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(B) LIMITATION.—In conducting the dem-
onstration project under this section, the Sec-
retary shall ensure that the aggregate payments
made by the Secretary do not exceed the amount
which the Secretary would have paid if the dem-
onstration projects under this section were not
implemented.
(2) EVALUATION AND REPORT.—There are au-
thorized to be appropriated such sums as are nec-
essary for the purpose of developing and submitting
the report to Congress under subsection (c).
SEC. 5047. ESTABLISHMENT OF MEDICARE REIMBURSE-
MENT DEMONSTRATION PROJECTS.
Title XVIII (42 U.S.C. 1395 et seq.) (as amended by
section 5343) is amended by adding at the end the follow-
ing:
‘‘MEDICARE SUBVENTION DEMONSTRATION PROJECT FOR
VETERANS
‘‘SEC. 1896. (a) DEFINITIONS.—In this section:
‘‘(1) ADMINISTERING SECRETARIES.—The term
‘administering Secretaries’ means the Secretary and
the Secretary of Veterans Affairs acting jointly.
‘‘(2) DEMONSTRATION PROJECT; PROJECT.—The
terms ‘demonstration project’ and ‘project’ mean the
demonstration project carried out under this section.
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‘‘(3) MILITARY
RETIREE.—The term ‘military
retiree’ means a member or former member of the
Armed Forces who is entitled to retired pay.
‘‘(4) 
TARGETED
MEDICARE-ELIGIBLE
VET-
ERAN.—The term ‘targeted medicare-eligible veteran’
means an individual who—
‘‘(A) is a veteran (as defined in section
101(2) of title 38, United States Code) and is de-
scribed in section 1710(a)(3) of title 38, United
States Code; and
‘‘(B) is entitled to benefits under part A of
this title and is enrolled under part B of this
title.
‘‘(5) TRUST
FUNDS.—The term ‘trust funds’
means the Federal Hospital Insurance Trust Fund es-
tablished in section 1817 and the Federal Supple-
mentary Medical Insurance Trust Fund established in
section 1841.
‘‘(b) DEMONSTRATION PROJECT.—
‘‘(1) IN GENERAL.—
‘‘(A) ESTABLISHMENT.—The administering
Secretaries are authorized to establish a dem-
onstration project (under an agreement entered
into by the administering Secretaries) under
which the Secretary shall reimburse the Sec-
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retary of Veterans Affairs, from the trust funds,
for medicare health care services furnished to cer-
tain targeted medicare-eligible veterans.
‘‘(B) AGREEMENT.—The agreement entered
into under subparagraph (A) shall include at a
minimum—
‘‘(i) a description of the benefits to be
provided to the participants of the dem-
onstration project established under this sec-
tion;
‘‘(ii) a description of the eligibility
rules for participation in the demonstration
project, including any criteria established
under subsection (c) and any cost sharing
under subsection (d);
‘‘(iii) a description of how the dem-
onstration project will satisfy the require-
ments under this title;
‘‘(iv) a description of the sites selected
under paragraph (2);
‘‘(v) a description of how reimburse-
ment and maintenance of effort require-
ments under subsection (l) will be imple-
mented in the demonstration project; and
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‘‘(vi) a statement that the Secretary
shall have access to all data of the Depart-
ment of Veterans Affairs that the Secretary
determines is necessary to conduct inde-
pendent estimates and audits of the mainte-
nance of effort requirement, the annual rec-
onciliation, and related matters required
under the demonstration project.
‘‘(2) NUMBER
OF
SITES.—The administering
Secretaries shall establish a plan for the selection of
up to 12 medical centers under the jurisdiction of the
Secretary of Veterans Affairs and located in geo-
graphically dispersed locations to participate in the
project.
‘‘(3) GENERAL
CRITERIA.—The selection plan
shall favor selection of those medical centers that are
suited to serve targeted medicare-eligible individuals
because—
‘‘(A) there is a high potential demand by
targeted medicare-eligible veterans for their serv-
ices;
‘‘(B) they have sufficient capability in bill-
ing and accounting to participate;
‘‘(C) they have favorable indicators of qual-
ity of care, including patient satisfaction;
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‘‘(D) they deliver a range of services re-
quired by targeted medicare-eligible veterans;
and
‘‘(E) they meet other relevant factors identi-
fied in the plan.
‘‘(4) MEDICAL CENTER NEAR CLOSED BASE.—
The administering Secretaries shall endeavor to in-
clude at least 1 medical center that is in the same
catchment area as a military medical facility which
was closed pursuant to either of the following laws:
‘‘(A) The Defense Base Closure and Re-
alignment Act of 1990.
‘‘(B) Title II of the Defense Authorization
Amendments and Base Closure and Realignment
Act.
‘‘(5) RESTRICTION.—No new facilities will be
built or expanded with funds from the demonstration
project.
‘‘(6) DURATION.—The administering Secretaries
shall conduct the demonstration project during the 3-
year period beginning on January 1, 1998.
‘‘(c) VOLUNTARY PARTICIPATION.—Participation of
targeted medicare-eligible veterans in the demonstration
project shall be voluntary, subject to the capacity of partici-
pating medical centers and the funding limitations speci-
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fied in subsection (l), and shall be subject to such terms
and conditions as the administering Secretaries may estab-
lish. In the case of a demonstration project at a medical
center described in subsection (b)(3), targeted medicare-eli-
gible veterans who are military retirees shall be given pref-
erence in participating in the project.
‘‘(d) COST SHARING.—The Secretary of Veterans Af-
fairs may establish cost-sharing requirements for veterans
participating in the demonstration project. If such cost
sharing requirements are established, those requirements
shall be the same as the requirements that apply to targeted
medicare-eligible patients at nongovernmental facilities.
‘‘(e) CREDITING OF PAYMENTS.—A payment received
by the Secretary of Veterans Affairs under the demonstra-
tion project shall be credited to the applicable Department
of Veterans Affairs medical appropriation and (within that
appropriation) to funds that have been allotted to the medi-
cal center that furnished the services for which the payment
is made. Any such payment received during a fiscal year
for services provided during a prior fiscal year may be obli-
gated by the Secretary of Veterans Affairs during the fiscal
year during which the payment is received.
‘‘(f) AUTHORITY TO WAIVE CERTAIN MEDICARE RE-
QUIREMENTS.—The Secretary may, to the extent necessary
to carry out the demonstration project, waive any require-
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ment under this title. If the Secretary waives any such re-
quirement, the Secretary shall include a description of such
waiver in the agreement described in subsection (b)(1)(B).
‘‘(g) INSPECTOR GENERAL.—Nothing in the agreement
entered into under subsection (b) shall limit the Inspector
General of the Department of Health and Human Services
from investigating any matters regarding the expenditure
of funds under this title for the demonstration project, in-
cluding compliance with the provisions of this title and all
other relevant laws.
‘‘(h) REPORT.—At least 30 days prior to the com-
mencement of the demonstration project, the administering
Secretaries shall submit a copy of the agreement entered
into under subsection (b) to the committees of jurisdiction
in Congress.
‘‘(i) MANAGED HEALTH CARE PLANS.—(1) In carry-
ing out the demonstration project, the Secretary of Veterans
Affairs may establish and operate managed health care
plans.
‘‘(2) Any such plan shall be operated by or through
a Department of Veterans Affairs medical center or group
of medical centers and may include the provision of health
care services through other facilities under the jurisdiction
of the Secretary of Veterans Affairs as well as public and
private entities under arrangements made between the De-
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partment and the other public or private entity concerned.
Any such managed health care plan shall be established and
operated in conformance with standards prescribed by the
administering Secretaries.
‘‘(3) The administering Secretaries shall prescribe the
minimum health care benefits to be provided under such
a plan to veterans enrolled in the plan. Those benefits shall
include at least all health care services covered under the
medicare program under this title.
‘‘(4) The establishment of a managed health care plan
under this section shall be counted as the selection of a med-
ical center for purposes of applying the numerical limita-
tion under subsection (b)(1).
‘‘(j) MEDICAL CENTER REQUIREMENTS.—The Sec-
retary of Veterans Affairs may establish a managed health
care plan using 1 or more medical centers and other facili-
ties only after the Secretary of Veterans Affairs submits to
Congress a report setting forth a plan for the use of such
centers and facilities. The plan may not be implemented
until the Secretary of Veterans Affairs has received from
the Inspector General of the Department of Veterans Affairs,
and has forwarded to Congress, certification of each of the
following:
‘‘(1) The cost accounting system of the Veterans
Health Administration (known as the Decision Sup-
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port System) is operational and is providing reliable
cost information on care delivered on an inpatient
and outpatient basis at such centers and facilities.
‘‘(2) The centers and facilities have operated in
conformity with the eligibility reform amendments
made by title I of the Veterans Health Care Act of
1996 for not less than 3 months.
‘‘(3) The centers and facilities have developed a
credible plan (on the basis of market surveys, data
from the Decision Support System, actuarial analy-
sis, and other appropriate methods and taking into
account the level of payment under subsection (l) and
the costs of providing covered services at the centers
and facilities) to minimize, to the extent feasible, the
risk that appropriated funds allocated to the centers
and facilities will be required to meet the centers’ and
facilities’ obligation to targeted medicare-eligible vet-
erans under the demonstration project.
‘‘(4) The centers and facilities collectively have
available capacity to provide the contracted benefits
package to a sufficient number of targeted medicare-
eligible veterans.
‘‘(5) The entity administering the health plan
has sufficient systems and safeguards in place to min-
imize any risk that instituting the managed care
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model will result in reducing the quality of care deliv-
ered to enrollees in the demonstration project or to
other veterans receiving care under paragraphs sub-
section (1) or (2) of section 1710(a) of title 38, United
States Code.
‘‘(k) RESERVES.—The Secretary of Veterans Affairs
shall maintain such reserves as may be necessary to ensure
against the risk that appropriated funds, allocated to medi-
cal centers and facilities participating in the demonstration
project through a managed health care plan under this sec-
tion, will be required to meet the obligations of those medi-
cal centers and facilities to targeted medicare-eligible veter-
ans.
‘‘(l) PAYMENTS BASED ON REGULAR MEDICARE PAY-
MENT RATES.—
‘‘(1) PAYMENTS.—
‘‘(A) IN GENERAL.—Subject to the succeed-
ing provisions of this subsection, the Secretary
shall reimburse the Secretary of Veterans Affairs
for services provided under the demonstration
project at the following rates:
‘‘(i) NONCAPITATION.—Except as pro-
vided in clause (ii) and subject to subpara-
graphs (B)(i) and (D), at a rate equal to 95
percent of the amounts that otherwise would
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be 
payable 
under 
this 
title 
on 
a
noncapitated basis for such services if the
medical center were not a Federal medical
center, were participating in the program,
and imposed charges for such services.
‘‘(ii) CAPITATION.—Subject to sub-
paragraphs (B)(ii) and (D), in the case of
services provided to an enrollee under a
managed health care plan established under
subsection (i), at a rate equal to 95 percent
of the amount paid to a Medicare Choice or-
ganization under part C with respect to
such an enrollee.
In cases in which a payment amount may not
otherwise be readily computed, the Secretaries
shall establish rules for computing equivalent or
comparable payment amounts.
‘‘(B) EXCLUSION OF CERTAIN AMOUNTS.—
‘‘(i) NONCAPITATION.—In computing
the amount of payment under subparagraph
(A)(i), the following shall be excluded:
(i) DISPROPORTIONATE
SHARE
HOS-
PITAL ADJUSTMENT.—Any amount attrib-
utable to an adjustment under subsection
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(d)(5)(F) of section 1886 of the Social Secu-
rity Act (42 U.S.C. 1395ww).
(ii) DIRECT GRADUATE MEDICAL EDU-
CATION
PAYMENTS.—Any amount attrib-
utable to a payment under subsection (h) of
such section.
(iii) PERCENTAGE OF INDIRECT MEDI-
CAL EDUCATION ADJUSTMENT.—40 percent
of any amount attributable to the adjust-
ment under subsection (d)(5)(B) of such sec-
tion.
(iv) PERCENTAGE
OF
CAPITAL
PAY-
MENTS.—67 percent of any amounts attrib-
utable to payments for capital-related costs
under subsection (g) of such section.
‘‘(ii) CAPITATION.—In the case of
years before 2001, in computing the amount
of payment under subparagraph (A)(ii), the
payment rate shall be computed as though
the amounts excluded under clause (i) had
been excluded in the determination of the
amount paid to a Medicare Choice organi-
zation under part C with respect to an en-
rollee.
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‘‘(C) PERIODIC PAYMENTS FROM MEDICARE
TRUST FUNDS.—Payments under this subsection
shall be made—
‘‘(i) on a periodic basis consistent with
the periodicity of payments under this title;
and
‘‘(ii) in appropriate part, as deter-
mined by the Secretary, from the trust
funds.
‘‘(D) ANNUAL
LIMIT
ON
MEDICARE
PAY-
MENTS.—The amount paid to the Department of
Veterans Affairs under this subsection for any
year for the demonstration project may not ex-
ceed $50,000,000.
‘‘(2) REDUCTION IN PAYMENT FOR VA FAILURE
TO MAINTAIN EFFORT.—
‘‘(A) IN GENERAL.—In order to avoid shift-
ing onto the medicare program under this title
costs previously assumed by the Department of
Veterans Affairs for the provision of medicare-
covered services to targeted medicare-eligible vet-
erans, the payment amount under this subsection
for the project for a fiscal year shall be reduced
by the amount (if any) by which—
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‘‘(i) the amount of the VA effort level
for targeted veterans (as defined in sub-
paragraph (B)) for the fiscal year ending in
such year, is less than
‘‘(ii) the amount of the VA effort level
for targeted veterans for fiscal year 1997.
‘‘(B) VA EFFORT
LEVEL
FOR
TARGETED
VETERANS DEFINED.—For purposes of subpara-
graph (A), the term ‘VA effort level for targeted
veterans’ means, for a fiscal year, the amount, as
estimated by the administering Secretaries, that
would have been expended under the medicare
program under this title for VA-provided medi-
care-covered services for targeted veterans (as de-
fined in subparagraph (C)) for that fiscal year
if benefits were available under the medicare
program for those services. Such amount does not
include expenditures attributable to services for
which reimbursement is made under the dem-
onstration project.
‘‘(C) 
VA-PROVIDED
MEDICARE-COVERED
SERVICES FOR TARGETED VETERANS.—For pur-
poses of subparagraph (B), the term ‘VA-pro-
vided medicare-covered services for targeted vet-
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erans’ means, for a fiscal year, items and serv-
ices—
‘‘(i) that are provided during the fiscal
year by the Department of Veterans Affairs
to targeted medicare-eligible veterans;
‘‘(ii) that constitute hospital care and
medical services under chapter 17 of title
38, United States Code; and
‘‘(iii) for which benefits would be
available under the medicare program
under this title if they were provided other
than by a Federal provider of services that
does not charge for those services.
‘‘(3) ASSURING NO INCREASE IN COST TO MEDI-
CARE PROGRAM.—
‘‘(A) MONITORING EFFECT OF DEMONSTRA-
TION PROGRAM ON COSTS TO MEDICARE PRO-
GRAM.—
‘‘(i) IN GENERAL.—The Secretaries, in
consultation with the Comptroller General,
shall closely monitor the expenditures made
under the medicare program for targeted
medicare-eligible veterans during the period
of the demonstration project compared to
the expenditures that would have been made
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for such veterans during that period if the
demonstration project had not been con-
ducted.
‘‘(ii) ANNUAL REPORT BY THE COMP-
TROLLER GENERAL.—Not later than Decem-
ber 31 of each year during which the dem-
onstration project is conducted, the Comp-
troller General shall submit to the Secretar-
ies and the appropriate committees of Con-
gress a report on the extent, if any, to which
the costs of the Secretary under the medi-
care program under this title increased dur-
ing the preceding fiscal year as a result of
the demonstration project.
‘‘(B) REQUIRED RESPONSE IN CASE OF IN-
CREASE IN COSTS.—
‘‘(i) IN GENERAL.—If the administer-
ing Secretaries find, based on subparagraph
(A), that the expenditures under the medi-
care program under this title increased (or
are expected to increase) during a fiscal
year because of the demonstration project,
the administering Secretaries shall take
such steps as may be needed—
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‘‘(I) to recoup for the medicare
program the amount of such increase
in expenditures; and
‘‘(II) to prevent any such increase
in the future.
‘‘(ii) STEPS.—Such steps—
‘‘(I) under clause (i)(I) shall in-
clude payment of the amount of such
increased expenditures by the Secretary
of Veterans Affairs from the current
medical care appropriation of the De-
partment of Veterans Affairs to the
trust funds; and
‘‘(II) under clause (i)(II) shall in-
clude suspending or terminating the
demonstration project (in whole or in
part) or lowering the amount of pay-
ment under paragraph (1)(A).
‘‘(m) EVALUATION AND REPORTS.—
‘‘(1) INDEPENDENT
EVALUATION.—The admin-
istering Secretaries shall arrange for an independent
entity with expertise in the evaluation of health serv-
ices to conduct an evaluation of the demonstration
project. The entity shall submit annual reports on the
demonstration project to the administering Secretar-
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ies and to the committees of jurisdiction in the Con-
gress. The first report shall be submitted not later
than 12 months after the date on which the dem-
onstration project begins operation, and the final re-
port not later than 31⁄2 years after that date. The
evaluation and reports shall include an assessment,
based on the agreement entered into under subsection
(b), of the following:
‘‘(A) The cost to the Department of Veterans
Affairs of providing care to veterans under the
project.
‘‘(B) Compliance of participating medical
centers with applicable measures of quality of
care, compared to such compliance for other
medicare-participating medical centers.
‘‘(C) A comparison of the costs of medical
centers’ participation in the program with the
reimbursements provided for services of such
medical centers.
‘‘(D) Any savings or costs to the medicare
program under this title from the project.
‘‘(E) Any change in access to care or qual-
ity of care for targeted medicare-eligible veterans
participating in the project.
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‘‘(F) Any effect of the project on the access
to care and quality of care for targeted medicare-
eligible veterans not participating in the project
and other veterans not participating in the
project.
‘‘(G) The provision of services under man-
aged health care plans under subsection (l), in-
cluding the circumstances (if any) under which
the Secretary of Veterans Affairs uses reserves de-
scribed in subsection (k) and the Secretary of
Veterans Affairs’ response to such circumstances
(including the termination of managed health
care plans requiring the use of such reserves).
‘‘(H) Any effect that the demonstration
project has on the enrollment in Medicare Choice
organizations under part C of this title in the es-
tablished site areas.
‘‘(2) REPORT ON EXTENSION AND EXPANSION OF
DEMONSTRATION
PROJECT.—Not 
later 
than 
six
months after the date of the submission of the penul-
timate report under paragraph (1), the administering
Secretaries shall submit to Congress a report contain-
ing their recommendation as to—
‘‘(A) whether to extend the demonstration
project or make the project permanent;
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‘‘(B) whether to expand the project to cover
additional sites and areas and to increase the
maximum amount of reimbursement (or the
maximum amount of reimbursement permitted
for managed health care plans under this sec-
tion) under the project in any year; and
‘‘(C) whether the terms and conditions of
the project should be continued (or modified) if
the project is extended or expanded.
‘‘MEDICARE SUBVENTION DEMONSTRATION PROJECT FOR
MILITARY RETIREES
‘‘SEC. 1897. (a) DEFINITIONS.—In this section:
‘‘(1) ADMINISTERING SECRETARIES.—The term
‘administering Secretaries’ means the Secretary and
the Secretary of Defense acting jointly.
‘‘(2) DEMONSTRATION PROJECT; PROJECT.—The
terms ‘demonstration project’ and ‘project’ mean the
demonstration project carried out under this section.
‘‘(3) DESIGNATED
PROVIDER.—The term ‘des-
ignated provider’ has the meaning given that term in
section 721(5) of the National Defense Authorization
Act For Fiscal Year 1997 (Public Law 104–201; 110
Stat. 2593; 10 U.S.C. 1073 note).
‘‘(4) MEDICARE-ELIGIBLE MILITARY RETIREE OR
DEPENDENT.—The term ‘medicare-eligible military
retiree or dependent’ means an individual described
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in section 1074(b) or 1076(b) of title 10, United
States Code, who—
‘‘(A) would be eligible for health benefits
under section 1086 of such title by reason of sub-
section (c)(1) of such section 1086 but for the op-
eration of subsection (d) of such section 1086;
‘‘(B)(i) is entitled to benefits under part A
of this title; and
‘‘(ii) if the individual was entitled to such
benefits before July 1, 1996, received health care
items or services from a health care facility of
the uniformed services before that date, but after
becoming entitled to benefits under part A of this
title;
‘‘(C) is enrolled for benefits under part B of
this title; and
‘‘(D) has attained age 65.
‘‘(5) MEDICARE HEALTH CARE SERVICES.—The
term ‘medicare health care services’ means items or
services covered under part A or B of this title.
‘‘(6) MILITARY TREATMENT FACILITY.—The term
‘military treatment facility’ means a facility referred
to in section 1074(a) of title 10, United States Code.
‘‘(7) TRICARE.—The term ‘TRICARE’ has the
same meaning as the term ‘TRICARE program’
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under section 711 of the National Defense Authoriza-
tion Act for Fiscal Year 1996 (10 U.S.C. 1073 note).
‘‘(5) TRUST
FUNDS.—The term ‘trust funds’
means the Federal Hospital Insurance Trust Fund es-
tablished in section 1817 and the Federal Supple-
mentary Medical Insurance Trust Fund established in
section 1841.
‘‘(b) DEMONSTRATION PROJECT.—
‘‘(1) IN GENERAL.—
‘‘(A) ESTABLISHMENT.—The administering
Secretaries are authorized to establish a dem-
onstration project (under an agreement entered
into by the administering Secretaries) under
which the Secretary shall reimburse the Sec-
retary of Defense, from the trust funds, for medi-
care health care services furnished to certain
medicare-eligible military retirees or dependents.
‘‘(B) AGREEMENT.—The agreement entered
into under subparagraph (A) shall include at a
minimum—
‘‘(i) a description of the benefits to be
provided to the participants of the dem-
onstration project established under this sec-
tion;
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‘‘(ii) a description of the eligibility
rules for participation in the demonstration
project, including any cost sharing require-
ments established under subsection (h);
‘‘(iii) a description of how the dem-
onstration project will satisfy the require-
ments under this title;
‘‘(iv) a description of the sites selected
under paragraph (2);
‘‘(v) a description of how reimburse-
ment and maintenance of effort require-
ments under subsection (j) will be imple-
mented in the demonstration project; and
‘‘(vi) a statement that the Secretary
shall have access to all data of the Depart-
ment of Defense that the Secretary deter-
mines is necessary to conduct independent
estimates and audits of the maintenance of
effort requirement, the annual reconcili-
ation, and related matters required under
the demonstration project.
‘‘(2) IN GENERAL.—The project established under
this section shall be conducted in no more than 6
sites, designated jointly by the administering Sec-
retaries after review of all TRICARE regions.
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‘‘(3) RESTRICTION.—No new military treatment
facilities will be built or expanded with funds from
the demonstration project.
‘‘(4) DURATION.—The administering Secretaries
shall conduct the demonstration project during the 3-
year period beginning on January 1, 1998.
‘‘(c) CREDITING OF PAYMENTS.—A payment received
by the Secretary of Defense under the demonstration project
shall be credited to the applicable Department of Defense
medical appropriation and (within that appropriation).
Any such payment received during a fiscal year for services
provided during a prior fiscal year may be obligated by
the Secretary of Defense during the fiscal year during which
the payment is received.
‘‘(d) AUTHORITY TO WAIVE CERTAIN MEDICARE RE-
QUIREMENTS.—The Secretary may, to the extent necessary
to carry out the demonstration project, waive any require-
ment under this title. If the Secretary waives any such re-
quirement, the Secretary shall include a description of such
waiver in the agreement described in subsection (b).
‘‘(e) INSPECTOR GENERAL.—Nothing in the agreement
entered into under subsection (b) shall limit the Inspector
General of the Department of Health and Human Services
from investigating any matters regarding the expenditure
of funds under this title for the demonstration project, in-
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cluding compliance with the provisions of this title and all
other relevant laws.
‘‘(f) REPORT.—At least 30 days prior to the com-
mencement of the demonstration project, the administering
Secretaries shall submit a copy of the agreement entered
into under subsection (b) to the committees of jurisdiction
in Congress.
‘‘(g) VOLUNTARY PARTICIPATION.—Participation of
medicare-eligible military retirees or dependents in the
demonstration project shall be voluntary, subject to the ca-
pacity of participating military treatment facilities and
designated providers and the funding limitations specified
in subsection (j), and shall be subject to such terms and
conditions as the administering Secretaries may establish.
‘‘(h) COST-SHARING
BY DEMONSTRATION ENROLL-
EES.—The Secretary of Defense may establish cost-sharing
requirements for medicare-eligible military retirees and de-
pendents who enroll in the demonstration project consistent
with part C of this title.
‘‘(i) TRICARE HEALTH CARE PLANS.—
‘‘(1) TRICARE PROGRAM
ENROLLMENT
FEE
WAIVER.—The Secretary of Defense shall waive the
enrollment fee applicable to any medicare-eligible
military retiree or dependent enrolled in the managed
care option of the TRICARE program for any period
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for which reimbursement is made under this section
with respect to such retiree or dependent.
‘‘(2) MODIFICATION OF TRICARE CONTRACTS.—
In carrying out the demonstration project, the Sec-
retary of Defense is authorized to amend existing
TRICARE contracts in order to provide the medicare
health care services to the medicare-eligible military
retirees and dependents enrolled in the demonstration
project.
‘‘(3) HEALTH CARE BENEFITS.—The administer-
ing Secretaries shall prescribe the minimum health
care benefits to be provided under such a plan to
medicare-eligible military retirees or dependents en-
rolled in the plan. Those benefits shall include at least
all medicare health care services covered under this
title.
‘‘(j) PAYMENTS BASED ON REGULAR MEDICARE PAY-
MENT RATES.—
‘‘(1) PAYMENTS.—
‘‘(A) IN GENERAL.—Subject to the succeed-
ing provisions of this subsection, the Secretary
shall reimburse the Secretary of Defense for serv-
ices provided under the demonstration project at
the following rates:
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‘‘(i) NONCAPITATION.—Except as pro-
vided in clause (ii) and subject to subpara-
graphs (B)(i) and (D), at a rate equal to 95
percent of the amounts that otherwise would
be 
payable 
under 
this 
title 
on 
a
noncapitated basis for such services if the
military treatment facility or designated
provider were not a Federal medical center,
were participating in the program, and im-
posed charges for such services.
‘‘(ii) CAPITATION.—Subject to sub-
paragraphs (B)(ii) and (D), in the case of
services provided to an enrollee under a
managed health care plan established under
subsection (i), at a rate equal to 95 percent
of the amount paid to a Medicare Choice or-
ganization under part C with respect to
such an enrollee.
In cases in which a payment amount may not
otherwise be readily computed, the Secretaries
shall establish rules for computing equivalent or
comparable payment amounts.
‘‘(B) EXCLUSION OF CERTAIN AMOUNTS.—
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‘‘(i) NONCAPITATION.—In computing
the amount of payment under subparagraph
(A)(i), the following shall be excluded:
‘‘(I) SPECIAL
PAYMENTS.—Any
amount attributable to an adjustment
under subparagraphs (B) and (F) of
section 1886(d)(5) and subsection (h)
of such section.
‘‘(II) PERCENTAGE
OF
CAPITAL
PAYMENTS.—An amount determined by
the 
administering 
Secretaries 
for
amounts attributable to payments for
capital-related costs under subsection
(g) of such section.
‘‘(ii) CAPITATION.—In the case of
years before 2001, in computing the amount
of payment under subparagraph (A)(ii), the
payment rate shall be computed as though
the amounts excluded under clause (i) had
been excluded in the determination of the
amount paid to a Medicare Choice organi-
zation under part C with respect to an en-
rollee.
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‘‘(C) PERIODIC PAYMENTS FROM MEDICARE
TRUST FUNDS.—Payments under this subsection
shall be made—
‘‘(i) on a periodic basis consistent with
the periodicity of payments under this title;
and
‘‘(ii) in appropriate part, as deter-
mined by the Secretary, from the trust
funds.
‘‘(D) CAP
ON
AMOUNT.—The aggregate
amount to be reimbursed under this paragraph
pursuant to the agreement entered into between
the administering Secretaries under subsection
(b) shall not exceed a total of—
‘‘(i) $55,000,000 for calendar year
1998;
‘‘(ii) $65,000,000 for calendar year
1999; and
‘‘(iii) $75,000,000 for calendar year
2000.
‘‘(2) ASSURING NO INCREASE IN COST TO MEDI-
CARE PROGRAM.—
‘‘(A) MONITORING EFFECT OF DEMONSTRA-
TION PROGRAM ON COSTS TO MEDICARE PRO-
GRAM.—
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‘‘(i) IN GENERAL.—The Secretaries, in
consultation with the Comptroller General,
shall closely monitor the expenditures made
under the medicare program for medicare-
eligible military retirees or dependents dur-
ing the period of the demonstration project
compared to the expenditures that would
have been made for such medicare-eligible
military retirees or dependents during that
period if the demonstration project had not
been conducted. The agreement entered into
by the administering Secretaries under sub-
section (b) shall require any participating
military treatment facility to maintain the
level of effort for space available care to
medicare-eligible military retirees or de-
pendents.
‘‘(ii) ANNUAL REPORT BY THE COMP-
TROLLER GENERAL.—Not later than Decem-
ber 31 of each year during which the dem-
onstration project is conducted, the Comp-
troller General shall submit to the Secretar-
ies and the appropriate committees of Con-
gress a report on the extent, if any, to which
the costs of the Secretary under the medi-
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care program under this title increased dur-
ing the preceding fiscal year as a result of
the demonstration project.
‘‘(B) REQUIRED RESPONSE IN CASE OF IN-
CREASE IN COSTS.—
‘‘(i) IN GENERAL.—If the administer-
ing Secretaries find, based on subparagraph
(A), that the expenditures under the medi-
care program under this title increased (or
are expected to increase) during a fiscal
year because of the demonstration project,
the administering Secretaries shall take
such steps as may be needed—
‘‘(I) to recoup for the medicare
program the amount of such increase
in expenditures; and
‘‘(II) to prevent any such increase
in the future.
‘‘(ii) STEPS.—Such steps—
‘‘(I) under clause (i)(I) shall in-
clude payment of the amount of such
increased expenditures by the Secretary
of Defense from the current medical
care appropriation of the Department
of Defense to the trust funds; and
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‘‘(II) under clause (i)(II) shall in-
clude suspending or terminating the
demonstration project (in whole or in
part) or lowering the amount of pay-
ment under paragraph (1)(A).
‘‘(k) EVALUATION AND REPORTS.—
‘‘(1) INDEPENDENT
EVALUATION.—The admin-
istering Secretaries shall arrange for an independent
entity with expertise in the evaluation of health serv-
ices to conduct an evaluation of the demonstration
project. The entity shall submit annual reports on the
demonstration project to the administering Secretar-
ies and to the committees of jurisdiction in the Con-
gress. The first report shall be submitted not later
than 12 months after the date on which the dem-
onstration project begins operation, and the final re-
port not later than 31⁄2 years after that date. The
evaluation and reports shall include an assessment,
based on the agreement entered into under subsection
(b), of the following:
‘‘(A) The number of medicare-eligible mili-
tary retirees and dependents opting to partici-
pate in the demonstration project instead of re-
ceiving health benefits through another health in-
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surance plan (including benefits under this
title).
‘‘(B) Compliance by the Department of De-
fense with the requirements under this title.
‘‘(C) The cost to the Department of Defense
of providing care to medicare-eligible military
retirees and dependents under the demonstration
project.
‘‘(D) Compliance by the Department of De-
fense with the standards of quality required of
entities that furnish medicare health care serv-
ices.
‘‘(E) An analysis of whether, and in what
manner, easier access to the uniformed services
treatment system affects the number of medicare-
eligible military retirees and dependents receiv-
ing medicare health care services.
‘‘(F) Any savings or costs to the medicare
program under this title resulting from the dem-
onstration project.
‘‘(G) An assessment of the access to care
and quality of care for medicare-eligible military
retirees and dependents under the demonstration
project.
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‘‘(H) Any impact of the demonstration
project on the access to care for medicare-eligible
military retirees and dependents who did not en-
roll in the demonstration project and for other
individuals entitled to benefits under this title.
‘‘(I) Any impact of the demonstration
project on private health care providers.
‘‘(J) Any impact of the demonstration
project on access to care for active duty military
personnel and their dependents.
‘‘(K) A list of the health insurance plans
and programs that were the primary payers for
medicare-eligible military retirees and depend-
ents during the year prior to their participation
in the demonstration project and the distribution
of their previous enrollment in such plans and
programs.
‘‘(L) An identification of cost-shifting (if
any) between the medicare program under this
title and the Defense health program as a result
of the demonstration project and a description of
the nature of any such cost-shifting.
‘‘(M) An analysis of how the demonstration
project affects the overall accessibility of the uni-
formed services treatment system and the amount
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of space available for point-of-service care, and a
description of the unintended effects (if any)
upon the normal treatment priority system.
‘‘(N) A description of the difficulties (if
any) experienced by the Department of Defense
in managing the demonstration project.
‘‘(O) A description of the effects of the dem-
onstration project on military treatment facility
readiness and training and the probable effects of
the project on overall Department of Defense
medical readiness and training.
‘‘(P) A description of the effects that the
demonstration project, if permanent, would be
expected to have on the overall budget of the De-
fense health program, the budgets of individual
military treatment facilities and designated pro-
viders, and on the budget of the medicare pro-
gram under this title.
‘‘(Q) An analysis of whether the demonstra-
tion project affects the cost to the Department of
Defense of prescription drugs or the accessibility,
availability, and cost of such drugs to dem-
onstration program beneficiaries.
‘‘(R) Any additional elements specified in
the agreement entered into under subsection (b).
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‘‘(2) REPORT ON EXTENSION AND EXPANSION OF
DEMONSTRATION
PROJECT.—Not 
later 
than 
six
months after the date of the submission of the penul-
timate report under paragraph (1), the administering
Secretaries shall submit to Congress a report contain-
ing their recommendation as to—
‘‘(A) whether to extend the demonstration
project or make the project permanent;
‘‘(B) whether to expand the project to cover
additional sites and areas and to increase the
maximum amount of reimbursement (or the
maximum amount of reimbursement permitted
for managed health care plans under this sec-
tion) under the project in any year; and
‘‘(C) whether the terms and conditions of
the project should be continued (or modified) if
the project is extended or expanded.’’.
CHAPTER 6—TAX TREATMENT OF HOS-
PITALS PARTICIPATING IN PROVIDER-
SPONSORED ORGANIZATIONS
SEC. 5049. TAX TREATMENT OF HOSPITALS WHICH PARTICI-
PATE IN PROVIDER-SPONSORED ORGANIZA-
TIONS.
(a) IN GENERAL.—Section 501 of the Internal Revenue
Code of 1986 (relating to exemption from tax on corpora-
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tions, certain trusts, etc.) is amended by redesignating sub-
section (o) as subsection (p) and by inserting after sub-
section (n) the following new subsection:
‘‘(o) TREATMENT OF HOSPITALS PARTICIPATING IN
PROVIDER-SPONSORED ORGANIZATIONS.—An organization
shall not fail to be treated as organized and operated exclu-
sively for a charitable purpose for purposes of subsection
(c)(3) solely because a hospital which is owned and operated
by such organization participates in a provider-sponsored
organization (as defined in section 1853(e) of the Social Se-
curity Act), whether or not the provider-sponsored organiza-
tion is exempt from tax. For purposes of subsection (c)(3),
any person with a material financial interest in such a
provider-sponsored organization shall be treated as a pri-
vate shareholder or individual with respect to the hospital.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect on the date of enactment of this
Act.
Subtitle B—Prevention Initiatives
SEC. 
5101. 
ANNUAL 
SCREENING 
MAMMOGRAPHY 
FOR
WOMEN OVER AGE 39.
(a) IN GENERAL.—Section 1834(c)(2)(A) (42 U.S.C.
1395m(c)(2)(A)) is amended by striking clauses (iii), (iv),
and (v) and inserting the following:
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‘‘(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.’’.
(b) WAIVER OF COINSURANCE.—
(1) IN
GENERAL.—Section 1834(c)(1)(C) (42
U.S.C. 1395m(c)(1)(C)) is amended by striking ‘‘80
percent of’’.
(2) WAIVER
OF
COINSURANCE
IN
OUTPATIENT
HOSPITAL SETTINGS.—The third sentence of section
1866(a)(2)(A) (42 U.S.C. 1395cc(a)(2)(A)) is amend-
ed by inserting after ‘‘1861(s)(10)(A)’’ the following:
‘‘, with respect to screening mammography (as de-
fined in section 1861(jj),’’.
(c) EFFECTIVE DATE.—The amendments made by sub-
section (a) apply to items and services furnished on or after
January 1, 1998.
SEC. 5102. COVERAGE OF COLORECTAL SCREENING.
(a) IN GENERAL.—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
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(B) by inserting after subparagraph (O) the
following:
‘‘(P) colorectal cancer screening tests (as defined
in subsection (oo)); and’’; and
(2) by adding at the end the following:
‘‘Colorectal Cancer Screening Test
‘‘(oo)(1)(A) The term ‘colorectal cancer screening test’
means a procedure furnished to an individual that the Sec-
retary prescribes in regulations as appropriate for the pur-
pose of early detection of colorectal cancer, taking into ac-
count availability, effectiveness, costs, changes in technology
and standards of medical practice, and such other factors
as the Secretary considers appropriate.
‘‘(B) The Secretary shall consult with appropriate or-
ganizations in prescribing regulations under subparagraph
(A).’’.
(b) FREQUENCY AND PAYMENT LIMITS.—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) IN GENERAL.—The Secretary shall prescribe
regulations that—
‘‘(A) establish frequency limits for colorectal
cancer screening tests that take into account the
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risk status of an individual and that are consist-
ent with frequency limits for similar or related
services; and
‘‘(B) establish payment limits (including
limits on charges of nonparticipating physi-
cians) for colorectal cancer screening tests that
are consistent with payment limits for similar or
related services.
‘‘(2) REVISIONS.—The Secretary shall periodi-
cally review and, to the extent the Secretary considers
appropriate, revise the frequency and payment limits
established under paragraph (1).
‘‘(3) FACTORS TO DETERMINE INDIVIDUALS AT
RISK.—In 
establishing 
criteria 
for 
determining
whether an individual is at risk for purposes of this
subsection, the Secretary shall take into consideration
family history, prior experience of cancer, a history
of chronic digestive disease condition, and the pres-
ence of any appropriate recognized gene markers for
colorectal cancer.
‘‘(4) CONSULTATION.—In establishing and revis-
ing frequency and payment limits under this sub-
section, the Secretary shall consult with appropriate
organizations.’’.
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(c) CONFORMING
AMENDMENTS.—(1) Paragraphs
(1)(D) and (2)(D) of section 1833(a) (42 U.S.C. 1395l(a))
are each amended by inserting ‘‘or section 1834(d)’’ 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 section 1834(d), the Secretary’’.
(3) Section 1862(a) (42 U.S.C. 1395y(a)) is amend-
ed—
(A) in paragraph (1)—
(i) in subparagraph (E), by striking ‘‘and’’
at the end,
(ii) in subparagraph (F), by striking the
semicolon at the end and inserting ‘‘, and’’, and
(iii) by adding at the end the following new
subparagraph:
‘‘(G) in the case of colorectal cancer screening
tests, which are performed more frequently than is
covered under section 1834(d);’’; and
(B) in paragraph (7), by striking ‘‘paragraph
(1)(B) or under paragraph (1)(F)’’ and inserting
‘‘subparagraph (B), (F), or (G) of paragraph (1)’’.
(d) EFFECTIVE DATE.—
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(1) IN
GENERAL.—The amendments made by
this section shall apply to items and services fur-
nished on or after January 1, 1998.
(2) REGULATIONS.—The Secretary of Health and
Human Services shall issue final regulations de-
scribed in sections 1861(oo) and 1834(d) of the Social
Security Act (as added by this section) within 3
months after the date of enactment of this Act.
SEC. 5103. DIABETES SCREENING TESTS.
(a) 
DIABETES
OUTPATIENT
SELF-MANAGEMENT
TRAINING SERVICES.—
(1) IN GENERAL.—Section 1861(s) (42 U.S.C.
1395x(s)), as amended by section 5102, is amended—
(A) in subsection (s)(2)—
(i) by striking ‘‘and’’ at the end of sub-
paragraph (P);
(ii) by inserting ‘‘and’’ at the end of
subparagraph (Q); and
(iii) by adding at the end the follow-
ing:
‘‘(R) diabetes outpatient self-management train-
ing services (as defined in subsection (pp));’’, and
(B) by adding at the end the following:
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‘‘Diabetes Outpatient Self-Management Training Services
‘‘(pp)(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 that meets the
quality standards described in paragraph (2)(B), but only
if the physician who is managing the individual’s diabetic
condition certifies that the services are needed under a com-
prehensive plan of care related to the individual’s diabetic
condition to provide the individual with necessary skills
and knowledge (including skills related to the self-adminis-
tration of injectable drugs) to participate in the manage-
ment 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 other such individual or en-
tity, meets the quality standards described in this
subparagraph if the physician, or individual or en-
tity, meets quality standards established by the Sec-
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retary, except that the physician, or other individual
or entity, shall be deemed to have met such standards
if the physician or other individual or entity—
‘‘(i) meets applicable standards originally
established by the National Diabetes Advisory
Board and subsequently revised by organizations
who participated in the establishment of stand-
ards by such Board, or
‘‘(ii) is recognized by an organization that
represents individuals (including individuals
under this title) with diabetes as meeting stand-
ards for furnishing the services.’’.
(2) CONSULTATION WITH ORGANIZATIONS IN ES-
TABLISHING PAYMENT AMOUNTS FOR SERVICES PRO-
VIDED
BY
PHYSICIANS.—In establishing payment
amounts under section 1848 of the Social Security
Act for physicians’ services consisting of diabetes out-
patient self-management training services, the Sec-
retary of Health and Human Services shall consult
with appropriate organizations, including such orga-
nizations representing individuals or medicare bene-
ficiaries with diabetes, in determining the relative
value for such services under section 1848(c)(2) of
such Act.
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(b) BLOOD-TESTING STRIPS FOR INDIVIDUALS WITH
DIABETES.—
(1) INCLUDING STRIPS AND MONITORS AS DURA-
BLE MEDICAL EQUIPMENT.—The first sentence of sec-
tion 1861(n) (42 U.S.C. 1395x(n)) is amended by in-
serting before the semicolon the following: ‘‘, and in-
cludes blood-testing strips and blood glucose monitors
for individuals with diabetes without regard to wheth-
er the individual has Type I or Type II diabetes or
to the individual’s use of insulin (as determined
under standards established by the Secretary in con-
sultation 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 be-
fore the period the following: ‘‘(reduced by 10 percent,
in the case of a blood glucose testing strip furnished
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-
cluding glysolated hemoglobin (past 90-day average
blood sugar levels), for purposes of evaluating the im-
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provement of the health status of medicare bene-
ficiaries with diabetes mellitus.
(2) RECOMMENDATIONS FOR MODIFICATIONS TO
SCREENING
BENEFITS.—Taking into account infor-
mation on the health status of medicare beneficiaries
with diabetes mellitus as measured under the outcome
measures established under subparagraph (A), the
Secretary shall from time to time submit rec-
ommendations 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 apply to items and services furnished on or after
January 1, 1998.
SEC. 5104. COVERAGE OF BONE MASS MEASUREMENTS.
(a) IN GENERAL.—Section 1861 (42 U.S.C. 1395x) is
amended—
(1) in subsection (s)—
(A) in paragraph (12)(C), by striking
‘‘and’’ at the end;
(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
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(D) by inserting after paragraph (14) the
following:
‘‘(15) bone mass measurement (as defined in sub-
section (oo)).’’; and
(2) by inserting after subsection (pp), as added
by section 5103, the following:
‘‘Bone Mass Measurement
‘‘(gg)(1) The term ‘bone mass measurement’ means a
radiologic or radioscopic procedure or other Food and Drug
Administration approved technology performed on a quali-
fied individual (as defined in paragraph (2)) for the pur-
pose of identifying bone mass, detecting bone loss, or deter-
mining bone quality, and includes a physician’s interpreta-
tion of the results of the procedure.
‘‘(2) For purposes of paragraph (1), the term ‘qualified
individual’ means an individual who is (in accordance
with regulations prescribed by the Secretary)—
‘‘(A) an estrogen-deficient woman at clinical risk
for osteoporosis and who is considering treatment;
‘‘(B) an individual with vertebral abnormalities;
‘‘(C) 
an 
individual 
receiving 
long-term
glucocorticoid steroid therapy;
‘‘(D) 
an 
individual 
with 
primary
hyperparathyroidism; or
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‘‘(E) an individual being monitored to assess the
response to or efficacy of an approved osteoporosis
drug therapy.’’.
(b) CONFORMING AMENDMENTS.—Sections 1864(a),
1865(a), 1902(a)(9)(C), and 1915(a)(1)(B)(ii)(I) (42
U.S.C. 
1395aa(a), 
1395bb(a), 
1396a(a)(9)(C), 
and
1396n(a)(1)(B)(ii)(I)) are amended by striking ‘‘para-
graphs (15) and (16)’’ each place such term appears and
inserting ‘‘paragraphs (16) and (17)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to bone mass measurements performed
on or after January 1, 1998.
SEC. 5105. STUDY ON MEDICAL NUTRITION THERAPY SERV-
ICES.
(a) STUDY.—The Secretary of Health and Human
Services shall request the National Academy of Sciences, in
conjunction with the United States Preventive Services
Task Force, to analyze the expansion or modification of the
preventive benefits provided to medicare beneficiaries under
title XVIII of the Social Security Act to include medical
nutrition therapy services by a registered dietitian.
(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
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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 the expansion or modi-
fication of coverage of medical nutrition therapy serv-
ices by a registered dietitian for medicare bene-
ficiaries regarding—
(A) cost to the medicare system;
(B) savings to the medicare system;
(C) clinical outcomes; and
(D) short and long term benefits to the med-
icare system.
(3) FUNDING.—From funds appropriated to the
Department of Health and Human Services for fiscal
years 1998 and 1999, the Secretary shall provide for
such funding as may be necessary for the conduct of
the analysis by the National Academy of Sciences
under this section.
Subtitle C—Rural Initiatives
SEC. 5151. SOLE COMMUNITY HOSPITALS.
Section 1886(b)(3)(C) (42 U.S.C. 1395ww(b)(3)(C)) is
amended—
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(1) in clause (i), by redesignating subclauses (I)
and (II) as items (aa) and (bb), respectively;
(2) by redesignating clauses (i), (ii), (iii), and
(iv) as subclauses (I), (II), (III), and (IV), respec-
tively;
(3) by striking ‘‘(C) In’’ and inserting ‘‘(C)(i)
Subject to clause (ii), in’’; and
(4) by striking the last sentence and inserting
the following:
‘‘(ii)(I) There shall be substituted for the base cost re-
porting period described in clause (i)(I) a hospital’s cost
reporting period (if any) beginning during fiscal year 1987
if such substitution results in an increase in the target
amount for the hospital.
‘‘(II) Beginning with discharges occurring in fiscal
year 1998, there shall be substituted for the base cost report-
ing period described in clause (i)(I) either—
‘‘(aa) the allowable operating costs of inpatient
hospital services (as defined in subsection (a)(4)) rec-
ognized under this title for the hospital’s cost report-
ing period (if any) beginning during fiscal year 1994
increased (in a compounded manner) by the applica-
ble percentage increases applied to the hospital under
this paragraph for discharges occurring in fiscal
years 1995, 1996, 1997, and 1998, or
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‘‘(bb) the allowable operating costs of inpatient
hospital services (as defined in subsection (a)(4)) rec-
ognized under this title for the hospital’s cost report-
ing period (if any) beginning during fiscal year 1995
increased (in a compounded manner) by the applica-
ble percentage increase applied to the hospital under
this paragraph for discharges occurring in fiscal
years 1995, 1996, 1997, and 1998,
if such substitution results in an increase in the target
amount for the hospital.’’.
SEC. 5152. MEDICARE-DEPENDENT, SMALL RURAL HOS-
PITAL PAYMENT EXTENSION.
(a) SPECIAL TREATMENT EXTENDED.—
(1) 
PAYMENT
METHODOLOGY.—Section
1886(d)(5)(G) 
(42 
U.S.C. 
1395ww(d)(5)(G)) 
is
amended—
(A) in clause (i), by striking ‘‘October 1,
1994,’’ and inserting ‘‘October 1, 1994, or begin-
ning on or after October 1, 1997, and before Oc-
tober 1, 2001,’’; and
(B) in clause (ii)(II), by striking ‘‘October
1, 1994,’’ and inserting ‘‘October 1, 1994, or be-
ginning on or after October 1, 1997, and before
October 1, 2001,’’.
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(2) EXTENSION
OF
TARGET
AMOUNT.—Section
1886(b)(3)(D) 
(42 
U.S.C. 
1395ww(b)(3)(D)) 
is
amended—
(A) in the matter preceding clause (i), by
striking ‘‘September 30, 1994,’’ and inserting
‘‘September 30, 1994, and for cost reporting pe-
riods beginning on or after October 1, 1997, and
before October 1, 2001,’’;
(B) in clause (ii), by striking ‘‘and’’ at the
end;
(C) in clause (iii), by striking the period at
the end and inserting ‘‘, and’’; and
(D) by adding after clause (iii) the follow-
ing new clause:
‘‘(iv) with respect to discharges occurring during
fiscal year 1998 through fiscal year 2000, the target
amount for the preceding year increased by the appli-
cable 
percentage 
increase 
under 
subparagraph
(B)(iv).’’.
(3) PERMITTING
HOSPITALS
TO
DECLINE
RE-
CLASSIFICATION.—Section 13501(e)(2) of OBRA–93
(42 U.S.C. 1395ww note) is amended by striking ‘‘or
fiscal year 1994’’ and inserting ‘‘, fiscal year 1994,
fiscal year 1998, fiscal year 1999, or fiscal year
2000’’.
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(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply with respect to discharges occurring
on or after October 1, 1997.
SEC. 5153. MEDICARE RURAL HOSPITAL FLEXIBILITY PRO-
GRAM.
(a) MEDICARE RURAL HOSPITAL FLEXIBILITY PRO-
GRAM.—Section 1820 (42 U.S.C. 1395i–4) is amended to
read as follows:
‘‘MEDICARE RURAL HOSPITAL FLEXIBILITY PROGRAM
‘‘SEC. 1820. (a) ESTABLISHMENT.—Any State that
submits an application in accordance with subsection (b)
may establish a medicare rural hospital flexibility program
described in subsection (c).
‘‘(b) APPLICATION.—A State may establish a medicare
rural hospital flexibility program described in subsection
(c) if the State submits to the Secretary at such time and
in such form as the Secretary may require an application
containing—
‘‘(1) assurances that the State—
‘‘(A) has developed, or is in the process of
developing, a State rural health care plan that—
‘‘(i) provides for the creation of 1 or
more rural health networks (as defined in
subsection (d)) in the State;
‘‘(ii) promotes regionalization of rural
health services in the State; and
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‘‘(iii) improves access to hospital and
other health services for rural residents of
the State; and
‘‘(B) has developed the rural health care
plan described in subparagraph (A) in consulta-
tion with the hospital association of the State,
rural hospitals located in the State, and the
State Office of Rural Health (or, in the case of
a State in the process of developing such plan,
that assures the Secretary that the State will
consult with its State hospital association, rural
hospitals located in the State, and the State Of-
fice of Rural Health in developing such plan);
‘‘(2) assurances that the State has designated
(consistent with the rural health care plan described
in paragraph (1)(A)), or is in the process of so des-
ignating, rural nonprofit or public hospitals or facili-
ties located in the State as critical access hospitals;
and
‘‘(3) such other information and assurances as
the Secretary may require.
‘‘(c) MEDICARE RURAL HOSPITAL FLEXIBILITY PRO-
GRAM DESCRIBED.—
‘‘(1) IN GENERAL.—A State that has submitted
an application in accordance with subsection (b),
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may establish a medicare rural hospital flexibility
program that provides that—
‘‘(A) the State shall develop at least 1 rural
health network (as defined in subsection (d)) in
the State; and
‘‘(B) at least 1 facility in the State shall be
designated as a critical access hospital in accord-
ance with paragraph (2).
‘‘(2) STATE DESIGNATION OF FACILITIES.—
‘‘(A) IN GENERAL.—A State may designate
1 or more facilities as a critical access hospital
in accordance with subparagraph (B).
‘‘(B) CRITERIA FOR DESIGNATION AS CRITI-
CAL ACCESS HOSPITAL.—A State may designate
a facility as a critical access hospital if the facil-
ity—
‘‘(i) is a nonprofit or public hospital
and is located in a county (or equivalent
unit of local government) in a rural area
(as defined in section 1886(d)(2)(D)) that—
‘‘(I) is located more than a 35-
mile drive from a hospital, or another
facility described in this subsection; or
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‘‘(II) is certified by the State as
being a necessary provider of health
care services to residents in the area;
‘‘(ii) makes available 24-hour emer-
gency care services that a State determines
are necessary for ensuring access to emer-
gency care services in each area served by
a critical access hospital;
‘‘(iii) provides not more than 15 acute
care inpatient beds (meeting such standards
as the Secretary may establish) for provid-
ing inpatient care for a period not to exceed
96 hours (unless a longer period is required
because transfer to a hospital is precluded
because of inclement weather or other emer-
gency conditions), except that a peer review
organization or equivalent entity may, on
request, waive the 96-hour restriction on a
case-by-case basis;
‘‘(iv) meets such staffing requirements
as would apply under section 1861(e) to a
hospital located in a rural area, except
that—
‘‘(I) the facility need not meet
hospital standards relating to the num-
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ber of hours during a day, or days
during a week, in which the facility
must be open and fully staffed, except
insofar as the facility is required to
make available emergency care services
as determined under clause (ii) and
must have nursing services available
on a 24-hour basis, but need not other-
wise staff the facility except when an
inpatient is present;
‘‘(II) the facility may provide any
services otherwise required to be pro-
vided by a full-time, on site dietitian,
pharmacist, 
laboratory 
technician,
medical technologist, and radiological
technologist on a part-time, off site
basis under arrangements as defined in
section 1861(w)(1); and
‘‘(III) the inpatient care described
in clause (iii) may be provided by a
physician’s assistant, nurse practi-
tioner, or clinical nurse specialist sub-
ject to the oversight of a physician who
need not be present in the facility; and
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‘‘(v) meets the requirements of section
1861(aa)(2)(I).
‘‘(d) DEFINITION OF RURAL HEALTH NETWORK.—
‘‘(1) IN
GENERAL.—In this section, the term
‘rural health network’ means, with respect to a State,
an organization consisting of—
‘‘(A) at least 1 facility that the State has
designated or plans to designate as a critical ac-
cess hospital; and
‘‘(B) at least 1 hospital that furnishes acute
care services.
‘‘(2) AGREEMENTS.—
‘‘(A) IN
GENERAL.—Each critical access
hospital that is a member of a rural health net-
work shall have an agreement with respect to
each item described in subparagraph (B) with at
least 1 hospital that is a member of the network.
‘‘(B) ITEMS
DESCRIBED.—The items de-
scribed in this subparagraph are the following:
‘‘(i) Patient referral and transfer.
‘‘(ii) The development and use of com-
munications systems including (where fea-
sible)—
‘‘(I) telemetry systems; and
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‘‘(II) systems for electronic shar-
ing of patient data.
‘‘(iii) The provision of emergency and
non-emergency transportation among the
facility and the hospital.
‘‘(C) CREDENTIALING AND QUALITY ASSUR-
ANCE.—Each critical access hospital that is a
member of a rural health network shall have an
agreement with respect to credentialing and
quality assurance with at least—
‘‘(i) 1 hospital that is a member of the
network;
‘‘(ii) 1 peer review organization or
equivalent entity; or
‘‘(iii) 1 other appropriate and quali-
fied entity identified in the State rural
health care plan.
‘‘(e) CERTIFICATION BY THE SECRETARY.—The Sec-
retary shall certify a facility as a critical access hospital
if the facility—
‘‘(1) is located in a State that has established a
medicare rural hospital flexibility program in accord-
ance with subsection (c);
‘‘(2) is designated as a critical access hospital by
the State in which it is located; and
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‘‘(3) meets such other criteria as the Secretary
may require.
‘‘(f) PERMITTING MAINTENANCE OF SWING BEDS.—
Nothing in this section shall be construed to prohibit a criti-
cal access hospital from entering into an agreement with
the Secretary under section 1883 under which the facility’s
inpatient hospital facilities are used for the furnishing of
extended care services.
‘‘(g) GRANTS.—
‘‘(1) MEDICARE RURAL HOSPITAL FLEXIBILITY
PROGRAM.—The Secretary may award grants to
States that have submitted applications in accordance
with subsection (b) for—
‘‘(A) engaging in activities relating to plan-
ning and implementing a rural health care plan;
‘‘(B) engaging in activities relating to plan-
ning and implementing rural health networks;
and
‘‘(C) designating facilities as critical access
hospitals.
‘‘(2) RURAL EMERGENCY MEDICAL SERVICES.—
‘‘(A) IN
GENERAL.—The Secretary may
award grants to States that have submitted ap-
plications in accordance with subparagraph (B)
for the establishment or expansion of a program
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for the provision of rural emergency medical
services.
‘‘(B) APPLICATION.—An application is in
accordance with this subparagraph if the State
submits to the Secretary at such time and in
such form as the Secretary may require an ap-
plication containing the assurances described in
subparagraphs (A)(ii), (A)(iii), and (B) of sub-
section (b)(1) and paragraph (3) of that sub-
section.
‘‘(h) GRANDFATHERING OF CERTAIN FACILITIES.—
‘‘(1) IN GENERAL.—Any medical assistance facil-
ity operating in Montana and any rural primary
care hospital designated by the Secretary under this
section prior to the date of the enactment of the Bal-
anced Budget Act of 1997 shall be deemed to have
been certified by the Secretary under subsection (e) as
a critical access hospital if such facility or hospital
is otherwise eligible to be designated by the State as
a critical access hospital under subsection (c).
‘‘(2) CONTINUATION OF MEDICAL ASSISTANCE FA-
CILITY
AND
RURAL
PRIMARY
CARE
HOSPITAL
TERMS.—Notwithstanding any other provision of this
title, with respect to any medical assistance facility
or rural primary care hospital described in para-
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graph (1), any reference in this title to a ‘critical ac-
cess hospital’ shall be deemed to be a reference to a
‘medical assistance facility’ or ‘rural primary care
hospital’.
‘‘(i) WAIVER OF CONFLICTING PART A PROVISIONS.—
The Secretary is authorized to waive such provisions of this
part and part D as are necessary to conduct the program
established under this section.
‘‘(j) AUTHORIZATION OF APPROPRIATIONS.—There are
authorized to be appropriated from the Federal Hospital
Insurance Trust Fund for making grants to all States
under subsection (g), $25,000,000 in each of the fiscal years
1998 through 2002.’’.
(b) REPORT ON ALTERNATIVE TO 96-HOUR RULE.—
Not later than January 1, 1998, the Administrator of the
Health Care Financing Administration shall submit to
Congress a report on the feasibility of, and administrative
requirements necessary to establish an alternative for cer-
tain medical diagnoses (as determined by the Adminis-
trator) to the 96-hour limitation for inpatient care in criti-
cal access hospitals required by section 1820(c)(2)(B)(iii)
of the Social Security Act (42 U.S.C. 1395i–4), as added
by subsection (a) of this section.
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(c) CONFORMING AMENDMENTS RELATING TO RURAL
PRIMARY CARE HOSPITALS AND CRITICAL ACCESS HOS-
PITALS.—
(1) IN GENERAL.—Title XI of the Social Secu-
rity Act (42 U.S.C. 1301 et seq.) and title XVIII of
that Act (42 U.S.C. 1395 et seq.) are each amended
by striking ‘‘rural primary care’’ each place it ap-
pears and inserting ‘‘critical access’’.
(2) DEFINITIONS.—Section 1861(mm) of the So-
cial Security Act (42 U.S.C. 1395x(mm)) is amended
to read as follows:
‘‘CRITICAL ACCESS HOSPITAL; CRITICAL ACCESS HOSPITAL
SERVICES
‘‘(mm)(1) The term ‘critical access hospital’ means a
facility certified by the Secretary as a critical access hos-
pital under section 1820(e).
‘‘(2) The term ‘inpatient critical access hospital serv-
ices’ means items and services, furnished to an inpatient
of a critical access hospital by such facility, that would be
inpatient hospital services if furnished to an inpatient of
a hospital by a hospital.
‘‘(3) The term ‘outpatient critical access hospital serv-
ices’ means medical and other health services furnished by
a critical access hospital on an outpatient basis.’’.
(3) PART A PAYMENT.—Section 1814 of the So-
cial Security Act (42 U.S.C. 1395f) is amended—
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(A) in subsection (a)(8), by striking ‘‘72’’
and inserting ‘‘96’’; and
(B) by amending subsection (l) to read as
follows:
‘‘Payment for Inpatient Critical Access Hospital Services
‘‘(l) The amount of payment under this part for inpa-
tient critical access hospital services is the reasonable costs
of the critical access hospital in providing such services.’’.
(4) 
PAYMENT
CONTINUED
TO
DESIGNATED
EACHS.—Section 1886(d)(5)(D) of the Social Security
Act (42 U.S.C. 1395ww(d)(5)(D)) is amended—
(A) in clause (iii)(III), by inserting ‘‘as in
effect on September 30, 1997’’ before the period
at the end; and
(B) in clause (v)—
(i) by inserting ‘‘as in effect on Sep-
tember 30, 1997’’ after ‘‘1820(i)(1)’’; and
(ii) by striking ‘‘1820(g)’’ and insert-
ing ‘‘1820(d)’’.
(5) PART B PAYMENT.—Section 1834(g) of the
Social Security Act (42 U.S.C. 1395m(g)) is amended
to read as follows:
‘‘(g) PAYMENT FOR OUTPATIENT CRITICAL ACCESS
HOSPITAL SERVICES.—The amount of payment under this
part for outpatient critical access hospital services is the
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reasonable costs of the critical access hospital in providing
such services.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to services furnished on or after October
1, 1997.
SEC. 5154. PROHIBITING DENIAL OF REQUEST BY RURAL
REFERRAL CENTERS FOR RECLASSIFICATION
ON BASIS OF COMPARABILITY OF WAGES.
(a) IN GENERAL.—Section 1886(d)(10)(D) (42 U.S.C.
1395ww(d)(10)(D)) is amended—
(1) by redesignating clause (iii) as clause (iv);
and
(2) by inserting after clause (ii) the following
new clause:
‘‘(iii) Under the guidelines published by the Secretary
under clause (i), in the case of a hospital which has ever
been classified by the Secretary as a rural referral center
under paragraph (5)(C), the Board may not reject the ap-
plication of the hospital under this paragraph on the basis
of any comparison between the average hourly wage of the
hospital and the average hourly wage of hospitals in the
area in which it is located.’’.
(b) CONTINUING TREATMENT OF PREVIOUSLY DES-
IGNATED CENTERS.—
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(1) IN GENERAL.—Any hospital classified as a
rural referral center by the Secretary of Health and
Human Services under section 1886(d)(5)(C) of the
Social Security Act for fiscal year 1991 shall be clas-
sified as such a rural referral center for fiscal year
1998 and each subsequent fiscal year.
(2) BUDGET
NEUTRALITY.—The provisions of
section 1886(d)(8)(D) of the Social Security Act shall
apply to reclassifications made pursuant to para-
graph (1) in the same manner as such provisions
apply to a reclassification under section 1886(d)(10)
of such Act.
SEC. 5155. RURAL HEALTH CLINIC SERVICES.
(a) PER-VISIT PAYMENT LIMITS
FOR PROVIDER-
BASED CLINICS.—
(1) EXTENSION OF LIMIT.—
(A) IN GENERAL.—The matter in section
1833(f) (42 U.S.C. 1395l(f)) preceding para-
graph (1) is amended by striking ‘‘independent
rural health clinics’’ and inserting ‘‘rural health
clinics (other than such clinics in rural hospitals
with less than 50 beds)’’.
(B) EFFECTIVE
DATE.—The amendment
made by subparagraph (A) applies to services
furnished after 1997.
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(2) 
TECHNICAL
CLARIFICATION.—Section
1833(f)(1) (42 U.S.C. 1395l(f)(1)) is amended by in-
serting ‘‘per visit’’ after ‘‘$46’’.
(b) ASSURANCE OF QUALITY SERVICES.—
(1) IN GENERAL.—Subparagraph (I) of the first
sentence 
of 
section 
1861(aa)(2) 
(42 
U.S.C.
1395x(aa)(2)) is amended to read as follows:
‘‘(I) has a quality assessment and perform-
ance improvement program, and appropriate
procedures for review of utilization of clinic serv-
ices, as the Secretary may specify,’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall take effect on January 1, 1998.
(c) WAIVER OF CERTAIN STAFFING REQUIREMENTS
LIMITED TO CLINICS IN PROGRAM.—
(1) IN GENERAL.—Section 1861(aa)(7)(B)) (42
U.S.C. 1395x(aa)(7)(B)) is amended by inserting be-
fore the period ‘‘, or if the facility has not yet been
determined to meet the requirements (including sub-
paragraph (J) of the first sentence of paragraph (2))
of a rural health clinic.’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) applies to waiver requests made after
1997.
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(d) REFINEMENT
OF SHORTAGE AREA REQUIRE-
MENTS.—
(1) DESIGNATION REVIEWED TRIENNIALLY.—Sec-
tion 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) is amend-
ed in the second sentence, in the matter in clause (i)
preceding subclause (I)—
(A) by striking ‘‘and that is designated’’
and inserting ‘‘and that, within the previous 3-
year period, has been designated’’; and
(B) by striking ‘‘or that is designated’’ and
inserting ‘‘or designated’’.
(2) AREA MUST HAVE SHORTAGE OF HEALTH
CARE
PRACTITIONERS.—Section 
1861(aa)(2) 
(42
U.S.C. 1395x(aa)(2)), as amended by paragraph (1),
is further amended in the second sentence, in the mat-
ter in clause (i) preceding subclause (I)—
(A) by striking the comma after ‘‘personal
health services’’; and
(B) by inserting ‘‘and in which there are
insufficient numbers of needed health care prac-
titioners (as determined by the Secretary),’’ after
‘‘Bureau of the Census)’’.
(3) PREVIOUSLY
QUALIFYING
CLINICS
GRAND-
FATHERED ONLY TO PREVENT SHORTAGE.—
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(A) IN GENERAL.—Section 1861(aa)(2) (42
U.S.C. 1395x(aa)(2)) is amended in the third
sentence by inserting before the period ‘‘if it is
determined, in accordance with criteria estab-
lished by the Secretary in regulations, to be es-
sential to the delivery of primary care services
that would otherwise be unavailable in the geo-
graphic area served by the clinic’’.
(B) PAYMENT FOR CERTAIN PHYSICIAN AS-
SISTANT SERVICES.—
(i) IN GENERAL.—With respect to any
regulations issued to implement section
1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) (as
amended by subparagraph (A)), the Sec-
retary of Health and Human Services shall
include in such regulations provisions pro-
viding for the direct payment to the physi-
cian assistant for any physician assistant
services as described in clause (ii).
(ii) SERVICES
DESCRIBED.—Services
described in this clause are physician assist-
ant services provided at a rural health clin-
ic that is principally owned, as determined
by the Secretary, by a physician assist-
ant—
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(I) as of the date of enactment of
this Act; and
(II) continuously from such date
through the date on which such services
are provided.
(iii) SUNSET.—The provisions of this
subparagraph shall not apply after Janu-
ary 1, 2003.
(4) EFFECTIVE DATES; IMPLEMENTING REGULA-
TIONS.—
(A) IN GENERAL.—Except as otherwise pro-
vided, the amendments made by the preceding
paragraphs take effect on January 1 of the first
calendar year beginning at least 1 month after
enactment of this Act.
(B) CURRENT RURAL HEALTH CLINICS.—
The amendments made by the preceding para-
graphs take effect, with respect to entities that
are rural health clinics under title XVIII of the
Social Security Act (42 U.S.C. 1395 et seq.) on
the date of enactment of this Act, on January 1
of the second calendar year following the cal-
endar year specified in subparagraph (A).
(C) GRANDFATHERED CLINICS.—
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(i) IN
GENERAL.—The amendment
made by paragraph (3) shall take effect on
the effective date of regulations issued by the
Secretary under clause (ii).
(ii) 
REGULATIONS.—The 
Secretary
shall issue final regulations implementing
paragraph (3) that shall take effect no later
than January 1 of the third calendar year
beginning at least 1 month after the date of
enactment of this Act.
SEC. 5156. MEDICARE REIMBURSEMENT FOR TELEHEALTH
SERVICES.
(a) IN GENERAL.—Not later than July 1, 1998, the
Secretary of Health and Human Services (in this section
referred to as the ‘‘Secretary’’) shall make payments from
the Federal Supplementary Medical Insurance Trust Fund
under part B of title XVIII of the Social Security Act (42
U.S.C. 1395j et seq.) in accordance with the methodology
described in subsection (b) for professional consultation via
telecommunications systems with a health care provider
furnishing a service for which payment may be made under
such part to a beneficiary under the medicare program re-
siding in a county in a rural area (as defined in section
1886(d)(2)(D) of such Act (42 U.S.C. 1395ww(d)(2)(D)))
that is designated as a health professional shortage area
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under section 332(a)(1)(A) of the Public Health Service Act
(42 U.S.C. 254e(a)(1)(A)) or a rural county that is not ad-
jacent to a Metropolitan Statistical Area, notwithstanding
that the individual health care provider providing the pro-
fessional consultation is not at the same location as the
health care provider furnishing the service to that bene-
ficiary.
(b) METHODOLOGY FOR DETERMINING AMOUNT OF
PAYMENTS.—Taking into account the findings of the report
required under section 192 of the Health Insurance Port-
ability and Accountability Act of 1996 (Public Law 104–
191; 110 Stat. 1988), the findings of the report required
under paragraph (c), and any other findings related to the
clinical efficacy and cost-effectiveness of telehealth applica-
tions, the Secretary shall establish a methodology for deter-
mining the amount of payments made under subsection (a)
within the following parameters:
(1) The payment shall include a bundled pay-
ment to be shared between the referring health care
provider and the consulting health care provider. The
amount of such bundled payment shall not be greater
than the current fee schedule of the consulting health
care provider for the health care services provided.
(2) The payment shall not include any reim-
bursement for any line charges or any facility fees.
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(c) SUPPLEMENTAL REPORT.—Not later than January
1, 1998, the Secretary shall submit a report to Congress
which shall contain a detailed analysis of—
(1) how telemedicine and telehealth systems are
expanding access to health care services;
(2) the clinical efficacy and cost-effectiveness of
telemedicine and telehealth applications;
(3) the quality of telemedicine and telehealth
services delivered; and
(4) the reasonable cost of telecommunications
charges incurred in practicing telemedicine and tele-
health in rural, frontier, and underserved areas.
(d) EXPANSION OF TELEHEALTH SERVICES FOR CER-
TAIN MEDICARE BENEFICIARIES.—
(1) IN GENERAL.—Not later than January 1,
1999, the Secretary shall submit a report to Congress
that examines the possibility of making payments
from the Federal Supplementary Medical Insurance
Trust Fund under part B of title XVIII of the Social
Security Act (42 U.S.C. 1395j et seq.) for professional
consultation via telecommunications systems with a
health care provider furnishing a service for which
payment may be made under such part to a bene-
ficiary described in paragraph (2), notwithstanding
that the individual health care provider providing the
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professional consultation is not at the same location
as the health care provider furnishing the service to
that beneficiary.
(2) BENEFICIARY DESCRIBED.—A beneficiary de-
scribed in this paragraph is a beneficiary under the
medicare program under title XVIII of the Social Se-
curity Act (42 U.S.C. 1395 et seq.) who does not re-
side in a rural area (as so defined) that is designated
as a health professional shortage area under section
332(a)(1)(A) of the Public Health Service Act (42
U.S.C. 254e(a)(1)(A)), who is homebound or nursing
homebound, and for whom being transferred for health
care services imposes a serious hardship.
(3) REPORT.—The report described in paragraph
(1) shall contain a detailed statement of the potential
costs to the medicare program of making the pay-
ments described in that paragraph using various re-
imbursement schemes.
SEC. 5157. TELEMEDICINE, INFORMATICS, 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 Secretary of
Health and Human Services (in this section referred
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to as the ‘‘Secretary’’) shall conduct a demonstration
project described in paragraph (2).
(2) DESCRIPTION OF PROJECT.—The demonstra-
tion project described in this paragraph is a single
demonstration project to study the use of eligible
health care provider telemedicine networks to imple-
ment high-capacity computing and advanced net-
works to improve primary care (and prevent health
care complications), improve access to specialty care,
and provide educational and training support to
rural practitioners.
(3) WAIVER
AUTHORITY.—The Secretary shall
waive compliance with the requirements of titles XI,
XVIII, and XIX of the Social Security Act (42 U.S.C.
1301 et seq., 1395 et seq., 1396 et seq.) to such extent
and for such period as the Secretary determines is
necessary to conduct the demonstration project.
(4) DURATION OF PROJECT.—The project shall be
conducted for a 5-year period.
(b) OBJECTIVES OF PROJECT.—The objectives of the
demonstration project conducted under this section shall in-
clude the following:
(1) The improvement of patient access to pri-
mary and specialty care and the reduction of inap-
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propriate hospital visits in order to improve patient
quality-of-life and reduce overall health care costs.
(2) The development of a curriculum to train
and development of standards for required credentials
and licensure of health professionals (particularly
primary care health professionals) in the use of medi-
cal informatics and telecommunications.
(3) The demonstration of the application of ad-
vanced technologies such as video-conferencing from a
patient’s home and remote monitoring of a patient’s
medical condition.
(4) The development of standards in the applica-
tion of telemedicine and medical informatics.
(5) The development of a model for cost-effective
delivery of primary and related care in both a man-
aged care environment and in a fee-for-service envi-
ronment.
(c) ELIGIBLE HEALTH CARE PROVIDER TELEMEDI-
CINE NETWORK DEFINED.—In this section, the term ‘‘eligi-
ble health care provider telemedicine network’’ means a con-
sortium that—
(1) includes—
(A) at least 1 tertiary care hospital with an
existing telemedicine network with an existing
relationship with a medical school; and
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(B) not more than 6 facilities, including at
least 3 rural referral centers, in rural areas; and
(2) meets the following requirements:
(A) The consortium is located in a region
that is predominantly rural.
(B) The consortium submits to the Sec-
retary an application at such time, in such
manner, and containing such information as the
Secretary may require, including a description
of the use the consortium would make of any
amounts 
received 
under 
the 
demonstration
project and the source and amount of non-Fed-
eral funds used in the project.
(C) 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 sub-
section (d)(3).
(d) COVERAGE AS MEDICARE PART B SERVICES.—
(1) IN GENERAL.—Subject to the succeeding pro-
visions of this section, services for medicare bene-
ficiaries furnished under the demonstration project
shall be considered to be services covered under part
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B of title XVIII of the Social Security Act (42 U.S.C.
1395j).
(2) PAYMENTS.—
(A) IN
GENERAL.—Subject to paragraph
(3), payment for services provided under this sec-
tion shall be made at a rate of 50 percent of the
costs that are reasonable and related to the pro-
vision of such services. In computing such costs,
the Secretary shall include costs described in sub-
paragraph (B), but may not include costs de-
scribed in subparagraph (C).
(B) COSTS THAT MAY BE INCLUDED.—The
costs described in this subparagraph are the per-
missible costs (as recognized by the Secretary) for
the following:
(i) The acquisition of telemedicine
equipment for use in patients’ homes (but
only in the case of patients located in medi-
cally underserved areas).
(ii) 
Curriculum 
development 
and
training of health professionals in medical
informatics and telemedicine.
(iii) Payment of telecommunications
costs including salaries, maintenance of
equipment, and costs of telecommunications
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between patients’ homes and the eligible net-
work and between the network and other en-
tities under the arrangements described in
subsection (c).
(iv) Payments to practitioners and
providers under the medicare programs.
(C) OTHER COSTS.—The costs described in
this subparagraph include 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 that is limited to
minor renovations related to the installa-
tion of equipment.
(3) LIMITATION
AND
FUNDS.—The Secretary
shall make the payments under the demonstration
project conducted under this section from the Federal
Supplementary Medical Insurance Trust Fund, estab-
lished under section 1841 of the Social Security Act
(42 U.S.C. 1395t), except that the total amount of the
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payments that may be made by the Secretary under
this section shall not exceed $27,000,000.
Subtitle D—Anti-Fraud and Abuse
Provisions and Improvements in
Protecting Program Integrity
CHAPTER 1—REVISIONS TO SANCTIONS
FOR FRAUD AND ABUSE
SEC. 5201. 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) in subparagraph (B), by striking ‘‘or’’ at the
end;
(2) in subparagraph (C), by striking the period
at the end and inserting ‘‘, or’’; and
(3) by adding at the end the following:
‘‘(D) has ascertained that the provider has
been convicted of a felony under Federal or State
law for an offense that the Secretary determines
is inconsistent with the best interests of program
beneficiaries.’’.
(b) MEDICARE PART B.—Section 1842 (42 U.S.C.
1395u) is amended by adding at the end the following:
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‘‘(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 convicted
of a felony under Federal or State law for an offense which
the Secretary determines is inconsistent with the best inter-
ests of program beneficiaries.’’.
(c) 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. 5202. EXCLUSION OF ENTITY CONTROLLED BY FAMILY
MEMBER OF A SANCTIONED INDIVIDUAL.
(a) IN GENERAL.—Section 1128 (42 U.S.C. 1320a–7)
is amended—
(1) in subsection (b)(8)(A)—
(A) in clause (i), by striking ‘‘or’’ at the
end;
(B) in clause (ii), by striking the dash at
the end 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
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(or following) a conviction, assessment, or exclu-
sion described in subparagraph (B) against the
person, to an immediate family member (as de-
fined in subsection (j)(1)) or a member of the
household of the person (as defined in subsection
(j)(2)) who continues to maintain an interest de-
scribed in such clause—’’; and
(2) by adding at the end the following:
‘‘(j) DEFINITION OF IMMEDIATE FAMILY MEMBER AND
MEMBER
OF HOUSEHOLD.—For purposes of subsection
(b)(8)(A)(iii):
‘‘(1) The term ‘immediate family member’
means, with respect to a person—
‘‘(A) the husband or wife of the person;
‘‘(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 grand-
child of the person.
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‘‘(2) The term ‘member of the household’ means,
with respect to any 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 sub-
section (a) shall take effect on the date that is 45 days after
the date of the enactment of this Act.
SEC. 5203. 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) in paragraph (4), by striking ‘‘or’’ at the
end;
(2) in paragraph (5), by adding ‘‘or’’ at the end;
and
(3) by inserting after paragraph (5) the follow-
ing:
‘‘(6) arranges or contracts (by employment or
otherwise) with an individual or entity that the per-
son knows or should know is excluded from participa-
tion in a Federal health care program (as defined in
section 1128B(f)), for the provision of items or serv-
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ices for which payment may be made under such a
program;’’.
(b) CIVIL MONEY PENALTIES FOR SERVICES ORDERED
OR PRESCRIBED BY AN EXCLUDED INDIVIDUAL OR EN-
TITY.—Section 1128A(a)(1) (42 U.S.C. 1320a–7a(a)(1)) is
amended—
(1) in subparagraph (D)—
(A) by inserting ‘‘, ordered, or prescribed by
such person’’ after ‘‘other item or service fur-
nished’’;
(B) by inserting ‘‘(pursuant to this title or
title XVIII)’’ after ‘‘period in which the person
was excluded’’;
(C) by striking ‘‘pursuant to a determina-
tion by the Secretary’’ and all that follows
through ‘‘the provisions of section 1842(j)(2)’’;
and
(D) by striking ‘‘or’’ at the end;
(2) by redesignating subparagraph (E) as sub-
paragraph (F); and
(3) by inserting after subparagraph (D) the fol-
lowing:
‘‘(E) is for a medical or other item or serv-
ice ordered or prescribed by a person excluded
pursuant to this title or title XVIII from the pro-
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gram under which the claim was made, and the
person furnishing such item or service knows or
should know of such exclusion, or’’.
(c) CIVIL MONEY PENALTIES FOR KICKBACKS.—
(1) PERMITTING SECRETARY TO IMPOSE CIVIL
MONEY
PENALTY.—Section 1128A(a) (42 U.S.C.
1320a–7a(a)), as amended by subsection (a), is
amended—
(A) in paragraph (5), by striking ‘‘or’’ at
the end;
(B) in paragraph (6), by adding ‘‘or’’ at
the end; and
(C) by adding after paragraph (6) the fol-
lowing:
‘‘(7) commits an act described in paragraph (1)
or (2) of section 1128B(b);’’.
(2) DESCRIPTION OF CIVIL MONEY PENALTY AP-
PLICABLE.—Section 1128A(a) (42 U.S.C. 1320a–
7a(a)), as amended by paragraph (1), is amended in
the matter following paragraph (7)—
(A) by striking ‘‘occurs).’’ and inserting
‘‘occurs; or in cases under paragraph (7),
$50,000 for each such act).’’; and
(B) by inserting after ‘‘of such claim’’ the
following: ‘‘(or, in cases under paragraph (7),
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damages of not more than 3 times the total
amount of remuneration offered, paid, solicited,
or received, without regard to whether a portion
of such remuneration was offered, paid, solicited,
or received for a lawful purpose)’’.
(d) EFFECTIVE DATES.—
(1) CONTRACTS WITH EXCLUDED PERSONS.—The
amendments made by subsection (a) shall apply to
arrangements and contracts entered into after the
date of the enactment of this Act.
(2) SERVICES ORDERED OR PRESCRIBED.—The
amendments made by subsection (b) shall apply to
items and services furnished, ordered, or prescribed
after the date of the enactment of this Act.
(3) KICKBACKS.—The amendments made by sub-
section (c) shall apply to acts taken after the date of
the enactment of this Act.
CHAPTER 2—IMPROVEMENTS IN
PROTECTING PROGRAM INTEGRITY
SEC. 5211. DISCLOSURE OF INFORMATION, SURETY BONDS,
AND ACCREDITATION.
(a) DISCLOSURE OF INFORMATION, SURETY BOND,
AND ACCREDITATION REQUIREMENT FOR SUPPLIERS OF
DURABLE MEDICAL EQUIPMENT.—Section 1834(a) (42
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U.S.C. 1395m(a)) is amended by inserting after paragraph
(15) the following:
‘‘(16) DISCLOSURE
OF
INFORMATION, SURETY
BOND, AND ACCREDITATION.—The Secretary shall not
provide for the issuance (or renewal) of a provider
number for a supplier of durable medical equipment,
for purposes of payment under this part for durable
medical equipment furnished by the supplier, unless
the supplier provides the Secretary on a continuing
basis—
‘‘(A) with—
‘‘(i) full and complete information as
to the identity of each person with an own-
ership or control interest (as defined in sec-
tion 1124(a)(3)) in the supplier or in any
subcontractor (as defined by the Secretary
in regulations) in which the supplier di-
rectly or indirectly has a 5 percent or more
ownership interest; and
‘‘(ii) to the extent determined to be fea-
sible 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
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such an ownership or control interest in the
disclosing entity;
‘‘(B) with a surety bond in a form specified
by the Secretary and in an amount that is not
less than $50,000; and
‘‘(C) at the discretion of the Secretary, with
evidence of compliance with the applicable condi-
tions or requirements of this title through an ac-
creditation survey conducted by a national ac-
creditation body under section 1865(b).
The Secretary may waive the requirement of a bond under
subparagraph (B) in the case of a supplier 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
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surety 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 amend-
ed—
(A) in clause (i), by striking ‘‘the financial
security requirement’’ and inserting ‘‘the finan-
cial security and surety bond requirements’’; and
(B) in clause (ii), by striking ‘‘the financial
security requirement described in subsection
(o)(7) applies’’ and inserting ‘‘the financial secu-
rity and surety bond requirements described in
subsection (o)(7) apply’’.
(3) REFERENCE TO CURRENT DISCLOSURE RE-
QUIREMENT.—For additional provisions requiring
home health agencies to disclose information on own-
ership and control interests, see section 1124 of the
Social Security Act (42 U.S.C. 1320a–3).
(c) AUTHORIZING APPLICATION OF DISCLOSURE AND
SURETY BOND REQUIREMENTS TO AMBULANCE SERVICES
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 flush sentence:
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The Secretary, in the Secretary’s discretion, may im-
pose the requirements of the previous sentence with re-
spect 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—
(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 at the end the following flush sen-
tence:
‘‘The Secretary may waive the requirement of a bond under
subparagraph (I) in the case of a facility that provides 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 following:
‘‘and provides the Secretary, to the extent required by
the Secretary, on a continuing basis with a surety
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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 Sec-
retary 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.’’.
(f) EFFECTIVE DATES.—
(1) SUPPLIERS
OF
DURABLE
MEDICAL
EQUIP-
MENT.—The amendment made by subsection (a) shall
apply to suppliers of durable medical equipment with
respect to such equipment furnished on or after Janu-
ary 1, 1998.
(2) HOME HEALTH AGENCIES.—The amendments
made by subsection (b) shall apply to home health
agencies with respect to services furnished on or after
January 1, 1998. The Secretary of Health and
Human Services shall modify participation agree-
ments under section 1866(a)(1) of the Social Security
Act (42 U.S.C. 1395cc(a)(1)) with respect to home
health agencies to provide for implementation of such
amendments on a timely basis.
(3) OTHER
AMENDMENTS.—The amendments
made by subsections (c) through (e) shall take effect
on the date of the enactment of this Act and may be
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an election, once made, shall continue in effect until
revoked.
‘‘(2) FORM.—The election form under this sub-
section shall include the following:
‘‘(A) A statement, signed by the individual
(or 
such 
individual’s 
legal 
representative),
that—
‘‘(i) the individual is conscientiously
opposed to acceptance of nonexcepted medi-
cal treatment; and
‘‘(ii) the individual’s acceptance of
nonexcepted medical treatment would be in-
consistent with the individual’s sincere reli-
gious beliefs.
‘‘(B) A statement that the receipt of non-ex-
cepted medical services shall constitute a revoca-
tion of the election and may limit further receipt
of services described in subsection (a).
‘‘(3) REVOCATION.—An election under this sub-
section by an individual may be revoked in a form
and manner specified by the Secretary and shall be
deemed to be revoked if the individual receives medi-
care reimbursable non-excepted medical treatment, re-
gardless of whether or not benefits for such treatment
are provided under this title.
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(A) in subsection (a)(2), by striking ‘‘(b)
and (e)’’ and inserting ‘‘(b), (c), and (f)’’,
(B) in the last sentence of subsection
(a)(3)—
(i) by inserting ‘‘rate’’ after ‘‘pre-
mium’’, and
(ii) by striking ‘‘and the derivation of
the dollar amounts specified in this para-
graph’’,
(C) by striking subsection (e), and
(D) by redesignating subsection (g) as sub-
section (e) and inserting that subsection after
subsection (d).
(2) SECTION
1844.—Subparagraphs (A)(i) and
(B)(i) of section 1844(a)(1) (42 U.S.C. 1395w(a)(1))
are each amended by striking ‘‘or 1839(e), as the case
may be’’.
SEC. 5542. INCOME-RELATED REDUCTION IN MEDICARE
SUBSIDY.
(a) IN GENERAL.—Section 1839 (42 U.S.C. 1395r) is
amended by adding at the end the following:
‘‘(h)(1) Notwithstanding the previous subsections of
this section, in the case of an individual whose modified
adjusted gross income for a taxable year ending with or
within a calendar year (as initially determined by the Sec-