‘‘(4)(A) Subject to subparagraphs (B) and (D), in the 
case of an administrative contractor (or a person who is 
a director, officer, or employee of such a contractor or who 
is engaged by the contractor to participate directly in the 
claims administration process) who is made a party to any 
judicial or administrative proceeding arising from or relat-
ing directly to the claims administration process under 
this title, the Secretary may, to the extent the Secretary 
determines to be appropriate and as specified in the con-
tract with the contractor, indemnify the contractor and 
such persons. 
‘‘(B) The Secretary may not provide indemnification 
under subparagraph (A) insofar as the liability for such 
costs arises directly from conduct that is determined by 
the judicial proceeding or by the Secretary to be criminal 
in nature, fraudulent, or grossly negligent. If indemnifica-
tion is provided by the Secretary with respect to a con-
tractor before a determination that such costs arose di-
rectly from such conduct, the contractor shall reimburse 
the Secretary for costs of indemnification. 
‘‘(C) Indemnification by the Secretary under sub-
paragraph (A) may include payment of judgments, settle-
ments (subject to subparagraph (D)), awards, and costs 
(including reasonable legal expenses). 
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‘‘(D) A contractor or other person described in sub-
paragraph (A) may not propose to negotiate a settlement 
or compromise of a proceeding described in such subpara-
graph without the prior written approval of the Secretary 
to negotiate such settlement or compromise. Any indem-
nification under subparagraph (A) with respect to 
amounts paid under a settlement or compromise of a pro-
ceeding described in such subparagraph are conditioned 
upon prior written approval by the Secretary of the final 
settlement or compromise. 
‘‘(E) Nothing in this paragraph shall be construed— 
‘‘(i) to change any common law immunity that 
may be available to an administrative contractor or 
person described in subparagraph (A); or 
‘‘(ii) to permit the payment of costs not other-
wise allowable, reasonable, or allocable under the 
Federal Acquisition Regulation. 
‘‘(e) REQUIREMENTS
FOR
INFORMATION
SECU-
RITY.—(1) An administrative contractor that performs the 
functions referred to in subparagraphs (A) and (B) of sub-
section (a)(4) (relating to determining and making pay-
ments) shall implement a contractor-wide information se-
curity program to provide information security for the op-
eration and assets of the contractor with respect to such 
functions under this title. An information security pro-
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gram under this paragraph shall meet the requirements 
for information security programs imposed on Federal 
agencies under paragraphs (1) through (8) of section 
3544(b) of title 44, United States Code (other than the 
requirements under paragraphs (2)(D)(i), (5)(A), and 
(5)(B) of such section). 
‘‘(2)(A) Each year an administrative contractor that 
performs the functions referred to in subparagraphs (A) 
and (B) of subsection (a)(4) (relating to determining and 
making payments) shall undergo an evaluation of the in-
formation security of the contractor with respect to such 
functions under this title. The evaluation shall— 
‘‘(i) be performed by an entity that meets such 
requirements for independence as the Inspector Gen-
eral of the Department of Health and Human Serv-
ices may establish; and 
‘‘(ii) test the effectiveness of information secu-
rity control techniques of an appropriate subset of 
the contractor’s information systems (as defined in 
section 3502(8) of title 44, United States Code) re-
lating to such functions under this title and an as-
sessment of compliance with the requirements of this 
subsection and related information security policies, 
procedures, standards and guidelines, including poli-
cies and procedures as may be prescribed by the Di-
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rector of the Office of Management and Budget and 
applicable information security standards promul-
gated under section 11331 of title 40, United States 
Code. 
‘‘(B)(i) The results of independent evaluations under 
subparagraph (A) shall be submitted promptly to the In-
spector General of the Department and to the Secretary. 
‘‘(ii) The Inspector General of the Department shall 
submit to Congress annual reports on the results of such 
evaluations, including assessments of the scope and suffi-
ciency of such evaluations. 
‘‘(f) INCENTIVES TO IMPROVE CONTRACTOR PER-
FORMANCE IN NON-DEPARTMENT FACILITY EDUCATION 
AND OUTREACH.—The Secretary shall use specific claims 
payment error rates or similar methodology of administra-
tive contractors in the processing or reviewing of claims 
in order to give such contractors an incentive to implement 
effective education and outreach programs for non-De-
partment facilities.’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
at the beginning of such chapter is amended by inserting 
after the item relating to section 1725 the following new 
item: 
‘‘1725. Authority to enter into contracts with administrative contractors.’’. 
Æ 
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