of the in-
formation so provided.
‘‘(C) DIRECT
MONITORING.—Nothing in
this paragraph shall be construed as preventing
the Secretary from directly monitoring the ac-
curacy, consistency, and timeliness of the infor-
mation so provided.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall take effect October 1, 2003.
(3) APPLICATION TO FISCAL INTERMEDIARIES
AND CARRIERS.—The provisions of section 1874A(g)
of the Social Security Act, as added by paragraph
(1), shall apply to each fiscal intermediary under
section 1816 of the Social Security Act (42 U.S.C.
1395h) and each carrier under section 1842 of such
Act (42 U.S.C. 1395u) in the same manner as they
apply to medicare administrative contractors under
such provisions.
(d) IMPROVED PROVIDER EDUCATION AND TRAIN-
ING.—
(1) IN GENERAL.—Section 1889, as added by
subsection (a), is amended by adding at the end the
following new subsections:
‘‘(b) ENHANCED EDUCATION AND TRAINING.—
320
‘‘(1) ADDITIONAL RESOURCES.—There are au-
thorized to be appropriated to the Secretary (in ap-
propriate part from the Federal Hospital Insurance
Trust Fund and the Federal Supplementary Medical
Insurance Trust Fund) $25,000,000 for each of fis-
cal years 2004 and 2005 and such sums as may be
necessary for succeeding fiscal years.
‘‘(2) USE.—The funds made available under
paragraph (1) shall be used to increase the conduct
by medicare contractors of education and training of
providers of services and suppliers regarding billing,
coding, and other appropriate items and may also be
used to improve the accuracy, consistency, and time-
liness of contractor responses.
‘‘(c) TAILORING EDUCATION AND TRAINING ACTIVI-
TIES FOR SMALL PROVIDERS OR SUPPLIERS.—
‘‘(1) IN GENERAL.—Insofar as a medicare con-
tractor conducts education and training activities, it
shall tailor such activities to meet the special needs
of small providers of services or suppliers (as defined
in paragraph (2)).
‘‘(2) SMALL PROVIDER OF SERVICES OR SUP-
PLIER.—In this subsection, the term ‘small provider
of services or supplier’ means—
321
‘‘(A) a provider of services with fewer than
25 full-time-equivalent employees; or
‘‘(B) a supplier with fewer than 10 full-
time-equivalent employees.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall take effect on October 1,
2003.
(e) 
REQUIREMENT
TO
MAINTAIN
INTERNET
SITES.—
(1) IN GENERAL.—Section 1889, as added by
subsection (a) and as amended by subsection (d), is
further amended by adding at the end the following
new subsection:
‘‘(d) INTERNET SITES; FAQS.—The Secretary, and
each medicare contractor insofar as it provides services
(including claims processing) for providers of services or
suppliers, shall maintain an Internet site which—
‘‘(1) provides answers in an easily accessible
format to frequently asked questions, and
‘‘(2) includes other published materials of the
contractor,
that relate to providers of services and suppliers under the
programs under this title (and title XI insofar as it relates
to such programs).’’.
322
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall take effect on October 1,
2003.
(f) ADDITIONAL
PROVIDER
EDUCATION
PROVI-
SIONS.—
(1) IN GENERAL.—Section 1889, as added by
subsection (a) and as amended by subsections (d)
and (e), is further amended by adding at the end the
following new subsections:
‘‘(e) ENCOURAGEMENT OF PARTICIPATION IN EDU-
CATION PROGRAM ACTIVITIES.—A medicare contractor
may not use a record of attendance at (or failure to at-
tend) educational activities or other information gathered
during an educational program conducted under this sec-
tion or otherwise by the Secretary to select or track pro-
viders of services or suppliers for the purpose of con-
ducting any type of audit or prepayment review.
‘‘(f) CONSTRUCTION.—Nothing in this section or sec-
tion 1893(g) shall be construed as providing for disclosure
by a medicare contractor of information that would com-
promise pending law enforcement activities or reveal find-
ings of law enforcement-related audits.
‘‘(g) DEFINITIONS.—For purposes of this section, the
term ‘medicare contractor’ includes the following:
323
‘‘(1) A medicare administrative contractor with
a contract under section 1874A, including a fiscal
intermediary with a contract under section 1816 and
a carrier with a contract under section 1842.
‘‘(2) An eligible entity with a contract under
section 1893.
Such term does not include, with respect to activities of
a specific provider of services or supplier an entity that
has no authority under this title or title IX with respect
to such activities and such provider of services or sup-
plier.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall take effect on the date of the
enactment of this Act.
SEC. 822. SMALL PROVIDER TECHNICAL ASSISTANCE DEM-
ONSTRATION PROGRAM.
(a) ESTABLISHMENT.—
(1) IN GENERAL.—The Secretary shall establish
a demonstration program (in this section referred to
as the ‘‘demonstration program’’) under which tech-
nical assistance described in paragraph (2) is made
available, upon request and on a voluntary basis, to
small providers of services or suppliers in order to
improve compliance with the applicable requirements
of the programs under medicare program under title
324
XVIII of the Social Security Act (including provi-
sions of title XI of such Act insofar as they relate
to such title and are not administered by the Office
of the Inspector General of the Department of
Health and Human Services).
(2) FORMS OF TECHNICAL ASSISTANCE.—The
technical assistance described in this paragraph is—
(A) evaluation and recommendations re-
garding billing and related systems; and
(B) information and assistance regarding
policies and procedures under the medicare pro-
gram, including coding and reimbursement.
(3) SMALL PROVIDERS OF SERVICES OR SUP-
PLIERS.—In this section, the term ‘‘small providers
of services or suppliers’’ means—
(A) a provider of services with fewer than
25 full-time-equivalent employees; or
(B) a supplier with fewer than 10 full-
time-equivalent employees.
(b) QUALIFICATION
OF
CONTRACTORS.—In con-
ducting the demonstration program, the Secretary shall
enter into contracts with qualified organizations (such as
peer review organizations or entities described in section
1889(g)(2) of the Social Security Act, as inserted by sec-
tion 5(f)(1)) with appropriate expertise with billing sys-
325
tems of the full range of providers of services and sup-
pliers to provide the technical assistance. In awarding such
contracts, the Secretary shall consider any prior investiga-
tions of the entity’s work by the Inspector General of De-
partment of Health and Human Services or the Comp-
troller General of the United States.
(c) DESCRIPTION OF TECHNICAL ASSISTANCE.—The
technical assistance provided under the demonstration
program shall include a direct and in-person examination
of billing systems and internal controls of small providers
of services or suppliers to determine program compliance
and to suggest more efficient or effective means of achiev-
ing such compliance.
(d) AVOIDANCE OF RECOVERY ACTIONS FOR PROB-
LEMS IDENTIFIED AS CORRECTED.—The Secretary shall
provide that, absent evidence of fraud and notwith-
standing any other provision of law, any errors found in
a compliance review for a small provider of services or sup-
plier that participates in the demonstration program shall
not be subject to recovery action if the technical assistance
personnel under the program determine that—
(1) the problem that is the subject of the com-
pliance review has been corrected to their satisfac-
tion within 30 days of the date of the visit by such
326
personnel to the small provider of services or sup-
plier; and
(2) such problem remains corrected for such pe-
riod as is appropriate.
The previous sentence applies only to claims filed as part
of the demonstration program and lasts only for the dura-
tion of such program and only as long as the small pro-
vider of services or supplier is a participant in such pro-
gram.
(e) GAO EVALUATION.—Not later than 2 years after
the date of the date the demonstration program is first
implemented, the Comptroller General, in consultation
with the Inspector General of the Department of Health
and Human Services, shall conduct an evaluation of the
demonstration program. The evaluation shall include a de-
termination of whether claims error rates are reduced for
small providers of services or suppliers who participated
in the program and the extent of improper payments made
as a result of the demonstration program. The Comp-
troller General shall submit a report to the Secretary and
the Congress on such evaluation and shall include in such
report recommendations regarding the continuation or ex-
tension of the demonstration program.
(f) FINANCIAL PARTICIPATION BY PROVIDERS.—The
provision of technical assistance to a small provider of
327
services or supplier under the demonstration program is
conditioned upon the small provider of services or supplier
paying an amount estimated (and disclosed in advance of
a provider’s or supplier’s participation in the program) to
be equal to 25 percent of the cost of the technical assist-
ance.
(g) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated to the Secretary (in ap-
propriate part from the Federal Hospital Insurance Trust
Fund and the Federal Supplementary Medical Insurance
Trust Fund) to carry out the demonstration program—
(1) for fiscal year 2004, $1,000,000, and
(2) for fiscal year 2005, $6,000,000.
SEC. 823. MEDICARE PROVIDER OMBUDSMAN; MEDICARE
BENEFICIARY OMBUDSMAN.
(a) MEDICARE
PROVIDER
OMBUDSMAN.—Section
1868 (42 U.S.C. 1395ee) is amended—
(1) by adding at the end of the heading the fol-
lowing: ‘‘; MEDICARE PROVIDER OMBUDSMAN’’;
(2) by inserting ‘‘PRACTICING PHYSICIANS AD-
VISORY COUNCIL.—(1)’’ after ‘‘(a)’’;
(3) in paragraph (1), as so redesignated under
paragraph (2), by striking ‘‘in this section’’ and in-
serting ‘‘in this subsection’’;
328
(4) by redesignating subsections (b) and (c) as
paragraphs (2) and (3), respectively; and
(5) by adding at the end the following new sub-
section:
‘‘(b) MEDICARE PROVIDER OMBUDSMAN.—The Sec-
retary shall appoint within the Department of Health and
Human Services a Medicare Provider Ombudsman. The
Ombudsman shall—
‘‘(1) provide assistance, on a confidential basis,
to providers of services and suppliers with respect to
complaints, grievances, and requests for information
concerning the programs under this title (including
provisions of title XI insofar as they relate to this
title and are not administered by the Office of the
Inspector General of the Department of Health and
Human Services) and in the resolution of unclear or
conflicting guidance given by the Secretary and
medicare contractors to such providers of services
and suppliers regarding such programs and provi-
sions and requirements under this title and such
provisions; and
‘‘(2) submit recommendations to the Secretary
for improvement in the administration of this title
and such provisions, including—
329
‘‘(A) recommendations to respond to recur-
ring patterns of confusion in this title and such
provisions (including recommendations regard-
ing suspending imposition of sanctions where
there is widespread confusion in program ad-
ministration), and
‘‘(B) recommendations to provide for an
appropriate and consistent response (including
not providing for audits) in cases of self-identi-
fied overpayments by providers of services and
suppliers.
The Ombudsman shall not serve as an advocate for any
increases in payments or new coverage of services, but
may identify issues and problems in payment or coverage
policies.’’.
(b) MEDICARE BENEFICIARY OMBUDSMAN.—Title
XVIII, as amended by sections 105 and 701, is amended
by inserting after section 1808 the following new section:
‘‘MEDICARE BENEFICIARY OMBUDSMAN
‘‘SEC. 1809. (a) IN GENERAL.—The Secretary shall
appoint within the Department of Health and Human
Services a Medicare Beneficiary Ombudsman who shall
have expertise and experience in the fields of health care
and education of (and assistance to) individuals entitled
to benefits under this title.
330
‘‘(b) DUTIES.—The Medicare Beneficiary Ombuds-
man shall—
‘‘(1) receive complaints, grievances, and re-
quests for information submitted by individuals enti-
tled to benefits under part A or enrolled under part
B, or both, with respect to any aspect of the medi-
care program;
‘‘(2) provide assistance with respect to com-
plaints, grievances, and requests referred to in para-
graph (1), including—
‘‘(A) assistance in collecting relevant infor-
mation for such individuals, to seek an appeal
of a decision or determination made by a fiscal
intermediary, carrier, Medicare+Choice organi-
zation, or the Secretary; and
‘‘(B) assistance to such individuals with
any problems arising from disenrollment from a
Medicare+Choice plan under part C; and
‘‘(3) submit annual reports to Congress and the
Secretary that describe the activities of the Office
and that include such recommendations for improve-
ment in the administration of this title as the Om-
budsman determines appropriate.
The Ombudsman shall not serve as an advocate for any
increases in payments or new coverage of services, but
331
may identify issues and problems in payment or coverage
policies.
‘‘(c) WORKING WITH HEALTH INSURANCE COUN-
SELING PROGRAMS.—To the extent possible, the Ombuds-
man shall work with health insurance counseling programs
(receiving funding under section 4360 of Omnibus Budget
Reconciliation Act of 1990) to facilitate the provision of
information to individuals entitled to benefits under part
A or enrolled under part B, or both regarding
Medicare+Choice plans and changes to those plans. Noth-
ing in this subsection shall preclude further collaboration
between the Ombudsman and such programs.’’.
(c) DEADLINE FOR APPOINTMENT.—The Secretary
shall appoint the Medicare Provider Ombudsman and the
Medicare Beneficiary Ombudsman, under the amendments
made by subsections (a) and (b), respectively, by not later
than 1 year after the date of the enactment of this Act.
(d) FUNDING.—There are authorized to be appro-
priated to the Secretary (in appropriate part from the
Federal Hospital Insurance Trust Fund and the Federal
Supplementary Medical Insurance Trust Fund) to carry
out the provisions of subsection (b) of section 1868 of the
Social Security Act (relating to the Medicare Provider
Ombudsman), as added by subsection (a)(5) and section
1809 of such Act (relating to the Medicare Beneficiary
332
Ombudsman), as added by subsection (b), such sums as
are necessary for fiscal year 2003 and each succeeding fis-
cal year.
(e) USE OF CENTRAL, TOLL-FREE NUMBER (1-800-
MEDICARE).—
(1) PHONE TRIAGE SYSTEM; LISTING IN MEDI-
CARE HANDBOOK INSTEAD OF OTHER TOLL-FREE
NUMBERS.—Section 1804(b) (42 U.S.C. 1395b–
2(b)) is amended by adding at the end the following:
‘‘The Secretary shall provide, through the toll-free
number 1-800-MEDICARE, for a means by which
individuals seeking information about, or assistance
with, such programs who phone such toll-free num-
ber are transferred (without charge) to appropriate
entities for the provision of such information or as-
sistance. Such toll-free number shall be the toll-free
number listed for general information and assistance
in the annual notice under subsection (a) instead of
the listing of numbers of individual contractors.’’.
(2) MONITORING ACCURACY.—
(A) STUDY.—The Comptroller General of
the United States shall conduct a study to mon-
itor the accuracy and consistency of information
provided to individuals entitled to benefits
under part A or enrolled under part B, or both,
333
through the toll-free number 1-800-MEDI-
CARE, including an assessment of whether the
information provided is sufficient to answer
questions of such individuals. In conducting the
study, the Comptroller General shall examine
the education and training of the individuals
providing information through such number.
(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 subpara-
graph (A).
SEC. 824. BENEFICIARY OUTREACH DEMONSTRATION PRO-
GRAM.
(a) IN GENERAL.—The Secretary shall establish a
demonstration program (in this section referred to as the
‘‘demonstration program’’) under which medicare special-
ists employed by the Department of Health and Human
Services provide advice and assistance to individuals enti-
tled to benefits under part A of title XVIII of the Social
Security Act, or enrolled under part B of such title, or
both, regarding the medicare program at the location of
existing local offices of the Social Security Administration.
(b) LOCATIONS.—
334
(1) IN GENERAL.—The demonstration program
shall be conducted in at least 6 offices or areas.
Subject to paragraph (2), in selecting such offices
and areas, the Secretary shall provide preference for
offices with a high volume of visits by individuals re-
ferred to in subsection (a).
(2) ASSISTANCE FOR RURAL BENEFICIARIES.—
The Secretary shall provide for the selection of at
least 2 rural areas to participate in the demonstra-
tion program. In conducting the demonstration pro-
gram in such rural areas, the Secretary shall provide
for medicare specialists to travel among local offices
in a rural area on a scheduled basis.
(c) DURATION.—The demonstration program shall be
conducted over a 3-year period.
(d) EVALUATION AND REPORT.—
(1) EVALUATION.—The Secretary shall provide
for an evaluation of the demonstration program.
Such evaluation shall include an analysis of—
(A) utilization of, and satisfaction of those
individuals referred to in subsection (a) with,
the assistance provided under the program; and
(B) the cost-effectiveness of providing ben-
eficiary assistance through out-stationing medi-
335
care specialists at local offices of the Social Se-
curity Administration.
(2) REPORT.—The Secretary shall submit to
Congress a report on such evaluation and shall in-
clude in such report recommendations regarding the
feasibility of permanently out-stationing medicare
specialists at local offices of the Social Security Ad-
ministration.
Subtitle D—Appeals and Recovery
SEC. 831. TRANSFER OF RESPONSIBILITY FOR MEDICARE
APPEALS.
(a) TRANSITION PLAN.—
(1) IN GENERAL.—Not later than October 1,
2003, the Commissioner of Social Security and the
Secretary shall develop and transmit to Congress
and the Comptroller General of the United States a
plan under which the functions of administrative law
judges responsible for hearing cases under title
XVIII of the Social Security Act (and related provi-
sions in title XI of such Act) are transferred from
the responsibility of the Commissioner and the So-
cial Security Administration to the Secretary and
the Department of Health and Human Services.
(2) GAO EVALUATION.—The Comptroller Gen-
eral of the United States shall evaluate the plan
336
and, not later than the date that is 6 months after
the date on which the plan is received by the Comp-
troller General, shall submit to Congress a report on
such evaluation.
(b) TRANSFER OF ADJUDICATION AUTHORITY.—
(1) IN
GENERAL.—Not earlier than July 1,
2004, and not later than October 1, 2004, the Com-
missioner of Social Security and the Secretary shall
implement the transition plan under subsection (a)
and transfer the administrative law judge functions
described in such subsection from the Social Secu-
rity Administration to the Secretary.
(2) ASSURING INDEPENDENCE OF JUDGES.—
The Secretary shall assure the independence of ad-
ministrative law judges performing the administra-
tive law judge functions transferred under para-
graph (1) from the Centers for Medicare & Medicaid
Services and its contractors.
(3) GEOGRAPHIC
DISTRIBUTION.—The Sec-
retary shall provide for an appropriate geographic
distribution of administrative law judges performing
the administrative law judge functions transferred
under paragraph (1) throughout the United States
to ensure timely access to such judges.
337
(4) 
HIRING
AUTHORITY.—Subject 
to 
the
amounts provided in advance in appropriations Act,
the Secretary shall have authority to hire adminis-
trative law judges to hear such cases, giving priority
to those judges with prior experience in handling
medicare appeals and in a manner consistent with
paragraph (3), and to hire support staff for such
judges.
(5) FINANCING.—Amounts payable under law
to the Commissioner for administrative law judges
performing the administrative law judge functions
transferred under paragraph (1) from the Federal
Hospital Insurance Trust Fund and the Federal
Supplementary Medical Insurance Trust Fund shall
become payable to the Secretary for the functions so
transferred.
(6) SHARED RESOURCES.—The Secretary shall
enter into such arrangements with the Commissioner
as may be appropriate with respect to transferred
functions of administrative law judges to share office
space, support staff, and other resources, with ap-
propriate reimbursement from the Trust Funds de-
scribed in paragraph (5).
(c) INCREASED FINANCIAL SUPPORT.—In addition to
any amounts otherwise appropriated, to ensure timely ac-
338
tion on appeals before administrative law judges and the
Departmental Appeals Board consistent with section 1869
of the Social Security Act (as amended by section 521 of
BIPA, 114 Stat. 2763A–534), there are authorized to be
appropriated (in appropriate part from the Federal Hos-
pital Insurance Trust Fund and the Federal Supple-
mentary Medical Insurance Trust Fund) to the Secretary
such sums as are necessary for fiscal year 2004 and each
subsequent fiscal year to—
(1) increase the number of administrative law
judges (and their staffs) under subsection (b)(4);
(2) improve education and training opportuni-
ties for administrative law judges (and their staffs);
and
(3) increase the staff of the Departmental Ap-
peals Board.
(d) 
CONFORMING
AMENDMENT.—Section
1869(f)(2)(A)(i) (42 U.S.C. 1395ff(f)(2)(A)(i)), as added
by section 522(a) of BIPA (114 Stat. 2763A–543), is
amended by striking ‘‘of the Social Security Administra-
tion’’.
SEC. 832. PROCESS FOR EXPEDITED ACCESS TO REVIEW.
(a) EXPEDITED ACCESS TO JUDICIAL REVIEW.—Sec-
tion 1869(b) (42 U.S.C. 1395ff(b)) as amended by BIPA,
is amended—
339
(1) in paragraph (1)(A), by inserting ‘‘, subject
to paragraph (2),’’ before ‘‘to judicial review of the
Secretary’s final decision’’;
(2) in paragraph (1)(F)—
(A) by striking clause (ii);
(B) by striking ‘‘PROCEEDING’’ and all
that follows through ‘‘DETERMINATION’’ and in-
serting ‘‘DETERMINATIONS
AND
RECONSIDER-
ATIONS’’; and
(C) by redesignating subclauses (I) and
(II) as clauses (i) and (ii) and by moving the
indentation of such subclauses (and the matter
that follows) 2 ems to the left; and
(3) by adding at the end the following new
paragraph:
‘‘(2) EXPEDITED
ACCESS
TO
JUDICIAL
RE-
VIEW.—
‘‘(A) IN
GENERAL.—The Secretary shall
establish a process under which a provider of
services or supplier that furnishes an item or
service or an individual entitled to benefits
under part A or enrolled under part B, or both,
who has filed an appeal under paragraph (1)
may obtain access to judicial review when a re-
view panel (described in subparagraph (D)), on
340
its own motion or at the request of the appel-
lant, determines that no entity in the adminis-
trative appeals process has the authority to de-
cide the question of law or regulation relevant
to the matters in controversy and that there is
no material issue of fact in dispute. The appel-
lant may make such request only once with re-
spect to a question of law or regulation in a
case of an appeal.
‘‘(B) PROMPT DETERMINATIONS.—If, after
or coincident with appropriately filing a request
for an administrative hearing, the appellant re-
quests a determination by the appropriate re-
view panel that no review panel has the author-
ity to decide the question of law or regulations
relevant to the matters in controversy and that
there is no material issue of fact in dispute and
if such request is accompanied by the docu-
ments and materials as the appropriate review
panel shall require for purposes of making such
determination, such review panel shall make a
determination on the request in writing within
60 days after the date such review panel re-
ceives the request and such accompanying docu-
ments and materials. Such a determination by
341
such review panel shall be considered a final de-
cision and not subject to review by the Sec-
retary.
‘‘(C) ACCESS TO JUDICIAL REVIEW.—
‘‘(i) IN GENERAL.—If the appropriate
review panel—
‘‘(I) determines that there are no
material issues of fact in dispute and
that the only issue is one of law or
regulation that no review panel has
the authority to decide; or
‘‘(II) fails to make such deter-
mination within the period provided
under subparagraph (B);
then the appellant may bring a civil action
as described in this subparagraph.
‘‘(ii) DEADLINE
FOR
FILING.—Such
action shall be filed, in the case described
in—
‘‘(I) clause (i)(I), within 60 days
of date of the determination described
in such subparagraph; or
‘‘(II) clause (i)(II), within 60
days of the end of the period provided
342
under subparagraph (B) for the deter-
mination.
‘‘(iii) VENUE.—Such action shall be
brought in the district court of the United
States for the judicial district in which the
appellant is located (or, in the case of an
action brought jointly by more than one
applicant, the judicial district in which the
greatest number of applicants are located)
or in the district court for the District of
Columbia.
‘‘(iv) INTEREST ON AMOUNTS IN CON-
TROVERSY.—Where a provider of services
or supplier seeks judicial review pursuant
to this paragraph, the amount in con-
troversy shall be subject to annual interest
beginning on the first day of the first
month beginning after the 60-day period
as determined pursuant to clause (ii) and
equal to the rate of interest on obligations
issued for purchase by the Federal Hos-
pital Insurance Trust Fund and by the
Federal Supplementary Medical Insurance
Trust Fund for the month in which the
civil action authorized under this para-
343
graph is commenced, to be awarded by the
reviewing court in favor of the prevailing
party. No interest awarded pursuant to the
preceding sentence shall be deemed income
or cost for the purposes of determining re-
imbursement due providers of services or
suppliers under this Act.
‘‘(D) REVIEW PANELS.—For purposes of
this subsection, a ‘review panel’ is a panel con-
sisting of 3 members (who shall be administra-
tive law judges, members of the Departmental
Appeals Board, or qualified individuals associ-
ated with a qualified independent contractor (as
defined in subsection (c)(2)) or with another
independent entity) designated by the Secretary
for purposes of making determinations under
this paragraph.’’.
(b) APPLICATION TO PROVIDER AGREEMENT DETER-
MINATIONS.—Section 
1866(h)(1) 
(42 
U.S.C.
1395cc(h)(1)) is amended—
(1) by inserting ‘‘(A)’’ after ‘‘(h)(1)’’; and
(2) by adding at the end the following new sub-
paragraph:
‘‘(B) An institution or agency described in subpara-
graph (A) that has filed for a hearing under subparagraph
344
(A) shall have expedited access to judicial review under
this subparagraph in the same manner as providers of
services, suppliers, and individuals entitled to benefits
under part A or enrolled under part B, or both, may ob-
tain expedited access to judicial review under the process
established under section 1869(b)(2). Nothing in this sub-
paragraph shall be construed to affect the application of
any remedy imposed under section 1819 during the pend-
ency of an appeal under this subparagraph.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to appeals filed on or after October
1, 2003.
(d) EXPEDITED REVIEW
OF CERTAIN PROVIDER
AGREEMENT DETERMINATIONS.—
(1) TERMINATION AND CERTAIN OTHER IMME-
DIATE REMEDIES.—The Secretary shall develop and
implement a process to expedite proceedings under
sections 1866(h) of the Social Security Act (42
U.S.C. 1395cc(h)) in which the remedy of termi-
nation of participation, or a remedy described in
clause (i) or (iii) of section 1819(h)(2)(B) of such
Act (42 U.S.C. 1395i–3(h)(2)(B)) which is applied
on an immediate basis, has been imposed. Under
such process priority shall be provided in cases of
termination.
345
(2) INCREASED FINANCIAL SUPPORT.—In addi-
tion to any amounts otherwise appropriated, to re-
duce by 50 percent the average time for administra-
tive determinations on appeals under section
1866(h) of the Social Security Act (42 U.S.C.
1395cc(h)), there are authorized to be appropriated
(in appropriate part from the Federal Hospital In-
surance Trust Fund and the Federal Supplementary
Medical Insurance Trust Fund) to the Secretary
such additional sums for fiscal year 2004 and each
subsequent fiscal year as may be necessary. The
purposes for which such amounts are available in-
clude increasing the number of administrative law
judges (and their staffs) and the appellate level staff
at the Departmental Appeals Board of the Depart-
ment of Health and Human Services and educating
such judges and staffs on long-term care issues.
SEC. 833. REVISIONS TO MEDICARE APPEALS PROCESS.
(a) REQUIRING FULL AND EARLY PRESENTATION OF
EVIDENCE.—
(1) IN GENERAL.—Section 1869(b) (42 U.S.C.
1395ff(b)), as amended by BIPA and as amended by
section 832(a), is further amended by adding at the
end the following new paragraph:
346
‘‘(3) REQUIRING
FULL
AND
EARLY
PRESEN-
TATION OF EVIDENCE BY PROVIDERS.—A provider
of services or supplier may not introduce evidence in
any appeal under this section that was not presented
at the reconsideration conducted by the qualified
independent contractor under subsection (c), unless
there is good cause which precluded the introduction
of such evidence at or before that reconsideration.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall take effect on October 1,
2003.
(b) USE OF PATIENTS’ MEDICAL RECORDS.—Section
1869(c)(3)(B)(i) (42 U.S.C. 1395ff(c)(3)(B)(i)), as
amended by BIPA, is amended by inserting ‘‘(including
the medical records of the individual involved)’’ after
‘‘clinical experience’’.
(c) NOTICE REQUIREMENTS
FOR MEDICARE AP-
PEALS.—
(1) INITIAL DETERMINATIONS AND REDETER-
MINATIONS.—Section 
1869(a) 
(42 
U.S.C.
1395ff(a)), as amended by BIPA, is amended by
adding at the end the following new paragraph:
‘‘(4) REQUIREMENTS
OF
NOTICE
OF
DETER-
MINATIONS
AND
REDETERMINATIONS.—A written
notice of a determination on an initial determination
347
or on a redetermination, insofar as such determina-
tion or redetermination results in a denial of a claim
for benefits, shall include—
‘‘(A) the specific reasons for the deter-
mination, including—
‘‘(i) upon request, the provision of the
policy, manual, or regulation used in mak-
ing the determination; and
‘‘(ii) as appropriate in the case of a
redetermination, a summary of the clinical
or scientific evidence used in making the
determination;
‘‘(B) the procedures for obtaining addi-
tional information concerning the determination
or redetermination; and
‘‘(C) notification of the right to seek a re-
determination or otherwise appeal the deter-
mination and instructions on how to initiate
such a redetermination or appeal under this
section.
The written notice on a redetermination shall be
provided in printed form and written in a manner
calculated to be understood by the individual entitled
to benefits under part A or enrolled under part B,
or both.’’.
348
(2) 
RECONSIDERATIONS.—Section
1869(c)(3)(E) (42 U.S.C. 1395ff(c)(3)(E)), as
amended by BIPA, is amended—
(A) by inserting ‘‘be written in a manner
calculated to be understood by the individual
entitled to benefits under part A or enrolled
under part B, or both, and shall include (to the
extent appropriate)’’ after ‘‘in writing, ’’; and
(B) by inserting ‘‘and a notification of the
right to appeal such determination and instruc-
tions on how to initiate such appeal under this
section’’ after ‘‘such decision,’’.
(3) APPEALS.—Section 1869(d) (42 U.S.C.
1395ff(d)), as amended by BIPA, is amended—
(A) in the heading, by inserting ‘‘; NO-
TICE’’ after ‘‘SECRETARY’’; and
(B) by adding at the end the following new
paragraph:
‘‘(4) NOTICE.—Notice of the decision of an ad-
ministrative law judge shall be in writing in a man-
ner calculated to be understood by the individual en-
titled to benefits under part A or enrolled under part
B, or both, and shall include—
‘‘(A) the specific reasons for the deter-
mination (including, to the extent appropriate,
349
a summary of the clinical or scientific evidence
used in making the determination);
‘‘(B) the procedures for obtaining addi-
tional information concerning the decision; and
‘‘(C) notification of the right to appeal the
decision and instructions on how to initiate
such an appeal under this section.’’.
(4) SUBMISSION
OF
RECORD
FOR
APPEAL.—
Section 
1869(c)(3)(J)(i) 
(42 
U.S.C.
1395ff(c)(3)(J)(i)) by striking ‘‘prepare’’ and insert-
ing ‘‘submit’’ and by striking ‘‘with respect to’’ and
all that follows through ‘‘and relevant policies’’.
(d) QUALIFIED INDEPENDENT CONTRACTORS.—
(1) ELIGIBILITY REQUIREMENTS OF QUALIFIED
INDEPENDENT
CONTRACTORS.—Section 1869(c)(3)
(42 U.S.C. 1395ff(c)(3)), as amended by BIPA, is
amended—
(A) in subparagraph (A), by striking ‘‘suf-
ficient training and expertise in medical science
and legal matters’’ and inserting ‘‘sufficient
medical, legal, and other expertise (including
knowledge of the program under this title) and
sufficient staffing’’; and
(B) by adding at the end the following new
subparagraph:
350
‘‘(K) INDEPENDENCE REQUIREMENTS.—
‘‘(i) IN GENERAL.—Subject to clause
(ii), a qualified independent contractor
shall not conduct any activities in a case
unless the entity—
‘‘(I) is not a related party (as de-
fined in subsection (g)(5));
‘‘(II) does not have a material fa-
milial, financial, or professional rela-
tionship with such a party in relation
to such case; and
‘‘(III) does not otherwise have a
conflict of interest with such a party.
‘‘(ii) EXCEPTION
FOR
REASONABLE
COMPENSATION.—Nothing in clause (i)
shall be construed to prohibit receipt by a
qualified independent contractor of com-
pensation from the Secretary for the con-
duct of activities under this section if the
compensation is provided consistent with
clause (iii).
‘‘(iii) LIMITATIONS ON ENTITY COM-
PENSATION.—Compensation provided by
the Secretary to a qualified independent
contractor in connection with reviews
351
under this section shall not be contingent
on any decision rendered by the contractor
or by any reviewing professional.’’.
(2) ELIGIBILITY REQUIREMENTS FOR REVIEW-
ERS.—Section 1869 (42 U.S.C. 1395ff), as amended
by BIPA, is amended—
(A) by amending subsection (c)(3)(D) to
read as follows:
‘‘(D) QUALIFICATIONS FOR REVIEWERS.—
The requirements of subsection (g) shall be met
(relating to qualifications of reviewing profes-
sionals).’’; and
(B) by adding at the end the following new
subsection:
‘‘(g) QUALIFICATIONS OF REVIEWERS.—
‘‘(1) IN
GENERAL.—In reviewing determina-
tions under this section, a qualified independent con-
tractor shall assure that—
‘‘(A) each individual conducting a review
shall meet the qualifications of paragraph (2);
‘‘(B) compensation provided by the con-
tractor to each such reviewer is consistent with
paragraph (3); and
‘‘(C) in the case of a review by a panel de-
scribed in subsection (c)(3)(B) composed of
352
physicians or other health care professionals
(each in this subsection referred to as a ‘review-
ing professional’), each reviewing professional
meets the qualifications described in paragraph
(4) and, where a claim is regarding the fur-
nishing of treatment by a physician (allopathic
or osteopathic) or the provision of items or
services by a physician (allopathic or osteo-
pathic), each reviewing professional shall be a
physician (allopathic or osteopathic).
‘‘(2) INDEPENDENCE.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), each individual conducting a review
in a case shall—
‘‘(i) not be a related party (as defined
in paragraph (5));
‘‘(ii) not have a material familial, fi-
nancial, or professional relationship with
such a party in the case under review; and
‘‘(iii) not otherwise have a conflict of
interest with such a party.
‘‘(B) EXCEPTION.—Nothing in subpara-
graph (A) shall be construed to—
‘‘(i) prohibit an individual, solely on
the basis of a participation agreement with
353
a fiscal intermediary, carrier, or other con-
tractor, from serving as a reviewing profes-
sional if—
‘‘(I) the individual is not involved
in the provision of items or services in
the case under review;
‘‘(II) the fact of such an agree-
ment is disclosed to the Secretary and
the individual entitled to benefits
under part A or enrolled under part
B, or both, (or authorized representa-
tive) and neither party objects; and
‘‘(III) the individual is not an
employee of the intermediary, carrier,
or contractor and does not provide
services exclusively or primarily to or
on behalf of such intermediary, car-
rier, or contractor;
‘‘(ii) prohibit an individual who has
staff privileges at the institution where the
treatment involved takes place from serv-
ing as a reviewer merely on the basis of
having such staff privileges if the existence
of such privileges is disclosed to the Sec-
retary and such individual (or authorized
354
representative), and neither party objects;
or
‘‘(iii) prohibit receipt of compensation
by a reviewing professional from a con-
tractor if the compensation is provided
consistent with paragraph (3).
For purposes of this paragraph, the term ‘par-
ticipation agreement’ means an agreement re-
lating to the provision of health care services by
the individual and does not include the provi-
sion of services as a reviewer under this sub-
section.
‘‘(3) LIMITATIONS
ON
REVIEWER
COMPENSA-
TION.—Compensation provided by a qualified inde-
pendent contractor to a reviewer in connection with
a review under this section shall not be contingent
on the decision rendered by the reviewer.
‘‘(4) LICENSURE
AND
EXPERTISE.—Each re-
viewing professional shall be—
‘‘(A) a physician (allopathic or osteopathic)
who is appropriately credentialed or licensed in
one or more States to deliver health care serv-
ices and has medical expertise in the field of
practice that is appropriate for the items or
services at issue; or
355
‘‘(B) a health care professional who is le-
gally authorized in one or more States (in ac-
cordance with State law or the State regulatory
mechanism provided by State law) to furnish
the health care items or services at issue and
has medical expertise in the field of practice
that is appropriate for such items or services.
‘‘(5) RELATED PARTY DEFINED.—For purposes
of this section, the term ‘related party’ means, with
respect to a case under this title involving a specific
individual entitled to benefits under part A or en-
rolled under part B, or both, any of the following:
‘‘(A) The Secretary, the medicare adminis-
trative contractor involved, or any fiduciary, of-
ficer, director, or employee of the Department
of Health and Human Services, or of such con-
tractor.
‘‘(B) The individual (or authorized rep-
resentative).
‘‘(C) The health care professional that pro-
vides the items or services involved in the case.
‘‘(D) The institution at which the items or
services (or treatment) involved in the case are
provided.
356
‘‘(E) The manufacturer of any drug or
other item that is included in the items or serv-
ices involved in the case.
‘‘(F) Any other party determined under
any regulations to have a substantial interest in
the case involved.’’.
(3) EFFECTIVE DATE.—The amendments made
by paragraphs (1) and (2) shall be effective as if in-
cluded in the enactment of the respective provisions
of subtitle C of title V of BIPA, (114 Stat. 2763A–
534).
(4) TRANSITION.—In applying section 1869(g)
of the Social Security Act (as added by paragraph
(2)), any reference to a medicare administrative con-
tractor shall be deemed to include a reference to a
fiscal intermediary under section 1816 of the Social
Security Act (42 U.S.C. 1395h) and a carrier under
section 1842 of such Act (42 U.S.C. 1395u).
SEC. 834. PREPAYMENT REVIEW.
(a) IN GENERAL.—Section 1874A, as added by sec-
tion 811(a)(1) and as amended by sections 812(b),
821(b)(1), and 821(c)(1), is further amended by adding
at the end the following new subsection:
‘‘(h) CONDUCT OF PREPAYMENT REVIEW.—
367
‘‘(ii) in order to resolve the overpay-
ment, may offer the provider of services or
supplier—
‘‘(I) the opportunity for a statis-
tically valid random sample; or
‘‘(II) a consent settlement.
The opportunity provided under clause (ii)(I)
does not waive any appeal rights with respect to
the alleged overpayment involved.
‘‘(D) CONSENT SETTLEMENT DEFINED.—
For purposes of this paragraph, the term ‘con-
sent settlement’ means an agreement between
the Secretary and a provider of services or sup-
plier whereby both parties agree to settle a pro-
jected overpayment based on less than a statis-
tically valid sample of claims and the provider
of services or supplier agrees not to appeal the
claims involved.
‘‘(6) 
NOTICE
OF
OVER-UTILIZATION
OF
CODES.—The Secretary shall establish, in consulta-
tion with organizations representing the classes of
providers of services and suppliers, a process under
which the Secretary provides for notice to classes of
providers of services and suppliers served by the con-
tractor in cases in which the contractor has identi-
373
under the procedures that apply under subsection
(h)(1)(A) to a provider of services that is dissatisfied
with a determination by the Secretary.’’.
(b) EFFECTIVE DATES.—
(1) ENROLLMENT
PROCESS.—The Secretary
shall provide for the establishment of the enrollment
process under section 1866(j)(1) of the Social Secu-
rity Act, as added by subsection (a)(2), within 6
months after the date of the enactment of this Act.
(2) CONSULTATION.—Section 1866(j)(1)(C) of
the Social Security Act, as added by subsection
(a)(2), shall apply with respect to changes in pro-
vider enrollment forms made on or after January 1,
2003.
(3) HEARING RIGHTS.—Section 1866(j)(2) of
the Social Security Act, as added by subsection
(a)(2), shall apply to denials occurring on or after
such date (not later than 1 year after the date of
the enactment of this Act) as the Secretary specifies.
SEC. 837. PROCESS FOR CORRECTION OF MINOR ERRORS
AND OMISSIONS ON CLAIMS WITHOUT PUR-
SUING APPEALS PROCESS.
The Secretary shall develop, in consultation with ap-
propriate medicare contractors (as defined in section
1889(g) of the Social Security Act, as inserted by section
385
and specialists) and provided for an assessment of
the proposed guidelines by the physician community;
(2) has established a plan that contains specific
goals, including a schedule, for improving the use of
such guidelines;
(3) has conducted appropriate and representa-
tive pilot projects under subsection (b) to test modi-
fications to the evaluation and management docu-
mentation guidelines;
(4) finds that the objectives described in sub-
section (c) will be met in the implementation of such
guidelines; and
(5) has established, and is implementing, a pro-
gram to educate physicians on the use of such guide-
lines and that includes appropriate outreach.
The Secretary shall make changes to the manner in which
existing evaluation and management documentation guide-
lines are implemented to reduce paperwork burdens on
physicians.
(b) PILOT PROJECTS TO TEST EVALUATION AND
MANAGEMENT DOCUMENTATION GUIDELINES.—
(1) IN GENERAL.—The Secretary shall conduct
under this subsection appropriate and representative
pilot projects to test new evaluation and manage-