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VESTMENT INTEREST
IN PUBLICLY TRADED
SECURITIES AND MUTUAL FUNDS’’; and
(B) in the matter preceding paragraph (1),
by striking ‘‘subsection (a)(2)(A)’’ and inserting
‘‘subsection (a)(2)’’.
(3) In subsection (d)—
(A) by striking the matter preceding para-
graph (1);
(B) in paragraph (3), by striking ‘‘para-
graph (1)’’ and inserting ‘‘paragraph (4)’’; and
(C) by redesignating paragraphs (1), (2),
and (3) as paragraphs (4), (5), and (6), and by
transferring and inserting such paragraphs
after paragraph (3) of subsection (b).
(4) By striking subsection (e).
(5) In subsection (f)(2)—
(A) in the matter preceding paragraph (1),
by striking ‘‘ownership, investment, and com-
pensation’’ and inserting ‘‘ownership and in-
vestment’’;
(B) in paragraph (2), by striking ‘‘sub-
section (a)(2)(A)’’ and all that follows through
‘‘subsection (a)(2)(B)),’’ and inserting ‘‘sub-
section (a)(2),’’; and
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(C) in paragraph (2), by striking ‘‘or who
have such a compensation relationship with the
entity’’.
(6) In subsection (h)—
(A) by striking paragraphs (1), (2), and
(3);
(B) in paragraph (4)(A), by striking
clauses (iv) and (vi);
(C) in paragraph (4)(B), by striking
‘‘RULES.—’’ and all that follows through ‘‘(ii)
FACULTY’’ and inserting ‘‘RULES
FOR
FAC-
ULTY’’; and
(D) by adding at the end of paragraph (4)
the following new subparagraph:
‘‘(C) MEMBER OF A GROUP.—A physician
is a ‘member’ of a group if the physician is an
owner or a bona fide employee, or both, of the
group.’’.
SEC. 15202. REVISION OF DESIGNATED HEALTH SERVICES
SUBJECT TO PROHIBITION.
(a) IN GENERAL.—Section 1877(h)(6) (42 U.S.C.
1395nn(h)(6)) is amended by striking subparagraphs (B)
through (K) and inserting the following:
‘‘(B) Parenteral and enteral nutrients,
equipment, and supplies.
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‘‘(C) Magnetic resonance imaging and
computerized tomography services.
‘‘(D) Outpatient physical or occupational
therapy services.’’.
(b) CONFORMING AMENDMENTS.—
(1) 
Section 
1877(b)(2) 
(42 
U.S.C.
1395nn(b)(2)) is amended in the matter preceding
subparagraph (A) by striking ‘‘services’’ and all that
follows through ‘‘supplies)—’’ and inserting ‘‘serv-
ices—’’.
(2) 
Section 
1877(h)(5)(C) 
(42 
U.S.C.
1395nn(h)(5)(C)) is amended—
(A) by striking ‘‘, a request by a radiolo-
gist for diagnostic radiology services, and a re-
quest by a radiation oncologist for radiation
therapy,’’ and inserting ‘‘and a request by a ra-
diologist for magnetic resonance imaging or for
computerized tomography’’, and
(B) by striking ‘‘radiologist, or radiation
oncologist’’ and inserting ‘‘or radiologist’’.
SEC. 15203. DELAY IN IMPLEMENTATION UNTIL PROMUL-
GATION OF REGULATIONS.
(a) IN GENERAL.—Section 13562(b) of OBRA–1993
(42 U.S.C. 1395nn note) is amended—
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(1) in paragraph (1), by striking ‘‘paragraph
(2)’’ and inserting ‘‘paragraphs (2) and (3)’’; and
(2) by adding at the end the following new
paragraph:
‘‘(3) PROMULGATION OF REGULATIONS.—Not-
withstanding paragraphs (1) and (2), the amend-
ments made by this section shall not apply to any
referrals made before the effective date of final regu-
lations promulgated by the Secretary of Health and
Human Services to carry out such amendments.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall take effect as if included in the enact-
ment of OBRA–1993.
SEC. 15204. EXCEPTIONS TO PROHIBITION.
(a) REVISIONS TO EXCEPTION FOR IN-OFFICE AN-
CILLARY SERVICES.—
(1) REPEAL
OF
SITE-OF-SERVICE
REQUIRE-
MENT.—Section 1877 (42 U.S.C. 1395nn) is amend-
ed—
(A) by amending subparagraph (A) of sub-
section (b)(2) to read as follows:
‘‘(A) that are furnished personally by the
referring physician, personally by a physician
who is a member of the same group practice as
the referring physician, or personally by individ-
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uals who are under the general supervision of
the physician or of another physician in the
group practice, and’’, and
(B) by adding at the end of subsection (h)
the following new paragraph:
‘‘(7) GENERAL SUPERVISION.—An individual is
considered to be under the ‘general supervision’ of a
physician if the physician (or group practice of
which the physician is a member) is legally respon-
sible for the services performed by the individual and
for ensuring that the individual meets licensure and
certification requirements, if any, applicable under
other provisions of law, regardless of whether or not
the physician is physically present when the individ-
ual furnishes an item or service.’’.
(2) CLARIFICATION OF TREATMENT OF PHYSI-
CIAN
OWNERS
OF
GROUP
PRACTICE.—Section
1877(b)(2)(B) (42 U.S.C. 1395nn(b)(2)(B)) is
amended by striking ‘‘physician or such group prac-
tice’’ and inserting ‘‘physician, such group practice,
or the physician owners of such group practice’’.
(3) 
CONFORMING
AMENDMENT.—Section
1877(b)(2) (42 U.S.C. 1395nn(b)(2)) is amended by
amending the heading to read as follows: ‘‘ANCIL-
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LARY
SERVICES
FURNISHED
PERSONALLY
OR
THROUGH GROUP PRACTICE.—’’.
(b) CLARIFICATION OF EXCEPTION FOR SERVICES
FURNISHED IN A RURAL AREA.—Paragraph (5) of section
1877(b) (42 U.S.C. 1395nn(b)), as transferred by section
15201(b)(3)(C), is amended by striking ‘‘substantially all’’
and inserting ‘‘not less than 75 percent’’.
(c) REVISION OF EXCEPTION FOR CERTAIN MAN-
AGED CARE ARRANGEMENTS.—Section 1877(b)(3) (42
U.S.C. 1395nn(b)(3)) is amended—
(1) in the heading by inserting ‘‘MANAGED
CARE ARRANGEMENTS’’ after ‘‘PREPAID PLANS’’;
(2) in the matter preceding subparagraph (A),
by striking ‘‘organization—’’ and inserting ‘‘organi-
zation, directly or through contractual arrangements
with other entities, to individuals enrolled with the
organization—’’;
(3) in subparagraph (A), by inserting ‘‘or part
C’’ after ‘‘section 1876’’;
(4) by striking ‘‘or’’ at the end of subparagraph
(C);
(5) by striking the period at the end of sub-
paragraph (D) and inserting a comma; and
(6) by adding at the end the following new sub-
paragraphs:
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(B) by inserting after paragraph (3) the
following new paragraph:
‘‘(4) SHARED FACILITY SERVICES.—In the case
of a designated health service consisting of a shared
facility service of a shared facility—
‘‘(A) that is furnished—
‘‘(i) personally by the referring physi-
cian who is a shared facility physician or
personally by an individual directly em-
ployed or under the general supervision of
such a physician,
‘‘(ii) by a shared facility in a building
in which the referring physician furnishes
substantially all of the services of the phy-
sician that are unrelated to the furnishing
of shared facility services, and
‘‘(iii) to a patient of a shared facility
physician; and
‘‘(B) that is billed by the referring physi-
cian or a group practice of which the physician
is a member.’’.
(2) DEFINITIONS.—Section 1877(h) (42 U.S.C.
1395nn(h)), as amended by section 15201(b)(6), is
amended by inserting before paragraph (4) the fol-
lowing new paragraph:
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‘‘(1) SHARED
FACILITY
RELATED
DEFINI-
TIONS.—
‘‘(A) SHARED
FACILITY
SERVICE.—The
term ‘shared facility service’ means, with re-
spect to a shared facility, a designated health
service furnished by the facility to patients of
shared facility physicians.
‘‘(B) 
SHARED
FACILITY.—The 
term
‘shared facility’ means an entity that furnishes
shared facility services under a shared facility
arrangement.
‘‘(C) SHARED FACILITY PHYSICIAN.—The
term ‘shared facility physician’ means, with re-
spect to a shared facility, a physician (or a
group practice of which the physician is a mem-
ber) who has a financial relationship under a
shared facility arrangement with the facility.
‘‘(D) SHARED FACILITY ARRANGEMENT.—
The term ‘shared facility arrangement’ means,
with respect to the provision of shared facility
services in a building, a financial arrange-
ment—
‘‘(i) which is only between physicians
who are providing services (unrelated to
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shared facility services) in the same build-
ing,
‘‘(ii) in which the overhead expenses
of the facility are shared, in accordance
with methods previously determined by the
physicians in the arrangement, among the
physicians in the arrangement, and
‘‘(iii) which, in the case of a corpora-
tion, is wholly owned and controlled by
shared facility physicians.’’.
(e) NEW EXCEPTION FOR SERVICES FURNISHED IN
COMMUNITIES WITH NO ALTERNATIVE PROVIDERS.—
Section 1877(b) (42 U.S.C. 1395nn(b)), as amended by
section 15201(b)(3)(C) and subsection (d)(1), is amend-
ed—
(1) by redesignating paragraphs (5) through
(8) as paragraphs (6) through (9); and
(2) by inserting after paragraph (4) the follow-
ing new paragraph:
‘‘(5) NO ALTERNATIVE PROVIDERS IN AREA.—
In the case of a designated health service furnished
in any area with respect to which the Secretary de-
termines that individuals residing in the area do not
have reasonable access to such a designated health
service for which subsection (a)(1) does not apply.’’.
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(f) NEW EXCEPTION FOR SERVICES FURNISHED IN
AMBULATORY SURGICAL CENTERS.—Section 1877(b) (42
U.S.C. 
1395nn(b)), 
as 
amended 
by 
section
15201(b)(3)(C), subsection (d)(1), and subsection (e)(1),
is amended—
(1) by redesignating paragraphs (6) through
(9) as paragraphs (7) through (10); and
(2) by inserting after paragraph (5) the follow-
ing new paragraph:
‘‘(6) SERVICES
FURNISHED
IN
AMBULATORY
SURGICAL CENTERS.—In the case of a designated
health service furnished in an ambulatory surgical
center described in section 1832(a)(2)(F)(i).’’.
(g) NEW EXCEPTION FOR SERVICES FURNISHED IN
RENAL
DIALYSIS
FACILITIES.—Section 1877(b) (42
U.S.C. 
1395nn(b)), 
as 
amended 
by 
section
15201(b)(3)(C), subsection (d)(1), subsection (e)(1), and
subsection (f), is amended—
(1) by redesignating paragraphs (7) through
(10) as paragraphs (8) through (11); and
(2) by inserting after paragraph (6) the follow-
ing new paragraph:
‘‘(7) SERVICES FURNISHED IN RENAL DIALYSIS
FACILITIES.—In the case of a designated health
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service furnished in a renal dialysis facility under
section 1881.’’.
(h) NEW EXCEPTION FOR SERVICES FURNISHED IN
A HOSPICE.—Section 1877(b) (42 U.S.C. 1395nn(b)), as
amended by section 15201(b)(3)(C), subsection (d)(1),
subsection (e)(1), subsection (f), and subsection (g), is
amended—
(1) by redesignating paragraphs (8) through
(11) as paragraphs (9) through (12); and
(2) by inserting after paragraph (7) the follow-
ing new paragraph:
‘‘(8) SERVICES FURNISHED BY A HOSPICE PRO-
GRAM.—In the case of a designated health service
furnished by a hospice program under section
1861(dd)(2).’’.
(i) NEW EXCEPTION FOR SERVICES FURNISHED IN
A COMPREHENSIVE OUTPATIENT REHABILITATION FA-
CILITY.—Section 1877(b) (42 U.S.C. 1395nn(b)), as
amended by section 15201(b)(3)(C), subsection (d)(1),
subsection (e)(1), subsection (f), subsection (g), and sub-
section (h), is amended—
(1) by redesignating paragraphs (9) through
(12) as paragraphs (10) through (13); and
(2) by inserting after paragraph (8) the follow-
ing new paragraph:
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(2) 
DEFINITION
OF
STANDARD.—Section
1128A(i) (42 U.S.C. 1320a–7a(i)) is amended by
adding at the end the following new paragraph:
‘‘(6) The term ‘should know’ means that a per-
son, with respect to information—
‘‘(A) acts in deliberate ignorance of the
truth or falsity of the information; or
‘‘(B) acts in reckless disregard of the truth
or falsity of the information,
and no proof of specific intent to defraud is re-
quired.’’.
(b) CLARIFICATION OF EFFECT AND APPLICATION
OF SAFE HARBOR EXCEPTIONS.—For purposes of section
1128B(b)(3) of the Social Security Act, the specification
of any payment practice in regulations promulgated pur-
suant to section 14(a) of the Medicare and Medicaid Pro-
gram and Patient Protection Act of 1987 is—
(1) solely for the purpose of adding additional
exceptions to the types of conduct which are not
subject to an anti-kickback penalty under such sec-
tion and not for the purpose of limiting the scope of
such exceptions; and
(2) for the purpose of prescribing criteria for
qualifying for such an exception notwithstanding the
intent of the party involved.
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(c) LIMITING IMPOSITION OF ANTI-KICKBACK PEN-
ALTIES TO ACTIONS WITH SIGNIFICANT PURPOSE TO IN-
DUCE REFERRALS.—Section 1128B(b)(2) (42 U.S.C.
1320a–7b(b)(2)) is amended in the matter preceding sub-
paragraph (A) by striking ‘‘to induce’’ and inserting ‘‘for
the significant purpose of inducing’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to acts or omissions occurring on
or after January 1, 1996.
SEC. 15213. ADDITIONAL EXCEPTION TO ANTI-KICKBACK
PENALTIES FOR MANAGED CARE ARRANGE-
MENTS.
(a) IN GENERAL.—Section 1128B(b)(3) (42 U.S.C.
1320a–7b(b)(3)) is amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (D);
(2) by striking the period at the end of sub-
paragraph (E) and inserting ‘‘; and’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(F) any remuneration between an organization
and an individual or entity providing services pursu-
ant to a written agreement between the organization
and the individual or entity if the organization is a
MedicarePlus organization under part C of title
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XVIII or if the written agreement places the individ-
ual or entity at substantial financial risk for the cost
or utilization of the items or services which the indi-
vidual or entity is obligated to provide, whether
through a withhold, capitation, incentive pool, per
diem payment, or any other similar risk arrange-
ment which places the individual or entity at sub-
stantial financial risk.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to acts or omissions occurring
on or after January 1, 1996.
SEC. 15214. SOLICITATION AND PUBLICATION OF MODI-
FICATIONS TO EXISTING SAFE HARBORS AND
NEW SAFE HARBORS.
(a) IN GENERAL.—
(1) SOLICITATIONS.—Not later than January 1,
1996, and not less than annually thereafter, the Sec-
retary of Health and Human Services shall publish
a notice in the Federal Register soliciting proposals,
which will be accepted during a 60-day period, for—
(A) modifications to existing safe harbors
issued pursuant to section 14(a) of the Medi-
care and Medicaid Patient and Program Protec-
tion Act of 1987;
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(B) additional safe harbors specifying pay-
ment practices that shall not be treated as a
criminal offense under section 1128B(b) of the
Social Security Act and shall not serve as the
basis for an exclusion under section 1128(b)(7)
of such Act; and
(C) special fraud alerts to be issued pursu-
ant to section 15101(c).
(2) PUBLICATION
OF
PROPOSED
MODIFICA-
TIONS
AND
PROPOSED
ADDITIONAL
SAFE
HAR-
BORS.—Not later than 120 days after receiving the
proposals described in subparagraphs (A) and (B) of
paragraph (1), the Secretary, after considering such
proposals in consultation with the Attorney General,
shall publish in the Federal Register proposed modi-
fications to existing safe harbors and proposed addi-
tional safe harbors, if appropriate, with a 60-day
comment period. After considering any public com-
ments received during this period, the Secretary
shall issue final rules modifying the existing safe
harbors and establishing new safe harbors, as appro-
priate.
(3) REPORT.—The Inspector General shall, in
an annual report to Congress or as part of the year-
end semiannual report required by section 5 of the
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Inspector General Act of 1978, describe the propos-
als received under subparagraphs (A) and (B) of
paragraph (1) and explain which proposals were in-
cluded in the publication described in paragraph (2),
which proposals were not included in that publica-
tion, and the reasons for the rejection of the propos-
als that were not included.
(b) CRITERIA FOR MODIFYING AND ESTABLISHING
SAFE HARBORS.—In modifying and establishing safe har-
bors under subsection (a)(2), the Secretary may consider
the extent to which providing a safe harbor for the speci-
fied payment practice may result in any of the following:
(1) An increase or decrease in access to health
care services.
(2) An increase or decrease in the quality of
health care services.
(3) An increase or decrease in patient freedom
of choice among health care providers.
(4) An increase or decrease in competition
among health care providers.
(5) An increase or decrease in the cost to health
care programs of the Federal Government.
(6) An increase or decrease in the potential
overutilization of health care services.
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(7) Any other factors the Secretary deems ap-
propriate in the interest of preventing fraud and
abuse in health care programs of the Federal Gov-
ernment.
SEC. 15215. ISSUANCE OF ADVISORY OPINIONS UNDER
TITLE XI.
(a) IN GENERAL.—Title XI (42 U.S.C. 1301 et seq.),
as amended by section 15104(a), is amended by inserting
after section 1129 the following new section:
‘‘ADVISORY OPINIONS
‘‘SEC. 1130. (a) ISSUANCE
OF ADVISORY OPIN-
IONS.—The Secretary shall issue written advisory opinions
as provided in this section.
‘‘(b) MATTERS SUBJECT TO ADVISORY OPINIONS.—
The Secretary shall issue advisory opinions as to the fol-
lowing matters:
‘‘(1) What constitutes prohibited remuneration
within the meaning of section 1128B(b).
‘‘(2) Whether an arrangement or proposed ar-
rangement satisfies the criteria set forth in section
1128B(b)(3) for activities which do not result in
prohibited remuneration.
‘‘(3) Whether an arrangement or proposed ar-
rangement satisfies the criteria which the Secretary
has established, or shall establish by regulation for
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activities which do not result in prohibited remu-
neration.
‘‘(4) What constitutes an inducement to reduce
or limit services to individuals entitled to benefits
under title XVIII or title XIX or title XXI within
the meaning of section 1128B(b).
‘‘(5) Whether any activity or proposed activity
constitutes grounds for the imposition of a sanction
under section 1128, 1128A, or 1128B.
‘‘(c) MATTERS NOT SUBJECT TO ADVISORY OPIN-
IONS.—Such advisory opinions shall not address the fol-
lowing matters:
‘‘(1) Whether the fair market value shall be, or
was paid or received for any goods, services or prop-
erty.
‘‘(2) Whether an individual is a bona fide em-
ployee within the requirements of section 3121(d)(2)
of the Internal Revenue Code of 1986.
‘‘(d) EFFECT OF ADVISORY OPINIONS.—
‘‘(1) BINDING AS TO SECRETARY AND PARTIES
INVOLVED.—Each advisory opinion issued by the
Secretary shall be binding as to the Secretary and
the party or parties requesting the opinion.
‘‘(2) FAILURE TO SEEK OPINION.—The failure
of a party to seek an advisory opinion may not be
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introduced into evidence to prove that the party in-
tended to violate the provisions of sections 1128,
1128A, or 1128B.
‘‘(e) REGULATIONS.—
‘‘(1) IN GENERAL.—Not later than 180 days
after the date of the enactment of this section, the
Secretary shall issue regulations to carry out this
section. Such regulations shall provide for—
‘‘(A) the procedure to be followed by a
party applying for an advisory opinion;
‘‘(B) the procedure to be followed by the
Secretary in responding to a request for an ad-
visory opinion;
‘‘(C) the interval in which the Secretary
shall respond;
‘‘(D) the reasonable fee to be charged to
the party requesting an advisory opinion; and
‘‘(E) the manner in which advisory opin-
ions will be made available to the public.
‘‘(2) SPECIFIC CONTENTS.—Under the regula-
tions promulgated pursuant to paragraph (1)—
‘‘(A) the Secretary shall be required to re-
spond to a party requesting an advisory opinion
by not later than 30 days after the request is
received; and
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‘‘(B) the fee charged to the party request-
ing an advisory opinion shall be equal to the
costs incurred by the Secretary in responding to
the request.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to requests for advisory opinions
made on or after January 1, 1996.
SEC. 15216. PRIOR NOTICE OF CHANGES IN BILLING AND
CLAIMS PROCESSING REQUIREMENTS FOR
PHYSICIANS’ SERVICES.
Except as may be specifically provided by Congress,
the Secretary of Health and Human Services may not im-
plement any change in the requirements imposed on the
billing and processing of claims for payment for physi-
cians’ services under part B of the medicare program un-
less the Secretary notifies the individuals furnishing such
services of the change not later than 120 days before the
effective date of the change.
PART 3—PROMOTING PHYSICIAN SELF-POLICING
SEC. 15221. EXEMPTION FROM ANTITRUST LAWS FOR CER-
TAIN ACTIVITIES OF MEDICAL SELF-REGU-
LATORY ENTITIES.
(a) EXEMPTION DESCRIBED.—An activity relating to
the provision of health care services shall be exempt from
the antitrust laws, and any State law similar to the anti-
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trust laws, if the activity is within the safe harbor de-
scribed in subsection (b).
(b) SAFE HARBOR
FOR ACTIVITIES
OF MEDICAL
SELF-REGULATORY ENTITIES.—
(1) IN GENERAL.—The safe harbor referred to
in subsection (a) is, subject to paragraph (2), any
activity of a medical self-regulatory entity relating to
standard setting or standard enforcement activities
that are designed to promote the quality of health
care services provided to patients.
(2) EXCEPTION.—No activity of a medical self-
regulatory entity may be deemed to fall under the
safe harbor established under paragraph (1) if the
activity—
(A) is conducted for purposes of financial
gain, or
(B) interferes with the provision of health
care services by any health care provider who is
not a member of the specific profession which
is subject to the authority of the medical self-
regulatory entity.
(c) DEFINITIONS.—For purposes of this section:
(1) ANTITRUST
LAWS.—The term ‘‘antitrust
laws’’ has the meaning given it in subsection (a) of
the first section of the Clayton Act (15 U.S.C.
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12(a)), except that such term includes section 5 of
the Federal Trade Commission Act (15 U.S.C. 45)
to the extent such section applies to unfair methods
of competition.
(2) 
HEALTH
BENEFIT
PLAN.—The 
term
‘‘health benefit plan’’ means—
(A) a hospital or medical expense incurred
policy or certificate,
(B) a hospital or medical service plan con-
tract,
(C) a health maintenance subscriber con-
tract,
(D) a multiple employer welfare arrange-
ment or employee benefit plan (as defined
under the Employee Retirement Income Secu-
rity Act of 1974), or
(E) a MedicarePlus product (offered under
part C of title XVIII of the Social Security
Act),
that provides benefits with respect to health care
services.
(3) HEALTH CARE SERVICE.—The term ‘‘health
care service’’ means any service for which payment
may be made under a health benefit plan including
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services related to the delivery or administration of
such service.
(4) MEDICAL SELF-REGULATORY ENTITY.—The
term ‘‘medical self-regulatory entity’’ means a medi-
cal society or association, a specialty board, a recog-
nized accrediting agency, or a hospital medical staff,
and includes the members, officers, employees, con-
sultants, and volunteers or committees of such an
entity.
(5) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means any individual or en-
tity that is engaged in the delivery of health care
services in a State and that is required by State law
or regulation to be licensed or certified by the State
to engage in the delivery of such services in the
State.
(6) STANDARD
SETTING
OR
STANDARD
EN-
FORCEMENT ACTIVITIES.—The term ‘‘standard set-
ting or standard enforcement activities’’ means—
(A) accreditation of health care practition-
ers, health care providers, medical education in-
stitutions, or medical education programs,
(B) technology assessment and risk man-
agement activities,
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(C) the development and implementation of
practice guidelines or practice parameters, or
(D) official peer review proceedings under-
taken by a hospital medical staff (or committee
thereof) or a medical society or association for
purposes of evaluating the professional conduct
or quality of health care provided by a medical
professional.
Subtitle D—Medical Liability
Reform
PART 1—GENERAL PROVISIONS
SEC. 15301. FEDERAL REFORM OF HEALTH CARE LIABILITY
ACTIONS.
(a) APPLICABILITY.—This subtitle shall apply with
respect to any health care liability action brought in any
State or Federal court, except that this subtitle shall not
apply to—
(1) an action for damages arising from a vac-
cine-related injury or death to the extent that title
XXI of the Public Health Service Act applies to the
action, or
(2) an action under the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1001 et
seq.).
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(b) PREEMPTION.—This subtitle shall preempt any
State law to the extent such law is inconsistent with the
limitations contained in this subtitle. This subtitle shall
not preempt any State law that provides for defenses or
places limitations on a person’s liability in addition to
those contained in this subtitle or otherwise imposes great-
er restrictions than those provided in this subtitle.
(c) EFFECT ON SOVEREIGN IMMUNITY AND CHOICE
OF LAW OR VENUE.—Nothing in subsection (b) shall be
construed to—
(1) waive or affect any defense of sovereign im-
munity asserted by any State under any provision of
law;
(2) waive or affect any defense of sovereign im-
munity asserted by the United States;
(3) affect the applicability of any provision of
the Foreign Sovereign Immunities Act of 1976;
(4) preempt State choice-of-law rules with re-
spect to claims brought by a foreign nation or a citi-
zen of a foreign nation; or
(5) affect the right of any court to transfer
venue or to apply the law of a foreign nation or to
dismiss a claim of a foreign nation or of a citizen
of a foreign nation on the ground of inconvenient
forum.
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(d) AMOUNT
IN CONTROVERSY.—In an action to
which this subtitle applies and which is brought under sec-
tion 1332 of title 28, United States Code, the amount of
noneconomic damages or punitive damages, and attorneys’
fees or costs, shall not be included in determining whether
the matter in controversy exceeds the sum or value of
$50,000.
(e) FEDERAL COURT JURISDICTION NOT ESTAB-
LISHED ON FEDERAL QUESTION GROUNDS.—Nothing in
this subtitle shall be construed to establish any jurisdiction
in the district courts of the United States over health care
liability actions on the basis of section 1331 or 1337 of
title 28, United States Code.
SEC. 15302. DEFINITIONS.
As used in this subtitle:
(1) ACTUAL DAMAGES.—The term ‘‘actual dam-
ages’’ means damages awarded to pay for economic
loss.
(2) ALTERNATIVE DISPUTE RESOLUTION SYS-
TEM; ADR.—The term ‘‘alternative dispute resolution
system’’ or ‘‘ADR’’ means a system established
under Federal or State law that provides for the res-
olution of health care liability claims in a manner
other than through health care liability actions.
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(3) CLAIMANT.—The term ‘‘claimant’’ means
any person who brings a health care liability action
and any person on whose behalf such an action is
brought. If such action is brought through or on be-
half of an estate, the term includes the claimant’s
decedent. If such action is brought through or on be-
half of a minor or incompetent, the term includes
the claimant’s legal guardian.
(4) CLEAR AND CONVINCING EVIDENCE.—The
term ‘‘clear and convincing evidence’’ is that meas-
ure or degree of proof that will produce in the mind
of the trier of fact a firm belief or conviction as to
the truth of the allegations sought to be established.
Such measure or degree of proof is more than that
required under preponderance of the evidence but
less than that required for proof beyond a reason-
able doubt.
(5) COLLATERAL
SOURCE
PAYMENTS.—The
term ‘‘collateral source payments’’ means any
amount paid or reasonably likely to be paid in the
future to or on behalf of a claimant, or any service,
product, or other benefit provided or reasonably like-
ly to be provided in the future to or on behalf of a
claimant, as a result of an injury or wrongful death,
pursuant to—
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(A) any State or Federal health, sickness,
income-disability, accident or workers’ com-
pensation Act;
(B) any health, sickness, income-disability,
or accident insurance that provides health bene-
fits or income-disability coverage;
(C) any contract or agreement of any
group, organization, partnership, or corporation
to provide, pay for, or reimburse the cost of
medical, hospital, dental, or income disability
benefits; and
(D) any other publicly or privately funded
program.
(6) DRUG.—The term ‘‘drug’’ has the meaning
given such term in section 201(g)(1) of the Federal
Food, 
Drug, 
and 
Cosmetic 
Act 
(21 
U.S.C.
321(g)(1)).
(7) ECONOMIC
LOSS.—The term ‘‘economic
loss’’ means any pecuniary loss resulting from injury
(including the loss of earnings or other benefits re-
lated to employment, medical expense loss, replace-
ment services loss, loss due to death, burial costs,
and loss of business or employment opportunities),
to the extent recovery for such loss is allowed under
applicable State law.
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(8) HARM.—The term ‘‘harm’’ means any le-
gally cognizable wrong or injury for which punitive
damages may be imposed.
(9) 
HEALTH
BENEFIT
PLAN.—The 
term
‘‘health benefit plan’’ means—
(A) a hospital or medical expense incurred
policy or certificate,
(B) a hospital or medical service plan con-
tract,
(C) a health maintenance subscriber con-
tract, or
(D) a MedicarePlus product (offered under
part C of title XVIII of the Social Security
Act),
that provides benefits with respect to health care
services.
(10) HEALTH
CARE
LIABILITY
ACTION.—The
term ‘‘health care liability action’’ means a civil ac-
tion brought in a State or Federal court against a
health care provider, an entity which is obligated to
provide or pay for health benefits under any health
benefit plan (including any person or entity acting
under a contract or arrangement to provide or ad-
minister any health benefit), or the manufacturer,
distributor, supplier, marketer, promoter, or seller of
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a medical product, in which the claimant alleges a
claim (including third party claims, cross claims,
counter claims, or distribution claims) based upon
the provision of (or the failure to provide or pay for)
health care services or the use of a medical product,
regardless of the theory of liability on which the
claim is based or the number of plaintiffs, defend-
ants, or causes of action.
(11) HEALTH
CARE
LIABILITY
CLAIM.—The
term ‘‘health care liability claim’’ means a claim in
which the claimant alleges that injury was caused by
the provision of (or the failure to provide) health
care services.
(12) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means any person that is en-
gaged in the delivery of health care services in a
State and that is required by the laws or regulations
of the State to be licensed or certified by the State
to engage in the delivery of such services in the
State.
(13) 
HEALTH
CARE
SERVICE.—The 
term
‘‘health care service’’ means any service for which
payment may be made under a health benefit plan
including services related to the delivery or adminis-
tration of such service.
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(14) MEDICAL DEVICE.—The term ‘‘medical de-
vice’’ has the meaning given such term in section
201(h) of the Federal Food, Drug, and Cosmetic
Act (21 U.S.C. 321(h)).
(15) 
NONECONOMIC
DAMAGES.—The 
term
‘‘noneconomic damages’’ means damages paid to an
individual for pain and suffering, inconvenience,
emotional distress, mental anguish, loss of consor-
tium, injury to reputation, humiliation, and other
nonpecuniary losses.
(16) PERSON.—The term ‘‘person’’ means any
individual, corporation, company, association, firm,
partnership, society, joint stock company, or any
other entity, including any governmental entity.
(17) PRODUCT SELLER.—
(A) IN
GENERAL.—Subject to subpara-
graph (B), the term ‘‘product seller’’ means a
person who, in the course of a business con-
ducted for that purpose—
(i) sells, distributes, rents, leases, pre-
pares, blends, packages, labels, or is other-
wise involved in placing, a product in the
stream of commerce, or
(ii) installs, repairs, or maintains the
harm-causing aspect of a product.
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(B) EXCLUSION.—Such term does not in-
clude—
(i) a seller or lessor of real property;
(ii) a provider of professional services
in any case in which the sale or use of a
product is incidental to the transaction and
the essence of the transaction is the fur-
nishing of judgment, skill, or services; or
(iii) any person who—
(I) acts in only a financial capac-
ity with respect to the sale of a prod-
uct; or
(II) leases a product under a
lease arrangement in which the selec-
tion, possession, maintenance, and op-
eration of the product are controlled
by a person other than the lessor.
(18) PUNITIVE DAMAGES.—The term ‘‘punitive
damages’’ means damages awarded against any per-
son not to compensate for actual injury suffered, but
to punish or deter such person or others from en-
gaging in similar behavior in the future.
(19) STATE.—The term ‘‘State’’ means each of
the several States, the District of Columbia, Puerto
Rico, the Virgin Islands, Guam, American Samoa,
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the Northern Mariana Islands, and any other terri-
tory or possession of the United States.
SEC. 15303. EFFECTIVE DATE.
This subtitle will apply to any health care liability ac-
tion brought in a Federal or State court and to any health
care liability claim subject to an alternative dispute resolu-
tion system, that is initiated on or after the date of enact-
ment of this subtitle, except that any health care liability
claim or action arising from an injury occurring prior to
the date of enactment of this subtitle shall be governed
by the applicable statute of limitations provisions in effect
at the time the injury occurred.
PART 2—UNIFORM STANDARDS FOR HEALTH
CARE LIABILITY ACTIONS
SEC. 15311. STATUTE OF LIMITATIONS.
A health care liability action may not be brought
after the expiration of the 2-year period that begins on
the date on which the alleged injury that is the subject
of the action was discovered or should reasonably have
been discovered, but in no case after the expiration of the
5-year period that begins on the date the alleged injury
occurred.
SEC. 15312. CALCULATION AND PAYMENT OF DAMAGES.
(a) TREATMENT OF NONECONOMIC DAMAGES.—
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(1) LIMITATION ON NONECONOMIC DAMAGES.—
The total amount of noneconomic damages that may
be awarded to a claimant for losses resulting from
the injury which is the subject of a health care liabil-
ity action may not exceed $250,000, regardless of
the number of parties against whom the action is
brought or the number of actions brought with re-
spect to the injury.
(2) JOINT AND SEVERAL LIABILITY.—In any
health care liability action brought in State or Fed-
eral court, a defendant shall be liable only for the
amount of noneconomic damages attributable to
such defendant in direct proportion to such defend-
ant’s share of fault or responsibility for the claim-
ant’s actual damages, as determined by the trier of
fact. In all such cases, the liability of a defendant
for noneconomic damages shall be several and not
joint.
(b) TREATMENT OF PUNITIVE DAMAGES.—
(1) GENERAL RULE.—Punitive damages may,
to the extent permitted by applicable State law, be
awarded in any health care liability action for harm
in any Federal or State court against a defendant if
the claimant establishes by clear and convincing evi-
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dence that the harm suffered was the result of con-
duct—
(A) specifically intended to cause harm, or
(B) conduct manifesting a conscious, fla-
grant indifference to the rights or safety of oth-
ers.
(2) PROPORTIONAL AWARDS.—The amount of
punitive damages that may be awarded in any health
care liability action subject to this subtitle shall not
exceed 3 times the amount of damages awarded to
the claimant for economic loss, or $250,000, which-
ever is greater. This paragraph shall be applied by
the court and shall not be disclosed to the jury.
(3) 
APPLICABILITY.—This 
subsection 
shall
apply to any health care liability action brought in
any Federal or State court on any theory where pu-
nitive damages are sought. This subsection does not
create a cause of action for punitive damages. This
subsection does not preempt or supersede any State
or Federal law to the extent that such law would
further limit the award of punitive damages.
(4) BIFURCATION.—At the request of any
party, the trier of fact shall consider in a separate
proceeding whether punitive damages are to be
awarded and the amount of such award. If a sepa-
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rate proceeding is requested, evidence relevant only
to the claim of punitive damages, as determined by
applicable State law, shall be inadmissible in any
proceeding to determine whether actual damages are
to be awarded.
(5) DRUGS AND DEVICES.—
(A) IN
GENERAL.—(i) Punitive damages
shall not be awarded against a manufacturer or
product seller of a drug or medical device which
caused the claimant’s harm where—
(I) such drug or device was subject to
premarket approval by the Food and Drug
Administration with respect to the safety
of the formulation or performance of the
aspect of such drug or device which caused
the claimant’s harm, or the adequacy of
the packaging or labeling of such drug or
device which caused the harm, and such
drug, device, packaging, or labeling was
approved by the Food and Drug Adminis-
tration; or
(II) the drug is generally recognized
as safe and effective pursuant to conditions
established by the Food and Drug Admin-
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istration and applicable regulations, includ-
ing packaging and labeling regulations.
(ii) Clause (i) shall not apply in any case
in which the defendant, before or after pre-
market approval of a drug or device—
(I) intentionally and wrongfully with-
held from or misrepresented to the Food
and Drug Administration information con-
cerning such drug or device required to be
submitted under the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 301 et seq.)
or section 351 of the Public Health Service
Act (42 U.S.C. 262) that is material and
relevant to the harm suffered by the claim-
ant, or
(II) made an illegal payment to an of-
ficial or employee of the Food and Drug
Administration for the purpose of securing
or maintaining approval of such drug or
device.
(B) PACKAGING.—In a health care liability
action for harm which is alleged to relate to the
adequacy of the packaging or labeling of a drug
which is required to have tamper-resistant
packaging under regulations of the Secretary of
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Health and Human Services (including labeling
regulations related to such packaging), the
manufacturer or product seller of the drug shall
not be held liable for punitive damages unless
such packaging or labeling is found by the court
by clear and convincing evidence to be substan-
tially out of compliance with such regulations.
(c) PERIODIC PAYMENTS FOR FUTURE LOSSES.—
(1) GENERAL RULE.—In any health care liabil-
ity action in which the damages awarded for future
economic and noneconomic loss exceeds $50,000, a
person shall not be required to pay such damages in
a single, lump-sum payment, but shall be permitted
to make such payments periodically based on when
the damages are found likely to occur, as such pay-
ments are determined by the court.
(2) FINALITY OF JUDGMENT.—The judgment
of the court awarding periodic payments under this
subsection may not, in the absence of fraud, be re-
opened at any time to contest, amend, or modify the
schedule or amount of the payments.
(3) 
LUMP-SUM
SETTLEMENTS.—This 
sub-
section shall not be construed to preclude a settle-
ment providing for a single, lump-sum payment.
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(d) TREATMENT
OF COLLATERAL SOURCE PAY-
MENTS.—
(1) INTRODUCTION
INTO
EVIDENCE.—In any
health care liability action, any defendant may intro-
duce evidence of collateral source payments. If any
defendant elects to introduce such evidence, the
claimant may introduce evidence of any amount paid
or contributed or reasonably likely to be paid or con-
tributed in the future by or on behalf of the claim-
ant to secure the right to such collateral source pay-
ments.
(2) NO SUBROGATION.—No provider of collat-
eral source payments shall recover any amount
against the claimant or receive any lien or credit
against the claimant’s recovery or be equitably or le-
gally subrogated the right of the claimant in a
health care liability action.
(3) APPLICATION TO SETTLEMENTS.—This sub-
section shall apply to an action that is settled as well
as an action that is resolved by a fact finder.
SEC. 15313. ALTERNATIVE DISPUTE RESOLUTION.
Any ADR used to resolve a health care liability action
or claim shall contain provisions relating to statute of limi-
tations, non-economic damages, joint and several liability,
punitive damages, collateral source rule, and periodic pay-
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ments which are identical to the provisions relating to
such matters in this subtitle.
Subtitle E—Teaching Hospitals and
Graduate Medical Education
PART 1—TEACHING HOSPITAL AND GRADUATE
MEDICAL EDUCATION TRUST FUND
SEC. 15401. ESTABLISHMENT OF FUND; PAYMENTS TO
TEACHING HOSPITALS.
The Social Security Act (42 U.S.C. 300 et seq.) is
amended by adding after title XXI the following title:
‘‘TITLE XXII—TEACHING HOSPITAL AND
GRADUATE MEDICAL EDUCATION TRUST FUND
‘‘PART A—ESTABLISHMENT OF FUND
‘‘SEC. 2201. ESTABLISHMENT OF FUND.
‘‘(a) IN GENERAL.—There is established in the
Treasury of the United States a fund to be known as the
Teaching Hospital and Graduate Medical Education Trust
Fund (in this title referred to as the ‘Fund’), consisting
of amounts appropriated to the Fund in subsection (d)
and subsection (e)(3), amounts transferred to the Fund
under section 1886(j), and such gifts and bequests as may
be deposited in the Fund pursuant to subsection (f).
Amounts in the Fund are available until expended.
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‘‘(b) EXPENDITURES FROM FUND.—Amounts in the
Fund are available to the Secretary for making payments
under section 2211.
‘‘(c) ACCOUNTS
IN FUND.—There are established
within the Fund the following accounts:
‘‘(1) The Indirect-Costs Medical Education Ac-
count.
‘‘(2) The Medicare Direct-Costs Medical Edu-
cation Account.
‘‘(3) The General Direct-Costs Medical Edu-
cation Account.
‘‘(d) GENERAL TRANSFERS TO FUND.—
‘‘(1) IN GENERAL.—For fiscal year 1997 and
each subsequent fiscal year, there are appropriated
to the Fund (effective on the applicable date under
paragraph (2)), out of any money in the Treasury
not otherwise appropriated, the following amounts
(as applicable to the fiscal year involved):
‘‘(A) 
For 
fiscal 
year 
1997,
$1,300,000,000.
‘‘(B) 
For 
fiscal 
year 
1998,
$1,500,000,000.
‘‘(C) For fiscal year 1999, $2,300,000,000.
‘‘(D) 
For 
fiscal 
year 
2000,
$3,100,000,000.
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‘‘(E) 
For 
fiscal 
year 
2001,
$3,600,000,000.
‘‘(F) 
For 
fiscal 
year 
2002,
$4,000,000,000.
‘‘(G) For fiscal year 2003 and each subse-
quent fiscal year, the greater of the amount ap-
propriated for the preceding fiscal year or an
amount equal to the product of—
‘‘(i) the amount appropriated for the
preceding fiscal year; and
‘‘(ii) 1 plus the percentage increase in
the nominal gross domestic product for the
one-year period ending upon July 1 of such
preceding fiscal year.
‘‘(2) EFFECTIVE
DATE
FOR
ANNUAL
APPRO-
PRIATION.—For purposes of paragraph (1) (and for
purposes of section 2221(a)(1), and subsections
(b)(1)(A) and (c)(1)(A) of section 2231)), the appli-
cable date for a fiscal year is the first day of the fis-
cal year, exclusive of Saturdays, Sundays, and Fed-
eral holidays.
‘‘(3) 
ALLOCATION
AMONG
CERTAIN
AC-
COUNTS.—Of the amount appropriated in paragraph
(1) for a fiscal year—
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‘‘(A) there shall be allocated to the Indi-
rect-Costs Medical Education Account the per-
centage determined under paragraph (4)(B);
and
‘‘(B) there shall be allocated to the Gen-
eral Direct-Costs Medical Education Account
the percentage determined under paragraph
(4)(C).
‘‘(4) DETERMINATION OF PERCENTAGES.—The
Secretary of Health and Human Services, acting
through the Administrator of the Health Care Fi-
nancing Administration, shall determine the follow-
ing:
‘‘(A) The total amount of payments that
were made under subsections (d)(5)(B) and (h)
of section 1886 for fiscal year 1994.
‘‘(B) The percentage of such total that was
constituted by payments under subsection
(d)(5)(B) of such section.
‘‘(C) The percentage of such total that was
constituted by payments under subsection (h) of
such section.
‘‘(e) INVESTMENT.—
‘‘(1) IN
GENERAL.—The Secretary of the
Treasury shall invest such amounts of the Fund as
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such Secretary determines are not required to meet
current withdrawals from the Fund. Such invest-
ments may be made only in interest-bearing obliga-
tions of the United States. For such purpose, such
obligations may be acquired on original issue at the
issue price, or by purchase of outstanding obliga-
tions at the market price.
‘‘(2) SALE
OF
OBLIGATIONS.—Any obligation
acquired by the Fund may be sold by the Secretary
of the Treasury at the market price.
‘‘(3) AVAILABILITY OF INCOME.—Any interest
derived from obligations acquired by the Fund, and
proceeds from any sale or redemption of such obliga-
tions, are hereby appropriated to the Fund.
‘‘(f) ACCEPTANCE OF GIFTS AND BEQUESTS.—The
Fund may accept on behalf of the United States money
gifts and bequests made unconditionally to the Fund for
the benefit of the Fund or any activity financed through
the Fund.
‘‘PART B—PAYMENTS TO TEACHING HOSPITALS
‘‘Subpart 1—Requirement of Payments
‘‘SEC. 2211. FORMULA PAYMENTS TO TEACHING HOS-
PITALS.
‘‘(a) IN GENERAL.—Subject to subsection (d), in the
case of each teaching hospital that in accordance with sub-
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section (b) submits to the Secretary a payment document
for fiscal year 1997 or any subsequent fiscal year, the Sec-
retary shall make payments for the year to the teaching
hospital for the costs of operating approved medical resi-
dency training programs. Such payments shall be made
from the Fund, and the total of the payments to the hos-
pital for the fiscal year shall equal the sum of the follow-
ing:
‘‘(1) An amount determined under section 2221
(relating to the indirect costs of graduate medical
education).
‘‘(2) An amount determined under section 2231
(relating to the direct costs of graduate medical edu-
cation).
‘‘(b) PAYMENT DOCUMENT.—For purposes of sub-
section (a), a payment document is a document containing
such information as may be necessary for the Secretary
to make payments under such subsection to a teaching
hospital for a fiscal year. The document is submitted in
accordance with this subsection if the document is submit-
ted not later than the date specified by the Secretary, and
the document is in such form and is made in such manner
as the Secretary may require. The Secretary may require
that information under this subsection be submitted to the
Secretary in periodic reports.
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‘‘(c) ADMINISTRATOR
OF PROGRAMS.—This part,
and the subsequent parts of this title, shall be carried out
by the Secretary acting through the Administrator of the
Health Care Financing Administration.
‘‘(d) SPECIAL RULES.—
‘‘(1) AUTHORITY
REGARDING
PAYMENTS
TO
CONSORTIA
OF
PROVIDERS.—In the case of pay-
ments under subsection (a) that are determined
under section 2231:
‘‘(A) The requirement under such sub-
section to make the payments to teaching hos-
pitals is subject to the authority of the Sec-
retary under section 2233(a) to make payments
to qualifying consortia.
‘‘(B) If the Secretary authorizes such a
consortium for purposes of section 2233(a),
subsections (a) and (b) of this section apply to
the consortium to the same extent and in the
same manner as the subsections apply to teach-
ing hospitals.
‘‘(2) CERTAIN HOSPITALS.—Paragraph (1) of
subsection (a) is subject to sections 2222 and 2223
of subpart 2. Paragraph (2) of subsection (a) is sub-
ject to sections 2232 through 2234 of subpart 3.
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‘‘(e) APPROVED MEDICAL RESIDENCY TRAINING
PROGRAM.—For purposes of this title, the term ‘approved
medical residency training program’ has the meaning
given such term in section 1886(h)(5)(A).
‘‘Subpart 2—Amount Relating to Indirect Costs of
Graduate Medical Education
‘‘SEC. 2221. DETERMINATION OF AMOUNT RELATING TO IN-
DIRECT COSTS.
‘‘(a) 
IN
GENERAL.—For 
purposes 
of 
section
2211(a)(1), the amount determined under this section for
a teaching hospital for a fiscal year is the product of—
‘‘(1) the amount in the Indirect-Costs Medical
Education Account on the applicable date under sec-
tion 2201(d) (once the appropriation under such sec-
tion is made); and
‘‘(2) the percentage determined for the hospital
under subsection (b).
‘‘(b) HOSPITAL-SPECIFIC PERCENTAGE.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a)(2), the percentage determined under this sub-
section for a teaching hospital is the mean average
of the respective percentages determined under para-
graph (3) for each fiscal year of the applicable pe-
riod (as defined in paragraph (2)), adjusted by the
Secretary (upward or downward, as the case may
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be) on a pro rata basis to the extent necessary to
ensure that the sum of the percentages determined
under this paragraph for all teaching hospitals is
equal to 100 percent. The preceding sentence is sub-
ject to sections 2222 and 2223.
‘‘(2) APPLICABLE
PERIOD
REGARDING
REL-
EVANT DATA; FISCAL YEARS 1992 THROUGH 1994.—
For purposes of this part, the term ‘applicable pe-
riod’ means the period beginning on the first day of
fiscal year 1992 and continuing through the end of
fiscal year 1994.
‘‘(3) RESPECTIVE DETERMINATIONS FOR FIS-
CAL YEARS OF APPLICABLE PERIOD.—For purposes
of paragraph (1), the percentage determined under
this paragraph for a teaching hospital for a fiscal
year of the applicable period is the percentage con-
stituted by the ratio of—
‘‘(A) the total amount of payments re-
ceived 
by 
the 
hospital 
under 
section
1886(d)(5)(B) for discharges occurring during
the fiscal year involved; to
‘‘(B) the sum of the respective amounts
determined under subparagraph (A) for the fis-
cal year for all teaching hospitals.
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‘‘(c) AVAILABILITY OF DATA.—If a teaching hospital
received the payments specified in subsection (b)(3)(A)
during the applicable period but a complete set of the rel-
evant data is not available to the Secretary for purposes
of determining an amount under such subsection for the
fiscal year involved, the Secretary shall for purposes of
such subsection make an estimate on the basis of such
data as are available to the Secretary for the applicable
period.
‘‘SEC. 2222. INDIRECT COSTS; SPECIAL RULES REGARDING
DETERMINATION 
OF 
HOSPITAL-SPECIFIC
PERCENTAGE.
‘‘(a) SPECIAL RULE REGARDING FISCAL YEARS
1995 AND 1996.—
‘‘(1) IN GENERAL.—In the case of a teaching
hospital 
whose 
first 
payments 
under 
section
1886(d)(5)(B) were for discharges occurring in fis-
cal year 1995 or in fiscal year 1996 (referred to in
this subsection individually as a ‘first payment
year’), the percentage determined under paragraph
(2) for the hospital is deemed to be the percentage
applicable under section 2221(b) to the hospital, ex-
cept that the percentage under paragraph (2) shall
be adjusted in accordance with section 2221(b)(1) to
the extent determined by the Secretary to be nec-
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essary with respect to a sum that equals 100 per-
cent.
‘‘(2) DETERMINATION
OF
PERCENTAGE.—For
purposes of paragraph (1), the percentage deter-
mined under this paragraph for a teaching hospital
is the percentage constituted by the ratio of the
amount determined under subparagraph (A) to the
amount determined under subparagraph (B), as fol-
lows:
‘‘(A)(i) If the first payment year for the
hospital is fiscal year 1995, the amount deter-
mined under this subparagraph is the total
amount of payments received by the hospital
under section 1886(d)(5)(B) for discharges oc-
curring during fiscal year 1995.
‘‘(ii) If the first payment year for the hos-
pital is fiscal year 1996, the amount determined
under this subparagraph is an amount equal to
an estimate by the Secretary of the total
amount of payments that would have been paid
to the hospital under section 1886(d)(5)(B) for
discharges occurring during fiscal year 1995 if
such section, as in effect for fiscal year 1996,
had applied to the hospital for discharges occur-
ring during fiscal year 1995.
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‘‘(B)(i) If the first payment year for the
hospital is fiscal year 1995, the amount deter-
mined under this subparagraph is the aggregate
total of the payments received by teaching hos-
pitals under section 1886(d)(5)(B) for dis-
charges occurring during fiscal year 1995.
‘‘(ii) If the first payment year for the hos-
pital is fiscal year 1996—
‘‘(I) the Secretary shall make an esti-
mate in accordance with subparagraph
(A)(ii) for all teaching hospitals; and
‘‘(II) the amount determined under
this subparagraph is the sum of the esti-
mates made by the Secretary under
subclause (I).
‘‘(b) NEW TEACHING HOSPITALS.—
‘‘(1) IN GENERAL.—Subject to paragraph (4),
in the case of a teaching hospital that did not re-
ceive payments under section 1886(d)(5)(B) for any
of the fiscal years 1992 through 1996, the percent-
age determined under paragraph (3) for the hospital
is deemed to be the percentage applicable under sec-
tion 2221(b) to the hospital, except that the percent-
age under paragraph (3) shall be adjusted in accord-
ance with section 2221(b)(1) to the extent deter-
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mined by the Secretary to be necessary with respect
to a sum that equals 100 percent.
‘‘(2) DESIGNATED
FISCAL
YEAR
REGARDING
DATA.—The determination under paragraph (3) of a
percentage for a teaching hospital described in para-
graph (1) shall be made for the most recent fiscal
year for which the Secretary has sufficient data to
make the determination (referred to in this sub-
section as the ‘designated fiscal year’).
‘‘(3) DETERMINATION
OF
PERCENTAGE.—For
purposes of paragraph (1), the percentage deter-
mined under this paragraph for the teaching hos-
pital involved is the percentage constituted by the
ratio of the amount determined under subparagraph
(A) to the amount determined under subparagraph
(B), as follows:
‘‘(A) The amount determined under this
subparagraph is an amount equal to an esti-
mate by the Secretary of the total amount of
payments that would have been paid to the hos-
pital under section 1886(d)(5)(B) for the des-
ignated fiscal year if such section, as in effect
for the first fiscal year for which payments pur-
suant to this subsection are to be made to the
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hospital, had applied to the hospital for the des-
ignated fiscal year.
‘‘(B) The Secretary shall make an estimate
in accordance with subparagraph (A) for all
teaching hospitals. The amount determined
under this subparagraph is the sum of the esti-
mates made by the Secretary under the preced-
ing sentence.
‘‘(4) LIMITATION.—This subsection does not
apply to a teaching hospital described in paragraph
(1) if the hospital is in a State for which a dem-
onstration project under section 1814(b)(3) is in ef-
fect.
‘‘(c) CONSOLIDATIONS AND MERGERS.—In the case
of two or more teaching hospitals that have each received
payments pursuant to section 2221 for one or more fiscal
years and that undergo a consolidation or merger, the per-
centage applicable to the resulting teaching hospital for
purposes of section 2221(b) is the sum of the respective
percentages that would have applied pursuant to such sec-
tion if the hospitals had not undergone the consolidation
or merger.
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‘‘SEC. 2223. INDIRECT COSTS; ALTERNATIVE PAYMENTS RE-
GARDING TEACHING HOSPITALS IN CERTAIN
STATES.
‘‘(a) IN GENERAL.—In the case of a teaching hospital
in a State for which a demonstration project under section
1814(b)(3) is in effect, this section applies in lieu of sec-
tion 2221. For purposes of section 2211(a)(1), the amount
determined for such a teaching hospital for a fiscal year
is the product of—
‘‘(1) the amount in the Indirect-Costs Medical
Education Account for the fiscal year pursuant to
the allocation under section 2201(d)(3)(A) for the
year; and
‘‘(2) the percentage determined under sub-
section (b) for the hospital.
‘‘(b) DETERMINATION OF PERCENTAGE.—For pur-
poses of subsection (a)(2):
‘‘(1) The Secretary shall make an estimate of
the total amount of payments that would have been
received under section 1886(d)(5)(B) by the hospital
involved with respect to each of the fiscal years of
the applicable period if such section (as in effect for
such fiscal years) had applied to the hospital for
such years.
‘‘(2) The percentage determined under this sub-
section for the hospital for a fiscal year is a mean
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average percentage determined for the hospital in
accordance 
with 
the 
methodology 
of 
section
2221(b)(1), except that the estimate made by the
Secretary under paragraph (1) of this subsection for
a fiscal year of the applicable period is deemed to be
the amount that applies for purposes of section
2221(b)(3)(A) for such year.
‘‘(c) RULE REGARDING PAYMENTS FROM CERTAIN
AMOUNTS.—In the case of a teaching hospital described
in subsection (a), this section does not authorize any pay-
ment to the hospital from amounts transferred to the
Fund under section 1886(j).
‘‘(d) ADJUSTMENT
REGARDING
PAYMENTS
TO
OTHER HOSPITALS.—In the case of a fiscal year for which
payments pursuant to subsection (a) are made to one or
more teaching hospitals, the following applies:
‘‘(1) The Secretary shall determine a percent-
age equal to the sum of the respective percentages
determined for the hospitals under subsection (b).
‘‘(2) The Secretary shall determine an amount
equal to the product of—
‘‘(A) the percentage determined under
paragraph (1); and
‘‘(B) the amount in the Indirect-Costs
Medical Education Account for the fiscal year
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pursuant 
to 
the 
transfer 
under 
section
1886(j)(1).
‘‘(3) The Secretary shall, for each hospital
(other than hospitals described in subsection (a)),
make payments to the hospital in amounts whose
sum for the fiscal year is equal to the product of—
‘‘(A) the amount determined under para-
graph (2); and
‘‘(B) the percentage that applies to the
hospital for purposes of section 2221(b), except
that such percentage shall be adjusted in ac-
cordance with the methodology of section
2221(b)(1) to the extent determined by the Sec-
retary to be necessary with respect to a sum
that equals 100 percent.
‘‘Subpart 3—Amount Relating to Direct Costs of
Graduate Medical Education
‘‘SEC. 2231. DETERMINATION OF AMOUNT RELATING TO DI-
RECT COSTS.
‘‘(a) 
IN
GENERAL.—For 
purposes 
of 
section
2211(a)(2), the amount determined under this section for
a teaching hospital for a fiscal year is the sum of—
‘‘(1) the amount determined under subsection
(b) (relating to the General Direct-Costs Medical
Education Account); and
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‘‘(2) the amount determined under subsection
(c) (relating to the Medicare Direct-Costs Medical
Education Account).
‘‘(b) PAYMENT FROM GENERAL ACCOUNT.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a)(1), the amount determined under this subsection
for a teaching hospital for a fiscal year is the prod-
uct of—
‘‘(A) the amount in the General Direct-
Costs Medical Education Account on the appli-
cable date under section 2201(d) (once the ap-
propriation under such section is made); and
‘‘(B) the percentage determined for the
hospital under paragraph (2).
‘‘(2) HOSPITAL-SPECIFIC PERCENTAGE.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1)(B), the percentage determined under
this paragraph for a teaching hospital is the
mean average of the respective percentages de-
termined under subparagraph (B) for each fis-
cal year of the applicable period (as defined in
section 2221(b)(2)), adjusted by the Secretary
(upward or downward, as the case may be) on
a pro rata basis to the extent necessary to en-
sure that the sum of the percentages deter-
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mined under this subparagraph for all teaching
hospitals is equal to 100 percent. The preceding
sentence is subject to sections 2232 through
2234.
‘‘(B) RESPECTIVE
DETERMINATIONS
FOR
FISCAL
YEARS
OF
APPLICABLE
PERIOD.—For
purposes of subparagraph (A), the percentage
determined under this subparagraph for a
teaching hospital for a fiscal year of the appli-
cable period is the percentage constituted by
the ratio of—
‘‘(i) the total amount of payments re-
ceived by the hospital under section
1886(h) for cost reporting periods begin-
ning during the fiscal year involved; to
‘‘(ii) the sum of the respective
amounts determined under clause (i) for
the fiscal year for all teaching hospitals.
‘‘(3) AVAILABILITY
OF
DATA.—If a teaching
hospital received the payments specified in para-
graph (2)(B)(i) during the applicable period but a
complete set of the relevant data is not available to
the Secretary for purposes of determining an
amount under such paragraph for the fiscal year in-
volved, the Secretary shall for purposes of such
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paragraph make an estimate on the basis of such
data as are available to the Secretary for the appli-
cable period.
‘‘(c) PAYMENT FROM MEDICARE ACCOUNT.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a)(2), the amount determined under this subsection
for a teaching hospital for a fiscal year is the prod-
uct of—
‘‘(A) the amount in the Medicare Direct-
Costs Medical Education Account on the appli-
cable date under section 2201(d) (once the ap-
propriation under such section is made); and
‘‘(B) the percentage determined for the
hospital under paragraph (2) for the fiscal year.
‘‘(2) HOSPITAL-SPECIFIC
PERCENTAGE.—For
purposes of paragraph (1)(B), the percentage deter-
mined under this subsection for a teaching hospital
for a fiscal year is the percentage constituted by the
ratio of—
‘‘(A) the estimate made by the Secretary
for the hospital for the fiscal year under section
1886(j)(2)(B); to
‘‘(B) the sum of the respective estimates
referred to in subparagraph (A) for all teaching
hospitals.
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‘‘SEC. 2232. DIRECT COSTS; SPECIAL RULES REGARDING
DETERMINATION 
OF 
HOSPITAL-SPECIFIC
PERCENTAGE.
‘‘(a) SPECIAL RULE REGARDING FISCAL YEARS
1995 AND 1996.—
‘‘(1) IN GENERAL.—In the case of a teaching
hospital whose first payments under section 1886(h)
were for the cost reporting period beginning in fiscal
year 1995 or in fiscal year 1996 (referred to in this
subsection individually as a ‘first payment year’),
the percentage determined under paragraph (2) for
the hospital is deemed to be the percentage applica-
ble under section 2231(b)(2) to the hospital, except
that the percentage under paragraph (2) shall be ad-
justed in accordance with section 2231(b)(2)(A) to
the extent determined by the Secretary to be nec-
essary with respect to a sum that equals 100 per-
cent.
‘‘(2) DETERMINATION
OF
PERCENTAGE.—For
purposes of paragraph (1), the percentage deter-
mined under this paragraph for a teaching hospital
is the percentage constituted by the ratio of the
amount determined under subparagraph (A) to the
amount determined under subparagraph (B), as fol-
lows:
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‘‘(A)(i) If the first payment year for the
hospital is fiscal year 1995, the amount deter-
mined under this subparagraph is the total
amount of payments received by the hospital
under section 1886(h) for cost reporting periods
beginning in fiscal year 1995.
‘‘(ii) If the first payment year for the hos-
pital is fiscal year 1996, the amount determined
under this subparagraph is an amount equal to
an estimate by the Secretary of the total
amount of payments that would have been paid
to the hospital under section 1886(h) for cost
reporting periods beginning in fiscal year 1995
if such section, as in effect for fiscal year 1996,
had applied to the hospital for fiscal year 1995.
‘‘(B)(i) If the first payment year for the
hospital is fiscal year 1995, the amount deter-
mined under this subparagraph is the aggregate
total of the payments received by teaching hos-
pitals under section 1886(h) for cost reporting
periods beginning in fiscal year 1995.
‘‘(ii) If the first payment year for the hos-
pital is fiscal year 1996—
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‘‘(I) the Secretary shall make an esti-
mate in accordance with subparagraph
(A)(ii) for all teaching hospitals; and
‘‘(II) the amount determined under
this subparagraph is the sum of the esti-
mates made by the Secretary under
subclause (I).
‘‘(b) NEW TEACHING HOSPITALS.—
‘‘(1) IN GENERAL.—Subject to paragraph (4),
in the case of a teaching hospital that did not re-
ceive payments under section 1886(h) for any of the
fiscal years 1992 through 1996, the percentage de-
termined under paragraph (3) for the hospital is
deemed to be the percentage applicable under section
2231(b)(2) to the hospital, except that the percent-
age under paragraph (3) shall be adjusted in accord-
ance with section 2231(b)(2)(A) to the extent deter-
mined by the Secretary to be necessary with respect
to a sum that equals 100 percent.
‘‘(2) DESIGNATED
FISCAL
YEAR
REGARDING
DATA.—The determination under paragraph (3) of a
percentage for a teaching hospital described in para-
graph (1) shall be made for the most recent fiscal
year for which the Secretary has sufficient data to
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make the determination (referred to in this sub-
section as the ‘designated fiscal year’).
‘‘(3) DETERMINATION
OF
PERCENTAGE.—For
purposes of paragraph (1), the percentage deter-
mined under this paragraph for the teaching hos-
pital involved is the percentage constituted by the
ratio of the amount determined under subparagraph
(A) to the amount determined under subparagraph
(B), as follows:
‘‘(A) The amount determined under this
subparagraph is an amount equal to an esti-
mate by the Secretary of the total amount of
payments that would have been paid to the hos-
pital under section 1886(h) for the designated
fiscal year if such section, as in effect for the
first fiscal year for which payments pursuant to
this subsection are to be made to the hospital,
had applied to the hospital for cost reporting
periods beginning in the designated fiscal year.
‘‘(B) The Secretary shall make an estimate
in accordance with subparagraph (A) for all
teaching hospitals. The amount determined
under this subparagraph is the sum of the esti-
mates made by the Secretary under the preced-
ing sentence.
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‘‘(4) LIMITATION.—This subsection does not
apply to a teaching hospital described in paragraph
(1) if the hospital is in a State for which a dem-
onstration project under section 1814(b)(3) is in ef-
fect.
‘‘(c) CONSOLIDATIONS AND MERGERS.—In the case
of two or more teaching hospitals that have each received
payments pursuant to section 2231 for one or more fiscal
years and that undergo a consolidation or merger, the per-
centage applicable to the resulting teaching hospital for
purposes of section 2231(b) is the sum of the respective
percentages that would have applied pursuant to such sec-
tion if the hospitals had not undergone the consolidation
or merger.
‘‘SEC. 2233. DIRECT COSTS; AUTHORITY FOR PAYMENTS TO
CONSORTIA OF PROVIDERS.
‘‘(a) IN GENERAL.—In lieu of making payments to
teaching hospitals pursuant to section 2231, the Secretary
may make payments under this section to consortia that
meet the requirements of subsection (b).
‘‘(b) QUALIFYING CONSORTIUM.—For purposes of
subsection (a), a consortium meets the requirements of
this subsection if the consortium is in compliance with the
following:
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‘‘(1) The consortium consists of an approved
medical residency training program and one or more
of the following entities:
‘‘(A) Schools of allopathic medicine or os-
teopathic medicine.
‘‘(B) Teaching hospitals.
‘‘(C) Other approved medical residency
training programs.
‘‘(D) Federally qualified health centers.
‘‘(E) Medical group practices.
‘‘(F) Managed care entities.
‘‘(G) Entities furnishing outpatient serv-
ices.
‘‘(H) Such other entities as the Secretary
determines to be appropriate.
‘‘(2) The members of the consortium have
agreed to participate in the programs of graduate
medical education that are operated by the entities
in the consortium.
‘‘(3) With respect to the receipt by the consor-
tium of payments made pursuant to this section, the
members of the consortium have agreed on a method
for allocating the payments among the members.
‘‘(4) The consortium meets such additional re-
quirements as the Secretary may establish.
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‘‘(c) PAYMENTS FROM ACCOUNTS.—
‘‘(1) IN GENERAL.—Subject to subsection (d),
the total of payments to a qualifying consortium for
a fiscal year pursuant to subsection (a) shall be the
sum of—
‘‘(1) the aggregate amount determined for the
teaching hospitals of the consortium pursuant to
paragraph (1) of section 2231(a); and
‘‘(2) an amount determined in accordance with
the methodology that applies pursuant to paragraph
(2) of such section, except that the estimate used for
purposes of subsection (c)(2)(A) of such section shall
be the estimate made for the consortium under sec-
tion 1886(j)(2)(C)(ii).
‘‘(d) LIMITATION ON AGGREGATE TOTAL OF PAY-
MENTS
TO CONSORTIA.—The aggregate total of the
amounts paid under subsection (c)(2) to qualifying consor-
tia for a fiscal year may not exceed the sum of—
‘‘(1) the aggregate total of the amounts that
would have been paid under section 2231(c) for the
fiscal year to the teaching hospitals of the consortia
if the hospitals had not been participants in the con-
sortia; and
‘‘(2) an amount equal to 1 percent of the
amount that applies under section 2231(c)(1)(A) for
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the fiscal year (relating to the Medicare Direct-Costs
Medical Education Account).
‘‘(e) DEFINITION.—For purposes of this title, the
term ‘qualifying consortium’ means a consortium that
meets the requirements of subsection (b).
‘‘SEC. 2234. DIRECT COSTS; ALTERNATIVE PAYMENTS RE-
GARDING TEACHING HOSPITALS IN CERTAIN
STATES.
‘‘(a) IN GENERAL.—In the case of a teaching hospital
in a State for which a demonstration project under section
1814(b)(3) is in effect, this section applies in lieu of sec-
tion 2231. For purposes of section 2211(a)(2), the amount
determined for a teaching hospital for a fiscal year is the
product of—
‘‘(1) the amount in the General Direct-Costs
Medical Education Account on the applicable date
under section 2201(d) (once the appropriation under
such section is made); and
‘‘(2) the percentage determined under sub-
section (b) for the hospital.
‘‘(b) DETERMINATION OF PERCENTAGE.—For pur-
poses of subsection (a)(2):
‘‘(1) The Secretary shall make an estimate of
the total amount of payments that would have been
received under section 1886(h) by the hospital in-
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volved with respect to each of the fiscal years of the
applicable period if such section (as in effect for
such fiscal years) had applied to the hospital for
such years.
‘‘(2) The percentage determined under this sub-
section for the hospital for a fiscal year is a mean
average percentage determined for the hospital in
accordance 
with 
the 
methodology 
of 
section
2231(b)(2)(A), except that the estimate made by the
Secretary under paragraph (1) of this subsection for
a fiscal year of the applicable period is deemed to be
the amount that applies for purposes of section
2231(b)(2)(B)(i) for such year.
‘‘(c) RULE REGARDING PAYMENTS FROM CERTAIN
AMOUNTS.—In the case of a teaching hospital described
in subsection (a), this section does not authorize any pay-
ment to the hospital from amounts transferred to the
Fund under section 1886(j).
‘‘Subpart 4—General Provisions
‘‘SEC. 2241. ADJUSTMENTS IN PAYMENT AMOUNTS.
‘‘(a) COLLECTION OF DATA ON ACCURACY OF ESTI-
MATES.—The Secretary shall collect data on whether the
estimates made by the Secretary under section 1886(j) for
a fiscal year were substantially accurate.
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‘‘(b) ADJUSTMENTS.—If the Secretary determines
under subsection (a) that an estimate for a fiscal year was
not substantially accurate, the Secretary shall, for the first
fiscal year beginning after the Secretary makes the deter-
mination—
‘‘(1) make adjustments accordingly in transfers
to the Fund under section 1886(j); and
‘‘(2) make adjustments accordingly in the
amount of payments to teaching hospitals pursuant
to 2231(c) (or, as applicable, to qualifying consortia
pursuant to section 2233(c)(2)).’’.
PART 2—AMENDMENTS TO MEDICARE PROGRAM
SEC. 15411. TRANSFERS TO TEACHING HOSPITAL AND
GRADUATE 
MEDICAL 
EDUCATION 
TRUST
FUND.
Section 1886 (42 U.S.C. 1395ww) is amended—
(1) in subsection (d)(5)(B), in the matter pre-
ceding clause (i), by striking ‘‘The Secretary shall
provide’’ and inserting the following: ‘‘For dis-
charges occurring on or before September 30, 1996,
the Secretary shall provide’’;
(2) in subsection (h)—
(A) in paragraph (1), in the first sentence,
by striking ‘‘the Secretary shall provide’’ and
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inserting ‘‘the Secretary shall, subject to para-
graph (6), provide’’; and
(B) by adding at the end the following
paragraph:
‘‘(6) LIMITATION.—
‘‘(A) IN
GENERAL.—The authority to
make payments under this subsection applies
only with respect to cost reporting periods end-
ing on or before September 30, 1996, except as
provided in subparagraph (B).
‘‘(B) RULE REGARDING PORTION OF LAST
COST
REPORTING
PERIOD.—In the case of a
cost reporting period that extends beyond Sep-
tember 30, 1996, payments under this sub-
section shall be made with respect to such por-
tion of the period as has lapsed as of such date.
‘‘(C) 
RULE
OF
CONSTRUCTION.—This
paragraph may not be construed as authorizing
any payment under section 1861(v) with re-
spect to graduate medical education.’’; and
(3) by adding at the end the following sub-
section:
‘‘(j) TRANSFERS
TO
TEACHING
HOSPITAL
AND
GRADUATE MEDICAL EDUCATION TRUST FUND.—
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‘‘(1) INDIRECT
COSTS
OF
MEDICAL
EDU-
CATION.—
‘‘(A) IN
GENERAL.—From the Federal
Hospital Insurance Trust Fund, the Secretary
shall, for fiscal year 1997 and each subsequent
fiscal year, transfer to the Indirect-Costs Medi-
cal Education Account (under section 2201) an
amount determined by the Secretary in accord-
ance with subparagraph (B).
‘‘(B) DETERMINATION OF AMOUNTS.—The
Secretary shall make an estimate for the fiscal
year involved of the nationwide total of the
amounts that would have been paid under sub-
section (d)(5)(B) to hospitals during the fiscal
year if such payments had not been terminated
for discharges occurring after September 30,
1996. For purposes of subparagraph (A), the
amount determined under this subparagraph
for the fiscal year is the estimate made by the
Secretary under the preceding sentence.
‘‘(2) DIRECT COSTS OF MEDICAL EDUCATION.—
‘‘(A) IN
GENERAL.—From the Federal
Hospital Insurance Trust Fund and the Fed-
eral Supplementary Medical Insurance Trust
Fund, the Secretary shall, for fiscal year 1997
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and each subsequent fiscal year, transfer to the
Medicare Direct-Costs Medical Education Ac-
count (under section 2201) the sum of—
‘‘(i) an amount determined by the
Secretary in accordance with subparagraph
(B); and
‘‘(ii) as applicable, an amount deter-
mined by the Secretary in accordance with
subparagraph (C)(ii).
‘‘(B) DETERMINATION OF AMOUNTS.—For
each hospital (other than a hospital that is a
member of a qualifying consortium referred to
in subparagraph (C)), the Secretary shall make
an estimate for the fiscal year involved of the
amount that would have been paid under sub-
section (h) to the hospital during the fiscal year
if such payments had not been terminated for
cost reporting periods ending on or before Sep-
tember 30, 1996. For purposes of subparagraph
(A)(i), the amount determined under this sub-
paragraph for the fiscal year is the sum of all
estimates made by the Secretary under the pre-
ceding sentence.
‘‘(C) ESTIMATES REGARDING QUALIFYING
CONSORTIA.—If the Secretary elects to author-
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ize one or more qualifying consortia for pur-
poses of section 2233(a), the Secretary shall
carry out the following:
‘‘(i) The Secretary shall establish a
methodology for making payments to quali-
fying consortia with respect to the reason-
able direct costs of such consortia in carry-
ing out programs of graduate medical edu-
cation. The methodology shall be the meth-
odology established in subsection (h),
modified to the extent necessary to take
into account the participation in such pro-
grams of entities other than hospitals.
‘‘(ii) For each qualifying consortium,
the Secretary shall make an estimate for
the fiscal year involved of the amount that
would have been paid to the consortium
during the fiscal year if, using the meth-
odology under clause (i), payments had
been made to the consortium for the fiscal
year as reimbursements with respect to
cost reporting periods. For purposes of
subparagraph (A)(ii), the amount deter-
mined under this clause for the fiscal year
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is the sum of all estimates made by the
Secretary under the preceding sentence.
‘‘(D) ALLOCATION BETWEEN FUNDS.—In
providing for a transfer under subparagraph
(A) for a fiscal year, the Secretary shall provide
for an allocation of the amounts involved be-
tween part A and part B (and the trust funds
established under the respective parts) as rea-
sonably reflects the proportion of direct grad-
uate medical education costs of hospitals associ-
ated with the provision of services under each
respective part.
‘‘(3) APPLICABILITY
OF
CERTAIN
AMEND-
MENTS.—Amendments made to subsection (d)(5)(B)
and subsection (h) that are effective on or after Oc-
tober 1, 1996, apply only for purposes of estimates
under paragraphs (1) and (2) and for purposes of
determining the amount of payments under 2211.
Such amendments do not require any adjustment to
amounts paid under subsection (d)(5)(B) or (h) with
respect to fiscal year 1996 or any prior fiscal year.
‘‘(4) RELATIONSHIP TO CERTAIN DEMONSTRA-
TION PROJECTS.—In the case of a State for which
a demonstration project under section 1814(b)(3) is
in effect, the Secretary, in making determinations of
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the rates of increase under such section, shall in-
clude all amounts transferred under this subsection.
Such amounts shall be so included to the same ex-
tent and in the same manner as amounts determined
under subsections (d)(5)(B) and (h) were included in
such determination under the provisions of this title
in effect on September 30, 1996.’’.
SEC. 15412. MODIFICATION IN PAYMENT POLICIES REGARD-
ING GRADUATE MEDICAL EDUCATION.
(a) INDIRECT COSTS OF MEDICAL EDUCATION; AP-
PLICABLE PERCENTAGE.—
(1) MODIFICATION REGARDING 5.6 PERCENT.—
Section 
1886(d)(5)(B)(ii) 
(42 
U.S.C.
1395ww(d)(5)(B)(ii)) is amended—
(A) by striking ‘‘on or after October 1,
1988,’’ and inserting ‘‘on or after October 1,
1999,’’; and
(B) by striking ‘‘1.89’’ and inserting
‘‘1.38’’.
(2) SPECIAL RULE REGARDING FISCAL YEARS
1996
THROUGH
1998; MODIFICATION
REGARDING
PERCENT.—Section 1886(d)(5)(B)(ii), as amended
by paragraph (1), is amended by adding at the end
the following: ‘‘In the case of discharges occurring
on or after October 1, 1995, and before October 1,
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1999, the preceding sentence applies to the same ex-
tent and in the same manner as the sentence applies
to discharges occurring on or after October 1, 1999,
except that the term ‘1.38’ is deemed to be ‘1.48’.’’.
(3) CONFORMING
AMENDMENT
RELATING
TO
DETERMINATION
OF
STANDARDIZED
AMOUNTS.—
Section 
1886(d)(2)(C)(i) 
(42 
U.S.C.
1395ww(d)(2)(C)(i)) is amended by striking ‘‘1985’’
and inserting the following: ‘‘1985, but (for dis-
charges occurring after September 30, 1995) not
taking into account any reductions in such costs re-
sulting from the amendments made by section
15412(a) of the Medicare Preservation Act of
1995’’.
(b) DIRECT COSTS OF MEDICAL EDUCATION.—
(1) LIMITATION
ON
NUMBER
OF
FULL-TIME-
EQUIVALENT
RESIDENTS.—Section 1886(h)(4) (42
U.S.C. 1395ww(h)(4)) is amended by adding at the
end the following new subparagraph:
‘‘(F) LIMITATION
ON
NUMBER
OF
RESI-
DENTS FOR CERTAIN FISCAL YEARS.—
‘‘(i) IN
GENERAL.—Such rules shall
provide that for purposes of a cost report-
ing period beginning on or after October 1,
1995, and on or before September 30,
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2002, the number of full-time-equivalent
residents determined under this paragraph
with respect to an approved medical resi-
dency training program may not exceed
the number of full-time-equivalent resi-
dents with respect to the program as of
August 1, 1995 (except that this subpara-
graph applies only to approved medical
residency training programs in the fields of
allopathic medicine and osteopathic medi-
cine).
‘‘(ii) DISPOSITION OF UNUSED RESI-
DENCY POSITIONS.—In the case of a cost
reporting period to which the limitation
under clause (i) applies, if for such a pe-
riod the number of full-time-equivalent
residents determined under this paragraph
with respect to an approved medical resi-
dency training program is less than the
maximum number applicable to the pro-
gram under such clause, the Secretary may
authorize for one or more other approved
medical residency training programs offset-
ting increases in the respective maximum
numbers that otherwise would be applica-
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ble under such clause to the programs. In
authorizing such increases with respect to
a cost reporting period, the Secretary shall
ensure that the national total of the re-
spective maximum numbers determined
under such clause with respect to approved
medical residency training programs is not
exceeded.’’.
(2) EXCLUSION OF RESIDENTS AFTER INITIAL
RESIDENCY
PERIOD.—Section 1886(h)(4)(C) (42
U.S.C. 1395ww(h)(4)(C)) is amended to read as fol-
lows:
‘‘(C) WEIGHTING
FACTORS
FOR
RESI-
DENTS.—Effective for cost reporting periods
beginning on or after October 1, 1997, such
rules shall provide that, in the calculation of the
number of full-time-equivalent residents in an
approved residency program, the weighting fac-
tor for a resident who is in the initial residency
period (as defined in paragraph (5)(F)) is 1.0
and the weighting factor for a resident who has
completed such period is 0.0. (In the case of
cost reporting periods beginning before October
1, 1997, the weighting factors that apply in
such calculation are the weighting factors that
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were applicable under this subparagraph on the
day before the date of the enactment of the
Medicare Preservation Act of 1995.)’’.
(3) REDUCTIONS
IN
PAYMENTS
FOR
ALIEN
RESIDENTS.—Section 
1886(h)(4) 
(42 
U.S.C.
1395ww(h)(4)), as amended by paragraph (1), is
amended by adding at the end the following new
subparagraph:
‘‘(G) SPECIAL
RULES
FOR
ALIEN
RESI-
DENTS.—In the case of individuals who are not
citizens or nationals of the United States, aliens
lawfully admitted to the United States for per-
manent residence, aliens admitted to the United
States as refugees, or citizens of Canada, in the
calculation of the number of full-time-equivalent
residents in an approved medical residency pro-
gram, the following rules shall apply with re-
spect to such individuals who are residents in
the program:
‘‘(i) For a cost reporting period begin-
ning during fiscal year 1996, for each such
individual the Secretary shall apply a
weighting factor of .75.
‘‘(ii) For a cost reporting period be-
ginning during fiscal year 1997, for each
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such individual the Secretary shall apply a
weighting factor of .50.
‘‘(iii) For a cost reporting period be-
ginning during fiscal year 1998 or any
subsequent fiscal year, for each such indi-
vidual 
the 
Secretary 
shall 
apply 
a
weighting factor of .25.’’.
(4) EFFECTIVE DATE.—Except as provided oth-
erwise in this subsection (or in the amendments
made by this subsection), the amendments made by
this subsection apply to hospital cost reporting peri-
ods beginning on or after October 1, 1995.
PART 3—REFORM OF FEDERAL POLICIES RE-
GARDING TEACHING HOSPITALS AND GRAD-
UATE MEDICAL EDUCATION
SEC. 15421. ESTABLISHMENT OF ADVISORY PANEL FOR
RECOMMENDING POLICIES.
Title XXII of the Social Security Act, as added by
section 15401, is amended by adding at the end the follow-
ing part:
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‘‘PART C—OTHER MATTERS
‘‘SEC. 2251. ADVISORY PANEL ON REFORM IN FINANCING
OF TEACHING HOSPITALS AND GRADUATE
MEDICAL EDUCATION.
‘‘(a) ESTABLISHMENT.—The Chair of the Medicare
Payment Review Commission under section 1806 shall es-
tablish a temporary advisory panel to be known as the Ad-
visory Panel on Financing for Teaching Hospitals and
Graduate Medical Education (in this section referred to
as the ‘Panel’).
‘‘(b) DUTIES.—The Panel shall develop recommenda-
tions on whether and to what extent Federal policies re-
garding teaching hospitals and graduate medical edu-
cation should be reformed, including recommendations re-
garding the following:
‘‘(1) The financing of graduate medical edu-
cation, including consideration of alternative broad-
based sources of funding for such education.
‘‘(2) The financing of teaching hospitals, in-
cluding consideration of the difficulties encountered
by such hospitals as competition among health care
entities increases. Matters considered under this
paragraph shall include consideration of the effects
on teaching hospitals of the method of financing
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used for the MedicarePlus program under part C of
title XVIII.
‘‘(3) The methodology for making payments for
graduate medical education, and the selection of en-
tities to receive the payments. Matters considered
under this paragraph shall include the following:
‘‘(A) The methodology under part B for
making payments from the Fund, including the
use of data from the fiscal years 1992 through
1994, and including the methodology that ap-
plies with respect to consolidations and mergers
of participants in the program under such part
and with respect to the inclusion of additional
participants in the program.
‘‘(B) Issues regarding children’s hospitals,
and approved medical residency training pro-
grams in pediatrics.
‘‘(C) Whether and to what extent pay-
ments are being made (or should be made) for
graduate training in the various nonphysician
health professions.
‘‘(4) Federal policies regarding international
medical graduates.
‘‘(5) The dependence of schools of medicine on
service-generated income.
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‘‘(6) The effects of the amendments made by
section 15412 of the Medicare Preservation Act of
1995, including adverse effects on teaching hospitals
that result from modifications in policies regarding
international medical graduates.
‘‘(7) Whether and to what extent the needs of
the United States regarding the supply of physicians
will change during the 10-year period beginning on
October 1, 1995, and whether and to what extent
any such changes will have significant financial ef-
fects on teaching hospitals.
‘‘(8) The appropriate number and mix of resi-
dents.
‘‘(c) COMPOSITION.—Not later than three months
after being designated as the initial chair of the Medicare
Payment Review Commission, the Chair of the Commis-
sion shall appoint to the Panel 19 individuals who are not
members of the Commission, who are not officers or em-
ployees of the United States, and who possess expertise
on matters on which the Panel is to make recommenda-
tions under subsection (b). Such individuals shall include
the following:
‘‘(1) Deans from allopathic and osteopathic
schools of medicine.
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‘‘(2) Chief executive officers (or equivalent ad-
ministrative heads) from academic health centers,
integrated health care systems, approved medical
residency training programs, and teaching hospitals
that sponsor approved medical residency training
programs.
‘‘(3) Chairs of departments or divisions from
allopathic and osteopathic schools of medicine,
schools of dentistry, and approved medical residency
training programs in oral surgery.
‘‘(4) Individuals with leadership experience
from each of the fields of advanced practice nursing,
physician assistants, and podiatric medicine.
‘‘(5) Individuals with substantial experience in
the study of issues regarding the composition of the
health care workforce of the United States.
‘‘(6) Individuals with expertise on the financing
of health care.
‘‘(7) Representatives from health insurance or-
ganizations and health plan organizations.
‘‘(d) RELATIONSHIP OF PANEL TO MEDICARE PAY-
MENT
REVIEW
COMMISSION.—From amounts appro-
priated under subsection (n), the Medicare Payment Re-
view Commission shall provide for the Panel such staff
and administrative support (including quarters for the
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Panel) as may be necessary for the Panel to carry out
the duties under subsection (b).
‘‘(e) CHAIR.—The Panel shall designate a member of
the Panel to serve as the Chair of the Panel.
‘‘(f) MEETINGS.—The Panel shall meet at the call of
the Chair or a majority of the members, except that the
first meeting of the Panel shall be held not later than
three months after the date on which appointments under
subsection (c) are completed.
‘‘(g) TERMS.—The term of a member of the Panel
is the duration of the Panel.
‘‘(h) VACANCIES.—
‘‘(1) IN GENERAL.—A vacancy in the member-
ship of the Panel does not affect the power of the
remaining members to carry out the duties under
subsection (b). A vacancy in the membership of the
Panel shall be filled in the manner in which the
original appointment was made.
‘‘(2) INCOMPLETE TERM.—If a member of the
Panel does not serve the full term applicable to the
member, the individual appointed to fill the resulting
vacancy shall be appointed for the remainder of the
term of the predecessor of the individual.
‘‘(i) COMPENSATION; REIMBURSEMENT
OF
EX-
PENSES.—
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‘‘(1) COMPENSATION.—Members of the Panel
shall receive compensation for each day (including
traveltime) engaged in carrying out the duties of the
Committee. Such compensation may not be in an
amount in excess of the daily equivalent of the an-
nual maximum rate of basic pay payable under the
General Schedule (under title 5, United States
Code) for positions above GS–15.
‘‘(2) REIMBURSEMENT.—Members of the Panel
may, in accordance with chapter 57 of title 5, Unit-
ed States Code, be reimbursed for travel, subsist-
ence, and other necessary expenses incurred in car-
rying out the duties of the Panel.
‘‘(j) CONSULTANTS.—The Panel may procure such
temporary and intermittent services of consultants under
section 3109(b) of title 5, United States Code, as the
Panel may determine to be useful in carrying out the du-
ties under subsection (b). The Panel may not procure serv-
ices under this subsection at any rate in excess of the daily
equivalent of the maximum annual rate of basic pay pay-
able under the General Schedule for positions above GS–
15. Consultants under this subsection may, in accordance
with chapter 57 of title 5, United States Code, be reim-
bursed for travel, subsistence, and other necessary ex-
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penses incurred for activities carried out on behalf of the
Panel pursuant to subsection (b).
‘‘(k) POWERS.—
‘‘(1) IN GENERAL.—For the purpose of carry-
ing out the duties of the Panel under subsection (b),
the Panel may hold such hearings, sit and act at
such times and places, take such testimony, and re-
ceive such evidence as the Panel considers appro-
priate.
‘‘(2) OBTAINING
OFFICIAL
INFORMATION.—
Upon the request of the Panel, the heads of Federal
agencies shall furnish directly to the Panel informa-
tion necessary for the Panel to carry out the duties
under subsection (b).±
‘‘(3) USE OF MAILS.—The Panel may use the
United States mails in the same manner and under
the same conditions as Federal agencies.
‘‘(l) REPORTS.—
‘‘(1) FIRST INTERIM REPORT.—Not later than
one year after the date of the enactment of the Med-
icare Preservation Act of 1995, the Panel shall sub-
mit to the Congress a report providing the rec-
ommendations of the Panel regarding the matters
specified in paragraphs (1) through (4) of subsection
(b).
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‘‘(2) SECOND
INTERIM
REPORT.—Not later
than 2 years after the date of enactment specified
in paragraph (1), the Panel shall submit to the Con-
gress a report providing the recommendations of the
Panel regarding the matters specified in paragraphs
(5) and (6) of subsection (b).
‘‘(3) FINAL REPORT.—Not later than 3 years
after the date of enactment specified in paragraph
(1), the Panel shall submit to the Congress a final
report providing the recommendations of the Panel
under subsection (b).
‘‘(m) DURATION.—The Panel terminates upon the
expiration of the 180-day period beginning on the date on
which the final report under subsection (l)(3) is submitted
to the Congress.
‘‘(n) AUTHORIZATION OF APPROPRIATIONS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2),
for the purpose of carrying out this section, there
are authorized to be appropriated such sums as may
be necessary for each of the fiscal years 1996
through 1999.
‘‘(2) LIMITATION.—The authorization of appro-
priations established in paragraph (1) is effective
only with respect to appropriations made from allo-
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cations under section 302(b) of the Congressional
Budget Act of 1974—
‘‘(A) for the Subcommittee on Labor,
Health and Human Services, and Education,
Committee on Appropriations of the House of
Representatives, in the case of any bill, resolu-
tion, or amendment considered in the House;
and
‘‘(B) for the Subcommittee on Labor,
Health and Human Services, and Education,
Committee on Appropriations of the Senate, in
the case of any bill, resolution, or amendment
considered in the Senate.’’.
Subtitle F—Provisions Relating to
Medicare Part A
PART 1—HOSPITALS
Subpart A—General Provisions Relating to Hospitals
SEC. 15501. REDUCTIONS IN INFLATION UPDATES FOR PPS
HOSPITALS.
Section 
1886(b)(3)(B)(i) 
(42 
U.S.C.
1395ww(b)(3)(B)(i)) is amended by striking subclauses
(XI), (XII), and (XIII) and inserting the following:
‘‘(XI) for fiscal year 1996, the market basket
percentage increase minus 2.5 percentage points for
hospitals in all areas,
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‘‘(XII) for each of the fiscal years 1997 through
2002, the market basket percentage increase minus
2.0 percentage points for hospitals in all areas, and
‘‘(XIII) for fiscal year 2003 and each subse-
quent fiscal year, the market basket percentage in-
crease for hospitals in all areas.’’.
SEC. 15502. REDUCTIONS IN DISPROPORTIONATE SHARE
PAYMENT ADJUSTMENTS.
(a) IN GENERAL.—Section 1886(d)(5)(F) (42 U.S.C.
1395ww(d)(5)(F)) is amended—
(1) in clause (ii), by striking ‘‘The amount’’
and inserting ‘‘Subject to clause (ix), the amount’’;
and
(2) by adding at the end the following new
clause:
‘‘(ix) In the case of discharges occurring on or after
October 1, 1995, the additional payment amount other-
wise determined under clause (ii) shall be reduced as fol-
lows:
‘‘(I) For discharges occurring on or after Octo-
ber 1, 1995, and on or before September 30, 1996,
by 20 percent.
‘‘(II) For discharges occurring on or after Octo-
ber 1, 1996, and on or before September 30, 1997,
by 25 percent.
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‘‘(III) For discharges occurring on or after Oc-
tober 1, 1997, by 30 percent.’’.
(b) CONFORMING AMENDMENT RELATING TO DE-
TERMINATION
OF
STANDARDIZED AMOUNTS.—Section
1886(d)(2)(C)(iv) (42 U.S.C. 1395ww(d)(2)(C)(iv)) is
amended by striking the period at the end and inserting
the following: ‘‘, and the Secretary shall not take into ac-
count any reductions in the amount of such additional
payments resulting from the amendments made by section
15502(a) of the Medicare Preservation Act of 1995.’’.
SEC. 15503. PAYMENTS FOR CAPITAL-RELATED COSTS FOR
INPATIENT HOSPITAL SERVICES.
(a) REDUCTION
IN
PAYMENTS
FOR
PPS HOS-
PITALS.—
(1) 
CONTINUATION
OF
CURRENT
REDUC-
TIONS.—Section 
1886(g)(1)(A) 
(42 
U.S.C.
1395ww(g)(1)(A)) is amended in the second sen-
tence—
(A) by striking ‘‘through 1995’’ and insert-
ing ‘‘through 2002’’; and
(B) by inserting after ‘‘10 percent reduc-
tion’’ the following: ‘‘(or a 15 percent reduction
in the case of payments during fiscal years
1996 through 2002)’’.
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(2) REDUCTION IN BASE PAYMENT RATES.—
Section 1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A))
is amended by adding at the end the following new
sentence: ‘‘In addition to the reduction described in
the preceding sentence, for discharges occurring
after September 30, 1995, the Secretary shall reduce
by 7.47 percent the unadjusted standard Federal
capital payment rate (as described in 42 CFR
412.308(c), as in effect on the date of the enactment
of the Medicare Preservation Act of 1995) and shall
reduce by 8.27 percent the unadjusted hospital-spe-
cific rate (as described in 42 CFR 412.328(e)(1),
as in effect on such date of enactment).’’.
(b) REDUCTION IN PAYMENTS FOR PPS-EXEMPT
HOSPITALS.—Section 1886(g) (42 U.S.C. 1395ww(g)) is
amended by adding at the end the following new para-
graph:
‘‘(4)(A) Except as provided in subparagraph (B), in
determining the amount of the payments that may be
made under this title with respect to all the capital-related
costs of inpatient hospital services furnished during fiscal
years 1996 through 2002 of a hospital which is not a sub-
section (d) hospital or a subsection (d) Puerto Rico hos-
pital, the Secretary shall reduce the amounts of such pay-
ments otherwise determined under this title by 15 percent.
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‘‘(B) Subparagraph (A) shall not apply to payments
with respect to the capital-related costs of any hospital
that is a sole community hospital (as defined in subsection
(d)(5)(D)(iii) or a rural primary care hospital (as defined
in section 1861(mm)(1)).’’.
(c) HOSPITAL-SPECIFIC ADJUSTMENT FOR CAPITAL-
RELATED TAX COSTS.—Section 1886(g)(1) (42 U.S.C.
1395ww(g)(1)) is amended—
(1) by redesignating subparagraph (C) as sub-
paragraph (D), and
(2) by inserting after subparagraph (B) the fol-
lowing:
‘‘(C)(i) For discharges occurring after September 30,
1995, such system shall provide for an adjustment in an
amount equal to the amount determined under clause (iv)
for capital-related tax costs for each hospital that is eligi-
ble for such adjustment.
‘‘(ii) Subject to clause (iii), a hospital is eligible for
an adjustment under this subparagraph, with respect to
discharges occurring in a fiscal year, if the hospital—
‘‘(I) is a hospital that may otherwise receive
payments under this subsection,
‘‘(II) is not a public hospital, and
‘‘(III) incurs capital-related tax costs for the
fiscal year.
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‘‘(iii)(I) In the case of a hospital that first incurs cap-
ital-related tax costs in a fiscal year after fiscal year 1992
because of a change from nonproprietary to proprietary
status or because the hospital commenced operation after
such fiscal year, the first fiscal year for which the hospital
shall be eligible for such adjustment is the second full fis-
cal year following the fiscal year in which the hospital first
incurs such costs.
‘‘(II) In the case of a hospital that first incurs cap-
ital-related tax costs in a fiscal year after fiscal year 1992
because of a change in State or local tax laws, the first
fiscal year for which the hospital shall be eligible for such
adjustment is the fourth full fiscal year following the fiscal
year in which the hospital first incurs such costs.
‘‘(iv) The per discharge adjustment under this clause
shall be equal to the hospital-specific capital-related tax
costs per discharge of a hospital for fiscal year 1992 (or,
in the case of a hospital that first incurs capital-related
tax costs for a fiscal year after fiscal year 1992, for the
first full fiscal year for which such costs are incurred),
updated to the fiscal year to which the adjustment applies.
Such per discharge adjustment shall be added to the Fed-
eral capital rate, after such rate has been adjusted as de-
scribed in 42 CFR 412.312 (as in effect on the date of
the enactment of the Medicare Preservation Act of 1995),
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and before such rate is multiplied by the applicable Fed-
eral rate percentage.
‘‘(v) For purposes of this subparagraph, capital-relat-
ed tax costs include—
‘‘(I) the costs of taxes on land and depreciable
assets owned by a hospital (or related organization)
and used for patient care,
‘‘(II) payments in lieu of such taxes (made by
hospitals that are exempt from taxation), and
‘‘(III) the costs of taxes paid by a hospital (or
related organization) as lessee of land, buildings, or
fixed equipment from a lessor that is unrelated to
the hospital (or related organization) under the
terms of a lease that requires the lessee to pay all
expenses (including mortgage, interest, and amorti-
zation) and leaves the lessor with an amount free of
all claims (sometimes referred to as a ‘net net net’
or ‘triple net’ lease).
In determining the adjustment required under clause (i),
the Secretary shall not take into account any capital-relat-
ed tax costs of a hospital to the extent that such costs
are based on tax rates and assessments that exceed those
for similar commercial properties.
‘‘(vi) The system shall provide that the Federal cap-
ital rate for any fiscal year after September 30, 1995,
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shall be reduced by a percentage sufficient to ensure that
the adjustments required to be paid under clause (i) for
a fiscal year neither increase nor decrease the total
amount that would have been paid under this system but
for the payment of such adjustments for such fiscal year.’’.
(d) REVISION
OF EXCEPTIONS PROCESS UNDER
PROSPECTIVE
PAYMENT
SYSTEM
FOR
CERTAIN
PROJECTS.—
(1) IN
GENERAL.—Section 1886(g)(1) (42
U.S.C. 1395ww(g)(1)), as amended by subsection
(c), is amended—
(A) by redesignating subparagraph (D) as
subparagraph (E), and
(B) by inserting after subparagraph (C)
the following:
‘‘(D) The exceptions under the system provided by
the Secretary under subparagraph (B)(iii) shall include
the provision of exception payments under the special ex-
ceptions process provided under 42 CFR 412.348(g) (as
in effect on September 1, 1995), except that the Secretary
shall revise such process as follows:
‘‘(i) A hospital with at least 100 beds which is
located in an urban area shall be eligible under such
process without regard to its disproportionate pa-
tient percentage under subsection (d)(5)(F) or
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whether it qualifies for additional payment amounts
under such subsection.
‘‘(ii) The minimum payment level for qualifying
hospitals shall be 85 percent.
‘‘(iii) A hospital shall be considered to meet the
requirement that it completes the project involved no
later than the end of the hospital’s last cost report-
ing period beginning after October 1, 2001, if—
‘‘(I) the hospital has obtained a certificate
of need for the project approved by the State or
a local planning authority, and
‘‘(II) by September 1, 1995, the hospital
has expended on the project at least $750,000
or 10 percent of the estimated cost of the
project.
‘‘(iv) The amount of the exception payment
made shall not be reduced by any offsetting
amounts.’’.
(2) 
CONFORMING
AMENDMENT.—Section
1886(g)(1)(B)(iii) (42 U.S.C. 1395ww(g)(1)(B)(iii))
is amended by striking ‘‘may provide’’ and inserting
‘‘shall provide (in accordance with subparagraph
(D))’’.
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SEC. 15504. REDUCTION IN ADJUSTMENT FOR INDIRECT
MEDICAL EDUCATION.
For provisions modifying medicare payment policies
regarding graduate medical education, see part 2 of sub-
title E.
SEC. 15505. TREATMENT OF PPS-EXEMPT HOSPITALS.
(a) UPDATES.—Section 1886(b)(3)(B)(ii)(V) (42
U.S.C. 1395ww(b)(3)(B)(ii)(V)) is amended by striking
‘‘thorugh 1997’’ and inserting ‘‘through 2002’’.
(b) REBASING FOR CERTAIN LONG-TERM CARE HOS-
PITALS.—
(1) IN
GENERAL.—Section 1886(b)(3) (42
U.S.C. 1395ww(b)(3)) is amended—
(A) in subparagraph (A), by striking ‘‘and
(E)’’ and inserting ‘‘(E), and (F)’’;
(B) in subparagraph (B)(ii), by striking
‘‘(A) and (E)’’ and inserting ‘‘(A), (E), and
(F)’’; and
(C) by adding at the end the following new
subparagraph:
‘‘(F)(i) In the case of a qualified long-term care hos-
pital (as defined in clause (ii)), the term ‘target amount’
means—
‘‘(I) with respect to the first 12-month cost re-
porting period in which this subparagraph is applied
to the hospital, the allowable operating costs of inpa-
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tient hospital services (as defined in subsection
(a)(4)) recognized under this title for the hospital
for the 12-month cost reporting period beginning
during fiscal year 1991; or
‘‘(II) with respect to a later cost reporting pe-
riod, the target amount for the preceding cost re-
porting period, increase by the applicable percentage
increase under subparagraph (B)(ii) for that later
cost reporting period.
‘‘(ii) In clause (i), a ‘qualified long-term care hospital’
means, with respect to a cost reporting period, a hospital
described in clause (iv) of subsection (d)(1)(B) during fis-
cal year 1995 for which the hospital’s allowable operating
costs of inpatient hospital services recognized under this
title for each of the two most recent previous 12-month
cost reporting periods exceeded the hospital’s target
amount determined under this paragraph for such cost re-
porting periods, if the hospital—
‘‘(I) has a disproportionate patient percentage
during such cost reporting period (as determined by
the Secretary under subsection (d)(5)(F)(vi) as if
the hospital were a subsection (d) hospital) of at
least 25 percent, or
‘‘(II) is located in a State for which no payment
is made under the State plan under title XIX for
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days of inpatient hospital services furnished to any
individual in excess of the limit on the number of
days of such services furnished to the individual for
which payment may be made under this title.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to discharges occurring
during cost reporting periods beginning on or after
October 1, 1995.
(c) TREATMENT
OF CERTAIN LONG-TERM CARE
HOSPITALS LOCATED WITHIN OTHER HOSPITALS.—
(1) IN GENERAL.—Section 1886(d)(1)(B) (42
U.S.C. 1395ww(d)(1)(B)) is amended in the matter
following clause (v) by striking the period and in-
serting the following: ‘‘, or a hospital classified by
the Secretary as a long-term care hospital on or be-
fore September 30, 1995, and located in the same
building as, or on the same campus as, another hos-
pital.’’.
(2) STUDY BY REVIEW COMMISSION.—Not later
than 12 months after the date a majority of the
members of the Medicare Payment Review Commis-
sion are first appointed, the Commission shall sub-
mit a report to Congress containing recommenda-
tions for appropriate revisions in the treatment of
long-term care hospitals located in the same building
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as or on the same campus as another hospital for
purposes of section 1886 of the Social Security Act.
(3) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to discharges occurring
on or after October 1, 1995.
(d) STUDY OF PROSPECTIVE PAYMENT SYSTEM FOR
REHABILITATION HOSPITALS AND UNITS.—
(1) IN GENERAL.—After consultation with the
Prospective Payment Assessment Commission, pro-
viders of rehabilitation services, and other appro-
priate parties, the Secretary of Health and Human
Services shall submit to Congress, by not later than
June 1, 1996, a report on the advisability and fea-
sibility of providing for payment based on a prospec-
tive payment system for inpatient services of reha-
bilitation hospitals and units under the medicare
program.
(2) ITEMS INCLUDED.—The report shall include
the following:
(A) The available and preferred systems of
classifying rehabilitation patients relative to du-
ration and intensity of inpatient services, in-
cluding the use of functional-related groups
(FRGs).
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(B) The means of calculating medicare
program payments to reflect such patient re-
quirements.
(C) Other appropriate adjustments which
should be made, such as for geographic vari-
ations in wages and other costs and outliers.
(D) A timetable under which such a sys-
tem might be introduced.
(E) Whether such a system should be ap-
plied to other types of providers of inpatient re-
habilitation services.
SEC. 15506. REDUCTION IN PAYMENTS TO HOSPITALS FOR
ENROLLEES’ BAD DEBTS.
(a) IN GENERAL.—Section 1861(v)(1) (42 U.S.C.
1395x(v)(1)) is amended by adding at the end the follow-
ing new subparagraph:
‘‘(T)(i) In determining such reasonable costs for hos-
pitals, the amount of bad debts otherwise treated as allow-
able costs which are attributable to the deductibles and
coinsurance amounts under this title shall be reduced by—
‘‘(I) 75 percent for cost reporting periods begin-
ning during fiscal year 1996,
‘‘(II) 60 percent for cost reporting periods be-
ginning during fiscal year 1997, and
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‘‘(III) 50 percent for subsequent cost reporting
periods.
‘‘(ii) Clause (i) shall not apply with respect to bad
debt of a hospital described in section 1886(d)(1)(B)(iv)
if the debt is attributable to uncollectable deductible and
coinsurance payments owed by individuals enrolled in a
State plan under title XIX or under the MediGrant pro-
gram under title XXI.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to hospital cost reporting peri-
ods beginning on or after October 1, 1995.
SEC. 15507. PERMANENT EXTENSION OF HEMOPHILIA PASS-
THROUGH.
Effective as if included in the enactment of OBRA–
1989, section 6011(d) of such Act (as amended by section
13505 of OBRA–1993) is amended by striking ‘‘and shall
expire September 30, 1994’’.
SEC. 15508. CONFORMING AMENDMENT TO CERTIFICATION
OF CHRISTIAN SCIENCE PROVIDERS.
(a) 
HOSPITALS.—Section 
1861(e) 
(42 
U.S.C.
1395x(e)) is amended in the sixth sentence by inserting
after ‘‘Massachusetts,’’ the following: ‘‘or by the Commis-
sion for Accreditation of Christian Science Nursing Orga-
nizations/Facilities, Inc.,’’.
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(b) 
SKILLED
NURSING
FACILITIES.—Section
1861(y)(1) is amended by inserting after ‘‘Massachu-
setts,’’ the following: ‘‘or by the Commission for Accredita-
tion of Christian Science Nursing Organizations/Facilities,
Inc.,’’.
Subpart B—Provisions Relating to Rural Hospitals
SEC. 15511. SOLE COMMUNITY HOSPITALS.
(a) UPDATE.—Section 1886(b)(3)(B)(iv) (42 U.S.C.
1395ww(b)(3)(B)(iv)) is amended—
(A) in subclause (III), by striking ‘‘and’’ at
the end; and
(B) by striking subclause (IV) and insert-
ing the following:
‘‘(IV) for each of the fiscal years 1996 through
2000, the market basket percentage increase minus
1 percentage points, and
‘‘(V) for fiscal year 2001 and each subsequent
fiscal year, the applicable percentage increase under
clause (i).’’.
(b) STUDY OF IMPACT OF SOLE COMMUNITY HOS-
PITAL DESIGNATIONS.—
(1) STUDY.—The Medicare Payment Review
Commission shall conduct a study of the impact of
the designation of hospitals as sole community hos-
pitals under the medicare program on the delivery of
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health care services to individuals in rural areas, and
shall include in the study an analysis of the charac-
teristics of the hospitals designated as such sole
community hospitals under the program.
(2) REPORT.—Not later than 12 months after
the date a majority of the members of the Commis-
sion are first appointed, the Commission shall sub-
mit to Congress a report on the study conducted
under paragraph (1).
SEC. 15512. CLARIFICATION OF TREATMENT OF EAC AND
RPC HOSPITALS.
Paragraphs (1)(A)(i) and (2)(A)(i) of section 1820(i)
(42 U.S.C. 1395i–4(i)) are each amended by striking the
semicolon at the end and inserting the following: ‘‘, or in
a State which the Secretary finds would receive a grant
under such subsection during a fiscal year if funds were
appropriated for grants under such subsection for the fis-
cal year;’’.
SEC. 15513. ESTABLISHMENT OF RURAL EMERGENCY AC-
CESS CARE HOSPITALS.
(a) IN GENERAL.—Section 1861 (42 U.S.C. 1395x)
is amended by adding at the end the following new sub-
section:
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‘‘Rural Emergency Access Care Hospital; Rural
Emergency Access Care Hospital Services
‘‘(oo)(1) The term ‘rural emergency access care hos-
pital’ means, for a fiscal year, a facility with respect to
which the Secretary finds the following:
‘‘(A) The facility is located in a rural area (as
defined in section 1886(d)(2)(D)).
‘‘(B) The facility was a hospital under this title
at any time during the 5-year period that ends on
the date of the enactment of this subsection.
‘‘(C) The facility is in danger of closing due to
low inpatient utilization rates and operating losses,
and the closure of the facility would limit the access
to emergency services of individuals residing in the
facility’s service area.
‘‘(D) The facility has entered into (or plans to
enter into) an agreement with a hospital with a par-
ticipation agreement in effect under section 1866(a),
and under such agreement the hospital shall accept
patients transferred to the hospital from the facility
and receive data from and transmit data to the facil-
ity.
‘‘(E) There is a practitioner who is qualified to
provide advanced cardiac life support services (as de-
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termined by the State in which the facility is lo-
cated) on-site at the facility on a 24-hour basis.
‘‘(F) A physician is available on-call to provide
emergency medical services on a 24-hour basis.
‘‘(G) The facility meets such staffing require-
ments as would apply under section 1861(e) to a
hospital located in a rural area, except that—
‘‘(i) the facility need not meet hospital
standards relating to the number of hours dur-
ing a day, or days during a week, in which the
facility must be open, except insofar as the fa-
cility is required to provide emergency care on
a 24-hour basis under subparagraphs (E) and
(F); and
‘‘(ii) the facility may provide any services
otherwise required to be provided by a full-time,
on-site dietitian, pharmacist, laboratory techni-
cian, medical technologist, or radiological tech-
nologist on a part-time, off-site basis.
‘‘(H) The facility meets the requirements appli-
cable to clinics and facilities under subparagraphs
(C) through (J) of paragraph (2) of section
1861(aa) and of clauses (ii) and (iv) of the second
sentence of such paragraph (or, in the case of the
requirements of subparagraph (E), (F), or (J) of
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such paragraph, would meet the requirements if any
reference in such subparagraph to a ‘nurse practi-
tioner’ or to ‘nurse practitioners’ were deemed to be
a reference to a ‘nurse practitioner or nurse’ or to
‘nurse practitioners or nurses’); except that in deter-
mining whether a facility meets the requirements of
this subparagraph, subparagraphs (E) and (F) of
that paragraph shall be applied as if any reference
to a ‘physician’ is a reference to a physician as de-
fined in section 1861(r)(1).
‘‘(2) The term ‘rural emergency access care hospital
services’ means the following services provided by a rural
emergency access care hospital and furnished to an indi-
vidual over a continuous period not to exceed 24 hours
(except that such services may be furnished over a longer
period in the case of an individual who is unable to leave
the hospital because of inclement weather):
‘‘(A) An appropriate medical screening exam-
ination (as described in section 1867(a)).
‘‘(B) Necessary stabilizing examination and
treatment services for an emergency medical condi-
tion and labor (as described in section 1867(b)).’’.
(b) REQUIRING RURAL EMERGENCY ACCESS CARE
HOSPITALS TO MEET HOSPITAL ANTI-DUMPING RE-
QUIREMENTS.—Section 
1867(e)(5) 
(42 
U.S.C.
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1395dd(e)(5)) is amended by striking ‘‘1861(mm)(1))’’
and inserting ‘‘1861(mm)(1)) and a rural emergency ac-
cess care hospital (as defined in section 1861(oo)(1))’’.
(c) REFERENCE TO PAYMENT PROVISIONS UNDER
PART B.—For provisions relating to payment for rural
emergency access care hospital services under part B, see
section 15607.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to fiscal years beginning on or
after October 1, 1995.
SEC. 15514. CLASSIFICATION OF RURAL REFERRAL CEN-
TERS.
(a) PROHIBITING DENIAL OF REQUEST FOR RECLAS-
SIFICATION ON BASIS OF COMPARABILITY OF WAGES.—
(1) IN GENERAL.—Section 1886(d)(10)(D) (42
U.S.C. 1395ww(d)(10)(D)) is amended—
(A) by redesignating clause (iii) as clause
(iv); and
(B) by inserting after clause (ii) the follow-
ing new clause:
‘‘(iii) Under the guidelines published by the Secretary
under clause (i), in the case of a hospital which is classi-
fied by the Secretary as a rural referral center under para-
graph (5)(C), the Board may not reject the application
of the hospital under this paragraph on the basis of any
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comparison between the average hourly wage of the hos-
pital and the average hourly wage of hospitals in the area
in which it is located.’’.
(2) EFFECTIVE
DATE.—Notwithstanding sec-
tion 1886(d)(10)(C)(ii) of the Social Security Act, a
hospital may submit an application to the Medicare
Geographic Classification Review Board during the
30-day period beginning on the date of the enact-
ment of this Act requesting a change in its classi-
fication for purposes of determining the area wage
index applicable to the hospital under section
1886(d)(3)(D) of such Act for fiscal year 1997, if
the hospital would be eligible for such a change in
its classification under the standards described in
section 1886(d)(10)(D) (as amended by paragraph
(1)) but for its failure to meet the deadline for appli-
cations under section 1886(d)(10)(C)(ii).
(b) CONTINUING TREATMENT OF PREVIOUSLY DES-
IGNATED CENTERS.—Any hospital classified as a rural re-
ferral center by the Secretary of Health and Human Serv-
ices under section 1886(d)(5)(C) of the Social Security
Act for fiscal year 1994 shall be classified as such a rural
referral center for fiscal year 1996 and each subsequent
fiscal year.
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SEC. 15515. FLOOR ON AREA WAGE INDEX.
(a) 
IN
GENERAL.—For 
purposes 
of 
section
1886(d)(3)(E) of the Social Security Act for discharges
occurring on or after October 1, 1995, the area wage index
applicable under such section to any hospital which is not
located in a rural area (as defined in section
1886(d)(2)(D) of such Act) may not be less than the aver-
age of the area wage indices applicable under such section
to hospitals located in rural areas in the State in which
the hospital is located.
(b) BUDGET-NEUTRALITY
IN IMPLEMENTATION.—
The Secretary of Health and Human Services shall adjust
the area wage indices referred to in subsection (a) for hos-
pitals not described in such subsection in a manner which
assures that the aggregate payments made under section
1886(d) of the Social Security Act in a fiscal year for the
operating costs of inpatient hospital services are not great-
er or less than those which would have been made in the
year if this section did not apply.
PART 2—PAYMENTS TO SKILLED NURSING
FACILITIES
SEC. 15521. PAYMENTS FOR ROUTINE SERVICE COSTS.
(a) CLARIFICATION
OF DEFINITION
OF ROUTINE
SERVICE COSTS.—Section 1888 (42 U.S.C. 1395yy) is
amended by adding at the end the following new sub-
section:
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‘‘(e) For purposes of this section, the ‘routine service
costs’ of a skilled nursing facility are all costs which are
attributable to nursing services, room and board, adminis-
trative costs, other overhead costs, and all other ancillary
services (including supplies and equipment), excluding
costs attributable to covered non-routine services subject
to payment limits under section 1888A.’’.
(b) CONFORMING AMENDMENT.—Section 1888 (42
U.S.C. 1395yy) is amended in the heading by inserting
‘‘AND CERTAIN ANCILLARY’’ after ‘‘SERVICE’’.
SEC. 15522. INCENTIVES FOR COST EFFECTIVE MANAGE-
MENT OF COVERED NON-ROUTINE SERVICES.
(a) IN GENERAL.—Title XVIII is amended by insert-
ing after section 1888 the following new section:
‘‘INCENTIVES
FOR
COST-EFFECTIVE
MANAGEMENT
OF
COVERED
NON-ROUTINE
SERVICES
OF
SKILLED
NURSING FACILITIES
‘‘SEC. 1888A. (a) DEFINITIONS.—For purposes of
this section:
‘‘(1) COVERED NON-ROUTINE SERVICES.—The
term ‘covered non-routine services’ means post-hos-
pital extended care services consisting of any of the
following:
‘‘(A) Physical or occupational therapy or
speech-language pathology services, or res-
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piratory therapy, including supplies and support
services incident to such services and therapy.
‘‘(B) Prescription drugs.
‘‘(C) Complex medical equipment.
‘‘(D) Intravenous therapy and solutions
(including enteral and parenteral nutrients,
supplies, and equipment).
‘‘(E) Radiation therapy.
‘‘(F) Diagnostic services, including labora-
tory, radiology (including computerized tomog-
raphy services and imaging services), and pul-
monary services.
‘‘(2) SNF MARKET BASKET PERCENTAGE IN-
CREASE.—The term ‘SNF market basket percentage
increase’ for a fiscal year means a percentage equal
to the percentage increase in routine service cost
limits for the year under section 1888(a).
‘‘(3) STAY.—The term ‘stay’ means, with re-
spect to an individual who is a resident of a skilled
nursing facility, a period of continuous days during
which the facility provides extended care services for
which payment may be made under this title with
respect to the individual during the individual’s spell
of illness.
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‘‘(b) NEW PAYMENT METHOD FOR COVERED NON-
ROUTINE SERVICES.—
‘‘(1) IN GENERAL.—Subject to subsection (c), a
skilled nursing facility shall receive interim pay-
ments under this title for covered non-routine serv-
ices furnished to an individual during a cost report-
ing period beginning during a fiscal year (after fiscal
year 1996) in an amount equal to the reasonable
cost of providing such services in accordance with
section 1861(v). The Secretary may adjust such pay-
ments if the Secretary determines (on the basis of
such estimated information as the Secretary consid-
ers appropriate) that payments to the facility under
this paragraph for a cost reporting period would
substantially exceed the cost reporting period limit
determined under subsection (c)(1)(B).
‘‘(2) RESPONSIBILITY
OF
SKILLED
NURSING
FACILITY TO MANAGE BILLINGS.—
‘‘(A) CLARIFICATION RELATING TO PART A
BILLING.—In the case of a covered non-routine
service furnished to an individual who (at the
time the service is furnished) is a resident of a
skilled nursing facility who is entitled to cov-
erage under section 1812(a)(2) for such service,
the skilled nursing facility shall submit a claim
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for payment under this title for such service
under part A (without regard to whether or not
the item or service was furnished by the facility,
by others under arrangement with them made
by the facility, under any other contracting or
consulting arrangement, or otherwise).
‘‘(B) PART B BILLING.—In the case of a
covered non-routine service (other than a port-
able X-ray or portable electrocardiogram treat-
ed as a physician’s service for purposes of sec-
tion 1848(j)(3)) furnished to an individual who
(at the time the service is furnished) is a resi-
dent of a skilled nursing facility who is not enti-
tled to coverage under section 1812(a)(2) for
such service but is entitled to coverage under
part B for such service, the skilled nursing fa-
cility shall submit a claim for payment under
this title for such service under part B (without
regard to whether or not the item or service
was furnished by the facility, by others under
arrangement with them made by the facility,
under any other contracting or consulting ar-
rangement, or otherwise).
‘‘(C) MAINTAINING RECORDS ON SERVICES
FURNISHED TO RESIDENTS.—Each skilled nurs-
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ing facility receiving payments for extended
care services under this title shall document on
the facility’s cost report all covered non-routine
services furnished to all residents of the facility
to whom the facility provided extended care
services for which payment was made under
part A during a fiscal year (beginning with fis-
cal year 1996) (without regard to whether or
not the services were furnished by the facility,
by others under arrangement with them made
by the facility, under any other contracting or
consulting arrangement, or otherwise).
‘‘(c) RECONCILIATION OF AMOUNTS.—
‘‘(1) LIMIT BASED ON PER STAY LIMIT AND
NUMBER OF STAYS.—
‘‘(A) IN GENERAL.—If a skilled nursing fa-
cility has received aggregate payments under
subsection (b) for covered non-routine services
during a cost reporting period beginning during
a fiscal year in excess of an amount equal to
the cost reporting period limit determined
under subparagraph (B), the Secretary shall re-
duce the payments made to the facility with re-
spect to such services for cost reporting periods
beginning during the following fiscal year in an
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penditures resulting from changes in the
update to the conversion factor under sub-
section (d),
minus 1 and multiplied by 100.
‘‘(B) SUBSEQUENT
FISCAL
YEARS.—The
sustainable growth rate for all physicians’ serv-
ices for fiscal year 1997 and each subsequent
fiscal year shall be equal to the product of—
‘‘(i) 1 plus the Secretary’s estimate of
the percentage change in the medicare eco-
nomic index for the fiscal year involved
(described in the fourth sentence of section
1842(b)(3)) (divided by 100),
‘‘(ii) 1 plus the Secretary’s estimate of
the percentage change (divided by 100) in
the average number of individuals enrolled
under this part (other than private plan
enrollees) from the previous fiscal year to
the fiscal year involved,
‘‘(iii) 1 plus the Secretary’s estimate
of the projected percentage growth in real
gross domestic product per capita (divided
by 100) from the previous fiscal year to
the fiscal year involved, plus 2 percentage
points, and