116
of patients, and data on medical malpractice liability ac-
tions’’.
(c) DEVELOPMENT
OF
REPORTING
FORMS
FOR
STATE ADR SYSTEMS.—The Secretary, in consulation
with the Administrator for Health Care Policy and Re-
search, shall develop a standard reporting form to be used
by State alternative dispute resolution systems in trans-
mitting information to the Administrator pursuant to sec-
tion 231(a)(6) on disputes resolved under such systems.
(d) STUDY OF EFFECT OF GUIDELINES ON MEDICAL
MALPRACTICE.—
(1) STUDY.—The Secretary shall conduct a
study of the effect of the use of the medical practice
guidelines developed by the Administrator for Health
Care Policy and Research on the incidence of and
the costs associated with medical malpractice.
(2) REPORTS.—(A) Not later than 1 year after
the date of the enactment of this Act, the Secretary
shall submit an interim report to Congress describ-
ing the availability and use of medical practice
guidelines and the aggregate costs associated with
medical malpractice.
(B) Not later than 5 years after the date of the
enactment of this Act, the Secretary shall submit a
report to Congress on the study conducted under
117
paragraph (1), together with recommendations re-
garding expanding the use of medical practice guide-
lines for determining the liability of health care pro-
fessionals and health care providers for medical mal-
practice.
SEC. 242. PERMITTING STATE PROFESSIONAL SOCIETIES
TO PARTICIPATE IN DISCIPLINARY ACTIVI-
TIES.
(a) ROLE OF PROFESSIONAL SOCIETIES.—Notwith-
standing any other provision of State or Federal law, a
State agency responsible for the conduct of disciplinary
actions for a type of health care practitioner may enter
into agreements with State or county professional societies
of such type of health care practitioner to permit such so-
cieties to participate in the licensing of such health care
practitioner, and to review any health care malpractice ac-
tion, health care malpractice claim or allegation, or other
information concerning the practice patterns of any such
health care practitioner. Any such agreement shall comply
with subsection (b).
(b) REQUIREMENTS OF AGREEMENTS.—Any agree-
ment entered into under subsection (a) for licensing activi-
ties or the review of any health care malpractice action,
health care malpractice claim or allegation, or other infor-
118
mation concerning the practice patterns of a health care
practitioner shall provide that—
(1) the health care professional society conducts
such activities or review as expeditiously as possible;
(2) after the completion of such review, such so-
ciety shall report its findings to the State agency
with which it entered into such agreement;
(3) the conduct of such activities or review and
the reporting of such findings be conducted in a
manner which assures the preservation of confiden-
tiality of health care information and of the review
process; and
(4) no individual affiliated with such society is
liable for any damages or injury directly caused by
the individual’s actions in conducting such activities
or review.
(c) AGREEMENTS NOT MANDATORY.—Nothing in
this section may be construed to require a State to enter
into agreements with societies described in subsection (a)
to conduct the activities described in such subsection.
(d) EFFECTIVE DATE.—This section shall take effect
2 years after the date of the enactment of this Act.
119
SEC. 243. REQUIREMENTS FOR RISK MANAGEMENT PRO-
GRAMS.
(a) REQUIREMENTS FOR PROVIDERS.—Each State
shall require each health care professional and health care
provider providing services in the State to participate in
a risk management program to prevent and provide early
warning of practices which may result in injuries to pa-
tients or which otherwise may endanger patient safety.
(b) REQUIREMENTS
FOR INSURERS.—Each State
shall require each entity which provides health care profes-
sional or provider liability insurance to health care profes-
sionals and health care providers in the State to—
(1) establish risk management programs based
on data available to such entity or sanction pro-
grams of risk management for health care profes-
sionals and health care providers provided by other
entities; and
(2) require each such professional or provider,
as a condition of maintaining insurance, to partici-
pate in one program described in paragraph (1) at
least once in each 3-year period.
(c) EFFECTIVE DATE.—This section shall take effect
2 years after the date of the enactment of this Act.
SEC. 244. GRANTS FOR MEDICAL SAFETY PROMOTION.
(a) RESEARCH ON MEDICAL INJURY PREVENTION
AND COMPENSATION.—
120
(1) IN GENERAL.—The Secretary shall make
grants for the conduct of basic research in the pre-
vention of and compensation for injuries resulting
from health care professional or health care provider
malpractice, and research of the outcomes of health
care procedures.
(2) PREFERENCE FOR RESEARCH ON CERTAIN
ACTIVITIES.—In making grants under paragraph
(1), the Secretary shall give preference to applica-
tions for grants to conduct research on the behavior
of health care providers and health care profes-
sionals in carrying out their professional duties and
of other participants in systems for compensating in-
dividuals injured by medical malpractice, the effects
of financial and other incentives on such behavior,
the determinants of compensation system outcomes,
and the costs and benefits of alternative compensa-
tion policy options.
(3) APPLICATION.—The Secretary may not
make a grant under paragraph (1) unless an appli-
cant submits an application to the Secretary at such
time, in such form, in such manner, and containing
such information as the Secretary may require.
(b) GRANTS FOR LICENSING AND DISCIPLINARY AC-
TIVITIES.—
121
(1) IN GENERAL.—The Secretary shall make
grants to States to assist States in improving the
States’ ability to license and discipline health care
professionals.
(2) USES FOR GRANTS.—A State may use a
grant awarded under subsection (a) to develop and
implement improved mechanisms for monitoring the
practices of health care professionals or for conduct-
ing disciplinary activities.
(3) TECHNICAL
ASSISTANCE.—The Secretary
shall provide technical assistance to States receiving
grants under paragraph (1) to assist them in evalu-
ating their medical practice acts and procedures and
to encourage the use of efficient and effective early
warning systems and other mechanisms for detecting
practices which endanger patient safety and for dis-
ciplining health care professionals.
(4) APPLICATIONS.—The Secretary may not
make a grant under paragraph (1) unless the appli-
cant submits an application to the Secretary at such
time, in such form, in such manner, and containing
such information as the Secretary shall require.
(c) GRANTS FOR PUBLIC EDUCATION PROGRAMS.—
(1) IN GENERAL.—The Secretary shall make
grants to States and to local governments, private
122
nonprofit organizations, and health professional
schools (as defined in paragraph (3)) for—
(A) educating the general public about the
appropriate use of health care and realistic ex-
pectations of medical intervention;
(B) educating the public about the re-
sources and role of health care professional li-
censing and disciplinary boards in investigating
claims of incompetence or health care mal-
practice; and
(C) developing programs of faculty train-
ing and curricula for educating health care pro-
fessionals in quality assurance, risk manage-
ment, and medical injury prevention.
(2) APPLICATIONS.—The Secretary may not
make a grant under paragraph (1) unless the appli-
cant submits an application to the Secretary at such
time, in such form, in such manner, and containing
such information as the Secretary shall require.
(3) 
HEALTH
PROFESSIONAL
SCHOOL
DE-
FINED.—In paragraph (1), the term ‘‘health profes-
sional school’’ means a school of nursing (as defined
in section 853(2) of the Public Health Service Act)
or an institution described in section 701(4) of such
Act.
123
(d) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated not more than
$15,000,000 for each of the first 5 fiscal years beginning
on or after the date of the enactment of this Act for grants
under this section.
SEC. 245. STUDY OF BARRIERS TO VOLUNTARY SERVICE BY
PHYSICIANS.
(a) STUDY.—The Secretary shall conduct a study to
determine the factors preventing or discouraging physi-
cians (whether practicing or retired) from volunteering to
provide health care services in medically underserved
areas.
(b) REPORTS.—(1) Not later than 1 year after the
date of the enactment of this Act, the Secretary shall sub-
mit an interim report to Congress on the study conducted
under subsection (a), together with the Secretary’s rec-
ommendations for actions to increase the number of physi-
cians volunteering to provide health care services in medi-
cally underserved areas.
(2) Not later than 5 years after the date of the enact-
ment of this Act, the Secretary shall submit a final report
to Congress on the study conducted under subsection (a)
(taking into account the effects of this subtitle on the inci-
dence and costs of medical malpractice), together with the
Secretary’s recommendations for actions to increase the
124
number of physicians volunteering to provide health care
services in medically underserved areas.
Subtitle B—Administrative Cost
Savings
PART 1—STANDARDIZATION OF CLAIMS PROCESSING
SEC. 
251. 
ADOPTION 
OF 
DATA 
ELEMENTS, 
UNIFORM
CLAIMS, AND UNIFORM ELECTRONIC TRANS-
MISSION STANDARDS.
(a) IN GENERAL.—The Secretary of Health and
Human Services (in this subtitle referred to as the ‘‘Sec-
retary’’) shall adopt standards relating to each of the fol-
lowing:
(1) Data elements for use in paper and elec-
tronic claims processing under health benefit plans,
as well as for use in utilization review and manage-
ment of care (including data fields, formats, and
medical nomenclature, and including plan benefit
and insurance information).
(2) Uniform claims forms (including uniform
procedure and billing codes for uses with such forms
and including information on other health benefit
plans that may be liable for benefits).
(3) Uniform electronic transmission of the data
elements (for purposes of billing and utilization re-
view).
125
Standards under paragraph (3) relating to electronic
transmission of data elements for claims for services shall
supersede (to the extent specified in such standards) the
standards adopted under paragraph (2) relating to the
submission of paper claims for such services. Standards
under paragraph (3) shall include protections to assure
the confidentiality of patient-specific information and to
protect against the unauthorized use and disclosure of in-
formation.
(b) USE OF TASK FORCES.—In adopting standards
under this section—
(1) the Secretary shall take into account the
recommendations of current taskforces, including at
least the Workgroup on Electronic Data Inter-
change, National Uniform Billing Committee, the
Uniform Claim Task Force, and the Computer-based
Patient Record Institute;
(2) the Secretary shall consult with the Na-
tional Association of Insurance Commissioners (and,
with respect to standards under subsection (a)(3),
the American National Standards Institute); and
(3) the Secretary shall, to the maximum extent
practicable, seek to make the standards consistent
with any uniform clinical data sets which have been
adopted and are widely recognized.
126
(c) DEADLINES
FOR PROMULGATION.—The Sec-
retary shall promulgate the standards under—
(1) subsection (a)(1) relating to claims process-
ing data, by not later than 12 months after the date
of the enactment of this Act;
(2) subsection (a)(2) (relating to uniform
claims forms) by not later than 12 months after the
date of the enactment of this Act; and
(3)(A) subsection (a)(3) relating to trans-
mission of information concerning hospital and phy-
sicians services, by not later than 24 months after
the date of the enactment of this Act, and
(B) subsection (a)(3) relating to transmission
of information on other services, by such later date
as the Secretary may determine it to be feasible.
(d) REPORT TO CONGRESS.—Not later than 3 years
after the date of the enactment of this Act, the Secretary
shall report to Congress recommendations regarding re-
structuring the medicare peer review quality assurance
program given the availability of hospital data in elec-
tronic form.
SEC. 252. APPLICATION OF STANDARDS.
(a) IN GENERAL.—If the Secretary determines, at
the end of the 2-year period beginning on the date that
standards are adopted under section 251 with respect to
127
classes of services, that a significant number of claims for
benefits for such services under health benefit plans are
not being submitted in accordance with such standards,
the Secretary may require, after notice in the Federal
Register of not less than 6 months, that all providers of
such services must submit claims to health benefit plans
in accordance with such standards. The Secretary may
waive the application of such a requirement in such cases
as the Secretary finds that the imposition of the require-
ment would not be economically practicable.
(b) SIGNIFICANT NUMBER.—The Secretary shall
make an affirmative determination described in subsection
(a) for a class of services only if the Secretary finds that
there would be a significant, measurable additional gain
in efficiencies in the health care system that would be ob-
tained by imposing the requirement described in such
paragraph with respect to such services.
(c) APPLICATION OF REQUIREMENT.—
(1) IN GENERAL.—If the Secretary imposes the
requirement under subsection (a)—
(A) in the case of a requirement that imposes
the standards relating to electronic trans-
mission of claims for a class of services, each
health care provider that furnishes such services
for which benefits are payable under a health
128
benefit plan shall transmit electronically and di-
rectly to the plan on behalf of the beneficiary
involved a claim for such services in accordance
with such standards;
(B) any health benefit plan may reject any
claim subject to the standards adopted under
section 251 but which is not submitted in ac-
cordance with such standards;
(C) it is unlawful for a health benefit plan
(i) to reject any such claim on the basis of the
form in which it is submitted if it is submitted
in accordance with such standards or (ii) to re-
quire, for the purpose of utilization review or as
a condition of providing benefits under the plan,
a provider to transmit medical data elements
that are inconsistent with the standards estab-
lished under section 251(a)(1); and
(D) the Secretary may impose a civil
money penalty on any provider that knowingly
and repeatedly submits claims in violation of
such standards or on any health benefit plan
(other than a health benefit plan described in
paragraph (2)) that knowingly and repeatedly
rejects claims in violation of subparagraph (B),
129
in an amount not to exceed $100 for each such
claim.
The provisions of section 1128A of the Social Secu-
rity Act (other than the first sentence of subsection
(a) and other than subsection (b)) shall apply to a
civil money penalty under subparagraph (D) in the
same manner as such provisions apply to a penalty
or proceeding under section 1128A(a) of such Act.
(2) PLANS SUBJECT TO EFFECTIVE STATE REG-
ULATION.—A plan described in this paragraph is a
health benefit plan—
(A) that is subject to regulation by a
State, and
(B) with respect to which the Secretary
finds that—
(i) the State provides for application
of the standards established under section
251, and
(ii) the State regulatory program pro-
vides for the appropriate and effective en-
forcement of such standards.
(d) TREATMENT OF REJECTIONS.—If a plan rejects
a claim pursuant to subsection (c)(1), the plan shall per-
mit the person submitting the claim a reasonable oppor-
tunity to resubmit the claim on a form or in an electronic
130
manner that meets the requirements for acceptance of the
claim under such subsection.
SEC. 
253. 
PERIODIC 
REVIEW 
AND 
REVISION 
OF
STANDARDS.
(a) IN GENERAL.—The Secretary shall—
(1) provide for the ongoing receipt and review
of comments and suggestions for changes in the
standards adopted and promulgated under section
251;
(2) establish a schedule for the periodic review
of such standards; and
(3) based upon such comments, suggestions,
and review, revise such standards and promulgate
such revisions.
(b) APPLICATION OF REVISED STANDARDS.—If the
Secretary under subsection (a) revises the standards de-
scribed in 251, then, in the case of any claim for benefits
submitted under a health benefit plan more than the mini-
mum period (of not less than 6 months specified by the
Secretary) after the date the revision is promulgated
under subsection (a)(3), such standards shall apply under
section 252 instead of the standards previously promul-
gated.
131
SEC. 254. HEALTH BENEFIT PLAN DEFINED.
In this subtitle, the term ‘‘health benefit plan’’ has
the meaning given such term in section 112(6) and in-
cludes—
(1) the medicare program (under title XVIII of
the Social Security Act) and medicare supplemental
health insurance, and
(2) a State medicaid plan (approved under title
XIX of such Act).
PART 2—ELECTRONIC MEDICAL DATA STANDARDS
SEC. 261. MEDICAL DATA STANDARDS FOR HOSPITALS AND
OTHER PROVIDERS.
(a) PROMULGATION
OF HOSPITAL DATA STAND-
ARDS.—
(1) IN GENERAL.—Between July 1, 1994, and
January 1, 1995, the Secretary shall promulgate
standards described in subsection (b) for hospitals
concerning electronic medical data.
(2) REVISION.—The Secretary may from time
to time revise the standards promulgated under this
subsection.
(b) CONTENTS OF DATA STANDARDS.—The stand-
ards promulgated under subsection (a) shall include at
least the following:
132
(1) A definition of a standard set of data ele-
ments for use by utilization and quality control peer
review organizations.
(2) A definition of the set of comprehensive
data elements, which set shall include for hospitals
the standard set of data elements defined under
paragraph (1).
(3) Standards for an electronic patient care in-
formation system with data obtained at the point of
care, including standards to protect against the un-
authorized use and disclosure of information.
(4) A specification of, and manner of presen-
tation of, the individual data elements of the sets
and system under this subsection.
(5) Standards concerning the transmission of
electronic medical data.
(6) Standards relating to confidentiality of pa-
tient-specific information.
The standards under this section shall be consistent with
standards for data elements established under section 251.
(c) OPTIONAL DATA STANDARDS FOR OTHER PRO-
VIDERS.—
(1) IN GENERAL.—The Secretary may promul-
gate standards described in paragraph (2) concern-
ing electronic medical data for providers that are not
133
hospitals. The Secretary may from time to time re-
vise the standards promulgated under this sub-
section.
(2) CONTENTS
OF
DATA
STANDARDS.—The
standards promulgated under paragraph (1) for non-
hospital providers may include standards comparable
to the standards described in paragraphs (2), (4),
and (5) of subsection (b) for hospitals.
(d) CONSULTATION.—In promulgating and revising
standards under this section, the Secretary shall—
(1) consult with the American National Stand-
ards Institute, hospitals, with the advisory commis-
sion established under section 265, and with other
affected providers, health benefit plans, and other
interested parties, and
(2) take into consideration, in developing stand-
ards under subsection (b)(1), the data set used by
the utilization and quality control peer review pro-
gram under part B of title XI of the Social Security
Act.
SEC. 262. APPLICATION OF ELECTRONIC DATA STANDARDS
TO CERTAIN HOSPITALS.
(a) MEDICARE REQUIREMENT
FOR SHARING
OF
HOSPITAL INFORMATION.—As of January 1, 1996, sub-
ject to paragraph (2), each hospital, as a requirement of
134
each participation agreement under section 1866 of the
Social Security Act, shall—
(1) maintain clinical data included in the set of
comprehensive 
data 
elements 
under 
section
261(b)(2) in electronic form on all inpatients,
(2) upon request of the Secretary or of a utili-
zation and quality control peer review organization
(with which the Secretary has entered into a con-
tract under part B of title XI of such Act), transmit
electronically the data set, and
(3) upon request of the Secretary, or of a fiscal
intermediary or carrier, transmit electronically any
data (with respect to a claim) from such data set,
in accordance with the standards promulgated under sec-
tion 261(a).
(b) WAIVER AUTHORITY.—Until January 1, 2000:
(1) The Secretary may waive the application of
the requirements of subsection (a) for a hospital
that is a small rural hospital, for such period as the
hospital demonstrates compliance with such require-
ments would constitute an undue financial hardship.
(2) The Secretary may waive the application of
the requirements of subsection (a) for a hospital
that is in the process of developing a system to pro-
vide the required data set and executes agreements
135
with its fiscal intermediary and its utilization and
quality control peer review organization that the hos-
pital will meet the requirements of subsection (a) by
a specified date (not later than January 1, 2000).
(3) The Secretary may waive the application of
the requirement of subsection (a)(1) for a hospital
that agrees to obtain from its records the data ele-
ments that are needed to meet the requirements of
paragraphs (2) and (3) of subsection (a) and agrees
to subject its data transfer process to a quality as-
surance program specified by the Secretary.
(c) APPLICATION TO HOSPITALS OF THE DEPART-
MENT OF VETERANS AFFAIRS.—
(1) IN GENERAL.—The Secretary of Veterans
Affairs shall provide that each hospital of the De-
partment of Veterans Affairs shall comply with the
requirements of subsection (a) in the same manner
as such requirements would apply to the hospital if
it were participating in the Medicare program.
(2) WAIVER.—Such Secretary may waive the
application of such requirements to a hospital in the
same manner as the Secretary of Health and
Human Services may waive under subsection (b) the
application of the requirements of subsection (a).
136
SEC. 263. ELECTRONIC TRANSMISSION TO FEDERAL AGEN-
CIES.
(a) IN GENERAL.—Effective January 1, 2000, if a
provider is required under a Federal program to transmit
a data element that is subject to a presentation or trans-
mission standard (as defined in subsection (b)), the head
of the Federal agency responsible for such program (if not
otherwise authorized) is authorized to require the provider
to present and transmit the data element electronically in
accordance with such a standard.
(b) PRESENTATION
OR TRANSMISSION STANDARD
DEFINED.—In subsection (a), the term ‘‘presentation or
transmission standard’’ means a standard, promulgated
under subsection (b) or (c) of section 261, described in
paragraph (4) or (5) of section 261(b).
SEC. 264. LIMITATION ON DATA REQUIREMENTS WHERE
STANDARDS IN EFFECT.
(a) IN GENERAL.—If standards with respect to data
elements are promulgated under section 261 with respect
to a class of provider, a health benefit plan may not re-
quire, for the purpose of utilization review or as a condi-
tion of providing benefits under the plan, that a provider
in the class—
(1) provide any data element not in the set of
comprehensive data elements specified under such
standards, or
137
(2) transmit or present any such data element
in a manner inconsistent with the applicable stand-
ards for such transmission or presentation.
(b) COMPLIANCE.—
(1) IN GENERAL.—The Secretary may impose a
civil money penalty on any health benefit plan (other
than a health benefit plan described in paragraph
(2)) that fails to comply with subsection (a) in an
amount not to exceed $100 for each such failure.
The provisions of section 1128A of the Social Secu-
rity Act (other than the first sentence of subsection
(a) and other than subsection (b)) shall apply to a
civil money penalty under this paragraph in the
same manner as such provisions apply to a penalty
or proceeding under section 1128A(a) of such Act.
(2) PLANS SUBJECT TO EFFECTIVE STATE REG-
ULATION.—A plan described in this paragraph is a
health benefit plan that is subject to regulation by
a State, if the Secretary finds that—
(A) the State provides for application of
the requirement of subsection (a), and
(B) the State regulatory program provides
for the appropriate and effective enforcement of
such requirement with respect to such plans.
138
SEC. 265. ADVISORY COMMISSION.
(a) IN GENERAL.—The Secretary shall establish an
advisory commission including hospital executives, hospital
data base managers, physicians, health services research-
ers, and technical experts in collection and use of data
and operation of data systems. Such commission shall in-
clude, as ex officio members, a representative of the Direc-
tor of the National Institutes of Health, the Administrator
for Health Care Policy and Research, the Secretary of
Veterans Affairs, and the Director of the Centers for Dis-
ease Control.
(b) FUNCTIONS.—The advisory commission shall
monitor and advise the Secretary concerning—
(1) the standards established under this part,
and
(2) operational concerns about the implementa-
tion of such standards under this part.
(c) STAFF.—From the amounts appropriated under
subsection (d), the Secretary shall provide sufficient staff
to assist the advisory commission in its activities under
this section.
(d) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated $2,000,000 for each of
fiscal years 1994 through 1999 to carry out this section.
139
PART 3—DEVELOPMENT AND DISTRIBUTION OF
COMPARATIVE VALUE INFORMATION
SEC. 271. STATE COMPARATIVE VALUE INFORMATION PRO-
GRAMS FOR HEALTH CARE PURCHASING.
(a) PURPOSE.—In order to assure the availability of
comparative value information to purchasers of health
care in each State, the Secretary shall determine whether
each State is developing and implementing a health care
value information program that meets the criteria and
schedule set forth in subsection (b).
(b) CRITERIA
AND SCHEDULE
FOR STATE PRO-
GRAMS.—The criteria and schedule for a State health care
value information program in this subsection shall be spec-
ified by the Secretary as follows:
(1) The State begins promptly after enactment
of this Act to develop (directly or through contrac-
tual or other arrangements with one or more States,
coalitions of health insurance purchasers, other enti-
ties, or any combination of such arrangements) in-
formation systems regarding comparative health val-
ues.
(2) The information contained in such systems
covers at least the average prices of common health
care services (as defined in subsection (d)) and
health insurance plans, and, where available, meas-
140
ures of the variability of these prices within a State
or other market areas.
(3) The information described in paragraph (2)
is made available within the State beginning not
later than one year after the date of the enactment
of this Act, and is revised as frequently as reason-
ably necessary, but at intervals of no greater than
one year.
(4) Not later than 6 years after the date of the
enactment of this Act the State has developed infor-
mation systems that provide comparative costs, qual-
ity, and outcomes data with respect to health insur-
ance plans and hospitals and made the information
broadly available within the relevant market areas.
Nothing in this section shall preclude a State from provid-
ing additional information, such as information on prices
and benefits of different health benefit plans, available.
(c) GRANTS TO STATES FOR THE DEVELOPMENT OF
STATE PROGRAMS.—
(1) GRANT
AUTHORITY.—The Secretary may
make grants to each State to enable such State to
plan the development of its health care value infor-
mation program and, if necessary, to initiate the im-
plementation of such program. Each State seeking
such a grant shall submit an application therefore,
141
containing such information as the Secretary finds
necessary to assure that the State is likely to de-
velop and implement a program in accordance with
the criteria and schedule in subsection (b).
(2) OFFSET AUTHORITY.—If, at any time with-
in the 3-year period following the receipt by a State
of a grant under this subsection, the Secretary is re-
quired by section 272 to implement a health care in-
formation program in the State, the Secretary may
recover the amount of the grant under this sub-
section by offset against any other amount payable
to the State under the Social Security Act. The
amount of the offset shall be made available (from
the appropriation account with respect to which the
offset was taken) to the Secretary to carry out such
section.
(3) AUTHORIZATION
OF
APPROPRIATIONS.—
There are authorized to be appropriated such sums
as are necessary to make grants under this sub-
section, to remain available until expended.
(d) COMMON HEALTH CARE SERVICES DEFINED.—
In this section, the term ‘‘common health care services’’
includes such procedures as the Secretary may specify and
any additional health care services which a State may wish
to include in its comparative value information program.
142
(e) STATE DEFINED.—In this subtitle, the term
‘‘State’’ includes the District of Columbia, Puerto Rico,
the Virgin Islands, Guam, and American Samoa.
SEC. 272. FEDERAL IMPLEMENTATION.
(a) IN GENERAL.—If the Secretary finds, at any
time, that a State has failed to develop or to continue to
implement a health care value information program in ac-
cordance with the criteria and schedule in section 271(b),
the Secretary shall take the actions necessary, directly or
through grants or contract, to implement a comparable
program in the State.
(b) FEES.—Fees may be charged by the Secretary
for the information materials provided pursuant to a pro-
gram under this section. Any amounts so collected shall
be deposited in the appropriation account from which the
Secretary’s costs of providing such materials were met,
and shall remain available for such purposes until ex-
pended.
SEC. 273. COMPARATIVE VALUE INFORMATION CONCERN-
ING FEDERAL PROGRAMS.
(a) DEVELOPMENT.—The head of each Federal agen-
cy with responsibility for the provision of health insurance
or of health care services to individuals shall promptly de-
velop health care value information relating to each pro-
gram that such head administers and covering the same
143
types of data that a State program meeting the criteria
of section 271(b) would provide.
(b) DISSEMINATION OF INFORMATION.—Such infor-
mation shall be made generally available to States and to
providers and consumers of health care services.
SEC. 274. DEVELOPMENT OF MODEL SYSTEMS.
(a) IN GENERAL.—The Secretary shall, directly or
through grant or contract, develop model systems to facili-
tate—
(1) the gathering of data on health care cost,
quality, and outcome described in section 271(b)(4),
and
(2) analyzing such data in a manner that will
permit the valid comparison of such data among
providers and among health plans.
(b) EXPERIMENTATION.—The Secretary shall sup-
port experimentation with different approaches to achieve
the objectives of subsection (a) in the most cost effective
manner (relative to the accuracy and timeliness of the
data secured) and shall evaluate the various methods to
determine their relative success.
(c) STANDARDS.—When the Secretary considers it
appropriate, the Secretary may establish standards for the
collection and reporting of data on health care cost, qual-
144
ity and outcomes in order to facilitate analysis and com-
parisons among States and nationally.
(e) REPORT.—By not later than 3 years after the
date of the enactment of this Act, the Secretary shall re-
port to the Congress and the States on the models devel-
oped, and experiments conducted, under this section.
(e) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated such sums as are nec-
essary for each fiscal year beginning with fiscal year 1993
to enable the Secretary to carry out this section, including
evaluation of the different approaches tested under sub-
section (b) and their relative cost effectiveness.
PART 4—ADDITIONAL STANDARDS AND REQUIREMENTS;
RESEARCH AND DEMONSTRATIONS
SEC. 281. STANDARDS RELATING TO USE OF MEDICARE
AND MEDICAID MAGNETIZED HEALTH BENE-
FIT CARDS; SECONDARY PAYOR DATA BANK.
(a) MAGNETIZED IDENTIFICATION CARDS UNDER
MEDICARE PROGRAM.—The Secretary shall adopt stand-
ards relating to the design and use of magnetized medi-
care identification cards in order to assist health care pro-
viders providing medicare covered services to individuals—
(1) in determining whether individuals are eligi-
ble for benefits under the medicare program, and
145
(2) in billing the medicare program for such
services provided to eligible individuals.
Such cards shall be designed to be compatible with ma-
chines currently employed to transmit information on
credit cards. Such cards also shall be designed to be able
to be used with respect to the provision of benefits under
medicare supplemental policies.
(b) ADOPTION UNDER MEDICAID PLANS.—
(1) IN
GENERAL.—The Secretary shall take
such steps as may be necessary to encourage and as-
sist States to design and use magnetized medicaid
identification cards that meet such standards, for
use under their medicaid plans.
(2) LIMITATION ON MMIS FUNDS.—In applying
section 1903(a)(3) of the Social Security Act, the
Secretary may determine that Federal financial par-
ticipation is not available under that section to a
State which has provided for a magnetized card sys-
tem that is inconsistent with the standards adopted
under subsection (a).
(c) MEDICARE AND MEDICAID SECONDARY PAYOR
DATA BANK.—The Secretary shall establish a medicare
and medicaid information system which is designed to pro-
vide information on those group health plans and other
health benefit plans that are primary payors to the medi-
146
care program and medicaid program under section
1862(b) or section 1905(a)(25) of the Social Security Act.
(d) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated, in equal proportions
from the Federal Hospital Insurance Trust Fund and
from the Federal Supplementary Medical Insurance Trust
Fund, a total of $25,000,000 to carry out subsections (a)
and (c), including the issuance of magnetized cards to
medicare beneficiaries.
SEC. 282. PREEMPTION OF STATE QUILL PEN LAWS.
(a) IN GENERAL.—Effective January 1, 1994, no ef-
fect shall be given to any provision of State law that re-
quires medical or health insurance records (including bill-
ing information) to be maintained in written, rather than
electronic form.
(b) SECRETARIAL AUTHORITY.—The Secretary of
Health and Human Services may issue regulations to
carry out subsection (a). Such regulations may provide for
such exceptions to subsection (a) as the Secretary deter-
mines to be necessary to prevent fraud and abuse, with
respect to controlled substances, and in such other cases
as the Secretary deems appropriate.
SEC. 283. USE OF STANDARD IDENTIFICATION NUMBERS.
(a) IN GENERAL.—Effective January 1, 1994, each
health benefit plan shall—
147
(1) for each of its beneficiaries that has a social
security account number, use that number as the
personal identifier for claims processing and related
purposes, and
(2) for each provider that has a unique identi-
fier for purposes of title XVIII of the Social Security
Act and that furnishes health care items or services
to a beneficiary under the plan, use that identifier
as the identifier of that provider for claims process-
ing and related purposes.
(b) COMPLIANCE.—
(1) IN GENERAL.—The Secretary may impose a
civil money penalty on any health benefit plan (other
than a health benefit plan described in paragraph
(2)) that fails to comply with standards established
under subsection (a) in an amount not to exceed
$100 for each such failure. The provisions of section
1128A of the Social Security Act (other than the
first sentence of subsection (a) and other than sub-
section (b)) shall apply to a civil money penalty
under this paragraph in the same manner as such
provisions apply to a penalty or proceeding under
section 1128A(a) of such Act.
(2) PLANS SUBJECT TO EFFECTIVE STATE REG-
ULATION.—A plan described in this paragraph is a
148
health benefit plan that is subject to regulation by
a State, if the Secretary finds that—
(A) the State provides for application of
the requirement of subsection (a), and
(B) the State regulatory program provides
for the appropriate and effective enforcement of
such requirement with respect to such plans.
SEC. 284. COORDINATION OF BENEFIT STANDARDS.
(a) REVIEW OF COORDINATION OF BENEFIT PROB-
LEMS.—Between July 1, 1994, and January 1, 1995, the
Secretary shall determine whether problems relating to—
(1) the rules for determining the liability of
health benefit plans when benefits are payable under
two or more such plans, or
(2) the availability of information among such
health benefit plans when benefits are so payable,
cause significant administrative costs.
(b) CONTINGENT PROMULGATION OF STANDARDS.—
(1) IN GENERAL.—If the Secretary determines
that such problems do cause significant administra-
tive costs that could be significantly reduced through
the implementation of standards, the Secretary shall
promulgate standards concerning—
149
(A) the liability of health benefit plans
when benefits are payable under two or more
such plans, and
(B) the transfer among health benefit
plans of appropriate information (which may in-
clude standards for the use of unique identifi-
ers, and for the listing of all individuals covered
under a health benefit plan) in determining li-
ability in cases when benefits are payable under
two or more such plans.
(2) EFFECTIVE DATE.—The standards promul-
gated under paragraph (1) shall become effective on
a date specified by the Secretary, which date shall
be not earlier than one year after the date of pro-
mulgation of the standards.
(c) COMPLIANCE.—
(1) IN GENERAL.—The Secretary may impose a
civil money penalty on any health benefit plan (other
than a health benefit plan described in paragraph
(2)) that fails to comply with standards promulgated
under subsection (b) in an amount not to exceed
$100 for each such failure. The provisions of section
1128A of the Social Security Act (other than the
first sentence of subsection (a) and other than sub-
section (b)) shall apply to a civil money penalty
150
under this paragraph in the same manner as such
provisions apply to a penalty or proceeding under
section 1128A(a) of such Act.
(2) PLANS SUBJECT TO EFFECTIVE STATE REG-
ULATION.—A plan described in this paragraph is a
health benefit plan that is subject to regulation by
a State, if the Secretary finds that—
(A) the State provides for application of
the standards established under subsection (b),
and
(B) the State regulatory program provides
for the appropriate and effective enforcement of
such standards with respect to such plans.
(d) REVISION OF STANDARDS.—If the Secretary es-
tablishes standards under subsection (b), the Secretary
may revise such standards from time to time and such
revised standards shall be applied under subsection (c) on
or after such date (not earlier than 6 months after the
date the revision is promulgated) as the Secretary shall
specify.
SEC. 285. RESEARCH AND DEMONSTRATIONS.
(a) DEMONSTRATIONS AND RESEARCH ON MONITOR-
ING AND IMPROVING PATIENT CARE.—
(1) The Secretary shall provide grants to quali-
fied entities to demonstrate (and conduct research
151
concerning) the application of comprehensive infor-
mation systems—
(A) in continuously monitoring patient
care, and
(B) in improving patient care.
(2) To make grants under this subsection, there
are authorized to be appropriated from the Federal
Hospital Insurance Trust Fund $10,000,000 for
each fiscal year (beginning with fiscal year 1994 and
ending with fiscal year 1998).
(b) COMMUNICATION LINKS.—
(1) The Secretary may make grants to at least
two, but not more than five, community organiza-
tions, or coalitions of health care providers, health
benefit plans, and purchasers, to establish and docu-
ment the efficacy of communication links between
the information systems of health benefit plans and
of health care providers.
(2) To make grants under this subsection, there
are authorized to be appropriated such sums as may
be necessary for fiscal year 1994, to remain avail-
able until expended.
(c) REGIONAL OR COMMUNITY BASED CLINICAL IN-
FORMATION SYSTEMS.—
152
(1) The Secretary may make grants to at least
two, but not more than five, public or private non-
profit entities for the development of regional or
community-based clinical information systems.
(2) To make grants under this subsection, there
are authorized to be appropriated such sums as may
be necessary for fiscal year 1994, to remain avail-
able until expended.
(d) AMBULATORY CARE DATA SETS.—
(1) The Secretary may make grants to public or
private non-profit entities to develop and test, for
electronic medical data generated by physicians and
other entities (other than hospitals) that provide
health care services—
(A) the definition of a comprehensive set of
data elements, and
(B) the specification of, and manner of
presentation of, the individual data elements of
the set under subparagraph (A).
(2) To make grants under this subsection, there
are authorized to be appropriated such sums as may
be necessary for fiscal year 1994, to remain avail-
able until expended.
153
Subtitle C—Medical Savings
Accounts (Medisave)
SEC. 291. MEDICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
items specifically excluded from gross income) is amended
by redesignating section 136 as section 137 and by insert-
ing after section 135 the following new section:
‘‘SEC. 136. MEDICAL SAVINGS ACCOUNTS.
‘‘(a) EXCLUSION.—Gross income of an employee
shall not include any amount contributed during the tax-
able year by the employer to a medical savings account
of such employee pursuant to a qualified medical savings
account plan.
‘‘(b) LIMITATION.—The amount contributed by an
employer which may be excluded under subsection (a) by
any employee for any taxable year shall not exceed the
excess (if any) of—
‘‘(1) the applicable limit for such taxable year
with respect to such employer, over
‘‘(2) the employer health plan contributions as
defined in subsection (e), if any, by such employer
with respect to such employee for such taxable year.
‘‘(c) APPLICABLE LIMIT.—For purposes of this sec-
tion—
154
‘‘(1) EMPLOYERS MAKING HEALTH PLAN CON-
TRIBUTIONS FOR PRIOR PERIOD.—
‘‘(A) IN GENERAL.—In the case of an em-
ployer to whom this paragraph applies, the ap-
plicable limit for any taxable year is the least
of—
‘‘(i) the adjusted base year employer
health plan contributions with respect to
the employee,
‘‘(ii) the amount equal to the 70th
percentile of the per employee health plan
expenditures (for the calendar year in
which such taxable year begins) for the
type of coverage applicable to such em-
ployee estimated by the Secretary of
Health and Human Services based on a
broad, representative survey, or
‘‘(iii) the participation adjusted con-
tribution limit (as defined in subparagraph
(E)).
‘‘(B) EMPLOYERS TO WHOM PARAGRAPH
APPLIES.—This paragraph shall apply to an
employer if—
155
‘‘(i) for a period of consecutive cal-
endar years (but not less than 3) during
each of which—
‘‘(I) the employer made employer
health plan contributions for any em-
ployee for coverage throughout the
calendar year, and
‘‘(II) no employee of the em-
ployer participated in any medical
savings account plan of the employer,
and
‘‘(ii) there has not been a period of 3
consecutive calendar years after the close
of such period during each of which the re-
quirements of both subclauses (I) and (II)
of clause (i) were not met.
‘‘(C) ADJUSTED
BASE
YEAR
EMPLOYER
HEALTH PLAN CONTRIBUTIONS.—For purposes
of subparagraph (A), the adjusted base year
employer health plan contributions with respect
to an employee are, with respect to the taxable
year, the sum of—
‘‘(i) the employer health plan con-
tributions with respect to a similarly situ-
ated employee for the base year, plus
156
‘‘(ii) the product of such amount and
the cost-of-living adjustment for the cal-
endar year in which such taxable year be-
gins, determined under section 1(f)(3) by
substituting the calendar year in which the
base year begins for the calendar year
specified in section 1(f)(3)(B) (and, in the
case of a taxable year which is not a cal-
endar year, by substituting the last day of
the 8th month of such taxable year for
‘August 31’).
‘‘(D) BASE YEAR.—For purposes of this
section, the term ‘base year’ means the last cal-
endar year of the period described in subpara-
graph (B)(i) (or, if later, the last calendar year
ending before the date of the enactment of this
section).
‘‘(E) 
PARTICIPATION
ADJUSTED
CON-
TRIBUTION LIMIT.—
‘‘(i) IN
GENERAL.—For purposes of
subparagraph (A), the participation ad-
justed contribution limit is the adjusted
base year employer health plan contribu-
tions (as defined in subparagraph (C))
multiplied by the ratio of—
157
‘‘(I) the participation rate for the
base year, to
‘‘(II) the participation rate for
the taxable year for which the deter-
mination under subsection (a) is being
made.
‘‘(ii) PARTICIPATION RATE.—For pur-
poses of clause (i), the participation rate
for a year is—
‘‘(I) the average number of em-
ployees receiving employer-provided
health plan coverage (including cov-
erage provided under a cafeteria plan,
as defined in section 125) for the
year, divided by
‘‘(II) the average total number of
employees for the year.
‘‘(2) OTHER EMPLOYERS.—In the case of an
employer to whom paragraph (1) does not apply—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the applicable limit is the
amount described in paragraph (1)(A)(ii), de-
termined by substituting ‘50th percentile’ for
‘70th percentile’.
158
‘‘(B) EMPLOYEES
OF
NEW
EMPLOYERS,
ETC. INELIGIBLE FOR 3 YEARS.—The applica-
ble limit shall be zero for any taxable year be-
fore the later of—
‘‘(i) the 4th calendar year beginning
after the date of the enactment of this sec-
tion, or
‘‘(ii) the 4th calendar year of the ear-
liest 4-year period throughout which the
employer is actively engaged in a trade or
business.
‘‘(d) 
QUALIFIED
MEDICAL
SAVINGS
ACCOUNT
PLAN.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, a qualified medical savings account plan is a
separate written plan of the employer for the exclu-
sive benefit of his employees and their beneficiaries
to provide contributions to medical savings accounts
of such employees, but only if such plan meets the
requirements of paragraphs (2) through (4).
‘‘(2) ELIGIBILITY.—
‘‘(A) IN GENERAL.—A plan meets the re-
quirements of this paragraph only if—
‘‘(i) all employees who participate in
the plan are also participants in a health
159
insurance plan maintained by the em-
ployer, and
‘‘(ii) the employer does not offer to
any employee who is eligible to participate
in a qualified medical savings account plan
any health insurance plan that does not in-
volve medical savings accounts.
‘‘(B) COLLECTIVE
BARGAINING
UNITS.—
The requirements of this paragraph shall be ap-
plied separately to—
‘‘(i) employees covered by an agree-
ment which the Secretary of Labor finds to
be a collective bargaining agreement be-
tween employee representatives and one or
more employers, and
‘‘(ii) other employees.
‘‘(3) ALTERNATIVES MUST HAVE SAME ACTUAR-
IAL
VALUE.—If an employer offers more than 1
health plan, a plan of such employer meets the re-
quirements of this paragraph only if—
‘‘(A) the value of the employer-provided
coverage (not including contributions to medical
savings accounts) under all such plans is the
same for all employees electing the same type of
coverage under such plans, and
160
‘‘(B) the value of the employer-provided
coverage (including contributions to medical
savings accounts) under all such plans is the
same for all employees electing the same type of
coverage under such plans.
‘‘(4) NOTIFICATION
OF
EMPLOYEES.—A plan
meets the requirements of this paragraph if reason-
able notification of the availability and terms of the
plan is provided to eligible employees.
‘‘(5) TREATMENT UNDER ERISA.—A qualified
medical savings account plan shall be treated as an
employee welfare benefit plan and not as an em-
ployee pension benefit plan for purposes of the Em-
ployee Retirement Income Security Act of 1974.
‘‘(e) EMPLOYER HEALTH PLAN CONTRIBUTIONS.—
For purposes of this section—
‘‘(1) BASE YEAR.—
‘‘(A) IN
GENERAL.—The term ‘employer
health plan contributions’ means, with respect
to any employee for the base year, the average
cost per covered employee of employer-provided
health plan coverage (including coverage pro-
vided under a cafeteria plan (as defined in sec-
tion 125)).
162
provided under a cafeteria plan (within the
meaning of section 125).
‘‘(3) SEPARATE
DETERMINATIONS
FOR
CAT-
EGORIES OF EMPLOYEES AND SEPARATE LINES OF
BUSINESS.—Employer health plan contributions
shall be separately determined (both for the base
year and the current taxable year) on the basis of:
‘‘(A) Types of coverage.
‘‘(B) Averages for employees described in
each of the following clauses:
‘‘(i) Reasonable classifications of em-
ployees based on normal work hours per
week.
‘‘(ii) Retired employees.
‘‘(iii) Former employees, other than
retired employees.
‘‘(iv) Employees covered by an agree-
ment which the Secretary of Labor finds to
be a collective bargaining agreement be-
tween employee representatives and one or
more employers, if there is evidence that
medical savings account benefits were the
subject of good faith bargaining between
such employee representatives and such
employer or employers. Employees de-
163
scribed in this clause shall be treated as
not described in any other clause of this
subparagraph.
‘‘(C) Employees in separate lines of busi-
ness (within the meaning of section 414(r)).
‘‘(4) PREDECESSORS.—An employer shall be
treated as making the health plan contributions
made by any predecessor of such employer (deter-
mined under rules similar to the rules applicable
under section 414(a)).
‘‘(f) OTHER DEFINITIONS.—For purposes of this sec-
tion—
‘‘(1) EMPLOYER.—The term ‘employer’ includes
persons treated as an employer under section
401(c)(4).
‘‘(2) EMPLOYEE.—The term ‘employee’ in-
cludes—
‘‘(A) an individual who is an employee
within the meaning of section 401(c)(1), and
‘‘(B) former employees.
‘‘(3) TYPE OF COVERAGE.—The types of cov-
erage are—
‘‘(A) self-only coverage, and
‘‘(B) coverage other than self-only cov-
erage.
164
‘‘(4) HEALTH
INSURANCE
PLAN.—The term
‘health insurance plan’ means any contract or ar-
rangement under which an insurer bears all or part
of the cost or risk of providing health care items and
services, including a hospital or medical expense in-
curred policy or certificate, hospital or medical serv-
ice plan contract, or health maintenance subscriber
contract (including any self-insured health insurance
plan), but does not include—
‘‘(A) coverage only for accident, dental, vi-
sion, disability, or long term care, medicare
supplemental health insurance, or any combina-
tion thereof,
‘‘(B) coverage issued as a supplement to li-
ability insurance,
‘‘(C) workers’ compensation or similar in-
surance, or
‘‘(D) automobile medical-payment insur-
ance.
‘‘(g) DEFINITIONS AND SPECIAL RULES RELATING
TO MEDICAL SAVINGS ACCOUNTS.—For purposes of this
section—
‘‘(1) MEDICAL SAVINGS ACCOUNT.—The term
‘medical savings account’ means a trust created or
organized in the United States exclusively for the
165
purpose of paying the medical expenses (as defined
in paragraph (2)) with respect to the individual for
whose benefit the trust is established, but only if the
written governing instrument creating the trust
meets the following requirements:
‘‘(A) Except in the case of a rollover con-
tribution described in subsection (h)(5), no con-
tribution will be accepted unless it is in cash
and unless it is made by an employer of such
individual pursuant to a qualified medical sav-
ings account plan of such employer.
‘‘(B) The trustee is a bank (as defined in
section 408(n)) or another person who dem-
onstrates to the satisfaction of the Secretary
that the manner in which such person will ad-
minister the trust will be consistent with the re-
quirements 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
common trust fund or common investment
fund.
‘‘(E) The interest of an individual in the
balance in his account is nonforfeitable.
166
‘‘(2) MEDICAL EXPENSES.—The term ‘medical
expenses’ means, with respect to an individual,
amounts paid or incurred by the individual for
whose benefit the account was established for medi-
cal care (as defined in section 213), or long-term
care (as defined in paragraph (3)), of such individ-
ual, the spouse of such individual, and any depend-
ent (as defined in section 152) of such individual,
but only to the extent such amounts are not com-
pensated for by insurance or otherwise.
‘‘(3) LONG-TERM CARE.—
‘‘(A) IN GENERAL.—The term ‘long-term
care’ means diagnostic, preventive, therapeutic,
rehabilitative, maintenance, or personal care
services which are required by, and provided to,
a chronically ill individual, which have as their
primary purpose the direct provision of needed
assistance with 1 or more activities of daily liv-
ing (or the alleviation of the conditions neces-
sitating such assistance) that the individual is
certified under subparagraph (B) as being un-
able to perform, and which are provided in a
setting other than an acute care unit of a hos-
pital pursuant to a continuing plan of care pre-
scribed by a physician or registered professional
167
nurse. Such term does not include food or lodg-
ing provided in an institutional or other setting,
or basic living services associated with the
maintenance of a household or participation in
community life, such as case management,
transportation or legal services, or the perform-
ance of home maintenance or household chores.
‘‘(B) CHRONICALLY ILL INDIVIDUAL.—The
term ‘chronically ill individual’ means an indi-
vidual who is certified by a physician or reg-
istered professional nurse as being unable to
perform at least 3 activities of daily living with-
out substantial assistance from another individ-
ual. For purposes of this paragraph, the term
‘activities of daily living’ means bathing, dress-
ing, eating, toileting, transferring, and walking.
‘‘(4) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—A contribution shall be deemed to be made
on the last day of the preceding taxable year if the
contribution is made on account of such taxable year
and is made not later than the time prescribed by
law for filing the return for such taxable year (not
including extensions thereof).
‘‘(h) TAX TREATMENT OF DISTRIBUTIONS.—
169
Any net income described in subparagraph (B) shall
be included in the gross income of the individual for
the taxable year in which it is received.
‘‘(3) PENALTY FOR DISTRIBUTIONS NOT USED
FOR MEDICAL EXPENSES.—The tax imposed by this
chapter for any taxable year in which there is a pay-
ment or distribution from a medical savings account
which is not used to pay the medical expenses with
respect to the individual for whose benefit the ac-
count was established shall be increased by 10 per-
cent of the amount of such payment or distribution
which is includible in gross income under paragraph
(1).
‘‘(4) ORDERING RULE.—
‘‘(A) DISTRIBUTIONS
FOR
MEDICAL
EX-
PENSES.—Any payment or distribution from a
medical savings account which is used exclu-
sively to pay the medical expenses with respect
to the individual for whose benefit such account
was established shall be treated as first attrib-
utable to untaxed amounts and then to pre-
viously taxed amounts.
‘‘(B) DISTRIBUTIONS
NOT
FOR
MEDICAL
EXPENSES.—Any payment or distribution from
a medical savings account which is not used ex-
170
clusively to pay the medical expenses with re-
spect to the individual for whose benefit such
account was established shall be treated as first
attributable to previously taxed amounts and
then to untaxed amounts.
‘‘(C) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) 
the 
term 
‘previously 
taxed
amount’ means any amount which is or
was includible under subsection (i) in the
gross income of the individual for whose
benefit such account was established, and
‘‘(ii) the term ‘untaxed amount’
means any amount which is not a pre-
viously taxed amount.
‘‘(5) ROLLOVERS.—Paragraph (1) shall not
apply to any amount paid or distributed out of a
medical savings account to the individual for whose
benefit the account is maintained if the entire
amount received (including money and any other
property) is paid into another medical savings ac-
count for the benefit of such individual not later
than the 60th day after the day on which he received
the payment or distribution.
‘‘(i) TAX TREATMENT OF ACCOUNTS.—
171
‘‘(1) ACCOUNT TAXED AS GRANTOR TRUST.—
The individual for whose benefit a medical savings
account is established shall be treated for purposes
of this title as the owner thereof and shall be subject
to tax thereon in accordance with subpart E of part
I of subchapter J of this chapter (relating to
grantors and others treated as substantial owners).
‘‘(2) ACCOUNT TERMINATES IF INDIVIDUAL EN-
GAGES IN PROHIBITED TRANSACTION.—
‘‘(A) IN GENERAL.—If, during any taxable
year of the individual for whose benefit the
medical savings account was established, such
individual engages in any transaction prohibited
by section 4975 with respect to the account, the
account ceases to be a medical savings account
as of the first day of that taxable year.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be a medical savings account by
reason of subparagraph (A) on the first day of
any taxable year, paragraph (1) of subsection
(h) shall be applied as if there were a distribu-
tion on such first day in an amount equal to
the fair market value (on such first day) of all
assets in the account (on such first day) and no
172
portion of such distribution were used to pay
medical expenses.
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, the individual for
whose benefit a medical savings account was estab-
lished uses the account or any portion thereof as se-
curity for a loan, the portion so used is treated as
distributed to that individual and not used to pay
medical expenses.
‘‘(j) CUSTODIAL ACCOUNTS.—For purposes of this
section, a custodial account shall be treated as a trust if—
‘‘(1) the assets of such account are held by a
bank (as defined in section 408(n)) or another per-
son who demonstrates to the satisfaction of the Sec-
retary that the manner in which he will administer
the account will be consistent with the requirements
of this section, and
‘‘(2) the custodial account would, except for the
fact that it is not a trust, constitute a medical sav-
ings account described in subsection (g).
For purposes of this title, in the case of a custodial ac-
count treated as a trust by reason of the preceding sen-
tence, the custodian of such account shall be treated as
the trustee thereof.
173
‘‘(k) REPORTS.—The trustee of a medical savings ac-
count shall make such reports regarding such account to
the Secretary and to the individual for whose benefit the
account is maintained with respect to contributions, dis-
tributions, and such other matters as the Secretary may
require under regulations. The reports required by this
subsection shall be filed at such time and in such manner
and furnished to such individuals at such time and in such
manner as may be required by those regulations.’’
(b) EXCLUSION APPLIES
FOR EMPLOYMENT TAX
PURPOSES.—
(1) SOCIAL SECURITY TAXES.—
(A) Paragraph (20) of section 3121(a) of
such Code is amended by striking ‘‘or 132’’ and
inserting ‘‘132, or 136’’.
(B) Paragraph (17) of section 209(a) of
the Social Security Act is amended by striking
‘‘or 132’’ and inserting ‘‘132, or 136’’.
(2) RAILROAD RETIREMENT TAX.—Paragraph
(5) of section 3231(e) of such Code is amended by
striking ‘‘or 132’’ and inserting ‘‘132, or 136’’.
(3) UNEMPLOYMENT TAX.—Paragraph (16) of
section 3306(b) of such Code is amended by striking
‘‘or 132’’ and inserting ‘‘132, or 136’’.
174
(4) WITHHOLDING
TAX.—Paragraph (19) of
section 3401(a) of such Code is amended by striking
‘‘or 132’’ and inserting ‘‘, 132, or 136’’.
(c) TAX ON EXCESS CONTRIBUTIONS.—Section 4973
of such Code (relating to tax on excess contributions to
individual retirement accounts, certain section 403(b) con-
tracts, and certain individual retirement annuities) is
amended—
(1) by inserting ‘‘MEDICAL
SAVINGS
AC-
COUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading of
such section,
(2) by redesignating paragraph (2) of sub-
section (a) as paragraph (3) and by inserting after
paragraph (1) the following:
‘‘(2) a medical savings account (within the
meaning of section 136(g)),’’,
(3) by striking ‘‘or’’ at the end of paragraph
(1) of subsection (a), and
(4) by adding at the end thereof the following
new subsection:
‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS
ACCOUNTS.—For purposes of this section, in the case of
a medical savings account (within the meaning of section
136(g)), the term ‘excess contributions’ means the amount
by which the amount contributed for the taxable year to
175
the account exceeds the amount excludable from gross in-
come under section 136 for such taxable year. For pur-
poses of this subsection, any contribution which is distrib-
uted out of the medical savings account in a distribution
to which section 136(h)(2) applies shall be treated as an
amount not contributed.’’
(d) TAX ON PROHIBITED TRANSACTIONS.—Section
4975 of such Code (relating to prohibited transactions)
is amended—
(1) by adding at the end of subsection (c) the
following new paragraph:
‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC-
COUNTS.—An individual for whose benefit a medical
savings account (within the meaning of section
136(g)) is established shall be exempt from the tax
imposed by this section with respect to any trans-
action concerning such account (which would other-
wise be taxable under this section) if, with respect
to such transaction, the account ceases to be a medi-
cal savings account by reason of the application of
section 136(h)(2)(A) to such account.’’, and
(2) by inserting ‘‘or a medical savings account
described in section 136(g)’’ in subsection (e)(1)
after ‘‘described in section 408(a)’’.
176
(e) FAILURE TO PROVIDE REPORTS ON MEDICAL
SAVINGS ACCOUNTS.—Section 6693 of such Code (relat-
ing to failure to provide reports on individual retirement
account or annuities) is amended—
(1) by inserting ‘‘OR ON MEDICAL SAVINGS
ACCOUNTS’’ after ‘‘ANNUITIES’’ in the heading of
such section, and
(2) by adding at the end of subsection (a) the
following: ‘‘The person required by section 136(k) to
file a report regarding a medical savings account at
the time and in the manner required by such section
shall pay a penalty of $50 for each failure unless it
is shown that such failure is due to reasonable
cause.’’
(f) MEDICAL SAVINGS ACCOUNTS NOT TREATED AS
WELFARE BENEFIT FUNDS.—Paragraph (3)(B) of sec-
tion 419(e) of such Code (defining a fund) is amended
by inserting ‘‘other than a medical savings account within
the meaning of section 136’’ after ‘‘this chapter’’.
(g) 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. 136. Medical savings accounts.
‘‘Sec. 137. Cross references to other Acts.’’
177
(2) The table of sections for chapter 43 of such
Code is amended by striking the item relating to sec-
tion 4973 and inserting the following:
‘‘Sec. 4973. Tax on excess contributions to individual retirement
accounts, medical savings accounts, certain 403(b)
contracts, and certain individual retirement annu-
ities.’’
(3) The table of sections for subchapter B of
chapter 68 of such Code is amended by inserting ‘‘or
on medical savings accounts’’ after ‘‘annuities’’ in
the item relating to section 6693.
(h) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
Subtitle D—Medicaid Program
Flexibility
SEC. 301. MODIFICATION OF FEDERAL REQUIREMENTS TO
ALLOW STATES MORE FLEXIBILITY IN CON-
TRACTING FOR COORDINATED CARE SERV-
ICES UNDER MEDICAID.
(a) IN GENERAL.—Section 1903(m) of the Social Se-
curity Act (42 U.S.C. 1396b(m)) is amended—
(1) by striking all that precedes paragraph (4)
and inserting the following:
‘‘(m) COORDINATED CARE.—
‘‘(1) PAYMENT
CONDITIONED
ON
COMPLI-
ANCE.—
178
‘‘(A) GENERAL RULE.—No payment shall
be made under this title to a State with respect
to expenditures incurred by it for payment to a
risk contracting entity or primary care case
management entity (as defined in subparagraph
(B)), or with respect to an undertaking de-
scribed in paragraph (6), unless the State and
the entity or undertaking meet the applicable
requirements of this subsection. For purposes
of determining whether payment may be made
under this section, the Secretary may reject a
State’s determination of compliance with any
provision of this subsection.
‘‘(B) GENERAL
DEFINITIONS.—For pur-
poses of this title—
‘‘(i) RISK
CONTRACTING
ENTITY.—
The term ‘risk contracting entity’ means
an entity that has a contract with the
State agency under which the entity—
‘‘(I) provides or arranges for the
provision of health care items or serv-
ices to individuals eligible for medical
assistance under the State plan under
this title, and
179
‘‘(II) is at risk (as defined in
clause (iv)) for part or all of the cost
of such items or services furnished to
such individuals.
‘‘(ii) PRIMARY
CARE
CASE
MANAGE-
MENT PROGRAM.—The term ‘primary care
case management program’ means a State
program under which individuals eligible
for medical assistance under the State plan
under this title are enrolled with primary
care case management entities, and are en-
titled to receive specified health care items
and services covered under such plan only
as arranged for and approved by such enti-
ties.
‘‘(iii) AT RISK.—An entity is ‘at risk’,
for purposes of this subparagraph, if it has
a contract with the State agency under
which it is paid a fixed amount for provid-
ing or arranging for the provision of speci-
fied health care items or services to an in-
dividual eligible for medical assistance and
enrolled with the entity, regardless of
whether such items or services are fur-
nished to such individual, and is liable for
180
all or part of the cost of furnishing such
items or services, regardless of whether or
the extent to which such cost exceeds such
fixed payment.
‘‘(iv) PRIMARY CARE CASE MANAGE-
MENT
ENTITY.—The term ‘primary care
case management entity’ means a health
care provider (whether an individual or an
entity) that, under a State primary care
case management program meeting the re-
quirements of paragraph (7), has a con-
tract with the State agency under which
the entity arranges for or authorizes the
provision of health care items and services
to individuals eligible for medical assist-
ance under the State plan under this title,
but is not at risk (as defined in clause (iv))
for the cost of such items or services pro-
vided to such individuals.
‘‘(2) GENERAL REQUIREMENTS FOR RISK CON-
TRACTING ENTITIES.—
‘‘(A) FEDERAL
OR
STATE
QUALIFICA-
TION.—Subject to paragraph (3), a risk con-
tracting entity meets the requirements of this
subsection only if it either—
181
‘‘(i) is a qualified health maintenance
organization as defined in section 1310(d)
of the Public Health Service Act, as deter-
mined by the Secretary pursuant to section
1312 of that Act, or
‘‘(ii) is an entity which the State
agency has determined—
‘‘(I) affords, to individuals eligi-
ble for medical assistance under the
State plan and enrolled with the en-
tity, access to health care items and
services furnished by the entity, with-
in the area served by the entity, at
least equivalent to the access such in-
dividuals would have to such health
care items and services in such area if
not enrolled with the entity, and
‘‘(II) has made adequate provi-
sion against the risk of insolvency,
and assures that individuals eligible
for medical assistance under this title
are not held liable for the entity’s
debts in case of the entity’s insol-
vency.
182
‘‘(B) INTERNAL
QUALITY
ASSURANCE.—
Subject to paragraph (3), a risk contracting en-
tity meets the requirements of this subsection
only if it has in effect an internal quality assur-
ance program that meets the requirements of
paragraph (9).
‘‘(C) CONTRACT WITH STATE AGENCY.—
Subject to paragraph (3), a risk contracting en-
tity meets the requirements of this subsection
only if the entity has a written contract with
the State agency that provides—
‘‘(i) that the entity will comply with
all applicable provisions of this subsection;
‘‘(ii) for a payment methodology based
on experience rating or another actuarially
sound methodology approved by the Sec-
retary, which guarantees (as demonstrated
by such models or formulas as the Sec-
retary may approve) that payments to the
entity under the contract shall not exceed
100 percent of expenditures that would
have been made by the State agency in the
absence of the contract;
‘‘(iii) that the Secretary and the State
(or any person or organization designated
183
by either) shall have the right to audit and
inspect any books and records of the entity
(and of any subcontractor) that pertain—
‘‘(I) to the ability of the entity to
bear the risk of potential financial
losses, or
‘‘(II) to services performed or de-
terminations 
of 
amounts 
payable
under the contract;
‘‘(iv) that in the entity’s enrollment,
reenrollment, or disenrollment of individ-
uals eligible for medical assistance under
this title and eligible to enroll, reenroll, or
disenroll with the entity pursuant to the
contract, the entity will not discriminate
among such individuals on the basis of
their health status or requirements for
health care services;
‘‘(v)(I) that individuals eligible for
medical assistance under the State plan
who have enrolled with the entity are per-
mitted to terminate such enrollment with-
out cause as of the beginning of the first
calendar month following a full calendar
month after the request is made for such
184
termination (or at such times as required
pursuant to paragraph (8)), and
‘‘(II) for notification of each such in-
dividual, at the time of the individual’s en-
rollment, of the right to terminate enroll-
ment;
‘‘(vi) for reimbursement, either by the
entity or by the State agency, for medically
necessary services provided—
‘‘(I) to an individual eligible for
medical assistance under the State
plan and enrolled with the entity, and
‘‘(II) other than through the en-
tity because the services were imme-
diately required due to an unforeseen
illness, injury, or condition;
‘‘(vii) for disclosure of information in
accordance with paragraph (4) and section
1124;
‘‘(viii) in the case of an entity that
has entered into a contract with a Feder-
ally-qualified health center for the provi-
sion of services of such center—
‘‘(I) that rates of prepayment
from the State are adjusted to reflect
185
fully the rates of payment specified in
section 1902(a)(13)(E), and
‘‘(II) that, at the election of such
center, payments made by the entity
to such center for services described
in section 1905(a)(2)(C) are made at
the rates of payment specified in sec-
tion 1902(a)(13)(E);
‘‘(ix) that any physician incentive plan
that the entity operates meets the require-
ments of section 1876(i)(8);
‘‘(x) for maintenance of sufficient pa-
tient encounter data to identify the physi-
cian who delivers services to patients; and
‘‘(xi) that the entity complies with the
requirement of section 1902(w) with re-
spect to each enrollee.
‘‘(3) EXCEPTIONS TO REQUIREMENTS FOR RISK
CONTRACTING
ENTITIES.—The 
requirements 
of
paragraph (2) (other than subparagraph (C)(viii))
do not apply to an entity that—
‘‘(A)(i) received a grant of at least
$100,000 in the fiscal year ending June 30,
1976, under section 329(d)(1)(A) or 330(d)(1)
of the Public Health Service Act, and for the
186
period beginning July 1, 1976, and ending on
the expiration of the period for which payments
are to be made under this title, has been the re-
cipient of a grant under either such section;
and
‘‘(ii) provides to its enrollees, on a prepaid
capitation or other risk basis, all of the services
described in paragraphs (1), (2), (3), (4)(C),
and (5) of section 1905(a) and, to the extent
required by section 1902(a)(10)(D) to be pro-
vided under the State plan, the services de-
scribed in section 1905(a)(7);
‘‘(B) is a nonprofit primary health care en-
tity located in a rural area (as defined by the
Appalachian Regional Commission)—
‘‘(i) which received in the fiscal year
ending June 30, 1976, at least $100,000
(by grant, subgrant, or subcontract) under
the Appalachian Regional Development Act
of 1965), and
‘‘(ii) for the period beginning July 1,
1976, and ending on the expiration of the
period for which payments are to be made
under this title either has been the recipi-
ent of a grant, subgrant, or subcontract
187
under such Act or has provided services
under a contract (initially entered into dur-
ing a year in which the entity was the re-
cipient of such a grant, subgrant, or sub-
contract) with a State agency under this
title on a prepaid capitation or other risk
basis; or
‘‘(C) which has contracted with the State
agency for the provision of services (but not in-
cluding inpatient hospital services) to persons
eligible for medical assistance under this title
on a prepaid risk basis prior to 1970.’’; and
(2) by adding after paragraph (6) the following
new paragraphs:
‘‘(7) GENERAL REQUIREMENTS FOR PRIMARY
CARE CASE MANAGEMENT.—A State that elects in
its State plan under this title to implement a pri-
mary care case management program under this
subsection shall include in the plan methods for the
selection and monitoring of participating primary
care case management entities to ensure that—
‘‘(A) the numbers, geographic locations,
hours of operation, and other relevant charac-
teristics of such entities are sufficient to afford
individuals eligible for medical assistance rea-
188
sonable access to and choice among such enti-
ties;
‘‘(B) such entities and their professional
personnel are qualified to provide health care
case management services, through methods in-
cluding ongoing monitoring of compliance with
applicable requirements for licensing of health
care providers, providing training and certifi-
cation of primary care case managers, and pro-
viding information and technical assistance; and
‘‘(C) such entities are making timely and
appropriate decisions with respect to enrollees’
need for health care items and services, and are
giving timely approval and referral to providers
of adequate quality where such items and serv-
ices are determined to be medically necessary.
‘‘(8) STATE OPTIONS WITH RESPECT TO EN-
ROLLMENT AND DISENROLLMENT.—
‘‘(A) 
MANDATORY
ENROLLMENT
OP-
TION.—A State plan may require an individual
eligible for medical assistance under the State
plan (other than a medicare qualified bene-
ficiary) to enroll with a risk contracting entity
or primary care case management entity, with-
out regard to the requirement of section
189
1902(a)(1) (concerning Statewideness), the re-
quirements of section 1902(a)(10)(B) (concern-
ing comparability of benefits), or the require-
ments of section 1902(a)(23) (concerning free-
dom of choice of provider), if the individual is
permitted a choice—
‘‘(i) between or among two or more
risk contracting entities,
‘‘(ii) between a risk contracting entity
and a primary care case management en-
tity, or
‘‘(iii) between or among two or more
primary care case management entities.
‘‘(B)(i) 
RESTRICTIONS
ON
DISENROLLMENT
WITHOUT
CAUSE.—A State
plan may restrict the period in which individ-
uals enrolled with a qualifying risk contracting
entity (as defined in clause (ii)) may terminate
such enrollment without cause to the first
month of each period of enrollment (as defined
in clause (iii)), but only if the State provides
notification, at least once during each such en-
rollment period, to individuals enrolled with
such entity of the right to terminate such en-
rollment and the restriction on the exercise of
190
this right. Such restriction shall not apply to
requests for termination of enrollment for
cause.
‘‘(ii) For purposes of this subparagraph,
the term ‘qualifying risk contracting entity’
means a risk contracting entity that is—
‘‘(I) a qualified health maintenance
organization as defined in section 1310(d)
of the Public Health Service Act;
‘‘(II) an eligible organization with a
contract under section 1876;
‘‘(III) an entity that is receiving (and
has received during the previous 2 years)
a grant of at least $100,000 under section
329(d)(1)(A) or 330(d)(1) of the Public
Health Service Act;
‘‘(IV) an entity that is receiving (and
has received during the previous 2 years)
at least $100,000 (by grant, subgrant, or
subcontract) under the Appalachian Re-
gional Development Act of 1965;
‘‘(V) a program pursuant to an under-
taking described in paragraph (6) in which
at least 25 percent of the membership en-
rolled on a prepaid basis are individuals
191
who (I) are not insured for benefits under
part B of title XVIII or eligible for medical
assistance under this title, and (II) (in the
case of such individuals whose prepay-
ments are made in whole or in part by any
government entity) had the opportunity at
the time of enrollment in the program to
elect other coverage of health care costs
that would have been paid in whole or in
part by any governmental entity; or
‘‘(VI) an entity that, on the date of
enactment of this provision, had a contract
with the State agency under a waiver
under section 1115 or 1915(b) and was
not subject to a requirement under this
subsection to permit disenrollment without
cause.
‘‘(iii) For purposes of this subparagraph,
the term ‘period of enrollment’ means—
‘‘(I) a period not to exceed 6 months
in duration, or
‘‘(II) a period not to exceed one year
in duration, in the case of a State that, on
the effective date of this subparagraph,
had in effect a waiver under section 1115
192
of requirements under this title under
which the State could establish a 1-year
minimum period of enrollment with risk
contracting entities.
‘‘(C) REENROLLMENT
OF
INDIVIDUALS
WHO REGAIN ELIGIBILITY.—In the case of an
individual who—
‘‘(i) in a month is eligible for medical
assistance under the State plan and en-
rolled with a risk contracting entity with a
contract under this subsection,
‘‘(ii) in the next month (or next 2
months) is not eligible for such medical as-
sistance, but
‘‘(iii) in the succeeding month is again
eligible for such benefits,
the State plan may enroll the individual for
that succeeding month with such entity, if the
entity continues to have a contract with the
State agency under this subsection.
‘‘(9) REQUIREMENTS FOR INTERNAL QUALITY
ASSURANCE PROGRAMS.—The requirements for an
internal quality assurance program of a risk con-
tracting entity are that program is written and the
program—
193
‘‘(A) specifies a systematic process includ-
ing ongoing monitoring, corrective action, and
other appropriate activities to achieve specified
and measurable goals and objectives for quality
of care, and including annual evaluation of the
program;
‘‘(B) identifies the organizational units re-
sponsible for performing specific quality assur-
ance functions, and ensure that they are ac-
countable to the governing body of the entity
and that they have adequate supervision, staff,
and other necessary resources to perform these
functions effectively;
‘‘(C) if any quality assistance functions are
delegated to other entities, ensures that the risk
contracting entity remains accountable for all
quality assurance functions, and has mecha-
nisms to ensure that all quality assurance ac-
tivities are carried out;
‘‘(D) includes methods to ensure that phy-
sicians and other health care professionals
under contract with the entity are qualified to
perform the services they provide, and that
these qualifications are ensured through appro-
194
priate credentialing and recredentialing proce-
dures;
‘‘(E) includes policies addressing enrollee
rights and responsibilities, including grievance
mechanisms and mechanisms to inform enroll-
ees about access to and use of services provided
by the entity;
‘‘(F) provides for continuous monitoring of
the delivery of health care, including—
‘‘(i) identification of clinical areas to
be monitored,
‘‘(ii) use of quality indicators and
standards for assessing care delivered, in-
cluding availability and accessibility of
care,
‘‘(iii) monitoring, through use of epi-
demiological data or chart review, the care
of individuals, as appropriate, and patterns
of care overall, and
‘‘(iv) implementation of corrective ac-
tions; and
‘‘(G) meets any other requirements pre-
scribed by the Secretary after consultation with
States.
195
‘‘(10) INDEPENDENT REVIEW AND QUALITY AS-
SURANCE.—
‘‘(A) STATE GRIEVANCE PROCEDURE.—A
State contracting with a risk contracting entity
or primary care case management entity under
this subsection shall provide for a grievance
procedure for enrollees of such entity with at
least the following elements:
‘‘(i) A toll-free telephone number for
enrollee questions and grievances.
‘‘(ii) A State-operated enrollee griev-
ance procedure.
‘‘(iii) Periodic notification of enrollees
of their rights with respect to such entity
or program.
‘‘(iv) Periodic sample reviews of griev-
ances registered with such entity or pro-
gram or with the State.
‘‘(v) Periodic survey and analysis of
enrollee satisfaction with such entity or
program.
‘‘(B) STATE
MONITORING
OF
RISK
CON-
TRACTING ENTITIES’ QUALITY ASSURANCE PRO-
GRAMS.—A State contracting with a risk con-
tracting entity under this subsection shall peri-
196
odically review such entity’s quality assurance
program to ensure that it meets the require-
ments of paragraph (9).
‘‘(C) EXTERNAL
INDEPENDENT
REVIEW
OF INTERNAL QUALITY ASSURANCE.—A State
contracting with a risk contracting entity under
this subsection shall provide for annual external
independent review (by a utilization control and
peer review organization with a contract under
section 1153, or another organization unaffili-
ated with the State government approved by the
Secretary) of such entity’s internal quality as-
surance activities. Such independent review
shall include—
‘‘(i) review of the entity’s medical
care, through sampling of medical records
or other appropriate methods, for indica-
tions of inappropriate utilization and treat-
ment,
‘‘(ii) review of enrollee inpatient and
ambulatory data, through sampling of
medical records or other appropriate meth-
ods, to determine quality trends,
‘‘(iii) review of the entity’s internal
quality assurance activities, and
197
‘‘(iv) notification of the entity and the
State, and appropriate followup activities,
when the review under this subparagraph
indicates inappropriate care or treat-
ment.’’.
(b) STATE OPTION TO GUARANTEE MEDICAID ELIGI-
BILITY.—Section 1902(e)(2) of such Act (42 U.S.C.
1396a(e)(2)) is amended—
(A) in subparagraph (A), by striking all
that precedes ‘‘(but for this paragraph)’’ and
inserting ‘‘In the case of an individual who is
enrolled—
‘‘(i) with a risk contracting entity (as
defined in section 1903(m)(1)(B)(i)) re-
sponsible for the provision of inpatient hos-
pital services and any other service de-
scribed in paragraphs (2), (3), (4), (5),
and (7) of section 1905(a),
‘‘(ii) with any risk contracting entity
(as so defined) in a State that, on the ef-
fective date of this provision, had in effect
a waiver under section 1115 of require-
ments under this title under which the
State could extend eligibility for medical
assistance for enrollees of such entity, or
198
‘‘(iii) with an eligible organization
with a contract under section 1876 and
who would’’, and
(B) in subparagraph (B), by striking ‘‘or-
ganization or’’ each place it appears.
(c) CONFORMING AMENDMENTS.—
(1) Section 1128(b)(6)(C)(i) of such Act (42
U.S.C. 1320a–7(b)(6)(C)(i)) is amended by striking
‘‘health maintenance organization’’ and inserting
‘‘risk contracting entity’’.
(2) Section 1902(a)(30)(C) of such Act (42
U.S.C. 1396a(a)(30)(C)) is amended by striking all
that precedes ‘‘with the results’’ and inserting ‘‘pro-
vide for independent review and quality assurance of
entities with contracts under section 1903(m), in ac-
cordance with paragraph (10) of such section,’’.
(3) Section 1902(a)(57) of such Act (42 U.S.C.
1396a(a)(57)) is amended by striking ‘‘or health
maintenance organization’’ and inserting ‘‘or risk
contracting entity’’.
(4) Section 1902(a) of such Act (42 U.S.C.
1396a(a)) is amended—
(A) by striking ‘‘and’’ at the end of para-
graph (54);
199
(B) in the paragraph (55) inserted by sec-
tion 4602(a)(3) of Public Law 101–508, by
striking the period at the end and inserting a
semicolon;
(C) by redesignating the paragraph (55)
inserted by section 4604(b)(3) of Public Law
101–508 as paragraph (56), by transferring
and inserting it after the paragraph (55) in-
serted by section 4602(a)(3) of such Act, and
by striking the period at the end and inserting
a semicolon;
(D) by placing paragraphs (57) and (58),
inserted by section 4751(a)(1)(C) of Public
Law 101–508, immediately after paragraph
(56), as redesignated by paragraph (3);
(E) in the paragraph (58) inserted by sec-
tion 4751(a)(1)(C) of Public Law 101–508, by
striking the period at the end and inserting a
semicolon;
(F) by redesignating the paragraph (58)
inserted by section 4752(c)(1)(C) of Public Law
101–508 as paragraph (59), by transferring
and inserting it after the paragraph (58) in-
serted by section 4751(a)(1)(C) of such Act,
200
and by striking the period at the end and in-
serting ‘‘; and’’; and
(G) by inserting after such paragraph (59)
the following new paragraph:
‘‘(60) at State option, provide for a primary
care case management program in accordance with
section 1903(m)(7).’’.
(5) Section 1902(p)(2) of such Act (42 U.S.C.
1396a(p)(2)) is amended by striking ‘‘health mainte-
nance organization’’ and inserting ‘‘risk contracting
entity’’.
(6) Section 1902(w) of such Act (42 U.S.C.
1396a(w)) is amended—
(A) in paragraph (1), by striking ‘‘section
1903(m)(1)(A)’’ 
and 
inserting 
‘‘section
1903(m)(2)(C)(xi)’’, and
(B) in paragraph (2)(E), by striking
‘‘health maintenance organization’’ and ‘‘the or-
ganization’’ and inserting ‘‘risk contracting en-
tity’’ and ‘‘the entity’’, respectively.
(7) Section 1903(k) of such Act (42 U.S.C.
1396b(k)) is amended by striking ‘‘health mainte-
nance organization’’ and inserting ‘‘risk contracting
entity’’.
201
(8) Section 1903(m)(4)(A) of such Act (42
U.S.C. 1396b(m)(4)(A)) is amended—
(A) in the first sentence, by striking ‘‘Each
health maintenance organization’’ and inserting
‘‘Each risk contracting entity’’,
(B) in the first sentence, by striking ‘‘the
organization’’ each place it appears and insert-
ing ‘‘the entity’’, and
(C) in the second sentence, by striking ‘‘an
organization’’ and ‘‘the organization’’ and in-
serting ‘‘a risk contracting entity’’ and ‘‘the
risk contracting entity’’, respectively.
(9) Section 1903(m)(4)(B) of such Act (42
U.S.C. 1396b(m)(4)(B)) is amended by striking ‘‘or-
ganization’’ and inserting ‘‘risk contracting entity’’.
(10) Section 1903(m)(5) of such Act (42
U.S.C. 1396b(m)(5)) is amended in paragraphs
(A)(iii) and (B)(ii) by striking ‘‘organization’’ and
inserting ‘‘entity’’.
(11) Section 1903(w)(7)(A)(viii) of such Act
(42 U.S.C. 1396b(w)(7)(A)(viii)) is amended by
striking ‘‘health maintenance organizations (and
other organizations with contracts under section
1903(m))’’ and inserting ‘‘risk contracting entities
with contracts under section 1903(m)’’.
202
(12) Section 1905(a) of such Act (42 U.S.C.
1396d(a)) is amended, in the matter preceding
clause (i), by inserting ‘‘(which may be on a prepaid
capitation or other risk basis)’’ after ‘‘payment’’ the
first place it appears.
(13) Section 1916(b)(2)(D) of such Act (42
U.S.C. 1396o(b)(2)(D)) is amended by striking
‘‘health maintenance organization’’ and inserting
‘‘risk contracting entity’’.
(14) Section 1925(b)(4)(D)(iv) of such Act (42
U.S.C. 1396r–6(b)(4)(D)(iv)) is amended—
(A) in the heading, by striking ‘‘HMO’’ and
inserting ‘‘RISK CONTRACTING ENTITY’’,
(B) by striking ‘‘health maintenance orga-
nization’’ and inserting ‘‘risk contracting en-
tity’’ each place it appears, and
(C) by striking ‘‘section 1903(m)(1)(A)’’
and inserting ‘‘section 1903(m)(1)(B)(i)’’.
(15) Paragraphs (1) and (2) of section 1926(a)
of such Act (42 U.S.C. 1396r–7(a)) are each amend-
ed by striking ‘‘health maintenance organizations’’
and inserting ‘‘risk contracting entities’’.
(16) Section 1927(j)(1) of such Act (42 U.S.C.
1396s(j)(1)) is amended by striking ‘‘*** Health
203
Maintenance Organizations, including those organi-
zations’’ and inserting ‘‘risk contracting entities’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall become effective with respect to calendar
quarters beginning on or after January 1, 1994.
SEC. 302. PERIOD OF CERTAIN WAIVERS.
(a) IN GENERAL.—Section 1915(h) of the Social Se-
curity Act (42 U.S.C. 1396n(h)) is amended by striking
‘‘No waiver’’ and all that follows through ‘‘unless the Sec-
retary’’ and inserting ‘‘A waiver under this section (other
than under subsection (c), (d), or (e)) shall be for an ini-
tial term of 3 years and, upon the request of a State, shall
be extended for additional 5 year periods unless the Sec-
retary’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to waivers pursuant to applica-
tions which are approved, and with respect to continu-
ations of waivers for which requests are made, later than
30 days after the date of the enactment of this Act.
Subtitle E—Limitations on
Physician Self-Referrals
SEC. 311. EXTENSION OF PHYSICIAN SELF-REFERRAL
LIMITATIONS TO ALL PAYORS.
Section 1877 of the Social Security Act (42 U.S.C.
1395nn) is amended—
204
(1) in subsection (a)—
(A) in paragraph (1)(A), by striking ‘‘for
which payment otherwise may be made under
this title’’ and inserting ‘‘for which a charge is
imposed’’, and
(B) in paragraph (1)(B), by striking
‘‘under this title’’;
(2) by amending paragraph (1) of subsection
(g) to read as follows:
‘‘(1) DENIAL OF PAYMENT.—No payment may
be made under this title, under another Federal
health care program, or under a State health care
program (as defined in section 1128(h)) for a des-
ignated health service for which a claim is presented
in violation of subsection (a)(1)(B). No individual,
third party payor, or other entity is liable for pay-
ment for designated health services for which a
claim is presented in violation of such subsection.’’;
and
(3) in subsection (g)(3), by striking ‘‘for which
payment may not be made under paragraph (1)’’
and inserting ‘‘for which such a claim may not be
presented under subsection (a)(1)’’.
205
SEC. 312. EXTENSION OF PHYSICIAN SELF-REFERRAL
LIMITATIONS 
TO 
CERTAIN 
ADDITIONAL
SERVICES.
(a) IN GENERAL.—Section 1877 of the Social Secu-
rity Act is further amended—
(1) by striking ‘‘clinical laboratory services’’
and ‘‘CLINICAL LABORATORY SERVICES’’ and insert-
ing ‘‘designated health services’’ and ‘‘DESIGNATED
HEALTH SERVICES’’, respectively, each place either
appears 
in 
subsections 
(a)(1), 
(b)(2)(A)(ii)(I),
(b)(4), (d)(1), (d)(2), and (d)(3), and
(2) by adding at the end the following new sub-
section:
‘‘(i) DESIGNATED HEALTH SERVICES DEFINED.—In
this section, the term ‘designated health services’ means—
‘‘(1) clinical laboratory services,
‘‘(2) physical therapy services,
‘‘(3) radiology and diagnostic imaging services,
‘‘(4) radiation therapy services, and
‘‘(5) the furnishing of durable medical equip-
ment.’’.
(b) CONFORMING AMENDMENTS.—Section 1877 of
such Act is further amended—
(1) in subsection (d)(2), by striking ‘‘labora-
tory’’ and inserting ‘‘entity’’,
206
(2) in subsection (g)(1), by striking ‘‘clinical
laboratory service’’ and inserting ‘‘designated health
service’’, and
(3) in subsection (h)(7)(B), by striking ‘‘clinical
laboratory service’’ and inserting ‘‘designated health
service’’.
SEC. 313. CHANGES IN EXCEPTIONS.
(a) HEALTH MAINTENANCE ORGANIZATIONS
AND
MANAGED
CARE
PLANS.—Paragraph (3) of section
1877(b) of the Social Security Act is amended to read as
follows:
‘‘(3) HEALTH
MAINTENANCE
ORGANIZATIONS
AND MANAGED CARE PLANS.—
‘‘(A) HEALTH
MAINTENANCE
ORGANIZA-
TIONS.—In the case of services furnished by a
health maintenance organization to an individ-
ual enrolled with the health maintenance orga-
nization, including services furnished by—
‘‘(i) an eligible organization (as de-
fined in section 1876(b));
‘‘(ii) an organization described in sec-
tion 1833(a)(1)(A);
‘‘(iii) an organization receiving pay-
ments on a prepaid basis under a dem-
onstration project under section 402(a) of
207
the Social Security Amendments of 1967
or under section 222(a) of the Social Secu-
rity Amendments of 1972; and
‘‘(iv) any other entity designated by
the Secretary as a health maintenance or-
ganization for purposes of this subpara-
graph.
‘‘(B) CERTAIN MANAGED CARE PLANS.—In
the case of services furnished by a managed
care plan (as defined by the Secretary) to an
individual enrolled under the plan if—
‘‘(i) the plan selectively contracts with
physicians and with providers of des-
ignated health services; and
‘‘(ii) under the plan physicians bear a
significant financial risk for the cost of
designated health services furnished upon
referral.’’.
(b) EXCEPTION FOR SHARED FACILITY SERVICES.—
Section 1877 of such Act is amended—
(1) in subsection (b), by redesignating para-
graphs (3), (4), and (5) as paragraphs (4), (6), and
(7), respectively, and by inserting after paragraph
(2) the following new paragraph:
‘‘(3) SHARED FACILITY SERVICES.—
208
‘‘(A) IN GENERAL.—In the case of shared
facility services of a shared facility—
‘‘(i) that are furnished—
‘‘(I) personally by the referring
physician who is a shared facility phy-
sician or personally by an individual
supervised by such a physician or by
another shared facility physician and
employed under the shared facility ar-
rangement,
‘‘(II) by a shared facility in a
building in which the referring physi-
cian furnishes physician’s services un-
related to the furnishing of shared fa-
cility services, and
‘‘(III) to a patient of a shared fa-
cility physician;
‘‘(ii) that are billed by the referring
physician or by an entity that is wholly
owned by such physician; and
‘‘(iii) with respect to the referral for
which the disclosure requirements of sub-
paragraph (B) are met.
‘‘(B) CONFLICT OF INTEREST DISCLOSURE
REQUIREMENTS.—A shared facility meets the
209
disclosure requirements of this subparagraph,
with respect to a referral of an individual for
the furnishing of shared facility services, if at
the time of the referral (and before the provi-
sion of shared facility services under the refer-
ral) and in a form and manner specified by the
Secretary—
‘‘(i) the individual (I) is given infor-
mation on the financial relationship be-
tween the referring physician and the
shared facility, and (II) is informed that a
list of alternative providers (if any) that
are available to provide such services will
be given upon request,
‘‘(ii) the individual is given, upon re-
quest, a list of alternative providers (if
any) that are available to provide such
services, and
‘‘(iii) the individual is informed that
(I) the individual has the option to use any
of the alternative providers and (II) the re-
ferring physician will not treat the individ-
ual differently if an alternative provider is
selected to provide the designated health
services.
210
‘‘(C) CONSTRUCTION.—Nothing in sub-
paragraph (B) shall be construed to limit the
information that a shared facility or shared fa-
cility physician may provide to an individual.’’;
and
(2) in subsection (h), by adding at the end the
following new paragraph:
‘‘(8) SHARED
FACILITY
RELATED
DEFINI-
TIONS.—
‘‘(A) SHARED
FACILITY
SERVICES.—The
term ‘shared facility services’ means, with re-
spect to a shared facility, a type of designated
health services which is furnished by the facility
to patients of shared facility physicians.
‘‘(B) 
SHARED
FACILITY.—The 
term
‘shared facility’ means an entity that furnishes
shared facility services under a shared facility
arrangement.
‘‘(C) SHARED FACILITY PHYSICIAN.—The
term ‘shared facility physician’ means, with re-
spect to a shared facility, a physician who has
a financial relationship under a shared facility
arrangement with the facility.
‘‘(D) SHARED FACILITY ARRANGEMENT.—
The term ‘shared facility arrangement’ means,
211
with respect to the provision of a type of des-
ignated health services by a shared facility in a
building, a financial arrangement—
‘‘(i) which is only between physicians
who are providing services (unrelated to
shared facility services) in the same build-
ing,
‘‘(ii) which makes one or more of the
shared facility physicians responsible for
the provision of shared facility services by
the facility,
‘‘(iii) 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
‘‘(iv) which, in the case of a corpora-
tion, is wholly owned and controlled by
shared facility physicians.’’.
(c) EXCEPTION FOR VALUABLE COMMUNITY SERV-
ICES.—Section 1877(b) of such Act is further amended
by inserting after paragraph (4), as redesignated by sub-
section (b)(1), the following new paragraph:
‘‘(5) VALUABLE COMMUNITY SERVICES.—
212
‘‘(A) IN GENERAL.—In the case of services
furnished by an entity to individuals in a com-
munity if the Secretary determines that—
‘‘(i) individuals in the community will
be deprived of adequate health care serv-
ices without an exception under this para-
graph for the entity and the services, and
‘‘(ii) the requirements of subpara-
graph (B) are met.
‘‘(B) REQUIREMENTS.—The requirements
of this subparagraph for an exception under
subparagraph (A), for the furnishing of des-
ignated health services by an entity, are as fol-
lows:
‘‘(i) 
EQUAL
INVESTMENT
OPPOR-
TUNITY.—(I) Individuals who are not re-
ferring physicians must be given a bona
fide opportunity to invest in the entity on
the same terms that are offered to refer-
ring physicians.
‘‘(II) The terms on which investment
interests are offered to physicians must not
be related to the past or expected volume
of referrals or other business from the phy-
sicians.
213
‘‘(III) The return on investment for
interested investors must be tied to the in-
vestor’s equity in the entity and not be re-
lated to the volume of referrals attributable
to the investor.
‘‘(IV) There is no requirement that
any interested or other investor make re-
ferrals to the entity or otherwise generate
business as a condition for remaining an
investor.
‘‘(V) The entity must not loan funds
or guarantee a loan for interested investors
or physicians in a position to refer to the
entity.
‘‘(VI) The entity must not market or
furnish its items or services to interested
investors differently from other investors.
‘‘(ii) 
PROHIBITION
OF
NONCOMPETITION
CLAUSES.—Investment
contracts 
must 
not 
include 
a
‘noncompetition clause’ that prevents phy-
sicians or interested investors from invest-
ing in other entities furnishing such serv-
ices.
214
‘‘(iii) DISCLOSURE REQUIREMENTS.—
(I) The disclosure requirements of para-
graph (3)(B) must be met.
‘‘(II) The financial relationship with
the referring physician must be disclosed,
when required, to any third-party payor.
‘‘(iv) INTERNAL
UTILIZATION
RE-
VIEW.—There must be in operation an in-
ternal utilization review program to ensure
that physicians who are interested inves-
tors do not exploit their patients in any
way through inappropriate utilization or
otherwise.
‘‘(C) REVIEW.—In the case of any excep-
tion provided an entity under this paragraph,
the Secretary shall periodically review the entity
to determine if the requirements of subpara-
graph (B) continue to be met.
‘‘(D) TERMINATION OF EXCEPTION.—The
Secretary shall, after notice and opportunity for
a hearing, terminate an exception granted an
entity under this paragraph if the Secretary de-
termines that—
215
‘‘(i) there was a misrepresentation of
material fact in the application for the ex-
ception; or
‘‘(ii) the entity has failed to comply
substantially with the requirements of sub-
paragraph (B).
‘‘(E) COMMUNITY DEFINED.—In this para-
graph, the term ‘community’ means—
‘‘(i) part or all of a metropolitan sta-
tistical area (or equivalent area), or
‘‘(ii) a county (or equivalent area)
outside such a metropolitan statistical area
(or equivalent area).’’.
(d) EXCEPTION FOR HOSPITALS.—Subparagraph (A)
of subsection (d)(3) of such section is amended to read
as follows:
‘‘(A) at the time the services are furnished,
the hospital has a participation agreement in
effect under section 1866, and’’.
SEC. 314. STUDY AND REPORT ON CHANGES IN COSTS.
The Secretary of Health and Human Services shall
conduct a study in order to estimate the changes in aggre-
gate costs for designated health services, under the medi-
care program and other health plans, which will result
from the implementation of the amendments made by this
216
subtitle. Not later than 2 years after the date of the enact-
ment of this Act the Secretary shall submit to Congress
a report on such study.
SEC. 315. EFFECTIVE DATE.
(a) IN GENERAL.—Subject to subsection (b), the
amendments made by this subtitle shall apply with respect
to a referral by a physician for designated health services
(as described in section 1877(i) of the Social Security Act)
made on or after the first day of the first month beginning
6 months after the date of the enactment of this Act.
(b) TIME-LIMITED EXCEPTION FOR CURRENT FI-
NANCIAL RELATIONSHIPS.—
(1) IN GENERAL.—Subject to paragraph (3),
the amendments made by this subtitle shall not
apply in the case of a patient referral with respect
to which a prohibited financial relationship (de-
scribed in paragraph (3)) existed as of the date of
the enactment of this Act if, at the time of the refer-
ral (and before the receipt of services under the re-
ferral), the patient is provided information on the
prohibited financial relationship. Such information
shall be disclosed in the same manner information
must be disclosed under section 1877(b)(3)(B) of
the Social Security Act (as amended by this sub-
title). If such information is not so provided, the re-
217
ferral shall be subject to such amendments (as pro-
vided in subsection (a)).
(2) PROHIBITED FINANCIAL RELATIONSHIP.—A
prohibited financial relationship described in this
paragraph is a financial relationship described in
subsection (a)(2) of section 1877 of the Social Secu-
rity Act for which an exception described in sub-
section (b), (c), (d), or (e) of such section (as
amended by this subtitle) does not apply.
(3) TIME
LIMIT.—Paragraph (1) shall only
apply to referrals made before the first day of the
first month beginning 4 years after the date of the
enactment of this Act.
Subtitle F—Removing Restrictions
on Managed Care
SEC. 321. REMOVING RESTRICTIONS ON MANAGED CARE.
(a) PREEMPTION OF STATE LAW PROVISIONS.—Sub-
ject to subsection (c), the following provisions of State law
are preempted and may not be enforced:
(1) RESTRICTIONS ON REIMBURSEMENT RATES
OR
SELECTIVE
CONTRACTING.—Any law that re-
stricts the ability of a carrier to negotiate reimburse-
ment rates with providers or to contract selectively
with one provider or a limited number of providers.
218
(2) RESTRICTIONS
ON
DIFFERENTIAL
FINAN-
CIAL INCENTIVES.—Any law that limits the financial
incentives that a health benefit plan may require a
beneficiary to pay when a non-plan provider is used
on a non-emergency basis.
(3) RESTRICTIONS
ON
UTILIZATION
REVIEW
METHODS.—Any law that—
(A) prohibits utilization review of any or
all treatments and conditions,
(B) requires that such review be made (i)
by a resident of the State in which the treat-
ment is to be offered or by an individual li-
censed in such State, or (ii) by a physician in
any particular specialty or with any board cer-
tified specialty of the same medical specialty as
the provider whose services are being reviewed,
(C) requires the use of specified standards
of health care practice in such reviews or re-
quires the disclosure of the specific criteria used
in such reviews,
(D) requires payments to providers for the
expenses of responding to utilization review re-
quests, or
(E) imposes liability for delays in perform-
ing such review.
219
Nothing in subparagraph (B) shall be construed as
prohibiting a State from (i) requiring that utilization
review be conducted by a licensed health care profes-
sional or (ii) requiring that any appeal from such a
review be made by a licensed physician or by a li-
censed physician in any particular specialty or with
any board certified specialty of the same medical
specialty as the provider whose services are being re-
viewed.
(b) GAO STUDY.—
(1) IN
GENERAL.—The Comptroller General
shall conduct a study of the benefits and cost effec-
tiveness of the use of managed care in the delivery
of health services.
(2) REPORT.—By not later than 4 years after
the date of the enactment of this Act, the Comptrol-
ler General shall submit a report to Congress on the
study conducted under paragraph (1) and shall in-
clude in the report such recommendations (including
whether the provisions of subsection (a) should be
extended) as may be appropriate.
(c) SUNSET.—Unless otherwise provided, subsection
(a) shall not apply 5 years after the date of the enactment
of this Act.
220
Subtitle G—Medicare Payment
Changes
SEC. 331. REVISIONS TO METHODOLOGY FOR DETERMIN-
ING UPDATES TO MEDICARE HOSPITAL PAY-
MENTS.
(a) UPDATES FOR PPS HOSPITALS ON CALENDAR
YEAR BASIS.—
(1) IN GENERAL.—Section 1886(b)(3)(B)(i) of
the 
Social 
Security 
Act 
(42 
U.S.C.
1395ww(b)(3)(B)(i)) is amended—
(A) in the matter preceding subclause (i),
by striking ‘‘fiscal year’’ and inserting ‘‘particu-
lar time period’’;
(B) in subclause (VIII), by striking
‘‘1993,’’ and inserting ‘‘1993 and the first 3
months of fiscal year 1994’’; and
(C) in subclause (XI) through (X), by
striking ‘‘fiscal year’’ each place it appears and
inserting ‘‘calendar year’’.
(2) UPDATES TO STANDARDIZED AMOUNTS.—
Section 1886(d)(3)(A) of such Act (42 U.S.C.
1395ww(d)(3)(A)) is amended—
(A) in clause (ii)—
(i) by striking ‘‘1994,’’ and inserting
the following: ‘‘1992, a 15-month period
221
beginning October 1, 1992, and calendar
year 1994’’, and
(ii) by striking ‘‘fiscal year’’ the sec-
ond and third place it appears and insert-
ing ‘‘fiscal year, particular time period, or
calendar year’’;
(B) in clause (iii), by striking ‘‘the fiscal
year beginning on October 1, 1994,’’ and in-
serting ‘‘calendar year 1995,’’; and
(C) in clause (iv)—
(i) by striking ‘‘a fiscal year beginning
on or after October 1, 1995,’’ and insert-
ing ‘‘a calendar year beginning on or after
January 1, 1996,’’, and
(ii) by striking ‘‘fiscal year’’ each
place it appears and inserting ‘‘calendar
year’’.
(3) 
CONFORMING
AMENDMENTS.—Section
1886(b)(3)(B)(iii) 
of 
such 
Act 
(42 
U.S.C.
1395ww(b)(3)(B)(iii)) is amended—
(A) by striking ‘‘fiscal year’’ the first place
it appears and inserting ‘‘particular time pe-
riod’’,
222
(B) by striking ‘‘period or fiscal year’’ the
first place it appears and inserting ‘‘cost report-
ing period or particular time period’’, and
(C) by striking ‘‘for the period or fiscal
year’’ and inserting ‘‘for the cost reporting pe-
riod or fiscal year ending in the particular time
period’’.
(b) REDUCTION IN UPDATES FOR NON-PPS HOS-
PITALS.—Section 1886(b)(3)(B)(ii) of such Act (42
U.S.C. 1395ww(b)(3)(B)(ii)) is amended—
(1) by redesignating subclause (IV) and
subclause (VI); and
(2) by striking ‘‘and’’ at the end of subclause
(III) and by inserting after subclause (III) the fol-
lowing:
‘‘(IV) fiscal years 1989, 1990, 1991, 1992, and
1993, the market basket percentage increase,
‘‘(V) fiscal year 1994, 75 percent of the market
basket percentage increase, and’’.
SEC. 332. REDUCTION IN MEDICARE PAYMENT FOR CLINI-
CAL DIAGNOSTIC LABORATORY TESTS.
(a) LOWERING CAP ON PAYMENT AMOUNT.—Section
1833(h)(4)(B) of the Social Security Act (42 U.S.C.
1395l(h)(4)(B)) is amended—
(1) by striking ‘‘and’’ at the end of clause (iii);
223
(2) in clause (iv), by inserting ‘‘and before Oc-
tober 1, 1993,’’ after ‘‘1990,’’;
(3) by striking the period at the end of clause
(iv) and inserting ‘‘, and’’; and
(4) by adding at the end the following:
‘‘(v) after September 30, 1993, is equal to 76
percent of the median of all the fee schedules estab-
lished for that test for that laboratory setting under
paragraph (1).’’.
(b) REPEAL OF ANNUAL UPDATE IN PAYMENTS FOR
CLINICAL
DIAGNOSTIC
LABORATORY
TESTS.—Section
1833(h)(2)(A)(ii) 
of 
such 
Act 
(42 
U.S.C.
1395l(h)(2)(A)(ii)) is amended—
(1) by striking ‘‘and’’ at the end of subclause
(II);
(2) in subclause (III), by striking the period at
the end and inserting a semicolon; and
(3) by adding at the end the following:
‘‘(IV) no annual adjustment in the fee sched-
ules shall be made under clause (i) for any of the
years 1994 through 1998.’’.