357
Subtitle H, Part 1
tion to each home health agency that furnishes
an individual with a type of home health service
described in subsection (a)(2) to ensure that
aggregate payments on behalf of such individual
during such episode do not exceed the amount
that would be paid under this section if the in-
dividual received such services from a single
home health agency.
‘‘(3) LOW-COST
CASES.—The Secretary shall
develop a system designed to adjust payments to a
home health agency for a fiscal year to eliminate any
increase in growth of the percentage of low-cost epi-
sodes for which home health services are furnished
by the agency over such percentage determined for
the agency for the 12-month cost reporting period
ending on June 30, 1994. The Secretary shall define
a low-cost episode in a manner that provides that a
home health agency has an incentive to be cost effi-
cient in delivering home health services and that the
volume of such services does not increase as a result
of factors other than patient needs.
‘‘(f) REPORT BY MEDICARE PAYMENT REVIEW COM-
MISSION.—During the first 3 years in which payments are
made under this section, the Medicare Payment Review
Commission shall annually submit a report to Congress
358
Subtitle H, Part 1
on the effectiveness of the payment methodology estab-
lished under this section that shall include recommenda-
tions regarding the following:
‘‘(1) Case-mix and volume increases.
‘‘(2) Quality monitoring of home health agency
practices.
‘‘(3) Whether a capitated payment for home
care patients receiving care during a continuous pe-
riod exceeding 165 days is warranted.
‘‘(4) Whether public providers of service are
adequately reimbursed.
‘‘(5) The adequacy of the exemptions and ex-
ceptions to the limits provided under subsection
(c)(1)(E).
‘‘(6) The appropriateness of the methods pro-
vided under this section to adjust the per episode
limits and annual payment updates to reflect
changes in the mix of services, number of visits, and
assignment to case categories to reflect changing
patterns of home health care.
‘‘(7) The geographic areas used to determine
the per episode limits.’’.
(b) PAYMENT FOR PROSTHETICS AND ORTHOTICS
UNDER PART A.—Section 1814(k) (42 U.S.C. 1395f(k))
is amended—
359
Subtitle H, Part 1
(1) by inserting ‘‘and prosthetics and orthotics’’
after ‘‘durable medical equipment’’; and
(2) by inserting ‘‘and 1834(h), respectively’’
after ‘‘1834(a)(1)’’.
(c) CONFORMING AMENDMENTS.—
(1) 
PAYMENTS
UNDER
PART
A.—Section
1814(b) (42 U.S.C. 1395f(b)), as amended by sec-
tion 15522(b), is amended in the matter preceding
paragraph (1) by striking ‘‘1888 and 1888A’’ and
inserting ‘‘1888, 1888A, and 1894’’.
(2) TREATMENT OF ITEMS AND SERVICES PAID
UNDER PART B.—
(A) PAYMENTS UNDER PART B.—Section
1833(a)(2) (42 U.S.C. 1395l(a)(2)) is amend-
ed—
(i) by amending subparagraph (A) to
read as follows:
‘‘(A) with respect to home health serv-
ices—
‘‘(i) that are a type of home health
service described in section 1894(a)(2),
and which are furnished to an individual
who (at the time the item or service is fur-
nished) is under a plan of care of a home
360
Subtitle H, Part 1
health agency, the amount determined
under section 1894;
‘‘(ii) that are not described in clause
(i) (other than a covered osteoporosis
drug) (as defined in section 1861(kk)), the
lesser of—
‘‘(I) the reasonable cost of such
services, as determined under section
1861(v), or
‘‘(II) the customary charges with
respect to such services;’’.
(ii) by striking ‘‘and’’ at the end of
subparagraph (E);
(iii) by adding ‘‘and’’ at the end of
subparagraph (F); and
(iv) by adding at the end the following
new subparagraph:
‘‘(G) with respect to items and services de-
scribed in section 1861(s)(10)(A), the lesser
of—
‘‘(i) the reasonable cost of such serv-
ices, as determined under section 1861(v),
or
‘‘(ii) the customary charges with re-
spect to such services,
361
Subtitle H, Part 1
or, if such services are furnished by a public
provider of services, or by another provider
which demonstrates to the satisfaction of the
Secretary that a significant portion of its pa-
tients are low-income (and requests that pay-
ment be made under this provision), free of
charge or at nominal charges to the public, the
amount determined in accordance with section
1814(b)(2);’’.
(B) REQUIRING PAYMENT FOR ALL ITEMS
AND SERVICES TO BE MADE TO AGENCY.—
(i) IN GENERAL.—The first sentence
of 
section 
1842(b)(6) 
(42 
U.S.C.
1395u(b)(6)) is amended—
(I) by striking ‘‘and (D)’’ and in-
serting ‘‘(D)’’; and
(II) by striking the period at the
end and inserting the following: ‘‘,
and (E) in the case of types of home
health services described in section
1894(a)(2) furnished to an individual
who (at the time the item or service is
furnished) is under a plan of care of
a home health agency, payment shall
be made to the agency (without re-
362
Subtitle H, Part 1
gard to whether or not the item or
service was furnished by the agency,
by others under arrangement with
them made by the agency, or other-
wise).’’.
(ii) CONFORMING AMENDMENT.—Sec-
tion 1832(a)(1) (42 U.S.C. 1395k(a)(1)) is
amended by striking ‘‘(2);’’ and inserting
‘‘(2) and section 1842(b)(6)(E);’’.
(C) EXCLUSIONS FROM COVERAGE.—Sec-
tion 1862(a) (42 U.S.C. 1395y(a)), as amended
by section 15525(a)(2), is amended—
(i) by striking ‘‘or’’ at the end of
paragraph (15);
(ii) by striking the period at the end
of paragraph (16) and inserting ‘‘or’’; and
(iii) by adding at the end the follow-
ing new paragraph:
‘‘(17) where such expenses are for home health
services furnished to an individual who is under a
plan of care of the home health agency if the claim
for payment for such services is not submitted by
the agency.’’.
(3) SUNSET
OF
REASONABLE
COST
LIMITA-
TIONS.—Section 
1861(v)(1)(L) 
(42 
U.S.C.
363
Subtitle H, Part 1
1395x(v)(1)(L)) is amended by adding at the end
the following new clause:
‘‘(iv) This subparagraph shall apply only to services
furnished by home health agencies during cost reporting
periods ending on or before September 30, 1996.’’.
(c) EFFECTIVE DATE.—The amendments made by
subsections (a) and (b) shall apply to cost reporting peri-
ods beginning on or after October 1, 1996.
SEC. 15702. MAINTAINING SAVINGS RESULTING FROM TEM-
PORARY FREEZE ON PAYMENT INCREASES
FOR HOME HEALTH SERVICES.
(a) BASING UPDATES TO PER VISIT COST LIMITS ON
LIMITS
FOR
FISCAL
YEAR
1993.—Section
1861(v)(1)(L)(iii) (42 U.S.C. 1395x(v)(1)(L)(iii)) is
amended by adding at the end the following sentence: ‘‘In
establishing limits under this subparagraph, the Secretary
may not take into account any changes in the costs of
the provision of services furnished by home health agencies
with respect to cost reporting periods which began on or
after July 1, 1994, and before July 1, 1996.’’.
(b) NO EXCEPTIONS PERMITTED BASED ON AMEND-
MENT.—The Secretary of Health and Human Services
shall not consider the amendment made by subsection (a)
in making any exemptions and exceptions pursuant to sec-
tion 1861(v)(1)(L)(ii) of the Social Security Act.
364
Subtitle H, Part 2
SEC. 15703. EXTENSION OF WAIVER OF PRESUMPTION OF
LACK OF KNOWLEDGE OF EXCLUSION FROM
COVERAGE FOR HOME HEALTH AGENCIES.
Section 9305(g)(3) of OBRA–1986, as amended by
section 426(d) of the Medicare Catastrophic Coverage Act
of 1988 and section 4207(b)(3) of OBRA–1990 (as re-
numbered by section 160(d)(4) of the Social Security Act
Amendments of 1994), is amended by striking ‘‘December
31, 1995’’ and inserting ‘‘September 30, 1996’’.
PART 2—MEDICARE SECONDARY PAYER
IMPROVEMENTS
SEC. 15711. EXTENSION AND EXPANSION OF EXISTING RE-
QUIREMENTS.
(a) DATA MATCH.—
(1) 
Section 
1862(b)(5)(C) 
(42 
U.S.C.
1395y(b)(5)(C)) is amended by striking clause (iii).
(2) Section 6103(l)(12) of the Internal Revenue
Code of 1986 is amended by striking subparagraph
(F).
(b) APPLICATION
TO DISABLED INDIVIDUALS
IN
LARGE GROUP HEALTH PLANS.—
(1) IN GENERAL.—Section 1862(b)(1)(B) (42
U.S.C. 1395y(b)(1)(B)) is amended—
(A) in clause (i), by striking ‘‘clause (iv)’’
and inserting ‘‘clause (iii)’’,
(B) by striking clause (iii), and
365
Subtitle H, Part 2
(C) by redesignating clause (iv) as clause
(iii).
(2) CONFORMING
AMENDMENTS.—Paragraphs
(1) through (3) of section 1837(i) (42 U.S.C.
1395p(i)) and the second sentence of section
1839(b) (42 U.S.C. 1395r(b)) are each amended by
striking ‘‘1862(b)(1)(B)(iv)’’ each place it appears
and inserting ‘‘1862(b)(1)(B)(iii)’’.
(c) EXPANSION OF PERIOD OF APPLICATION TO IN-
DIVIDUALS WITH END STAGE RENAL DISEASE.—Section
1862(b)(1)(C) (42 U.S.C. 1395y(b)(1)(C)) is amended—
(1) in the first sentence, by striking ‘‘12-
month’’ each place it appears and inserting ‘‘24-
month’’, and
(2) by striking the second sentence.
SEC. 15712. IMPROVEMENTS IN RECOVERY OF PAYMENTS.
(a) PERMITTING RECOVERY AGAINST THIRD PARTY
ADMINISTRATORS
OF
PRIMARY
PLANS.—Section
1862(b)(2)(B)(ii) (42 U.S.C. 1395y(b)(2)(B)(ii)) is
amended—
(1) by striking ‘‘under this subsection to pay’’
and inserting ‘‘(directly, as a third-party adminis-
trator, or otherwise) to make payment’’, and
(2) by adding at the end the following: ‘‘The
United States may not recover from a third-party
366
Subtitle H, Part 2
administrator under this clause in cases where the
third-party administrator would not be able to re-
cover the amount at issue from the employer or
group health plan for whom it provides administra-
tive services due to the insolvency or bankruptcy of
the employer or plan.’’.
(b) EXTENSION OF CLAIMS FILING PERIOD.—Sec-
tion 1862(b)(2)(B) (42 U.S.C. 1395y(b)(2)(B)) is amend-
ed by adding at the end the following new clause:
‘‘(vi) CLAIMS-FILING
PERIOD.—Not-
withstanding any other time limits that
may exist for filing a claim under an em-
ployer group health plan, the United
States may seek to recover conditional pay-
ments in accordance with this subpara-
graph where the request for payment is
submitted to the entity required or respon-
sible under this subsection to pay with re-
spect to the item or service (or any portion
thereof) under a primary plan within the
3-year period beginning on the date on
which the item or service was furnished.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after the date of the enactment of this Act.
367
Subtitle H, Part 3
SEC. 15713. PROHIBITING RETROACTIVE APPLICATION OF
POLICY REGARDING ESRD BENEFICIARIES
ENROLLED IN PRIMARY PLANS.
For purposes of carrying out section 1862(b)(1)(C)
of the Social Security Act, the Secretary of Health and
Human Services shall apply the policy directive issued by
the Administrator of the Health Care Financing Adminis-
tration on April 24, 1995, only with respect to items and
services furnished on or after such date.
PART 3—FAILSAFE
SEC. 15721. FAILSAFE BUDGET MECHANISM.
(a) IN GENERAL.—Title XVIII, as amended by sec-
tions 15106(a) and 15701(a), is amended by adding at
the end the following new section:
‘‘FAILSAFE BUDGET MECHANISM
‘‘SEC. 1895. (a) REQUIREMENT OF PAYMENT AD-
JUSTMENTS
TO
ACHIEVE
MEDICARE
BUDGET
TAR-
GETS.—
‘‘(1) IN GENERAL.—If the Secretary determines
under subsection (e)(3)(C) before a fiscal year (be-
ginning with fiscal year 1998) that—
‘‘(A) the fee-for-service expenditures (as
defined in subsection (f)) for a sector of medi-
care services (as defined in subsection (b)) for
the fiscal year, will exceed
368
Subtitle H, Part 3
‘‘(B) the allotment specified under sub-
section (c)(2) for such fiscal year (taking into
account any adjustment in the allotment under
subsection (h) for that fiscal year),
then, notwithstanding any other provision of this
title, there shall be an adjustment (consistent with
subsection (d)) in applicable payment rates or pay-
ments for items and services included in the sector
in the fiscal year so that such expenditures for the
sector for the year will be reduced by 1331⁄3 percent
of the amount of such excess.
‘‘(b) 
SECTORS
OF
MEDICARE
SERVICES
DE-
SCRIBED.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, items and services included under each of the
following subparagraphs shall be considered to be a
separate ‘sector’ of medicare services:
‘‘(A) Inpatient hospital services.
‘‘(B) Home health services.
‘‘(C) Extended care services (for inpatients
of skilled nursing facilities).
‘‘(D) Hospice care.
‘‘(E) Physicians’ services (including serv-
ices 
and 
supplies 
described 
in 
section
1861(s)(2)(A)) and services of other health care
369
Subtitle H, Part 3
professionals 
(including 
certified 
registered
nurse anesthetists, nurse practitioners, physi-
cian assistants, and clinical psychologists) for
which separate payment is made under this
title.
‘‘(F) Outpatient hospital services and am-
bulatory facility services.
‘‘(G) Durable medical equipment and sup-
plies, including prosthetic devices and orthotics.
‘‘(H) Diagnostic tests (including clinical
laboratory services and x-ray services).
‘‘(I) Other items and services.
‘‘(2) CLASSIFICATION
OF
ITEMS
AND
SERV-
ICES.—The Secretary shall classify each type of
items and services covered and paid for separately
under this title into one of the sectors specified in
paragraph (1). After publication of such classifica-
tion under subsection (e)(1), the Secretary is not au-
thorized to make substantive changes in such classi-
fication.
‘‘(c) ALLOTMENT.—
‘‘(1) ALLOTMENTS
FOR
EACH
SECTOR.—For
purposes of this section, subject to subsection (h)(1),
the allotment for a sector of medicare services for a
fiscal year is equal to the product of—
370
Subtitle H, Part 3
‘‘(A) the total allotment for the fiscal year
established under paragraph (2), and
‘‘(B) the allotment proportion (specified
under paragraph (3)) for the sector and fiscal
year involved.
‘‘(2) TOTAL ALLOTMENT.—
‘‘(A) IN GENERAL.—For purposes of this
section, the total allotment for a fiscal year is
equal to—
‘‘(i) the medicare benefit budget for
the fiscal year (as specified under subpara-
graph (B)), reduced by
‘‘(ii) the amount of payments the Sec-
retary estimates will be made in the fiscal
year under the MedicarePlus program
under part C.
In making the estimate under clause (ii), the
Secretary shall take into account estimated en-
rollment and demographic profile of individuals
electing MedicarePlus products.
‘‘(B) MEDICARE BENEFIT BUDGET.—For
purposes of this subsection, subject to subpara-
graph (C), the ‘medicare benefit budget’—
‘‘(i) for fiscal year 1997 is $203.1 bil-
lion;
371
Subtitle H, Part 3
‘‘(ii) for fiscal year 1998 is $214.3
billion;
‘‘(iii) for fiscal year 1999 is $227.2
billion;
‘‘(iv) for fiscal year 2000 is $241.0
billion;
‘‘(v) for fiscal year 2001 is $259.1 bil-
lion;
‘‘(vi) for fiscal year 2002 is $280.0
billion; and
‘‘(vi) for a subsequent fiscal year is
equal to the medicare benefit budget under
this subparagraph for the preceding fiscal
year increased by the sum of (I) 5 percent-
age points, and (II) the annual percentage
increase in the average number of medi-
care beneficiaries from the previous fiscal
year to the fiscal year involved.
‘‘(3) MEDICARE ALLOTMENT PROPORTION DE-
FINED.—
‘‘(A) IN GENERAL.—For purposes of this
section and with respect to a sector of medicare
services for a fiscal year, the term ‘medicare al-
lotment proportion’ means the ratio of—
372
Subtitle H, Part 3
‘‘(i) the baseline-projected medicare
expenditures (as determined under sub-
paragraph (B)) for the sector for the fiscal
year, to
‘‘(ii) the sum of such baseline expendi-
tures for all such sectors for the fiscal
year.
‘‘(B) 
BASELINE-PROJECTED
MEDICARE
EXPENDITURES.—In this paragraph, the ‘base-
line, projected medicare expenditures’ for a sec-
tor of medicare services—
‘‘(i) for fiscal year 1996 is equal to
fee-for-service expenditures for such sector
during fiscal year 1995, increased by the
baseline annual growth rate for such sector
of medicare services for fiscal year 1996
(as specified in table in subparagraph (C));
and
‘‘(ii) for a subsequent fiscal year is
equal to the baseline-projected medicare
expenditures under this subparagraph for
the sector for the previous fiscal year in-
creased by the baseline annual growth rate
for such sector for the fiscal year involved
(as specified in such table).
373
Subtitle H, Part 3
‘‘(C) 
BASELINE
ANNUAL
GROWTH
RATES.—The following table specifies the base-
line annual growth rates for each of the sectors
for different fiscal years:
‘‘For the following sector—
Baseline annual growth rates for fiscal year—
1996
1997
1998
1999
2000
2001
2002
and
there-
after
(A) Inpatient hospital services .........
5.7%
5.6%
6.0%
6.1%
5.7%
5.5%
5.2%
(B) Home health services .................
17.2%
15.1%
11.7%
9.1%
8.4%
8.1%
7.9%
(C) Extended care services ..............
19.7%
12.3%
9.3%
8.7%
8.6%
8.4%
8.0%
(D) Hospice care ..............................
32.0%
24.0%
18.0%
15.0%
12.0%
10.0%
9.0%
(E) Physicians’ services ...................
12.4%
9.7%
8.7%
9.0%
9.3%
9.6%
10.1%
(F) Outpatient hospital services ......
14.7%
13.9%
14.5%
15.0%
14.1%
13.9%
14.0%
(G) Durable medical equipment and
supplies .............................................
16.1%
15.5%
13.7%
12.4%
13.2%
13.9%
14.5%
(H) Diagnostic tests .........................
13.1%
11.3%
11.0%
11.4%
11.4%
11.5%
11.9%
(I) Other items and services ............
11.2%
10.2%
10.9%
12.0%
11.6%
11.6%
11.8%
‘‘(d) MANNER OF PAYMENT ADJUSTMENT.—
‘‘(1) IN GENERAL.—Subject to the succeeding
provisions of this subsection, the Secretary shall
apply a payment reduction for a sector for a fiscal
year in such a manner as to—
‘‘(A) make a change in payment rates (to
the maximum extent practicable) at the time
payment rates are otherwise changed or subject
to change for that fiscal year; and
‘‘(B) provide for the full appropriate ad-
justment so that the fee-for-service expenditures
for the sector for the fiscal year will approxi-
mate (and not exceed) the allotment for the sec-
tor for the fiscal year.
375
Subtitle H, Part 3
different classes of items and services included with-
in the sector for the fiscal year.
‘‘(4) APPLICATION TO PAYMENTS MADE BASED
ON PROSPECTIVE PAYMENT RATES DETERMINED ON
A FISCAL YEAR BASIS.—
‘‘(A) IN GENERAL.—In applying subsection
(a) with respect to items and services for which
payment is made under part A or B on the
basis of rates that are established on a prospec-
tive basis for (and in advance of) a fiscal year,
the Secretary shall provide for the payment ad-
justment under such subsection through an ap-
propriate reduction in such rates established for
items and services furnished (or, in the case of
payment for operating costs of inpatient hos-
pital services of subsection (d) hospitals and
subsection (d) Puerto Rico hospitals (as defined
in paragraphs (1)(B) and (9)(A) of section
1886(d)), discharges occurring) during such
year.
‘‘(B) DESCRIPTION
OF
APPLICATION
TO
SPECIFIC SERVICES.—The payment adjustment
described in subparagraph (A) applies for a fis-
cal year to at least the following:
376
Subtitle H, Part 3
‘‘(i) UPDATE FACTOR FOR PAYMENT
FOR
OPERATING
COSTS
OF
INPATIENT
HOSPITAL SERVICES OF PPS HOSPITALS.—
To the computation of the applicable per-
centage 
increase 
specified 
in 
section
1886(d)(3)(B)(i) for discharges occurring
in the fiscal year.
‘‘(ii) HOME
HEALTH
SERVICES.—To
the extent payment amounts for home
health services are based on per visit pay-
ment rates under section 1894, to the com-
putation of the increase in the national per
visit payment rates established for the year
under section 1894(b)(2)(B).
‘‘(iii) HOSPICE CARE.—To the update
of payment rates for hospice care under
section 1814(i) for services furnished dur-
ing the fiscal year.
‘‘(iv) UPDATE FACTOR FOR PAYMENT
OF OPERATING COSTS OF INPATIENT HOS-
PITAL
SERVICES
OF
PPS-EXEMPT
HOS-
PITALS.—To the computation of the target
amount under section 1886(b)(3) for dis-
charges occurring during the fiscal year.
377
Subtitle H, Part 3
‘‘(v) COVERED
NON-ROUTINE
SERV-
ICES OF SKILLED NURSING FACILITIES.—
To the computation of the facility per stay
limits for the year under section 1888A(d)
for covered non-routine services of a skilled
nursing facility (as described in such sec-
tion).
‘‘(5) APPLICATION TO PAYMENTS MADE BASED
ON PROSPECTIVE PAYMENT RATES DETERMINED ON
A CALENDAR YEAR BASIS.—
‘‘(A) IN GENERAL.—In applying subsection
(a) for a fiscal year with respect to items and
services for which payment is made under part
A or B on the basis of rates that are estab-
lished on a prospective basis for (and in ad-
vance of) a calendar year, the Secretary shall
provide for the payment adjustment under such
subsection through an appropriate reduction in
such rates established for items and services
furnished at any time during such calendar
year as follows:
‘‘(i) For fiscal year 1997, the reduc-
tion shall be made for payment rates dur-
ing calendar year 1997 in a manner so as
to achieve the necessary payment reduc-
378
Subtitle H, Part 3
tions for such fiscal year for items and
services furnished during the first 3 quar-
ters of calendar year 1997.
‘‘(ii) For a subsequent fiscal year, the
reduction shall be made for payment rates
during the calendar year in which the fis-
cal year ends in a manner so as to achieve
the necessary payment reductions for such
fiscal year for items and services furnished
during the first 3 quarters of the calendar
year, but also taking into account the pay-
ment reductions made in the first quarter
of the fiscal year resulting from payment
reductions made under this paragraph for
the previous calendar year.
‘‘(iii) Payment rate reductions ef-
fected under this subparagraph for a cal-
endar year and applicable to the last 3
quarters of the fiscal year in which the cal-
endar year ends shall continue to apply
during the first quarter of the succeeding
fiscal year.
‘‘(B) APPLICATION IN SPECIFIC CASES.—
The payment adjustment described in subpara-
379
Subtitle H, Part 3
graph (A) applies for a fiscal year to at least
the following:
‘‘(i) UPDATE IN CONVERSION FACTOR
FOR PHYSICIANS’ SERVICES.—To the com-
putation of the conversion factor under
subsection (d) of section 1848 used in the
fee schedule established under subsection
(b) of such section, for items and services
furnished during the calendar year in
which the fiscal year ends.
‘‘(ii) PAYMENT
RATES
FOR
OTHER
HEALTH
CARE
PROFESSIONALS.—To the
computation of payments for professional
services of certified registered nurse anes-
thetists under section 1833(l), nurse mid-
wives, physician assistants, nurse practi-
tioners and clinical nurse specialists under
section 1833(r), clinical psychologists, clin-
ical social workers, physical or occupational
therapists, and any other health profes-
sionals for which payment rates are based
(in whole or in part) on payments for phy-
sicians’ services, for services furnished dur-
ing the calendar year in which the fiscal
year ends.
380
Subtitle H, Part 3
‘‘(iii) UPDATE
IN
LAB
FEE
SCHED-
ULE.—To the computation of the fee
schedule amount under section 1833(h)(2)
for clinical diagnostic laboratory services
furnished during the calendar year in
which the fiscal year ends.
‘‘(iv) 
UPDATE
IN
REASONABLE
CHARGES
FOR
VACCINES.—To the com-
putation of the reasonable charge for vac-
cines described in section 1861(s)(10) for
vaccines furnished during the calendar
year in which the fiscal year ends.
‘‘(v) DURABLE MEDICAL EQUIPMENT-
RELATED ITEMS.—To the computation of
the 
payment 
basis 
under 
section
1834(a)(1)(B) for covered items described
in section 1834(a)(13), for items furnished
during the calendar year in which the fis-
cal year ends.
‘‘(vi) 
RADIOLOGIST
SERVICES.—To
the computation of conversion factors for
radiologist services under section 1834(b),
for services furnished during the calendar
year in which the fiscal year ends.
381
Subtitle H, Part 3
‘‘(vii) SCREENING
MAMMOGRAPHY.—
To the computation of payment rates for
screening mammography under section
1834(c)(1)(C)(ii), for screening mammog-
raphy performed during the calendar year
in which the fiscal year ends.
‘‘(viii) 
PROSTHETICS
AND
ORTHOTICS.—To the computation of the
amount to be recognized under section
1834(h) for payment for prosthetic devices
and orthotics and prosthetics, for items
furnished during the calendar year in
which the fiscal year ends.
‘‘(ix) SURGICAL DRESSINGS.—To the
computation of the payment amount re-
ferred to in section 1834(i)(1)(B) for sur-
gical dressings, for items furnished during
the calendar year in which the fiscal year
ends.
‘‘(x) PARENTERAL AND ENTERAL NU-
TRITION.—To the computation of reason-
able charge screens for payment for paren-
teral and enteral nutrition under section
1834(h), for nutrients furnished during the
calendar year in which the fiscal year ends.
382
Subtitle H, Part 3
‘‘(xi) AMBULANCE SERVICES.—To the
computation 
of 
limits 
on 
reasonable
charges for ambulance services, for services
furnished during the calendar year in
which the fiscal year ends.
‘‘(6) APPLICATION TO PAYMENTS MADE BASED
ON COSTS DURING A COST REPORTING PERIOD.—
‘‘(A) IN GENERAL.—In applying subsection
(a) for a fiscal year with respect to items and
services for which payment is made under part
A or B on the basis of costs incurred for items
and services in a cost reporting period, the Sec-
retary shall provide for the payment adjustment
under such subsection for a fiscal year through
a appropriate proportional reduction in the pay-
ment for costs for such items and services in-
curred at any time during each cost reporting
period any part of which occurs during the fis-
cal year involved, but only (for each such cost
reporting period) in the same proportion as the
fraction of the cost reporting period that occurs
during the fiscal year involved.
‘‘(B) APPLICATION IN SPECIFIC CASES.—
The payment adjustment described in subpara-
383
Subtitle H, Part 3
graph (A) applies for a fiscal year to at least
the following:
‘‘(i) CAPITAL-RELATED
COSTS
OF
HOSPITAL SERVICES.—To the computation
of payment amounts for inpatient and out-
patient hospital services under sections
1886(g) and 1861(v) for portions of cost
reporting periods occurring during the fis-
cal year.
‘‘(ii) OPERATING COSTS FOR PPS-EX-
EMPT HOSPITALS.—To the computation of
payment amounts under section 1886(b)
for operating costs of inpatient hospital
services of pps-exempt hospitals for por-
tions of cost reporting periods occurring
during the fiscal year.
‘‘(iii) DIRECT
GRADUATE
MEDICAL
EDUCATION.—To the computation of pay-
ment amounts under section 1886(h) for
reasonable costs of direct graduate medical
education costs for portions of cost report-
ing periods occurring during the fiscal
year.
‘‘(iv) INPATIENT
RURAL
PRIMARY
CARE HOSPITAL SERVICES.—To the com-
384
Subtitle H, Part 3
putation of payment amounts under sec-
tion 1814(j) for inpatient rural primary
care hospital services for portions of cost
reporting periods occurring during the fis-
cal year.
‘‘(v) EXTENDED CARE SERVICES OF A
SKILLED NURSING FACILITY.—To the com-
putation of payment amounts under sec-
tion 1861(v) for post-hospital extended
care services of a skilled nursing facility
(other than covered non-routine services
subject to section 1888A) for portions of
cost reporting periods occurring during the
fiscal year.
‘‘(vi) 
REASONABLE
COST
CON-
TRACTS.—To the computation of payment
amounts under section 1833(a)(1)(A) for
organizations for portions of cost reporting
periods occurring during the fiscal year.
‘‘(vii) HOME
HEALTH
SERVICES.—
Subject to paragraph (4)(B)(ii), for pay-
ment amounts for home health services, for
portions of cost reporting periods occurring
during such fiscal year.
385
Subtitle H, Part 3
‘‘(7) OTHER.—In applying subsection (a) for a
fiscal year with respect to items and services for
which payment is made under part A or B on a
basis not described in a previous paragraph of this
subsection, the Secretary shall provide for the pay-
ment adjustment under such subsection through a
appropriate proportional reduction in the payments
(or payment bases for items and services furnished)
during the fiscal year.
‘‘(8) ADJUSTMENT OF PAYMENT LIMITS.—The
Secretary shall provide for such proportional adjust-
ment in any limits on payment established under
part A or B for payment for items and services with-
in a sector as may be appropriate based on (and in
order to properly carry out) the adjustment on the
amount of payment under this subsection in the sec-
tor.
‘‘(9) REFERENCES TO PAYMENT RATES.—Ex-
cept as the Secretary may provide, any reference in
this title (other than this section) to a payment rate
is deemed a reference to such a rate as adjusted
under this subsection.
‘‘(e) PUBLICATION OF DETERMINATIONS; JUDICIAL
REVIEW.—
386
Subtitle H, Part 3
‘‘(1) ONE-TIME PUBLICATION OF SECTORS AND
GENERAL PAYMENT ADJUSTMENT METHODOLOGY.—
Not later than October 1, 1996, the Secretary shall
publish in the Federal Register the classification of
medicare items and services into the sectors of medi-
care services under subsection (b) and the general
methodology to be used in applying payment adjust-
ments to the different classes of items and services
within the sectors.
‘‘(2) INCLUSION
OF
INFORMATION
IN
PRESI-
DENT’S BUDGET.—
‘‘(A) IN GENERAL.—With respect to fiscal
years beginning with fiscal year 1999, the
President shall include in the budget submitted
under section 1105 of title 31, United States
Code, information on—
‘‘(i) the fee-for-service expenditures,
within each sector, for the second previous
fiscal year, and how such expenditures
compare to the adjusted sector allotment
for that sector for that fiscal year; and
‘‘(ii) actual annual growth rates for
fee-for-service expenditures in the different
sectors in the second previous fiscal year.
387
Subtitle H, Part 3
‘‘(B) 
RECOMMENDATIONS
REGARDING
GROWTH FACTORS.—The President may include
in such budget for a fiscal year (beginning with
fiscal year 1998) recommendations regarding
percentages that should be applied (for one or
more fiscal years beginning with that fiscal
year) instead of the baseline annual growth
rates under subsection (c)(3)(C). Such rec-
ommendations shall take into account medically
appropriate practice patterns.
‘‘(3) DETERMINATIONS CONCERNING PAYMENT
ADJUSTMENTS.—
‘‘(A) RECOMMENDATIONS
OF
COMMIS-
SION.—By not later than March 1 of each year
(beginning with 1997), the Medicare Payment
Review Commission shall submit to the Sec-
retary and the Congress a report that analyzes
the previous operation (if any) of this section
and that includes recommendations concerning
the manner in which this section should be ap-
plied for the following fiscal year.
‘‘(B) 
PRELIMINARY
NOTICE
BY
SEC-
RETARY.—Not later than May 15 preceding the
beginning of each fiscal year (beginning with
fiscal year 1998), the Secretary shall publish in
388
Subtitle H, Part 3
the Federal Register a notice containing the
Secretary’s preliminary determination, for each
sector of medicare services, concerning the fol-
lowing:
‘‘(i) The projected allotment under
subsection (c) for such sector for the fiscal
year.
‘‘(ii) Whether there will be a payment
adjustment for items and services included
in such sector for the fiscal year under
subsection (a).
‘‘(iii) If there will be such an adjust-
ment, the size of such adjustment and the
methodology to be used in making such a
payment adjustment for classes of items
and services included in such sector.
‘‘(iv) Beginning with fiscal year 1999,
the fee-for-service expenditures for such
sector for the second preceding fiscal year.
Such notice shall include an explanation of the
basis for such determination. Determinations
under this subparagraph and subparagraph (C)
shall be based on the best data available at the
time of such determinations.
389
Subtitle H, Part 3
‘‘(C) FINAL
DETERMINATION.—Not later
than September 1 preceding the beginning of
each fiscal year (beginning with fiscal year
1998), the Secretary shall publish in the Fed-
eral Register a final determination, for each
sector of medicare services, concerning the mat-
ters described in subparagraph (B) and an ex-
planation of the reasons for any differences be-
tween such determination and the preliminary
determination for such fiscal year published
under subparagraph (B).
‘‘(4) LIMITATION ON ADMINISTRATIVE OR JUDI-
CIAL REVIEW.—There shall be no administrative or
judicial review under section 1878 or otherwise of—
‘‘(A) the classification of items and serv-
ices among the sectors of medicare services
under subsection (b),
‘‘(B) the determination of the amounts of
allotments for the different sectors of medicare
services under subsection (c),
‘‘(C) the determination of the amount (or
method of application) of any payment adjust-
ment under subsection (d), or
‘‘(D) any adjustment in an allotment ef-
fected under subsection (h).
390
Subtitle H, Part 3
‘‘(f) FEE-FOR-SERVICE EXPENDITURES DEFINED.—
In this section, the term ‘fee-for-service expenditures’, for
items and services within a sector of medicare services in
a fiscal year, means amounts payable for such items and
services which are furnished during the fiscal year, and—
‘‘(1) includes types of expenses otherwise reim-
bursable under parts A and B (including administra-
tive costs incurred by organizations described in sec-
tions 1816 and 1842) with respect to such items and
services, and
‘‘(2) does not include amounts paid under part
C.
‘‘(g) EXPEDITED PROCESS
FOR ADJUSTMENT
OF
SECTOR GROWTH RATES.—
‘‘(1) OPTIONAL
INCLUSION
OF
LEGISLATIVE
PROPOSAL.—The President may include in rec-
ommendations under subsection (e)(2)(B) submitted
with respect to a fiscal year a specific legislative pro-
posal that provides only for the substitution of per-
centages specified in the proposal for one or more of
the baseline annual growth rates (specified in the
table in subsection (c)(3)(C) or in a previous legisla-
tive proposal under this subsection) for that fiscal
year or any subsequent fiscal year.
‘‘(2) CONGRESSIONAL CONSIDERATION.—
391
Subtitle H, Part 3
‘‘(A) IN GENERAL.—The percentages con-
tained in a legislative proposal submitted under
paragraph (1) shall apply under this section if
a joint resolution (described in subparagraph
(B)) approving such proposal is enacted, in ac-
cordance with the provisions of subparagraph
(C), before the end of the 60-day period begin-
ning on the date on which such proposal was
submitted. For purposes of applying the preced-
ing sentence and subparagraphs (B) and (C),
the days on which either House of Congress is
not in session because of an adjournment of
more than three days to a day certain shall be
excluded in the computation of a period.
‘‘(B) JOINT RESOLUTION OF APPROVAL.—
A joint resolution described in this subpara-
graph means only a joint resolution which is in-
troduced within the 10-day period beginning on
the date on which the President submits a pro-
posal under paragraph (1) and—
‘‘(i) which does not have a preamble;
‘‘(ii) the matter after the resolving
clause of which is as follows: ‘That Con-
gress approves the proposal of the Presi-
dent providing for substitution of percent-
392
Subtitle H, Part 3
ages for certain baseline annual growth
rates under section 1895 of the Social Se-
curity Act, as submitted by the President
on lllllll.’, the blank space
being filled in with the appropriate date;
and
‘‘(iii) the title of which is as follows:
‘Joint resolution approving Presidential
proposal to substitute certain specified per-
centages for baseline annual growth rates
under section 1895 of the Social Security
Act, as submitted by the President on
lllllll.’, the blank space being
filled in with the appropriate date.
‘‘(C) PROCEDURES
FOR
CONSIDERATION
OF
RESOLUTION
OF
APPROVAL.—Subject to
subparagraph (D), the provisions of section
2908 (other than subsection (a)) of the Defense
Base Closure and Realignment Act of 1990
shall apply to the consideration of a joint reso-
lution described in subparagraph (B) in the
same manner as such provisions apply to a joint
resolution described in section 2908(a) of such
Act.
393
Subtitle H, Part 3
‘‘(D) SPECIAL
RULES.—For purposes of
applying subparagraph (C) with respect to such
provisions—
‘‘(i) any reference to the Committee
on Armed Services of the House of Rep-
resentatives shall be deemed a reference to
an appropriate Committee of the House of
Representatives (specified by the Speaker
of the House of Representatives at the
time of submission of a legislative proposal
under paragraph (1)) and any reference to
the Committee on Armed Services of the
Senate shall be deemed a reference to the
Committee on Finance of the Senate; and
‘‘(ii) any reference to the date on
which the President transmits a report
shall be deemed a reference to the date on
which the President submits the legislative
proposal under paragraph (1).
‘‘(h) LOOK-BACK ADJUSTMENT IN ALLOTMENTS TO
REFLECT ACTUAL EXPENDITURES.—
‘‘(1) IN GENERAL.—If the Secretary determines
under subsection (e)(3)(B) with respect to a particu-
lar fiscal year (beginning with fiscal year 1999) that
394
Subtitle H, Part 3
the fee-for-service expenditures for a sector of medi-
care services for the second preceding fiscal year—
‘‘(A) exceeded the adjusted allotment for
such sector for such year (as defined in para-
graph (2)), then the allotment for the sector for
the particular fiscal year shall be reduced by
1331⁄3 percent of the amount of such excess, or
‘‘(B) was less than the adjusted allotment
for such sector for such year, then the allot-
ment for the sector for the particular fiscal year
shall be increased by the amount of such defi-
cit.
‘‘(2) ADJUSTED ALLOTMENT.—The adjusted al-
lotment under this paragraph for a sector for a fis-
cal year is—
‘‘(A) the amount that would be computed
as the allotment under subsection (c) for the
sector for the fiscal year if the actual amount
of payments made in the fiscal year under the
MedicarePlus program under part C in the fis-
cal year were substituted for the amount de-
scribed in subsection (c)(2)(A)(ii) for that fiscal
year,
‘‘(B) adjusted to take into account the
amount of any adjustment under paragraph (1)
395
Subtitle H, Part 3
for that fiscal year (based on expenditures in
the second previous fiscal year).
‘‘(i) PROSPECTIVE APPLICATION OF CERTAIN NA-
TIONAL COVERAGE DETERMINATIONS.—In the case of a
national coverage determination that the Secretary
projects will result in significant additional expenditures
under this title (taking into account any substitution for
existing procedures or technologies), such determination
shall not become effective before the beginning of the fiscal
year that begins after the date of such determination and
shall apply to contracts under part C entered into (or re-
newed) after the date of such determination.’’.
(b) REPORT OF TRUSTEES ON GROWTH RATE IN
PART
A EXPENDITURES.—Section 1817 (42 U.S.C.
1395i) is amended by adding at the end the following new
subsection:
‘‘(k) Each annual report provided in subsection (b)(2)
shall include information regarding the annual rate of
growth in program expenditures that would be required
to maintain the financial solvency of the Trust Fund and
the extent to which the provisions of section 1895 restrain
the rate of growth of expenditures under this part in order
to achieve such solvency.’’.
396
Subtitle H, Part 4
PART 4—ADMINISTRATIVE SIMPLIFICATION
SEC. 15731. STANDARDS FOR MEDICARE INFORMATION
TRANSACTIONS AND DATA ELEMENTS.
Title XVIII, as amended by section 15031, is amend-
ed by inserting after section 1806 the following new sec-
tion:
‘‘STANDARDS FOR MEDICARE INFORMATION
TRANSACTIONS AND DATA ELEMENTS
‘‘SEC. 1807. (a) ADOPTION
OF STANDARDS
FOR
DATA ELEMENTS.—
‘‘(1) IN GENERAL.—Pursuant to subsection (b),
the Secretary shall adopt standards for information
transactions and data elements of medicare informa-
tion and modifications to the standards under this
section that are—
‘‘(A) consistent with the objective of reduc-
ing the administrative costs of providing and
paying for health care; and
‘‘(B) developed or modified by a standard
setting organization (as defined in subsection
(h)(8)).
‘‘(2) SPECIAL RULE RELATING TO DATA ELE-
MENTS.—The Secretary may adopt or modify a
standard relating to data elements that is different
from the standard developed by a standard setting
organization, if—
397
Subtitle H, Part 4
‘‘(A) the different standard or modification
will substantially reduce administrative costs to
health care providers and health plans com-
pared to the alternative; and
‘‘(B) the standard or modification is pro-
mulgated in accordance with the rulemaking
procedures of subchapter III of chapter 5 of
title 5, United States Code.
‘‘(3) SECURITY STANDARDS FOR HEALTH IN-
FORMATION NETWORK.—
‘‘(A) IN
GENERAL.—Each person, who
maintains or transmits medicare information or
data elements of medicare information and is
subject to this section, shall maintain reason-
able and appropriate administrative, technical,
and physical safeguards—
‘‘(i) to ensure the integrity and con-
fidentiality of the information;
‘‘(ii) to protect against any reasonably
anticipated—
‘‘(I) threats or hazards to the se-
curity or integrity of the information;
and
‘‘(II) unauthorized uses or disclo-
sures of the information; and
398
Subtitle H, Part 4
‘‘(iii) to otherwise ensure compliance
with this section by the officers and em-
ployees of such person.
‘‘(B) SECURITY
STANDARDS.—The Sec-
retary shall establish security standards and
modifications to such standards with respect to
medicare information network services, health
plans, and health care providers that—
‘‘(i) take into account—
‘‘(I) the technical capabilities of
record systems used to maintain medi-
care information;
‘‘(II) the costs of security meas-
ures;
‘‘(III) the need for training per-
sons who have access to medicare in-
formation; and
‘‘(IV) the value of audit trails in
computerized record systems; and
‘‘(ii) ensure that a medicare informa-
tion network service, if it is part of a larg-
er organization, has policies and security
procedures which isolate the activities of
such service with respect to processing in-
formation in a manner that prevents unau-
399
Subtitle H, Part 4
thorized access to such information by
such larger organization.
The security standards established by the Sec-
retary shall be based on the standards devel-
oped or modified by standard setting organiza-
tions. If such standards do not exist, the Sec-
retary shall rely on the recommendations of the
Health Information Advisory Committee (estab-
lished under subsection (g)) and shall consult
with appropriate government agencies and pri-
vate organizations in accordance with para-
graph (5).
‘‘(4) IMPLEMENTATION
SPECIFICATIONS.—The
Secretary shall establish specifications for imple-
menting each of the standards and the modifications
to the standards adopted pursuant to paragraph (1).
‘‘(5) ASSISTANCE
TO
THE
SECRETARY.—In
complying with the requirements of this section, the
Secretary shall rely on recommendations of the Med-
icare Information Advisory Committee established
under subsection (g) and shall consult with appro-
priate Federal and State agencies and private orga-
nizations. The Secretary shall publish in the Federal
Register the recommendations of the Medicare Infor-
400
Subtitle H, Part 4
mation Advisory Committee regarding the adoption
of a standard under this section.
‘‘(b) STANDARDS FOR INFORMATION TRANSACTIONS
AND DATA ELEMENTS.—
‘‘(1) IN GENERAL.—The Secretary shall adopt
standards for transactions and data elements to
make medicare information uniformly available to be
exchanged electronically, that is—
‘‘(A) appropriate for the following financial
and administrative transactions: claims (includ-
ing coordination of benefits) or equivalent en-
counter 
information, 
enrollment 
and
disenrollment, eligibility, premium payments,
and referral certification and authorization; and
‘‘(B) related to other financial and admin-
istrative transactions determined appropriate by
the Secretary consistent with the goals of im-
proving the operation of the health care system
and reducing administrative costs.
‘‘(2) UNIQUE HEALTH IDENTIFIERS.—
‘‘(A) ADOPTION
OF
STANDARDS.—The
Secretary shall adopt standards providing for a
standard unique health identifier for each indi-
vidual, employer, health plan, and health care
provider for use in the medicare information
401
Subtitle H, Part 4
system. In developing unique health identifiers
for each health plan and health care provider,
the Secretary shall take into account multiple
uses for identifiers and multiple locations and
specialty classifications for health care provid-
ers.
‘‘(B) PENALTY
FOR
IMPROPER
DISCLO-
SURE.—A person who knowingly uses or causes
to be used a unique health identifier under sub-
paragraph (A) for a purpose that is not author-
ized by the Secretary shall—
‘‘(i) be fined not more than $50,000,
imprisoned not more than 1 year, or both;
or
‘‘(ii) if the offense is committed under
false pretenses, be fined not more than
$100,000, imprisoned not more than 5
years, or both.
‘‘(3) CODE SETS.—
‘‘(A) IN GENERAL.—The Secretary, in con-
sultation with the Medicare Information Advi-
sory Committee, experts from the private sec-
tor, and Federal and State agencies, shall—
‘‘(i) select code sets for appropriate
data elements from among the code sets
402
Subtitle H, Part 4
that have been developed by private and
public entities; or
‘‘(ii) establish code sets for such data
elements if no code sets for the data ele-
ments have been developed.
‘‘(B) DISTRIBUTION.—The Secretary shall
establish efficient and low-cost procedures for
distribution (including electronic distribution) of
code sets and modifications made to such code
sets under subsection (c)(2).
‘‘(4) ELECTRONIC SIGNATURE.—
‘‘(A) IN GENERAL.—The Secretary, after
consultation with the Medicare Information Ad-
visory Committee, shall promulgate regulations
specifying procedures for the electronic trans-
mission and authentication of signatures, com-
pliance with which will be deemed to satisfy
Federal and State statutory requirements for
written signatures with respect to information
transactions required by this section and writ-
ten signatures on enrollment and disenrollment
forms.
‘‘(B) PAYMENTS FOR SERVICES AND PRE-
MIUMS.—Nothing in this section shall be con-
strued to prohibit the payment of health care
403
Subtitle H, Part 4
services or health plan premiums by debit, cred-
it, payment card or numbers, or other electronic
means.
‘‘(5) TRANSFER
OF
INFORMATION
BETWEEN
HEALTH PLANS.—The Secretary shall develop rules
and procedures—
‘‘(A) for determining the financial liability
of health plans when health care benefits are
payable under two or more health plans; and
‘‘(B) for transferring among health plans
appropriate standard data elements needed for
the coordination of benefits, the sequential
processing of claims, and other data elements
for individuals who have more than one health
plan.
‘‘(6) COORDINATION OF BENEFITS.—If, at the
end of the 5-year period beginning on the date of the
enactment of this section, the Secretary determines
that additional transaction standards for coordinat-
ing benefits are necessary to reduce administrative
costs or duplicative (or inappropriate) payment of
claims, the Secretary shall establish further trans-
action standards for the coordination of benefits be-
tween health plans.
404
Subtitle H, Part 4
‘‘(7) PROTECTION
OF
TRADE
SECRETS.—Ex-
cept as otherwise required by law, the standards
adopted under this section shall not require disclo-
sure of trade secrets or confidential commercial in-
formation by an entity operating a medicare infor-
mation network.
‘‘(c) TIMETABLES FOR ADOPTION OF STANDARDS.—
‘‘(1) INITIAL STANDARDS.—Not later than 18
months after the date of the enactment of this sec-
tion, the Secretary shall adopt standards relating to
the information transactions, data elements of medi-
care information and security described in sub-
sections (a) and (b).
‘‘(2) 
ADDITIONS
AND
MODIFICATIONS
TO
STANDARDS.—
‘‘(A) IN
GENERAL.—The Secretary shall
review the standards adopted under this section
and shall adopt additional or modified stand-
ards, that have been developed or modified by
a standard setting organization, as determined
appropriate, but not more frequently than once
every 12 months. Any addition or modification
to such standards shall be completed in a man-
ner which minimizes the disruption and cost of
compliance.
405
Subtitle H, Part 4
‘‘(B) ADDITIONS AND MODIFICATIONS TO
CODE SETS.—
‘‘(i) IN
GENERAL.—The Secretary
shall ensure that procedures exist for the
routine maintenance, testing, enhancement,
and expansion of code sets.
‘‘(ii) ADDITIONAL RULES.—If a code
set is modified under this paragraph, the
modified code set shall include instructions
on how data elements of medicare informa-
tion that were encoded prior to the modi-
fication may be converted or translated so
as to preserve the informational value of
the data elements that existed before the
modification. Any modification to a code
set under this paragraph shall be imple-
mented in a manner that minimizes the
disruption and cost of complying with such
modification.
‘‘(d) REQUIREMENTS FOR HEALTH PLANS.—
‘‘(1) IN GENERAL.—If a person desires to con-
duct any of the information transactions described
in subsection (b)(1) with a health plan as a standard
transaction, the health plan shall conduct such
standard transaction in a timely manner and the in-
406
Subtitle H, Part 4
formation transmitted or received in connection with
such transaction shall be in the form of standard
data elements of medicare information.
‘‘(2) SATISFACTION
OF
REQUIREMENTS.—A
health plan may satisfy the requirement imposed on
such plan under paragraph (1) by directly transmit-
ting standard data elements of medicare information
or submitting nonstandard data elements to a medi-
care information network service for processing into
standard data elements and transmission.
‘‘(3) TIMETABLES FOR COMPLIANCE WITH RE-
QUIREMENTS.—Not later than 24 months after the
date on which standards are adopted under sub-
sections (a) and (b) with respect to any type of in-
formation transaction or data element of medicare
information or with respect to security, a health plan
shall comply with the requirements of this section
with respect to such transaction or data element.
‘‘(4) COMPLIANCE
WITH
MODIFIED
STAND-
ARDS.—If the Secretary adopts a modified standard
under subsection (a) or (b), a health plan shall be
required to comply with the modified standard at
such time as the Secretary determines appropriate
taking into account the time needed to comply due
to the nature and extent of the modification. How-
407
Subtitle H, Part 4
ever, the time determined appropriate under the pre-
ceding sentence shall be not earlier than the last day
of the 180-day period beginning on the date such
modified standard is adopted. The Secretary may ex-
tend the time for compliance for small health plans,
if the Secretary determines such extension is appro-
priate.
‘‘(e) GENERAL PENALTY FOR FAILURE TO COMPLY
WITH REQUIREMENTS AND STANDARDS.—
‘‘(1) GENERAL PENALTY.—
‘‘(A) IN GENERAL.—Except as provided in
paragraph (2), the Secretary shall impose on
any person that violates a requirement or
standard—
‘‘(i) with respect to medicare informa-
tion transactions, data elements of medi-
care information, or security imposed
under subsection (a) or (b); or
‘‘(ii) with respect to health plans im-
posed under subsection (d);
a penalty of not more than $100 for each such
violation of a specific standard or requirement,
but the total amount imposed for all such viola-
tions of a specific standard or requirement dur-
ing the calendar year shall not exceed $25,000.
408
Subtitle H, Part 4
‘‘(B) PROCEDURES.—The provisions of
section 1128A (other than subsections (a) and
(b) and the second sentence of subsection (f))
shall apply to the imposition of a civil money
penalty under this paragraph in the same man-
ner as such provisions apply to the imposition
of a penalty under such section 1128A.
‘‘(C) DENIAL
OF
PAYMENT.—Except as
provided in paragraph (2), the Secretary may
deny payment under this title for an item or
service furnished by a person if the person fails
to comply with an applicable requirement or
standard for medicare information relating to
that item or service.
‘‘(2) LIMITATIONS.—
‘‘(A) 
NONCOMPLIANCE
NOT
DISCOV-
ERED.—A penalty may not be imposed under
paragraph (1) if it is established to the satisfac-
tion of the Secretary that the person liable for
the penalty did not know, and by exercising rea-
sonable diligence would not have known, that
such person failed to comply with the require-
ment or standard described in paragraph (1).
‘‘(B) FAILURES
DUE
TO
REASONABLE
CAUSE.—
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Subtitle H, Part 4
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), a penalty may not be
imposed under paragraph (1) if—
‘‘(I) the failure to comply was
due to reasonable cause and not to
willful neglect; and
‘‘(II) the failure to comply is cor-
rected during the 30-day period begin-
ning on the first date the person liable
for the penalty knew, or by exercising
reasonable 
diligence 
would 
have
known, that the failure to comply oc-
curred.
‘‘(ii) EXTENSION OF PERIOD.—
‘‘(I) NO
PENALTY.—The period
referred to in clause (i)(II) may be ex-
tended as determined appropriate by
the Secretary based on the nature and
extent of the failure to comply.
‘‘(II) ASSISTANCE.—If the Sec-
retary determines that a health plan
failed to comply because such plan
was unable to comply, the Secretary
may provide technical assistance to
such plan during the period described
410
Subtitle H, Part 4
in clause (i)(II). Such assistance shall
be provided in any manner determined
appropriate by the Secretary.
‘‘(C) REDUCTION.—In the case of a failure
to comply which is due to reasonable cause and
not to willful neglect, any penalty under para-
graph (1) that is not entirely waived under sub-
paragraph (B) may be waived to the extent that
the payment of such penalty would be excessive
relative to the compliance failure involved.
‘‘(f) EFFECT ON STATE LAW.—
‘‘(1) GENERAL EFFECT.—
‘‘(A) GENERAL RULE.—Except as provided
in subparagraph (B), a provision, requirement,
or standard under this section shall supersede
any contrary provision of State law, including a
provision of State law that requires medical or
health plan records (including billing informa-
tion) to be maintained or transmitted in written
rather than electronic form.
‘‘(B) EXCEPTIONS.—A provision, require-
ment, or standard under this section shall not
supersede a contrary provision of State law, if
the provision of State law—
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Subtitle H, Part 4
‘‘(i) provides requirements or stand-
ards that are more stringent than the re-
quirements or standards under this section
with respect to the privacy of individually
identifiable medicare information; or
‘‘(ii) is a provision the Secretary de-
termines is necessary to prevent fraud and
abuse with respect to controlled sub-
stances, or for other purposes.
‘‘(2) PUBLIC HEALTH REPORTING.—Nothing in
this section shall be construed to invalidate or limit
the authority, power, or procedures established
under any law providing for the reporting of disease
or injury, child abuse, birth, or death, public health
surveillance, or public health investigation or inter-
vention.
‘‘(g) MEDICARE INFORMATION ADVISORY COMMIT-
TEE.—
‘‘(1) ESTABLISHMENT.—There is established a
committee to be known as the Medicare Information
Advisory Committee (in this subsection referred to
as the ‘committee’).
‘‘(2) DUTIES.—The committee shall—
‘‘(A) advise the Secretary in the develop-
ment of standards under this section; and
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Subtitle H, Part 4
‘‘(B) be generally responsible for advising
the Secretary and the Congress on the status
and the future of the medicare information net-
work.
‘‘(3) MEMBERSHIP.—
‘‘(A) IN GENERAL.—The committee shall
consist of 9 members of whom—
‘‘(i) 3 shall be appointed by the Presi-
dent;
‘‘(ii) 3 shall be appointed by the
Speaker of the House of Representatives
after consultation with the minority leader
of the House of Representatives; and
‘‘(iii) 3 shall be appointed by the
President pro tempore of the Senate after
consultation with the minority leader of
the Senate.
The appointments of the members shall be
made not later than 60 days after the date of
the enactment of this section. The President
shall designate 1 member as the Chair.
‘‘(B) EXPERTISE.—The membership of the
committee shall consist of individuals who are
of recognized standing and distinction in the
areas of information systems, information
413
Subtitle H, Part 4
networking and integration, consumer health,
or health care financial management, and who
possess the demonstrated capacity to discharge
the duties imposed on the committee.
‘‘(C) TERMS.—Each member of the com-
mittee shall be appointed for a term of 5 years,
except that the members first appointed shall
serve staggered terms such that the terms of
not more than 3 members expire at one time.
‘‘(D) INITIAL
MEETING.—Not later than
30 days after the date on which a majority of
the members have been appointed, the commit-
tee shall hold its first meeting.
‘‘(4) REPORTS.—Not later than 1 year after the
date of the enactment of this section, and annually
thereafter, the committee shall submit to Congress
and the Secretary a report regarding—
‘‘(A) the extent to which entities using the
medicare information network are meeting the
standards adopted under this section and work-
ing together to form an integrated network that
meets the needs of its users;
‘‘(B) the extent to which such entities are
meeting the security standards established pur-
suant to this section and the types of penalties
414
Subtitle H, Part 4
assessed for noncompliance with such stand-
ards;
‘‘(C) any problems that exist with respect
to implementation of the medicare information
network; and
‘‘(D) the extent to which timetables under
this section are being met.
Reports made under this subsection shall be made
available to health care providers, health plans, and
other entities that use the medicare information net-
work to exchange medicare information.
‘‘(h) DEFINITIONS.—For purposes of this section:
‘‘(1) CODE SET.—The term ‘code set’ means
any set of codes used for encoding data elements,
such as tables of terms, enrollment information, and
encounter data.
‘‘(2) COORDINATION OF BENEFITS.—The term
‘coordination of benefits’ means determining and co-
ordinating the financial obligations of health plans
when health care benefits are payable under such a
plan and under this title (including under a
MedicarePlus product).
‘‘(3) 
MEDICARE
INFORMATION.—The 
term
‘medicare information’ means any information that
relates to the enrollment of individuals under this
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Subtitle H, Part 4
title (including information relating to elections of
MedicarePlus products under section 1805) and the
provision of health benefits (including benefits pro-
vided under such products) under this title.
‘‘(4) MEDICARE INFORMATION NETWORK.—The
term ‘medicare information network’ means the
medicare information system that is formed through
the application of the requirements and standards
established under this section.
‘‘(5) MEDICARE INFORMATION NETWORK SERV-
ICE.—The term ‘medicare information network serv-
ice’ means a public or private entity that—
‘‘(A) processes or facilitates the processing
of nonstandard data elements of medicare infor-
mation into standard data elements;
‘‘(B) provides the means by which persons
may meet the requirements of this section; or
‘‘(C) provides specific information process-
ing services.
‘‘(6) HEALTH PLAN.—The term ‘health plan’
means a plan which provides, or pays the cost of,
health benefits. Such term includes the following, or
any combination thereof:
‘‘(A) Part A or part B of this title, and in-
cludes a MedicarePlus product.
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Subtitle H, Part 4
‘‘(B) The medicaid program under title
XIX and the MediGrant program under title
XXI.
‘‘(C) A medicare supplemental policy (as
defined in section 1882(g)(1)).
‘‘(D) Worker’s compensation or similar in-
surance.
‘‘(E) Automobile or automobile medical-
payment insurance.
‘‘(F) A long-term care policy, other than a
fixed indemnity policy.
‘‘(G) The Federal Employees Health Bene-
fit Plan under chapter 89 of title 5, United
States Code.
‘‘(H) An employee welfare benefit plan, as
defined in section 3(1) of the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C.
1002(1)), but only to the extent the plan is es-
tablished or maintained for the purpose of pro-
viding health benefits.
‘‘(7) INDIVIDUALLY
IDENTIFIABLE
MEDICARE
INFORMATION.—The term ‘individually identifiable
medicare information’ means medicare enrollment
information, including demographic information col-
lected from an individual, that—
417
Subtitle H, Part 5
‘‘(A) is created or received by a health care
provider, health plan, employer, or medicare in-
formation network service, and
‘‘(B) identifies an individual.
‘‘(8) STANDARD SETTING ORGANIZATION.—The
term ‘standard setting organization’ means a stand-
ard setting organization accredited by the American
National Standards Institute.
‘‘(9) 
STANDARD
TRANSACTION.—The 
term
‘standard transaction’ means, when referring to an
information transaction or to data elements of medi-
care information, any transaction that meets the re-
quirements and implementation specifications adopt-
ed by the Secretary under subsections (a) and (b).’’.
PART 5—OTHER PROVISIONS RELATING TO
PARTS A AND B
SEC. 15741. CLARIFICATION OF MEDICARE COVERAGE OF
ITEMS AND SERVICES ASSOCIATED WITH
CERTAIN MEDICAL DEVICES APPROVED FOR
INVESTIGATIONAL USE.
(a) COVERAGE.—Nothing in title XVIII of the Social
Security Act may be construed to prohibit coverage under
part A or part B of the medicare program of items and
services associated with the use of a medical device in the
furnishing of inpatient or outpatient hospital services (in-
418
Subtitle H, Part 5
cluding outpatient diagnostic imaging services) for which
payment may be made under the program solely on the
grounds that the device is not an approved device, if—
(1) the device is an investigational device; and
(2) the device is used instead of either an ap-
proved device or a covered procedure.
(b) CLARIFICATION
OF PAYMENT AMOUNT.—Not-
withstanding any other provision of title XVIII of the So-
cial Security Act, the amount of payment made under the
medicare program for any item or service associated with
the use of an investigational device in the furnishing of
inpatient or outpatient hospital services (including out-
patient diagnostic imaging services) for which payment
may be made under the program may not exceed the
amount of the payment which would have been made
under the program for the item or service if the item or
service were associated with the use of an approved device
or a covered procedure.
(c) DEFINITIONS.—In this section—
(1) the term ‘‘approved device’’ means a medi-
cal device (or devices) which has been approved for
marketing under pre-market approval under the
Federal Food, Drug, and Cosmetic Act or cleared
for marketing under a 510(k) notice under such Act;
and
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Subtitle H, Part 5
(2) the term ‘‘investigational device’’ means—
(A) a medical device or devices (other than
a device described in paragraph (1)) approved
for investigational use under section 520(g) of
the Federal Food, Drug, and Cosmetic Act, or
(B) an investigational combination product
under section 503(g) of the Federal Food,
Drug, and Cosmetic Act which includes a device
(or devices) authorized for use under section
505(i) of such Act.
SEC. 15742. ADDITIONAL EXCLUSION FROM COVERAGE.
(a) IN
GENERAL.—Section 1862(a) (42 U.S.C.
1395y(a)), as amended by section 15525(a)(2) and section
15701(c)(2)(C), is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(16),
(2) by striking the period at the end of para-
graph (17) and inserting ‘‘; or’’, and
(3) by inserting after paragraph (17) the fol-
lowing new paragraph:
‘‘(18) where such expenses are for items or
services, or to assist in the purchase, in whole or in
part, of health benefit coverage that includes items
or services, for the purpose of causing, or assisting
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Subtitle I
in causing, the death, suicide, euthanasia, or mercy
killing of a person.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to payment for items and serv-
ices furnished on or after the date of the enactment of
this Act.
Subtitle I—Clinical Laboratories
SEC. 15801. EXEMPTION OF PHYSICIAN OFFICE LABORA-
TORIES.
Section 353(d) of the Public Health Service Act (42
U.S.C. 263a(d)) is amended—
(1) by redesignating paragraphs (2), (3), and
(4) as paragraphs (3), (4), and (5) and by adding
after paragraph (1) the following:
‘‘(4) EXEMPTION OF PHYSICIAN OFFICE LAB-
ORATORIES.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), a clinical laboratory in a
physician’s office (including an office of a group
of physicians) which is directed by a physician
and in which examinations and procedures are
either performed by a physician or by individ-
uals supervised by a physician solely as an ad-
junct to other services provided by the physi-
cian’s office is exempt from this section.
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Subtitle I
‘‘(B) EXCEPTION.—A clinical laboratory
described in subparagraph (A) is not exempt
from this section when it performs a pap smear
(Papanicolaou Smear) analysis.
‘‘(C) DEFINITION.—For purposes of sub-
paragraph (A), the term ‘physician’ has the
same meaning as is prescribed for such term by
section 1861(r) of the Social Security Act (42
U.S.C. 1395x(r)).’’;
(2) in paragraph (3) (as so redesignated) by
striking ‘‘(3)’’ and inserting ‘‘(4)’’; and
(3) in paragraphs (4) and (5) (as so redesig-
nated) by striking ‘‘(2)’’ and inserting ‘‘(3)’’.
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