Subtitle A, Part 1
‘‘(d) PROTECTIONS AGAINST FRAUD
AND BENE-
FICIARY PROTECTIONS.—
‘‘(1) INSPECTION AND AUDIT.—Each contract
under this section shall provide that the Secretary,
or any person or organization designated by the Sec-
retary—
‘‘(A) shall have the right to inspect or oth-
erwise evaluate (i) the quality, appropriateness,
and timeliness of services performed under the
contract and (ii) the facilities of the organiza-
tion when there is reasonable evidence of some
need for such inspection, and
‘‘(B) shall have the right to audit and in-
spect 
any 
books 
and 
records 
of 
the
MedicarePlus organization that pertain (i) to
the ability of the organization to bear the risk
of potential financial losses, or (ii) to services
performed or determinations of amounts pay-
able under the contract.
‘‘(2) ENROLLEE NOTICE AT TIME OF TERMI-
NATION.—Each contract under this section shall re-
quire the organization to provide (and pay for) writ-
ten notice in advance of the contract’s termination,
as well as a description of alternatives for obtaining
100
Subtitle A, Part 1
benefits under this title, to each individual enrolled
with the organization under this part.
‘‘(3) DISCLOSURE.—
‘‘(A) IN
GENERAL.—Each MedicarePlus
organization shall, in accordance with regula-
tions of the Secretary, report to the Secretary
financial information which shall include the
following:
‘‘(i) Such information as the Sec-
retary may require demonstrating that the
organization has a fiscally sound operation.
‘‘(ii) A copy of the report, if any, filed
with the Health Care Financing Adminis-
tration containing the information required
to be reported under section 1124 by dis-
closing entities.
‘‘(iii) A description of transactions, as
specified by the Secretary, between the or-
ganization and a party in interest. Such
transactions shall include—
‘‘(I) any sale or exchange, or
leasing of any property between the
organization and a party in interest;
‘‘(II) any furnishing for consider-
ation of goods, services (including
101
Subtitle A, Part 1
management services), or facilities be-
tween the organization and a party in
interest, but not including salaries
paid to employees for services pro-
vided in the normal course of their
employment and health services pro-
vided to members by hospitals and
other providers and by staff, medical
group (or groups), individual practice
association (or associations), or any
combination thereof; and
‘‘(III) any lending of money or
other extension of credit between an
organization and a party in interest.
The Secretary may require that information re-
ported respecting an organization which con-
trols, is controlled by, or is under common con-
trol with, another entity be in the form of a
consolidated financial statement for the organi-
zation and such entity.
‘‘(B) PARTY IN INTEREST DEFINED.—For
the purposes of this paragraph, the term ‘party
in interest’ means—
‘‘(i) any director, officer, partner, or
employee responsible for management or
102
Subtitle A, Part 1
administration of a MedicarePlus organiza-
tion, any person who is directly or indi-
rectly the beneficial owner of more than 5
percent of the equity of the organization,
any person who is the beneficial owner of
a mortgage, deed of trust, note, or other
interest secured by, and valuing more than
5 percent of the organization, and, in the
case of a MedicarePlus organization orga-
nized as a nonprofit corporation, an incor-
porator or member of such corporation
under applicable State corporation law;
‘‘(ii) any entity in which a person de-
scribed in clause (i)—
‘‘(I) is an officer or director;
‘‘(II) is a partner (if such entity
is organized as a partnership);
‘‘(III) has directly or indirectly a
beneficial interest of more than 5 per-
cent of the equity; or
‘‘(IV) has a mortgage, deed of
trust, note, or other interest valuing
more than 5 percent of the assets of
such entity;
103
Subtitle A, Part 1
‘‘(iii) any person directly or indirectly
controlling, controlled by, or under com-
mon control with an organization; and
‘‘(iv) any spouse, child, or parent of
an individual described in clause (i).
‘‘(C) ACCESS
TO
INFORMATION.—Each
MedicarePlus organization shall make the infor-
mation reported pursuant to subparagraph (A)
available to its enrollees upon reasonable re-
quest.
‘‘(5) LOAN INFORMATION.—The contract shall
require the organization to notify the Secretary of
loans and other special financial arrangements which
are made between the organization and subcontrac-
tors, affiliates, and related parties.
‘‘(f) ADDITIONAL CONTRACT TERMS.—The contract
shall contain such other terms and conditions not incon-
sistent with this part (including requiring the organization
to provide the Secretary with such information) as the
Secretary may find necessary and appropriate.
‘‘(g) INTERMEDIATE SANCTIONS.—
‘‘(1) IN GENERAL.—If the Secretary determines
that a MedicarePlus organization with a contract
under this section—
104
Subtitle A, Part 1
‘‘(A) fails substantially to provide medi-
cally necessary items and services that are re-
quired (under law or under the contract) to be
provided to an individual covered under the con-
tract, if the failure has adversely affected (or
has substantial likelihood of adversely affecting)
the individual;
‘‘(B) imposes premiums on individuals en-
rolled under this part in excess of the premiums
permitted;
‘‘(C) acts to expel or to refuse to re-enroll
an individual in violation of the provisions of
this part;
‘‘(D) engages in any practice that would
reasonably be expected to have the effect of de-
nying or discouraging enrollment (except as
permitted by this part) by eligible individuals
with the organization whose medical condition
or history indicates a need for substantial fu-
ture medical services;
‘‘(E) misrepresents or falsifies information
that is furnished—
‘‘(i) to the Secretary under this part,
or
106
Subtitle A, Part 1
excess amount charged in violation of such
paragraph (and the excess amount charged
shall be deducted from the penalty and returned
to the individual concerned), and plus, with re-
spect to a determination under paragraph
(1)(D), $15,000 for each individual not enrolled
as a result of the practice involved,
‘‘(B) suspension of enrollment of individ-
uals under this part after the date the Sec-
retary notifies the organization of a determina-
tion under paragraph (1) and until the Sec-
retary is satisfied that the basis for such deter-
mination has been corrected and is not likely to
recur, or
‘‘(C) suspension of payment to the organi-
zation under this part for individuals enrolled
after the date the Secretary notifies the organi-
zation of a determination under paragraph (1)
and until the Secretary is satisfied that the
basis for such determination has been corrected
and is not likely to recur.
‘‘(3) OTHER
INTERMEDIATE
SANCTIONS.—In
the case of a MedicarePlus organization for which
the Secretary makes a determination under sub-
section (c)(2) the basis of which is not described in
107
Subtitle A, Part 1
paragraph (1), the Secretary may apply the follow-
ing intermediate sanctions:
‘‘(A) civil money penalties of not more
than $25,000 for each determination under
subsection (c)(2) if the deficiency that is the
basis of the determination has directly adversely
affected (or has the substantial likelihood of ad-
versely affecting) an individual covered under
the organization’s contract;
‘‘(B) civil money penalties of not more
than $10,000 for each week beginning after the
initiation of procedures by the Secretary under
subsection (h) during which the deficiency that
is the basis of a determination under subsection
(c)(2) exists; and
‘‘(C) suspension of enrollment of individ-
uals under this part after the date the Sec-
retary notifies the organization of a determina-
tion under subsection (c)(2) and until the Sec-
retary is satisfied that the deficiency that is the
basis for the determination has been corrected
and is not likely to recur.
‘‘(4) 
PROCEDURES
FOR
IMPOSING
SANC-
TIONS.—The provisions of section 1128A (other
than subsections (a) and (b)) shall apply to a civil
108
Subtitle A, Part 1
money penalty under paragraph (1) or (2) in the
same manner as they apply to a civil money penalty
or proceeding under section 1128A(a).
‘‘(h) PROCEDURES FOR IMPOSING SANCTIONS.—The
Secretary may terminate a contract with a MedicarePlus
organization under this section or may impose the inter-
mediate sanctions described in subsection (g) on the orga-
nization in accordance with formal investigation and com-
pliance procedures established by the Secretary under
which—
‘‘(1) the Secretary provides the organization
with the opportunity to develop and implement a
corrective action plan to correct the deficiencies that
were the basis of the Secretary’s determination
under subsection (c)(2);
‘‘(2) the Secretary shall impose more severe
sanctions on organizations that have a history of de-
ficiencies or that have not taken steps to correct de-
ficiencies the Secretary has brought to their atten-
tion;
‘‘(3) there are no unreasonable or unnecessary
delays between the finding of a deficiency and the
imposition of sanctions; and
‘‘(4) the Secretary provides the organization
with reasonable notice and opportunity for hearing
109
Subtitle A, Part 1
(including the right to appeal an initial decision) be-
fore imposing any sanction or terminating the con-
tract.’’.
(b) CONFORMING REFERENCES TO PREVIOUS PART
C.—Any reference in law (in effect before the date of the
enactment of this Act) to part C of title XVIII of the So-
cial Security Act is deemed a reference to part D of such
title (as in effect after such date).
(c) USE
OF INTERIM, FINAL REGULATIONS.—In
order to carry out the amendment made by subsection (a)
in a timely manner, the Secretary of Health and Human
Services may promulgate regulations that take effect on
an interim basis, after notice and pending opportunity for
public comment.
(d) ADVANCE DIRECTIVES.—Section 1866(f)(1) (42
U.S.C. 1395cc(f)(1)) is amended—
(1) in paragraph (1)—
(A) 
by 
inserting 
‘‘1853(g),’’ 
after
‘‘1833(s),’’, and
(B) by inserting ‘‘, MedicarePlus organiza-
tion,’’ after ‘‘provider of services’’, and
(2) by adding at the end the following new
paragraph:
110
Subtitle A, Part 1
‘‘(4) Nothing in this subsection shall be construed to
require the provision of information regarding assisted
suicide, euthanasia, or mercy killing.’’.
SEC. 15003. DUPLICATION AND COORDINATION OF MEDI-
CARE-RELATED PRODUCTS.
(a) TREATMENT OF CERTAIN HEALTH INSURANCE
POLICIES AS NONDUPLICATIVE.—
(1) IN GENERAL.—Effective as if included in
the enactment of section 4354 of the Omnibus
Budget 
Reconciliation 
Act 
of 
1990, 
section
1882(d)(3)(A) (42 U.S.C. 1395ss(d)(3)(A)) is
amended—
(A) by amending clause (i) to read as fol-
lows:
‘‘(i) It is unlawful for a person to sell or issue to an
individual entitled to benefits under part A or enrolled
under part B of this title or electing a MedicarePlus prod-
uct under section 1805—
‘‘(I) a health insurance policy (other than a
medicare supplemental policy) with knowledge that
the policy duplicates health benefits to which the in-
dividual is otherwise entitled under this title or title
XIX,
‘‘(II) in the case of an individual not electing a
MedicarePlus product, a medicare supplemental pol-
111
Subtitle A, Part 1
icy with knowledge that the individual is entitled to
benefits under another medicare supplemental policy,
or
‘‘(III) in the case of an individual electing a
MedicarePlus product, a medicare supplemental pol-
icy with knowledge that the policy duplicates health
benefits to which the individual is otherwise entitled
under this title or under another medicare supple-
mental policy.’’;
(B) in clause (iii), by striking ‘‘clause (i)’’
and inserting ‘‘clause (i)(II)’’; and
(C) by adding at the end the following new
clauses:
‘‘(iv) For purposes of this subparagraph a health in-
surance policy shall be considered to ‘duplicate’ benefits
under this title only when, under its terms, the policy pro-
vides specific reimbursement for identical items and serv-
ices to the extent paid for under this title, and a health
insurance policy providing for benefits which are payable
to or on behalf of an individual without regard to other
health benefit coverage of such individual is not considered
to ‘duplicate’ any health benefits under this title.
‘‘(v) For purposes of this subparagraph, a health in-
surance policy (or a rider to an insurance contract which
is not a health insurance policy), including a policy (such
112
Subtitle A, Part 1
as a long-term care insurance contract described in section
7702B(b) of the Internal Revenue Code of 1986, as added
by the Contract with America Tax Relief Act of 1995
(H.R. 1215)) providing benefits for long-term care, nurs-
ing home care, home health care, or community-based
care, that coordinates against or excludes items and serv-
ices available or paid for under this title and (for policies
sold or issued after January 1, 1996) that discloses such
coordination or exclusion in the policy’s outline of cov-
erage, is not considered to ‘duplicate’ health benefits
under this title. For purposes of this clause, the terms ‘co-
ordinates’ and ‘coordination’ mean, with respect to a pol-
icy in relation to health benefits under this title, that the
policy under its terms is secondary to, or excludes from
payment, items and services to the extent available or paid
for under this title.
‘‘(vi) Notwithstanding any other provision of law, no
criminal or civil penalty may be imposed at any time under
this subparagraph and no legal action may be brought or
continued at any time in any Federal or State court if
the penalty or action is based on an act or omission that
occurred after November 5, 1991, and before the date of
the enactment of this clause, and relates to the sale, issu-
ance, or renewal of any health insurance policy during
113
Subtitle A, Part 1
such period, if such policy is not meets the requirements
of clause (iv) or (v).
‘‘(vii) A State may not impose, with respect to the
sale or issuance of a policy (or rider) that meets the re-
quirements of this title pursuant to clause (iv) or (v) to
an individual entitled to benefits under part A or enrolled
under part B or enrolled under a MedicarePlus product
under part C, any requirement based on the premise that
such a policy or rider duplicates health benefits to which
the individual is otherwise entitled under this title.’’.
(2) 
CONFORMING
AMENDMENTS.—Section
1882(d)(3) (42 U.S.C. 1395ss(d)(3)) is amended—
(A) in subparagraph (B), by inserting
‘‘(including any MedicarePlus product)’’ after
‘‘health insurance policies’’;
(B) in subparagraph (C)—
(i) by striking ‘‘with respect to (i)’’
and inserting ‘‘with respect to’’, and
(ii) by striking ‘‘, (ii) the sale’’ and all
that follows up to the period at the end;
and
(C) by striking subparagraph (D).
(3) MEDICAREPLUS PRODUCTS NOT TREATED
AS MEDICARE SUPPLEMENTARY POLICIES.—Section
1882(g) (42 U.S.C. 1395ss(g)) is amended by in-
114
Subtitle A, Part 1
serting ‘‘a MedicarePlus product or’’ after ‘‘and does
not include’’
(4) REPORT ON DUPLICATION AND COORDINA-
TION OF HEALTH INSURANCE POLICIES THAT ARE
NOT
MEDICARE
SUPPLEMENTAL
POLICIES.—Not
later than 3 years after the date of the enactment
of this Act, the Secretary of Health and Human
Services shall prepare and submit to Congress a re-
port on the advisability and feasibility of restricting
the sale to medicare beneficiaries of health insurance
policies that duplicate (within the meaning of section
1882(d)(3)(A) of the Social Security Act) other
health insurance policies that such a beneficiary may
have. In preparing such report, the Secretary shall
seek the advice of the National Association of Insur-
ance Commissioners and shall take into account the
standards established under section 1807 of the So-
cial Security Act for the electronic coordination of
benefits.
(b) ADDITIONAL RULES RELATING TO INDIVIDUALS
ENROLLED
IN
MEDICAREPLUS
PRODUCTS.—Section
1882 (42 U.S.C. 1395ss) is further amended by adding
at the end the following new subsection:
‘‘(u)(1) Notwithstanding the previous provisions of
this section, the following provisions shall not apply to a
115
Subtitle A, Part 1
health insurance policy (other than a medicare supple-
mental policy) provided to an individual who has elected
the MedicarePlus option under section 1805:
‘‘(A) Subsections (o)(1), (o)(2), (p)(1)(A)(i),
(p)(2), (p)(3), (p)(8), and (p)(9) (insofar as they re-
late to limitations on benefits or groups of benefits
that may be offered).
‘‘(B) Subsection (r) (relating to loss-ratios).
‘‘(2)(A) It is unlawful for a person to sell or issue
a policy described in subparagraph (B) to an individual
with knowledge that the individual has in effect under sec-
tion 1805 an election of a high deductible/medisave prod-
uct.
‘‘(B) A policy described in this subparagraph is a
health insurance policy that provides for coverage of ex-
penses that are otherwise required to be counted toward
meeting the annual deductible amount provided under the
high deductible/medisave product.’’.
SEC. 15004. TRANSITIONAL RULES FOR CURRENT MEDI-
CARE HMO PROGRAM.
(a) TRANSITION FROM CURRENT CONTRACTS.—
(1) LIMITATION ON NEW CONTRACTS.—
(A) NO
NEW
RISK-SHARING
CONTRACTS
AFTER
NEW
STANDARDS
ESTABLISHED.—The
Secretary of Health and Human Services (in
116
Subtitle A, Part 1
this section referred to as the ‘‘Secretary’’)
shall not enter into any risk-sharing contract
under section 1876 of the Social Security Act
with an eligible organization for any contract
year beginning on or after the date standards
for MedicarePlus organizations and products
are first established under section 1856(a) of
such Act with respect to MedicarePlus organi-
zations that are insurer or health maintenance
organizations unless such a contract had been
in effect under section 1876 of such Act for the
organization for the previous contract year.
(B) NO NEW COST REIMBURSEMENT CON-
TRACTS.—The Secretary shall not enter into
any cost reimbursement contract under section
1876 of the Social Security Act beginning for
any contract year beginning on or after the
date of the enactment of this Act.
(2) TERMINATION OF CURRENT CONTRACTS.—
(A) RISK-SHARING CONTRACTS.—Notwith-
standing any other provision of law, the Sec-
retary shall not extend or continue any risk-
sharing contract with an eligible organization
under section 1876 of the Social Security Act
(for which a contract was entered into consist-
117
Subtitle A, Part 1
ent with paragraph (1)(A)) for any contract
year beginning on or after 1 year after the date
standards described in paragraph (1)(A) are es-
tablished.
(B) COST REIMBURSEMENT CONTRACTS.—
The Secretary shall not extend or continue any
reasonable cost reimbursement contract with an
eligible organization under section 1876 of the
Social Security Act for any contract year begin-
ning on or after January 1, 1998.
(b) CONFORMING PAYMENT RATES.—
(1) RISK-SHARING CONTRACTS.—Notwithstand-
ing any other provision of law, the Secretary shall
provide that payment amounts under risk-sharing
contracts under section 1876(a) of the Social Secu-
rity Act for months in a year (beginning with Janu-
ary 1996) shall be computed—
(A) with respect to individuals both enti-
tled to benefits under both parts A and B of
title XVIII of such Act, by substituting pay-
ment rates under section 1855(a) of such Act
for the payment rates otherwise established
under section 1876(a) of such Act, and
(B) with respect to individuals only enti-
tled to benefits under part B of such title, by
118
Subtitle A, Part 1
substituting an appropriate proportion of such
rates (reflecting the relative proportion of pay-
ments under such title attributable to such
part) for the payment rates otherwise estab-
lished under section 1876(a) of such Act.
For purposes of carrying out this paragraph for pay-
ment for months in 1996, the Secretary shall com-
pute, announce, and apply the payment rates under
section 1855(a) of such Act (notwithstanding any
deadlines specified in such section) in as timely a
manner as possible and may (to the extent nec-
essary) provide for retroactive adjustment in pay-
ments made not in accordance with such rates.
(2) COST
CONTRACTS.—Notwithstanding any
other provision of law, the Secretary shall provide
that payment amounts under cost reimbursement
contracts under section 1876(a) of the Social Secu-
rity Act shall take into account adjustments in pay-
ment amounts made in parts A and B of title XVIII
of such Act pursuant to the amendments made by
this title.
(c) ELIMINATION OF 50:50 RULE.—
(1) IN
GENERAL.—Section 1876 (42 U.S.C.
1395mm) is amended by striking subsection (f).
119
Subtitle A, Part 2
(2) CONFORMING AMENDMENTS.—Section 1876
is further amended—
(A) in subsection (c)(3)(A)(i), by striking
‘‘would result in failure to meet the require-
ments of subsection (f)’’, and
(B) in subsection (i)(1)(C), by striking
‘‘(e), and (f)’’ and inserting ‘‘and (e)’’.
(3) EFFECTIVE DATE.—The amendments made
by this section shall apply to contract years begin-
ning on or after January 1, 1996.
PART 2—SPECIAL RULES FOR MEDICAREPLUS
MEDICAL SAVINGS ACCOUNTS
SEC. 15011. MEDICAREPLUS MSA’S.
(a) IN GENERAL.—Part III of subchapter B of
chapter 1 of the Internal Revenue Code of 1986 (relating
to amounts specifically excluded from gross income) is
amended by redesignating section 137 as section 138 and
by inserting after section 136 the following new section:
‘‘SEC. 137. MEDICAREPLUS MSA’S.
‘‘(a) EXCLUSION.—Gross income shall not include
any payment to the MedicarePlus MSA of an individual
by the Secretary of Health and Human Services under
section 1855(f)(1)(B) of the Social Security Act.
‘‘(b) MEDICAREPLUS MSA.—For purposes of this
section—
120
Subtitle A, Part 2
‘‘(1) 
MEDICAREPLUS
MSA.—The 
term
‘MedicarePlus MSA’ means a trust created or orga-
nized in the United States exclusively for the pur-
pose of paying the qualified medical expenses of the
account holder, but only if the written governing in-
strument creating the trust meets the following re-
quirements:
‘‘(A) Except in the case of a trustee-to-
trustee transfer described in subsection (d)(4),
no contribution will be accepted unless it is
made by the Secretary of Health and Human
Services under section 1855(f)(1)(B) of the So-
cial Security Act.
‘‘(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as de-
fined in section 816), or another person who
demonstrates to the satisfaction of the Sec-
retary that the manner in which such person
will administer the trust will be consistent with
the requirements of this section.
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts.
‘‘(D) The assets of the trust will not be
commingled with other property except in a
121
Subtitle A, Part 2
common trust fund or common investment
fund.
‘‘(E) The interest of an individual in the
balance in his account is nonforfeitable.
‘‘(F) Trustee-to-trustee transfers described
in subsection (d)(4) may be made to and from
the trust.
‘‘(2) QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
medical expenses’ means, with respect to an ac-
count holder, amounts paid by such holder—
‘‘(i) for medical care (as defined in
section 213(d)) for the account holder, but
only to the extent such amounts are not
compensated for by insurance or otherwise,
or
‘‘(ii) for long-term care insurance for
the account holder.
‘‘(B) HEALTH
INSURANCE
MAY
NOT
BE
PURCHASED
FROM
ACCOUNT.—Subparagraph
(A)(i) shall not apply to any payment for insur-
ance.
‘‘(3) ACCOUNT
HOLDER.—The term ‘account
holder’ means the individual on whose behalf the
MedicarePlus MSA is maintained.
122
Subtitle A, Part 2
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar
to the rules of subsections (g) and (h) of section 408
shall apply for purposes of this section.
‘‘(c) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—A MedicarePlus MSA is ex-
empt from taxation under this subtitle unless such
MSA has ceased to be a MedicarePlus MSA by rea-
son of paragraph (2). Notwithstanding the preceding
sentence, any such MSA is subject to the taxes im-
posed by section 511 (relating to imposition of tax
on unrelated business income of charitable, etc. or-
ganizations).
‘‘(2) ACCOUNT ASSETS TREATED AS DISTRIB-
UTED IN THE CASE OF PROHIBITED TRANSACTIONS
OR ACCOUNT PLEDGED AS SECURITY FOR LOAN.—
Rules similar to the rules of paragraphs (2) and (4)
of section 408(e) shall apply to MedicarePlus
MSA’s, and any amount treated as distributed under
such rules shall be treated as not used to pay quali-
fied medical expenses.
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION OF AMOUNTS NOT USED FOR
QUALIFIED MEDICAL EXPENSES.—No amount shall
be included in the gross income of the account hold-
er by reason of a payment or distribution from a
123
Subtitle A, Part 2
MedicarePlus MSA which is used exclusively to pay
the qualified medical expenses of the account holder.
Any 
amount 
paid 
or 
distributed 
from 
a
MedicarePlus MSA which is not so used shall be in-
cluded in the gross income of such holder.
‘‘(2) PENALTY FOR DISTRIBUTIONS NOT USED
FOR
QUALIFIED
MEDICAL
EXPENSES
IF
MINIMUM
BALANCE NOT MAINTAINED.—
‘‘(A) IN GENERAL.—The tax imposed by
this chapter for any taxable year in which there
is 
a 
payment 
or 
distribution 
from 
a
MedicarePlus MSA which is not used exclu-
sively to pay the qualified medical expenses of
the account holder shall be increased by 50 per-
cent of the excess (if any) of—
‘‘(i) the amount of such payment or
distribution, over
‘‘(ii) the excess (if any) of—
‘‘(I) the fair market value of the
assets in the MedicarePlus MSA as of
the close of the calendar year preced-
ing the calendar year in which the
taxable year begins, over
‘‘(II) an amount equal to 60 per-
cent of the deductible under the cata-
124
Subtitle A, Part 2
strophic health plan covering the ac-
count holder as of January 1 of the
calendar year in which the taxable
year begins.
‘‘(B) 
EXCEPTIONS.—Subparagraph 
(A)
shall not apply if the payment or distribution is
made on or after the date the account holder—
‘‘(i) becomes disabled within the
meaning of section 72(m)(7), or
‘‘(ii) dies.
‘‘(C) SPECIAL
RULES.—For purposes of
subparagraph (A)—
‘‘(i) all MedicarePlus MSA’s of the ac-
count holder shall be treated as 1 account,
‘‘(ii) all payments and distributions
not used exclusively to pay the qualified
medical expenses of the account holder
during any taxable year shall be treated as
1 distribution, and
‘‘(iii) any distribution of property
shall be taken into account at its fair mar-
ket value on the date of the distribution.
‘‘(3) WITHDRAWAL OF ERRONEOUS CONTRIBU-
TIONS.—Paragraphs (1) and (2) shall not apply to
any payment or distribution from a MedicarePlus
125
Subtitle A, Part 2
MSA to the Secretary of Health and Human Serv-
ices of an erroneous contribution to such MSA and
of the net income attributable to such contribution.
‘‘(4) 
TRUSTEE-TO-TRUSTEE
TRANSFERS.—
Paragraphs (1) and (2) shall not apply to any trust-
ee-to-trustee transfer from a MedicarePlus MSA of
an account holder to another MedicarePlus MSA of
such account holder.
‘‘(5) COORDINATION WITH MEDICAL EXPENSE
DEDUCTION.—For purposes of section 213, any pay-
ment or distribution out of a MedicarePlus MSA for
qualified medical expenses shall not be treated as an
expense paid for medical care.
‘‘(e) TREATMENT OF ACCOUNT AFTER DEATH OF
ACCOUNT HOLDER.—
‘‘(1) TREATMENT IF DESIGNATED BENEFICIARY
IS SPOUSE.—
‘‘(A) IN GENERAL.—In the case of an ac-
count holder’s interest in a MedicarePlus MSA
which is payable to (or for the benefit of) such
holder’s spouse upon the death of such holder,
such MedicarePlus MSA shall be treated as a
MedicarePlus MSA of such spouse as of the
date of such death.
126
Subtitle A, Part 2
‘‘(B) SPECIAL RULES IF SPOUSE NOT MED-
ICARE ELIGIBLE.—If, as of the date of such
death, such spouse is not entitled to benefits
under title XVIII of the Social Security Act,
then after the date of such death—
‘‘(i) the Secretary of Health and
Human Services may not make any pay-
ments to such MedicarePlus MSA, other
than payments attributable to periods be-
fore such date,
‘‘(ii) in applying subsection (b)(2)
with respect to such MedicarePlus MSA,
references to the account holder shall be
treated as including references to any de-
pendent (as defined in section 152) of such
spouse and any subsequent spouse of such
spouse, and
‘‘(iii) in lieu of applying subsection
(d)(2), the rules of section 220(f)(2) shall
apply.
‘‘(2) TREATMENT IF DESIGNATED BENEFICIARY
IS NOT SPOUSE.—In the case of an account holder’s
interest in a MedicarePlus MSA which is payable to
(or for the benefit of) any person other than such
holder’s spouse upon the death of such holder—
127
Subtitle A, Part 2
‘‘(A) such account shall cease to be a
MedicarePlus MSA as of the date of death, and
‘‘(B) an amount equal to the fair market
value of the assets in such account on such date
shall be includible—
‘‘(i) if such person is not the estate of
such holder, in such person’s gross income
for the taxable year which includes such
date, or
‘‘(ii) if such person is the estate of
such holder, in such holder’s gross income
for last taxable year of such holder.
‘‘(f) REPORTS.—
‘‘(1) 
IN
GENERAL.—The 
trustee 
of 
a
MedicarePlus MSA shall make such reports regard-
ing such account to the Secretary and to the account
holder with respect to—
‘‘(A) the fair market value of the assets in
such MedicarePlus MSA as of the close of each
calendar year, and
‘‘(B) contributions, distributions, and other
matters,
as the Secretary may require by regulations.
‘‘(2) TIME AND MANNER OF REPORTS.—The re-
ports required by this subsection—
128
Subtitle A, Part 2
‘‘(A) shall be filed at such time and in
such manner as the Secretary prescribes in
such regulations, and
‘‘(B) shall be furnished to the account
holder—
‘‘(i) not later than January 31 of the
calendar year following the calendar year
to which such reports relate, and
‘‘(ii) in such manner as the Secretary
prescribes in such regulations.’’
(b) EXCLUSION OF MEDICAREPLUS MSA’S FROM
ESTATE TAX.—Part IV of subchapter A of chapter 11 of
such Code is amended by adding at the end the following
new section:
‘‘SEC. 2057. MEDICAREPLUS MSA’S.
‘‘For purposes of the tax imposed by section 2001,
the value of the taxable estate shall be determined by de-
ducting from the value of the gross estate an amount
equal to the value of any MedicarePlus MSA (as defined
in section 137(b)) included in the gross estate.’’
(c) TAX ON PROHIBITED TRANSACTIONS.—
(1) Section 4975 of such Code (relating to tax
on prohibited transactions) is amended by adding at
the end of subsection (c) the following new para-
graph:
130
Subtitle A, Part 2
‘‘(E) a MedicarePlus MSA described in
section 137(b), or
‘‘(F) a trust, plan, account, or annuity
which, at any time, has been determined by the
Secretary to be described in any preceding sub-
paragraph of this paragraph.’’
(d) 
FAILURE
TO
PROVIDE
REPORTS
ON
MEDICAREPLUS MSA’S.—
(1) Subsection (a) of section 6693 of such Code
(relating to failure to provide reports on individual
retirement accounts or annuities) is amended to read
as follows:
‘‘(a) REPORTS.—
‘‘(1) IN GENERAL.—If a person required to file
a report under a provision referred to in paragraph
(2) fails to file such report at the time and in the
manner required by such provision, such person
shall pay a penalty of $50 for each failure unless it
is shown that such failure is due to reasonable
cause.
‘‘(2) PROVISIONS.—The provisions referred to
in this paragraph are—
‘‘(A) subsections (i) and (l) of section 408
(relating to individual retirement plans),
131
Subtitle A, Part 2
‘‘(B) section 220(h) (relating to medical
savings accounts), and
‘‘(C) 
section 
137(f) 
(relating 
to
MedicarePlus MSA’s).’’
(2) The section heading for section 6693 of
such Code is amended to read as follows:
‘‘SEC. 6693. FAILURE TO FILE REPORTS ON INDIVIDUAL RE-
TIREMENT PLANS AND CERTAIN OTHER TAX-
FAVORED ACCOUNTS; PENALTIES RELATING
TO 
DESIGNATED 
NONDEDUCTIBLE 
CON-
TRIBUTIONS.’’
(e) CLERICAL AMENDMENTS.—
(1) The table of sections for part III of sub-
chapter B of chapter 1 of such Code is amended by
striking the last item and inserting the following:
‘‘Sec. 137. MedicarePlus MSA’s.
‘‘Sec. 138. Cross references to other Acts.’’
(2) The table of sections for subchapter B of
chapter 68 of such Code is amended by striking the
item relating to section 6693 and inserting the fol-
lowing new item:
‘‘Sec. 6693. Failure to file reports on individual retirement plans
and certain other tax-favored accounts; penalties re-
lating to designated nondeductible contributions.’’
(3) The table of sections for part IV of sub-
chapter A of chapter 11 of such Code is amended by
adding at the end the following new item:
‘‘Sec. 2057. MedicarePlus MSA’s.’’
132
Subtitle A, Part 3
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 15012. CERTAIN REBATES EXCLUDED FROM GROSS IN-
COME.
(a) IN GENERAL.—Section 105 of the Internal Reve-
nue Code of 1986 (relating to amounts received under ac-
cident and health plans) is amended by adding at the end
the following new subsection:
‘‘(j) CERTAIN REBATES UNDER SOCIAL SECURITY
ACT.—Gross income does not include any rebate received
under section 1852(e)(1)(A) of the Social Security Act
during the taxable year.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to amounts received after the
date of the enactment of this Act.
PART 3—SPECIAL ANTITRUST RULE FOR
PROVIDER SERVICE NETWORKS
SEC. 15021. APPLICATION OF ANTITRUST RULE OF REASON
TO PROVIDER SERVICE NETWORKS.
(a) RULE OF REASON STANDARD.—In any action
under the antitrust laws, or under any State law similar
to the antitrust laws—
(1) the conduct of a provider service network in
negotiating, making, or performing a contract (in-
133
Subtitle A, Part 3
cluding the establishment and modification of a fee
schedule and the development of a panel of physi-
cians), to the extent such contract is for the purpose
of providing health care services to individuals under
the terms of a MedicarePlus PSO product, and
(2) the conduct of any member of such network
for the purpose of providing such health care serv-
ices under such contract to such extent,
shall not be deemed illegal per se. Such conduct shall be
judged on the basis of its reasonableness, taking into ac-
count all relevant factors affecting competition, including
the effects on competition in properly defined markets.
(b) DEFINITIONS.—For purposes of subsection (a):
(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. 12),
except that such term includes section 5 of the Fed-
eral Trade Commission Act (15 U.S.C. 45) to the
extent that such section 5 applies to unfair methods
of competition.
(2) 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
134
Subtitle A, Part 3
to engage in the delivery of such services in the
State.
(3) HEALTH CARE SERVICE.—The term ‘‘health
care service’’ means any service for which payment
may be made under a MedicarePlus PSO product in-
cluding services related to the delivery or adminis-
tration of such service.
(4) 
MEDICAREPLUS
PROGRAM.—The 
term
‘‘MedicarePlus program’’ means the program under
part C of title XVIII of the Social Security Act.
(5) MEDICAREPLUS PSO PRODUCT.—The term
‘‘MedicarePlus PSO product’’ means a MedicarePlus
product offered by a provider-sponsored organization
under part C of title XVIII of the Social Security
Act.
(6) PROVIDER SERVICE NETWORK.—The term
‘‘provider service network’’ means an organization
that—
(A) is organized by, operated by, and com-
posed of members who are health care providers
and for purposes that include providing health
care services,
(B) is funded in part by capital contribu-
tions made by the members of such organiza-
tion,
135
Subtitle A, Part 3
(C) with respect to each contract made by
such organization for the purpose of providing
a type of health care service to individuals
under the terms of a MedicarePlus PSO prod-
uct—
(i) requires all members of such orga-
nization who engage in providing such type
of health care service to agree to provide
health care services of such type under
such contract,
(ii) receives the compensation paid for
the health care services of such type pro-
vided under such contract by such mem-
bers, and
(iii) provides for the distribution of
such compensation,
(D) has established, consistent with the re-
quirements of the MedicarePlus program for
provider-sponsored organizations, a program to
review, pursuant to written guidelines, the qual-
ity, efficiency, and appropriateness of treatment
methods and setting of services for all health
care providers and all patients participating in
such product, along with internal procedures to
136
Subtitle A, Part 3
correct identified deficiencies relating to such
methods and such services,
(E) has established, consistent with the re-
quirements of the MedicarePlus program for
provider-sponsored organizations, a program to
monitor and control utilization of health care
services provided under such product, for the
purpose of improving efficient, appropriate care
and eliminating the provision of unnecessary
health care services,
(F) has established a management pro-
gram to coordinate the delivery of health care
services for all health care providers and all pa-
tients participating in such product, for the
purpose of achieving efficiencies and enhancing
the quality of health care services provided, and
(G) has established, consistent with the re-
quirements of the MedicarePlus program for
provider-sponsored organizations, a grievance
and appeal process for such organization de-
signed to review and promptly resolve bene-
ficiary or patient grievances and complaints.
Such term may include a provider-sponsored organi-
zation.
137
Subtitle A, Part 4
(7) PROVIDER-SPONSORED
ORGANIZATION.—
The term ‘‘provider-sponsored organization’’ means
a MedicarePlus organization under the MedicarePlus
program that is a provider-sponsored organization
(as defined in section ll of the Social Security
Act).
(8) STATE.—The term ‘‘State’’ has the mean-
ing given it in section 4G(2) of the Clayton Act (15
U.S.C. 15g(2)).
(c) ISSUANCE OF GUIDELINES.—Not later than 120
days after the date of the enactment of this Act, the Attor-
ney General and the Federal Trade Commission shall
issue jointly guidelines specifying the enforcement policies
and analytical principles that will be applied by the De-
partment of Justice and the Commission with respect to
the operation of subsection (a).
PART 4—COMMISSIONS
SEC. 15031. MEDICARE PAYMENT REVIEW COMMISSION.
(a) IN GENERAL.—Title XVIII, as amended by sec-
tion 15001(a), is amended by inserting after section 1805
the following new section:
‘‘MEDICARE PAYMENT REVIEW COMMISSION
‘‘SEC. 1806. (a) ESTABLISHMENT.—There is hereby
established the Medicare Payment Review Commission (in
this section referred to as the ‘Commission’).
‘‘(b) DUTIES.—
138
Subtitle A, Part 4
‘‘(1) GENERAL
DUTIES
AND
REPORTS.—The
Commission shall review, and make recommenda-
tions to Congress concerning, payment policies under
this title. By not later than June 1 of each year, the
Commission shall submit a report to Congress con-
taining an examination of issues affecting the medi-
care program, including the implications of changes
in health care delivery in the United States and in
the market for health care services on the medicare
program. The Commission may submit to Congress
from time to time such other reports as the Commis-
sion deems appropriate. The Secretary shall respond
to recommendations of the Commission in notices of
rulemaking proceedings under this title.
‘‘(2) 
SPECIFIC
DUTIES
RELATING
TO
MEDICAREPLUS
PROGRAM.—Specifically, the Com-
mission 
shall 
review, 
with 
respect 
to 
the
MedicarePlus program under part C—
‘‘(A) the appropriateness of the methodol-
ogy for making payment to plans under such
program, including the making of differential
payments and the distribution of differential
updates among different payment areas,
‘‘(B) the appropriateness of the mecha-
nisms used to adjust payments for risk and the
139
Subtitle A, Part 4
need to adjust such mechanisms to take into ac-
count health status of beneficiaries,
‘‘(C) the implications of risk selection both
among MedicarePlus organizations and between
the 
MedicarePlus 
option 
and 
the 
non-
MedicarePlus option,
‘‘(D) in relation to payment under part C,
the development and implementation of mecha-
nisms to assure the quality of care for those en-
rolled with MedicarePlus organizations,
‘‘(E) the impact of the MedicarePlus pro-
gram on access to care for medicare bene-
ficiaries, and
‘‘(F) other major issues in implementation
and further development of the MedicarePlus
program.
‘‘(3) SPECIFIC
DUTIES
RELATING
TO
THE
FAILSAFE
BUDGET
MECHANISM.—Specifically, the
Commission shall review, with respect to the failsafe
budget mechanism described in section 1895—
‘‘(A) the appropriateness of the expendi-
ture projections by the Secretary under section
1895(c) for each medicare sector;
140
Subtitle A, Part 4
‘‘(B) the appropriateness of the growth
factors for each sector and the ability to take
into account substitution across sectors;
‘‘(C) the appropriateness of the mecha-
nisms for implementing reductions in payment
amounts for different sectors, including any ad-
justments to reflect changes in volume or inten-
sity resulting for any payment reductions;
‘‘(D) the impact of the mechanism on pro-
vider participation in parts A and B and in the
MedicarePlus program; and
‘‘(E) the appropriateness of the medicare
benefit budget (under section 1895(c)(2)(C) of
the Social Security Act), particularly for fiscal
years after fiscal year 2002.
‘‘(4) SPECIFIC DUTIES RELATING TO THE FEE-
FOR-SERVICE SYSTEM.—Specifically, the Commission
shall review payment policies under parts A and B,
including—
‘‘(A) the factors affecting expenditures for
services in different sectors, including the proc-
ess for updating hospital, physician, and other
fees,
‘‘(B) payment methodologies; and
141
Subtitle A, Part 4
‘‘(C) the impact of payment policies on ac-
cess and quality of care for medicare bene-
ficiaries.
‘‘(5) SPECIFIC
DUTIES
RELATING
TO
INTER-
ACTION OF PAYMENT POLICIES WITH HEALTH CARE
DELIVERY
GENERALLY.—Specifically the Commis-
sion shall review the effect of payment policies under
this title on the delivery of health care services
under this title and assess the implications of
changes in the health services market on the medi-
care program.
‘‘(c) MEMBERSHIP.—
‘‘(1) NUMBER AND APPOINTMENT.—The Com-
mission shall be composed of 15 members appointed
by Comptroller General.
‘‘(2) QUALIFICATIONS.—The membership of the
Commission shall include individuals with national
recognition for their expertise in health finance and
economics, health facility management, health plans
and integrated delivery systems, reimbursement of
health facilities, physicians, and other providers of
services, and other related fields, who provide a mix
of different professionals, broad geographic represen-
tation, and a balance between urban and rural rep-
resentatives, including physicians and other health
142
Subtitle A, Part 4
professionals, employers, third party payors, individ-
uals skilled in the conduct and interpretation of bio-
medical, health services, and health economics re-
search and expertise in outcomes and effectiveness
research and technology assessment. Such member-
ship shall also include representatives of consumers
and the elderly.
‘‘(3) CONSIDERATIONS
IN
INITIAL
APPOINT-
MENT.—To the extent possible, in first appointing
members to the Commission shall consider appoint-
ing individuals who (as of the date of the enactment
of this section) were serving on the Prospective Pay-
ment Assessment Commission or the Physician Pay-
ment Review Commission.
‘‘(4) TERMS.—
‘‘(A) IN GENERAL.—The terms of mem-
bers of the Commission shall be for 3 years ex-
cept that the Comptroller General shall des-
ignate staggered terms for the members first
appointed.
‘‘(B) VACANCIES.—Any member appointed
to fill a vacancy occurring before the expiration
of the term for which the member’s predecessor
was appointed shall be appointed only for the
remainder of that term. A member may serve
143
Subtitle A, Part 4
after the expiration of that member’s term until
a successor has taken office. A vacancy in the
Commission shall be filled in the manner in
which the original appointment was made.
‘‘(5) COMPENSATION.—While serving on the
business of the Commission (including traveltime), a
member of the Commission shall be entitled to com-
pensation at the per diem equivalent of the rate pro-
vided for level IV of the Executive Schedule under
section 5315 of title 5, United States Code; and
while so serving away from home and member’s reg-
ular place of business, a member may be allowed
travel expenses, as authorized by the Chairman of
the Commission. Physicians serving as personnel of
the Commission may be provided a physician com-
parability allowance by the Commission in the same
manner as Government physicians may be provided
such an allowance by an agency under section 5948
of title 5, United States Code, and for such purpose
subsection (i) of such section shall apply to the Com-
mission in the same manner as it applies to the Ten-
nessee Valley Authority. For purposes of pay (other
than pay of members of the Commission) and em-
ployment benefits, rights, and privileges, all person-
144
Subtitle A, Part 4
nel of the Commission shall be treated as if they
were employees of the United States Senate.
‘‘(6) CHAIRMAN; VICE CHAIRMAN.—The Comp-
troller General shall designate a member of the
Commission, at the time of appointment of the mem-
ber, as Chairman and a member as Vice Chairman
for that term of appointment.
‘‘(7) MEETINGS.—The Commission shall meet
at the call of the Chairman. Section 10(a)(1) of the
Federal Advisory Committee Act shall not apply to
any portion of a Commission meeting if the Commis-
sion, by majority vote, determines that such portion
of such meeting should be closed.
‘‘(d) DIRECTOR AND STAFF; EXPERTS AND CON-
SULTANTS.—Subject to such review as the Comptroller
General deems necessary to assure the efficient adminis-
tration of the Commission, the Commission may—
‘‘(1) employ and fix the compensation of an Ex-
ecutive Director (subject to the approval of the
Comptroller General) and such other personnel as
may be necessary to carry out its duties (without re-
gard to the provisions of title 5, United States Code,
governing appointments in the competitive service);
145
Subtitle A, Part 4
‘‘(2) seek such assistance and support as may
be required in the performance of its duties from ap-
propriate Federal departments and agencies;
‘‘(3) enter into contracts or make other ar-
rangements, as may be necessary for the conduct of
the work of the Commission (without regard to sec-
tion 3709 of the Revised Statutes (41 U.S.C. 5));
‘‘(4) make advance, progress, and other pay-
ments which relate to the work of the Commission;
‘‘(5) provide transportation and subsistence for
persons serving without compensation; and
‘‘(6) prescribe such rules and regulations as it
deems necessary with respect to the internal organi-
zation and operation of the Commission.
‘‘(e) POWERS.—
‘‘(1) OBTAINING
OFFICIAL
DATA.—The Com-
mission may secure directly from any department or
agency of the United States information necessary
to enable it to carry out this section. Upon request
of the Chairman, the head of that department or
agency shall furnish that information to the Com-
mission on an agreed upon schedule.
‘‘(2) DATA COLLECTION.—In order to carry out
its functions, the Commission shall collect and as-
sess information to—
146
Subtitle A, Part 4
‘‘(A) utilize existing information, both pub-
lished and unpublished, where possible, collected
and assessed either by its own staff or under
other arrangements made in accordance with
this section,
‘‘(B) carry out, or award grants or con-
tracts for, original research and experimen-
tation, where existing information is inad-
equate, and
‘‘(C) adopt procedures allowing any inter-
ested party to submit information for the Com-
mission’s use in making reports and rec-
ommendations.
‘‘(3) ACCESS OF GAO TO INFORMATION.—The
Comptroller General shall have unrestricted access
to all deliberations, records, and data of the Com-
mission, immediately upon request.
‘‘(4) PERIODIC AUDIT.—The Commission shall
be subject to periodic audit by the General Account-
ing Office.
‘‘(f) AUTHORIZATION OF APPROPRIATIONS.—
‘‘(1) REQUEST
FOR
APPROPRIATIONS.—The
Commission shall submit requests for appropriations
in the same manner as the Comptroller General sub-
mits requests for appropriations, but amounts ap-
147
Subtitle A, Part 4
propriated for the Commission shall be separate
from amounts appropriated for the Comptroller Gen-
eral.
‘‘(2) AUTHORIZATION.—There are authorized to
be appropriated such sums as may be necessary to
carry out the provisions of this section. 60 percent
of such appropriation shall be payable from the Fed-
eral Hospital Insurance Trust Fund, and 40 percent
of such appropriation shall be payable from the Fed-
eral 
Supplementary 
Medical 
Insurance 
Trust
Fund.’’.
(b) ABOLITION OF PROPAC AND PPRC.—
(1) PROPAC.—
(A) IN
GENERAL.—Section 1886(e) (42
U.S.C. 1395ww(e)) is amended—
(i) by striking paragraphs (2) and (6);
and
(ii) in paragraph (3), by striking ‘‘(A)
The Commission’’ and all that follows
through ‘‘(B)’’.
(B) CONFORMING
AMENDMENT.—Section
1862 (42 U.S.C. 1395y) is amended by striking
‘‘Prospective Payment Assessment Commis-
sion’’ each place it appears in subsection
148
Subtitle A, Part 4
(a)(1)(D) and subsection (i) and inserting
‘‘Medicare Payment Review Commission’’.
(2) PPRC.—
(A) IN GENERAL.—Title XVIII is amended
by striking section 1845 (42 U.S.C. 1395w–1).
(B) CONFORMING AMENDMENTS.—
(i) Section 1834(b)(2) (42 U.S.C.
1395m(b)(2)) is amended by striking
‘‘Physician Payment Review Commission’’
and inserting ‘‘Medicare Payment Review
Commission’’.
(ii) 
Section 
1842(b) 
(42 
U.S.C.
1395u(b)) is amended by striking ‘‘Physi-
cian Payment Review Commission’’ each
place it appears in paragraphs (2)(C),
(9)(D), and (14)(C)(i) and inserting ‘‘Med-
icare Payment Review Commission’’.
(iii) Section 1848 (42 U.S.C. 1395w–
4) is amended by striking ‘‘Physician Pay-
ment Review Commission’’ and inserting
‘‘Medicare Payment Review Commission’’
each 
place 
it 
appears 
in 
paragraph
(2)(A)(ii), (2)(B)(iii), and (5) of subsection
(c), 
subsection 
(d)(2)(F), 
paragraphs
(1)(B), (3), and (4)(A)of subsection (f),
149
Subtitle A, Part 4
and paragraphs (6)(C) and (7)(C) of sub-
section (g).
(c) EFFECTIVE DATE; TRANSITION.—
(1) IN
GENERAL.—The Comptroller General
shall first provide for appointment of members to
the Medicare Payment Review Commission (in this
subsection referred to as ‘‘MPRC’’) by not later
than March 31, 1996.
(2) TRANSITION.—Effective on a date (not later
than 30 days after the date a majority of members
of the MPRC have first been appointed, the Pro-
spective Payment Assessment Commission (in this
subsection referred to as ‘‘ProPAC’’) and the Physi-
cian Payment Review Commission (in this subsection
referred to as ‘‘PPRC’’), and amendments made by
subsection (b), are terminated. The Comptroller
General, to the maximum extent feasible, shall pro-
vide for the transfer to the MPRC of assets and
staff of ProPAC and PPRC, without any loss of
benefits or seniority by virtue of such transfers.
Fund balances available to the ProPAC or PPRC
for any period shall be available to the MPRC for
such period for like purposes.
(3) CONTINUING
RESPONSIBILITY
FOR
RE-
PORTS.—The MPRC shall be responsible for the
150
Subtitle A, Part 4
preparation and submission of reports required by
law to be submitted (and which have not been sub-
mitted by the date of establishment of the MPRC)
by the ProPAC and PPRC, and, for this purpose,
any reference in law to either such Commission is
deemed, after the appointment of the MPRC to refer
to the MPRC.
SEC. 15032. COMMISSION ON THE EFFECT OF THE BABY
BOOM GENERATION ON THE MEDICARE PRO-
GRAM.
(a) ESTABLISHMENT.—There is established a com-
mission to be known as the Commission on the Effect of
the Baby Boom Generation on the Medicare Program (in
this section referred to as the ‘‘Commission’’).
(b) DUTIES.—
(1) IN GENERAL.—The Commission shall—
(A) examine the financial impact on the
medicare program of the significant increase in
the number of medicare eligible individuals
which will occur beginning approximately dur-
ing 2010 and lasting for approximately 25
years, and
(B) make specific recommendations to the
Congress respecting a comprehensive approach
to preserve the medicare program for the period
151
Subtitle A, Part 4
during which such individuals are eligible for
medicare.
(2) 
CONSIDERATIONS
IN
MAKING
REC-
OMMENDATIONS.—In making its recommendations,
the Commission shall consider the following:
(A) The amount and sources of Federal
funds to finance the medicare program, includ-
ing the potential use of innovative financing
methods.
(B) The most efficient and effective man-
ner of administering the program, including the
appropriateness of continuing the application of
the failsafe budget mechanism under section
1895 of the Social Security Act for fiscal years
after fiscal year 2002 and the appropriate long-
term growth rates for contributions electing
coverage under MedicarePlus under part C of
title XVIII of such Act.
(C) Methods used by other nations to re-
spond to comparable demographic patterns in
eligibility for health care benefits for elderly
and disabled individuals.
(D) Modifying age-based eligibility to cor-
respond to changes in age-based eligibility
under the OASDI program.
152
Subtitle A, Part 4
(E) Trends in employment-related health
care for retirees, including the use of medical
savings accounts and similar financing devices.
(c) MEMBERSHIP.—
(1) APPOINTMENT.—The Commission shall be
composed of 15 members appointed as follows:
(A) The President shall appoint 3 mem-
bers.
(B) The Majority Leader of the Senate
shall appoint, after consultation with the minor-
ity leader of the Senate, 6 members, of whom
not more than 4 may be of the same political
party.
(C) The Speaker of the House of Rep-
resentatives shall appoint, after consultation
with the minority leader of the House of Rep-
resentatives, 6 members, of whom not more
than 4 may be of the same political party.
(2) CHAIRMAN
AND
VICE
CHAIRMAN.—The
Commission shall elect a Chairman and Vice Chair-
man from among its members.
(3) VACANCIES.—Any vacancy in the member-
ship of the Commission shall be filled in the manner
in which the original appointment was made and
153
Subtitle A, Part 4
shall not affect the power of the remaining members
to execute the duties of the Commission.
(4) QUORUM.—A quorum shall consist of 8
members of the Commission, except that 4 members
may conduct a hearing under subsection (e).
(5) MEETINGS.—The Commission shall meet at
the call of its Chairman or a majority of its mem-
bers.
(6) COMPENSATION AND REIMBURSEMENT OF
EXPENSES.—Members of the Commission are not
entitled to receive compensation for service on the
Commission. Members may be reimbursed for travel,
subsistence, and other necessary expenses incurred
in carrying out the duties of the Commission.
(d) STAFF AND CONSULTANTS.—
(1) STAFF.—The Commission may appoint and
determine the compensation of such staff as may be
necessary to carry out the duties of the Commission.
Such appointments and compensation may be made
without regard to the provisions of title 5, United
States Code, that govern appointments in the com-
petitive services, and the provisions of chapter 51
and subchapter III of chapter 53 of such title that
relate to classifications and the General Schedule
pay rates.
154
Subtitle A, Part 4
(2) CONSULTANTS.—The Commission may pro-
cure such temporary and intermittent services of
consultants under section 3109(b) of title 5, United
States Code, as the Commission determines to be
necessary to carry out the duties of the Commission.
(e) POWERS.—
(1) HEARINGS
AND
OTHER
ACTIVITIES.—For
the purpose of carrying out its duties, the Commis-
sion may hold such hearings and undertake such
other activities as the Commission determines to be
necessary to carry out its duties.
(2) STUDIES BY GAO.—Upon the request of the
Commission, the Comptroller General shall conduct
such studies or investigations as the Commission de-
termines to be necessary to carry out its duties.
(3) COST
ESTIMATES
BY
CONGRESSIONAL
BUDGET OFFICE.—
(A) Upon the request of the Commission,
the Director of the Congressional Budget Office
shall provide to the Commission such cost esti-
mates as the Commission determines to be nec-
essary to carry out its duties.
(B) The Commission shall reimburse the
Director of the Congressional Budget Office for
expenses relating to the employment in the of-
155
Subtitle A, Part 4
fice of the Director of such additional staff as
may be necessary for the Director to comply
with requests by the Commission under sub-
paragraph (A).
(4) DETAIL OF FEDERAL EMPLOYEES.—Upon
the request of the Commission, the head of any Fed-
eral agency is authorized to detail, without reim-
bursement, any of the personnel of such agency to
the Commission to assist the Commission in carry-
ing out its duties. Any such detail shall not interrupt
or otherwise affect the civil service status or privi-
leges of the Federal employee.
(5) TECHNICAL
ASSISTANCE.—Upon the re-
quest of the Commission, the head of a Federal
agency shall provide such technical assistance to the
Commission as the Commission determines to be
necessary to carry out its duties.
(6) USE OF MAILS.—The Commission may use
the United States mails in the same manner and
under the same conditions as Federal agencies and
shall, for purposes of the frank, be considered a
commission of Congress as described in section 3215
of title 39, United States Code.
(7) OBTAINING
INFORMATION.—The Commis-
sion may secure directly from any Federal agency
156
Subtitle A, Part 4
information necessary to enable it to carry out its
duties, if the information may be disclosed under
section 552 of title 5, United States Code. Upon re-
quest of the Chairman of the Commission, the head
of such agency shall furnish such information to the
Commission.
(8) ADMINISTRATIVE
SUPPORT
SERVICES.—
Upon the request of the Commission, the Adminis-
trator of General Services shall provide to the Com-
mission on a reimbursable basis such administrative
support services as the Commission may request.
(9) ACCEPTANCE OF DONATIONS.—The Com-
mission may accept, use, and dispose of gifts or do-
nations of services or property.
(10) PRINTING.—For purposes of costs relating
to printing and binding, including the cost of per-
sonnel detailed from the Government Printing Of-
fice, the Commission shall be deemed to be a com-
mittee of the Congress.
(f) REPORT.—Not later than May 1, 1997, the Com-
mission shall submit to Congress a report containing its
findings and recommendations regarding how to protect
and preserve the medicare program in a financially solvent
manner until 2030 (or, if later, throughout the period of
projected solvency of the Federal Old-Age and Survivors
157
Subtitle A, Part 4
Insurance Trust Fund). The report shall include detailed
recommendations for appropriate legislative initiatives re-
specting how to accomplish this objective.
(g) TERMINATION.—The Commission shall terminate
60 days after the date of submission of the report required
in subsection (f).
(h) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated $1,500,000 to carry out
this section. Amounts appropriated to carry out this sec-
tion shall remain available until expended.
SEC. 15033. CHANGE IN APPOINTMENT OF ADMINISTRATOR
OF HCFA.
(a) IN GENERAL.—Section 1117 (42 U.S.C. 1317)
is amended by striking ‘‘President by and with the advice
and consent of the Senate’’ and inserting ‘‘Secretary of
Health and Human Services’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on the date of the enact-
ment of this Act and shall apply to Administrators ap-
pointed on or after the date of the enactment of this Act.
158
Subtitle B
Subtitle B—Preventing Fraud and
Abuse
SEC. 15101. INCREASING AWARENESS OF FRAUD AND
ABUSE.
(a) BENEFICIARY OUTREACH EFFORTS.—The Sec-
retary of Health and Human Services (acting through the
Administrator of the Health Care Financing Administra-
tion and the Inspector General of the Department of
Health and Human Services) shall make ongoing efforts
(through public service announcements, publications, and
other appropriate methods) to alert individuals entitled to
benefits under the medicare program of the existence of
fraud and abuse committed against the program and the
costs to the program of such fraud and abuse, and of the
existence of the toll-free telephone line operated by the
Secretary to receive information on fraud and abuse com-
mitted against the program.
(b) CLARIFICATION OF REQUIREMENT TO PROVIDE
EXPLANATION OF MEDICARE BENEFITS.—The Secretary
shall provide an explanation of benefits under the medi-
care program with respect to each item or service for
which payment may be made under the program which
is furnished to an individual, without regard to whether
or not a deductible or coinsurance may be imposed against
the individual with respect to the item or service.
159
Subtitle B
(c) PROVIDER OUTREACH EFFORTS; PUBLICATION
OF FRAUD ALERTS.—
(1) SPECIAL FRAUD ALERTS.—
(A) IN GENERAL.—
(i) REQUEST
FOR
SPECIAL
FRAUD
ALERTS.—Any person may present, at any
time, a request to the Secretary to issue
and publish a special fraud alert.
(ii) 
SPECIAL
FRAUD
ALERT
DE-
FINED.—In this section, a ‘‘special fraud
alert’’ is a notice which informs the public
of practices which the Secretary considers
to be suspect or of particular concern
under the medicare program or a State
health care program (as defined in section
1128(h) of the Social Security Act).
(B) ISSUANCE AND PUBLICATION OF SPE-
CIAL FRAUD ALERTS.—
(i) INVESTIGATION.—Upon receipt of
a request for a special fraud alert under
subparagraph (A), the Secretary shall in-
vestigate the subject matter of the request
to determine whether a special fraud alert
should be issued. If appropriate, the Sec-
retary (in consultation with the Attorney
160
Subtitle B
General) shall issue a special fraud alert in
response to the request. All special fraud
alerts issued pursuant to this subpara-
graph shall be published in the Federal
Register.
(ii) CRITERIA FOR ISSUANCE.—In de-
termining whether to issue a special fraud
alert upon a request under subparagraph
(A), the Secretary may consider—
(I) whether and to what extent
the practices that would be identified
in the special fraud alert may result
in any of the consequences described
in 15214(b); and
(II) the extent and frequency of
the conduct that would be identified
in the special fraud alert.
(2) PUBLICATION OF ALL HCFA FRAUD ALERTS
IN FEDERAL REGISTER.—Each notice issued by the
Health Care Financing Administration which in-
forms the public of practices which the Secretary
considers to be suspect or of particular concern
under the medicare program or a State health care
program (as defined in section 1128(h) of the Social
Security Act) shall be published in the Federal Reg-
161
Subtitle B
ister, without regard to whether or not the notice is
issued by a regional office of the Health Care Fi-
nancing Administration.
SEC. 15102. BENEFICIARY INCENTIVE PROGRAMS.
(a) PROGRAM TO COLLECT INFORMATION ON FRAUD
AND ABUSE.—
(1) ESTABLISHMENT OF PROGRAM.—Not later
than 3 months after the date of the enactment of
this Act, the Secretary shall establish a program
under which the Secretary shall encourage individ-
uals to report to the Secretary information on indi-
viduals and entities who are engaging or who have
engaged in acts or omissions which constitute
grounds for the imposition of a sanction under sec-
tion 1128, section 1128A, or section 1128B of the
Social Security Act, or who have otherwise engaged
in fraud and abuse against the medicare program.
(2) PAYMENT OF PORTION OF AMOUNTS COL-
LECTED.—If an individual reports information to
the Secretary under the program established under
paragraph (1) which serves as the basis for the col-
lection by the Secretary or the Attorney General of
any amount of at least $100 (other than any
amount paid as a penalty under section 1128B of
the Social Security Act), the Secretary may pay a
162
Subtitle B
portion of the amount collected to the individual
(under procedures similar to those applicable under
section 7623 of the Internal Revenue Code of 1986
to payments to individuals providing information on
violations of such Code).
(b) PROGRAM TO COLLECT INFORMATION ON PRO-
GRAM EFFICIENCY.—
(1) ESTABLISHMENT OF PROGRAM.—Not later
than 3 months after the date of the enactment of
this Act, the Secretary shall establish a program
under which the Secretary shall encourage individ-
uals to submit to the Secretary suggestions on meth-
ods to improve the efficiency of the medicare pro-
gram.
(2) PAYMENT OF PORTION OF PROGRAM SAV-
INGS.—If an individual submits a suggestion to the
Secretary under the program established under
paragraph (1) which is adopted by the Secretary and
which results in savings to the program, the Sec-
retary may make a payment to the individual of
such amount as the Secretary considers appropriate.
SEC. 15103. INTERMEDIATE SANCTIONS FOR MEDICARE
HEALTH MAINTENANCE ORGANIZATIONS.
(a) APPLICATION OF INTERMEDIATE SANCTIONS FOR
ANY PROGRAM VIOLATIONS.—
163
Subtitle B
(1) IN
GENERAL.—Section 1876(i)(1) (42
U.S.C. 1395mm(i)(1)) is amended by striking ‘‘the
Secretary may terminate’’ and all that follows and
inserting the following: ‘‘in accordance with proce-
dures established under paragraph (9), the Secretary
may at any time terminate any such contract or may
impose the intermediate sanctions described in para-
graph (6)(B) or (6)(C) (whichever is applicable) on
the eligible organization if the Secretary determines
that the organization—
‘‘(A) has failed substantially to carry out the
contract;
‘‘(B) is carrying out the contract in a manner
inconsistent with the efficient and effective adminis-
tration of this section;
‘‘(C) is operating in a manner that is not in the
best interests of the individuals covered under the
contract; or
‘‘(D) no longer substantially meets the applica-
ble conditions of subsections (b), (c), (e), and (f).’’.
(2) OTHER
INTERMEDIATE
SANCTIONS
FOR
MISCELLANEOUS
PROGRAM
VIOLATIONS.—Section
1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is amended by
adding at the end the following new subparagraph:
164
Subtitle B
‘‘(C) In the case of an eligible organization for which
the Secretary makes a determination under paragraph (1)
the basis of which is not described in subparagraph (A),
the Secretary may apply the following intermediate sanc-
tions:
‘‘(i) civil money penalties of not more than
$25,000 for each determination under paragraph (1)
if the deficiency that is the basis of the determina-
tion has directly adversely affected (or has the sub-
stantial likelihood of adversely affecting) an individ-
ual covered under the organization’s contract;
‘‘(ii) civil money penalties of not more than
$10,000 for each week beginning after the initiation
of procedures by the Secretary under paragraph (9)
during which the deficiency that is the basis of a de-
termination under paragraph (1) exists; and
‘‘(iii) suspension of enrollment of individuals
under this section after the date the Secretary noti-
fies the organization of a determination under para-
graph (1) and until the Secretary is satisfied that
the deficiency that is the basis for the determination
has been corrected and is not likely to recur.’’.
(3) PROCEDURES FOR IMPOSING SANCTIONS.—
Section 1876(i) (42 U.S.C. 1395mm(i)) is amended
by adding at the end the following new paragraph:
165
Subtitle B
‘‘(9) The Secretary may terminate a contract with an
eligible organization under this section or may impose the
intermediate sanctions described in paragraph (6) on the
organization in accordance with formal investigation and
compliance procedures established by the Secretary under
which—
‘‘(A) the Secretary provides the organization
with the opportunity to develop and implement a
corrective action plan to correct the deficiencies that
were the basis of the Secretary’s determination
under paragraph (1);
‘‘(B) the Secretary shall impose more severe
sanctions on organizations that have a history of de-
ficiencies or that have not taken steps to correct de-
ficiencies the Secretary has brought to their atten-
tion;
‘‘(C) there are no unreasonable or unnecessary
delays between the finding of a deficiency and the
imposition of sanctions; and
‘‘(D) the Secretary provides the organization
with reasonable notice and opportunity for hearing
(including the right to appeal an initial decision) be-
fore imposing any sanction or terminating the con-
tract.’’.
166
Subtitle B
(4) CONFORMING AMENDMENTS.—(A) Section
1876(i)(6)(B) (42 U.S.C. 1395mm(i)(6)(B)) is
amended by striking the second sentence.
(B) 
Section 
1876(i)(6) 
(42 
U.S.C.
1395mm(i)(6)) is further amended by adding at the
end the following new subparagraph:
‘‘(D) The provisions of section 1128A (other than
subsections (a) and (b)) shall apply to a civil money pen-
alty under subparagraph (A) or (B) in the same manner
as they apply to a civil money penalty or proceeding under
section 1128A(a).’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to contract years be-
ginning on or after January 1, 1996.
SEC. 15104. VOLUNTARY DISCLOSURE PROGRAM.
Title XI (42 U.S.C. 1301 et seq.) is amended by in-
serting after section 1128B the following new section:
‘‘VOLUNTARY DISCLOSURE OF ACTS OR OMISSIONS
‘‘SEC. 1129. (a) ESTABLISHMENT OF VOLUNTARY
DISCLOSURE PROGRAM.—Not later than 3 months after
the date of the enactment of this section, the Secretary
shall establish a program to encourage individuals and en-
tities to voluntarily disclose to the Secretary information
on acts or omissions of the individual or entity which con-
stitute grounds for the imposition of a sanction described
in section 1128, 1128A, or 1128B.
167
Subtitle B
‘‘(b) EFFECT OF VOLUNTARY DISCLOSURE.—If an
individual or entity voluntarily discloses information with
respect to an act or omission to the Secretary under sub-
section (a), the following rules shall apply:
‘‘(1) The Secretary may waive, reduce, or other-
wise mitigate any sanction which would otherwise be
applicable to the individual or entity under section
1128, 1128A, or 1128B as a result of the act or
omission involved.
‘‘(2) No qui tam action may be brought pursu-
ant to chapter 37 of title 31, United States Code,
against the individual or entity with respect to the
act or omission involved.’’.
SEC. 15105. REVISIONS TO CURRENT SANCTIONS.
(a) DOUBLING THE AMOUNT OF CIVIL MONETARY
PENALTIES.—The maximum amount of civil monetary
penalties specified in section 1128A of the Social Security
Act or under title XVIII of such Act (as in effect on the
day before the date of the enactment of this Act) shall,
effective for violations occurring after the date of the en-
actment of this Act, be double the amount otherwise pro-
vided as of such date.
(b) ESTABLISHMENT OF MINIMUM PERIOD OF EX-
CLUSION FOR CERTAIN INDIVIDUALS AND ENTITIES SUB-
JECT TO PERMISSIVE EXCLUSION.—Section 1128(c)(3)
168
Subtitle B
(42 U.S.C. 1320a–7(c)(3)) is amended by adding at the
end the following new subparagraphs:
‘‘(D) In the case of an exclusion of an individual or
entity under paragraph (1), (2), or (3) of subsection (b),
the period of the exclusion shall be 3 years, unless the
Secretary determines in accordance with published regula-
tions that a shorter period is appropriate because of miti-
gating circumstances or that a longer period is appro-
priate because of aggravating circumstances.
‘‘(E) In the case of an exclusion of an individual or
entity under subsection (b)(4) or (b)(5), the period of the
exclusion shall not be less than the period during which
the individual’s or entity’s license to provide health care
is revoked, suspended, or surrendered, or the individual
or the entity is excluded or suspended from a Federal or
State health care program.
‘‘(F) In the case of an exclusion of an individual or
entity under subsection (b)(6)(B), the period of the exclu-
sion shall be not less than 1 year.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to acts or omissions
occurring on or after January 1, 1996.
169
Subtitle B
SEC. 15106. CONSOLIDATED FUNDING FOR ANTI-FRAUD
AND ABUSE ACTIVITIES UNDER MEDICARE
INTEGRITY PROGRAM.
(a) ESTABLISHMENT OF MEDICARE INTEGRITY PRO-
GRAM.—Title XVIII is amended by adding at the end the
following new section:
‘‘MEDICARE INTEGRITY PROGRAM
‘‘SEC. 1893. (a) ESTABLISHMENT OF PROGRAM.—
There is hereby established the Medicare Integrity Pro-
gram (hereafter in this section referred to as the ‘Pro-
gram’) under which the Secretary shall promote the integ-
rity of the medicare program by entering into contracts
in accordance with this section with eligible private entities
to carry out the activities described in subsection (b).
‘‘(b) ACTIVITIES DESCRIBED.—The activities de-
scribed in this subsection are as follows:
‘‘(1) Review of activities of providers of services
or other individuals and entities furnishing items
and services for which payment may be made under
this title (including skilled nursing facilities and
home health agencies), including medical and utiliza-
tion review and fraud review (employing similar
standards, processes, and technologies used by pri-
vate health plans, including equipment and software
technologies which surpass the capability of the
equipment and technologies used in the review of
170
Subtitle B
claims under this title as of the date of the enact-
ment of this section).
‘‘(2) Audit of cost reports.
‘‘(3) Determinations as to whether payment
should not be, or should not have been, made under
this title by reason of section 1862(b), and recovery
of payments that should not have been made.
‘‘(4) Education of providers of services, bene-
ficiaries, and other persons with respect to payment
integrity and benefit quality assurance issues.
‘‘(c) ELIGIBILITY OF ENTITIES.—An entity is eligible
to enter into a contract under the Program to carry out
any of the activities described in subsection (b) if—
‘‘(1) the entity has demonstrated capability to
carry out such activities;
‘‘(2) in carrying out such activities, the entity
agrees to cooperate with the Inspector General of
the Department of Health and Human Services, the
Attorney General of the United States, and other
law enforcement agencies, as appropriate, in the in-
vestigation and deterrence of fraud and abuse in re-
lation to this title and in other cases arising out of
such activities;
‘‘(3) the entity’s financial holdings, interests, or
relationships will not interfere with its ability to per-
171
Subtitle B
form the functions to be required by the contract in
an effective and impartial manner; and
‘‘(4) the entity meets such other requirements
as the Secretary may impose.
‘‘(d) PROCESS FOR ENTERING INTO CONTRACTS.—
The Secretary shall enter into contracts under the Pro-
gram in accordance with such procedures as the Secretary
may by regulation establish, except that such procedures
shall include the following:
‘‘(1) The Secretary shall determine the appro-
priate number of separate contracts which are nec-
essary to carry out the Program and the appropriate
times at which the Secretary shall enter into such
contracts.
‘‘(2) The provisions of section 1153(e)(1) shall
apply to contracts and contracting authority under
this section, except that competitive procedures must
be used when entering into new contracts under this
section, or at any other time considered appropriate
by the Secretary.
‘‘(3) A contract under this section may be re-
newed without regard to any provision of law requir-
ing competition if the contractor has met or ex-
ceeded the performance requirements established in
the current contract.
172
Subtitle B
‘‘(e) LIMITATION ON CONTRACTOR LIABILITY.—The
Secretary shall by regulation provide for the limitation of
a contractor’s liability for actions taken to carry out a con-
tract under the Program, and such regulation shall, to the
extent the Secretary finds appropriate, employ the same
or comparable standards and other substantive and proce-
dural provisions as are contained in section 1157.
‘‘(f) TRANSFER OF AMOUNTS TO MEDICARE ANTI-
FRAUD AND ABUSE TRUST FUND.—For each fiscal year,
the Secretary shall transfer from the Federal Hospital In-
surance Trust Fund and the Federal Supplementary Med-
ical Insurance Trust Fund to the Medicare Anti-Fraud
and Abuse Trust Fund under subsection (g) such amounts
as are necessary to carry out the activities described in
subsection (b). Such transfer shall be in an allocation as
reasonably reflects the proportion of such expenditures as-
sociated with part A and part B.
‘‘(g) MEDICARE ANTI-FRAUD
AND ABUSE TRUST
FUND.—
‘‘(1) ESTABLISHMENT.—
‘‘(A) IN GENERAL.—There is hereby estab-
lished in the Treasury of the United States the
Anti-Fraud and Abuse Trust Fund (hereafter
in this subsection referred to as the ‘Trust
Fund’). The Trust Fund shall consist of such
173
Subtitle B
gifts and bequests as may be made as provided
in subparagraph (B) and such amounts as may
be deposited in the Trust Fund as provided in
subsection (f), paragraph (3), and title XI.
‘‘(B) AUTHORIZATION
TO
ACCEPT
GIFTS
AND BEQUESTS.—The Trust Fund is author-
ized to accept on behalf of the United States
money gifts and bequests made unconditionally
to the Trust Fund, for the benefit of the Trust
Fund or any activity financed through the
Trust Fund.
‘‘(2) INVESTMENT.—
‘‘(A) IN GENERAL.—The Secretary of the
Treasury shall invest such amounts of the Fund
as such Secretary determines are not required
to meet current withdrawals from the Fund in
government account serial securities.
‘‘(B) USE OF INCOME.—Any interest de-
rived from investments under subparagraph (A)
shall be credited to the Fund.
‘‘(3) 
AMOUNTS
DEPOSITED
INTO
TRUST
FUND.—In addition to amounts transferred under
subsection (f), there shall be deposited in the Trust
Fund—
174
Subtitle B
‘‘(A) that portion of amounts recovered in
relation to section 1128A arising out of a claim
under title XVIII as remains after application
of subsection (f)(2) (relating to repayment of
the Federal Hospital Insurance Trust Fund or
the Federal Supplementary Medical Insurance
Trust Fund) of that section, as may be applica-
ble,
‘‘(B) fines imposed under section 1128B
arising out of a claim under this title, and
‘‘(C) penalties and damages imposed (other
than funds awarded to a relator or for restitu-
tion) under sections 3729 through 3732 of title
31, United States Code (pertaining to false
claims) in cases involving claims relating to pro-
grams under title XVIII or XIX.
‘‘(4) DIRECT
APPROPRIATION
OF
FUNDS
TO
CARRY OUT PROGRAM.—
‘‘(A) IN
GENERAL.—There are appro-
priated from the Trust Fund for each fiscal
year such amounts as are necessary to carry
out the Medicare Integrity Program under this
section, subject to subparagraph (B).
175
Subtitle B
‘‘(B) AMOUNTS SPECIFIED.—The amount
appropriated under subparagraph (A) for a fis-
cal year is as follows:
‘‘(i) For fiscal year 1996, such
amount 
shall 
be 
not 
less 
than
$430,000,000 
and 
not 
more 
than
$440,000,000.
‘‘(ii) For fiscal year 1997, such
amount 
shall 
be 
not 
less 
than
$490,000,000 
and 
not 
more 
than
$500,000,000.
‘‘(iii) For fiscal year 1998, such
amount 
shall 
be 
not 
less 
than
$550,000,000 
and 
not 
more 
than
$560,000,000.
‘‘(iv) For fiscal year 1999, such
amount 
shall 
be 
not 
less 
than
$620,000,000 
and 
not 
more 
than
$630,000,000.
‘‘(v) For fiscal year 2000, such
amount 
shall 
be 
not 
less 
than
$670,000,000 
and 
not 
more 
than
$680,000,000.
‘‘(vi) For fiscal year 2001, such
amount 
shall 
be 
not 
less 
than
176
Subtitle B
$690,000,000 
and 
not 
more 
than
$700,000,000.
‘‘(vii) For fiscal year 2002, such
amount 
shall 
be 
not 
less 
than
$710,000,000 
and 
not 
more 
than
$720,000,000.
‘‘(5) ANNUAL
REPORT.—The Secretary shall
submit an annual report to Congress on the amount
of revenue which is generated and disbursed by the
Trust Fund in each fiscal year.’’.
(b) ELIMINATION OF FI AND CARRIER RESPONSIBIL-
ITY FOR CARRYING OUT ACTIVITIES SUBJECT TO PRO-
GRAM.—
(1) 
RESPONSIBILITIES
OF
FISCAL
INTERMEDIARIES
UNDER
PART
A.—Section 1816
(42 U.S.C. 1395h) is amended by adding at the end
the following new subsection:
‘‘(l) No agency or organization may carry out (or re-
ceive payment for carrying out) any activity pursuant to
an agreement under this section to the extent that the ac-
tivity is carried out pursuant to a contract under the Med-
icare Integrity Program under section 1893.’’.
(2) RESPONSIBILITIES
OF
CARRIERS
UNDER
PART B.—Section 1842(c) (42 U.S.C. 1395u(c)) is
177
Subtitle B
amended by adding at the end the following new
paragraph:
‘‘(6) No carrier may carry out (or receive payment
for carrying out) any activity pursuant to a contract under
this subsection to the extent that the activity is carried
out pursuant to a contract under the Medicare Integrity
Program under section 1893.’’.
(c) 
CONFORMING
AMENDMENT.—Section
1128A(f)(3) (42 U.S.C. 1320a–7a(f)(3)) is amended by
striking ‘‘as miscellaneous receipts of the Treasury of the
United States’’ and inserting ‘‘in the Anti-Fraud and
Abuse Trust Fund established under section 1145’’.
SEC. 15107. PERMITTING CARRIERS TO CARRY OUT PRIOR
AUTHORIZATION FOR CERTAIN ITEMS OF DU-
RABLE MEDICAL EQUIPMENT.
(a) IN GENERAL.—Section 1834(a)(15) (42 U.S.C.
1395m(a)(15)), as amended by section 135(b) of the So-
cial Security Act Amendments of 1994, is amended by
adding at the end the following new subparagraphs:
‘‘(D) APPLICATION BY CARRIERS.—A car-
rier may develop (and periodically update) a list
of items under subparagraph (A) and a list of
suppliers under subparagraph (B) in the same
manner as the Secretary may develop (and peri-
odically update) such lists.
178
Subtitle B
‘‘(E) WAIVER OF PUBLICATION REQUIRE-
MENT.—A carrier may make an advance deter-
mination under subparagraph (C) with respect
to an item or supplier on a list developed by the
Secretary or the carrier without regard to
whether or not the Secretary has promulgated
a regulation with respect to the list, except that
the carrier may not make such an advance de-
termination with respect to an item or supplier
on a list until the expiration of the 30-day pe-
riod beginning on the date the Secretary or the
carrier places the item or supplier on the list.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect as if included in the enact-
ment of the Social Security Act Amendments of 1994.
SEC. 15108. ESTABLISHMENT OF HEALTH CARE ANTI-
FRAUD TASK FORCE.
(a) IN GENERAL.—Not later than 120 days after the
date of the enactment of this Act, the Attorney General
shall establish (in consultation with the Advisory Group
described in subsection (c)) within the Department of Jus-
tice a task force (similar to the Organized Crime Drug
Enforcement Task Force) to be known as the ‘‘Health
Care Anti-Fraud Task Force’’ (hereafter in this section
referred to as the ‘‘Task Force’’) to prosecute health care
179
Subtitle B
fraud offenses. Nothing in this section may be construed
as affecting the powers of the Attorney General or any
other individual.
(b) OPERATIONS OF TASK FORCE.—The Attorney
General shall establish and operate the Task Force in a
manner such that—
(1) at least one fully staffed operational seg-
ment of the Task Force (including at least one Fed-
eral representative engaged in Task Force activities
on a full-time basis) shall operate in each judicial
district of the United States; and
(2) the Task Force maintains separate account-
ing of its finances, personnel, case load, and resolu-
tion of claims and actions.
(c) ADVISORY GROUP DESCRIBED.—The Advisory
Group described in this subsection is a group consisting
of the following individuals (or their designees):
(1) The Secretary of Health and Human Serv-
ices.
(2) The Secretary of the Treasury.
(3) The Secretary of Veterans’ Affairs.
(4) The Chair of the Board of Governors of the
United States Postal Service.
180
Subtitle C, Part 1
SEC. 15109. STUDY OF ADEQUACY OF PRIVATE QUALITY AS-
SURANCE PROGRAMS.
(a) IN GENERAL.—The Administrator of the Health
Care Financing Administration (acting through the Direc-
tor of the Office of Research and Development) shall enter
into an agreement with a private entity to conduct a study
during the 5-year period beginning on the date of the en-
actment of this Act of the adequacy of the quality assur-
ance programs and consumer protections used by plans
enrolling medicare beneficiaries under part C of title
XVIII of the Social Security Act (as inserted by section
15002(a)), and shall include in the study an analysis of
the effectiveness of such programs in protecting plan en-
rollees against the risk of insufficient provision of benefits
which may result from utilization controls.
(b) REPORT.—Not later than 6 months after the con-
clusion of the 5-year period described in subsection (a),
the Administrator shall submit a report to Congress on
the study conducted under subsection (a).
Subtitle C—Regulatory Relief
PART 1—PHYSICIAN OWNERSHIP REFERRAL
REFORM
SEC. 15201. REPEAL OF PROHIBITIONS BASED ON COM-
PENSATION ARRANGEMENTS.
(a) IN GENERAL.—Section 1877(a)(2) (42 U.S.C.
1395nn(a)(2)) is amended by striking ‘‘is—’’ and all that
181
Subtitle C, Part 1
follows through ‘‘equity,’’ and inserting the following: ‘‘is
(except as provided in subsection (c)) an ownership or in-
vestment interest in the entity through equity,’’.
(b) CONFORMING AMENDMENTS.—Section 1877 (42
U.S.C. 1395nn) is amended as follows:
(1) In subsection (b)—
(A) in the heading, by striking ‘‘TO BOTH
OWNERSHIP
AND
COMPENSATION
ARRANGE-
MENT PROVISIONS’’ and inserting ‘‘WHERE FI-
NANCIAL RELATIONSHIP EXISTS’’; and
(B) by redesignating paragraph (4) as
paragraph (7).
(2) In subsection (c)—
(A) by amending the heading to read as
follows: ‘‘EXCEPTION FOR OWNERSHIP OR IN-
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
182
Subtitle C, Part 1
(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), as amended by section
152(a) of the Social Security Act Amendments of
1994—
(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
(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);
183
Subtitle C, Part 1
(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) Items and services furnished by a
community pharmacy (as defined in paragraph
(1)).
‘‘(C) Magnetic resonance imaging and
computerized tomography services.
‘‘(D) Outpatient physical therapy serv-
ices.’’.
(b) COMMUNITY
PHARMACY
DEFINED.—Section
1877(h) (42 U.S.C. 1395nn(h)), as amended by section
184
Subtitle C, Part 1
15201(b)(6), is amended by inserting before paragraph
(4) the following new paragraph:
‘‘(1) COMMUNITY PHARMACY.—The term ‘com-
munity pharmacy’ means any entity licensed or cer-
tified to dispense prescription drugs by the State in
which the entity is located (including an entity which
dispenses such drugs by mail order).’’.
(c) 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’’.
185
Subtitle C, Part 1
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—
(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:
186
Subtitle C, Part 1
‘‘(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-
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’’.
187
Subtitle C, Part 1
(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-
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);
188
Subtitle C, Part 1
(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:
‘‘(E) with a contract with a State to pro-
vide services under the State plan under title
XIX (in accordance with section 1903(m)) or a
State MediGrant plan under title XXI; or
‘‘(F) which—
‘‘(i) provides health care items or
services directly or through one or more
subsidiary entities or arranges for the pro-
vision of health care items or services sub-
stantially through the services of health
care providers under contract with the or-
ganization, and
‘‘(ii)(I) assumes financial risk for the
provision of health services through mecha-
nisms (such as capitation, risk pools, with-
holds, and per diem payments) or offers its
network of contract health providers to an
entity (including self-insured employers
and indemnity plans) which assumes finan-
cial risk for the provision of such health
services, or
189
Subtitle C, Part 1
‘‘(II) has in effect a written agree-
ment with the provider of services under
which the provider is at significant finan-
cial risk (whether through a withhold, capi-
tation, incentive pool, per diem payments,
or similar risk sharing arrangement) for
the cost or utilization of services that the
provider is obligated to provide.’’.
(d) NEW EXCEPTION FOR SHARED FACILITY SERV-
ICES.—
(1) IN GENERAL.—Section 1877(b) (42 U.S.C.
1395nn(b)), as amended by section 15201(b)(3)(C),
is amended—
(A) 
by 
redesignating 
paragraphs 
(4)
through (7) as paragraphs (5) through (8); and
(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-
190
Subtitle C, Part 1
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) and
section 15202(b), is amended by inserting after
paragraph (1) the following new paragraph:
‘‘(2) 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
191
Subtitle C, Part 1
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
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.’’.
192
Subtitle C, Part 1
(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.’’.
(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:
193
Subtitle C, Part 1
‘‘(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
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
194
Subtitle C, Part 1
(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:
‘‘(9) SERVICES FURNISHED IN A COMPREHEN-
SIVE
OUTPATIENT
REHABILITATION
FACILITY.—In
the case of a designated health service furnished in
a comprehensive outpatient rehabilitation facility (as
defined in section 1861(cc)(2)).’’.
(i) 
DEFINITION
OF
REFERRAL.—Section
1877(h)(5)(A) (42 U.S.C. 1395nn(h)(5)(A)) is amend-
ed—
195
Subtitle C, Part 1
(1) by striking ‘‘an item or service’’ and insert-
ing ‘‘a designated health service’’, and
(2) by striking ‘‘the item or service’’ and insert-
ing ‘‘the designated health service’’.
SEC. 15205. REPEAL OF REPORTING REQUIREMENTS.
Section 1877 (42 U.S.C. 1395nn) is amended—
(1) by striking subsection (f); and
(2) by striking subsection (g)(5).
SEC. 15206. PREEMPTION OF STATE LAW.
Section 1877 (42 U.S.C. 1395nn) is amended by add-
ing at the end the following new subsection:
‘‘(i) PREEMPTION OF STATE LAW.—This section pre-
empts State law to the extent State law is inconsistent
with this section.’’.
SEC. 15207. EFFECTIVE DATE.
Except as provided in section 15203(b), the amend-
ments made by this part shall apply to referrals made on
or after August 14, 1995, regardless of whether or not
regulations are promulgated to carry out such amend-
ments.
196
Subtitle C, Part 2
PART 2—OTHER MEDICARE REGULATORY
RELIEF
SEC. 15211. REPEAL OF MEDICARE AND MEDICAID COV-
ERAGE DATA BANK.
(a) IN GENERAL.—Section 1144 (42 U.S.C. 1320b–
14), as added by section 13581(a) of OBRA–93, is re-
pealed.
(b) CONFORMING AMENDMENTS.—
(1) MEDICARE.—Section 1862(b)(5) of such
Act (42 U.S.C. 1395y(b)(5)), as amended by section
13581(b)(1) of OBRA–93, is amended—
(A) in subparagraph (B), by striking the
dash and all that follows through the end and
inserting ‘‘subparagraph (A) for purposes of
carrying out this subsection.’’, and
(B) in subparagraph (C)(i), by striking
‘‘subparagraph (B)(i)’’ and inserting ‘‘subpara-
graph (B)’’.
(2) MEDICAID.—Section 1902(a)(25)(A)(i) of
such Act (42 U.S.C. 1396a(a)(25)(A)(i)), as amend-
ed by section 13581(b)(2) of OBRA–93, is amended
by striking ‘‘including the use of’’ and all that fol-
lows through ‘‘any additional measures’’.
(3) ERISA.—Section 101(f) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1021(f)) is repealed.
197
Subtitle C, Part 2
(4) INTERNAL
REVENUE
CODE
PROVISION.—
Section 6103(l) of the Internal Revenue Code of
1986 is amended by striking paragraph (12).
(5) DATA MATCHES.—Section 552a(a)(8)(B) of
title 5, United States Code, as amended by section
13581(c) of OBRA–93, is amended—
(A) by adding ‘‘or’’ at the end of clause
(v),
(B) by striking ‘‘or’’ at the end of clause
(vi), and
(C) by striking clause (vii).
SEC. 15212. CLARIFICATION OF LEVEL OF INTENT RE-
QUIRED FOR IMPOSITION OF SANCTIONS.
(a) CLARIFICATION OF LEVEL OF KNOWLEDGE RE-
QUIRED
FOR IMPOSITION
OF CIVIL MONETARY PEN-
ALTIES.—
(1) 
IN
GENERAL.—Section 
1128A(a) 
(42
U.S.C. 1320a–7a(a)) is amended—
(A) in paragraphs (1) and (2), by inserting
‘‘knowingly’’ before ‘‘presents’’ each place it ap-
pears; and
(B) in paragraph (3), by striking ‘‘gives’’
and inserting ‘‘knowingly gives or causes to be
given’’.
198
Subtitle C, Part 2
(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 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.
199
Subtitle C, Part 2
(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. CLARIFICATION OF AND ADDITIONS TO EXCEP-
TIONS TO ANTI-KICKBACK PENALTIES.
(a) DISCOUNTS, RISK-SHARING AND OTHER MAN-
AGED CARE ARRANGEMENTS.—Section 1128B(b)(3) (42
U.S.C. 1320a–7b(b)(3)) is amended—
(1) by amending subparagraph (A) to read as
follows:
‘‘(A) any discount or other reduction in price
(including a reduction in price applied to a combina-
tion of items and services and a reduction made
available as part of capitation, risk sharing, disease
management, or a similar program) obtained by a
provider of service or other entity under title XVIII
or a State health care program if—
‘‘(i) the reduction in price is properly dis-
closed and appropriately reflected in the costs
200
Subtitle C, Part 2
claimed or charges made by the provider or en-
tity under such title or program, or
‘‘(ii) in the case of an entity which does
not report its costs on a cost report, the entity
separately claims an item or service for pay-
ment, payment under such title or program is
not based on actual acquisition costs, and the
price reduction on the item or service is prop-
erly disclosed and appropriately reflected by
providing full and accurate information con-
cerning the price reduction at the time the
value of the reduction is known, at the request
of the Secretary or a State agency;’’;
(2) by striking ‘‘and’’ at the end of subpara-
graph (D);
(3) by striking the period at the end of sub-
paragraph (E) and inserting ‘‘; and’’; and
(4) by adding at the end the following new sub-
paragraph:
‘‘(F) any reduction in cost sharing or increased
benefits given to an individual, any amounts paid by
or on behalf of an organization described in clause
(i) or (ii) to a provider in connection with an item
or service furnished to an individual, any discount or
reduction in price given by the provider for such an
201
Subtitle C, Part 2
item or service, or any other remuneration if the
item or service is provided through an organization
which—
‘‘(i) provides health care items or services
directly or through one or more subsidiary enti-
ties or arranges for the provision of health care
items or services substantially through the serv-
ices of health care providers under contract
with the organization, and
‘‘(ii)(I) assumes financial risk for the pro-
vision of health services through mechanisms
(such as capitation, risk pools, withholds, and
per diem payments) or offers its network of
contract health providers to an entity (including
self-insured employers and indemnity plans)
which assumes financial risk for the provision
of such health services, or
‘‘(II) has in effect a written agreement
with the provider of services under which the
provider is at significant financial risk (whether
through a withhold, capitation, incentive pool,
per diem payments, or similar risk sharing ar-
rangement) for the cost or utilization of services
that the provider is obligated to provide.’’.
202
Subtitle C, Part 2
(b) EFFECTIVE DATE.—The amendments made by
this section 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;
(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).
203
Subtitle C, Part 2
(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
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.
204
Subtitle C, Part 2
(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.
(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.
205
Subtitle C, Part 2
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
activities which do not result in prohibited remu-
neration.
‘‘(4) What constitutes an inducement to reduce
or limit services to individuals entitled to benefits
206
Subtitle C, Part 2
under title XVIII or title XIX 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
introduced into evidence to prove that the party in-
tended to violate the provisions of sections 1128,
1128A, or 1128B.
‘‘(e) REGULATIONS.—
207
Subtitle C, Part 2
‘‘(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
made; and
‘‘(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.’’.
208
Subtitle C, Part 3
(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-
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.—
209
Subtitle C, Part 3
(1) IN GENERAL.—Subject to paragraph (2),
any activity of a medical self-regulatory entity relat-
ing to standard setting or standard enforcement ac-
tivities 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.
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.
210
Subtitle C, Part 3
(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
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-
211
Subtitle C, Part 3
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,
(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
212
Subtitle D, Part 1
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 an action for damages arising from a vaccine-
related injury or death to the extent that title XXI of the
Public Health Service Act applies to the action.
(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—
213
Subtitle D, Part 1
(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.
(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
214
Subtitle D, Part 1
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.
(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
215
Subtitle D, Part 1
of the trier of fact a firm belief or conviction as to
the truth of the allegations sought to be established,
except that such measure or degree of proof is more
than that required under preponderance of the evi-
dence but less than that required for proof beyond
a reasonable 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—
(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
216
Subtitle D, Part 1
(D) any other publicly or privately funded
program.
(6) ECONOMIC
LOSS.—The term ‘‘economic
loss’’ means any pecuniary loss resulting from harm
(including the loss of earnings, medical expense loss,
replacement services loss, loss due to death, and bur-
ial costs), to the extent recovery for such loss is al-
lowed under applicable State law.
(7) HARM.—The term ‘‘harm’’ means any le-
gally cognizable wrong or injury for which punitive
damages may be imposed.
(8) 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
plan (including any person or entity acting under a
contract or arrangement to provide or administer
any health benefit), or the manufacturer, distributor,
supplier, marketer, promoter, or seller of a medical
product, in which the claimant alleges a claim (in-
cluding third party claims, cross claims, counter
claims, or distribution claims) based upon the provi-
sion of (or the failure to provide or pay for) health
care services or the use of a medical product, re-
217
Subtitle D, Part 1
gardless of the theory of liability on which the claim
is based or the number of plaintiffs, or defendants
or causes of action.
(9) 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.
(10) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means any individual, organi-
zation, or institution that is engaged in the delivery
of health care services in a State and that is re-
quired 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.
(11) 
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.
(12) PERSON.—The term ‘‘person’’ means any
individual, corporation, company, association, firm,
partnership, society, joint stock company, or any
other entity, including any governmental entity.
218
Subtitle D, Part 1
(13) 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.
(14) STATE.—The term ‘‘State’’ means each of
the several States, the District of Columbia, the
Commonwealth of Puerto Rico, the Virgin Islands,
Guam, American Samoa, the Northern Mariana Is-
lands, the Trust Territories of the Pacific Islands,
and any other territory 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.
219
Subtitle D, Part 2
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.—
(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-
220
Subtitle D, Part 2
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-
dence that the harm suffered was 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 section shall be applied by the
court and shall not be disclosed to the jury.
(c) APPLICABILITY.—This section shall apply to any
health care liability action brought in any Federal or State
221
Subtitle D, Part 2
court on any theory where punitive damages are sought.
This section does not create a cause of action for punitive
damages. This section does not preempt or supersede any
State or Federal law to the extent that such law would
further limit the award of punitive damages.
(d) BIFURCATION.—At the request of any party, the
trier of fact shall consider in a separate proceeding wheth-
er punitive damages are to be awarded and the amount
of such award. If a separate proceeding is requested, evi-
dence 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.
(e) DRUGS AND DEVICES.—
(1)(A) Punitive damages shall not be awarded
against a manufacturer or product seller of a drug
(as defined in section 201(g)(1) of the Federal
Food, 
Drug, 
and 
Cosmetic 
Act 
(21 
U.S.C.
321(g)(1)) or medical device (as defined in section
201(h) of the Federal Food, Drug, and Cosmetic
Act (21 U.S.C. 321(h)) which caused the claimant’s
harm where—
(i) such drug or device was subject to pre-
market approval by the Food and Drug Admin-
istration with respect to the safety of the for-
222
Subtitle D, Part 2
mulation or performance of the aspect of such
drug or device which caused the claimant’s
harm or the adequacy of the packaging or label-
ing of such drug or device, and such drug was
approved by the Food and Drug Administra-
tion; or
(ii) the drug is generally recognized as safe
and effective pursuant to conditions established
by the Food and Drug Administration and ap-
plicable regulations, including packaging and la-
beling regulations.
(B) Subparagraph (A) 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 withheld
from or misrepresented to the Food and Drug
Administration information concerning 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 ma-
terial and relevant to the harm suffered by the
claimant, or
(ii) made an illegal payment to an official
or employee of the Food and Drug Administra-
223
Subtitle D, Part 2
tion for the purpose of securing or maintaining
approval of such drug or device.
(2) PACKAGING.—In a health care liability ac-
tion for harm which is alleged to relate to the ade-
quacy of the packaging (or labeling relating to such
packaging) of a drug which is required to have tam-
per-resistant packaging under regulations of the
Secretary of Health and Human Services (including
labeling regulations related to such packaging), the
manufacturer of the drug shall not be held liable for
punitive damages unless the drug is found by the
court by clear and convincing evidence to be sub-
stantially out of compliance with such regulations.
(f) 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-
224
Subtitle D, Part 2
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.
(g) 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. This subsection shall
apply to an action that is settled as well as an action
that is resolved by a fact finder.
225
Subtitle E, Part 1
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-
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
226
Subtitle E, Part 1
be deposited in the Fund pursuant to subsection (f).
Amounts in the Fund are available until expended.
‘‘(b) EXPENDITURES FROM FUND.—Amounts in the
Fund are available to the Secretary for making payments
under section 2211.
‘‘(c) ACCOUNTS IN FUND.—There is established with-
in 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, $400,000,000.
‘‘(B) For fiscal year 1998, $600,000,000.
‘‘(C) For fiscal year 1999, $2,000,000,000.
‘‘(D) 
For 
fiscal 
year 
2000,
$3,000,000,000.
227
Subtitle E, Part 1
‘‘(E) 
For 
fiscal 
year 
2001,
$4,000,000,000.
‘‘(F) 
For 
fiscal 
year 
2002,
$5,800,000,000.
‘‘(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—
228
Subtitle E, Part 1
‘‘(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
229
Subtitle E, Part 1
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-
230
Subtitle E, Part 1
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.
231
Subtitle E, Part 1
‘‘(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.
232
Subtitle E, Part 1
‘‘(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
233
Subtitle E, Part 1
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.
234
Subtitle E, Part 1
‘‘(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 is available to the Secretary for the applicable pe-
riod.
‘‘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 1886(d)(5)(B)
were for discharges occurring in fiscal year 1995 or
in fiscal year 1996 (referred to in this subsection in-
dividually 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, except that the percentage
under paragraph (2) shall be adjusted in accordance
with section 2221(b)(1) to the extent determined by
235
Subtitle E, Part 1
the Secretary to be necessary with respect to a sum
that equals 100 percent.
‘‘(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.
236
Subtitle E, Part 1
‘‘(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.—In the case of a teaching
hospital that did not receive payments under section
1886(d)(5)(B) for any of the fiscal years 1992
through 1996, the percentage determined under
paragraph (3) for the hospital is deemed to be the
percentage applicable under section 2221(b) to the
hospital, except that the percentage under paragraph
(3) shall be adjusted in accordance with section
2221(b)(1) to the extent determined by the Sec-
237
Subtitle E, Part 1
retary 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
238
Subtitle E, Part 1
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.
‘‘(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.
‘‘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
239
Subtitle E, Part 1
determined for 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
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
240
Subtitle E, Part 1
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 in a State
for which a demonstration project under section
1814(b)(3) is in effect, this section does not provide any
payment 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
pursuant 
to 
the 
transfer 
under 
section
1886(j)(1).
‘‘(3) The Secretary shall, for each hospital
(other than hospitals described in subsection (a)),
241
Subtitle E, Part 1
make payments to the hospital whose sum 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).
‘‘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
‘‘(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—
242
Subtitle E, Part 1
‘‘(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-
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
243
Subtitle E, Part 1
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
paragraph make an estimate on the basis of such
data as is available to the Secretary for the applica-
ble 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—
244
Subtitle E, Part 1
‘‘(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).
‘‘(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.
‘‘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 1886(h) were
for cost reporting period beginning in fiscal year
246
Subtitle E, Part 1
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—
‘‘(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.—In the case of a teaching
hospital that did not receive payments under section
247
Subtitle E, Part 1
1886(h) for any of the fiscal years 1992 through
1996, the percentage determined under paragraph
(3) for the hospital is deemed to be the percentage
applicable under section 2231(b)(2) to the hospital,
except that the percentage under paragraph (3) shall
be 
adjusted 
in 
accordance 
with 
section
2231(b)(2)(A) to the extent determined by the Sec-
retary 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-
248
Subtitle E, Part 1
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.
‘‘(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.
249
Subtitle E, Part 1
‘‘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:
‘‘(1) The consortium consists of an approved
medical residency training program of a teaching
hospital and one or more of the following entities:
‘‘(A) Schools of medicine or osteopathic
medicine.
‘‘(B) Other teaching hospitals (or the ap-
proved medical residency training programs of
the hospitals).
‘‘(C) Community health centers (under sec-
tion 330 of the Public Health Service Act).
‘‘(D) Medical group practices.
‘‘(E) Managed care entities.
‘‘(F) Entities furnishing outpatient serv-
ices.
‘‘(G) Such other entities as the Secretary
determines to be appropriate.
250
Subtitle E, Part 1
‘‘(2) The members of the consortium have
agreed to participate in the programs of graduate
medical education that are operated by the teaching
hospitals of 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.
‘‘(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).
251
Subtitle E, Part 1
‘‘(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 paragraph (1)(A) of such
section for 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—
252
Subtitle E, Part 1
‘‘(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-
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.
253
Subtitle E, Part 1
‘‘(c) RULE REGARDING PAYMENTS FROM CERTAIN
AMOUNTS.—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 does not provide any
payment 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.
‘‘(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 2232(c)(2)).’’.
254
Subtitle E, Part 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
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-
255
Subtitle E, Part 2
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.—
‘‘(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
256
Subtitle E, Part 2
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
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
257
Subtitle E, Part 2
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-
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.
258
Subtitle E, Part 2
‘‘(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
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)
259
Subtitle E, Part 2
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
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—
260
Subtitle E, Part 2
(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,
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’.’’.
(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.—Such
rules shall provide that for purposes of a cost
reporting period beginning on or after October
1, 1995, and on or before September 30, 2002,
261
Subtitle E, Part 2
the number of full-time-equivalent residents de-
termined under this paragraph with respect to
an approved medical residency training program
may not exceed the number of full-time-equiva-
lent residents with respect to the program as of
August 1, 1995 (except that this subparagraph
does not apply to any nonphysician post-
graduate training program that, under para-
graph (5)(A), is an approved medical residency
training program).’’.
(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
262
Subtitle E, Part 2
1, 1997, the weighting factors that apply in
such calculation are the weighting factors that
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, in
the calculation of the number of full-time-equiv-
alent residents in an approved medical resi-
dency program, the following rules shall apply
with respect to such individuals who are resi-
dents 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
263
Subtitle E, Part 2
such individual the Secretary shall apply a
weighting factor of .50.
‘‘(iii) For a cost reporting period be-
ginning during fiscal year 1998, for each
such individual the Secretary shall apply a
weighting factor of .25.
‘‘(iv) For a cost reporting period be-
ginning during fiscal year 1999 or any
subsequent fiscal year, such individuals
shall be excluded from the calculation of
the number of full-time-equivalent resi-
dents in an approved medical residency
program under this paragraph.’’.
(c) EFFECTIVE DATE.—Except as provided otherwise
in this section (or in the amendments made by this sec-
tion), the amendments made by this section apply to hos-
pital cost reporting periods beginning on or after October
1, 1995.
264
Subtitle E, Part 3
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:
‘‘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.
265
Subtitle E, Part 3
‘‘(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
used for the program under part C of title XVIII
(relating to MedicarePlus).
‘‘(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
266
Subtitle E, Part 3
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.
‘‘(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) The feasibility and desirability of reducing
payments for graduate medical education for high-
cost 
residency 
programs 
under 
section
1886(h)(2)(D)(iii).
‘‘(c) COMPOSITION.—Not later than three months
after being designated as the initial chairman of the Medi-
care Payment Review Commission, the chairman of the
Commission shall appoint to the Panel 19 individuals who
are not members of the Commission, who are not officers
or employees of the United States, and who possess exper-
tise on matters on which the Panel is to make rec-
ommendations under subsection (b). Such individuals shall
include the following:
267
Subtitle E, Part 3
‘‘(1) Deans from allopathic and osteopathic
schools of medicine.
‘‘(2) Chief executive officers (or equivalent ad-
ministrative heads) from academic health centers,
integrated health care systems, and approved medi-
cal 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 Review Pay-
ment Commission shall provide for the Panel such staff
and administrative support (including quarters for the
268
Subtitle E, Part 3
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.—
269
Subtitle E, Part 3
‘‘(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 section 3. The Panel may not procure services
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-
270
Subtitle E, Part 3
penses incurred for activities carried out on behalf of the
Panel pursuant to section 3.
‘‘(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).
271
Subtitle E, Part 3
‘‘(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 2000.
‘‘(2) LIMITATION.—The authorization of appro-
priations established in paragraph (1) is effective
only with respect to appropriations made from allo-
272
Subtitle F, Part 1
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,
273
Subtitle F, Part 1
‘‘(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.
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 17 percent.
‘‘(II) For discharges occurring on or after Octo-
ber 1, 1996, and on or before September 30, 1997,
by 15 percent.
274
Subtitle F, Part 1
‘‘(III) For discharges occurring on or after Oc-
tober 1, 1997, and on or before September 30, 1998,
by 20 percent.
‘‘(IV) For discharges occurring on or after Oc-
tober 1, 1998, and on or before September 30, 1999,
by 20 percent.
‘‘(V) For discharges occurring on or after Octo-
ber 1, 1999, and on or before September 30, 2000,
by 25 percent.
‘‘(VI) For discharges occurring on or after Oc-
tober 1, 2000, and on or before September 30, 2001,
by 30 percent.
‘‘(VII) For discharges occurring on or after Oc-
tober 1, 2001, by 30 percent.’’.
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
275
Subtitle F, Part 1
(B) by inserting after ‘‘reduction’’ the fol-
lowing: ‘‘(or a 15 percent reduction in the case
of payments during fiscal years 1996 through
2002)’’.
(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
276
Subtitle F, Part 1
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.
‘‘(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 Sep-
tember 30, 1995, such system shall provide for
an adjustment in an amount equal to the
amount determined under clause (iv) for cap-
ital-related tax costs for each hospital that is el-
igible for such adjustment.
‘‘(ii) Subject to clause (iii), a hospital is el-
igible for an adjustment under this subpara-
277
Subtitle F, Part 1
graph, 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.
‘‘(iii)(I) In the case of a hospital that first
incurs capital-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 fiscal year following the fiscal
year in which the hospital first incurs such
costs.
‘‘(II) In the case of a hospital that first in-
curs capital-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 ad-
justment is the fourth full fiscal year following
the fiscal year in which the hospital first incurs
such costs.
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Subtitle F, Part 1
‘‘(iv) The per discharge adjustment under
this clause shall be equal to the hospital-specific
capital-related tax costs per discharge of a hos-
pital 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 ad-
justment shall be added to the Federal 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 Preser-
vation Act of 1995), and before such rate is
multiplied by the applicable Federal rate per-
centage.
‘‘(v) For purposes of this subparagraph,
capital-related tax costs include—
‘‘(I) the costs of taxes on land and de-
preciable assets owned by a hospital (or re-
lated organization) and used for patient
care,
‘‘(II) payments in lieu of such taxes
(made by hospitals that are exempt from
taxation), and
279
Subtitle F, Part 1
‘‘(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 amortization) and leaves the lessor
with an amount free of all claims (some-
times referred to as a ‘net net net’ or ‘tri-
ple net’ lease).
In determining the adjustment required under
clause (i), the Secretary shall not take into ac-
count any capital-related 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 capital rate for any fiscal year after
September 30, 1995, shall be reduced by a per-
centage sufficient to ensure that the adjust-
ments required to be paid under clause (i) for
a fiscal year neither increase nor decrease the
total amount that would have been paid under
280
Subtitle F, Part 1
this system but for the payment of such adjust-
ments 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
whether it qualifies for additional payment amounts
under such subsection.
281
Subtitle F, Part 1
‘‘(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) (42 U.S.C. 1395ww(g)(1)(B)) is
amended by striking ‘‘may provide’’ and inserting
‘‘shall provide (in accordance with subparagraph
(D)’’.
282
Subtitle F, Part 1
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-
283
Subtitle F, Part 1
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
284
Subtitle F, Part 1
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
UNITS
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 long-term care unit of
the hospital if such unit was not treated as a sub-
section (d) hospital with respect to discharges occur-
ring on or before September 30, 1995.’’.
(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
distinct units of hospitals for purposes of section
1886 of the Social Security Act.
285
Subtitle F, Part 1
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) 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
‘‘(iii) 50 percent for subsequent cost reporting
periods.’’.
(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’’.
286
Subtitle F, Part 1
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.,’’.
(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).’’.
287
Subtitle F, Part 1
(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
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) and (2)(A) of section 1820(i) (42
U.S.C. 1395i–4(i)) are each amended by striking the semi-
colon 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;’’.