274
eral shall monitoring auditing activities conducted under
this subsection.
‘‘(h) PROHIBITION OF STATE IMPOSITION OF PRE-
MIUM TAXES.—No State may impose a premium tax or
similar tax with respect to premiums on MedicarePlus
plans or the offering of such plans.
‘‘ORGANIZATIONAL AND FINANCIAL REQUIREMENTS FOR
MEDICAREPLUS
ORGANIZATIONS; 
PROVIDER-SPON-
SORED ORGANIZATIONS
‘‘SEC. 1855. (a) ORGANIZED AND LICENSED UNDER
STATE LAW.—
‘‘(1) IN GENERAL.—Subject to paragraphs (2)
and (3), a MedicarePlus organization shall be orga-
nized and licensed under State law as a risk-bearing
entity eligible to offer health insurance or health
benefits coverage in each State in which it offers a
MedicarePlus plan.
‘‘(2) SPECIAL EXCEPTION FOR PROVIDER-SPON-
SORED ORGANIZATIONS.—
‘‘(A) IN GENERAL.—In the case of a pro-
vider-sponsored organization that seeks to offer
a MedicarePlus plan in a State, the Secretary
shall waive the requirement of paragraph (1)
that the organization be licensed in that State
if—
275
‘‘(i) the organization files an applica-
tion for such waiver with the Secretary,
and
‘‘(ii) the Secretary determines, based
on the application and other evidence pre-
sented to the Secretary, that any of the
grounds for approval of the application de-
scribed in subparagraph (B), (C), or (D)
has been met.
‘‘(B) FAILURE TO ACT ON LICENSURE AP-
PLICATION ON A TIMELY BASIS.—A ground for
approval of such a waiver application is that the
State has failed to complete action on a licens-
ing application of the organization within 90
days of the date of the State’s receipt of the ap-
plication. No period before the date of the en-
actment of this section shall be included in de-
termining such 90-day period.
‘‘(C) DENIAL OF APPLICATION BASED ON
DISCRIMINATORY
TREATMENT.—A ground for
approval of such a waiver application is that the
State has denied such a licensing application
and—
‘‘(i) the State has imposed docu-
mentation or information requirements not
276
related to solvency requirements that are
not generally applicable to other entities
engaged in substantially similar business,
or
‘‘(ii) the standards or review process
imposed by the State as a condition of ap-
proval of the license imposes any material
requirements, procedures, or standards
(other than requirements and standards
relating to solvency) to such organizations
that are not generally applicable to other
entities engaged in substantially similar
business.
‘‘(D) DENIAL OF APPLICATION BASED ON
APPLICATION OF SOLVENCY REQUIREMENTS.—
A ground for approval of such a waiver applica-
tion is that the State has denied such a licens-
ing application based (in whole or in part) on
the organization’s failure to meet applicable sol-
vency requirements and—
‘‘(i) such requirements are not the
same as the solvency standards established
under section 1856(a); or
‘‘(ii) the State has imposed as a con-
dition of approval of the license any docu-
277
mentation or information requirements re-
lating to solvency or other material re-
quirements, procedures, or standards relat-
ing to solvency that are different from the
requirements, procedures, and standards
applied by the Secretary under subsection
(d)(2).
For purposes of this subparagraph, the term
‘solvency requirements’ means requirements re-
lating to solvency and other matters covered
under the standards established under section
1856(a).
‘‘(E) TREATMENT OF WAIVER.—Subject to
section 1852(m), in the case of a waiver grant-
ed under this paragraph for a provider-spon-
sored organization—
‘‘(i) the waiver shall be effective for a
36-month period, except it may be renewed
based on a subsequent application filed
during the last 6 months of such period,
‘‘(ii) the waiver is conditioned upon
the pendency of the licensure application
during the period the waiver is in effect,
and
278
‘‘(iii) any provisions of State law
which relate to the licensing of the organi-
zation and which prohibit the organization
from providing coverage pursuant to a con-
tract under this part shall be superseded.
Nothing in this subparagraph shall be con-
strued as limiting the number of times such a
waiver may be renewed. Nothing in clause (iii)
shall be construed as waiving any provision of
State law which relates to quality of care or
consumer protection (and does not relate to sol-
vency standards) and which is imposed on a
uniform basis and is generally applicable to
other entities engaged in substantially similar
business.
‘‘(F) PROMPT ACTION ON APPLICATION.—
The Secretary shall grant or deny such a waiver
application within 60 days after the date the
Secretary determines that a substantially com-
plete application has been filed. Nothing in this
section shall be construed as preventing an or-
ganization which has had such a waiver applica-
tion denied from submitting a subsequent waiv-
er application.
279
‘‘(3) EXCEPTION IF REQUIRED TO OFFER MORE
THAN MEDICAREPLUS PLANS.—Paragraph (1) shall
not apply to a MedicarePlus organization in a State
if the State requires the organization, as a condition
of licensure, to offer any product or plan other than
a MedicarePlus plan.
‘‘(4) LICENSURE DOES NOT SUBSTITUTE FOR
OR CONSTITUTE CERTIFICATION.—The fact that an
organization is licensed in accordance with para-
graph (1) does not deem the organization to meet
other requirements imposed under this part.
‘‘(b) PREPAID PAYMENT.—A MedicarePlus organiza-
tion shall be compensated (except for premiums,
deductibles, coinsurance, and copayments) for the provi-
sion of health care services to enrolled members under the
contract under this part by a payment which is paid on
a periodic basis without regard to the date the health care
services are provided and which is fixed without regard
to the frequency, extent, or kind of health care service ac-
tually provided to a member.
‘‘(c) ASSUMPTION OF FULL FINANCIAL RISK.—The
MedicarePlus organization shall assume full financial risk
on a prospective basis for the provision of the health care
services (except, at the election of the organization, hos-
280
pice care) for which benefits are required to be provided
under section 1852(a)(1), except that the organization—
‘‘(1) may obtain insurance or make other ar-
rangements for the cost of providing to any enrolled
member such services the aggregate value of which
exceeds $5,000 in any year,
‘‘(2) may obtain insurance or make other ar-
rangements for the cost of such services provided to
its enrolled members other than through the organi-
zation because medical necessity required their pro-
vision before they could be secured through the orga-
nization,
‘‘(3) may obtain insurance or make other ar-
rangements for not more than 90 percent of the
amount by which its costs for any of its fiscal years
exceed 115 percent of its income for such fiscal year,
and
‘‘(4) may make arrangements with physicians
or other health professionals, health care institu-
tions, or any combination of such individuals or in-
stitutions to assume all or part of the financial risk
on a prospective basis for the provision of basic
health services by the physicians or other health pro-
fessionals or through the institutions.
281
‘‘(d) CERTIFICATION OF PROVISION AGAINST RISK
OF INSOLVENCY FOR UNLICENSED PSOS.—
‘‘(1) IN GENERAL.—Each MedicarePlus organi-
zation that is a provider-sponsored organization,
that is not licensed by a State under subsection (a),
and for which a waiver application has been ap-
proved under subsection (a)(2), shall meet standards
established under section 1856(a) relating to the fi-
nancial solvency and capital adequacy of the organi-
zation.
‘‘(2) CERTIFICATION PROCESS FOR SOLVENCY
STANDARDS FOR PSOS.—The Secretary shall estab-
lish a process for the receipt and approval of appli-
cations of a provider-sponsored organization de-
scribed in paragraph (1) for certification (and peri-
odic recertification) of the organization as meeting
such solvency standards. Under such process, the
Secretary shall act upon such an application not
later than 60 days after the date the application has
been received.
‘‘(e) PROVIDER-SPONSORED
ORGANIZATION
DE-
FINED.—
‘‘(1) IN GENERAL.—In this part, the term ‘pro-
vider-sponsored organization’ means a public or pri-
vate entity—
282
‘‘(A) that is established or organized by a
health care provider, or group of affiliated
health care providers,
‘‘(B) that provides a substantial proportion
(as defined by the Secretary in accordance with
paragraph (2)) of the health care items and
services under the contract under this part di-
rectly through the provider or affiliated group
of providers, and
‘‘(C) with respect to which those affiliated
providers that share, directly or indirectly, sub-
stantial financial risk with respect to the provi-
sion of such items and services have at least a
majority financial interest in the entity.
‘‘(2) SUBSTANTIAL PROPORTION.—In defining
what is a ‘substantial proportion’ for purposes of
paragraph (1)(B), the Secretary—
‘‘(A) shall take into account (i) the need
for such an organization to assume responsibil-
ity for a substantial proportion of services in
order to assure financial stability and (ii) the
practical difficulties in such an organization in-
tegrating a very wide range of service providers;
and
283
‘‘(B) may vary such proportion based upon
relevant differences among organizations, such
as their location in an urban or rural area.
‘‘(3) AFFILIATION.—For purposes of this sub-
section, a provider is ‘affiliated’ with another pro-
vider if, through contract, ownership, or otherwise—
‘‘(A) one provider, directly or indirectly,
controls, is controlled by, or is under common
control with the other,
‘‘(B) both providers are part of a con-
trolled group of corporations under section
1563 of the Internal Revenue Code of 1986, or
‘‘(C) both providers are part of an affili-
ated service group under section 414 of such
Code.
‘‘(4) CONTROL.—For purposes of paragraph
(3), control is presumed to exist if one party, di-
rectly or indirectly, owns, controls, or holds the
power to vote, or proxies for, not less than 51 per-
cent of the voting rights or governance rights of an-
other.
‘‘(5) HEALTH CARE PROVIDER DEFINED.—In
this subsection, the term ‘health care provider’
means—
284
‘‘(A) any individual who is engaged in the
delivery of health care services in a State and
who is required by State law or regulation to be
licensed or certified by the State to engage in
the delivery of such services in the State, and
‘‘(B) any entity that is engaged in the de-
livery of health care services in a State and
that, if it is required by State law or regulation
to be licensed or certified by the State to en-
gage in the delivery of such services in the
State, is so licensed.
‘‘(6) REGULATIONS.—The Secretary shall issue
regulations to carry out this subsection.
‘‘ESTABLISHMENT OF STANDARDS
‘‘SEC. 1856. (a) ESTABLISHMENT
OF SOLVENCY
STANDARDS
FOR
PROVIDER-SPONSORED
ORGANIZA-
TIONS.—
‘‘(1) ESTABLISHMENT.—
‘‘(A) IN
GENERAL.—The Secretary shall
establish, on an expedited basis and using a ne-
gotiated rulemaking process under subchapter
III of chapter 5 of title 5, United States Code,
standards described in section 1855(d)(1) (re-
lating to the financial solvency and capital ade-
quacy of the organization) that entities must
285
meet to qualify as provider-sponsored organiza-
tions under this part.
‘‘(B) FACTORS
TO
CONSIDER
FOR
SOL-
VENCY
STANDARDS.—In establishing solvency
standards under subparagraph (A) for provider-
sponsored organizations, the Secretary shall
consult with interested parties and shall take
into account—
‘‘(i) the delivery system assets of such
an organization and ability of such an or-
ganization to provide services directly to
enrollees through affiliated providers, and
‘‘(ii) alternative means of protecting
against insolvency, including reinsurance,
unrestricted surplus, letters of credit, guar-
antees, organizational insurance coverage,
partnerships with other licensed entities,
and valuation attributable to the ability of
such an organization to meet its service
obligations through direct delivery of care.
‘‘(C) ENROLLEE PROTECTION AGAINST IN-
SOLVENCY.—Such standards shall include pro-
visions to prevent enrollees from being held lia-
ble to any person or entity for the MedicarePlus
286
organization’s debts in the event of the organi-
zation’s insolvency.
‘‘(2) PUBLICATION
OF
NOTICE.—In carrying
out the rulemaking process under this subsection,
the Secretary, after consultation with the National
Association of Insurance Commissioners, the Amer-
ican Academy of Actuaries, organizations represent-
ative of medicare beneficiaries, and other interested
parties, shall publish the notice provided for under
section 564(a) of title 5, United States Code, by not
later than 45 days after the date of the enactment
of this section.
‘‘(3) TARGET
DATE
FOR
PUBLICATION
OF
RULE.—As part of the notice under paragraph (2),
and for purposes of this subsection, the ‘target date
for publication’ (referred to in section 564(a)(5) of
such title) shall be April 1, 1998.
‘‘(4) ABBREVIATED
PERIOD
FOR
SUBMISSION
OF COMMENTS.—In applying section 564(c) of such
title under this subsection, ‘15 days’ shall be sub-
stituted for ‘30 days’.
‘‘(5) APPOINTMENT
OF
NEGOTIATED
RULE-
MAKING COMMITTEE AND FACILITATOR.—The Sec-
retary shall provide for—
287
‘‘(A) the appointment of a negotiated rule-
making committee under section 565(a) of such
title by not later than 30 days after the end of
the comment period provided for under section
564(c) of such title (as shortened under para-
graph (4)), and
‘‘(B) the nomination of a facilitator under
section 566(c) of such title by not later than 10
days after the date of appointment of the com-
mittee.
‘‘(6) PRELIMINARY COMMITTEE REPORT.—The
negotiated rulemaking committee appointed under
paragraph (5) shall report to the Secretary, by not
later than January 1, 1998, regarding the commit-
tee’s progress on achieving a consensus with regard
to the rulemaking proceeding and whether such con-
sensus is likely to occur before one month before the
target date for publication of the rule. If the com-
mittee reports that the committee has failed to make
significant progress towards such consensus or is
unlikely to reach such consensus by the target date,
the Secretary may terminate such process and pro-
vide for the publication of a rule under this sub-
section through such other methods as the Secretary
may provide.
288
‘‘(7) FINAL COMMITTEE REPORT.—If the com-
mittee is not terminated under paragraph (6), the
rulemaking committee shall submit a report contain-
ing a proposed rule by not later than one month be-
fore the target date of publication.
‘‘(8) INTERIM, FINAL EFFECT.—The Secretary
shall publish a rule under this subsection in the Fed-
eral Register by not later than the target date of
publication. Such rule shall be effective and final im-
mediately on an interim basis, but is subject to
change and revision after public notice and oppor-
tunity for a period (of not less than 60 days) for
public comment. In connection with such rule, the
Secretary shall specify the process for the timely re-
view and approval of applications of entities to be
certified as provider-sponsored organizations pursu-
ant to such rules and consistent with this subsection.
‘‘(9) PUBLICATION
OF
RULE
AFTER
PUBLIC
COMMENT.—The Secretary shall provide for consid-
eration of such comments and republication of such
rule by not later than 1 year after the target date
of publication.
‘‘(b) ESTABLISHMENT OF OTHER STANDARDS.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish by regulation other standards (not described in
289
subsection (a)) for MedicarePlus organizations and
plans consistent with, and to carry out, this part.
‘‘(2) USE OF CURRENT STANDARDS.—Consist-
ent with the requirements of this part, standards es-
tablished under this subsection shall be based on
standards established under section 1876 to carry
out analogous provisions of such section. The Sec-
retary shall also consider State model and other
standards relating to consumer protection and assur-
ing quality of care.
‘‘(3) USE OF INTERIM STANDARDS.—For the
period in which this part is in effect and standards
are being developed and established under the pre-
ceding provisions of this subsection, the Secretary
shall provide by not later than June 1, 1998, for the
application of such interim standards (without re-
gard to any requirements for notice and public com-
ment) as may be appropriate to provide for the expe-
dited implementation of this part. Such interim
standards shall not apply after the date standards
are established under the preceding provisions of
this subsection.
‘‘(4) APPLICATION OF NEW STANDARDS TO EN-
TITIES
WITH
A
CONTRACT.—In the case of a
MedicarePlus organization with a contract in effect
290
under this part at the time standards applicable to
the organization under this section are changed, the
organization may elect not to have such changes
apply to the organization until the end of the cur-
rent contract year (or, if there is less than 6 months
remaining in the contract year, until 1 year after the
end of the current contract year).
‘‘(5) RELATION TO STATE LAWS.—Subject to
section 1852(m), the standards established under
this subsection shall supersede any State law or reg-
ulation with respect to MedicarePlus plans which are
offered by MedicarePlus organizations under this
part to the extent such law or regulation is incon-
sistent with such standards. The previous sentence
shall not be construed as superseding a State law or
regulation that is not related to solvency, that is ap-
plied on a uniform basis and is generally applicable
to other entities engaged in substantially similar
business, and that provides consumer protections in
addition to, or more stringent than, those provided
under the standards under this subsection.
‘‘CONTRACTS WITH MEDICAREPLUS ORGANIZATIONS
‘‘SEC. 1857. (a) IN GENERAL.—The Secretary shall
not permit the election under section 1851 of a
MedicarePlus plan offered by a MedicarePlus organization
under this part, and no payment shall be made under sec-
291
tion 1853 to an organization, unless the Secretary has en-
tered into a contract under this section with the organiza-
tion with respect to the offering of such plan. Such a con-
tract with an organization may cover more than one
MedicarePlus plan. Such contract shall provide that the
organization agrees to comply with the applicable require-
ments and standards of this part and the terms and condi-
tions of payment as provided for in this part.
‘‘(b) MINIMUM ENROLLMENT REQUIREMENTS.—
‘‘(1) IN GENERAL.—Subject to paragraphs (2)
and (3), the Secretary may not enter into a contract
under this section with a MedicarePlus organization
unless the organization has at least 5,000 individ-
uals (or 1,500 individuals in the case of an organiza-
tion that is a provider-sponsored organization) who
are receiving health benefits through the organiza-
tion, except that the standards under section 1856
may permit the organization to have a lesser number
of beneficiaries (but not less than 500 in the case
of an organization that is a provider-sponsored orga-
nization) if the organization primarily serves individ-
uals residing outside of urbanized areas.
‘‘(2) EXCEPTION FOR MSA PLAN.—Paragraph
(1) shall not apply with respect to a contract that
relates only to an MSA plan.
292
‘‘(3) ALLOWING
TRANSITION.—The Secretary
may waive the requirement of paragraph (1) during
the first 3 contract years with respect to an organi-
zation.
‘‘(c) CONTRACT PERIOD AND EFFECTIVENESS.—
‘‘(1) PERIOD.—Each contract under this sec-
tion shall be for a term of at least one year, as de-
termined by the Secretary, and may be made auto-
matically renewable from term to term in the ab-
sence of notice by either party of intention to termi-
nate at the end of the current term.
‘‘(2) TERMINATION
AUTHORITY.—In accord-
ance with procedures established under subsection
(h), the Secretary may at any time terminate any
such contract or may impose the intermediate sanc-
tions described in an applicable paragraph of sub-
section (g)(3) on the MedicarePlus organization if
the Secretary determines that the organization—
‘‘(A) has failed substantially to carry out
the contract;
‘‘(B) is carrying out the contract in a man-
ner inconsistent with the efficient and effective
administration of this part; or
‘‘(C) no longer substantially meets the ap-
plicable conditions of this part.
293
‘‘(3) EFFECTIVE
DATE
OF
CONTRACTS.—The
effective date of any contract executed pursuant to
this section shall be specified in the contract, except
that in no case shall a contract under this section
which provides for coverage under an MSA plan be
effective before January 1998 with respect to such
coverage.
‘‘(4) PREVIOUS TERMINATIONS.—The Secretary
may not enter into a contract with a MedicarePlus
organization if a previous contract with that organi-
zation under this section was terminated at the re-
quest of the organization within the preceding five-
year period, except in circumstances which warrant
special consideration, as determined by the Sec-
retary.
‘‘(5) CONTRACTING AUTHORITY.—The author-
ity vested in the Secretary by this part may be per-
formed without regard to such provisions of law or
regulations relating to the making, performance,
amendment, or modification of contracts of the
United States as the Secretary may determine to be
inconsistent with the furtherance of the purpose of
this title.
‘‘(d) PROTECTIONS AGAINST FRAUD
AND BENE-
FICIARY PROTECTIONS.—
294
‘‘(1) INSPECTION AND AUDIT.—Each contract
under this section shall provide that the Secretary,
or any person or organization designated by the Sec-
retary—
‘‘(A) shall have the right to inspect or oth-
erwise evaluate (i) the quality, appropriateness,
and timeliness of services performed under the
contract and (ii) the facilities of the organiza-
tion when there is reasonable evidence of some
need for such inspection, and
‘‘(B) shall have the right to audit and in-
spect 
any 
books 
and 
records 
of 
the
MedicarePlus organization that pertain (i) to
the ability of the organization to bear the risk
of potential financial losses, or (ii) to services
performed or determinations of amounts pay-
able under the contract.
‘‘(2) ENROLLEE NOTICE AT TIME OF TERMI-
NATION.—Each contract under this section shall re-
quire the organization to provide (and pay for) writ-
ten notice in advance of the contract’s termination,
as well as a description of alternatives for obtaining
benefits under this title, to each individual enrolled
with the organization under this part.
‘‘(3) DISCLOSURE.—
295
‘‘(A) IN
GENERAL.—Each MedicarePlus
organization shall, in accordance with regula-
tions of the Secretary, report to the Secretary
financial information which shall include the
following:
‘‘(i) Such information as the Sec-
retary may require demonstrating that the
organization has a fiscally sound operation.
‘‘(ii) A copy of the report, if any, filed
with the Health Care Financing Adminis-
tration containing the information required
to be reported under section 1124 by dis-
closing entities.
‘‘(iii) A description of transactions, as
specified by the Secretary, between the or-
ganization and a party in interest. Such
transactions shall include—
‘‘(I) any sale or exchange, or
leasing of any property between the
organization and a party in interest;
‘‘(II) any furnishing for consider-
ation of goods, services (including
management services), or facilities be-
tween the organization and a party in
interest, but not including salaries
296
paid to employees for services pro-
vided in the normal course of their
employment and health services pro-
vided to members by hospitals and
other providers and by staff, medical
group (or groups), individual practice
association (or associations), or any
combination thereof; and
‘‘(III) any lending of money or
other extension of credit between an
organization and a party in interest.
The Secretary may require that information re-
ported respecting an organization which con-
trols, is controlled by, or is under common con-
trol with, another entity be in the form of a
consolidated financial statement for the organi-
zation and such entity.
‘‘(B) PARTY IN INTEREST DEFINED.—For
the purposes of this paragraph, the term ‘party
in interest’ means—
‘‘(i) any director, officer, partner, or
employee responsible for management or
administration of a MedicarePlus organiza-
tion, any person who is directly or indi-
rectly the beneficial owner of more than 5
297
percent of the equity of the organization,
any person who is the beneficial owner of
a mortgage, deed of trust, note, or other
interest secured by, and valuing more than
5 percent of the organization, and, in the
case of a MedicarePlus organization orga-
nized as a nonprofit corporation, an incor-
porator or member of such corporation
under applicable State corporation law;
‘‘(ii) any entity in which a person de-
scribed in clause (i)—
‘‘(I) is an officer or director;
‘‘(II) is a partner (if such entity
is organized as a partnership);
‘‘(III) has directly or indirectly a
beneficial interest of more than 5 per-
cent of the equity; or
‘‘(IV) has a mortgage, deed of
trust, note, or other interest valuing
more than 5 percent of the assets of
such entity;
‘‘(iii) any person directly or indirectly
controlling, controlled by, or under com-
mon control with an organization; and
298
‘‘(iv) any spouse, child, or parent of
an individual described in clause (i).
‘‘(C) ACCESS
TO
INFORMATION.—Each
MedicarePlus organization shall make the infor-
mation reported pursuant to subparagraph (A)
available to its enrollees upon reasonable re-
quest.
‘‘(4) LOAN INFORMATION.—The contract shall
require the organization to notify the Secretary of
loans and other special financial arrangements which
are made between the organization and subcontrac-
tors, affiliates, and related parties.
‘‘(e) ADDITIONAL CONTRACT TERMS.—
‘‘(1) IN GENERAL.—The contract shall contain
such other terms and conditions not inconsistent
with this part (including requiring the organization
to provide the Secretary with such information) as
the Secretary may find necessary and appropriate.
‘‘(2) COST-SHARING IN ENROLLMENT-RELATED
COSTS.—The contract with a MedicarePlus organiza-
tion shall require the payment to the Secretary for
the organization’s pro rata share (as determined by
the Secretary) of the estimated costs to be incurred
by the Secretary in carrying out section 1851 (relat-
ing to enrollment and dissemination of information)
299
and section 4360 of the Omnibus Budget Reconcili-
ation Act of 1990 (relating to the health insurance
counseling and assistance program). Such payments
are appropriated to defray the costs described in the
preceding sentence, to remain available until ex-
pended.
‘‘(3) NOTICE TO ENROLLEES IN CASE OF DE-
CERTIFICATION.—If a contract with a MedicarePlus
organization is terminated under this section, the or-
ganization shall notify each enrollee with the organi-
zation under this part of such termination.
‘‘(f) PROMPT PAYMENT BY MEDICAREPLUS ORGANI-
ZATION.—
‘‘(1) REQUIREMENT.—A contract under this
part shall require a MedicarePlus organization to
provide prompt payment (consistent with the provi-
sions of sections 1816(c)(2) and 1842(c)(2)) of
claims submitted for services and supplies furnished
to individuals pursuant to the contract, if the serv-
ices or supplies are not furnished under a contract
between the organization and the provider or sup-
plier.
‘‘(2) SECRETARY’S
OPTION
TO
BYPASS
NON-
COMPLYING
ORGANIZATION.—In the case of a
MedicarePlus eligible organization which the Sec-
300
retary determines, after notice and opportunity for
a hearing, has failed to make payments of amounts
in compliance with paragraph (1), the Secretary may
provide for direct payment of the amounts owed to
providers and suppliers for covered services and sup-
plies furnished to individuals enrolled under this
part under the contract. If the Secretary provides
for the direct payments, the Secretary shall provide
for an appropriate reduction in the amount of pay-
ments otherwise made to the organization under this
part to reflect the amount of the Secretary’s pay-
ments (and the Secretary’s costs in making the pay-
ments).
‘‘(g) INTERMEDIATE SANCTIONS.—
‘‘(1) IN GENERAL.—If the Secretary determines
that a MedicarePlus organization with a contract
under this section—
‘‘(A) fails substantially to provide medi-
cally necessary items and services that are re-
quired (under law or under the contract) to be
provided to an individual covered under the con-
tract, if the failure has adversely affected (or
has substantial likelihood of adversely affecting)
the individual;
301
‘‘(B) imposes net monthly premiums on in-
dividuals enrolled under this part in excess of
the net monthly premiums permitted;
‘‘(C) acts to expel or to refuse to re-enroll
an individual in violation of the provisions of
this part;
‘‘(D) engages in any practice that would
reasonably be expected to have the effect of de-
nying or discouraging enrollment (except as
permitted by this part) by eligible individuals
with the organization whose medical condition
or history indicates a need for substantial fu-
ture medical services;
‘‘(E) misrepresents or falsifies information
that is furnished—
‘‘(i) to the Secretary under this part,
or
‘‘(ii) to an individual or to any other
entity under this part;
‘‘(F) fails to comply with the requirements
of section 1852(j)(3); or
‘‘(G) employs or contracts with any indi-
vidual or entity that is excluded from participa-
tion under this title under section 1128 or
1128A for the provision of health care, utiliza-
302
tion review, medical social work, or administra-
tive services or employs or contracts with any
entity for the provision (directly or indirectly)
through such an excluded individual or entity of
such services;
the Secretary may provide, in addition to any other
remedies authorized by law, for any of the remedies
described in paragraph (2).
‘‘(2) REMEDIES.—The remedies described in
this paragraph are—
‘‘(A) civil money penalties of not more
than $25,000 for each determination under
paragraph (1) or, with respect to a determina-
tion under subparagraph (D) or (E)(i) of such
paragraph, of not more than $100,000 for each
such determination, plus, with respect to a de-
termination under paragraph (1)(B), double the
excess amount charged in violation of such
paragraph (and the excess amount charged
shall be deducted from the penalty and returned
to the individual concerned), and plus, with re-
spect to a determination under paragraph
(1)(D), $15,000 for each individual not enrolled
as a result of the practice involved,
303
‘‘(B) suspension of enrollment of individ-
uals under this part after the date the Sec-
retary notifies the organization of a determina-
tion under paragraph (1) and until the Sec-
retary is satisfied that the basis for such deter-
mination has been corrected and is not likely to
recur, or
‘‘(C) suspension of payment to the organi-
zation under this part for individuals enrolled
after the date the Secretary notifies the organi-
zation of a determination under paragraph (1)
and until the Secretary is satisfied that the
basis for such determination has been corrected
and is not likely to recur.
‘‘(3) OTHER
INTERMEDIATE
SANCTIONS.—In
the case of a MedicarePlus organization for which
the Secretary makes a determination under sub-
section (c)(2) the basis of which is not described in
paragraph (1), the Secretary may apply the follow-
ing intermediate sanctions:
‘‘(A) Civil money penalties of not more
than $25,000 for each determination under
subsection (c)(2) if the deficiency that is the
basis of the determination has directly adversely
affected (or has the substantial likelihood of ad-
304
versely affecting) an individual covered under
the organization’s contract
‘‘(B) Civil money penalties of not more
than $10,000 for each week beginning after the
initiation of procedures by the Secretary under
subsection (g) during which the deficiency that
is the basis of a determination under subsection
(c)(2) exists.
‘‘(C) Suspension of enrollment of individ-
uals under this part after the date the Sec-
retary notifies the organization of a determina-
tion under subsection (c)(2) and until the Sec-
retary is satisfied that the deficiency that is the
basis for the determination has been corrected
and is not likely to recur.
‘‘(h) PROCEDURES FOR TERMINATION.—
‘‘(1) IN GENERAL.—The Secretary may termi-
nate a contract with a MedicarePlus organization
under this section in accordance with formal inves-
tigation and compliance procedures established by
the Secretary under which—
‘‘(A) the Secretary provides the organiza-
tion with the reasonable opportunity to develop
and implement a corrective action plan to cor-
rect the deficiencies that were the basis of the
305
Secretary’s determination under subsection
(c)(2);
‘‘(B) the Secretary shall impose more se-
vere sanctions on an organization that has a
history of deficiencies or that has not taken
steps to correct deficiencies the Secretary has
brought to the organization’s attention;
‘‘(C) there are no unreasonable or unneces-
sary delays between the finding of a deficiency
and the imposition of sanctions; and
‘‘(D) the Secretary provides the organiza-
tion with reasonable notice and opportunity for
hearing (including the right to appeal an initial
decision) before terminating the contract.
‘‘(2) CIVIL MONEY PENALTIES.—The provisions
of section 1128A (other than subsections (a) and
(b)) shall apply to a civil money penalty under sub-
section (f) or under paragraph (2) or (3) of sub-
section (g) in the same manner as they apply to a
civil money penalty or proceeding under section
1128A(a).
‘‘(3) EXCEPTION FOR IMMINENT AND SERIOUS
RISK TO HEALTH.—Paragraph (1) shall not apply if
the Secretary determines that a delay in termi-
nation, resulting from compliance with the proce-
306
dures specified in such paragraph prior to termi-
nation, would pose an imminent and serious risk to
the health of individuals enrolled under this part
with the organization.
‘‘DEFINITIONS; MISCELLANEOUS PROVISIONS
‘‘SEC. 1859. (a) DEFINITIONS
RELATING
TO
MEDICAREPLUS ORGANIZATIONS.—In this part—
‘‘(1) 
MEDICAREPLUS
ORGANIZATION.—The
term ‘MedicarePlus organization’ means a public or
private entity that is certified under section 1856 as
meeting the requirements and standards of this part
for such an organization.
‘‘(2) PROVIDER-SPONSORED
ORGANIZATION.—
The term ‘provider-sponsored organization’ is de-
fined in section 1855(e)(1).
‘‘(b) DEFINITIONS RELATING
TO MEDICAREPLUS
PLANS.—
‘‘(1) 
MEDICAREPLUS
PLAN.—The 
term
‘MedicarePlus plan’ means health benefits coverage
offered under a policy, contract, or plan by a
MedicarePlus organization pursuant to and in ac-
cordance with a contract under section 1857.
‘‘(2) MSA PLAN.—
‘‘(A) IN GENERAL.—The term ‘MSA plan’
means a MedicarePlus plan that—
307
‘‘(i) provides reimbursement for at
least the items and services described in
section 1852(a)(1) in a year but only after
the enrollee incurs countable expenses (as
specified under the plan) equal to the
amount of an annual deductible (described
in subparagraph (B));
‘‘(ii) counts as such expenses (for pur-
poses of such deductible) at least all
amounts that would have been payable
under parts A and B, and that would have
been payable by the enrollee as deductibles,
coinsurance, or copayments, if the enrollee
had elected to receive benefits through the
provisions of such parts; and
‘‘(iii) provides, after such deductible is
met for a year and for all subsequent ex-
penses for items and services referred to in
clause (i) in the year, for a level of reim-
bursement that is not less than—
‘‘(I) 100 percent of such ex-
penses, or
‘‘(II) 100 percent of the amounts
that would have been paid (without
regard to any deductibles or coinsur-
308
ance) under parts A and B with re-
spect to such expenses,
whichever is less.
‘‘(B) DEDUCTIBLE.—The amount of an-
nual deductible under an MSA plan—
‘‘(i) for contract year 1999 shall be
not more than $6,000; and
‘‘(ii) for a subsequent contract year
shall be not more than the maximum
amount of such deductible for the previous
contract year under this subparagraph in-
creased 
by 
the 
national 
per 
capita
MedicarePlus growth percentage under
section 1853(c)(6) for the year.
If the amount of the deductible under clause
(ii) is not a multiple of $50, the amount shall
be rounded to the nearest multiple of $50.
‘‘(c) OTHER REFERENCES TO OTHER TERMS.—
‘‘(1) MEDICAREPLUS ELIGIBLE INDIVIDUAL.—
The term ‘MedicarePlus eligible individual’ is de-
fined in section 1851(a)(3).
‘‘(2) MEDICAREPLUS
PAYMENT
AREA.—The
term ‘MedicarePlus payment area’ is defined in sec-
tion 1853(d).
309
‘‘(3) NATIONAL
PER
CAPITA
MEDICAREPLUS
GROWTH
PERCENTAGE.—The ‘national per capita
MedicarePlus growth percentage’ is defined in sec-
tion 1853(c)(6).
‘‘(4) MONTHLY PREMIUM; NET MONTHLY PRE-
MIUM.—The terms ‘monthly premium’ and ‘net
monthly premium’ are defined in section 1854(a)(2).
‘‘(d) COORDINATED ACUTE AND LONG-TERM CARE
BENEFITS UNDER A MEDICAREPLUS PLAN.—Nothing in
this part shall be construed as preventing a State from
coordinating benefits under a medicaid plan under title
XIX with those provided under a MedicarePlus plan in
a manner that assures continuity of a full-range of acute
care and long-term care services to poor elderly or disabled
individuals eligible for benefits under this title and under
such plan.
‘‘(e) RESTRICTION ON ENROLLMENT FOR CERTAIN
MEDICAREPLUS PLANS.—
‘‘(1) 
IN
GENERAL.—In 
the 
case 
of 
a
MedicarePlus religious fraternal benefit society plan
described in paragraph (2), notwithstanding any
other provision of this part to the contrary and in
accordance with regulations of the Secretary, the so-
ciety offering the plan may restrict the enrollment of
individuals under this part to individuals who are
310
members of the church, convention, or group de-
scribed in paragraph (3)(B) with which the society
is affiliated.
‘‘(2) MEDICAREPLUS
RELIGIOUS
FRATERNAL
BENEFIT SOCIETY PLAN DESCRIBED.—For purposes
of this subsection, a MedicarePlus religious fraternal
benefit society plan described in this paragraph is a
MedicarePlus 
plan 
described 
in 
section
1851(a)(2)(A) that—
‘‘(A) is offered by a religious fraternal ben-
efit society described in paragraph (3) only to
members of the church, convention, or group
described in paragraph (3)(B); and
‘‘(B) permits all such members to enroll
under the plan without regard to health status-
related factors.
Nothing in this subsection shall be construed as
waiving any plan requirements relating to financial
solvency. In developing solvency standards under
section 1856, the Secretary shall take into account
open contract and assessment features characteristic
of fraternal insurance certificates.
‘‘(3) RELIGIOUS FRATERNAL BENEFIT SOCIETY
DEFINED.—For purposes of paragraph (2)(A), a ‘re-
311
ligious fraternal benefit society’ described in this
section is an organization that—
‘‘(A) is exempt from Federal income tax-
ation under section 501(c)(8) of the Internal
Revenue Code of 1986;
‘‘(B) is affiliated with, carries out the te-
nets of, and shares a religious bond with, a
church or convention or association of churches
or an affiliated group of churches;
‘‘(C) offers, in addition to a MedicarePlus
religious fraternal benefit society plan, health
coverage to individuals not entitled to benefits
under this title who are members of such
church, convention, or group; and
‘‘(D) does not impose any limitation on
membership in the society based on any health
status-related factor.
‘‘(4) PAYMENT
ADJUSTMENT.—Under regula-
tions of the Secretary, in the case of individuals en-
rolled under this part under a MedicarePlus reli-
gious fraternal benefit society plan described in
paragraph (2), the Secretary shall provide for such
adjustment to the payment amounts otherwise estab-
lished under section 1854 as may be appropriate to
assure an appropriate payment level, taking into ac-
312
count the actuarial characteristics and experience of
such individuals.’’.
(b) REPORT ON COVERAGE OF BENEFICIARIES WITH
END-STAGE RENAL DISEASE.—The Secretary of Health
and Human Services shall provide for a study on the fea-
sibility and impact of removing the limitation under sec-
tion 1851(b)(3)(B) of the Social Security Act (as inserted
by subsection (a)) on eligibility of most individuals medi-
cally determined to have end-stage renal disease to enroll
in MedicarePlus plans. By not later than October 1, 1998,
the Secretary shall submit to Congress a report on such
study and shall include in the report such recommenda-
tions regarding removing or restricting the limitation as
may be appropriate.
(c) REPORT
ON MEDICAREPLUS TEACHING PRO-
GRAMS AND USE OF DSH AND TEACHING HOSPITALS.—
Based on the information provided to the Secretary of
Health and Human Services under section 1852(k) of the
Social Security Act and such information as the Secretary
may obtain, by not later than October 1, 1999, the Sec-
retary shall submit to Congress a report on graduate med-
ical education programs operated by MedicarePlus organi-
zations and the extent to which MedicarePlus organiza-
tions are providing for payments to hospitals described in
such section.
313
SEC. 4002. TRANSITIONAL RULES FOR CURRENT MEDICARE
HMO PROGRAM.
(a) AUTHORIZING TRANSITIONAL WAIVER OF 50:50
RULE.—Section 1876(f) (42 U.S.C. 1395mm(f)) is
amended—
(1) in paragraph (2), by striking ‘‘The Sec-
retary’’ and inserting ‘‘Subject to paragraph (4), the
Secretary’’, and
(2) by adding at the end the following new
paragraph:
‘‘(4) Effective for contract periods beginning after
December 31, 1996, the Secretary may waive or modify
the requirement imposed by paragraph (1) to the extent
the Secretary finds that it is in the public interest.’’.
(b) 
TRANSITION.—Section 
1876 
(42 
U.S.C.
1395mm) is amended by adding at the end the following
new subsection:
‘‘(k)(1) Except as provided in paragraph (3), the Sec-
retary shall not enter into, renew, or continue any risk-
sharing contract under this section with an eligible organi-
zation for any contract year beginning on or after—
‘‘(A) the date standards for MedicarePlus orga-
nizations and plans are first established under sec-
tion 1856 with respect to MedicarePlus organiza-
tions that are insurers or health maintenance orga-
nizations, or
314
‘‘(B) in the case of such an organization with
such a contract in effect as of the date such stand-
ards were first established, 1 year after such date.
‘‘(2) The Secretary shall not enter into, renew, or
continue any risk-sharing contract under this section with
an eligible organization for any contract year beginning
on or after January 1, 2000.
‘‘(3) An individual who is enrolled in part B only and
is enrolled in an eligible organization with a risk-sharing
contract under this section on December 31, 1998, may
continue enrollment in such organization in accordance
with regulations issued by not later then July 1, 1998.
‘‘(4) Notwithstanding subsection (a), the Secretary
shall provide that payment amounts under risk-sharing
contracts under this section for months in a year (begin-
ning with January 1998) shall be computed—
‘‘(A) with respect to individuals entitled to ben-
efits under both parts A and B, by substituting pay-
ment rates under section 1853(a) for the payment
rates 
otherwise 
established 
under 
subsection
1876(a), and
‘‘(B) with respect to individuals only entitled to
benefits under part B, by substituting an appro-
priate proportion of such rates (reflecting the rel-
ative proportion of payments under this title attrib-
315
utable to such part) for the payment rates otherwise
established under subsection (a).
For purposes of carrying out this paragraph for payments
for months in 1998, the Secretary shall compute, an-
nounce, and apply the payment rates under section
1853(a) (notwithstanding any deadlines specified in such
section) in as timely a manner as possible and may (to
the extent necessary) provide for retroactive adjustment
in payments made under this section not in accordance
with such rates.’’.
(c) ENROLLMENT TRANSITION RULE.—An individual
who is enrolled on December 31, 1998, with an eligible
organization under section 1876 of the Social Security Act
(42 U.S.C. 1395mm) shall be considered to be enrolled
with that organization on January 1, 1999, under part
C of title XVIII of such Act if that organization has a
contract under that part for providing services on January
1, 1999 (unless the individual has disenrolled effective on
that date).
(d) ADVANCE DIRECTIVES.—Section 1866(f) (42
U.S.C. 1395c(f)) is amended—
(1) in paragraph (1)—
(A) 
by 
inserting 
‘‘1855(i),’’ 
after
‘‘1833(s),’’, and
316
(B) by inserting ‘‘, MedicarePlus organiza-
tion,’’ after ‘‘provider of services’’; and
(2) in paragraph (2)(E), by inserting ‘‘or a
MedicarePlus 
organization’’ 
after 
‘‘section
1833(a)(1)(A)’’.
(e) EXTENSION OF PROVIDER REQUIREMENT.—Sec-
tion 1866(a)(1)(O) (42 U.S.C. 1395cc(a)(1)(O)) is
amended—
(1) by striking ‘‘in the case of hospitals and
skilled nursing facilities,’’;
(2) by striking ‘‘inpatient hospital and extended
care’’;
(3) by inserting ‘‘with a MedicarePlus organiza-
tion under part C or’’ after ‘‘any individual en-
rolled’’;
(4) by striking ‘‘(in the case of hospitals) or
limits (in the case of skilled nursing facilities)’’; and
(5) by inserting ‘‘(less any payments under sec-
tion 1858)’’ after ‘‘under this title’’.
(f) ADDITIONAL CONFORMING CHANGES.—
(1) CONFORMING
REFERENCES
TO
PREVIOUS
PART C.—Any reference in law (in effect before the
date of the enactment of this Act) to part C of title
XVIII of the Social Security Act is deemed a ref-
317
erence to part D of such title (as in effect after such
date).
(2) SECRETARIAL SUBMISSION OF LEGISLATIVE
PROPOSAL.—Not later than 90 days after the date
of the enactment of this Act, the Secretary of
Health and Human Services shall submit to the ap-
propriate committees of Congress a legislative pro-
posal providing for such technical and conforming
amendments in the law as are required by the provi-
sions of this chapter.
(g) IMMEDIATE EFFECTIVE DATE FOR CERTAIN RE-
QUIREMENTS
FOR
DEMONSTRATIONS.—Section
1857(e)(2) of the Social Security Act (requiring contribu-
tion to certain costs related to the enrollment process com-
parative materials) applies to demonstrations with respect
to which enrollment is effected or coordinated under sec-
tion 1851 of such Act.
(h) USE
OF INTERIM, FINAL REGULATIONS.—In
order to carry out the amendments made by this chapter
in a timely manner, the Secretary of Health and Human
Services may promulgate regulations that take effect on
an interim basis, after notice and pending opportunity for
public comment.
(i) TRANSITION RULE FOR PSO ENROLLMENT.—In
applying subsection (g)(1) of section 1876 of the Social
318
Security Act (42 U.S.C. 1395mm) to a risk-sharing con-
tract entered into with an eligible organization that is a
provider-sponsored organization (as defined in section
1855(e)(1) of such Act, as inserted by section 4001) for
a contract year beginning on or after January 1, 1998,
there shall be substituted for the minimum number of en-
rollees provided under such section the minimum number
of enrollees permitted under section 1857(b)(1) of such
Act (as so inserted).
SEC. 4003. CONFORMING CHANGES IN MEDIGAP PROGRAM.
(a) CONFORMING AMENDMENTS TO MEDICAREPLUS
CHANGES.—
(1) IN GENERAL.—Section 1882(d)(3)(A)(i) (42
U.S.C. 1395ss(d)(3)(A)(i)) is amended—
(A) in the matter before subclause (I), by
inserting ‘‘(including an individual electing a
MedicarePlus plan under section 1851)’’ after
‘‘of this title’’; and
(B) in subclause (II)—
(i) by inserting ‘‘in the case of an in-
dividual not electing a MedicarePlus plan’’
after ‘‘(II)’’, and
(ii) by inserting before the comma at
the end the following: ‘‘or in the case of an
individual electing a MedicarePlus plan, a
319
medicare supplemental policy with knowl-
edge that the policy duplicates health bene-
fits to which the individual is otherwise en-
titled under the MedicarePlus plan or
under another medicare supplemental pol-
icy’’.
(2) 
CONFORMING
AMENDMENTS.—Section
1882(d)(3)(B)(i)(I) 
(42 
U.S.C.
1395ss(d)(3)(B)(i)(I)) is amended by inserting ‘‘(in-
cluding any MedicarePlus plan)’’ after ‘‘health in-
surance policies’’.
(3) MEDICAREPLUS PLANS NOT TREATED AS
MEDICARE
SUPPLEMENTARY
POLICIES.—Section
1882(g)(1) (42 U.S.C. 1395ss(g)(1)) is amended by
inserting ‘‘or a MedicarePlus plan or’’ after ‘‘does
not include’’
(b) ADDITIONAL RULES RELATING TO INDIVIDUALS
ENROLLED IN MSA PLANS.—Section 1882 (42 U.S.C.
1395ss) is further amended by adding at the end the fol-
lowing new subsection:
‘‘(u)(1) It is unlawful for a person to sell or issue
a policy described in paragraph (2) to an individual with
knowledge that the individual has in effect under section
1851 an election of an MSA plan.
320
‘‘(2) A policy described in this subparagraph is a
health insurance policy that provides for coverage of ex-
penses that are otherwise required to be counted toward
meeting the annual deductible amount provided under the
MSA plan.’’.
Subchapter B—Special Rules for
MedicarePlus Medical Savings Accounts
SEC. 4006. MEDICAREPLUS MSA.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
amounts specifically excluded from gross income) is
amended by redesignating section 138 as section 139 and
by inserting after section 137 the following new section:
‘‘SEC. 138. MEDICAREPLUS MSA.
‘‘(a) EXCLUSION.—Gross income shall not include
any payment to the MedicarePlus MSA of an individual
by the Secretary of Health and Human Services under
part C of title XVIII of the Social Security Act.
‘‘(b) MEDICAREPLUS MSA.—For purposes of this
section, the term ‘MedicarePlus MSA’ means a medical
savings account (as defined in section 220(d))—
‘‘(1) which is designated as a MedicarePlus
MSA,
‘‘(2) with respect to which no contribution may
be made other than—
321
‘‘(A) a contribution made by the Secretary
of Health and Human Services pursuant to
part C of title XVIII of the Social Security Act,
or
‘‘(B) a trustee-to-trustee transfer described
in subsection (c)(4),
‘‘(3) the governing instrument of which pro-
vides that trustee-to-trustee transfers described in
subsection (c)(4) may be made to and from such ac-
count, and
‘‘(4) which is established in connection with an
MSA plan described in section 1859(b)(2) of the So-
cial Security Act.
‘‘(c) SPECIAL RULES FOR DISTRIBUTIONS.—
‘‘(1) DISTRIBUTIONS FOR QUALIFIED MEDICAL
EXPENSES.—In 
applying 
section 
220 
to 
a
MedicarePlus MSA—
‘‘(A) qualified medical expenses shall not
include amounts paid for medical care for any
individual other than the account holder, and
‘‘(B) section 220(d)(2)(C) shall not apply.
‘‘(2) PENALTY
FOR
DISTRIBUTIONS
FROM
MEDICAREPLUS
MSA
NOT
USED
FOR
QUALIFIED
MEDICAL
EXPENSES
IF
MINIMUM
BALANCE
NOT
MAINTAINED.—
322
‘‘(A) IN GENERAL.—The tax imposed by
this chapter for any taxable year in which there
is 
a 
payment 
or 
distribution 
from 
a
MedicarePlus MSA which is not used exclu-
sively to pay the qualified medical expenses of
the account holder shall be increased by 50 per-
cent of the excess (if any) of—
‘‘(i) the amount of such payment or
distribution, over
‘‘(ii) the excess (if any) of—
‘‘(I) the fair market value of the
assets in such MSA as of the close of
the calendar year preceding the cal-
endar year in which the taxable year
begins, over
‘‘(II) an amount equal to 60 per-
cent of the deductible under the
MedicarePlus MSA plan covering the
account holder as of January 1 of the
calendar year in which the taxable
year begins.
Section 220(f)(2) shall not apply to any pay-
ment or distribution from a MedicarePlus MSA.
323
‘‘(B) 
EXCEPTIONS.—Subparagraph 
(A)
shall not apply if the payment or distribution is
made on or after the date the account holder—
‘‘(i) becomes disabled within the
meaning of section 72(m)(7), or
‘‘(ii) dies.
‘‘(C) SPECIAL
RULES.—For purposes of
subparagraph (A)—
‘‘(i) all MedicarePlus MSAs of the ac-
count holder shall be treated as 1 account,
‘‘(ii) all payments and distributions
not used exclusively to pay the qualified
medical expenses of the account holder
during any taxable year shall be treated as
1 distribution, and
‘‘(iii) any distribution of property
shall be taken into account at its fair mar-
ket value on the date of the distribution.
‘‘(3) WITHDRAWAL OF ERRONEOUS CONTRIBU-
TIONS.—Section 220(f)(2) and paragraph (2) of this
subsection shall not apply to any payment or dis-
tribution from a MedicarePlus MSA to the Secretary
of Health and Human Services of an erroneous con-
tribution to such MSA and of the net income attrib-
utable to such contribution.
324
‘‘(4) TRUSTEE-TO-TRUSTEE TRANSFERS.—Sec-
tion 220(f)(2) and paragraph (2) of this subsection
shall not apply to any trustee-to-trustee transfer
from a MedicarePlus MSA of an account holder to
another MedicarePlus MSA of such account holder.
‘‘(d) SPECIAL RULES FOR TREATMENT OF ACCOUNT
AFTER DEATH OF ACCOUNT HOLDER.—In applying sec-
tion 220(f)(8)(A) to an account which was a MedicarePlus
MSA of a decedent, the rules of section 220(f) shall apply
in lieu of the rules of subsection (c) of this section with
respect to the spouse as the account holder of such
MedicarePlus MSA.
‘‘(e) REPORTS.—In the case of a MedicarePlus MSA,
the report under section 220(h)—
‘‘(1) shall include the fair market value of the
assets in such MedicarePlus MSA as of the close of
each calendar year, and
‘‘(2) shall be furnished to the account holder—
‘‘(A) not later than January 31 of the cal-
endar year following the calendar year to which
such reports relate, and
‘‘(B) in such manner as the Secretary pre-
scribes in such regulations.
‘‘(f) COORDINATION WITH LIMITATION ON NUMBER
OF TAXPAYERS HAVING MEDICAL SAVINGS ACCOUNTS.—
325
Subsection (i) of section 220 shall not apply to an individ-
ual 
with 
respect 
to 
a 
MedicarePlus 
MSA, 
and
MedicarePlus MSA’s shall not be taken into account in
determining whether the numerical limitations under sec-
tion 220(j) are exceeded.’’
(b) TECHNICAL AMENDMENTS.—
(1) The last sentence of section 4973(d) of such
Code is amended by inserting ‘‘or section 138(c)(3)’’
after ‘‘section 220(f)(3)’’.
(2) Subsection (b) of section 220 of such Code
is amended by adding at the end the following new
paragraph:
‘‘(7) MEDICARE ELIGIBLE INDIVIDUALS.—The
limitation under this subsection for any month with
respect to an individual shall be zero for the first
month such individual is entitled to benefits under
title XVIII of the Social Security Act and for each
month thereafter.’’
(3) 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. 138. MedicarePlus MSA.
‘‘Sec. 139. Cross references to other Acts.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1998.
326
Subchapter C—GME, IME, and DSH
Payments for Managed Care Enrollees
SEC. 4008. GRADUATE MEDICAL EDUCATION AND INDIRECT
MEDICAL EDUCATION PAYMENTS FOR MAN-
AGED CARE ENROLLEES.
(a) PAYMENTS TO MANAGED CARE ORGANIZATIONS
OPERATING
GRADUATE
MEDICAL
EDUCATION
PRO-
GRAMS.—Section 1853 (as inserted by section 4001) is
amended by adding at the end the following:
‘‘(h) PAYMENTS FOR DIRECT COSTS OF GRADUATE
MEDICAL EDUCATION PROGRAMS.—
‘‘(1) ADDITIONAL PAYMENT TO BE MADE.—Ef-
fective January 1, 1998, each contract with a
MedicarePlus organization under this section (and
each risk-sharing contract with an eligible organiza-
tion under section 1876) shall provide for an addi-
tional payment for Medicare’s share of allowable di-
rect graduate medical education costs incurred by
such an organization for an approved medical resi-
dency program.
‘‘(2) ALLOWABLE COSTS.—If the organization
has an approved medical residency program that in-
curs all or substantially all of the costs of the pro-
gram, subject to section 1858(a)(3), the allowable
costs for such a program shall equal the national av-
327
erage per resident amount times the number of full-
time-equivalent residents in the program in non-hos-
pital settings.
‘‘(3) DEFINITIONS.—As used in this subsection:
‘‘(A) The terms ‘approved medical resi-
dency program’, ‘direct graduate medical edu-
cation costs’, and ‘full-time-equivalent residents’
have the same meanings as under section
1886(h).
‘‘(B) The term ‘Medicare’s share’ means,
with respect to a MedicarePlus or eligible orga-
nization, the ratio of the number of individuals
enrolled with the organization under this part
(or enrolled under a risk-sharing contract under
section 1876, respectively) to the total number
of individuals enrolled with the organization.
‘‘(C) The term ‘national average per resi-
dent amount’ means an amount estimated by
the Secretary to equal the weighted average
amount that would be paid per full-time-equiva-
lent resident under section 1886(h) for the cal-
endar year (determined separately for primary
care residency programs as defined under sec-
tion 1886(h) (including obstetrics and gyne-
328
cology residency programs) and for other resi-
dency programs).’’.
(b) PAYMENTS TO HOSPITALS FOR DIRECT AND IN-
DIRECT COSTS OF GRADUATE MEDICAL EDUCATION PRO-
GRAMS ATTRIBUTABLE
TO MANAGED CARE ENROLL-
EES.—Part C of title XVIII, as amended by section 4001,
is amended by inserting after section 1857 the following
new section:
‘‘PAYMENTS TO HOSPITALS FOR CERTAIN COSTS
ATTRIBUTABLE TO MANAGED CARE ENROLLEES
‘‘SEC. 1858. (a) COSTS
OF GRADUATE MEDICAL
EDUCATION.—
‘‘(1) IN GENERAL.—For portions of cost report-
ing periods occurring on or after January 1, 1998,
the Secretary shall provide for an additional pay-
ment amount for each subsection (d) hospital (as de-
fined in section 1886(d)(1)(B)), each PPS-exempt
hospital described in clause (i) through (v) of such
section, and for each hospital reimbursed under a re-
imbursement system authorized section 1814(b)(3)
that—
‘‘(A) furnishes services to individuals who
are enrolled under a risk-sharing contract with
an eligible organization under section 1876 and
who are entitled to part A and to individuals
329
who are enrolled with a MedicarePlus organiza-
tion under part C, and
‘‘(B) has an approved medical residency
training program.
‘‘(2) PAYMENT AMOUNT.—
‘‘(A) IN GENERAL.—Subject to paragraph
(3)(B), the amount of the payment under this
subsection shall be the sum of—
‘‘(i) the amount determined under
subparagraph (B), and
‘‘(ii) the amount determined under
subparagraph (C).
Clause (ii) shall not apply in the case of a hos-
pital that is not a PPS-exempt hospital de-
scribed in clause (i) through (v) of section
1886(d)(1)(B),
‘‘(B) DIRECT AMOUNT.—The amount de-
termined under this subparagraph for a period
is equal to the product of—
‘‘(i) the aggregate approved amount
(as defined in section 1886(h)(3)(B)) for
that period; and
‘‘(ii) the fraction of the total number
of inpatient-bed-days (as established by the
Secretary) during the period which are at-
330
tributable to individuals described in para-
graph (1).
‘‘(C) INDIRECT AMOUNT.—The amount de-
termined under this subparagraph is equal to
the product of—
‘‘(i) the amount of the indirect teach-
ing adjustment factor applicable to the
hospital under section 1886(d)(5)(B); and
‘‘(ii) the product of—
‘‘(I) the number of discharges at-
tributable to individuals described in
paragraph (1), and
‘‘(II) the estimated average per
discharge amount that would other-
wise have been paid under section
1886(d)(1)(A) if the individuals had
not been enrolled as described in such
paragraph.
‘‘(D) SPECIAL RULE.—The Secretary shall
establish rules for the application of subpara-
graph (B) and for the computation of the
amounts described in subparagraph (C)(i)) and
subparagraph (C)(ii)(I) to a hospital reim-
bursed under a reimbursement system author-
ized under section 1814(b)(3) in a manner simi-
331
lar to the manner of applying such subpara-
graph and computing such amounts as if the
hospital were not reimbursed under such sec-
tion.
‘‘(3) LIMITATION.—
‘‘(A) DETERMINATIONS.—At the beginning
of each year, the Secretary shall—
‘‘(i) estimate the sum of the amount
of the payments under this subsection and
the payments under section 1853(h), for
services or discharges occurring in the
year, and
‘‘(ii) determine the amount of the an-
nual payment limit under subparagraph
(C) for such year.
‘‘(B) 
IMPOSITION
OF
LIMIT.—If 
the
amount estimated under subparagraph (A)(i)
for a year exceeds the amount determined
under subparagraph (A)(ii) for the year, then
the Secretary shall adjust the amounts of the
payments described in subparagraph (A)(i) for
the year in a pro rata manner so that the total
of such payments in the year do not exceed the
annual payment limit determined under sub-
paragraph (A)(ii) for that year.
332
‘‘(C) ANNUAL PAYMENT LIMIT.—
‘‘(i) IN GENERAL.—The annual pay-
ment limit under this subparagraph for a
year is the sum, over all counties or
MedicarePlus payment areas, of the prod-
uct of—
‘‘(I) the annual GME per capita
payment rate (described in clause (ii))
for the county or area, and
‘‘(II) the Secretary’s projection
of average enrollment of individuals
described in paragraph (1) who are
residents of that county or area, ad-
justed to reflect the relative demo-
graphic or risk characteristics of such
enrollees.
‘‘(ii) GME 
PER
CAPITA
PAYMENT
RATE.—The GME per capita payment rate
described in this clause for a particular
county or MedicarePlus payment area for
a year is the GME proportion (as specified
in clause (iii)) of the annual MedicarePlus
capitation rate (as calculated under section
1853(c)) for the county or area and year
involved.
333
‘‘(iii) GME PROPORTION.—For pur-
poses of clause (ii), the GME proportion
for a county or area and a year is equal to
the phase-in percentage (specified in clause
(vi)) of the ratio of (I) the projected GME
payment amount for the county or area (as
determined under clause (v)), to (II) the
average per capita cost for the county or
area for the year (determined under clause
(vi)).
‘‘(iv) PHASE-IN
PERCENTAGE.—The
phase-in percentage specified in this clause
for—
‘‘(I) 1998 is 20 percent,
‘‘(II) 1999 is 40 percent,
‘‘(III) 2000 is 60 percent,
‘‘(IV) 2001 is 80 percent, or
‘‘(V) any subsequent year is 100
percent.
‘‘(v) 
PROJECTED
GME 
PAYMENT
AMOUNT.—he projected GME payment
amount for a county or area—
‘‘(I) for 1998, is the amount in-
cluded in the per capita rate of pay-
ment for 1997 determined under sec-
334
tion 1876(a)(1)(C) for the payment
adjustments 
described 
in 
section
1886(d)(5)(B) and section 1886(h)
for that county or area, adjusted by
the general GME update factor (as
defined in clause (vii)) for 1998, or
‘‘(II) for a subsequent year, is
the projected GME payment amount
for the county or area for the previous
year, adjusted by the general GME
update factor for such subsequent
year.
The Secretary shall determine the amount described in
subclause (I) for a county or other area that includes hos-
pitals reimbursed under section 1814(b)(3) as though
such hospitals had not been reimbursed under such sec-
tion.
‘‘(vi) AVERAGE PER CAPITA COST.—
The average per capita cost for the county
or area determined under this clause for—
‘‘(I) 1998 is the annual per cap-
ita rate of payment for 1997 deter-
mined under section 1876(a)(1)(C)
for the county or area, increased by
the national per capita MedicarePlus
335
growth percentage for 1998 (as de-
fined in section 1853(c)(6), but deter-
mined without regard to the adjust-
ment described in subparagraph (B)
of such section); or
‘‘(II) a subsequent year is the av-
erage per capita cost determined
under this clause for the previous year
increased by the national per capita
MedicarePlus growth percentage for
the year involved (as defined in sec-
tion 1853(c)(6), but determined with-
out regard to the adjustment de-
scribed in subparagraph (B) of such
section).
‘‘(vii) GENERAL
GME
UPDATE
FAC-
TOR.—For purposes of clause (v), the ‘gen-
eral GME update factor’ for a year is
equal to the Secretary’s estimate of the na-
tional average percentage change in aver-
age per capita payments under sections
1886(d)(5)(B) and 1886(h) from the pre-
vious year to the year involved. Such
amount takes into account changes in law
336
and regulation affecting payment amounts
under such sections.’’.
SEC. 4009. DISPROPORTIONATE SHARE HOSPITAL PAY-
MENTS FOR MANAGED CARE ENROLLEES.
Section 1858, as inserted by section 4008(b), is fur-
ther amended by adding at the end the following new sub-
section:
‘‘(b) DISPROPORTIONATE SHARE HOSPITAL PAY-
MENTS.—
‘‘(1) IN GENERAL.—For portions of cost report-
ing periods occurring on or after January 1, 1998,
the Secretary shall provide for an additional pay-
ment amount for each subsection (d) hospital (as de-
fined in section 1886(d)(1)(B)) and for each hospital
reimbursed a demonstration project reimbursement
system under section 1814(b)(3) that—
‘‘(A) furnishes services to individuals who are
enrolled under a risk-sharing contract with an
eligible organization under section 1876 and
who are entitled to part A and to individuals
who are enrolled with a MedicarePlus organiza-
tion under this part, and
‘‘(B) is (or, if it were not reimbursed
under section 1814(b)(3), would qualify as) a
337
disproportionate share hospital described in sec-
tion 1886(d)(5)(F)(i).
‘‘(2) AMOUNT OF PAYMENT.—Subject to para-
graph (3)(B), the amount of the payment under this
subsection shall be the product of—
‘‘(A) the amount of the disproportionate
share adjustment percentage applicable to the
hospital under section 1886(d)(5)(F); and
‘‘(B) the product described in subsection
(a)(2)(C)(ii).
The Secretary shall establish rules for the computa-
tion of the amount described in subparagraph (A)
for a hospital reimbursed under section 1814(b)(3).
‘‘(3) LIMIT.—
‘‘(A) DETERMINATION.—At the beginning
of each year, the Secretary shall—
‘‘(i) estimate the sum of the payments
under this subsection for services or dis-
charges occurring in the year, and
‘‘(ii) determine the amount of the an-
nual payment limit under subparagraph
(C)) for such year.
‘‘(B) 
IMPOSITION
OF
LIMIT.—If 
the
amount estimated under subparagraph (A)(i)
for a year exceeds the amount determined
338
under subparagraph (A)(ii) for the year, then
the Secretary shall adjust the amounts of the
payments under this subsection for the year in
a pro rata manner so that the total of such
payments in the year do not exceed the annual
payment limit determined under subparagraph
(A)(ii) for that year.
‘‘(C) ANNUAL PAYMENT LIMIT.—The an-
nual payment limit under this subparagraph for
a year shall be determined in the same manner
as the annual payment limit is determined
under clause (i) of subsection (a)(3)(C), except
that, for purposes of this clause, any reference
in clauses (i) through (vii) of such subsection—
‘‘(i) to a payment adjustment under
subsection (a) is deemed a reference to a
payment adjustment under this subsection,
or
‘‘(ii) to payments or payment adjust-
ments under section 1886(d)(5)(B) and
1886(h) is deemed a reference to payments
and payment adjustments under section
1886(d)(5)(F).’’.
339
CHAPTER 2—INTEGRATED LONG-TERM
CARE PROGRAMS
Subchapter A—Programs of All-inclusive
Care for the Elderly (PACE)
SEC. 4011. REFERENCE TO COVERAGE OF PACE UNDER THE
MEDICARE PROGRAM.
For provision amending title XVIII of the Social Se-
curity Act to provide for payments to, and coverage of ben-
efits under, Programs of All-inclusive Care for the Elderly
(PACE), see section 3431.
SEC. 4012. REFERENCE TO ESTABLISHMENT OF PACE PRO-
GRAM AS MEDICAID STATE OPTION.
For provision amending title XIX of the Social Secu-
rity Act to establish the PACE program as a medicaid
State option, see section 3432.
Subchapter B—Social Health Maintenance
Organizations
SEC. 4015. SOCIAL HEALTH MAINTENANCE ORGANIZATIONS
(SHMOS).
(a) EXTENSION OF DEMONSTRATION PROJECT AU-
THORITIES.—Section 4018(b) of the Omnibus Budget
Reconciliation Act of 1987 is amended—
(1) in paragraph (1), by striking ‘‘1997’’ and
inserting ‘‘2000’’, and
340
(2) in paragraph (4), by striking ‘‘1998’’ and
inserting ‘‘2001’’.
(b) EXPANSION OF CAP.—Section 13567(c) of the
Omnibus Budget Reconciliation Act of 1993 is amended
by striking ‘‘12,000’’ and inserting ‘‘36,000’’.
(b) REPORT ON INTEGRATION AND TRANSITION.—
(1) IN GENERAL.—The Secretary of Health and
Human Services shall submit to Congress, by not
later than January 1, 1999, a plan for the integra-
tion of health plans offered by social health mainte-
nance organizations (including SHMO I and SHMO
II sites developed under section 2355 of the Deficit
Reduction Act of 1984 and under the amendment
made by section 4207(b)(3)(B)(i) of OBRA–1990,
respectively) and similar plans as an option under
the MedicarePlus program under part C of title
XVIII of the Social Security Act.
(2) PROVISION
FOR
TRANSITION.—Such plan
shall include a transition for social health mainte-
nance organizations operating under demonstration
project authority under such section.
(3) PAYMENT POLICY.—The report shall also
include recommendations on appropriate payment
levels for plans offered by such organizations, includ-
ing an analysis of the application of risk adjustment
341
factors appropriate to the population served by such
organizations.
Subchapter C—Other Programs
SEC. 4018. ORDERLY TRANSITION OF MUNICIPAL HEALTH
SERVICE DEMONSTRATION PROJECTS.
Section 9215 of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended by section 6135
of OBRA–1989 and section 13557 of OBRA–1993, is fur-
ther amended—
(1) by inserting ‘‘(a)’’ before ‘‘The Secretary’’,
and
(2) by adding at the end the following: ‘‘Subject
to subsection (c), the Secretary may further extend
such demonstration projects through December 31,
2000, but only with respect to individuals are en-
rolled with such projects before January 1, 1998.
‘‘(b) The Secretary shall work with each such dem-
onstration project to develop a plan, to be submitted to
the Committee on Ways and Means of the House of Rep-
resentatives and the Committee on Finance of the Senate
by March 31, 1998, for the orderly transition of dem-
onstration projects and the project enrollees to a non-dem-
onstration project health care delivery system, such as
through integration with private or public health plan, in-
cluding a medicaid managed care or MedicarePlus plan.
342
‘‘(c) A demonstration project under subsection (a)
which does not develop and submit a transition plan under
subsection (b) by March 31, 1998, or, if later, 6 months
after the date of the enactment of this Act, shall be discon-
tinued as of December 31, 1998. The Secretary shall pro-
vide appropriate technical assistance to assist in the tran-
sition so that disruption of medical services to project en-
rollees may be minimized.’’.
SEC. 4019. EXTENSION OF CERTAIN MEDICARE COMMUNITY
NURSING ORGANIZATION DEMONSTRATION
PROJECTS.
Notwithstanding any other provision of law, dem-
onstration projects conducted under section 4079 of the
Omnibus Budget Reconciliation Act of 1987 may be con-
ducted for an additional period of 2 years, and the dead-
line for any report required relating to the results of such
projects shall be not later than 6 months before the end
of such additional period.
CHAPTER 3—MEDICARE PAYMENT
ADVISORY COMMISSION
SEC. 4021. MEDICARE PAYMENT ADVISORY COMMISSION.
(a) IN GENERAL.—Title XVIII is amended by insert-
ing after section 1804 the following new section:
343
‘‘MEDICARE PAYMENT ADVISORY COMMISSION
‘‘SEC. 1805. (a) ESTABLISHMENT.—There is hereby
established the Medicare Payment Advisory Commission
(in this section referred to as the ‘Commission’).
‘‘(b) DUTIES.—
‘‘(1) REVIEW OF PAYMENT POLICIES AND AN-
NUAL REPORTS.—The Commission shall—
‘‘(A) review payment policies under this
title, including the topics described in para-
graph (2);
‘‘(B) make recommendations to Congress
concerning such payment policies; and
‘‘(C) by not later than March 1 of each
year (beginning with 1998), submit a report to
Congress containing the results of such reviews
and its recommendations concerning such poli-
cies and an examination of issues affecting the
medicare program.
‘‘(2) SPECIFIC TOPICS TO BE REVIEWED.—
‘‘(A) MEDICAREPLUS
PROGRAM.—Specifi-
cally, the Commission shall review, with respect
to the MedicarePlus program under part C, the
following:
‘‘(i) The methodology for making pay-
ment to plans under such program, includ-
344
ing the making of differential payments
and the distribution of differential updates
among different payment areas.
‘‘(ii) The mechanisms used to adjust
payments for risk and the need to adjust
such mechanisms to take into account
health status of beneficiaries.
‘‘(iii) The implications of risk selec-
tion both among MedicarePlus organiza-
tions and between the MedicarePlus option
and the medicare fee-for-service option.
‘‘(iv) The development and implemen-
tation of mechanisms to assure the quality
of 
care 
for 
those 
enrolled 
with
MedicarePlus organizations.
‘‘(v) The impact of the MedicarePlus
program on access to care for medicare
beneficiaries.
‘‘(vi) The appropriate role for the
medicare program in addressing the needs
of individuals with chronic illnesses.
‘‘(vii) Other major issues in imple-
mentation and further development of the
MedicarePlus program.
345
‘‘(B) FEE-FOR-SERVICE SYSTEM.—Specifi-
cally, the Commission shall review payment
policies under parts A and B, including—
‘‘(i) the factors affecting expenditures
for services in different sectors, including
the process for updating hospital, skilled
nursing facility, physician, and other fees,
‘‘(ii) payment methodologies, and
‘‘(iii) their relationship to access and
quality of care for medicare beneficiaries.
‘‘(C) INTERACTION
OF
MEDICARE
PAY-
MENT POLICIES WITH HEALTH CARE DELIVERY
GENERALLY.—Specifically, 
the 
Commission
shall review the effect of payment policies under
this title on the delivery of health care services
other than under this title and assess the impli-
cations of changes in health care delivery in the
United States and in the general market for
health care services on the medicare program.
‘‘(3) COMMENTS ON CERTAIN SECRETARIAL RE-
PORTS.—If the Secretary submits to Congress (or a
committee of Congress) a report that is required by
law and that relates to payment policies under this
title, the Secretary shall transmit a copy of the re-
port to the Commission. The Commission shall re-
346
view the report and, not later than 6 months after
the date of submittal of the Secretary’s report to
Congress, shall submit to the appropriate commit-
tees of Congress written comments on such report.
Such comments may include such recommendations
as the Commission deems appropriate.
‘‘(4) AGENDA AND ADDITIONAL REVIEWS.—The
Commission shall consult periodically with the chair-
men and ranking minority members of the appro-
priate committees of Congress regarding the Com-
mission’s agenda and progress towards achieving the
agenda. The Commission may conduct additional re-
views, and submit additional reports to the appro-
priate committees of Congress, from time to time on
such topics relating to the program under this title
as may be requested by such chairmen and members
and as the Commission deems appropriate.
‘‘(5) AVAILABILITY
OF
REPORTS.—The Com-
mission shall transmit to the Secretary a copy of
each report submitted under this subsection and
shall make such reports available to the public.
‘‘(6) APPROPRIATE
COMMITTEES.—For pur-
poses of this section, the term ‘appropriate commit-
tees of Congress’ means the Committees on Ways
and Means and Commerce of the House of Rep-
347
resentatives and the Committee on Finance of the
Senate.
‘‘(c) MEMBERSHIP.—
‘‘(1) NUMBER AND APPOINTMENT.—The Com-
mission shall be composed of 11 members appointed
by the Comptroller General.
‘‘(2) QUALIFICATIONS.—
‘‘(A) IN
GENERAL.—The membership of
the Commission shall include individuals with
national recognition for their expertise in health
finance and economics, actuarial science, health
facility management, health plans and inte-
grated delivery systems, reimbursement of
health facilities, allopathic and osteopathic phy-
sicians, and other providers of health services,
and other related fields, who provide a mix of
different professionals, broad geographic rep-
resentation, and a balance between urban and
rural representatives.
‘‘(B) INCLUSION.—The membership of the
Commission shall include (but not be limited to)
physicians and other health professionals, em-
ployers, third party payers, individuals skilled
in the conduct and interpretation of biomedical,
health services, and health economics research
348
and expertise in outcomes and effectiveness re-
search and technology assessment. Such mem-
bership shall also include representatives of con-
sumers and the elderly.
‘‘(C) MAJORITY NONPROVIDERS.—Individ-
uals who are directly involved in the provision,
or management of the delivery, of items and
services covered under this title shall not con-
stitute a majority of the membership of the
Commission.
‘‘(D) ETHICAL DISCLOSURE.—The Comp-
troller General shall establish a system for pub-
lic disclosure by members of the Commission of
financial and other potential conflicts of interest
relating to such members.
‘‘(3) TERMS.—
‘‘(A) IN GENERAL.—The terms of mem-
bers of the Commission shall be for 3 years ex-
cept that the Comptroller General shall des-
ignate staggered terms for the members first
appointed.
‘‘(B) VACANCIES.—Any member appointed
to fill a vacancy occurring before the expiration
of the term for which the member’s predecessor
was appointed shall be appointed only for the
349
remainder of that term. A member may serve
after the expiration of that member’s term until
a successor has taken office. A vacancy in the
Commission shall be filled in the manner in
which the original appointment was made.
‘‘(4) COMPENSATION.—While serving on the
business of the Commission (including traveltime), a
member of the Commission shall be entitled to com-
pensation at the per diem equivalent of the rate pro-
vided for level IV of the Executive Schedule under
section 5315 of title 5, United States Code; and
while so serving away from home and member’s reg-
ular place of business, a member may be allowed
travel expenses, as authorized by the Chairman of
the Commission. Physicians serving as personnel of
the Commission may be provided a physician com-
parability allowance by the Commission in the same
manner as Government physicians may be provided
such an allowance by an agency under section 5948
of title 5, United States Code, and for such purpose
subsection (i) of such section shall apply to the Com-
mission in the same manner as it applies to the Ten-
nessee Valley Authority. For purposes of pay (other
than pay of members of the Commission) and em-
ployment benefits, rights, and privileges, all person-
350
nel of the Commission shall be treated as if they
were employees of the United States Senate.
‘‘(5) CHAIRMAN; VICE CHAIRMAN.—The Comp-
troller General shall designate a member of the
Commission, at the time of appointment of the mem-
ber, as Chairman and a member as Vice Chairman
for that term of appointment.
‘‘(6) MEETINGS.—The Commission shall meet
at the call of the Chairman.
‘‘(d) DIRECTOR AND STAFF; EXPERTS AND CON-
SULTANTS.—Subject to such review as the Comptroller
General deems necessary to assure the efficient adminis-
tration of the Commission, the Commission may—
‘‘(1) employ and fix the compensation of an Ex-
ecutive Director (subject to the approval of the
Comptroller General) and such other personnel as
may be necessary to carry out its duties (without re-
gard to the provisions of title 5, United States Code,
governing appointments in the competitive service);
‘‘(2) seek such assistance and support as may
be required in the performance of its duties from ap-
propriate Federal departments and agencies;
‘‘(3) enter into contracts or make other ar-
rangements, as may be necessary for the conduct of
351
the work of the Commission (without regard to sec-
tion 3709 of the Revised Statutes (41 U.S.C. 5));
‘‘(4) make advance, progress, and other pay-
ments which relate to the work of the Commission;
‘‘(5) provide transportation and subsistence for
persons serving without compensation; and
‘‘(6) prescribe such rules and regulations as it
deems necessary with respect to the internal organi-
zation and operation of the Commission.
‘‘(e) POWERS.—
‘‘(1) OBTAINING
OFFICIAL
DATA.—The Com-
mission may secure directly from any department or
agency of the United States information necessary
to enable it to carry out this section. Upon request
of the Chairman, the head of that department or
agency shall furnish that information to the Com-
mission on an agreed upon schedule.
‘‘(2) DATA COLLECTION.—In order to carry out
its functions, the Commission shall—
‘‘(A) utilize existing information, both pub-
lished and unpublished, where possible, collected
and assessed either by its own staff or under
other arrangements made in accordance with
this section,
352
‘‘(B) carry out, or award grants or con-
tracts for, original research and experimen-
tation, where existing information is inad-
equate, and
‘‘(C) adopt procedures allowing any inter-
ested party to submit information for the Com-
mission’s use in making reports and rec-
ommendations.
‘‘(3) ACCESS OF GAO TO INFORMATION.—The
Comptroller General shall have unrestricted access
to all deliberations, records, and nonproprietary data
of the Commission, immediately upon request.
‘‘(4) PERIODIC AUDIT.—The Commission shall
be subject to periodic audit by the Comptroller Gen-
eral.
‘‘(f) AUTHORIZATION OF APPROPRIATIONS.—
‘‘(1) REQUEST
FOR
APPROPRIATIONS.—The
Commission shall submit requests for appropriations
in the same manner as the Comptroller General sub-
mits requests for appropriations, but amounts ap-
propriated for the Commission shall be separate
from amounts appropriated for the Comptroller Gen-
eral.
‘‘(2) AUTHORIZATION.—There are authorized to
be appropriated such sums as may be necessary to
353
carry out the provisions of this section. 60 percent
of such appropriation shall be payable from the Fed-
eral Hospital Insurance Trust Fund, and 40 percent
of such appropriation shall be payable from the Fed-
eral 
Supplementary 
Medical 
Insurance 
Trust
Fund.’’.
(b) ABOLITION OF PROPAC AND PPRC.—
(1) PROPAC.—
(A) IN
GENERAL.—Section 1886(e) (42
U.S.C. 1395ww(e)) is amended—
(i) by striking paragraphs (2) and (6);
and
(ii) in paragraph (3), by striking ‘‘(A)
The Commission’’ and all that follows
through ‘‘(B)’’.
(B) CONFORMING
AMENDMENT.—Section
1862 (42 U.S.C. 1395y) is amended by striking
‘‘Prospective Payment Assessment Commis-
sion’’ each place it appears in subsection
(a)(1)(D) and subsection (i) and inserting
‘‘Medicare Payment Advisory Commission’’.
(2) PPRC.—
(A) IN GENERAL.—Title XVIII is amended
by striking section 1845 (42 U.S.C. 1395w–1).
354
(B) 
ELIMINATION
OF
CERTAIN
RE-
PORTS.—Section 1848 (42 U.S.C. 1395w–4) is
amended by striking subparagraph (B) of sub-
section (f)(1).
(C) CONFORMING AMENDMENTS.—Section
1848 (42 U.S.C. 1395w–4) is amended by
striking ‘‘Physician Payment Review Commis-
sion’’ and inserting ‘‘Medicare Payment Advi-
sory Commission’’ each place it appears in sub-
sections (c)(2)(B)(iii), (g)(6)(C), and (g)(7)(C).
(c) EFFECTIVE DATE; TRANSITION.—
(1) IN
GENERAL.—The Comptroller General
shall first provide for appointment of members to
the Medicare Payment Advisory Commission (in this
subsection referred to as ‘‘MedPAC’’) by not later
than September 30, 1997.
(2) TRANSITION.—As quickly as possible after
the date a majority of members of MedPAC are first
appointed, the Comptroller General, in consultation
with the Prospective Payment Assessment Commis-
sion (in this subsection referred to as ‘‘ProPAC’’)
and the Physician Payment Review Commission (in
this subsection referred to as ‘‘PPRC’’), shall pro-
vide for the termination of the ProPAC and the
PPRC. As of the date of termination of the respec-
355
tive Commissions, the amendments made by para-
graphs (1) and (2), respectively, of subsection (b)
become effective. The Comptroller General, to the
extent feasible, shall provide for the transfer to the
MedPAC of assets and staff of the ProPAC and the
PPRC, without any loss of benefits or seniority by
virtue of such transfers. Fund balances available to
the ProPAC or the PPRC for any period shall be
available to the MedPAC for such period for like
purposes.
(3) CONTINUING
RESPONSIBILITY
FOR
RE-
PORTS.—The MedPAC shall be responsible for the
preparation and submission of reports required by
law to be submitted (and which have not been sub-
mitted by the date of establishment of the MedPAC)
by the ProPAC and the PPRC, and, for this pur-
pose, any reference in law to either such Commission
is deemed, after the appointment of the MedPAC, to
refer to the MedPAC.
CHAPTER 4—MEDIGAP PROTECTIONS
SEC. 4031. MEDIGAP PROTECTIONS.
(a) GUARANTEEING ISSUE WITHOUT PREEXISTING
CONDITIONS
FOR CONTINUOUSLY COVERED INDIVID-
UALS.—Section 1882(s) (42 U.S.C. 1395ss(s)) is amend-
ed—
356
(1) in paragraph (3), by striking ‘‘paragraphs
(1) and (2)’’ and inserting ‘‘this subsection’’,
(2) by redesignating paragraph (3) as para-
graph (4), and
(3) by inserting after paragraph (2) the follow-
ing new paragraph:
‘‘(3)(A) The issuer of a medicare supplemental pol-
icy—
‘‘(i) may not deny or condition the issuance or
effectiveness of a medicare supplemental policy de-
scribed in subparagraph (C) that is offered and is
available for issuance to new enrollees by such is-
suer;
‘‘(ii) may not discriminate in the pricing of
such policy, because of health status, claims experi-
ence, receipt of health care, or medical condition;
and
‘‘(iii) may not impose an exclusion of benefits
based on a pre-existing condition under such policy,
in the case of an individual described in subparagraph (B)
who seeks to enroll under the policy not later than 63 days
after the date of the termination of enrollment described
in such subparagraph and who submits evidence of the
date of termination or disenrollment along with the appli-
cation for such medicare supplemental policy.
357
‘‘(B) An individual described in this subparagraph is
an individual described in any of the following clauses:
‘‘(i) The individual is enrolled under an em-
ployee welfare benefit plan that provides health ben-
efits that supplement the benefits under this title
and the plan terminates or ceases to provide all such
supplemental health benefits to the individual.
‘‘(ii) 
The 
individual 
is 
enrolled 
with 
a
MedicarePlus organization under a MedicarePlus
plan under part C, and there are circumstances per-
mitting discontinuance of the individual’s election of
the plan under section 1851(e)(4).
‘‘(iii) The individual is enrolled with an eligible
organization under a contract under section 1876, a
similar organization operating under demonstration
project authority, with an organization under an
agreement under section 1833(a)(1)(A), or with an
organization under a policy described in subsection
(t), and such enrollment ceases under the same cir-
cumstances that would permit discontinuance of an
individual’s election of coverage under section
1851(e)(4) and, in the case of a policy described in
subsection (t), there is no provision under applicable
State law for the continuation of coverage under
such policy.
358
‘‘(iv) The individual is enrolled under a medi-
care supplemental policy under this section and such
enrollment ceases because—
‘‘(I) of the bankruptcy or insolvency of the
issuer or because of other involuntary termi-
nation of coverage or enrollment under such
policy and there is no provision under applica-
ble State law for the continuation of such cov-
erage;
‘‘(II) the issuer of the policy substantially
violated a material provision of the policy; or
‘‘(III) the issuer (or an agent or other en-
tity acting on the issuer’s behalf) materially
misrepresented the policy’s provisions in mar-
keting the policy to the individual.
‘‘(v) The individual—
‘‘(I) was enrolled under a medicare supple-
mental policy under this section,
‘‘(II) subsequently terminates such enroll-
ment and enrolls, for the first time, with any
MedicarePlus 
organization 
under 
a
MedicarePlus plan under part C, any eligible
organization under a contract under section
1876, any similar organization operating under
demonstration project authority, any organiza-
359
tion 
under 
an 
agreement 
under 
section
1833(a)(1)(A), or any policy described in sub-
section (t), and
‘‘(III) the subsequent enrollment under
subclause (II) is terminated by the enrollee dur-
ing the first 6 months (or 3 months for termi-
nations occurring on or after January 1, 2003)
of such enrollment.
‘‘(vi) The individual—
‘‘(I) was enrolled under a medicare supple-
mental policy under this section,
‘‘(II) subsequently terminates such enroll-
ment and enrolls, for the first time, during or
after the annual, coordinated election period
under section 1851(e)(3)(B) occurring during
2002, with an organization or policy described
in clause (v)(II), and
‘‘(III) the subsequent enrollment under
subclause (II) is terminated by the enrollee dur-
ing the next annual, coordinated election period
under such section.
‘‘(C)(i) Subject to clauses (ii) and (iii), a medicare
supplemental policy described in this subparagraph has a
benefit package classified as ‘A’, ‘B’, ‘C’, or ‘F’ under the
standards established under subsection (p)(2).
360
‘‘(ii) Only for purposes of an individual described in
subparagraph (B)(v), a medicare supplemental policy de-
scribed in this subparagraph also includes (if available
from the same issuer) the same medicare supplemental
policy referred to in such subparagraph in which the indi-
vidual was most recently previously enrolled.
‘‘(iii) For purposes of applying this paragraph in the
case of a State that provides for offering of benefit pack-
ages other than under the classification referred to in
clause (i), the references to benefit packages in such clause
are deemed references to comparable benefit packages of-
fered in such State.
‘‘(D) At the time of an event described in subpara-
graph (B) because of which an individual ceases enroll-
ment or loses coverage or benefits under a contract or
agreement, policy, or plan, the organization that offers the
contract or agreement, the insurer offering the policy, or
the administrator of the plan, respectively, shall notify the
individual of the rights of the individual, and obligations
of issuers of medicare supplemental policies, under sub-
paragraph (A).’’.
(b) LIMITATION ON IMPOSITION OF PREEXISTING
CONDITION EXCLUSION DURING INITIAL OPEN ENROLL-
MENT
PERIOD.—Section 
1882(s)(2) 
(42 
U.S.C.
1395ss(s)(2)) is amended—
361
(1) in subparagraph (B), by striking ‘‘subpara-
graph (C)’’ and inserting ‘‘subparagraphs (C) and
(D)’’, and
(2) by adding at the end the following new sub-
paragraph:
‘‘(D) In the case of a policy issued during the 6-
month period described in subparagraph (A) to an individ-
ual who is 65 years of age or older as of the date of issu-
ance and who as of the date of the application for enroll-
ment has a continuous period of creditable coverage (as
defined in 2701(c) of the Public Health Service Act) of—
‘‘(i) at least 6 months, the policy may not ex-
clude benefits based on a pre-existing condition; or
‘‘(ii) of less than 6 months, if the policy ex-
cludes benefits based on a preexisting condition, the
policy shall reduce the period of any preexisting con-
dition exclusion by the aggregate of the periods of
creditable coverage (if any, as so defined) applicable
to the individual as of the enrollment date.
The Secretary shall specify the manner of the reduction
under clause (ii), based upon the rules used by the Sec-
retary in carrying out section 2701(a)(3) of such Act.’’.
(c) EFFECTIVE DATES.—
362
(1) GUARANTEED
ISSUE.—The amendment
made by subsection (a) shall take effect on July 1,
1998.
(2) LIMIT ON PREEXISTING CONDITION EXCLU-
SIONS.—The amendment made by subsection (b)
shall apply to policies issued on or after July 1,
1998.
(d) TRANSITION PROVISIONS.—
(1) IN GENERAL.—If the Secretary of Health
and Human Services identifies a State as requiring
a change to its statutes or regulations to conform its
regulatory program to the changes made by this sec-
tion, the State regulatory program shall not be con-
sidered to be out of compliance with the require-
ments of section 1882 of the Social Security Act due
solely to failure to make such change until the date
specified in paragraph (4).
(2) NAIC STANDARDS.—If, within 9 months
after the date of the enactment of this Act, the Na-
tional Association of Insurance Commissioners (in
this subsection referred to as the ‘‘NAIC’’) modifies
its NAIC Model Regulation relating to section 1882
of the Social Security Act (referred to in such sec-
tion as the 1991 NAIC Model Regulation, as modi-
fied pursuant to section 171(m)(2) of the Social Se-
363
curity Act Amendments of 1994 (Public Law 103–
432) 
and 
as 
modified 
pursuant 
to 
section
1882(d)(3)(A)(vi)(IV) of the Social Security Act, as
added by section 271(a) of the Health Insurance
Portability and Accountability Act of 1996 (Public
Law 104–191) to conform to the amendments made
by this section, such revised regulation incorporating
the modifications shall be considered to be the appli-
cable NAIC model regulation (including the revised
NAIC model regulation and the 1991 NAIC Model
Regulation) for the purposes of such section.
(3) SECRETARY
STANDARDS.—If the NAIC
does not make the modifications described in para-
graph (2) within the period specified in such para-
graph, the Secretary of Health and Human Services
shall make the modifications described in such para-
graph and such revised regulation incorporating the
modifications shall be considered to be the appro-
priate Regulation for the purposes of such section.
(4) DATE SPECIFIED.—
(A) IN
GENERAL.—Subject to subpara-
graph (B), the date specified in this paragraph
for a State is the earlier of—
(i) the date the State changes its stat-
utes or regulations to conform its regu-
364
latory program to the changes made by
this section, or
(ii) 1 year after the date the NAIC or
the Secretary first makes the modifications
under paragraph (2) or (3), respectively.
(B) ADDITIONAL LEGISLATIVE ACTION RE-
QUIRED.—In the case of a State which the Sec-
retary identifies as—
(i) requiring State legislation (other
than legislation appropriating funds) to
conform its regulatory program to the
changes made in this section, but
(ii) having a legislature which is not
scheduled to meet in 1999 in a legislative
session in which such legislation may be
considered,
the date specified in this paragraph is the first
day of the first calendar quarter beginning after
the close of the first legislative session of the
State legislature that begins on or after July 1,
1999. For purposes of the previous sentence, in
the case of a State that has a 2-year legislative
session, each year of such session shall be
deemed to be a separate regular session of the
State legislature.
365
SEC. 4032. MEDICARE PREPAID COMPETITIVE PRICING
DEMONSTRATION PROJECT.
(a) ESTABLISHMENT OF PROJECT.—The Secretary
of Health and Human Services shall provide, beginning
not later than 1 year after the date of the enactment of
this Act, for implementation of a project (in this section
referred to as the ‘‘project’’) to demonstrate the applica-
tion of, and the consequences of applying, a market-ori-
ented pricing system for the provision of a full range of
medicare benefits in a geographic area.
(b) RESEARCH DESIGN ADVISORY COMMITTEE.—
(1) IN
GENERAL.—Before implementing the
project under this section, the Secretary shall ap-
point a national advisory committee, including inde-
pendent actuaries and individuals with expertise in
competitive health plan pricing, to make rec-
ommendations to the Secretary concerning the ap-
propriate research design for implementing the
project.
(2) INITIAL RECOMMENDATIONS.—The commit-
tee initially shall submit recommendations respecting
the method for area selection, benefit design among
plans offered, structuring choice among health plans
offered, methods for setting the price to be paid to
plans, collection of plan information (including infor-
mation concerning quality and access to care), infor-
366
mation dissemination, and methods of evaluating the
results of the project.
(3) ADVICE DURING IMPLEMENTATION.—Upon
implementation of the project, the committee shall
continue to advise the Secretary on the application
of the design in different areas and changes in the
project based on experience with its operations.
(c) AREA SELECTION.—
(1) IN GENERAL.—Taking into account the rec-
ommendations of the advisory committee submitted
under subsection (b), the Secretary shall designate
areas in which the project will operate.
(2) APPOINTMENT OF AREA ADVISORY COMMIT-
TEE.—Upon the designation of an area for inclusion
in the project, the Secretary shall appoint an area
advisory committee, composed of representatives of
health plans, providers, and medicare beneficiaries in
the area, to advise the Secretary concerning how the
project will actually be implemented in the area.
Such advice may include advice concerning the mar-
keting and pricing of plans in the area and other sa-
lient factors relating.
(d) MONITORING AND REPORT.—
(1) MONITORING IMPACT.—Taking into consid-
eration the recommendations of the general advisory
367
committee (appointed under subsection (b)), the Sec-
retary shall closely monitor the impact of projects in
areas on the price and quality of, and access to,
medicare covered services, choice of health plan,
changes in enrollment, and other relevant factors.
(2) REPORT.—The Secretary shall periodically
report to Congress on the progress under the project
under this section.
(e) WAIVER AUTHORITY.—The Secretary of Health
and Human Services may waive such requirements of sec-
tion 1876 (and such requirements of part C of title XVIII,
as amended by chapter 1), of the Social Security Act as
may be necessary for the purposes of carrying out the
project.
(f) RELATIONSHIP TO OTHER AUTHORITY.—Except
pursuant to this section the Secretary of Health and
Human Services may not conduct or continue any medi-
care demonstration project relating to payment of health
maintenance organizations, MedicarePlus organizations,
or similar prepaid managed care entities on the basis of
a competitive bidding process or pricing system described
in subsection (a) rather than on the bases described in
section 1853 or 1876 of the Social Security Act.
368
Subtitle B—Prevention Initiatives
SEC. 4101. SCREENING MAMMOGRAPHY.
(a) PROVIDING ANNUAL SCREENING MAMMOGRAPHY
FOR WOMEN OVER AGE 39.—Section 1834(c)(2)(A) (42
U.S.C. 1395m(c)(2)(A)) is amended—
(1) in clause (iii), to read as follows:
‘‘(iii) In the case of a woman over 39
years of age, payment may not be made
under this part for screening mammog-
raphy performed within 11 months follow-
ing the month in which a previous screen-
ing mammography was performed.’’; and
(2) by striking clauses (iv) and (v).
(b) WAIVER OF DEDUCTIBLE.—The first sentence of
section 1833(b) (42 U.S.C. 1395l(b)) is amended—
(1) by striking ‘‘and’’ before ‘‘(4)’’, and
(2) by inserting before the period at the end the
following: ‘‘, and (5) such deductible shall not apply
with respect to screening mammography (as de-
scribed in section 1861(jj))’’.
(c) 
CONFORMING
AMENDMENT.—Section
1834(c)(1)(C) of such Act (42 U.S.C. 1395m(c)(1)(C)) is
amended by striking ‘‘, subject to the deductible estab-
lished under section 1833(b),’’.
369
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
SEC. 4102. SCREENING PAP SMEAR AND PELVIC EXAMS.
(a) COVERAGE OF PELVIC EXAM; INCREASING FRE-
QUENCY
OF
COVERAGE
OF
PAP
SMEAR.—Section
1861(nn) (42 U.S.C. 1395x(nn)) is amended—
(1) in the heading, by striking ‘‘Smear’’ and in-
serting ‘‘Smear; Screening Pelvic Exam’’;
(2) by inserting ‘‘or vaginal’’ after ‘‘cervical’’
each place it appears;
(3) by striking ‘‘(nn)’’ and inserting ‘‘(nn)(1)’’;
(4) by striking ‘‘3 years’’ and all that follows
and inserting ‘‘3 years, or during the preceding year
in the case of a woman described in paragraph (3).’’;
and
(5) by adding at the end the following new
paragraphs:
‘‘(2) The term ‘screening pelvic exam’ means an pel-
vic examination provided to a woman if the woman in-
volved has not had such an examination during the preced-
ing 3 years, or during the preceding year in the case of
a woman described in paragraph (3), and includes a clini-
cal breast examination.
370
‘‘(3) A woman described in this paragraph is a
woman who—
‘‘(A) is of childbearing age and has not had a
test described in this subsection during each of the
preceding 3 years that did not indicate the presence
of cervical or vaginal cancer; or
‘‘(B) is at high risk of developing cervical or
vaginal cancer (as determined pursuant to factors
identified by the Secretary).’’.
(b) WAIVER OF DEDUCTIBLE.—The first sentence of
section 1833(b) (42 U.S.C. 1395l(b)), as amended by sec-
tion 4101(b), is amended—
(1) by striking ‘‘and’’ before ‘‘(5)’’, and
(2) by inserting before the period at the end the
following: ‘‘, and (6) such deductible shall not apply
with respect to screening pap smear and screening
pelvic exam (as described in section 1861(nn))’’.
(c) 
CONFORMING
AMENDMENTS.—Sections
1861(s)(14) and 1862(a)(1)(F) (42 U.S.C. 1395x(s)(14),
1395y(a)(1)(F)) are each amended by inserting ‘‘and
screening pelvic exam’’ after ‘‘screening pap smear’’.
(d) PAYMENT UNDER PHYSICIAN FEE SCHEDULE.—
Section 1848(j)(3)(42 U.S.C. 1395w–4(j)(3)) is amended
by striking ‘‘and (4)’’ and inserting ‘‘, (4) and (14) (with
respect to services described in section 1861(nn)(2))’’.
371
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
(f) REPORT ON RESCREENING PAP SMEARS.—Not
later than 6 months after the date of the enactment of
this Act, the Secretary of Health and Human Services
shall submit to Congress a report on the extent to which
the use of supplemental computer-assisted diagnostic tests
consisting of interactive automated computer-imaging of
an exfoliative cytology test, in conjunction with the pap
smears, improves the early detection of cervical or vaginal
cancer and the costs implications for coverage of such sup-
plemental tests under the medicare program.
SEC. 4103. PROSTATE CANCER SCREENING TESTS.
(a) COVERAGE.—Section 1861 (42 U.S.C. 1395x) is
amended—
(1) in subsection (s)(2)—
(A) by striking ‘‘and’’ at the end of sub-
paragraphs (N) and (O), and
(B) by inserting after subparagraph (O)
the following new subparagraph:
‘‘(P) prostate cancer screening tests (as defined
in subsection (oo)); and’’; and
(2) by adding at the end the following new sub-
section:
372
‘‘Prostate Cancer Screening Tests
‘‘(oo)(1) The term ‘prostate cancer screening test’
means a test that consists of any (or all) of the procedures
described in paragraph (2) provided for the purpose of
early detection of prostate cancer to a man over 50 years
of age who has not had such a test during the preceding
year.
‘‘(2) The procedures described in this paragraph are
as follows:
‘‘(A) A digital rectal examination.
‘‘(B) A prostate-specific antigen blood test.
‘‘(C) For years beginning after 2001, such
other procedures as the Secretary finds appropriate
for the purpose of early detection of prostate cancer,
taking into account changes in technology and
standards of medical practice, availability, effective-
ness, costs, and such other factors as the Secretary
considers appropriate.’’.
(b) PAYMENT
FOR PROSTATE-SPECIFIC ANTIGEN
BLOOD TEST UNDER CLINICAL DIAGNOSTIC LABORA-
TORY TEST FEE SCHEDULES.—Section 1833(h)(1)(A)
(42 U.S.C. 1395l(h)(1)(A)) is amended by inserting after
‘‘laboratory tests’’ the following: ‘‘(including prostate can-
cer screening tests under section 1861(oo) consisting of
prostate-specific antigen blood tests)’’.
373
(c) CONFORMING AMENDMENT.—Section 1862(a)
(42 U.S.C. 1395y(a)) is amended—
(1) in paragraph (1)—
(A) in subparagraph (E), by striking
‘‘and’’ at the end,
(B) in subparagraph (F), by striking the
semicolon at the end and inserting ‘‘, and’’, and
(C) by adding at the end the following new
subparagraph:
‘‘(G) in the case of prostate cancer screening
tests (as defined in section 1861(oo)), which are per-
formed more frequently than is covered under such
section;’’; and
(2) in paragraph (7), by striking ‘‘paragraph
(1)(B) or under paragraph (1)(F)’’ and inserting
‘‘subparagraphs (B), (F), or (G) of paragraph (1)’’.
(d) PAYMENT UNDER PHYSICIAN FEE SCHEDULE.—
Section 1848(j)(3)(42 U.S.C. 1395w–4(j)(3)), as amended
by section 4102, is amended by inserting ‘‘(2)(P) (with
respect to services described in subparagraphs (A) and (C)
of section 1861(oo),’’ after ‘‘(2)(G)’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
374
SEC. 4104. COVERAGE OF COLORECTAL SCREENING.
(a) COVERAGE.—
(1) IN
GENERAL.—Section 1861 (42 U.S.C.
1395x), as amended by section 4103(a), is amend-
ed—
(A) in subsection (s)(2)—
(i) by striking ‘‘and’’ at the end of
subparagraph (P);
(ii) by adding ‘‘and’’ at the end of
subparagraph (Q); and
(iii) by adding at the end the follow-
ing new subparagraph:
‘‘(R) colorectal cancer screening tests (as de-
fined in subsection (pp)); and’’; and
(B) by adding at the end the following new
subsection:
‘‘Colorectal Cancer Screening Tests
‘‘(pp)(1) The term ‘colorectal cancer screening test’
means any of the following procedures furnished to an in-
dividual for the purpose of early detection of colorectal
cancer:
‘‘(A) Screening fecal-occult blood test.
‘‘(B) Screening flexible sigmoidoscopy.
‘‘(C) In the case of an individual at high risk
for colorectal cancer, screening colonoscopy.
375
‘‘(D) Screening barium enema, if found by the
Secretary to be an appropriate alternative to screen-
ing flexible sigmoidoscopy under subparagraph (B)
or screening colonoscopy under subparagraph (C).
‘‘(E) For years beginning after 2002, such
other procedures as the Secretary finds appropriate
for the purpose of early detection of colorectal can-
cer, taking into account changes in technology and
standards of medical practice, availability, effective-
ness, costs, and such other factors as the Secretary
considers appropriate.
‘‘(2) In paragraph (1)(C), an ‘individual at high risk
for colorectal cancer’ is an individual who, because of fam-
ily history, prior experience of cancer or precursor neo-
plastic polyps, a history of chronic digestive disease condi-
tion (including inflammatory bowel disease, Crohn’s Dis-
ease, or ulcerative colitis), the presence of any appropriate
recognized gene markers for colorectal cancer, or other
predisposing factors, faces a high risk for colorectal can-
cer.’’.
(2) DEADLINE FOR DECISION ON COVERAGE OF
SCREENING
BARIUM
ENEMA.—Not later than 2
years after the date of the enactment of this section,
the Secretary of Health and Human Services shall
issue and publish a determination on the treatment
376
of screening barium enema as a colorectal cancer
screening test under section 1861(pp) (as added by
subparagraph (B)) as an alternative procedure to a
screening 
flexible 
sigmoidoscopy 
or 
screening
colonoscopy.
(b) FREQUENCY AND PAYMENT LIMITS.—
(1) IN
GENERAL.—Section 1834 (42 U.S.C.
1395m) is amended by inserting after subsection (c)
the following new subsection:
‘‘(d) FREQUENCY
AND
PAYMENT
LIMITS
FOR
COLORECTAL CANCER SCREENING TESTS.—
‘‘(1) 
SCREENING
FECAL-OCCULT
BLOOD
TESTS.—
‘‘(A) PAYMENT LIMIT.—In establishing fee
schedules under section 1833(h) with respect to
colorectal cancer screening tests consisting of
screening fecal-occult blood tests, except as pro-
vided by the Secretary under paragraph (4)(A),
the payment amount established for tests per-
formed—
‘‘(i) in 1998 shall not exceed $5; and
‘‘(ii) in a subsequent year, shall not
exceed the limit on the payment amount
established under this subsection for such
tests for the preceding year, adjusted by
377
the applicable adjustment under section
1833(h) for tests performed in such year.
‘‘(B) FREQUENCY LIMIT.—Subject to revi-
sion by the Secretary under paragraph (4)(B),
no payment may be made under this part for
colorectal cancer screening test consisting of a
screening fecal-occult blood test—
‘‘(i) if the individual is under 50 years
of age; or
‘‘(ii) if the test is performed within
the 11 months after a previous screening
fecal-occult blood test.
‘‘(2) 
SCREENING
FLEXIBLE
SIGMOIDOSCOPIES.—
‘‘(A) FEE
SCHEDULE.—The Secretary
shall establish a payment amount under section
1848 with respect to colorectal cancer screening
tests 
consisting 
of 
screening 
flexible
sigmoidoscopies that is consistent with payment
amounts under such section for similar or relat-
ed services, except that such payment amount
shall be established without regard to sub-
section (a)(2)(A) of such section.
‘‘(B) PAYMENT
LIMIT.—In the case of
screening flexible sigmoidoscopy services—
378
‘‘(i) the payment amount may not ex-
ceed such amount as the Secretary speci-
fies, based upon the rates recognized under
this 
part 
for 
diagnostic 
flexible
sigmoidoscopy services; and
‘‘(ii) that, in accordance with regula-
tions, may be performed in an ambulatory
surgical center and for which the Secretary
permits ambulatory surgical center pay-
ments under this part and that are per-
formed in an ambulatory surgical center or
hospital outpatient department, the pay-
ment amount under this part may not ex-
ceed the lesser of (I) the payment rate that
would apply to such services if they were
performed in a hospital outpatient depart-
ment, or (II) the payment rate that would
apply to such services if they were per-
formed in an ambulatory surgical center.
‘‘(C) SPECIAL RULE FOR DETECTED LE-
SIONS.—If during the course of such screening
flexible sigmoidoscopy, a lesion or growth is de-
tected which results in a biopsy or removal of
the lesion or growth, payment under this part
shall not be made for the screening flexible
379
sigmoidoscopy but shall be made for the proce-
dure classified as a flexible sigmoidoscopy with
such biopsy or removal.
‘‘(D) FREQUENCY LIMIT.—Subject to revi-
sion by the Secretary under paragraph (4)(B),
no payment may be made under this part for
a colorectal cancer screening test consisting of
a screening flexible sigmoidoscopy—
‘‘(i) if the individual is under 50 years
of age; or
‘‘(ii) if the procedure is performed
within the 47 months after a previous
screening flexible sigmoidoscopy.
‘‘(3) SCREENING COLONOSCOPY FOR INDIVID-
UALS AT HIGH RISK FOR COLORECTAL CANCER.—
‘‘(A) FEE
SCHEDULE.—The Secretary
shall establish a payment amount under section
1848 with respect to colorectal cancer screening
test consisting of a screening colonoscopy for
individuals at high risk for colorectal cancer (as
defined in section 1861(pp)(2)) that is consist-
ent with payment amounts under such section
for similar or related services, except that such
payment amount shall be established without
regard to subsection (a)(2)(A) of such section.
380
‘‘(B) PAYMENT
LIMIT.—In the case of
screening colonoscopy services—
‘‘(i) the payment amount may not ex-
ceed such amount as the Secretary speci-
fies, based upon the rates recognized under
this part for diagnostic colonoscopy serv-
ices; and
‘‘(ii) that are performed in an ambula-
tory surgical center or hospital outpatient
department, the payment amount under
this part may not exceed the lesser of (I)
the payment rate that would apply to such
services if they were performed in a hos-
pital outpatient department, or (II) the
payment rate that would apply to such
services if they were performed in an am-
bulatory surgical center.
‘‘(C) SPECIAL RULE FOR DETECTED LE-
SIONS.—If during the course of such screening
colonoscopy, a lesion or growth is detected
which results in a biopsy or removal of the le-
sion or growth, payment under this part shall
not be made for the screening colonoscopy but
shall be made for the procedure classified as a
colonoscopy with such biopsy or removal.
381
‘‘(D) FREQUENCY LIMIT.—Subject to revi-
sion by the Secretary under paragraph (4)(B),
no payment may be made under this part for
a colorectal cancer screening test consisting of
a screening colonoscopy for individuals at high
risk for colorectal cancer if the procedure is
performed within the 23 months after a pre-
vious screening colonoscopy.
‘‘(4) REDUCTIONS IN PAYMENT LIMIT AND RE-
VISION OF FREQUENCY.—
‘‘(A) REDUCTIONS IN PAYMENT LIMIT FOR
SCREENING
FECAL-OCCULT
BLOOD
TESTS.—
The Secretary shall review from time to time
the appropriateness of the amount of the pay-
ment limit established for screening fecal-occult
blood tests under paragraph (1)(A). The Sec-
retary may, with respect to tests performed in
a year after 2000, reduce the amount of such
limit as it applies nationally or in any area to
the amount that the Secretary estimates is re-
quired to assure that such tests of an appro-
priate quality are readily and conveniently
available during the year.
‘‘(B) REVISION OF FREQUENCY.—
382
‘‘(i) REVIEW.—The Secretary shall re-
view periodically the appropriate frequency
for performing colorectal cancer screening
tests based on age and such other factors
as the Secretary believes to be pertinent.
‘‘(ii) REVISION OF FREQUENCY.—The
Secretary, taking into consideration the re-
view made under clause (i), may revise
from time to time the frequency with
which such tests may be paid for under
this subsection, but no such revision shall
apply to tests performed before January 1,
2001.
‘‘(5) LIMITING CHARGES OF NONPARTICIPATING
PHYSICIANS.—
‘‘(A) IN
GENERAL.—In the case of a
colorectal cancer screening test consisting of a
screening flexible sigmoidoscopy or a screening
colonoscopy provided to an individual at high
risk for colorectal cancer for which payment
may be made under this part, if a nonpartici-
pating physician provides the procedure to an
individual enrolled under this part, the physi-
cian may not charge the individual more than
383
the limiting charge (as defined in section
1848(g)(2)).
‘‘(B) ENFORCEMENT.—If a physician or
supplier knowing and willfully imposes a charge
in violation of subparagraph (A), the Secretary
may apply sanctions against such physician or
supplier 
in 
accordance 
with 
section
1842(j)(2).’’.
(2) SPECIAL
RULE
FOR
SCREENING
BARIUM
ENEMA.—If the Secretary of Health and Human
Services issues a determination under subsection
(a)(2) that screening barium enema should be cov-
ered as a colorectal cancer screening test under sec-
tion 1861(pp) (as added by subsection (a)(1)(B)),
the Secretary shall establish frequency limits (in-
cluding revisions of frequency limits) for such proce-
dure consistent with the frequency limits for other
colorectal cancer screening tests under section
1834(d) (as added by subsection (b)(1)), and shall
establish payment limits (including limits on charges
of nonparticipating physicians) for such procedure
consistent with the payment limits under part B of
title XVIII for diagnostic barium enema procedures.
(c) CONFORMING AMENDMENTS.—(1) Paragraphs
(1)(D) and (2)(D) of section 1833(a) (42 U.S.C. 1395l(a))
384
are each amended by inserting ‘‘or section 1834(d)(1)’’
after ‘‘subsection (h)(1)’’.
(2) 
Section 
1833(h)(1)(A) 
(42 
U.S.C.
1395l(h)(1)(A)) is amended by striking ‘‘The Secretary’’
and inserting ‘‘Subject to paragraphs (1) and (4)(A) of
section 1834(d), the Secretary’’.
(3) Clauses (i) and (ii) of section 1848(a)(2)(A) (42
U.S.C. 1395w–4(a)(2)(A)) are each amended by inserting
after ‘‘a service’’ the following: ‘‘(other than a colorectal
cancer screening test consisting of a screening colonoscopy
provided to an individual at high risk for colorectal cancer
or a screening flexible sigmoidoscopy)’’.
(4) Section 1862(a) (42 U.S.C. 1395y(a)), as amend-
ed by section 4103(c), is amended—
(A) in paragraph (1)—
(i) in subparagraph (F), by striking ‘‘and’’
at the end,
(ii) in subparagraph (G), by striking the
semicolon at the end and inserting ‘‘, and’’, and
(iii) by adding at the end the following new
subparagraph:
‘‘(H) in the case of colorectal cancer screening
tests, which are performed more frequently than is
covered under section 1834(d);’’; and
385
(B) in paragraph (7), by striking ‘‘or (G)’’ and
inserting ‘‘(G), or (H)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
SEC. 4105. DIABETES SCREENING TESTS.
(a) COVERAGE
OF DIABETES OUTPATIENT SELF-
MANAGEMENT TRAINING SERVICES.—
(1) IN
GENERAL.—Section 1861 (42 U.S.C.
1395x), as amended by sections 4103(a) and
4104(a), is amended—
(A) in subsection (s)(2)—
(i) by striking ‘‘and’’ at the end of
subparagraph (Q);
(ii) by adding ‘‘and’’ at the end of
subparagraph (R); and
(iii) by adding at the end the follow-
ing new subparagraph:
‘‘(S) diabetes outpatient self-management train-
ing services (as defined in subsection (qq)); and’’;
and
(B) by adding at the end the following new
subsection:
386
‘‘Diabetes Outpatient Self-Management Training Services
‘‘(qq)(1) The term ‘diabetes outpatient self-manage-
ment training services’ means educational and training
services furnished to an individual with diabetes by a cer-
tified provider (as described in paragraph (2)(A)) in an
outpatient setting by an individual or entity who meets
the quality standards described in paragraph (2)(B), but
only if the physician who is managing the individual’s dia-
betic condition certifies that such services are needed
under a comprehensive plan of care related to the individ-
ual’s diabetic condition to provide the individual with nec-
essary skills and knowledge (including skills related to the
self-administration of injectable drugs) to participate in
the management of the individual’s condition.
‘‘(2) In paragraph (1)—
‘‘(A) a ‘certified provider’ is a physician, or
other individual or entity designated by the Sec-
retary, that, in addition to providing diabetes out-
patient self-management training services, provides
other items or services for which payment may be
made under this title; and
‘‘(B) a physician, or such other individual or
entity, meets the quality standards described in this
paragraph if the physician, or individual or entity,
meets quality standards established by the Sec-
387
retary, except that the physician or other individual
or entity shall be deemed to have met such stand-
ards if the physician or other individual or entity
meets applicable standards originally established by
the National Diabetes Advisory Board and subse-
quently revised by organizations who participated in
the establishment of standards by such Board, or is
recognized by an organization that represents indi-
viduals (including individuals under this title) with
diabetes as meeting standards for furnishing the
services.’’.
(2) PAYMENT UNDER PHYSICIAN FEE SCHED-
ULE.—Section 1848(j)(3)(42 U.S.C. 1395w–4(j)(3))
as amended in sections 4102 and 4103, is amended
by inserting ‘‘(2)(S),’’ before ‘‘(3),’’.
(3) CONSULTATION
WITH
ORGANIZATIONS
IN
ESTABLISHING
PAYMENT
AMOUNTS
FOR
SERVICES
PROVIDED BY PHYSICIANS.—In establishing payment
amounts under section 1848 of the Social Security
Act for physicians’ services consisting of diabetes
outpatient self-management training services, the
Secretary of Health and Human Services shall con-
sult with appropriate organizations, including such
organizations representing individuals or medicare
beneficiaries with diabetes, in determining the rel-
388
ative 
value 
for 
such 
services 
under 
section
1848(c)(2) of such Act.
(b) BLOOD-TESTING STRIPS FOR INDIVIDUALS WITH
DIABETES.—
(1) INCLUDING STRIPS AND MONITORS AS DU-
RABLE MEDICAL EQUIPMENT.—The first sentence of
section 1861(n) (42 U.S.C. 1395x(n)) is amended by
inserting before the semicolon the following: ‘‘, and
includes blood-testing strips and blood glucose mon-
itors for individuals with diabetes without regard to
whether the individual has Type I or Type II diabe-
tes or to the individual’s use of insulin (as deter-
mined under standards established by the Secretary
in consultation with the appropriate organizations)’’.
(2) 10 PERCENT REDUCTION IN PAYMENTS FOR
TESTING
STRIPS.—Section 1834(a)(2)(B)(iv) (42
U.S.C. 1395m(a)(2)(B)(iv)) is amended by adding
before the period the following: ‘‘(reduced by 10 per-
cent, in the case of a blood glucose testing strip fur-
nished after 1997 for an individual with diabetes)’’.
(c) ESTABLISHMENT OF OUTCOME MEASURES FOR
BENEFICIARIES WITH DIABETES.—
(1) IN GENERAL.—The Secretary of Health and
Human Services, in consultation with appropriate
organizations, shall establish outcome measures, in-
389
cluding glysolated hemoglobin (past 90-day average
blood sugar levels), for purposes of evaluating the
improvement of the health status of medicare bene-
ficiaries with diabetes mellitus.
(2) RECOMMENDATIONS
FOR
MODIFICATIONS
TO SCREENING BENEFITS.—Taking into account in-
formation on the health status of medicare bene-
ficiaries with diabetes mellitus as measured under
the outcome measures established under subpara-
graph (A), the Secretary shall from time to time
submit recommendations to Congress regarding
modifications to the coverage of services for such
beneficiaries under the medicare program.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
SEC. 4106. STANDARDIZATION OF MEDICARE COVERAGE OF
BONE MASS MEASUREMENTS.
(a) IN GENERAL.—Section 1861 (42 U.S.C. 1395x),
as amended by sections 4103(a), 4104(a), 4105(a), is
amended—
(1) in subsection (s)—
(A) in paragraph (12)(C), by striking
‘‘and’’ at the end,
390
(B) by striking the period at the end of
paragraph (14) and inserting ‘‘; and’’,
(C) by redesignating paragraphs (15) and
(16) as paragraphs (16) and (17), respectively,
and
(D) by inserting after paragraph (14) the
following new paragraph:
‘‘(15) bone mass measurement (as defined in
subsection (rr)).’’; and
(2) by inserting after subsection (qq) the follow-
ing new subsection:
‘‘Bone Mass Measurement
‘‘(rr)(1) The term ‘bone mass measurement’ means
a radiologic or radioisotopic procedure or other procedure
approved by the Food and Drug Administration performed
on a qualified individual (as defined in paragraph (2)) for
the purpose of identifying bone mass or detecting bone
loss or determining bone quality, and includes a physi-
cian’s interpretation of the results of the procedure.
‘‘(2) For purposes of this subsection, the term ‘quali-
fied individual’ means an individual who is (in accordance
with regulations prescribed by the Secretary)—
‘‘(A) an estrogen-deficient woman at clinical
risk for osteoporosis;
‘‘(B) an individual with vertebral abnormalities;
391
‘‘(C) 
an 
individual 
receiving 
long-term
glucocorticoid steroid therapy;
‘‘(D) 
an 
individual 
with 
primary
hyperparathyroidism; or
‘‘(E) an individual being monitored to assess
the response to or efficacy of an approved
osteoporosis drug therapy.
‘‘(3) The Secretary shall establish such standards re-
garding the frequency with which a qualified individual
shall be eligible to be provided benefits for bone mass
measurement under this title.’’.
(b) PAYMENT UNDER PHYSICIAN FEE SCHEDULE.—
Section 1848(j)(3) (42 U.S.C. 1395w–4(j)(3)), as amend-
ed by sections 4102, 4103, and 4105, is amended—
(1) by striking ‘‘(4) and (14)’’ and inserting
‘‘(4), (14)’’ and
(2) 
by 
inserting 
‘‘ 
and 
(15)’’ 
after
‘‘1861(nn)(2))’’.
(c) CONFORMING AMENDMENTS.—Sections 1864(a),
1902(a)(9)(C), and 1915(a)(1)(B)(ii)(I) (42 U.S.C.
1395aa(a), 1396a(a)(9)(C), and 1396n(a)(1)(B)(ii)(I))
are amended by striking ‘‘paragraphs (15) and (16)’’ each
place it appears and inserting ‘‘paragraphs (16) and
(17)’’.
392
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to bone mass measurements per-
formed on or after July 1, 1998.
SEC. 4107. VACCINES OUTREACH EXPANSION.
(a) EXTENSION OF INFLUENZA AND PNEUMOCOCCAL
VACCINATION CAMPAIGN.—In order to increase utilization
of pneumococcal and influenza vaccines in medicare bene-
ficiaries, the Influenza and Pneumococcal Vaccination
Campaign carried out by the Health Care Financing Ad-
ministration in conjunction with the Centers for Disease
Control and Prevention and the National Coalition for
Adult Immunization, is extended until the end of fiscal
year 2002.
(b) APPROPRIATION.—There are hereby appropriated
for each of fiscal years 1998 through 2002, $8,000,000
to the Campaign described in subsection (a). Of the
amount of such appropriation in each fiscal year, 60 per-
cent of such appropriation shall be payable from the Fed-
eral Hospital Insurance Trust Fund, and 40 percent shall
be payable from the Federal Supplementary Medical In-
surance Trust Fund under title XVIII of the Social Secu-
rity Act (42 U.S.C. 1395i, 1395t).
SEC. 4108. STUDY ON PREVENTIVE BENEFITS.
(a) STUDY.—The Secretary of Health and Human
Services shall request the National Academy of Sciences,
393
in conjunction with the United States Preventive Services
Task Force, to analyze the expansion or modification of
preventive benefits provided to medicare beneficiaries
under title XVIII of the Social Security Act. The analysis
shall consider both the short term and long term benefits,
and costs to the medicare program, of such expansion or
modification,
(b) REPORT.—
(1) INITIAL REPORT.—Not later than 2 years
after the date of the enactment of this Act, the Sec-
retary shall submit a report on the findings of the
analysis conducted under subsection (a) to the Com-
mittee on Ways and Means and the Committee on
Commerce of the House of Representatives and the
Committee on Finance of the Senate.
(2) CONTENTS.—Such report shall include spe-
cific findings with respect to coverage of the follow-
ing preventive benefits:
(A) Nutrition therapy, including parenteral
and enteral nutrition.
(B) Skin cancer screening.
(C) Medically necessary dental care.
(D) Routine patient care costs for bene-
ficiaries enrolled in approved clinical trial pro-
grams.
394
(E) Elimination of time limitation for cov-
erage of immunosuppressive drugs for trans-
plant patients.
(3) FUNDING.—From funds appropriated to the
Department of Health and Human Services for fis-
cal years 1998 and 1999, the Secretary shall provide
for such funding as may be necessary for the con-
duct of the analysis by the National Academy of
Sciences under this section.
Subtitle C—Rural Initiatives
SEC. 4206. INFORMATICS, TELEMEDICINE, AND EDUCATION
DEMONSTRATION PROJECT.
(a) PURPOSE AND AUTHORIZATION.—
(1) IN
GENERAL.—Not later than 9 months
after the date of enactment of this section, the Sec-
retary of Health and Human Services shall provide
for a demonstration project described in paragraph
(2).
(2) DESCRIPTION OF PROJECT.—
(A) IN
GENERAL.—The demonstration
project described in this paragraph is a single
demonstration project to use eligible health care
provider telemedicine networks to apply high-
capacity computing and advanced networks to
improve primary care (and prevent health care
395
complications) to medicare beneficiaries with di-
abetes mellitus who are residents of medically
underserved rural areas or residents of medi-
cally underserved inner-city areas.
(B) 
MEDICALLY
UNDERSERVED
DE-
FINED.—As used in this paragraph, the term
‘‘medically underserved’’ has the meaning given
such term in section 330(b)(3) of the Public
Health Service Act (42 U.S.C. 254b(b)(3)).
(3) WAIVER.—The Secretary shall waive such
provisions of title XVIII of the Social Security Act
as may be necessary to provide for payment for serv-
ices under the project in accordance with subsection
(d).
(4) DURATION OF PROJECT.—The project shall
be conducted over a 4-year period.
(b) OBJECTIVES OF PROJECT.—The objectives of the
project include the following:
(1) Improving patient access to and compliance
with appropriate care guidelines for individuals with
diabetes mellitus through direct telecommunications
link with information networks in order to improve
patient quality-of-life and reduce overall health care
costs.
396
(2) Developing a curriculum to train, and pro-
viding standards for credentialing and licensure of,
health professionals (particularly primary care
health 
professionals) 
in 
the 
use 
of 
medical
informatics and telecommunications.
(3) Demonstrating the application of advanced
technologies, such as video-conferencing from a pa-
tient’s home, remote monitoring of a patient’s medi-
cal condition, interventional informatics, and apply-
ing individualized, automated care guidelines, to as-
sist primary care providers in assisting patients with
diabetes in a home setting.
(4) Application of medical informatics to resi-
dents with limited English language skills.
(5) Developing standards in the application of
telemedicine and medical informatics.
(6) Developing a model for the cost-effective de-
livery of primary and related care both in a managed
care environment and in a fee-for-service environ-
ment.
(c) ELIGIBLE HEALTH CARE PROVIDER TELEMEDI-
CINE NETWORK DEFINED.—For purposes of this section,
the term ‘‘eligible health care provider telemedicine net-
work’’ means a consortium that includes at least one ter-
tiary care hospital (but no more than 2 such hospitals),
397
at least one medical school, no more than 4 facilities in
rural or urban areas, and at least one regional tele-
communications provider and that meets the following re-
quirements:
(1) The consortium is located in an area with
one of the highest concentrations of medical schools
and tertiary care facilities in the United States and
has appropriate arrangements (within or outside the
consortium) with such schools and facilities, univer-
sities, and telecommunications providers, in order to
conduct the project.
(2) The consortium submits to the Secretary an
application at such time, in such manner, and con-
taining such information as the Secretary may re-
quire, including a description of the use to which the
consortium would apply any amounts received under
the project and the source and amount of non-Fed-
eral funds used in the project.
(3) The consortium guarantees that it will be
responsible for payment for all costs of the project
that are not paid under this section and that the
maximum amount of payment that may be made to
the consortium under this section shall not exceed
the amount specified in subsection (d)(3).
(d) COVERAGE AS MEDICARE PART B SERVICES.—
398
(1) IN
GENERAL.—Subject to the succeeding
provisions of this subsection, services related to the
treatment or management of (including prevention
of complications from) diabetes for medicare bene-
ficiaries furnished under the project shall be consid-
ered to be services covered under part B of title
XVIII of the Social Security Act.
(2) PAYMENTS.—
(A) IN GENERAL.—Subject to paragraph
(3), payment for such services shall be made at
a rate of 50 percent of the costs that are rea-
sonable and related to the provision of such
services. In computing such costs, the Secretary
shall include costs described in subparagraph
(B), but may not include costs described in sub-
paragraph (C).
(B) COSTS THAT MAY BE INCLUDED.—The
costs described in this subparagraph are the
permissible costs (as recognized by the Sec-
retary) for the following:
(i) The acquisition of telemedicine
equipment for use in patients’ homes (but
only in the case of patients located in
medically underserved areas).
399
(ii) 
Curriculum 
development 
and
training of health professionals in medical
informatics and telemedicine.
(iii) Payment of telecommunications
costs (including salaries and maintenance
of equipment), including costs of tele-
communications between patients’ homes
and the eligible network and between the
network and other entities under the ar-
rangements described in subsection (c)(1).
(iv) Payments to practitioners and
providers under the medicare programs.
(C) COSTS NOT INCLUDED.—The costs de-
scribed in this subparagraph are costs for any
of the following:
(i) The purchase or installation of
transmission equipment (other than such
equipment used by health professionals to
deliver medical informatics services under
the project).
(ii) The establishment or operation of
a telecommunications common carrier net-
work.
(iii) Construction (except for minor
renovations related to the installation of
400
reimbursable equipment) or the acquisition
or building of real property.
(3) LIMITATION.—The total amount of the pay-
ments that may be made under this section shall not
exceed $30,000,000.
(4) 
LIMITATION
ON
COST-SHARING.—The
project may not impose cost sharing on a medicare
beneficiary for the receipt of services under the
project in excess of 20 percent of the recognized
costs of the project attributable to such services.
(e) REPORTS.—The Secretary shall submit to the
Committees on Ways and Means and Commerce of the
House of Representatives and the Committee on Finance
of the Senate interim reports on the project and a final
report on the project within 6 months after the conclusion
of the project. The final report shall include an evaluation
of the impact of the use of telemedicine and medical
informatics on improving access of medicare beneficiaries
to health care services, on reducing the costs of such serv-
ices, and on improving the quality of life of such bene-
ficiaries.
(f) DEFINITIONS.—For purposes of this section:
(1) INTERVENTIONAL INFORMATICS.—The term
‘‘interventional informatics’’ means using informa-
401
tion technology and virtual reality technology to in-
tervene in patient care.
(2) MEDICAL INFORMATICS.—The term ‘‘medi-
cal informatics’’ means the storage, retrieval, and
use of biomedical and related information for prob-
lem solving and decision-making through computing
and communications technologies.
(3) PROJECT.—The term ‘‘project’’ means the
demonstration project under this section.
Subtitle D—Anti-Fraud and Abuse
Provisions
SEC. 4301. PERMANENT EXCLUSION FOR THOSE CON-
VICTED 
OF 
HEALTH 
CARE 
RELATED
CRIMES.
Section 1128(c)(3) (42 U.S.C. 1320a–7(c)(3)) is
amended—
(1) in subparagraph (A), by inserting ‘‘or in the
case described in subparagraph (G)’’ after ‘‘sub-
section (b)(12)’’;
(2) in subparagraphs (B) and (D), by striking
‘‘In the case’’ and inserting ‘‘Subject to subpara-
graph (G), in the case’’; and
(3) by adding at the end the following new sub-
paragraph:
402
‘‘(G) In the case of an exclusion of an individual
under subsection (a) based on a conviction occurring on
or after the date of the enactment of this subparagraph,
if the individual has (before, on, or after such date and
before the date of the conviction for which the exclusion
is imposed) been convicted—
‘‘(i) on one previous occasion of one or more of-
fenses for which an exclusion may be effected under
such subsection, the period of the exclusion shall be
not less than 10 years, or
‘‘(ii) on 2 or more previous occasions of one or
more offenses for which an exclusion may be effected
under such subsection, the period of the exclusion
shall be permanent.’’.
SEC. 4302. AUTHORITY TO REFUSE TO ENTER INTO MEDI-
CARE AGREEMENTS WITH INDIVIDUALS OR
ENTITIES CONVICTED OF FELONIES.
(a) MEDICARE PART A.—Section 1866(b)(2) (42
U.S.C. 1395cc(b)(2)) is amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(B);
(2) by striking the period at the end of sub-
paragraph (C) and inserting ‘‘, or’’; and
(3) by adding after subparagraph (C) the fol-
lowing new subparagraph:
403
‘‘(D) has ascertained that the provider has
been convicted of a felony under Federal or
State law for an offense which the Secretary de-
termines is inconsistent with the best interests
of program beneficiaries.’’.
(b) MEDICARE PART B.—Section 1842 (42 U.S.C.
1395u) is amended by adding after subsection (r) the fol-
lowing new subsection:
‘‘(s) The Secretary may refuse to enter into an agree-
ment with a physician or supplier under subsection (h)
or may terminate or refuse to renew such agreement, in
the event that such physician or supplier has been con-
victed of a felony under Federal or State law for an of-
fense which the Secretary determines is inconsistent with
the best interests of program beneficiaries.’’.
(c) MEDICAID.—Section 1902(a)(23) (42 U.S.C.
1396(a)) is amended—
(1) by relocating the matter that precedes ‘‘pro-
vide that, (A)’’ immediately before the semicolon;
(2) by inserting a semicolon after ‘‘1915’’;
(3) by striking the comma after ‘‘Guam’’ and
inserting a semicolon; and
(4) by inserting before the semicolon at the end
the following: ‘‘and except that this provision does
not require a State to provide medical assistance for
404
such services furnished by a person or entity con-
victed of a felony under Federal or State law for an
offense which the State agency determines is incon-
sistent with the best interests of beneficiaries under
the State plan’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act and apply to the entry and renewal of contracts
on or after such date.
SEC. 4303. INCLUSION OF TOLL-FREE NUMBER TO REPORT
MEDICARE WASTE, FRAUD, AND ABUSE IN EX-
PLANATION OF BENEFITS FORMS.
(a) IN GENERAL.—Section 1842(h)(7) (42 U.S.C.
1395u(h)(7)) is amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (D),
(2) by striking the period at the end of sub-
paragraph (E), and
(3) by adding at the end the following new sub-
paragraph:
‘‘(E) a toll-free telephone number maintained
by the Inspector General in the Department of
Health and Human Services for the receipt of com-
plaints and information about waste, fraud, and
405
abuse in the provision or billing of services under
this title.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to explanations of benefits pro-
vided on or after such date (not later than January 1,
1999) as the Secretary of Health and Human Services
shall provide.
SEC. 4304. LIABILITY OF MEDICARE CARRIERS AND FISCAL
INTERMEDIARIES FOR CLAIMS SUBMITTED
BY EXCLUDED PROVIDERS.
(a) REIMBURSEMENT
TO
THE
SECRETARY
FOR
AMOUNTS PAID TO EXCLUDED PROVIDERS.—
(1) 
REQUIREMENTS
FOR
FISCAL
INTERMEDIARIES.—
(A) IN
GENERAL.—Section 1816 (42
U.S.C. 1395h) is amended by adding at the end
the following new subsection:
‘‘(m) An agreement with an agency or organization
under this section shall require that such agency or orga-
nization reimburse the Secretary for any amounts paid by
the agency or organization for a service under this title
which is furnished, directed, or prescribed by an individual
or entity during any period for which the individual or
entity is excluded pursuant to section 1128, 1128A, or
1156, from participation in the program under this title,
406
if the amounts are paid after the Secretary notifies the
agency or organization of the exclusion.’’.
(B) 
CONFORMING
AMENDMENT.—Sub-
section (i) of such section is amended by adding
at the end the following new paragraph:
‘‘(4) Nothing in this subsection shall be construed to
prohibit reimbursement by an agency or organization
under subsection (m).’’.
(2) REQUIREMENTS
FOR
CARRIERS.—Section
1842(b)(3) (42 U.S.C. 1395u(b)(3)) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (I); and
(B) by inserting after subparagraph (I) the
following new subparagraph:
‘‘(J) will reimburse the Secretary for any
amounts paid by the carrier for an item or service
under this part which is furnished, directed, or pre-
scribed by an individual or entity during any period
for which the individual or entity is excluded pursu-
ant to section 1128, 1128A, or 1156, from partici-
pation in the program under this title, if the
amounts are paid after the Secretary notifies the
carrier of the exclusion, and’’.
(3) 
MEDICAID
PROVISION.—Section
1902(a)(39) (42 U.S.C. 1396a(a)(39)) is amended
407
by inserting before the semicolon at the end the fol-
lowing: ‘‘, and provide further for reimbursement to
the Secretary of any payments made under the plan
or any item or service furnished, directed, or pre-
scribed by the excluded individual or entity during
such period, after the Secretary notifies the State of
such exclusion’’.
(b) CONFORMING REPEAL OF MANDATORY PAYMENT
RULE.—Paragraph (2) of section 1862(e) (42 U.S.C.
1395y(e)) is amended to read as follows:
‘‘(2) No individual or entity may bill (or collect any
amount from) any individual for any item or service for
which payment is denied under paragraph (1). No person
is liable for payment of any amounts billed for such an
item or service in violation of the previous sentence.’’.
(c) EFFECTIVE DATES.—The amendments made by
this section shall apply to contracts and agreements en-
tered into, renewed, or extended after the date of the en-
actment of this Act, but only with respect to claims sub-
mitted on or after the later of January 1, 1998, or the
date such entry, renewal, or extension becomes effective.
SEC. 4305. EXCLUSION OF ENTITY CONTROLLED BY FAMILY
MEMBER OF A SANCTIONED INDIVIDUAL.
(a) IN GENERAL.—Section 1128 (42 U.S.C. 1320a–
7) is amended—
408
(1) in subsection (b)(8)(A)—
(A) by striking ‘‘or’’ at the end of clause
(i), and
(B) by striking the dash at the end of
clause (ii) and inserting ‘‘; or’’, and
(C) by inserting after clause (ii) the follow-
ing:
‘‘(iii) who was described in clause (i) but
is no longer so described because of a transfer
of ownership or control interest, in anticipation
of (or following) a conviction, assessment, or ex-
clusion described in subparagraph (B) against
the person, to an immediate family member (as
defined in subsection (j)(1)) or a member of the
household of the person (as defined in sub-
section (j)(2)) who continues to maintain an in-
terest described in such clause—’’; and
(2) by adding after subsection (i) the following
new subsection:
‘‘(j) DEFINITION OF IMMEDIATE FAMILY MEMBER
AND MEMBER OF HOUSEHOLD.—For purposes of sub-
section (b)(8)(A)(iii):
‘‘(1) The term ‘immediate family member’
means, with respect to a person—
‘‘(A) the husband or wife of the person;
409
‘‘(B) the natural or adoptive parent, child,
or sibling of the person;
‘‘(C) the stepparent, stepchild, stepbrother,
or stepsister of the person;
‘‘(D) the father-, mother-, daughter-, son-
, brother-, or sister-in-law of the person;
‘‘(E) the grandparent or grandchild of the
person; and
‘‘(F) the spouse of a grandparent or
grandchild of the person.
‘‘(2) The term ‘member of the household’
means, with respect to an person, any individual
sharing a common abode as part of a single family
unit with the person, including domestic employees
and others who live together as a family unit, but
not including a roomer or boarder.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall take effect on the date that is 45 days
after the date of the enactment of this Act.
SEC. 4306. IMPOSITION OF CIVIL MONEY PENALTIES.
(a) CIVIL MONEY PENALTIES FOR PERSONS THAT
CONTRACT
WITH
EXCLUDED
INDIVIDUALS.—Section
1128A(a) (42 U.S.C. 1320a–7a(a)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(4);
410
(2) by adding ‘‘or’’ at the end of paragraph (5);
and
(3) by adding after paragraph (5) the following
new paragraph:
‘‘(6) arranges or contracts (by employment or
otherwise) with an individual or entity that the per-
son knows or should know is excluded from partici-
pation in a Federal health care program (as defined
in section 1128B(f)), for the provision of items or
services for which payment may be made under such
a program;’’.
(b) EFFECTIVE DATES.—The amendments made by
subsection (a) shall apply to arrangements and contracts
entered into after the date of the enactment of this Act.
SEC. 4307. DISCLOSURE OF INFORMATION AND SURETY
BONDS.
(a) DISCLOSURE
OF INFORMATION
AND SURETY
BOND REQUIREMENT FOR SUPPLIERS OF DURABLE MED-
ICAL
EQUIPMENT.—Section 
1834(a) 
(42 
U.S.C.
1395m(a)) is amended by inserting after paragraph (15)
the following new paragraph:
‘‘(16) CONDITIONS FOR ISSUANCE OF PROVIDER
NUMBER.—The Secretary shall not provide for the
issuance (or renewal) of a provider number for a
supplier of durable medical equipment, for purposes
411
of payment under this part for durable medical
equipment furnished by the supplier, unless the sup-
plier provides the Secretary on a continuing basis
with—
‘‘(A)(i) full and complete information as to
the identity of each person with an ownership
or control interest (as defined in section
1124(a)(3)) in the supplier or in any sub-
contractor (as defined by the Secretary in regu-
lations) in which the supplier directly or indi-
rectly has a 5 percent or more ownership inter-
est, and
‘‘(ii) to the extent determined to be feasible
under regulations of the Secretary, the name of
any disclosing entity (as defined in section
1124(a)(2)) with respect to which a person with
such an ownership or control interest in the
supplier is a person with such an ownership or
control interest in the disclosing entity; and
‘‘(B) a surety bond in a form specified by
the Secretary and in an amount that is not less
than $50,000.
The Secretary may waive the requirement of a bond
under subparagraph (B) in the case of a supplier
412
that provides a comparable surety bond under State
law.’’.
(b) SURETY
BOND
REQUIREMENT
FOR
HOME
HEALTH AGENCIES.—
(1) IN GENERAL.—Section 1861(o) (42 U.S.C.
1395x(o)) is amended—
(A) in paragraph (7), by inserting ‘‘and in-
cluding providing the Secretary on a continuing
basis with a surety bond in a form specified by
the Secretary and in an amount that is not less
than $50,000,’’ after ‘‘financial security of the
program’’, and
(B) by adding at the end the following:
‘‘The Secretary may waive the requirement of a
bond under paragraph (7) in the case of an
agency or organization that provides a com-
parable surety bond under State law.’’.
(2) 
CONFORMING
AMENDMENTS.—Section
1861(v)(1)(H) 
(42 
U.S.C. 
1395x(v)(1)(H)) 
is
amended—
(A) in clause (i), by striking ‘‘the financial
security requirement’’ and inserting ‘‘the finan-
cial security and surety bond requirements’’;
and
413
(B) in clause (ii), by striking ‘‘the financial
security requirement described in subsection
(o)(7) applies’’ and inserting ‘‘the financial se-
curity and surety bond requirements described
in subsection (o)(7) apply’’.
(3) REFERENCE TO CURRENT DISCLOSURE RE-
QUIREMENT.—For provision of current law requiring
home health agencies to disclose information on
ownership and control interests, see section 1124 of
the Social Security Act.
(c) AUTHORIZING APPLICATION OF DISCLOSURE AND
SURETY BOND REQUIREMENTS TO AMBULANCE SERV-
ICES AND CERTAIN CLINICS.—Section 1834(a)(16) (42
U.S.C. 1395m(a)(16)), as added by subsection (a), is
amended by adding at the end the following: ‘‘The Sec-
retary, in the Secretary’s discretion, may impose the re-
quirements of the previous sentence with respect to some
or all classes of suppliers of ambulance services described
in section 1861(s)(7) and clinics that furnish medical and
other health services (other than physicians’ services)
under this part.’’.
(d) APPLICATION TO COMPREHENSIVE OUTPATIENT
REHABILITATION
FACILITIES
(CORFS).—Section
1861(cc)(2) (42 U.S.C. 1395x(cc)(2)) is amended—
414
(1) in subparagraph (I), by inserting before the
period at the end the following: ‘‘and providing the
Secretary on a continuing basis with a surety bond
in a form specified by the Secretary and in an
amount that is not less than $50,000’’, and
(2) by adding after and below subparagraph (I)
the following:
‘‘The Secretary may waive the requirement of a bond
under subparagraph (I) in the case of a facility that pro-
vides a comparable surety bond under State law.’’.
(e) APPLICATION TO REHABILITATION AGENCIES.—
Section 1861(p) (42 U.S.C. 1395x(p)) is amended—
(1) in paragraph (4)(A)(v), by inserting after
‘‘as the Secretary may find necessary,’’ the follow-
ing: ‘‘and provides the Secretary, to the extent re-
quired by the Secretary, on a continuing basis with
a surety bond in a form specified by the Secretary
and in an amount that is not less than $50,000’’,
and
(2) by adding at the end the following: ‘‘The
Secretary may waive the requirement of a bond
under paragraph (4)(A)(v) in the case of a clinic or
agency that provides a comparable surety bond
under State law.’’.
415
(f) EFFECTIVE DATES.—(1) The amendment made
by subsection (a) shall apply to suppliers of durable medi-
cal equipment with respect to such equipment furnished
on or after January 1, 1998.
(2) The amendments made by subsection (b) shall
apply to home health agencies with respect to services fur-
nished on or after such date. The Secretary of Health and
Human Services shall modify participation agreements
under section 1866(a)(1) of the Social Security Act with
respect to home health agencies to provide for implementa-
tion of such amendments on a timely basis.
(3) The amendments made by subsections (c)
through (e) shall take effect on the date of the enactment
of this Act and may be applied with respect to items and
services furnished on or after the date specified in para-
graph (1).
SEC. 4308. PROVISION OF CERTAIN IDENTIFICATION NUM-
BERS.
(a) REQUIREMENTS TO DISCLOSE EMPLOYER IDEN-
TIFICATION NUMBERS (EINS) AND SOCIAL SECURITY AC-
COUNT
NUMBERS
(SSNS).—Section 1124(a)(1) (42
U.S.C. 1320a–3(a)(1)) is amended by inserting before the
period at the end the following: ‘‘and supply the Secretary
with the both the employer identification number (as-
signed pursuant to section 6109 of the Internal Revenue
416
Code of 1986) and social security account number (as-
signed under section 205(c)(2)(B)) of the disclosing en-
tity, each person with an ownership or control interest (as
defined in subsection (a)(3)), and any subcontractor in
which the entity directly or indirectly has a 5 percent or
more ownership interest. Use of the social security account
number under this section shall be limited to identity ver-
ification and identity matching purposes only. The social
security account number shall not be disclosed to any per-
son or entity other than the Secretary, the Social Security
Administration, or the Secretary of the Treasury, In ob-
taining the social security account numbers of the disclos-
ing entity and other persons described in this section, the
Secretary shall comply with section 7 of the Privacy Act
of 1974 (5 U.S.C. 552a note)’’.
(b) OTHER MEDICARE PROVIDERS.—Section 1124A
(42 U.S.C. 1320a–3a) is amended—
(1) in subsection (a)—
(A) by striking ‘‘and’’ at the end of para-
graph (1);
(B) by striking the period at the end of
paragraph (2) and inserting ‘‘; and’’; and
(C) by adding at the end the following new
paragraph:
417
‘‘(3) including the employer identification num-
ber (assigned pursuant to section 6109 of the Inter-
nal Revenue Code of 1986) and social security ac-
count number (assigned under section 205(c)(2)(B))
of the disclosing part B provider and any person,
managing employee, or other entity identified or de-
scribed under paragraph (1) or (2).’’; and
(2) in subsection (c) by inserting ‘‘(or, for pur-
poses of subsection (a)(3), any entity receiving pay-
ment)’’ after ‘‘on an assignment-related basis’’.
(c) VERIFICATION BY SOCIAL SECURITY ADMINIS-
TRATION (SSA).—Section 1124A (42 U.S.C. 1320a–3a)
is amended—
(1) by redesignating subsection (c) as sub-
section (d); and
(2) by inserting after subsection (b) the follow-
ing new subsection:
‘‘(c) VERIFICATION.—
‘‘(1) TRANSMITTAL
BY
HHS.—The Secretary
shall transmit—
‘‘(A) to the Commissioner of Social Secu-
rity information concerning each social security
account 
number 
(assigned 
under 
section
205(c)(2)(B)), and
418
‘‘(B) to the Secretary of the Treasury in-
formation concerning each employer identifica-
tion number (assigned pursuant to section 6109
of the Internal Revenue Code of 1986),
supplied to the Secretary pursuant to subsection
(a)(3) or section 1124(c) to the extent necessary for
verification of such information in accordance with
paragraph (2).
‘‘(2) VERIFICATION.—The Commissioner of So-
cial Security and the Secretary of the Treasury shall
verify the accuracy of, or correct, the information
supplied by the Secretary to such official pursuant
to paragraph (1), and shall report such verifications
or corrections to the Secretary.
‘‘(3) FEES FOR VERIFICATION.—The Secretary
shall reimburse the Commissioner and Secretary of
the Treasury, at a rate negotiated between the Sec-
retary and such official, for the costs incurred by
such official in performing the verification and cor-
rection services described in this subsection.’’.
(d) REPORT.—Before this subsection shall be effec-
tive, the Secretary of Health and Human Services shall
submit to Congress a report on steps the Secretary has
taken to assure the confidentiality of social security ac-
count numbers that will be provided to the Secretary
419
under the amendments made by this section. If Congress
determines that the Secretary has not taken adequate
steps to assure the confidentiality of social security ac-
count numbers to be provided to the Secretary under the
amendments made by this section, the amendments made
by this section shall not take effect.
(e) EFFECTIVE DATES.—Subject to subsection (d)—
(1) the amendment made by subsection (a)
shall apply to the application of conditions of partici-
pation, and entering into and renewal of contracts
and agreements, occurring more than 90 days after
the date of submission of the report under sub-
section (d); and
(2) the amendments made by subsection (b)
shall apply to payment for items and services fur-
nished more than 90 days after the date of submis-
sion of such report.
SEC. 4309. ADVISORY OPINIONS REGARDING CERTAIN PHY-
SICIAN SELF-REFERRAL PROVISIONS.
Section 1877(g) (42 U.S.C. 1395nn(g)) is amended
by adding at the end the following new paragraph:
‘‘(6) ADVISORY OPINIONS.—
‘‘(A) IN
GENERAL.—The Secretary shall
issue written advisory opinions concerning
whether a referral relating to designated health
420
services (other than clinical laboratory services)
is prohibited under this section.
‘‘(B) BINDING
AS
TO
SECRETARY
AND
PARTIES INVOLVED.—Each advisory opinion is-
sued by the Secretary shall be binding as to the
Secretary and the party or parties requesting
the opinion.
‘‘(C) APPLICATION
OF
CERTAIN
PROCE-
DURES.—The Secretary shall, to the extent
practicable, apply the regulations promulgated
under section 1128D(b)(5) to the issuance of
advisory opinions under this paragraph.
‘‘(D) 
APPLICABILITY.—This 
paragraph
shall apply to requests for advisory opinions
made during the period described in section
1128D(b)(6).’’.
SEC. 4310. NONDISCRIMINATION IN POST-HOSPITAL RE-
FERRAL TO HOME HEALTH AGENCIES.
(a) NOTIFICATION
OF
AVAILABILITY
OF
HOME
HEALTH AGENCIES AS PART OF DISCHARGE PLANNING
PROCESS.—Section 1861(ee)(2) (42 U.S.C. 1395x(ee)(2))
is amended—
(1) in subparagraph (D), by inserting before
the period the following: ‘‘, including the availability
of home health services through individuals and enti-
421
ties that participate in the program under this title
and that serve the area in which the patient resides
and that request to be listed by the hospital as avail-
able’’; and
(2) by adding at the end the following:
‘‘(H) Consistent with section 1802, the dis-
charge plan shall—
‘‘(i) not specify or otherwise limit the
qualified provider which may provide post-hos-
pital home health services, and
‘‘(ii) identify (in a form and manner speci-
fied by the Secretary) any home health agency
(to whom the individual is referred) in which
the hospital has a disclosable financial interest
(as specified by the Secretary consistent with
section 1866(a)(1)(R)) or which has such an in-
terest in the hospital.’’.
(b) MAINTENANCE AND DISCLOSURE OF INFORMA-
TION ON POST-HOSPITAL HOME HEALTH AGENCIES.—
Section 1866(a)(1) (42 U.S.C. 1395cc(a)(1)) is amend-
ed—
(1) by striking ‘‘and’’ at the end of subpara-
graph (Q),
(2) by striking the period at the end of sub-
paragraph (R), and
422
(3) by adding at the end the following:
‘‘(S) in the case of a hospital that has a finan-
cial interest (as specified by the Secretary in regula-
tions) in a home health agency, or in which such an
agency has such a financial interest, or in which an-
other entity has such a financial interest (directly or
indirectly) with such hospital and such an agency, to
maintain and disclose to the Secretary (in a form
and manner specified by the Secretary) information
on—
‘‘(i) the nature of such financial interest,
‘‘(ii) the number of individuals who were
discharged from the hospital and who were
identified as requiring home health services,
and
‘‘(iii) the percentage of such individuals
who received such services from such provider
(or another such provider).’’.
(c) DISCLOSURE
OF INFORMATION
TO
THE PUB-
LIC.—Title XI is amended by inserting after section 1145
the following new section:
‘‘PUBLIC
DISCLOSURE
OF
CERTAIN
INFORMATION
ON
HOSPITAL
FINANCIAL
INTEREST
AND
REFERRAL
PATTERNS
‘‘SEC. 1146. The Secretary shall make available to
the public, in a form and manner specified by the Sec-
423
retary, information disclosed to the Secretary pursuant to
section 1866(a)(1)(R).’’.
(d) EFFECTIVE DATES.—
(1) The amendments made by subsection (a)
shall apply to discharges occurring on or after 90
days after the date of the enactment of this Act.
(2) The Secretary of Health and Human Serv-
ices shall issue regulations by not later than 1 year
after the date of the enactment of this Act to carry
out the amendments made by subsections (b) and
(c) and such amendments shall take effect as of
such date (on or after the issuance of such regula-
tions) as the Secretary specifies in such regulations.
SEC. 4311. OTHER FRAUD AND ABUSE RELATED PROVI-
SIONS.
(a) 
REFERENCE
CORRECTION.—(1) 
Section
1128D(b)(2)(D) (42 U.S.C. 1320a–7d(b)(2)(D)), as
added by section 205 of the Health Insurance Portability
and Accountability Act of 1996, is amended by striking
‘‘1128B(b)’’ and inserting ‘‘1128A(b)’’.
(2) Section 1128E(g)(3)(C) (42 U.S.C. 1320a–
7e(g)(3)(C)) is amended by striking ‘‘Veterans’ Adminis-
tration’’ and inserting ‘‘Department of Veterans Affairs’’.
(b) LANGUAGE IN DEFINITION OF CONVICTION.—
Section 1128E(g)(5) (42 U.S.C. 1320a–7e(g)(5)), as in-
424
serted by section 221(a) of the Health Insurance Port-
ability and Accountability Act of 1996, is amended by
striking ‘‘paragraph (4)’’ and inserting ‘‘paragraphs (1)
through (4)’’.
(c) IMPLEMENTATION
OF
EXCLUSIONS.—Section
1128 (42 U.S.C. 1320a–7) is amended—
(1) in subsection (a), by striking ‘‘any program
under title XVIII and shall direct that the following
individuals and entities be excluded from participa-
tion in any State health care program (as defined in
subsection (h))’’ and inserting ‘‘any Federal health
care program (as defined in section 1128B(f))’’; and
(2) in subsection (b), by striking ‘‘any program
under title XVIII and may direct that the following
individuals and entities be excluded from participa-
tion in any State health care program’’ and inserting
‘‘any Federal health care program (as defined in
section 1128B(f))’’.
(d) SANCTIONS FOR FAILURE TO REPORT.—Section
1128E(b) (42 U.S.C. 1320a–7e(b)), as inserted by section
221(a) of the Health Insurance Portability and Account-
ability Act of 1996, is amended by adding at the end the
following:
‘‘(6) SANCTIONS FOR FAILURE TO REPORT.—
425
‘‘(A) HEALTH
PLANS.—Any health plan
that fails to report information on an adverse
action required to be reported under this sub-
section shall be subject to a civil money penalty
of not more than $25,000 for each such adverse
action not reported. Such penalty shall be im-
posed and collected in the same manner as civil
money penalties under subsection (a) of section
1128A are imposed and collected under that
section.
‘‘(B) 
GOVERNMENTAL
AGENCIES.—The
Secretary shall provide for a publication of a
public report that identifies those Government
agencies that have failed to report information
on adverse actions as required to be reported
under this subsection.’’.
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in this
subsection, the amendments made by this section
shall be effective as if included in the enactment of
the Health Insurance Portability and Accountability
Act of 1996.
(2) FEDERAL HEALTH PROGRAM.—The amend-
ments made by subsection (c) shall take effect on
the date of the enactment of this Act.
426
(3) SANCTION FOR FAILURE TO REPORT.—The
amendment made by subsection (d) shall apply to
failures occurring on or after the date of the enact-
ment of this Act.
Subtitle E—Prospective Payment
Systems
CHAPTER 2—PAYMENT UNDER PART B
Subchapter A—Payment for Hospital
Outpatient Department Services
SEC. 4411. ELIMINATION OF FORMULA-DRIVEN OVERPAY-
MENTS (FDO) FOR CERTAIN OUTPATIENT
HOSPITAL SERVICES.
(a) ELIMINATION OF FDO FOR AMBULATORY SUR-
GICAL
CENTER
PROCEDURES.—Section
1833(i)(3)(B)(i)(II) (42 U.S.C. 1395l(i)(3)(B)(i)(II)) is
amended—
(1) by striking ‘‘of 80 percent’’; and
(2) by striking the period at the end and insert-
ing the following: ‘‘, less the amount a provider may
charge as described in clause (ii) of section
1866(a)(2)(A).’’.
(b) ELIMINATION OF FDO FOR RADIOLOGY SERV-
ICES
AND
DIAGNOSTIC
PROCEDURES.—Section
1833(n)(1)(B)(i) (42 U.S.C. 1395l(n)(1)(B)(i)) is amend-
ed—
427
(1) by striking ‘‘of 80 percent’’, and
(2) by inserting before the period at the end the
following: ‘‘, less the amount a provider may charge
as described in clause (ii) of section 1866(a)(2)(A)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to services furnished during por-
tions of cost reporting periods occurring on or after Octo-
ber 1, 1997.
SEC. 4412. EXTENSION OF REDUCTIONS IN PAYMENTS FOR
COSTS OF HOSPITAL OUTPATIENT SERVICES.
(a) REDUCTION IN PAYMENTS FOR CAPITAL-RELAT-
ED
COSTS.—Section 1861(v)(1)(S)(ii)(I) (42 U.S.C.
1395x(v)(1)(S)(ii)(I)) is amended by striking ‘‘through
1998’’ and inserting ‘‘through 1999 and during fiscal year
2000 before January 1, 2000’’.
(b) REDUCTION IN PAYMENTS FOR OTHER COSTS.—
Section 
1861(v)(1)(S)(ii)(II) 
(42 
U.S.C.
1395x(v)(1)(S)(ii)(II)) is amended by striking ‘‘through
1998’’ and inserting ‘‘through 1999 and during fiscal year
2000 before January 1, 2000’’.
SEC. 4413. PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL
OUTPATIENT DEPARTMENT SERVICES.
(a) IN GENERAL.—Section 1833 (42 U.S.C. 1395l)
is amended by adding at the end the following:
428
‘‘(t) PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL
OUTPATIENT DEPARTMENT SERVICES.—
‘‘(1) IN
GENERAL.—With respect to hospital
outpatient services designated by the Secretary (in
this section referred to as ‘covered OPD services’)
and furnished during a year beginning with 1999,
the amount of payment under this part shall be de-
termined under a prospective payment system estab-
lished by the Secretary in accordance with this sub-
section.
‘‘(2) SYSTEM REQUIREMENTS.—Under the pay-
ment system—
‘‘(A) the Secretary shall develop a classi-
fication system for covered OPD services;
‘‘(B) the Secretary may establish groups of
covered OPD services, within the classification
system described in subparagraph (A), so that
services classified within each group are com-
parable clinically and with respect to the use of
resources;
‘‘(C) the Secretary shall, using data on
claims from 1996 and using data from the most
recent available cost reports, establish relative
payment weights for covered OPD services (and
any groups of such services described in sub-
429
paragraph (B)) based on median hospital costs
and shall determine projections of the frequency
of utilization of each such service (or group of
services) in 1999;
‘‘(D) the Secretary shall determine a wage
adjustment factor to adjust the portion of pay-
ment and coinsurance attributable to labor-re-
lated costs for relative differences in labor and
labor-related costs across geographic regions in
a budget neutral manner;
‘‘(E) the Secretary shall establish other ad-
justments, in a budget neutral manner, as de-
termined to be necessary to ensure equitable
payments, such as outlier adjustments, adjust-
ments to account for variations in coinsurance
payments for procedures with similar resource
costs, or adjustments for certain classes of hos-
pitals; and
‘‘(F) the Secretary shall develop a method
for controlling unnecessary increases in the vol-
ume of covered OPD services.
‘‘(3) CALCULATION OF BASE AMOUNTS.—
‘‘(A) AGGREGATE AMOUNTS THAT WOULD
BE
PAYABLE
IF
DEDUCTIBLES
WERE
DIS-
REGARDED.—The Secretary shall estimate the
430
total amounts that would be payable from the
Trust Fund under this part for covered OPD
services in 1999, determined without regard to
this subsection, as though the deductible under
section 1833(b) did not apply, and as though
the 
coinsurance 
described 
in 
section
1866(a)(2)(A)(ii) (as in effect before the date
of the enactment of this subsection) continued
to apply.
‘‘(B) 
UNADJUSTED
COPAYMENT
AMOUNT.—
‘‘(i) IN
GENERAL.—For purposes of
this subsection, subject to clause (ii), the
‘unadjusted copayment amount’ applicable
to a covered OPD service (or group of such
services) is 20 percent of national median
of the charges for the service (or services
within the group) furnished during 1996,
updated to 1999 using the Secretary’s esti-
mate of charge growth during the period.
‘‘(ii) ADJUSTED TO BE 20 PERCENT
WHEN FULLY PHASED IN.—If the pre-de-
ductible payment percentage for a covered
OPD service (or group of such services)
furnished in a year would be equal to or
431
exceed 80 percent, then the unadjusted co-
payment amount shall be 25 percent of
amount determined under subparagraph
(D)(i).
‘‘(iii) RULES FOR NEW SERVICES.—
The Secretary shall establish rules for es-
tablishment of an unadjusted copayment
amount for a covered OPD service not fur-
nished during 1996, based upon its classi-
fication within a group of such services.
‘‘(C) CALCULATION OF CONVERSION FAC-
TORS.—
‘‘(I) IN
GENERAL.—The Sec-
retary shall establish a 1999 conver-
sion factor for determining the medi-
care pre-deductible OPD fee payment
amounts for each covered OPD serv-
ice (or group of such services) fur-
nished in 1999. Such conversion fac-
tor shall be established on the basis of
the weights and frequencies described
in paragraph (2)(C) and in a manner
such that the sum for all services and
groups of the products (described in
subclause (II) for each such service or
432
group) equals the total projected
amount described in subparagraph
(A).
‘‘(II) 
PRODUCT
DESCRIBED.—The
product described in this subclause, for a
service or group, is the product of the med-
icare pre-deductible OPD fee payment
amounts (taking into account appropriate
adjustments 
described 
in 
paragraphs
(2)(D) and (2)(E)) and the frequencies for
such service or group.
‘‘(ii) SUBSEQUENT
YEARS.—Subject
to paragraph (8)(B), the Secretary shall
establish a conversion factor for covered
OPD services furnished in subsequent
years in an amount equal to the conversion
factor established under this subparagraph
and applicable to such services furnished in
the previous year increased by the OPD
payment increase factor specified under
clause (iii) for the year involved.
‘‘(iii) OPD PAYMENT INCREASE FAC-
TOR.—For purposes of this subparagraph,
the ‘OPD payment increase factor’ for
433
services furnished in a year is equal to the
sum of—
‘‘(I) market basket percentage in-
crease 
(applicable 
under 
section
1886(b)(3)(B)(iii) to hospital dis-
charges occurring during the fiscal
year ending in such year, and
‘‘(II) in the case of a covered
OPD service (or group of such serv-
ices) furnished in a year in which the
pre-deductible 
payment 
percentage
would not exceed 80 percent, 3.5 per-
centage points, but in no case greater
than such number of percentage
points as will result in the pre-deduct-
ible payment percentage exceeding 80
percent.
In applying the previous sentence for years
beginning with 2000, the Secretary may
substitute for the market basket percent-
age increase under subclause (I) an annual
percentage increase that is computed and
applied with respect to covered OPD serv-
ices furnished in a year in the same man-
ner as the market basket percentage in-
434
crease is determined and applied to inpa-
tient hospital services for discharges occur-
ring in a fiscal year.
‘‘(D) PRE-DEDUCTIBLE
PAYMENT
PER-
CENTAGE.—The pre-deductible payment per-
centage for a covered OPD service (or group of
such services) furnished in a year is equal to
the ratio of—
‘‘(i) the conversion factor established
under subparagraph (C) for the year, mul-
tiplied by the weighting factor established
under paragraph (2)(C) for the service (or
group), to
‘‘(ii) the sum of the amount deter-
mined under clause (i) and the unadjusted
copayment amount determined under sub-
paragraph (B) for such service or group.
‘‘(E) CALCULATION
OF
MEDICARE
OPD
FEE
SCHEDULE
AMOUNTS.—The 
Secretary
shall compute a medicare OPD fee schedule
amount for each covered OPD service (or group
of such services) furnished in a year, in an
amount equal to the product of—
‘‘(i) the conversion factor computed
under subparagraph (C) for the year, and
435
‘‘(ii) the relative payment weight (de-
termined under paragraph (2)(C)) for the
service or group.
‘‘(4) 
MEDICARE
PAYMENT
AMOUNT.—The
amount of payment made from the Trust Fund
under this part for a covered OPD service (and such
services classified within a group) furnished in a
year is determined as follows:
‘‘(A) FEE
SCHEDULE
AND
COPAYMENT
AMOUNT.—Add (i) the medicare OPD fee
schedule amount (computed under paragraph
(3)(E)) for the service or group and year, and
(ii) the unadjusted copayment amount (deter-
mined under paragraph (3)(B)) for the service
or group.
‘‘(B) SUBTRACT
APPLICABLE
DEDUCT-
IBLE.—Reduce the adjusted sum by the amount
of the deductible under section 1833(b), to the
extent applicable.
‘‘(C) APPLY PAYMENT PROPORTION TO RE-
MAINDER.—Multiply the amount so determined
under subparagraph (B) by the pre-deductible
payment percentage (as determined under para-
graph (3)(D)) for the service or group and year
involved.
436
‘‘(D) 
LABOR-RELATED
ADJUSTMENT.—
The amount of payment is the product deter-
mined under subparagraph (C) with the labor-
related portion of such product adjusted for rel-
ative differences in the cost of labor and other
factors determined by the Secretary, as com-
puted under paragraph (2)(D).
‘‘(5) COPAYMENT AMOUNT.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the copayment amount
under this subsection is determined as follows:
‘‘(i) 
UNADJUSTED
COPAYMENT.—
Compute the amount by which the amount
described in paragraph (4)(B) exceeds the
amount of payment determined under
paragraph (4)(C).
‘‘(ii) LABOR ADJUSTMENT.—The co-
payment amount is the difference deter-
mined under clause (i) with the labor-relat-
ed portion of such difference adjusted for
relative differences in the cost of labor and
other factors determined by the Secretary,
as computed under paragraphs (2)(D).
The adjustment under this clause shall be
made in a manner that does not result in
437
any change in the aggregate copayments
made in any year if the adjustment had
not been made.
‘‘(B) ELECTION TO OFFER REDUCED CO-
PAYMENT AMOUNT.—The Secretary shall estab-
lish a procedure under which a hospital, before
the beginning of a year (beginning with 1999),
may elect to reduce the copayment amount oth-
erwise established under subparagraph (A) for
some or all covered OPD services to an amount
that is not less than 25 percent of the medicare
OPD fee schedule amount (computed under
paragraph (3)(E)) for the service involved, ad-
justed for relative differences in the cost of
labor and other factors determined by the Sec-
retary, as computed under subparagraphs (D)
and (E) of paragraph (2). Under such proce-
dures, such reduced copayment amount may
not be further reduced or increased during the
year involved and the hospital may disseminate
information on the reduction of copayment
amount effected under this subparagraph.
‘‘(C) NO
IMPACT
ON
DEDUCTIBLES.—
Nothing in this paragraph shall be construed as
438
affecting a hospital’s authority to waive the
charging of a deductible under section 1833(b).
‘‘(6) PERIODIC
REVIEW
AND
ADJUSTMENTS
COMPONENTS OF PROSPECTIVE PAYMENT SYSTEM.—
‘‘(A) PERIODIC
REVIEW.—The Secretary
may periodically review and revise the groups,
the relative payment weights, and the wage and
other adjustments described in paragraph (2) to
take into account changes in medical practice,
changes in technology, the addition of new serv-
ices, new cost data, and other relevant informa-
tion and factors.
‘‘(B) 
BUDGET
NEUTRALITY
ADJUST-
MENT.—If the Secretary makes adjustments
under subparagraph (A), then the adjustments
for a year may not cause the estimated amount
of expenditures under this part for the year to
increase or decrease from the estimated amount
of expenditures under this part that would have
been made if the adjustments had not been
made.
‘‘(C) UPDATE FACTOR.—If the Secretary
determines under methodologies described in
subparagraph (2)(F) that the volume of services
paid for under this subsection increased beyond
439
amounts established through those methodolo-
gies, the Secretary may appropriately adjust the
update to the conversion factor otherwise appli-
cable in a subsequent year.
‘‘(7) SPECIAL
RULE
FOR
AMBULANCE
SERV-
ICES.—The Secretary shall pay for hospital out-
patient services that are ambulance services on the
basis described in the matter in subsection (a)(1)
preceding subparagraph (A).
‘‘(8) SPECIAL
RULES
FOR
CERTAIN
HOS-
PITALS.—In the case of hospitals described in sec-
tion 1886(d)(1)(B)(v)—
‘‘(A) the system under this subsection shall
not apply to covered OPD services furnished be-
fore January 1, 2000; and
‘‘(B) the Secretary may establish a sepa-
rate conversion factor for such services in a
manner that specifically takes into account the
unique costs incurred by such hospitals by vir-
tue of their patient population and service in-
tensity.
‘‘(9) LIMITATION ON REVIEW.—There shall be
no administrative or judicial review under section
1869, 1878, or otherwise of—
440
‘‘(A) the development of the classification
system under paragraph (2), including the es-
tablishment of groups and relative payment
weights for covered OPD services, of wage ad-
justment factors, other adjustments, and meth-
ods described in paragraph (2)(F);
‘‘(B) the calculation of base amounts
under paragraph (3);
‘‘(C) periodic adjustments made under
paragraph (6); and
‘‘(D) the establishment of a separate con-
version factor under paragraph (8)(B).’’.
(b) COINSURANCE.—Section 1866(a)(2)(A)(ii) (42
U.S.C. 1395cc(a)(2)(A)(ii)) is amended by adding at the
end the following: ‘‘In the case of items and services for
which payment is made under part B under the prospec-
tive payment system established under section 1833(t),
clause (ii) of the first sentence shall be applied by sub-
stituting for 20 percent of the reasonable charge, the ap-
plicable copayment amount established under section
1833(t)(5).’’.
(c) TREATMENT
OF REDUCTION
IN COPAYMENT
AMOUNT.—Section 1128A(i)(6) (42 U.S.C. 1320a–
7a(i)(6)) is amended—
441
(1) by striking ‘‘or’’ at the end of subparagraph
(B),
(2) by striking the period at the end of sub-
paragraph (C) and inserting ‘‘; or’’, and
(3) by adding at the end the following new sub-
paragraph:
‘‘(D) a reduction in the copayment amount
for 
covered 
OPD 
services 
under 
section
1833(t)(5)(B).’’.
(d) CONFORMING AMENDMENTS.—
(1) APPROVED ASC PROCEDURES PERFORMED
IN HOSPITAL OUTPATIENT DEPARTMENTS.—
(A)(i) Section 1833(i)(3)(A) (42 U.S.C.
13951(i)(3)(A)) is amended—
(I) by inserting ‘‘before January 1,
1999,’’ after ‘‘furnished’’, and
(II) by striking ‘‘in a cost reporting
period’’.
(ii) The amendment made by clause (i)
shall apply to services furnished on or after
January 1, 1999.
(B) 
Section 
1833(a)(4) 
(42 
U.S.C.
13951(a)(4)) is amended by inserting ‘‘or sub-
section (t)’’ before the semicolon.
442
(2) RADIOLOGY AND OTHER DIAGNOSTIC PRO-
CEDURES.—
(A) Section 1833(n)(1)(A) (42 U.S.C.
1395l(n)(1)(A)) is amended by inserting ‘‘and
before January 1, 1999,’’ after ‘‘October 1,
1988,’’ and after ‘‘October 1, 1989,’’.
(B) Section 1833(a)(2)(E) (42 U.S.C.
1395l(a)(2)(E)) is amended by inserting ‘‘or,
for services or procedures performed on or after
January 1, 1999, (t)’’ before the semicolon.
(3) OTHER
HOSPITAL
OUTPATIENT
SERV-
ICES.—Section 
–1833(a)(2)(B) 
(42 
U.S.C.
1395l(a)(2)(B)) is amended—
(A) in clause (i), by inserting ‘‘furnished
before January 1, 1999,’’ after ‘‘(i)’’,
(B) in clause (ii), by inserting ‘‘before Jan-
uary 1, 1999,’’ after ‘‘furnished’’,
(C) by redesignating clause (iii) as clause
(iv),and
(D) by inserting after clause (ii), the fol-
lowing new clause:
‘‘(iii) if such services are furnished on
or after January 1, 1999, the amount de-
termined under subsection (t), or’’.
443
Subchapter B—Rehabilitation Services
SEC. 4421. REHABILITATION AGENCIES AND SERVICES.
(a) PAYMENT BASED ON FEE SCHEDULE.—
(1) 
SPECIAL
PAYMENT
RULES.—Section
1833(a) (42 U.S.C. 1395l(a)) is amended—
(A) in paragraph (2) in the matter before
subparagraph (A), by inserting ‘‘(C),’’ before
‘‘(D)’’;
(B) in paragraph (6), by striking ‘‘and’’ at
the end;
(C) in paragraph (7), by striking the pe-
riod at the end and inserting ‘‘; and’’;
(D) by adding at the end the following new
paragraph:
‘‘(8) in the case of services described in section
1832(a)(2)(C) (that are not described in section
1832(a)(2)(B)), the amounts described in section
1834(k).’’.
(2) 
PAYMENT
RATES.—Section 
1834 
(42
U.S.C. 1395m) is amended by adding at the end the
following new subsection:
‘‘(k) PAYMENT FOR OUTPATIENT THERAPY SERV-
ICES.—
‘‘(1) IN GENERAL.—With respect to outpatient
physical therapy services (which includes outpatient
444
speech-language pathology services) and outpatient
occupational therapy services for which payment is
determined under this subsection, the payment basis
shall be—
‘‘(A) for services furnished during 1998,
the amount determined under paragraph (2); or
‘‘(B) for services furnished during a subse-
quent year, 80 percent of the lesser of—
‘‘(i) the actual charge for the services,
or
‘‘(ii) 
the 
applicable 
fee 
schedule
amount (as defined in paragraph (3)) for
the services.
‘‘(2) PAYMENT IN 1998 BASED UPON CHARGES
OR
ADJUSTED
REASONABLE
COSTS.—The amount
under this paragraph for services is the lesser of—
‘‘(A) the charges imposed for the services,
or
‘‘(B) the adjusted reasonable costs (as de-
fined in paragraph (4)) for the services,
less 20 percent of the amount of the charges im-
posed for such services.
‘‘(3) APPLICABLE FEE SCHEDULE AMOUNT.—
In this paragraph, the term ‘applicable fee schedule
amount’ means, with respect to services furnished in
445
a year, the fee schedule amount established under
section 1848 for such services furnished during the
year or, if there is no such fee schedule amount es-
tablished for such services, for such comparable
services as the Secretary specifies.
‘‘(4) ADJUSTED REASONABLE COSTS.—In para-
graph (2), the term ‘adjusted reasonable costs’
means reasonable costs determined reduced by—
‘‘(A) 5.8 percent of the reasonable costs
for operating costs, and
‘‘(B) 10 percent of the reasonable costs for
capital costs.
‘‘(5) UNIFORM CODING.—For claims for serv-
ices submitted on or after April 1, 1998, for which
the amount of payment is determined under this
subsection, the claim shall include a code (or codes)
under a uniform coding system specified by the Sec-
retary that identifies the services furnished.
‘‘(6) RESTRAINT ON BILLING.—The provisions
of 
subparagraphs 
(A) 
and 
(B) 
of 
section
1842(b)(18) shall apply to therapy services for
which payment is made under this subsection in the
same manner as they apply to services provided by
a practitioner described in section 1842(b)(18)(C).’’.
446
(b) APPLICATION OF STANDARDS TO OUTPATIENT
OCCUPATIONAL AND PHYSICAL THERAPY SERVICES PRO-
VIDED AS AN INCIDENT TO A PHYSICIAN’S PROFESSIONAL
SERVICES.—Section 1862(a), as amended by section
4401(b), (42 U.S.C. 1395y(a)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(16);
(2) by striking the period at the end of para-
graph (17) and inserting ‘‘; or’’; and
(3) by inserting after paragraph (17) the fol-
lowing:
‘‘(18) in the case of outpatient occupational
therapy services or outpatient physical therapy serv-
ices furnished as an incident to a physician’s profes-
sional 
services 
(as 
described 
in 
section
1861(s)(2)(A)), that do not meet the standards and
conditions under the second sentence of section
1861(g) or 1861(p) as such standards and condi-
tions would apply to such therapy services if fur-
nished by a therapist.’’.
(c) APPLYING FINANCIAL LIMITATION TO ALL RE-
HABILITATION SERVICES.—Section 1833(g) (42 U.S.C.
1395l(g)) is amended—
(1) in the first sentence, by striking ‘‘services
described in the second sentence of section 1861(p)’’
447
and inserting ‘‘physical therapy services of the type
described in section 1861(p) (regardless of who fur-
nishes the services or whether the services may be
covered as physicians’ services so long as the serv-
ices are furnished other than in a hospital setting)’’,
and
(2) in the second sentence, by striking ‘‘out-
patient occupational therapy services which are de-
scribed in the second sentence of section 1861(p)
through the operation of section 1861(g)’’ and in-
serting ‘‘occupational therapy services (of the type
that are described in section 1861(p) through the
operation of section 1861(g)), regardless of who fur-
nishes the services or whether the services may be
covered as physicians’ services so long as the serv-
ices are furnished other than in a hospital setting’’.
(d) EFFECTIVE DATE.—The amendments made by
this section apply to services furnished on or after Janu-
ary 1, 1998; except that the amendments made by sub-
section (c) apply to services furnished on or after January
1, 1999.
SEC. 4422. COMPREHENSIVE OUTPATIENT REHABILITA-
TION FACILITIES (CORF).
(a) PAYMENT BASED ON FEE SCHEDULE.—
448
(1) 
SPECIAL
PAYMENT
RULES.—Section
1833(a) (42 U.S.C. 1395l(a)), as amended by sec-
tion 4421(a), is amended—
(A) in paragraph (3), by striking ‘‘sub-
paragraphs (D) and (E) of section 1832(a)(2)’’
and inserting ‘‘section 1832(a)(2)(E)’’;
(B) in paragraph (7), by striking ‘‘and’’ at
the end;
(C) in paragraph (8), by striking the pe-
riod at the end and inserting ‘‘; and’’;
(D) by adding at the end the following new
paragraph:
‘‘(9) in the case of services described in section
1832(a)(2)(E), the amounts described in section
1834(k).’’.
(2) PAYMENT
RATES.—Section 1834(k) (42
U.S.C. 1395m(k)), as added by section 4421(a), is
amended—
(A) in the heading, by inserting ‘‘AND
COMPREHENSIVE
OUTPATIENT
REHABILITA-
TION FACILITY SERVICES’’ after ‘‘THERAPY
SERVICES’’; and
(B) in paragraph (1), by inserting ‘‘and
with respect to comprehensive outpatient reha-
449
bilitation facility services’’ after ‘‘occupational
therapy services’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to services furnished on or after
January 1, 1998, and to portions of cost reporting periods
occurring on or after such date.
Subchapter C—Ambulance Services
SEC. 4431. PAYMENTS FOR AMBULANCE SERVICES.
(a) INTERIM REDUCTIONS.—
(1) PAYMENTS DETERMINED ON REASONABLE
COST
BASIS.—Section 
1861(v)(1) 
(42 
U.S.C.
1395x(v)(1)) is amended by adding at the end the
following new subparagraph:
‘‘(U) In determining the reasonable cost of am-
bulance services (as described in subsection (s)(7))
provided during a fiscal year (beginning with fiscal
year 1998 and ending with fiscal year 2002), the
Secretary shall not recognize the costs per trip in ex-
cess of costs recognized as reasonable for ambulance
services provided on a per trip basis during the pre-
vious fiscal year after application of this subpara-
graph, increased by the percentage increase in the
consumer price index for all urban consumers (U.S.
city average) as estimated by the Secretary for the
12-month period ending with the midpoint of the fis-
450
cal year involved reduced (in the case of each of fis-
cal years 1998 and 1999) by 1 percentage point.’’.
(2) PAYMENTS DETERMINED ON REASONABLE
CHARGE
BASIS.—Section 
1842(b) 
(42 
U.S.C.
1395u(b)) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(19) For purposes of section 1833(a)(1), the reason-
able charge for ambulance services (as described in section
1861(s)(7)) provided during a fiscal year (beginning with
fiscal year 1998 and ending with fiscal year 2002) may
not exceed the reasonable charge for such services pro-
vided during the previous fiscal year after the application
of this subparagraph, increased by the percentage increase
in the consumer price index for all urban consumers (U.S.
city average) as estimated by the Secretary for the 12-
month period ending with the midpoint of the year in-
volved reduced (in the case of each of fiscal years 1998
and 1999) by 1 percentage point.’’.
(b) ESTABLISHMENT OF PROSPECTIVE FEE SCHED-
ULE.—
(1) PAYMENT
IN
ACCORDANCE
WITH
FEE
SCHEDULE.—Section 
1833(a)(1) 
(42 
U.S.C.
1395l(a)(1)), as amended by section 4619(b)(1), is
amended—
451
(A) by striking ‘‘and (P)’’ and inserting
‘‘(P)’’; and
(B) by striking the semicolon at the end
and inserting the following: ‘‘, and (Q) with re-
spect to ambulance service, the amounts paid
shall be 80 percent of the lesser of the actual
charge for the services or the amount deter-
mined by a fee schedule established by the Sec-
retary under section 1834(l);’’.
(2) ESTABLISHMENT
OF
SCHEDULE.—Section
1834 (42 U.S.C. 1395m), as amended by section
4421(a)(2), is amended by adding at the end the fol-
lowing new subsection:
‘‘(l) ESTABLISHMENT OF FEE SCHEDULE FOR AM-
BULANCE SERVICES.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish a fee schedule for payment for ambulance serv-
ices under this part through a negotiated rulemaking
process described in title 5, United States Code, and
in accordance with the requirements of this sub-
section.
‘‘(2) CONSIDERATIONS.—In establishing such
fee schedule the Secretary shall—
452
‘‘(A) establish mechanisms to control in-
creases in expenditures for ambulance services
under this part;
‘‘(B) establish definitions for ambulance
services which link payments to the type of
services provided;
‘‘(C) consider appropriate regional and
operational differences;
‘‘(D) consider adjustments to payment
rates to account for inflation and other relevant
factors; and
‘‘(E) phase in the application of the pay-
ment rates under the fee schedule in an effi-
cient and fair manner.
‘‘(3) SAVINGS.—In establishing such fee sched-
ule the Secretary shall—
‘‘(A) ensure that the aggregate amount of
payments made for ambulance services under
this part during 2000 does not exceed the ag-
gregate amount of payments which would have
been made for such services under this part
during such year if the amendments made by
section 4431 of the Balanced Budget Act of
1997 had not been made; and
453
‘‘(B) set the payment amounts provided
under the fee schedule for services furnished in
2001 and each subsequent year at amounts
equal to the payment amounts under the fee
schedule for service furnished during the pre-
vious year, increased by the percentage increase
in the consumer price index for all urban con-
sumers (U.S. city average) for the 12-month
period ending with June of the previous year.
‘‘(4) CONSULTATION.—In establishing the fee
schedule for ambulance services under this sub-
section, the Secretary shall consult with various na-
tional organizations representing individuals and en-
tities who furnish and regulate ambulance services
and share with such organizations relevant data in
establishing such schedule.
‘‘(5) LIMITATION ON REVIEW.—There shall be
no administrative or judicial review under section
1869 or otherwise of the amounts established under
the fee schedule for ambulance services under this
subsection, including matters described in paragraph
(2).
‘‘(6) RESTRAINT ON BILLING.—The provisions
of 
subparagraphs 
(A) 
and 
(B) 
of 
section
1842(b)(18) shall apply to ambulance services for
454
which payment is made under this subsection in the
same manner as they apply to services provided by
a practitioner described in section 1842(b)(18)(C).’’.
(3) EFFECTIVE DATE.—The amendments made
by this section apply to ambulance services furnished
on or after January 1, 2000.
(c) AUTHORIZING PAYMENT FOR PARAMEDIC INTER-
CEPT SERVICE PROVIDERS IN RURAL COMMUNITIES.—In
promulgating regulations to carry out section 1861(s)(7)
of the Social Security Act (42 U.S.C. 1395x(s)(7)) with
respect to the coverage of ambulance service, the Secretary
of Health and Human Services may include coverage of
advanced life support services (in this subsection referred
to as ‘‘ALS intercept services’’) provided by a paramedic
intercept service provider in a rural area if the following
conditions are met:
(1) The ALS intercept services are provided
under a contract with one or more volunteer ambu-
lance services and are medically necessary based on
the health condition of the individual being trans-
ported.
(2) The volunteer ambulance service involved—
(A) is certified as qualified to provide am-
bulance service for purposes of such section,
455
(B) provides only basic life support serv-
ices at the time of the intercept, and
(C) is prohibited by State law from billing
for any services.
(3) The entity supplying the ALS intercept
services—
(A) is certified as qualified to provide such
services under the medicare program under title
XVIII of the Social Security Act, and
(B) bills all recipients who receive ALS
intercept services from the entity, regardless of
whether or not such recipients are medicare
beneficiaries.
SEC. 4432. DEMONSTRATION OF COVERAGE OF AMBU-
LANCE 
SERVICES 
UNDER 
MEDICARE
THROUGH 
CONTRACTS 
WITH 
UNITS 
OF
LOCAL GOVERNMENT.
(a) DEMONSTRATION PROJECT CONTRACTS
WITH
LOCAL GOVERNMENTS.—The Secretary of Health and
Human Services shall establish up to 3 demonstration
projects under which, at the request of a county or parish,
the Secretary enters into a contract with the county or
parish under which—
(1) the county or parish furnishes (or arranges
for the furnishing) of ambulance services for which
456
payment may be made under part B of title XVIII
of the Social Security Act for individuals residing in
the county or parish who are enrolled under such
part, except that the county or parish may not enter
into the contract unless the contract covers at least
80 percent of the individuals residing in the county
or parish who are enrolled under such part;
(2) any individual or entity furnishing ambu-
lance services under the contract meets the require-
ments otherwise applicable to individuals and enti-
ties furnishing such services under such part; and
(3) for each month during which the contract is
in effect, the Secretary makes a capitated payment
to the county or parish in accordance with sub-
section (b).
The projects may extend over a period of not to exceed
3 years each.
(b) AMOUNT OF PAYMENT.—
(1) IN GENERAL.—The amount of the monthly
payment made for months occurring during a cal-
endar year to a county or parish under a demonstra-
tion project contract under subsection (a) shall be
equal to the product of—
457
(A) the Secretary’s estimate of the number
of individuals covered under the contract for the
month; and
(B) 1⁄12 of the capitated payment rate for
the year established under paragraph (2).
(2) CAPITATED PAYMENT RATE DEFINED.—In
this subsection, the ‘‘capitated payment rate’’ appli-
cable to a contract under this subsection for a cal-
endar year is equal to 95 percent of—
(A) for the first calendar year for which
the contract is in effect, the average annual per
capita payment made under part B of title
XVIII of the Social Security Act with respect to
ambulance services furnished to such individ-
uals during the 3 most recent calendar years
for which data on the amount of such payment
is available; and
(B) for a subsequent year, the amount pro-
vided under this paragraph for the previous
year increased by the percentage increase in the
consumer price index for all urban consumers
(U.S. city average) for the 12-month period
ending with June of the previous year.
(c) OTHER TERMS OF CONTRACT.—The Secretary
and the county or parish may include in a contract under
458
this section such other terms as the parties consider ap-
propriate, including—
(1) covering individuals residing in additional
counties or parishes (under arrangements entered
into between such counties or parishes and the coun-
ty or parish involved);
(2) permitting the county or parish to transport
individuals to non-hospital providers if such provid-
ers are able to furnish quality services at a lower
cost than hospital providers; or
(3) implementing such other innovations as the
county or parish may propose to improve the quality
of ambulance services and control the costs of such
services.
(d) CONTRACT PAYMENTS IN LIEU OF OTHER BENE-
FITS.—Payments under a contract to a county or parish
under this section shall be instead of the amounts which
(in the absence of the contract) would otherwise be pay-
able under part B of title XVIII of the Social Security
Act for the services covered under the contract which are
furnished to individuals who reside in the county or parish.
(e) REPORT
ON EFFECTS
OF CAPITATED CON-
TRACTS.—
(1) STUDY.—The Secretary shall evaluate the
demonstration projects conducted under this section.
459
Such evaluation shall include an analysis of the
quality and cost-effectiveness of ambulance services
furnished under the projects.
(2) REPORT.—Not later than January 1, 2000,
the Secretary shall submit a report to Congress on
the study conducted under paragraph (1), and shall
include in the report such recommendations as the
Secretary considers appropriate, including rec-
ommendations regarding modifications to the meth-
odology used to determine the amount of payments
made under such contracts and extending or expand-
ing such projects.
CHAPTER 3—PAYMENT UNDER PARTS A
AND B
SEC. 4441. PROSPECTIVE PAYMENT FOR HOME HEALTH
SERVICES.
(a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et
seq.), as amended by section 4011, is amended by adding
at the end the following new section:
‘‘PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES
‘‘SEC. 1895. (a) IN GENERAL.—Notwithstanding sec-
tion 1861(v), the Secretary shall provide, for cost report-
ing periods beginning on or after October 1, 1999, for pay-
ments for home health services in accordance with a pro-
spective payment system established by the Secretary
under this section.
460
‘‘(b) SYSTEM OF PROSPECTIVE PAYMENT FOR HOME
HEALTH SERVICES.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish under this subsection a prospective payment sys-
tem for payment for all costs of home health serv-
ices. Under the system under this subsection all
services covered and paid on a reasonable cost basis
under the medicare home health benefit as of the
date of the enactment of the this section, including
medical supplies, shall be paid for on the basis of a
prospective payment amount determined under this
subsection and applicable to the services involved. In
implementing the system, the Secretary may provide
for a transition (of not longer than 4 years) during
which a portion of such payment is based on agency-
specific costs, but only if such transition does not re-
sult in aggregate payments under this title that ex-
ceed the aggregate payments that would be made if
such a transition did not occur.
‘‘(2) UNIT OF PAYMENT.—In defining a pro-
spective payment amount under the system under
this subsection, the Secretary shall consider an ap-
propriate unit of service and the number, type, and
duration of visits provided within that unit, potential
changes in the mix of services provided within that
461
unit and their cost, and a general system design that
provides for continued access to quality services.
‘‘(3) PAYMENT BASIS.—
‘‘(A) INITIAL BASIS.—
‘‘(i) IN GENERAL.—Under such sys-
tem the Secretary shall provide for com-
putation of a standard prospective pay-
ment amount (or amounts). Such amount
(or amounts) shall initially be based on the
most current audited cost report data
available to the Secretary and shall be
computed in a manner so that the total
amounts payable under the system for fis-
cal year 2000 shall be equal to the total
amount that would have been made if the
system had not been in effect but if the re-
duction in limits described in clause (ii)
had been in effect. Such amount shall be
standardized in a manner that eliminates
the effect of variations in relative case mix
and wage levels among different home
health agencies in a budget neutral manner
consistent with the case mix and wage level
adjustments provided under paragraph
(4)(A). Under the system, the Secretary
462
may recognize regional differences or dif-
ferences based upon whether or not the
services or agency are in an urbanized
area.
‘‘(ii) REDUCTION.—The reduction de-
scribed in this clause is a reduction by 15
percent in the cost limits and per bene-
ficiary 
limits 
described 
in 
section
1861(v)(1)(L), as those limits are in effect
on September 30, 1999.
‘‘(B) ANNUAL UPDATE.—
‘‘(i) IN GENERAL.—The standard pro-
spective payment amount (or amounts)
shall be adjusted for each fiscal year (be-
ginning with fiscal year 2001) in a pro-
spective manner specified by the Secretary
by the home health market basket percent-
age increase applicable to the fiscal year
involved.
‘‘(ii) HOME HEALTH MARKET BASKET
PERCENTAGE INCREASE.—For purposes of
this subsection, the term ‘home health
market basket percentage increase’ means,
with respect to a fiscal year, a percentage
(estimated by the Secretary before the be-
463
ginning of the fiscal year) determined and
applied with respect to the mix of goods
and services included in home health serv-
ices in the same manner as the market
basket percentage increase under section
1886(b)(3)(B)(iii) is determined and ap-
plied to the mix of goods and services com-
prising inpatient hospital services for the
fiscal year.
‘‘(C) ADJUSTMENT
FOR
OUTLIERS.—The
Secretary shall reduce the standard prospective
payment amount (or amounts) under this para-
graph applicable to home health services fur-
nished during a period by such proportion as
will result in an aggregate reduction in pay-
ments for the period equal to the aggregate in-
crease in payments resulting from the applica-
tion of paragraph (5) (relating to outliers).
‘‘(4) PAYMENT COMPUTATION.—
‘‘(A) IN GENERAL.—The payment amount
for a unit of home health services shall be the
applicable 
standard 
prospective 
payment
amount adjusted as follows:
‘‘(i) CASE
MIX
ADJUSTMENT.—The
amount shall be adjusted by an appro-