106 
tures would improve health care quality and cost ef-
fectiveness. 
(3) WORKER ASSISTANCE.—A State health se-
curity program may provide that, for budgets for 
years before 2011, up to 1 percent of the budget 
may be used for purposes of programs providing as-
sistance to workers who are currently performing 
functions in the administration of the health insur-
ance system and who may experience economic dis-
location as a result of the implementation of the pro-
gram. 
(c) APPROVAL PROCESS
FOR CAPITAL EXPENDI-
TURES PERMITTED.—Nothing in this title shall be con-
strued as preventing a State health security program from 
providing for a process for the approval of capital expendi-
tures based on information derived from regional planning 
agencies. 
SEC. 604. FEDERAL PAYMENTS TO STATES. 
(a) IN GENERAL.—Each State with an approved 
State health security program is entitled to receive, from 
amounts in the American Health Security Trust Fund, on 
a monthly basis each year, of an amount equal to one- 
twelfth of the product of— 
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00106
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS
107 
(1) the State capitation amount (computed 
under section 602(a)(2)) for the State for the year; 
and 
(2) the Federal contribution percentage (estab-
lished under subsection (b)). 
(b) FEDERAL CONTRIBUTION PERCENTAGE.—The 
Board shall establish a formula for the establishment of 
a Federal contribution percentage for each State. Such 
formula shall take into consideration a State’s per capita 
income and revenue capacity and such other relevant eco-
nomic indicators as the Board determines to be appro-
priate. In addition, during the 5-year period beginning 
with 2008, the Board may provide for a transition adjust-
ment to the formula in order to take into account current 
expenditures by the State (and local governments thereof) 
for health services covered under the State health security 
program. The weighted-average Federal contribution per-
centage for all States shall equal 86 percent and in no 
event shall such percentage be less than 81 percent nor 
more than 91 percent. 
(c) USE OF PAYMENTS.—All payments made under 
this section may only be used to carry out the State health 
security program. 
(d) EFFECT OF SPENDING EXCESS OR SURPLUS.— 
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00107
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS
108 
(1) SPENDING EXCESS.—If a State exceeds it’s 
budget in a given year, the State shall continue to 
fund covered health services from its own revenues. 
(2) SURPLUS.—If a State provides all covered 
health services for less than the budgeted amount 
for a year, it may retain its Federal payment for 
that year for uses consistent with this Act. 
SEC. 605. ACCOUNT FOR HEALTH PROFESSIONAL EDU-
CATION EXPENDITURES. 
(a) SEPARATE ACCOUNT.—Each State health secu-
rity program shall— 
(1) include a separate account for health pro-
fessional education expenditures; and 
(2) specify the general manner, consistent with 
subsection (b), in which such expenditures are to be 
distributed among different types of institutions and 
the different areas of the State. 
(b) DISTRIBUTION
RULES.—The distribution of 
funds to hospitals and other health care facilities from the 
account must conform to the following principles: 
(1) The disbursement of funds must be con-
sistent with achievement of the national and pro-
gram goals (specified in section 701(b)) within the 
State health security program and the distribution 
of funds from the account must be conditioned upon 
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00108
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS
109 
the receipt of such reports as the Board may require 
in order to monitor compliance with such goals. 
(2) The distribution of funds from the account 
must take into account the potentially higher costs 
of placing health professional students in clinical 
education programs in health professional shortage 
areas. 
Subtitle B—Payments by States to 
Providers 
SEC. 611. PAYMENTS TO HOSPITALS AND OTHER FACILITY- 
BASED SERVICES FOR OPERATING EXPENSES 
ON THE BASIS OF APPROVED GLOBAL BUDG-
ETS. 
(a) DIRECT PAYMENT UNDER GLOBAL BUDGET.— 
Payment for operating expenses for institutional and facil-
ity-based care, including hospital services and nursing fa-
cility services, under State health security programs shall 
be made directly to each institution or facility by each 
State health security program under an annual prospec-
tive global budget approved under the program. Such a 
budget shall include payment for outpatient care and non- 
facility-based care that is furnished by or through the fa-
cility. In the case of a hospital that is wholly owned (or 
controlled) by a comprehensive health service organization 
that is paid under section 614 on the basis of a global 
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00109
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS
110 
budget, the global budget of the organization shall include 
the budget for the hospital. 
(b) Annual Negotiations; Budget Approval— 
(1) IN GENERAL.—The prospective global budg-
et for an institution or facility shall— 
(A) be developed through annual negotia-
tions between— 
(i) a panel of individuals who are ap-
pointed by the Governor of the State and 
who represent consumers, labor, business, 
and the State government; and 
(ii) the institution or facility; and 
(B) be based on a nationally uniform sys-
tem of cost accounting established under stand-
ards of the Board. 
(2) CONSIDERATIONS.—In developing a budget 
through negotiations, there shall be taken into ac-
count at least the following: 
(A) With respect to inpatient hospital serv-
ices, the number, and classification by diag-
nosis-related group, of discharges. 
(B) An institution’s or facility’s past ex-
penditures. 
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00110
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS
111 
(C) The extent to which debt service for 
capital expenditures has been included in the 
proposed operating budget. 
(D) The extent to which capital expendi-
tures are financed directly or indirectly through 
reductions in direct care to patients, including 
(but not limited to) reductions in registered 
nursing staffing patterns or changes in emer-
gency room or primary care services or avail-
ability. 
(E) Change in the consumer price index 
and other price indices. 
(F) The cost of reasonable compensation 
to health care practitioners; 
(G) The compensation level of the institu-
tion’s or facility’s work force. 
(H) The extent to which the institution or 
facility is providing health care services to meet 
the needs of residents in the area served by the 
institution or facility, including the institution’s 
or facility’s occupancy level. 
(I) The institution’s or facility’s previous 
financial and clinical performance, based on uti-
lization and outcomes data provided under this 
Act. 
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00111
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS
112 
(J) The type of institution or facility, in-
cluding whether the institution or facility is 
part of a clinical education program or serves 
a health professional education, research or 
other training purpose. 
(K) Technological advances or changes. 
(L) Costs of the institution or facility asso-
ciated with meeting Federal and State regula-
tions. 
(M) The costs associated with necessary 
public outreach activities. 
(N) In the case of a for-profit facility, a 
reasonable rate of return on equity capital, 
independent of those operating expenses nec-
essary to fulfill the objectives of this Act. 
(O) Incentives to facilities that maintain 
costs below previous reasonable budgeted levels 
without reducing the care provided. 
(P) With respect to facilities that provide 
mental health services and substance abuse 
treatment services, any additional costs involved 
in the treatment of dually diagnosed individ-
uals. 
The portion of such a budget that relates to expendi-
tures for health professional education shall be con-
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00112
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS
113 
sistent with the State health security budget for 
such expenditures. 
(3) PROVISION OF REQUIRED INFORMATION; DI-
AGNOSIS-RELATED GROUP.—No budget for an insti-
tution or facility for a year may be approved unless 
the institution or facility has submitted on a timely 
basis to the State health security program such in-
formation as the program or the Board shall specify, 
including in the case of hospitals information on dis-
charges classified by diagnosis-related group. 
(c) ADJUSTMENTS IN APPROVED BUDGETS.— 
(1) ADJUSTMENTS TO GLOBAL BUDGETS THAT 
CONTRACT WITH COMPREHENSIVE HEALTH SERVICE 
ORGANIZATIONS.—Each State health security pro-
gram shall develop an administrative mechanism for 
reducing operating funds to institutions or facilities 
in proportion to payments made to such institutions 
or facilities for services contracted for by a com-
prehensive health service organization. 
(2) AMENDMENTS.—In accordance with stand-
ards established by the Board, an operating and 
capital budget approved under this section for a year 
may be amended before, during, or after the year if 
there is a substantial change in any of the factors 
relevant to budget approval. 
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00113
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS
114 
(d) DONATIONS PERMISSIBLE.—The States health 
security programs may permit institutions and facilities 
to raise funds from private sources to pay for newly con-
structed facilities, major renovations, and equipment. The 
expenditure of such funds, whether for operating or cap-
ital expenditures, does not obligate the State health secu-
rity program to provide for continued support for such ex-
penditures unless included in an approved global budget. 
SEC. 612. PAYMENTS TO HEALTH CARE PRACTITIONERS 
BASED ON PROSPECTIVE FEE SCHEDULE. 
(a) FEE FOR SERVICE.— 
(1) IN
GENERAL.—Every independent health 
care practitioner is entitled to be paid, for the provi-
sion of covered health services under the State 
health security program, a fee for each billable cov-
ered service. 
(2) GLOBAL FEE PAYMENT METHODOLOGIES.— 
The Board shall establish models and encourage 
State health security programs to implement alter-
native payment methodologies that incorporate glob-
al fees for related services (such as all outpatient 
procedures for treatment of a condition) or for a 
basic group of services (such as primary care serv-
ices) furnished to an individual over a period of 
time, in order to encourage continuity and efficiency 
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00114
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS
115 
in the provision of services. Such methodologies shall 
be designed to ensure a high quality of care. 
(3) BILLING
DEADLINES; ELECTRONIC
BILL-
ING.—A State health security program may deny 
payment for any service of an independent health 
care practitioner for which it did not receive a bill 
and appropriate supporting documentation (which 
had been previously specified) within 30 days after 
the date the service was provided. Such a program 
may require that bills for services for which payment 
may be made under this section, or for any class of 
such services, be submitted electronically. 
(b) PAYMENT RATES BASED ON NEGOTIATED PRO-
SPECTIVE FEE SCHEDULES.—With respect to any pay-
ment method for a class of services of practitioners, the 
State health security program shall establish, on a pro-
spective basis, a payment schedule. The State health secu-
rity program may establish such a schedule after negotia-
tions with organizations representing the practitioners in-
volved. Such fee schedules shall be designed to provide in-
centives for practitioners to choose primary care medicine, 
including general internal medicine and pediatrics, over 
medical specialization. Nothing in this section shall be con-
strued as preventing a State from adjusting the payment 
schedule amounts on a quarterly or other periodic basis 
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00115
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS
116 
depending on whether expenditures under the schedule will 
exceed the budgeted amount with respect to such expendi-
tures. 
(c) BILLABLE COVERED SERVICE DEFINED.—In this 
section, the term ‘‘billable covered service’’ means a service 
covered under section 201 for which a practitioner is enti-
tled to compensation by payment of a fee determined 
under this section. 
SEC. 613. PAYMENTS TO COMPREHENSIVE HEALTH SERV-
ICE ORGANIZATIONS. 
(a) IN GENERAL.—Payment under a State health se-
curity program to a comprehensive health service organi-
zation to its enrollees shall be determined by the State— 
(1) based on a global budget described in sec-
tion 611; or 
(2) based on the basic capitation amount de-
scribed in subsection (b) for each of its enrollees. 
(b) BASIC CAPITATION AMOUNT.— 
(1) IN GENERAL.—The basic capitation amount 
described in this subsection for an enrollee shall be 
determined by the State health security program on 
the basis of the average amount of expenditures that 
is estimated would be made under the State health 
security program for covered health care services for 
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00116
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS
117 
an enrollee, based on actuarial characteristics (as de-
fined by the State health security program). 
(2) 
ADJUSTMENT
FOR
SPECIAL
HEALTH 
NEEDS.—The State health security program shall 
adjust such average amounts to take into account 
the special health needs, including a disproportionate 
number of medically underserved individuals, of pop-
ulations served by the organization. 
(3) ADJUSTMENT
FOR
SERVICES
NOT
PRO-
VIDED.—The State health security program shall ad-
just such average amounts to take into account the 
cost of covered health care services that are not pro-
vided by the comprehensive health service organiza-
tion under section 303(a). 
SEC. 614. PAYMENTS FOR COMMUNITY-BASED PRIMARY 
HEALTH SERVICES. 
(a) IN GENERAL.—In the case of community-based 
primary health services, subject to subsection (b), pay-
ments under a State health security program shall— 
(1) be based on a global budget described in 
section 611; 
(2) be based on the basic primary care capita-
tion amount described in subsection (c) for each in-
dividual enrolled with the provider of such services; 
or 
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00117
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS
118 
(3) be made on a fee-for-service basis under 
section 612. 
(b) PAYMENT ADJUSTMENT.—Payments under sub-
section (a) may include, consistent with the budgets devel-
oped under this title— 
(1) an additional amount, as set by the State 
health security program, to cover the costs incurred 
by a provider which serves persons not covered by 
this Act whose health care is essential to overall 
community health and the control of communicable 
disease, and for whom the cost of such care is other-
wise uncompensated; 
(2) an additional amount, as set by the State 
health security program, to cover the reasonable 
costs incurred by a provider that furnishes case 
management 
services 
(as 
defined 
in 
section 
1915(g)(2) of the Social Security Act), transpor-
tation services, and translation services; and 
(3) an additional amount, as set by the State 
health security program, to cover the costs incurred 
by a provider in conducting health professional edu-
cation programs in connection with the provision of 
such services. 
(c) BASIC PRIMARY CARE CAPITATION AMOUNT.— 
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00118
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS
119 
(1) IN GENERAL.—The basic primary care capi-
tation amount described in this subsection for an en-
rollee with a provider of community-based primary 
health services shall be determined by the State 
health security program on the basis of the average 
amount of expenditures that is estimated would be 
made under the State health security program for 
such an enrollee, based on actuarial characteristics 
(as defined by the State health security program). 
(2) 
ADJUSTMENT
FOR
SPECIAL
HEALTH 
NEEDS.—The State health security program shall 
adjust such average amounts to take into account 
the special health needs, including a disproportionate 
number of medically underserved individuals, of pop-
ulations served by the provider. 
(3) ADJUSTMENT
FOR
SERVICES
NOT
PRO-
VIDED.—The State health security program shall ad-
just such average amounts to take into account the 
cost of community-based primary health services 
that are not provided by the provider. 
(d) COMMUNITY-BASED PRIMARY HEALTH SERVICES 
DEFINED.—In this section, the term ‘‘community-based 
primary health services’’ has the meaning given such term 
in section 202(a). 
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00119
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS
120 
SEC. 615. PAYMENTS FOR PRESCRIPTION DRUGS. 
(a) ESTABLISHMENT OF LIST.— 
(1) IN GENERAL.—The Board shall establish a 
list of approved prescription drugs and biologicals 
that the Board determines are necessary for the 
maintenance or restoration of health or of employ-
ability or self-management and eligible for coverage 
under this Act. 
(2) EXCLUSIONS.—The Board may exclude re-
imbursement under this Act for ineffective, unsafe, 
or over-priced products where better alternatives are 
determined to be available. 
(b) PRICES.—For each such listed prescription drug 
or biological covered under this Act, for insulin, and for 
medical foods, the Board shall from time to time deter-
mine a product price or prices which shall constitute the 
maximum to be recognized under this Act as the cost of 
a drug to a provider thereof. The Board may conduct ne-
gotiations, on behalf of State health security programs, 
with product manufacturers and distributors in deter-
mining the applicable product price or prices. 
(c) CHARGES
BY INDEPENDENT PHARMACIES.— 
Each State health security program shall provide for pay-
ment for a prescription drug or biological or insulin fur-
nished by an independent pharmacy based on the drug’s 
cost to the pharmacy (not in excess of the applicable prod-
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00120
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS
121 
uct price established under subsection (b)) plus a dis-
pensing fee. In accordance with standards established by 
the Board, each State health security program, after con-
sultation with representatives of the pharmaceutical pro-
fession, shall establish schedules of dispensing fees, de-
signed to afford reasonable compensation to independent 
pharmacies after taking into account variations in their 
cost of operation resulting from regional differences, dif-
ferences in the volume of prescription drugs dispensed, dif-
ferences in services provided, the need to maintain expend-
itures within the budgets established under this title, and 
other relevant factors. 
SEC. 616. PAYMENTS FOR APPROVED DEVICES AND EQUIP-
MENT. 
(a) ESTABLISHMENT OF LIST.—The Board shall es-
tablish a list of approved durable medical equipment and 
therapeutic devices and equipment (including eyeglasses, 
hearing aids, and prosthetic appliances), that the Board 
determines are necessary for the maintenance or restora-
tion of health or of employability or self-management and 
eligible for coverage under this Act. 
(b) CONSIDERATIONS AND CONDITIONS.—In estab-
lishing the list under subsection (a), the Board shall take 
into consideration the efficacy, safety, and cost of each 
item contained on such list, and shall attach to any item 
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00121
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS
122 
such conditions as the Board determines appropriate with 
respect to the circumstances under which, or the frequency 
with which, the item may be prescribed. 
(c) PRICES.—For each such listed item covered under 
this Act, the Board shall from time to time determine a 
product price or prices which shall constitute the max-
imum to be recognized under this Act as the cost of the 
item to a provider thereof. The Board may conduct nego-
tiations, on behalf of State health security programs, with 
equipment and device manufacturers and distributors in 
determining the applicable product price or prices. 
(d) EXCLUSIONS.—The Board may exclude from cov-
erage under this Act ineffective, unsafe, or overpriced 
products where better alternatives are determined to be 
available. 
SEC. 617. PAYMENTS FOR OTHER ITEMS AND SERVICES. 
In the case of payment for other covered health serv-
ices, the amount of payment under a State health security 
program shall be established by the program— 
(1) in accordance with payment methodologies 
which are specified by the Board, after consultation 
with the American Health Security Advisory Coun-
cil, or methodologies established by the State under 
section 620; and 
VerDate Aug 31 2005 
01:51 Mar 01, 2007
Jkt 059200
PO 00000
Frm 00122
Fmt 6652
Sfmt 6201
E:\BILLS\H1200.IH
H1200
mstockstill on PROD1PC66 with BILLS