1028
‘‘(iii) who was described in clause (i) but
is no longer so described because of a transfer
of ownership or control interest, in anticipation
of (or following) a conviction, assessment, or ex-
clusion described in subparagraph (B) against
the person, to an immediate family member (as
defined in subsection (j)(1)) or a member of the
household of the person (as defined in sub-
section (j)(2)) who continues to maintain an in-
terest described in such clause—’’; and
(2) by adding after subsection (i) the following
new subsection:
‘‘(j) DEFINITION OF IMMEDIATE FAMILY MEMBER
AND MEMBER OF HOUSEHOLD.—For purposes of sub-
section (b)(8)(A)(iii):
‘‘(1) The term ‘immediate family member’
means, with respect to a person—
‘‘(A) the husband or wife of the person;
‘‘(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;
1029
‘‘(E) the grandparent or grandchild of the
person; and
‘‘(F) the spouse of a grandparent or
grandchild of the person.
‘‘(2) The term ‘member of the household’
means, with respect to an person, any individual
sharing a common abode as part of a single family
unit with the person, including domestic employees
and others who live together as a family unit, but
not including a roomer or boarder.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall take effect on the date that is 45 days
after the date of the enactment of this Act.
SEC. 10306. IMPOSITION OF CIVIL MONEY PENALTIES.
(a) CIVIL MONEY PENALTIES FOR PERSONS THAT
CONTRACT
WITH
EXCLUDED
INDIVIDUALS.—Section
1128A(a) (42 U.S.C. 1320a–7a(a)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(4);
(2) by adding ‘‘or’’ at the end of paragraph (5);
and
(3) by adding after paragraph (5) the following
new paragraph:
‘‘(6) arranges or contracts (by employment or
otherwise) with an individual or entity that the per-
1030
son knows or should know is excluded from partici-
pation in a Federal health care program (as defined
in section 1128B(f)), for the provision of items or
services for which payment may be made under such
a program;’’.
(b) CIVIL MONEY PENALTIES FOR SERVICES OR-
DERED OR PRESCRIBED BY AN EXCLUDED INDIVIDUAL
OR ENTITY.—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
furnished’’;
(B) by inserting ‘‘(pursuant to this title or
title XVIII)’’ after ‘‘period in which the person
was excluded’’; and
(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 new subparagraph:
1031
‘‘(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
program under which the claim was made, and
the person furnishing such item or service
knows or should know of such exclusion, or’’.
(c) 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.
SEC. 10307. DISCLOSURE OF INFORMATION AND SURETY
BONDS.
(a) DISCLOSURE
OF INFORMATION
AND SURETY
BOND REQUIREMENT FOR SUPPLIERS OF DURABLE MED-
ICAL
EQUIPMENT.—Section 
1834(a) 
(42 
U.S.C.
1395m(a)) is amended by inserting after paragraph (15)
the following new paragraph:
‘‘(16) CONDITIONS FOR ISSUANCE OF PROVIDER
NUMBER.—The Secretary shall not provide for the
issuance (or renewal) of a provider number for a
1032
supplier of durable medical equipment, for purposes
of payment under this part for durable medical
equipment furnished by the supplier, unless the sup-
plier provides the Secretary on a continuing basis
with—
‘‘(A)(i) full and complete information as to
the identity of each person with an ownership
or control interest (as defined in section
1124(a)(3)) in the supplier or in any sub-
contractor (as defined by the Secretary in regu-
lations) in which the supplier directly or indi-
rectly has a 5 percent or more ownership inter-
est, and
‘‘(ii) to the extent determined to be feasible
under regulations of the Secretary, the name of
any disclosing entity (as defined in section
1124(a)(2)) with respect to which a person with
such an ownership or control interest in the
supplier is a person with such an ownership or
control interest in the disclosing entity; and
‘‘(B) a surety bond in a form specified by
the Secretary and in an amount that is not less
than $50,000.
The Secretary may waive the requirement of a bond
under subparagraph (B) in the case of a supplier
1033
that provides a comparable surety bond under State
law.’’.
(b) SURETY
BOND
REQUIREMENT
FOR
HOME
HEALTH AGENCIES.—
(1) IN GENERAL.—Section 1861(o) (42 U.S.C.
1395x(o)) is amended—
(A) in paragraph (7), by inserting ‘‘and in-
cluding providing the Secretary on a continuing
basis with a surety bond in a form specified by
the Secretary and in an amount that is not less
than $50,000’’ after ‘‘financial security of the
program’’, and
(B) by adding at the end the following:
‘‘The Secretary may waive the requirement of a
bond under paragraph (7) in the case of an
agency or organization that provides a com-
parable surety bond under State law.’’.
(2) 
CONFORMING
AMENDMENTS.—Section
1861(v)(1)(H) 
(42 
U.S.C. 
1395x(v)(1)(H)) 
is
amended—
(A) in clause (i), by striking ‘‘the financial
security requirement’’ and inserting ‘‘the finan-
cial security and surety bond requirements’’;
and
1034
(B) in clause (ii), by striking ‘‘the financial
security requirement described in subsection
(o)(7) applies’’ and inserting ‘‘the financial se-
curity and surety bond requirements described
in subsection (o)(7) apply’’.
(3) REFERENCE TO CURRENT DISCLOSURE RE-
QUIREMENT.—For provision of current law requiring
home health agencies to disclose information on
ownership and control interests, see section 1124 of
the Social Security Act.
(c) AUTHORIZING APPLICATION OF DISCLOSURE AND
SURETY BOND REQUIREMENTS TO AMBULANCE SERV-
ICES AND CERTAIN CLINICS.—Section 1834(a)(16) (42
U.S.C. 1395m(a)(16)), as added by subsection (a), is
amended by adding at the end the following: ‘‘The Sec-
retary, in the Secretary’s discretion, may impose the re-
quirements of the previous sentence with respect to some
or all classes of suppliers of ambulance services described
in section 1861(s)(7) and clinics that furnish medical and
other health services (other than physicians’ services)
under this part.’’.
(d) APPLICATION TO COMPREHENSIVE OUTPATIENT
REHABILITATION
FACILITIES
(CORFS).—Section
1861(cc)(2) (42 U.S.C. 1395x(cc)(2)) is amended—
1035
(1) in subparagraph (I), by inserting before the
period at the end the following: ‘‘and providing the
Secretary on a continuing basis with a surety bond
in a form specified by the Secretary and in an
amount that is not less than $50,000’’, and
(2) by adding after and below subparagraph (I)
the following:
‘‘The Secretary may waive the requirement of a bond
under subparagraph (I) in the case of a facility that pro-
vides a comparable surety bond under State law.’’.
(e) APPLICATION TO REHABILITATION AGENCIES.—
Section 1861(p) (42 U.S.C. 1395x(p)) is amended—
(1) in paragraph (4)(A)(v), by inserting after
‘‘as the Secretary may find necessary,’’ the follow-
ing: ‘‘and provides the Secretary, to the extent re-
quired by the Secretary, on a continuing basis with
a surety bond in a form specified by the Secretary
and in an amount that is not less than $50,000,’’,
and
(2) by adding at the end the following: ‘‘The
Secretary may waive the requirement of a bond
under paragraph (4)(A)(v) in the case of a clinic or
agency that provides a comparable surety bond
under State law.’’.
1036
(f) EFFECTIVE DATES.—(1) The amendment made
by subsection (a) shall apply to suppliers of durable medi-
cal equipment with respect to such equipment furnished
on or after January 1, 1998.
(2) The amendments made by subsection (b) shall
apply to home health agencies with respect to services fur-
nished on or after such date. The Secretary of Health and
Human Services shall modify participation agreements
under section 1866(a)(1) of the Social Security Act with
respect to home health agencies to provide for implementa-
tion of such amendments on a timely basis.
(3) The amendments made by subsections (c)
through (e) shall take effect on the date of the enactment
of this Act and may be applied with respect to items and
services furnished on or after the date specified in para-
graph (1).
SEC. 10308. PROVISION OF CERTAIN IDENTIFICATION NUM-
BERS.
(a) REQUIREMENTS TO DISCLOSE EMPLOYER IDEN-
TIFICATION NUMBERS (EINS) AND SOCIAL SECURITY AC-
COUNT
NUMBERS
(SSNS).—Section 1124(a)(1) (42
U.S.C. 1320a–3(a)(1)) is amended by inserting before the
period at the end the following: ‘‘and supply the Secretary
with the both the employer identification number (as-
signed pursuant to section 6109 of the Internal Revenue
1037
Code of 1986) and social security account number (as-
signed under section 205(c)(2)(B)) of the disclosing en-
tity, each person with an ownership or control interest (as
defined in subsection (a)(3)), and any subcontractor in
which the entity directly or indirectly has a 5 percent or
more ownership interest’’.
(b) OTHER MEDICARE PROVIDERS.—Section 1124A
(42 U.S.C. 1320a–3a) is amended—
(1) in subsection (a)—
(A) by striking ‘‘and’’ at the end of para-
graph (1);
(B) by striking the period at the end of
paragraph (2) and inserting ‘‘; and’’; and
(C) by adding at the end the following new
paragraph:
‘‘(3) including the employer identification num-
ber (assigned pursuant to section 6109 of the Inter-
nal Revenue Code of 1986) and social security ac-
count number (assigned under section 205(c)(2)(B))
of the disclosing part B provider and any person,
managing employee, or other entity identified or de-
scribed under paragraph (1) or (2).’’; and
(2) in subsection (c) by inserting ‘‘(or, for pur-
poses of subsection (a)(3), any entity receiving pay-
ment)’’ after ‘‘on an assignment-related basis’’.
1038
(c) VERIFICATION BY SOCIAL SECURITY ADMINIS-
TRATION (SSA).—Section 1124A (42 U.S.C. 1320a–3a) is
amended—
(1) by redesignating subsection (c) as sub-
section (d); and
(2) by inserting after subsection (b) the follow-
ing new subsection:
‘‘(c) VERIFICATION.—
‘‘(1) TRANSMITTAL
BY
HHS.—The Secretary
shall transmit—
‘‘(A) to the Commissioner of Social Secu-
rity information concerning each social security
account 
number 
(assigned 
under 
section
205(c)(2)(B)), and
‘‘(B) to the Secretary of the Treasury in-
formation concerning each employer identifica-
tion number (assigned pursuant to section 6109
of the Internal Revenue Code of 1986),
supplied to the Secretary pursuant to subsection
(a)(3) or section 1124(c) to the extent necessary for
verification of such information in accordance with
paragraph (2).
‘‘(2) VERIFICATION.—The Commissioner of So-
cial Security and the Secretary of the Treasury shall
verify the accuracy of, or correct, the information
1039
supplied by the Secretary to such official pursuant
to paragraph (1), and shall report such verifications
or corrections to the Secretary.
‘‘(3) FEES FOR VERIFICATION.—The Secretary
shall reimburse the Commissioner and Secretary of
the Treasury, at a rate negotiated between the Sec-
retary and such official, for the costs incurred by
such official in performing the verification and cor-
rection services described in this subsection.’’.
(d) REPORT.—The Secretary of Health and Human
Services shall submit to Congress a report on steps the
Secretary has taken to assure the confidentiality of social
security account numbers that will be provided to the Sec-
retary under the amendments made by this section.
(e) EFFECTIVE DATES.—
(1) The amendment made by subsection (a)
shall apply to the application of conditions of partici-
pation, and entering into and renewal of contracts
and agreements, occurring more than 90 days after
the date of submission of the report under sub-
section (d).
(2) The amendments made by subsection (b)
shall apply to payment for items and services fur-
nished more than 90 days after the date of submis-
sion of such report.
1040
SEC. 10309. ADVISORY OPINIONS REGARDING CERTAIN
PHYSICIAN SELF-REFERRAL PROVISIONS.
Section 1877(g) (42 U.S.C. 1395nn(g)) is amended
by adding at the end the following new paragraph:
‘‘(6) ADVISORY OPINIONS.—
‘‘(A) IN
GENERAL.—The Secretary shall
issue written advisory opinions concerning
whether a referral relating to designated health
services (other than clinical laboratory services)
is prohibited under this section.
‘‘(B) BINDING
AS
TO
SECRETARY
AND
PARTIES INVOLVED.—Each advisory opinion is-
sued by the Secretary shall be binding as to the
Secretary and the party or parties requesting
the opinion.
‘‘(C) APPLICATION
OF
CERTAIN
PROCE-
DURES.—The Secretary shall, to the extent
practicable, apply the regulations promulgated
under section 1128D(b)(5) to the issuance of
advisory opinions under this paragraph.
‘‘(D) 
APPLICABILITY.—This 
paragraph
shall apply to requests for advisory opinions
made during the period described in section
1128D(b)(6).’’.
1041
SEC. 10310. OTHER FRAUD AND ABUSE RELATED PROVI-
SIONS.
(a) 
REFERENCE
CORRECTION.—(1) 
Section
1128D(b)(2)(D) (42 U.S.C. 1320a–7d(b)(2)(D)), as
added by section 205 of the Health Insurance Portability
and Accountability Act of 1996, is amended by striking
‘‘1128B(b)’’ and inserting ‘‘1128A(b)’’.
(2) Section 1128E(g)(3)(C) (42 U.S.C. 1320a–
7e(g)(3)(C)) is amended by striking ‘‘Veterans’ Adminis-
tration’’ and inserting ‘‘Department of Veterans Affairs’’.
(b) LANGUAGE IN DEFINITION OF CONVICTION.—
Section 1128E(g)(5) (42 U.S.C. 1320a–7e(g)(5)), as in-
serted by section 221(a) of the Health Insurance Port-
ability and Accountability Act of 1996, is amended by
striking ‘‘paragraph (4)’’ and inserting ‘‘paragraphs (1)
through (4)’’.
(c) IMPLEMENTATION
OF
EXCLUSIONS.—Section
1128 (42 U.S.C. 1320a–7) is amended—
(1) in subsection (a), by striking ‘‘any program
under title XVIII and shall direct that the following
individuals and entities be excluded from participa-
tion in any State health care program (as defined in
subsection (h))’’ and inserting ‘‘any Federal health
care program (as defined in section 1128B(f))’’; and
(2) in subsection (b), by striking ‘‘any program
under title XVIII and may direct that the following
1042
individuals and entities be excluded from participa-
tion in any State health care program’’ and inserting
‘‘any Federal health care program (as defined in
section 1128B(f))’’.
(d) SANCTIONS FOR FAILURE TO REPORT.—Section
1128E(b) (42 U.S.C. 1320a–7e(b)), as inserted by section
221(a) of the Health Insurance Portability and Account-
ability Act of 1996, is amended by adding at the end the
following:
‘‘(6) SANCTIONS FOR FAILURE TO REPORT.—
‘‘(A) HEALTH
PLANS.—Any health plan
that fails to report information on an adverse
action required to be reported under this sub-
section shall be subject to a civil money penalty
of not more than $25,000 for each such adverse
action not reported. Such penalty shall be im-
posed and collected in the same manner as civil
money penalties under subsection (a) of section
1128A are imposed and collected under that
section.
‘‘(B) 
GOVERNMENTAL
AGENCIES.—The
Secretary shall provide for a publication of a
public report that identifies those Government
agencies that have failed to report information
1043
on adverse actions as required to be reported
under this subsection.’’.
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in this
subsection, the amendments made by this section
shall be effective as if included in the enactment of
the Health Insurance Portability and Accountability
Act of 1996.
(2) FEDERAL HEALTH PROGRAM.—The amend-
ments made by subsection (c) shall take effect on
the date of the enactment of this Act.
(3) SANCTION FOR FAILURE TO REPORT.—The
amendment made by subsection (d) shall apply to
failures occurring on or after the date of the enact-
ment of this Act.
Subtitle E—Prospective Payment
Systems
CHAPTER 1—PAYMENT UNDER PART A
SEC. 10401. PROSPECTIVE PAYMENT FOR SKILLED NURS-
ING FACILITY SERVICES.
(a) IN GENERAL.—Section 1888 (42 U.S.C. 1395yy)
is amended by adding at the end the following new sub-
section:
‘‘(e) PROSPECTIVE PAYMENT.—
1044
‘‘(1) PAYMENT
PROVISION.—Notwithstanding
any other provision of this title, subject to para-
graph (7), the amount of the payment for all costs
(as defined in paragraph (2)(B)) of covered skilled
nursing facility services (as defined in paragraph
(2)(A)) for each day of such services furnished—
‘‘(A) in a cost reporting period during the
transition period (as defined in paragraph
(2)(E)), is equal to the sum of—
‘‘(i) the non-Federal percentage of the
facility-specific per diem rate (computed
under paragraph (3)), and
‘‘(ii) the Federal percentage of the ad-
justed Federal per diem rate (determined
under paragraph (4)) applicable to the fa-
cility; and
‘‘(B) after the transition period is equal to
the adjusted Federal per diem rate applicable to
the facility.
‘‘(2) DEFINITIONS.—For purposes of this sub-
section:
‘‘(A) COVERED SKILLED NURSING FACIL-
ITY SERVICES.—
‘‘(i) IN GENERAL.—The term ‘covered
skilled nursing facility services’—
1045
‘‘(I) 
means 
post-hospital 
ex-
tended care services as defined in sec-
tion 1861(i) for which benefits are
provided under part A; and
‘‘(II) includes all items and serv-
ices (other than services described in
clause (ii)) for which payment may be
made under part B and which are fur-
nished to an individual who is a resi-
dent of a skilled nursing facility dur-
ing the period in which the individual
is provided covered post-hospital ex-
tended care services.
‘‘(ii) SERVICES EXCLUDED.—Services
described in this clause are physicians’
services, services described by clauses (i)
through (iii) of section 1861(s)(2)(K), cer-
tified nurse-midwife services, qualified psy-
chologist services, services of a certified
registered nurse anesthetist, items and
services described in subparagraphs in (F)
and (O) of section 1861(s)(2), and, only
with respect to services furnished during
1998, 
the 
transportation 
costs 
of
electrocardiagram equipment for electro-
1046
cardiogram tests services (HCPCS Code
R0076). Services described in this clause
do not include any physical, occupational,
or speech-language therapy services re-
gardless of whether or not the services are
furnished by, or under the supervision of,
a physician or other health care profes-
sional.
‘‘(B) ALL
COSTS.—The term ‘all costs’
means routine service costs, ancillary costs, and
capital-related costs of covered skilled nursing
facility services, but does not include costs asso-
ciated with approved educational activities.
‘‘(C) NON-FEDERAL
PERCENTAGE; FED-
ERAL PERCENTAGE.—For—
‘‘(i) the first cost reporting period (as
defined in subparagraph (D)) of a facility,
the ‘non-Federal percentage’ is 75 percent
and the ‘Federal percentage’ is 25 percent;
‘‘(ii) the next cost reporting period of
such facility, the ‘non-Federal percentage’
is 50 percent and the ‘Federal percentage’
is 50 percent; and
‘‘(iii) the subsequent cost reporting
period of such facility, the ‘non-Federal
1047
percentage’ is 25 percent and the ‘Federal
percentage’ is 75 percent.
‘‘(D) FIRST COST REPORTING PERIOD.—
The term ‘first cost reporting period’ means,
with respect to a skilled nursing facility, the
first cost reporting period of the facility begin-
ning on or after July 1, 1998.
‘‘(E) TRANSITION PERIOD.—
‘‘(i) IN GENERAL.—The term ‘transi-
tion period’ means, with respect to a
skilled nursing facility, the 3 cost reporting
periods of the facility beginning with the
first cost reporting period.
‘‘(ii) TREATMENT
OF
NEW
SKILLED
NURSING
FACILITIES.—In the case of a
skilled nursing facility that does not have
a settled cost report for a cost reporting
period before July 1, 1998, payment for
such services shall be made under this sub-
section as if all services were furnished
after the transition period.
‘‘(3) DETERMINATION
OF
FACILITY
SPECIFIC
PER DIEM RATES.—The Secretary shall determine a
facility-specific per diem rate for each skilled nurs-
ing facility for a cost reporting period as follows:
1048
‘‘(A) DETERMINING
BASE
PAYMENTS.—
The Secretary shall determine, on a per diem
basis, the total of—
‘‘(i) the allowable costs of extended
care services for the facility for cost report-
ing periods beginning in 1995 with appro-
priate adjustments (as determined by the
Secretary) to non-settled cost reports, and
‘‘(ii) an estimate of the amounts that
would be payable under part B (disregard-
ing any applicable deductibles, coinsurance
and copayments) for covered skilled nurs-
ing facility services described in paragraph
(2)(A)(i)(II) furnished during such period
to an individual who is a resident of the fa-
cility, regardless of whether or not the pay-
ment was made to the facility or to an-
other entity.
‘‘(B) UPDATE
TO
COST
REPORTING
PE-
RIOD
BEFORE
FIRST
COST
REPORTING
PE-
RIOD.—The Secretary shall update the amount
determined under subparagraph (A), for each
cost reporting period after the cost reporting
period described in subparagraph (A)(i) and up
to the cost reporting period immediately preced-
1049
ing the first cost reporting period, by the skilled
nursing facility historical trend factor.
‘‘(C) UPDATING TO APPLICABLE COST RE-
PORTING PERIOD.—The Secretary shall further
update such amount for each cost reporting pe-
riod beginning with the first cost reporting pe-
riod and up to and including the cost reporting
period involved by a factor equal to the skilled
nursing facility market basket percentage in-
crease.
‘‘(4) FEDERAL PER DIEM RATE.—
‘‘(A) DETERMINATION OF HISTORICAL PER
DIEM
FOR
FREESTANDING
FACILITIES.—For
each freestanding skilled nursing facility that
received payments for post-hospital extended
care services during a cost reporting period be-
ginning in fiscal year 1995 and that was sub-
ject to (and not exempted from) the per diem
limits referred to in paragraph (1) or (2) of
subsection (a) (and facilities described in sub-
section (d), if appropriate), the Secretary shall
estimate, on a per diem basis for such cost re-
porting period, the total of—
‘‘(i) the allowable costs of extended
care services for the facility for cost report-
1050
ing periods beginning in 1995 with appro-
priate adjustments (as determined by the
Secretary) to non-settled cost reports, and
‘‘(ii) an estimate of the amounts that
would be payable under part B (disregard-
ing any applicable deductibles, coinsurance
and copayments) for covered skilled nurs-
ing facility services described in paragraph
(2)(A)(i)(II) furnished during such period
to an individual who is a resident of the fa-
cility, regardless of whether or not the pay-
ment was made to the facility or to an-
other entity.
‘‘(B) UPDATE TO FISCAL YEAR 1998.—The
Secretary shall update the amount determined
under subparagraph (A), for each cost report-
ing period after the cost reporting period de-
scribed in subparagraph (A)(i) and up to the
cost reporting period immediately preceding the
first cost reporting period, by the skilled nurs-
ing facility historical trend factor for such pe-
riod.
‘‘(C) COMPUTATION
OF
STANDARDIZED
PER DIEM RATE.—The Secretary shall stand-
1051
ardize the amount updated under subparagraph
(B) for each facility by—
‘‘(i) adjusting for variations among
facility by area in the average facility wage
level per diem, and
‘‘(ii) adjusting for variations in case
mix per diem among facilities.
‘‘(D) COMPUTATION OF WEIGHTED AVER-
AGE
PER
DIEM
RATE.—The Secretary shall
compute a weighted average per diem rate by
computing an average of the standardized
amounts computed under subparagraph (C),
weighted for each facility by number of days of
extended care services furnished during the cost
reporting period referred to in subparagraph
(A). The Secretary may compute and apply
such average separately for facilities located in
urban and rural areas (as defined in section
1886(d)(2)(D)).
‘‘(E) UPDATING.—
‘‘(i) FISCAL
YEAR
1998.—For fiscal
year 1998, the Secretary shall compute for
each skilled nursing facility an unadjusted
Federal per diem rate equal to the weight-
ed average per diem rate computed under
1052
subparagraph (D) and applicable to the fa-
cility increased by skilled nursing facility
market basket percentage change for the
fiscal year involved.
‘‘(ii) SUBSEQUENT
FISCAL
YEARS.—
For each subsequent fiscal year the Sec-
retary shall compute for each skilled nurs-
ing facility an unadjusted Federal per diem
rate equal to the Federal per diem rate
computed under this subparagraph for the
previous fiscal year and applicable to the
facility increased by the skilled nursing fa-
cility market basket percentage change for
the fiscal year involved.
‘‘(F) ADJUSTMENT
FOR
CASE
MIX
CREEP.—Insofar as the Secretary deter-
mines that such adjustments under sub-
paragraph (G)(i) for a previous fiscal year
(or estimates that such adjustments for a
future fiscal year) did (or are likely to) re-
sult in a change in aggregate payments
under this subsection during the fiscal year
that are a result of changes in the coding
or classification of residents that do not re-
flect real changes in case mix, the Sec-
1053
retary may adjust unadjusted Federal per
diem rates for subsequent years so as to
discount the effect of such coding or classi-
fication changes.
‘‘(G) APPLICATION
TO
SPECIFIC
FACILI-
TIES.—The Secretary shall compute for each
skilled nursing facility for each fiscal year (be-
ginning with fiscal year 1998) an adjusted Fed-
eral per diem rate equal to the unadjusted Fed-
eral per diem rate determined under subpara-
graph (E), as adjusted under subparagraph
(F), and as further adjusted as follows:
‘‘(i) ADJUSTMENT FOR CASE MIX.—
The Secretary shall provide for an appro-
priate adjustment to account for case mix.
Such adjustment shall be based on a resi-
dent classification system, established by
the Secretary, that accounts for the rel-
ative resource utilization of different pa-
tient types. The case mix adjustment shall
be based on resident assessment data and
other data that the Secretary considers ap-
propriate.
‘‘(ii) ADJUSTMENT FOR GEOGRAPHIC
VARIATIONS IN LABOR COSTS.—The Sec-
1054
retary shall adjust the portion of such per
diem rate attributable to wages and wage-
related costs for the area in which the fa-
cility is located compared to the national
average of such costs using an appropriate
wage index as determined by the Sec-
retary. Such adjustment shall be done in a
manner that does not result in aggregate
payments under this subsection that are
greater or less than those that would oth-
erwise be made if such adjustment had not
been made.
‘‘(H) PUBLICATION OF INFORMATION ON
PER DIEM RATES.—The Secretary shall provide
for publication in the Federal Register, before
the July 1 preceding each fiscal year (beginning
with fiscal year 1999), of—
‘‘(i) the unadjusted Federal per diem
rates to be applied to days of covered
skilled nursing facility services furnished
during the fiscal year,
‘‘(ii) the case mix classification system
to be applied under subparagraph (G)(i)
with respect to such services during the
fiscal year, and
1055
‘‘(iii) the factors to be applied in mak-
ing the area wage adjustment under sub-
paragraph (G)(ii) with respect to such
services.
‘‘(5) SKILLED NURSING FACILITY MARKET BAS-
KET INDEX, PERCENTAGE, AND HISTORICAL TREND
FACTOR.—For purposes of this subsection:
‘‘(A) SKILLED NURSING FACILITY MARKET
BASKET INDEX.—The Secretary shall establish
a skilled nursing facility market basket index
that reflects changes over time in the prices of
an appropriate mix of goods and services in-
cluded in covered skilled nursing facility serv-
ices.
‘‘(B) SKILLED NURSING FACILITY MARKET
BASKET PERCENTAGE.—The term ‘skilled nurs-
ing facility market basket percentage’ means,
for a fiscal year or other annual period and as
calculated by the Secretary, the percentage
change in the skilled nursing facility market
basket index (established under subparagraph
(A)) from the midpoint of the prior fiscal year
(or period) to the midpoint of the fiscal year (or
other period) involved.
1056
‘‘(C) SKILLED NURSING FACILITY HISTORI-
CAL TREND FACTOR.—The term ‘skilled nurs-
ing facility historical trend factor’ means, for a
fiscal year or other annual period and as cal-
culated by the Secretary, the percentage change
in the skilled nursing facility routine cost index
(used in applying per diem routine cost limits
under subsection (a)) from the midpoint of the
prior fiscal year (or period) to the midpoint of
the fiscal year (or other period) involved, re-
duced (on an annualized basis) by 1 percentage
point.
‘‘(6) SUBMISSION
OF
RESIDENT
ASSESSMENT
DATA.—A skilled nursing facility shall provide the
Secretary, in a manner and within the timeframes
prescribed by the Secretary, the resident assessment
data necessary to develop and implement the rates
under this subsection. For purposes of meeting such
requirement, a skilled nursing facility may submit
the resident assessment data required under section
1819(b)(3), using the standard instrument des-
ignated by the State under section 1819(e)(5).
‘‘(7) TRANSITION FOR MEDICARE LOW VOLUME
SKILLED NURSING FACILITIES AND SWING BED HOS-
PITALS.—
1057
‘‘(A) IN
GENERAL.—The Secretary shall
determine an appropriate manner in which to
apply this subsection to the facilities described
in subparagraph (B), taking into account the
purposes of this subsection, and shall provide
that at the end of the transition period (as de-
fined in paragraph (2)(E)) such facilities shall
be paid only under this subsection. Payment
shall not be made under this subsection to such
facilities for cost reporting periods beginning
before such date (not earlier than July 1, 1999)
as the Secretary specifies.
‘‘(B) FACILITIES DESCRIBED.—The facili-
ties described in this subparagraph are—
‘‘(i) skilled nursing facilities for which
payment is made for routine service costs
during a cost reporting period, ending
prior to the date of the implementation of
this paragraph, on the basis of prospective
payments under section 1888(d), or
‘‘(ii) facilities that have in effect an
agreement described in section 1883, for
which payment is made for the furnishing
of extended care services on a reasonable
1058
cost basis under section 1814(l) (as in ef-
fect on and after such date).
‘‘(8) LIMITATION ON REVIEW.—There shall be
no administrative or judicial review under section
1869, 1878, or otherwise of—
‘‘(A) the establishment of facility specific
per diem rates under paragraph (3);
‘‘(B) the establishment of Federal per
diem rates under paragraph (4), including the
computation of the standardized per diem rates
under paragraph (4)(C), adjustments and cor-
rections for case mix under paragraphs (4)(F)
and (4)(G)(i), and adjustments for variations in
labor-related costs under paragraph (4)(G)(ii);
and
‘‘(C) the establishment of transitional
amounts under paragraph (7).’’.
(b) CONSOLIDATED BILLING.—
(1) FOR SNF SERVICES.—Section 1862(a) (42
U.S.C. 1395y(a)) is amended—
(A) by striking ‘‘or’’ at the end of para-
graph (15),
(B) by striking the period at the end of
paragraph (16) and inserting ‘‘; or’’, and
1059
(C) by inserting after paragraph (16) the
following new paragraph:
‘‘(17) which are covered skilled nursing facility
services described in section 1888(e)(2)(A)(i) and
which are furnished to an individual who is a resi-
dent of a skilled nursing facility by an entity other
than the skilled nursing facility, unless the services
are furnished under arrangements (as defined in sec-
tion 1861(w)(1)) with the entity made by the skilled
nursing facility.’’.
(2) REQUIRING
PAYMENT
FOR
ALL
PART
B
ITEMS AND SERVICES TO BE MADE TO FACILITY.—
The first sentence of section 1842(b)(6) (42 U.S.C.
1395u(b)(6)) is amended—
(A) by striking ‘‘and (D)’’ and inserting
‘‘(D)’’; and
(B) by striking the period at the end and
inserting the following: ‘‘, and (E) in the case
of an item or service (other than services de-
scribed in section 1888(e)(2)(A)(ii)) furnished
to an individual who (at the time the item or
service is furnished) is a resident of a skilled
nursing facility, payment shall be made to the
facility (without regard to whether or not the
item or service was furnished by the facility, by
1060
others under arrangement with them made by
the facility, under any other contracting or con-
sulting arrangement, or otherwise).’’.
(3) PAYMENT
RULES.—Section 1888(e) (42
U.S.C. 1395yy(e)), as added by subsection (a), is
amended by adding at the end the following:
‘‘(9) PAYMENT
FOR
CERTAIN
SERVICES.—In
the case of an item or service furnished by a skilled
nursing facility (or by others under arrangement
with them made by a skilled nursing facility or
under any other contracting or consulting arrange-
ment or otherwise) for which payment would other-
wise (but for this paragraph) be made under part B
in an amount determined in accordance with section
1833(a)(2)(B), the amount of the payment under
such part shall be based on such existing or other
fee schedules as the Secretary establishes.
‘‘(10) REQUIRED
CODING.—No payment may
be made under part B for items and services (other
than services described in paragraph (2)(A)(ii)) fur-
nished to an individual who is a resident of a skilled
nursing facility unless the claim for such payment
includes a code (or codes) under a uniform coding
system specified by the Secretary that identifies the
items or services delivered.’’.
1061
(4) CONFORMING AMENDMENTS.—
(A) Section 1819(b)(3)(C)(i) (42 U.S.C.
1395i–3(b)(3)(C)(i)) is amended by striking
‘‘Such’’ and inserting ‘‘Subject to the time-
frames prescribed by the Secretary under sec-
tion 1888(t)(6), such’’.
(B) 
Section 
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) Section 1833(a)(2)(B) (42 U.S.C.
1395l(a)(2)(B)) is amended by inserting ‘‘or
section 1888(e)(9)’’ after ‘‘section 1886’’.
(D) Section 1861(h) (42 U.S.C 1395x(h))
is amended—
(i) in the opening paragraph, by strik-
ing ‘‘paragraphs (3) and (6)’’ and insert-
ing ‘‘paragraphs (3), (6), and (7)’’, and
(ii) in paragraph (7), after ‘‘skilled
nursing facilities’’, by inserting ‘‘, or by
others under arrangements with them
made by the facility’’.
(E) Section 1866(a)(1)(H) (42 U.S.C.
1395cc(a)(1)(H)) is amended—
(i) by redesignating clauses (i) and
(ii) as subclauses (I) and (II) respectively,
1062
(ii) by inserting ‘‘(i)’’ after ‘‘(H)’’,
and
(iii) by adding after clause (i), as so
redesignated, the following new clause:
‘‘(ii) in the case of skilled nursing facilities
which provide covered skilled nursing facility serv-
ices—
‘‘(I) that are furnished to an individual
who is a resident of the skilled nursing facility,
and
‘‘(II) for which the individual is entitled to
have payment made under this title,
to have items and services (other than services de-
scribed in section 1888(e)(2)(A)(ii)) furnished by the
skilled nursing facility or otherwise under arrange-
ments (as defined in section 1861(w)(1)) made by
the skilled nursing facility,’’.
(c) MEDICAL REVIEW PROCESS.—In order to ensure
that medicare beneficiaries are furnished appropriate serv-
ices in skilled nursing facilities, the Secretary of Health
and Human Services shall establish and implement a thor-
ough medical review process to examine the effects of the
amendments made by this section on the quality of covered
skilled nursing facility services furnished to medicare
beneficiaries. In developing such a medical review process,
1063
the Secretary shall place a particular emphasis on the
quality of non-routine covered services and physicians’
services for which payment is made under title XVIII of
the Social Security Act for which payment is made under
section 1848 of such Act.
(d) EFFECTIVE DATE.—The amendments made by
this section are effective for cost reporting periods begin-
ning on or after July 1, 1998; except that the amendments
made by subsection (b) shall apply to items and services
furnished on or after July 1, 1998.
SEC. 10402. PROSPECTIVE PAYMENT FOR INPATIENT REHA-
BILITATION HOSPITAL SERVICES.
(a) 
IN
GENERAL.—Section 
1886 
(42 
U.S.C.
1395ww) is amended by adding at the end the following
new subsection:
‘‘(j) PROSPECTIVE PAYMENT FOR INPATIENT REHA-
BILITATION SERVICES.—
‘‘(1) PAYMENT DURING TRANSITION PERIOD.—
‘‘(A) IN GENERAL.—Notwithstanding sec-
tion 1814(b), but subject to the provisions of
section 1813, the amount of the payment with
respect to the operating and capital costs of in-
patient hospital services of a rehabilitation hos-
pital or a rehabilitation unit (in this subsection
referred to as a ‘rehabilitation facility’), in a
1064
cost reporting period beginning on or after Oc-
tober 1, 2000, and before October 1, 2003, is
equal to the sum of—
‘‘(i) the TEFRA percentage (as de-
fined in subparagraph (C)) of the amount
that would have been paid under part A
with respect to such costs if this subsection
did not apply, and
‘‘(ii) the prospective payment percent-
age (as defined in subparagraph (C)) of
the product of (I) the per unit payment
rate established under this subsection for
the fiscal year in which the payment unit
of service occurs, and (II) the number of
such payment units occurring in the cost
reporting period.
‘‘(B) FULLY
IMPLEMENTED
SYSTEM.—
Notwithstanding section 1814(b), but subject to
the provisions of section 1813, the amount of
the payment with respect to the operating and
capital costs of inpatient hospital services of a
rehabilitation facility for a payment unit in a
cost reporting period beginning on or after Oc-
tober 1, 2003, is equal to the per unit payment
rate established under this subsection for the
1065
fiscal year in which the payment unit of service
occurs.
‘‘(C) TEFRA AND PROSPECTIVE PAYMENT
PERCENTAGES
SPECIFIED.—For purposes of
subparagraph (A), for a cost reporting period
beginning—
‘‘(i) on or after October 1, 2000, and
before October 1, 2001, the ‘TEFRA per-
centage’ is 75 percent and the ‘prospective
payment percentage’ is 25 percent;
‘‘(ii) on or after October 1, 2001, and
before October 1, 2002, the ‘TEFRA per-
centage’ is 50 percent and the ‘prospective
payment percentage’ is 50 percent; and
‘‘(iii) on or after October 1, 2002, and
before October 1, 2003, the ‘TEFRA per-
centage’ is 25 percent and the ‘prospective
payment percentage’ is 75 percent.
‘‘(D) PAYMENT
UNIT.—For purposes of
this subsection, the term ‘payment unit’ means
a discharge, day of inpatient hospital services,
or other unit of payment defined by the Sec-
retary.
‘‘(2) PATIENT CASE MIX GROUPS.—
1066
‘‘(A) 
ESTABLISHMENT.—The 
Secretary
shall establish—
‘‘(i) classes of patients of rehabilita-
tion facilities (each in this subsection re-
ferred to as a ‘case mix group’), based on
such factors as the Secretary deems appro-
priate, which may include impairment, age,
related prior hospitalization, comorbidities,
and functional capability of the patient;
and
‘‘(ii) a method of classifying specific
patients in rehabilitation facilities within
these groups.
‘‘(B) WEIGHTING
FACTORS.—For each
case mix group the Secretary shall assign an
appropriate weighting which reflects the relative
facility resources used with respect to patients
classified within that group compared to pa-
tients classified within other groups.
‘‘(C) ADJUSTMENTS FOR CASE MIX.—
‘‘(i) IN
GENERAL.—The Secretary
shall from time to time adjust the classi-
fications and weighting factors established
under this paragraph as appropriate to re-
flect changes in treatment patterns, tech-
1067
nology, case mix, number of payment units
for which payment is made under this title,
and other factors which may affect the rel-
ative use of resources. Such adjustments
shall be made in a manner so that changes
in aggregate payments under the classifica-
tion system are a result of real changes
and are not a result of changes in coding
that are unrelated to real changes in case
mix.
‘‘(ii) ADJUSTMENT.—Insofar as the
Secretary determines that such adjust-
ments for a previous fiscal year (or esti-
mates that such adjustments for a future
fiscal year) did (or are likely to) result in
a change in aggregate payments under the
classification system during the fiscal year
that are a result of changes in the coding
or classification of patients that do not re-
flect real changes in case mix, the Sec-
retary shall adjust the per payment unit
payment rate for subsequent years so as to
discount the effect of such coding or classi-
fication changes.
1068
‘‘(D) DATA COLLECTION.—The Secretary
is authorized to require rehabilitation facilities
that provide inpatient hospital services to sub-
mit such data as the Secretary deems necessary
to establish and administer the prospective pay-
ment system under this subsection.
‘‘(3) PAYMENT RATE.—
‘‘(A) IN
GENERAL.—The Secretary shall
determine a prospective payment rate for each
payment unit for which such rehabilitation fa-
cility is entitled to receive payment under this
title. Subject to subparagraph (B), such rate
for payment units occurring during a fiscal year
shall be based on the average payment per pay-
ment unit under this title for inpatient operat-
ing and capital costs of rehabilitation facilities
using the most recent data available (as esti-
mated by the Secretary as of the date of estab-
lishment of the system) adjusted—
‘‘(i) by updating such per-payment-
unit amount to the fiscal year involved by
the weighted average of the applicable per-
centage increases provided under sub-
section (b)(3)(B)(ii) (for cost reporting pe-
riods beginning during the fiscal year) cov-
1069
ering the period from the midpoint of the
period for such data through the midpoint
of fiscal year 2000 and by an increase fac-
tor (described in subparagraph (C)) speci-
fied by the Secretary for subsequent fiscal
years up to the fiscal year involved;
‘‘(ii) by reducing such rates by a fac-
tor equal to the proportion of payments
under this subsection (as estimated by the
Secretary) based on prospective payment
amounts which are additional payments de-
scribed in paragraph (4) (relating to
outlier and related payments) or paragraph
(7);
‘‘(iii) for variations among rehabilita-
tion facilities by area under paragraph (6);
‘‘(iv) by the weighting factors estab-
lished under paragraph (2)(B); and
‘‘(v) by such other factors as the Sec-
retary determines are necessary to properly
reflect variations in necessary costs of
treatment among rehabilitation facilities.
‘‘(B) BUDGET NEUTRAL RATES.—The Sec-
retary shall establish the prospective payment
amounts under this subsection for payment
1070
units during fiscal years 2001 through 2004 at
levels such that, in the Secretary’s estimation,
the amount of total payments under this sub-
section for such fiscal years (including any pay-
ment adjustments pursuant to paragraphs (4),
(6), and (7)) shall be equal to 99 percent of the
amount of payments that would have been
made under this title during the fiscal years for
operating and capital costs of rehabilitation fa-
cilities had this subsection not been enacted. In
establishing such payment amounts, the Sec-
retary shall consider the effects of the prospec-
tive payment system established under this sub-
section on the total number of payment units
from rehabilitation facilities and other factors
described in subparagraph (A).
‘‘(C) INCREASE FACTOR.—For purposes of
this subsection for payment units in each fiscal
year (beginning with fiscal year 2001), the Sec-
retary shall establish an increase factor. Such
factor shall be based on an appropriate percent-
age increase in a market basket of goods and
services comprising services for which payment
is made under this subsection, which may be
1071
the market basket percentage increase described
in subsection (b)(3)(B)(iii).
‘‘(4) OUTLIER AND SPECIAL PAYMENTS.—
‘‘(A) OUTLIERS.—
‘‘(i) IN
GENERAL.—The Secretary
may provide for an additional payment to
a rehabilitation facility for patients in a
case mix group, based upon the patient
being classified as an outlier based on an
unusual length of stay, costs, or other fac-
tors specified by the Secretary.
‘‘(ii) PAYMENT BASED ON MARGINAL
COST OF CARE.—The amount of such addi-
tional payment under clause (i) shall be
determined by the Secretary and shall ap-
proximate the marginal cost of care beyond
the cutoff point applicable under clause (i).
‘‘(iii) TOTAL
PAYMENTS.—The total
amount of the additional payments made
under this subparagraph for payment units
in a fiscal year may not exceed 5 percent
of the total payments projected or esti-
mated to be made based on prospective
payment rates for payment units in that
year.
1072
‘‘(B) ADJUSTMENT.—The Secretary may
provide for such adjustments to the payment
amounts under this subsection as the Secretary
deems appropriate to take into account the
unique circumstances of rehabilitation facilities
located in Alaska and Hawaii.
‘‘(5) PUBLICATION.—The Secretary shall pro-
vide for publication in the Federal Register, on or
before September 1 before each fiscal year (begin-
ning with fiscal year 2001, of the classification and
weighting factors for case mix groups under para-
graph (2) for such fiscal year and a description of
the methodology and data used in computing the
prospective payment rates under this subsection for
that fiscal year.
‘‘(6) AREA WAGE ADJUSTMENT.—The Secretary
shall adjust the proportion, (as estimated by the
Secretary from time to time) of rehabilitation facili-
ties’ costs which are attributable to wages and wage-
related costs, of the prospective payment rates com-
puted under paragraph (3) for area differences in
wage levels by a factor (established by the Sec-
retary) reflecting the relative hospital wage level in
the geographic area of the rehabilitation facility
compared to the national average wage level for such
1073
facilities. Not later than October 1, 2001 (and at
least every 36 months thereafter), the Secretary
shall update the factor under the preceding sentence
on the basis of a survey conducted by the Secretary
(and updated as appropriate) of the wages and
wage-related costs incurred in furnishing rehabilita-
tion services. Any adjustments or updates made
under this paragraph for a fiscal year shall be made
in a manner that assures that the aggregated pay-
ments under this subsection in the fiscal year are
not greater or less than those that would have been
made in the year without such adjustment.
‘‘(7) ADDITIONAL
ADJUSTMENTS.—The Sec-
retary may provide by regulation for—
‘‘(A) an additional payment to take into
account indirect costs of medical education and
the special circumstances of hospitals that serve
a significantly disproportionate number of low-
income patients in a manner similar to that
provided under subparagraphs (B) and (F), re-
spectively, of subsection (d)(5); and
‘‘(B) such other exceptions and adjust-
ments to payment amounts under this sub-
section in a manner similar to that provided
1074
under subsection (d)(5)(I) in relation to pay-
ments under subsection (d).
‘‘(8) LIMITATION ON REVIEW.—There shall be
no administrative or judicial review under section
1869, 1878, or otherwise of—
‘‘(A) the establishment of case mix groups,
of the methodology for the classification of pa-
tients within such groups, and of the appro-
priate weighting factors thereof under para-
graph (2),
‘‘(B) the establishment of the prospective
payment rates under paragraph (3),
‘‘(C) the establishment of outlier and spe-
cial payments under paragraph (4),
‘‘(D) the establishment of area wage ad-
justments under paragraph (6), and
‘‘(E) the establishment of additional ad-
justments under paragraph (7).’’.
(b) CONFORMING AMENDMENTS.—Section 1886(b)
of such Act (42 U.S.C. 1395ww(b)) is amended—
(1) in paragraph (1), by inserting ‘‘and other
than a rehabilitation facility described in subsection
(j)(1)’’ after ‘‘subsection (d)(1)(B)’’, and
1075
(2) in paragraph (3)(B)(i), by inserting ‘‘and
subsection (j)’’ after ‘‘For purposes of subsection
(d)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to cost reporting periods beginning
on or after October 1, 2000, except that the Secretary of
Health and Human Services may require the submission
of data under section 1886(j)(2)(D) of the Social Security
Act (as added by subsection (a)) on and after the date
of the enactment of this section.
CHAPTER 2—PAYMENT UNDER PART B
Subchapter A—Payment for Hospital
Outpatient Department Services
SEC. 10411. ELIMINATION OF FORMULA-DRIVEN OVERPAY-
MENTS (FDO) FOR CERTAIN OUTPATIENT
HOSPITAL SERVICES.
(a) ELIMINATION OF FDO FOR AMBULATORY SUR-
GICAL
CENTER
PROCEDURES.—Section
1833(i)(3)(B)(i)(II) (42 U.S.C. 1395l(i)(3)(B)(i)(II)) is
amended—
(1) by striking ‘‘of 80 percent’’; and
(2) by striking the period at the end and insert-
ing the following: ‘‘, less the amount a provider may
charge as described in clause (ii) of section
1866(a)(2)(A).’’.
1076
(b) ELIMINATION OF FDO FOR RADIOLOGY SERV-
ICES
AND
DIAGNOSTIC
PROCEDURES.—Section
1833(n)(1)(B)(i) (42 U.S.C. 1395l(n)(1)(B)(i)) is amend-
ed—
(1) by striking ‘‘of 80 percent’’, and
(2) by inserting before the period at the end the
following: ‘‘, less the amount a provider may charge
as described in clause (ii) of section 1866(a)(2)(A)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to services furnished during por-
tions of cost reporting periods occurring on or after Octo-
ber 1, 1997.
SEC. 10412. EXTENSION OF REDUCTIONS IN PAYMENTS FOR
COSTS OF HOSPITAL OUTPATIENT SERVICES.
(a) REDUCTION IN PAYMENTS FOR CAPITAL-RELAT-
ED
COSTS.—Section 1861(v)(1)(S)(ii)(I) (42 U.S.C.
1395x(v)(1)(S)(ii)(I)) is amended by striking ‘‘through
1998’’ and inserting ‘‘through 1999 and during fiscal year
2000 before January 1, 2000’’.
(b) REDUCTION IN PAYMENTS FOR OTHER COSTS.—
Section 
1861(v)(1)(S)(ii)(II) 
(42 
U.S.C.
1395x(v)(1)(S)(ii)(II)) is amended by striking ‘‘through
1998’’ and inserting ‘‘through 1999 and during fiscal year
2000 before January 1, 2000’’.
1077
SEC. 10413. PROSPECTIVE PAYMENT SYSTEM FOR HOS-
PITAL OUTPATIENT DEPARTMENT SERVICES.
(a) IN GENERAL.—Section 1833 (42 U.S.C. 1395l)
is amended by adding at the end the following:
‘‘(t) PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL
OUTPATIENT DEPARTMENT SERVICES.—
‘‘(1) IN
GENERAL.—With respect to hospital
outpatient services designated by the Secretary (in
this section referred to as ‘covered OPD services’)
and furnished during a year beginning with 1999,
the amount of payment under this part shall be de-
termined under a prospective payment system estab-
lished by the Secretary in accordance with this sub-
section.
‘‘(2) SYSTEM REQUIREMENTS.—Under the pay-
ment system—
‘‘(A) the Secretary shall develop a classi-
fication system for covered OPD services;
‘‘(B) the Secretary may establish groups of
covered OPD services, within the classification
system described in subparagraph (A), so that
services classified within each group are com-
parable clinically and with respect to the use of
resources;
‘‘(C) the Secretary shall, using data on
claims from 1996 and using data from the most
1078
recent available cost reports, establish relative
payment weights for covered OPD services (and
any groups of such services described in sub-
paragraph (B)) based on median hospital costs
and shall determine projections of the frequency
of utilization of each such service (or group of
services) in 1999;
‘‘(D) the Secretary shall determine a wage
adjustment factor to adjust the portion of pay-
ment and coinsurance attributable to labor-re-
lated costs for relative differences in labor and
labor-related costs across geographic regions in
a budget neutral manner;
‘‘(E) the Secretary shall establish other ad-
justments, in a budget neutral manner, as de-
termined to be necessary to ensure equitable
payments, such as outlier adjustments, adjust-
ments to account for variations in coinsurance
payments for procedures with similar resource
costs, or adjustments for certain classes of hos-
pitals; and
‘‘(F) the Secretary shall develop a method
for controlling unnecessary increases in the vol-
ume of covered OPD services.
‘‘(3) CALCULATION OF BASE AMOUNTS.—
1079
‘‘(A) AGGREGATE AMOUNTS THAT WOULD
BE
PAYABLE
IF
DEDUCTIBLES
WERE
DIS-
REGARDED.—The Secretary shall estimate the
total amounts that would be payable from the
Trust Fund under this part for covered OPD
services in 1999, determined without regard to
this subsection, as though the deductible under
section 1833(b) did not apply, and as though
the 
coinsurance 
described 
in 
section
1866(a)(2)(A)(ii) (as in effect before the date
of the enactment of this subsection) continued
to apply.
‘‘(B) 
UNADJUSTED
COPAYMENT
AMOUNT.—
‘‘(i) IN
GENERAL.—For purposes of
this subsection, subject to clause (ii), the
‘unadjusted copayment amount’ applicable
to a covered OPD service (or group of such
services) is 20 percent of national median
of the charges for the service (or services
within the group) furnished during 1996,
updated to 1999 using the Secretary’s esti-
mate of charge growth during the period.
‘‘(ii) ADJUSTED TO BE 20 PERCENT
WHEN FULLY PHASED IN.—If the pre-de-
1080
ductible payment percentage for a covered
OPD service (or group of such services)
furnished in a year would be equal to or
exceed 80 percent, then the unadjusted co-
payment amount shall be 25 percent of
amount determined under subparagraph
(D)(i).
‘‘(iii) RULES FOR NEW SERVICES.—
The Secretary shall establish rules for es-
tablishment of an unadjusted copayment
amount for a covered OPD service not fur-
nished during 1996, based upon its classi-
fication within a group of such services.
‘‘(C) CALCULATION OF CONVERSION FAC-
TORS.—
‘‘(i) FOR 1999.—
‘‘(I) IN
GENERAL.—The Sec-
retary shall establish a 1999 conver-
sion factor for determining the medi-
care pre-deductible OPD fee payment
amounts for each covered OPD serv-
ice (or group of such services) fur-
nished in 1999. Such conversion fac-
tor shall be established on the basis of
the weights and frequencies described
1081
in paragraph (2)(C) and in a manner
such that the sum for all services and
groups of the products (described in
subclause (II) for each such service or
group) equals the total projected
amount described in subparagraph
(A).
‘‘(II) 
PRODUCT
DESCRIBED.—The
product described in this subclause, for a
service or group, is the product of the med-
icare pre-deductible OPD fee payment
amounts (taking into account appropriate
adjustments 
described 
in 
paragraphs
(2)(D) and (2)(E)) and the frequencies for
such service or group.
‘‘(ii) SUBSEQUENT
YEARS.—Subject
to paragraph (8)(B), the Secretary shall
establish a conversion factor for covered
OPD services furnished in subsequent
years in an amount equal to the conversion
factor established under this subparagraph
and applicable to such services furnished in
the previous year increased by the OPD
payment increase factor specified under
clause (iii) for the year involved.
1082
‘‘(iii) OPD PAYMENT INCREASE FAC-
TOR.—For purposes of this subparagraph,
the ‘OPD payment increase factor’ for
services furnished in a year is equal to the
sum of—
‘‘(I) market basket percentage in-
crease 
(applicable 
under 
section
1886(b)(3)(B)(iii) to hospital dis-
charges occurring during the fiscal
year ending in such year, and
‘‘(II) in the case of a covered
OPD service (or group of such serv-
ices) furnished in a year in which the
pre-deductible 
payment 
percentage
would not exceed 80 percent, 3.5 per-
centage points, but in no case greater
than such number of percentage
points as will result in the pre-deduct-
ible payment percentage exceeding 80
percent.
In applying the previous sentence for years
beginning with 2000, the Secretary may
substitute for the market basket percent-
age increase under subclause (I) an annual
percentage increase that is computed and
1083
applied with respect to covered OPD serv-
ices furnished in a year in the same man-
ner as the market basket percentage in-
crease is determined and applied to inpa-
tient hospital services for discharges occur-
ring in a fiscal year.
‘‘(D) PRE-DEDUCTIBLE
PAYMENT
PER-
CENTAGE.—The pre-deductible payment per-
centage for a covered OPD service (or group of
such services) furnished in a year is equal to
the ratio of—
‘‘(i) the conversion factor established
under subparagraph (C) for the year, mul-
tiplied by the weighting factor established
under paragraph (2)(C) for the service (or
group), to
‘‘(ii) the sum of the amount deter-
mined under clause (i) and the unadjusted
copayment amount determined under sub-
paragraph (B) for such service or group.
‘‘(E) CALCULATION
OF
MEDICARE
OPD
FEE
SCHEDULE
AMOUNTS.—The 
Secretary
shall compute a medicare OPD fee schedule
amount for each covered OPD service (or group
1084
of such services) furnished in a year, in an
amount equal to the product of—
‘‘(i) the conversion factor computed
under subparagraph (C) for the year, and
‘‘(ii) the relative payment weight (de-
termined under paragraph (2)(C)) for the
service or group.
‘‘(4) 
MEDICARE
PAYMENT
AMOUNT.—The
amount of payment made from the Trust Fund
under this part for a covered OPD service (and such
services classified within a group) furnished in a
year is determined as follows:
‘‘(A) FEE
SCHEDULE
AND
COPAYMENT
AMOUNT.—Add (i) the medicare OPD fee
schedule amount (computed under paragraph
(3)(E)) for the service or group and year, and
(ii) the unadjusted copayment amount (deter-
mined under paragraph (3)(B)) for the service
or group.
‘‘(B) SUBTRACT
APPLICABLE
DEDUCT-
IBLE.—Reduce the sum determined under sub-
paragraph (A) by the amount of the deductible
under section 1833(b), to the extent applicable.
‘‘(C) APPLY PAYMENT PROPORTION TO RE-
MAINDER.—Multiply the amount so determined
1085
under subparagraph (B) by the pre-deductible
payment percentage (as determined under para-
graph (3)(D)) for the service or group and year
involved.
‘‘(D) 
LABOR-RELATED
ADJUSTMENT.—
The amount of payment is the product deter-
mined under subparagraph (C) with the labor-
related portion of such product adjusted for rel-
ative differences in the cost of labor and other
factors determined by the Secretary, as com-
puted under paragraph (2)(D).
‘‘(5) COPAYMENT AMOUNT.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the copayment amount
under this subsection is determined as follows:
‘‘(i) 
UNADJUSTED
COPAYMENT.—
Compute the amount by which the amount
described in paragraph (4)(B) exceeds the
amount of payment determined under
paragraph (4)(C).
‘‘(ii) LABOR ADJUSTMENT.—The co-
payment amount is the difference deter-
mined under clause (i) with the labor-relat-
ed portion of such difference adjusted for
relative differences in the cost of labor and
1086
other factors determined by the Secretary,
as computed under paragraphs (2)(D).
The adjustment under this clause shall be
made in a manner that does not result in
any change in the aggregate copayments
made in any year if the adjustment had
not been made.
‘‘(B) ELECTION TO OFFER REDUCED CO-
PAYMENT AMOUNT.—The Secretary shall estab-
lish a procedure under which a hospital, before
the beginning of a year (beginning with 1999),
may elect to reduce the copayment amount oth-
erwise established under subparagraph (A) for
some or all covered OPD services to an amount
that is not less than 25 percent of the medicare
OPD fee schedule amount (computed under
paragraph (3)(E)) for the service involved, ad-
justed for relative differences in the cost of
labor and other factors determined by the Sec-
retary, as computed under subparagraphs (D)
and (E) of paragraph (2). Under such proce-
dures, such reduced copayment amount may
not be further reduced or increased during the
year involved and the hospital may disseminate
1087
information on the reduction of copayment
amount effected under this subparagraph.
‘‘(C) NO
IMPACT
ON
DEDUCTIBLES.—
Nothing in this paragraph shall be construed as
affecting a hospital’s authority to waive the
charging of a deductible under section 1833(b).
‘‘(6) PERIODIC
REVIEW
AND
ADJUSTMENTS
COMPONENTS OF PROSPECTIVE PAYMENT SYSTEM.—
‘‘(A) PERIODIC
REVIEW.—The Secretary
may periodically review and revise the groups,
the relative payment weights, and the wage and
other adjustments described in paragraph (2) to
take into account changes in medical practice,
changes in technology, the addition of new serv-
ices, new cost data, and other relevant informa-
tion and factors.
‘‘(B) 
BUDGET
NEUTRALITY
ADJUST-
MENT.—If the Secretary makes adjustments
under subparagraph (A), then the adjustments
for a year may not cause the estimated amount
of expenditures under this part for the year to
increase or decrease from the estimated amount
of expenditures under this part that would have
been made if the adjustments had not been
made.
1088
‘‘(C) UPDATE FACTOR.—If the Secretary
determines under methodologies described in
subparagraph (2)(F) that the volume of services
paid for under this subsection increased beyond
amounts established through those methodolo-
gies, the Secretary may appropriately adjust the
update to the conversion factor otherwise appli-
cable in a subsequent year.
‘‘(7) SPECIAL
RULE
FOR
AMBULANCE
SERV-
ICES.—The Secretary shall pay for hospital out-
patient services that are ambulance services on the
basis described in the matter in subsection (a)(1)
preceding subparagraph (A).
‘‘(8) SPECIAL
RULES
FOR
CERTAIN
HOS-
PITALS.—In the case of hospitals described in sec-
tion 1886(d)(1)(B)(v)—
‘‘(A) the system under this subsection shall
not apply to covered OPD services furnished be-
fore January 1, 2000; and
‘‘(B) the Secretary may establish a sepa-
rate conversion factor for such services in a
manner that specifically takes into account the
unique costs incurred by such hospitals by vir-
tue of their patient population and service in-
tensity.
1089
‘‘(9) LIMITATION ON REVIEW.—There shall be
no administrative or judicial review under section
1869, 1878, or otherwise of—
‘‘(A) the development of the classification
system under paragraph (2), including the es-
tablishment of groups and relative payment
weights for covered OPD services, of wage ad-
justment factors, other adjustments, and meth-
ods described in paragraph (2)(F);
‘‘(B) the calculation of base amounts
under paragraph (3);
‘‘(C) periodic adjustments made under
paragraph (6); and
‘‘(D) the establishment of a separate con-
version factor under paragraph (8)(B).’’.
(b) COINSURANCE.—Section 1866(a)(2)(A)(ii) (42
U.S.C. 1395cc(a)(2)(A)(ii)) is amended by adding at the
end the following: ‘‘In the case of items and services for
which payment is made under part B under the prospec-
tive payment system established under section 1833(t),
clause (ii) of the first sentence shall be applied by sub-
stituting for 20 percent of the reasonable charge, the ap-
plicable copayment amount established under section
1833(t)(5).’’.
1090
(c) TREATMENT
OF REDUCTION
IN COPAYMENT
AMOUNT.—Section 1128A(i)(6) (42 U.S.C. 1320a–
7a(i)(6)) is amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(B),
(2) by striking the period at the end of sub-
paragraph (C) and inserting ‘‘; or’’, and
(3) by adding at the end the following new sub-
paragraph:
‘‘(D) a reduction in the copayment amount
for 
covered 
OPD 
services 
under 
section
1833(t)(5)(B).’’.
(d) CONFORMING AMENDMENTS.—
(1) APPROVED ASC PROCEDURES PERFORMED
IN HOSPITAL OUTPATIENT DEPARTMENTS.—
(A)(i) Section 1833(i)(3)(A) (42 U.S.C.
13951(i)(3)(A)) is amended—
(I) by inserting ‘‘before January 1,
1999,’’ after ‘‘furnished’’, and
(II) by striking ‘‘in a cost reporting
period’’.
(ii) The amendment made by clause (i)
shall apply to services furnished on or after
January 1, 1999.
1091
(B) 
Section 
1833(a)(4) 
(42 
U.S.C.
13951(a)(4)) is amended by inserting ‘‘or sub-
section (t)’’ before the semicolon.
(2) RADIOLOGY AND OTHER DIAGNOSTIC PRO-
CEDURES.—
(A) Section 1833(n)(1)(A) (42 U.S.C.
1395l(n)(1)(A)) is amended by inserting ‘‘and
before January 1, 1999,’’ after ‘‘October 1,
1988,’’ and after ‘‘October 1, 1989,’’.
(B) Section 1833(a)(2)(E) (42 U.S.C.
1395l(a)(2)(E)) is amended by inserting ‘‘or,
for services or procedures performed on or after
January 1, 1999, (t)’’ before the semicolon.
(3) OTHER
HOSPITAL
OUTPATIENT
SERV-
ICES.—Section 
–1833(a)(2)(B) 
(42 
U.S.C.
1395l(a)(2)(B)) is amended—
(A) in clause (i), by inserting ‘‘furnished
before January 1, 1999,’’ after ‘‘(i)’’,
(B) in clause (ii), by inserting ‘‘before Jan-
uary 1, 1999,’’ after ‘‘furnished’’,
(C) by redesignating clause (iii) as clause
(iv),and
(D) by inserting after clause (ii), the fol-
lowing new clause:
1092
‘‘(iii) if such services are furnished on
or after January 1, 1999, the amount de-
termined under subsection (t), or’’.
Subchapter B—Rehabilitation Services
SEC. 10421. REHABILITATION AGENCIES AND SERVICES.
(a) PAYMENT BASED ON FEE SCHEDULE.—
(1) 
SPECIAL
PAYMENT
RULES.—Section
1833(a) (42 U.S.C. 1395l(a)) is amended—
(A) in paragraph (2) in the matter before
subparagraph (A), by inserting ‘‘(C),’’ before
‘‘(D)’’;
(B) in paragraph (6), by striking ‘‘and’’ at
the end;
(C) in paragraph (7), by striking the pe-
riod at the end and inserting ‘‘; and’’;
(D) by adding at the end the following new
paragraph:
‘‘(8) in the case of services described in section
1832(a)(2)(C) (that are not described in section
1832(a)(2)(B)), the amounts described in section
1834(k).’’.
(2) 
PAYMENT
RATES.—Section 
1834 
(42
U.S.C. 1395m) is amended by adding at the end the
following new subsection:
1093
‘‘(k) PAYMENT FOR OUTPATIENT THERAPY SERV-
ICES.—
‘‘(1) IN GENERAL.—With respect to outpatient
physical therapy services (which includes outpatient
speech-language pathology services) and outpatient
occupational therapy services for which payment is
determined under this subsection, the payment basis
shall be—
‘‘(A) for services furnished during 1998,
the amount determined under paragraph (2); or
‘‘(B) for services furnished during a subse-
quent year, 80 percent of the lesser of—
‘‘(i) the actual charge for the services,
or
‘‘(ii) 
the 
applicable 
fee 
schedule
amount (as defined in paragraph (3)) for
the services.
‘‘(2) PAYMENT IN 1998 BASED UPON ADJUSTED
REASONABLE COSTS.—The amount under this para-
graph for services is the lesser of—
‘‘(A) the charges imposed for the services,
or
‘‘(B) the adjusted reasonable costs (as de-
fined in paragraph (4)) for the services,
1094
less 20 percent of the amount of the charges im-
posed for such services.
‘‘(3) APPLICABLE FEE SCHEDULE AMOUNT.—
In this paragraph, the term ‘applicable fee schedule
amount’ means, with respect to services furnished in
a year, the fee schedule amount established under
section 1848 for such services furnished during the
year or, if there is no such fee schedule amount es-
tablished for such services, for such comparable
services as the Secretary specifies.
‘‘(4) ADJUSTED REASONABLE COSTS.—In para-
graph (2), the term ‘adjusted reasonable costs’
means reasonable costs determined reduced by—
‘‘(A) 5.8 percent of the reasonable costs
for operating costs, and
‘‘(B) 10 percent of the reasonable costs for
capital costs.
‘‘(5) UNIFORM CODING.—For claims for serv-
ices submitted on or after April 1, 1998, for which
the amount of payment is determined under this
subsection, the claim shall include a code (or codes)
under a uniform coding system specified by the Sec-
retary that identifies the services furnished.
‘‘(6) RESTRAINT ON BILLING.—The provisions
of 
subparagraphs 
(A) 
and 
(B) 
of 
section
1095
1842(b)(18) shall apply to therapy services for
which payment is made under this subsection in the
same manner as they apply to services provided by
a practitioner described in section 1842(b)(18)(C).’’.
(b) APPLICATION OF STANDARDS TO OUTPATIENT
OCCUPATIONAL AND PHYSICAL THERAPY SERVICES PRO-
VIDED AS AN INCIDENT TO A PHYSICIAN’S PROFESSIONAL
SERVICES.—Section 1862(a), as amended by section
10401(b), (42 U.S.C. 1395y(a)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(16);
(2) by striking the period at the end of para-
graph (17) and inserting ‘‘; or’’; and
(3) by inserting after paragraph (17) the fol-
lowing:
‘‘(18) in the case of outpatient occupational
therapy services or outpatient physical therapy serv-
ices furnished as an incident to a physician’s profes-
sional 
services 
(as 
described 
in 
section
1861(s)(2)(A)), that do not meet the standards and
conditions under the second sentence of section
1861(g) or 1861(p) as such standards and condi-
tions would apply to such therapy services if fur-
nished by a therapist.’’.
1096
(c) APPLYING FINANCIAL LIMITATION TO ALL RE-
HABILITATION SERVICES.—Section 1833(g) (42 U.S.C.
1395l(g)) is amended—
(1) in the first sentence, by striking ‘‘services
described in the second sentence of section 1861(p)’’
and inserting ‘‘physical therapy services of the type
described in section 1861(p) (regardless of who fur-
nishes the services or whether the services may be
covered as physicians’ services so long as the serv-
ices are furnished other than in a hospital setting)’’,
and
(2) in the second sentence, by striking ‘‘out-
patient occupational therapy services which are de-
scribed in the second sentence of section 1861(p)
through the operation of section 1861(g)’’ and in-
serting ‘‘occupational therapy services (of the type
that are described in section 1861(p) through the
operation of section 1861(g)), regardless of who fur-
nishes the services or whether the services may be
covered as physicians’ services so long as the serv-
ices are furnished other than in a hospital setting’’.
(d) INDEXING LIMITATION.—Section 1833(g) (42
U.S.C. 1395l(g)), as amended by subsection (c), is further
amended—
1097
(1) by striking ‘‘$900’’ each place it appears
and inserting ‘‘the amount specified in paragraph
(2) for the year’’,
(2) by inserting ‘‘(1)’’ after ‘‘(g)’’,
(3) by designating the last sentence as a para-
graph (3), and
(4) by inserting before paragraph (3), as so
designated, the following:
‘‘(2) The amount specified in this paragraph—
‘‘(A) for 1999, and each preceding year, is
$900, and
‘‘(B) for a subsequent year is the amount speci-
fied in this paragraph for the preceding year in-
creased by the Secretary’s estimate of the projected
percentage growth in real gross domestic product
per capita from the fiscal year ending in the preced-
ing year to the fiscal year ending in such subsequent
year.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section apply to services furnished on or after Janu-
ary 1, 1998; except that the amendments made by sub-
section (c) apply to services furnished on or after January
1, 1999.
1098
SEC. 10422. COMPREHENSIVE OUTPATIENT REHABILITA-
TION FACILITIES (CORF).
(a) PAYMENT BASED ON FEE SCHEDULE.—
(1) 
SPECIAL
PAYMENT
RULES.—Section
1833(a) (42 U.S.C. 1395l(a)), as amended by sec-
tion 10421(a), is amended—
(A) in paragraph (3), by striking ‘‘sub-
paragraphs (D) and (E) of section 1832(a)(2)’’
and inserting ‘‘section 1832(a)(2)(E)’’;
(B) in paragraph (7), by striking ‘‘and’’ at
the end;
(C) in paragraph (8), by striking the pe-
riod at the end and inserting ‘‘; and’’;
(D) by adding at the end the following new
paragraph:
‘‘(9) in the case of services described in section
1832(a)(2)(E), the amounts described in section
1834(k).’’.
(2) PAYMENT
RATES.—Section 1834(k) (42
U.S.C. 1395m(k)), as added by section 10421(a), is
amended—
(A) in the heading, by inserting ‘‘AND
COMPREHENSIVE
OUTPATIENT
REHABILITA-
TION FACILITY SERVICES’’ after ‘‘THERAPY
SERVICES’’; and
1099
(B) in paragraph (1), by inserting ‘‘and
with respect to comprehensive outpatient reha-
bilitation facility services’’ after ‘‘occupational
therapy services’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to services furnished on or after
January 1, 1998, and to portions of cost reporting periods
occurring on or after such date.
Subchapter C—Ambulance Services
SEC. 10431. PAYMENTS FOR AMBULANCE SERVICES.
(a) INTERIM REDUCTIONS.—
(1) PAYMENTS DETERMINED ON REASONABLE
COST
BASIS.—Section 
1861(v)(1) 
(42 
U.S.C.
1395x(v)(1)) is amended by adding at the end the
following new subparagraph:
‘‘(U) In determining the reasonable cost of am-
bulance services (as described in subsection (s)(7))
provided during a fiscal year (beginning with fiscal
year 1998 and ending with fiscal year 2002), the
Secretary shall not recognize any costs in excess of
costs recognized as reasonable for ambulance serv-
ices provided during the previous fiscal year after
application of this subparagraph, increased by the
percentage increase in the consumer price index for
all urban consumers (U.S. city average) as estimated
1100
by the Secretary for the 12-month period ending
with the midpoint of the fiscal year involved reduced
(in the case of each of fiscal years 1998 and 1999)
by 1 percentage point.’’.
(2) PAYMENTS DETERMINED ON REASONABLE
CHARGE
BASIS.—Section 
1842(b) 
(42 
U.S.C.
1395u(b)) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(19) For purposes of section 1833(a)(1), the reason-
able charge for ambulance services (as described in section
1861(s)(7)) provided during a fiscal year (beginning with
fiscal year 1998 and ending with fiscal year 2002) may
not exceed the reasonable charge for such services pro-
vided during the previous fiscal year after the application
of this paragraph, increased by the percentage increase
in the consumer price index for all urban consumers (U.S.
city average) as estimated by the Secretary for the 12-
month period ending with the midpoint of the year in-
volved reduced (in the case of each of fiscal years 1998
and 1999) by 1 percentage point.’’.
(b) ESTABLISHMENT OF PROSPECTIVE FEE SCHED-
ULE.—
(1) PAYMENT
IN
ACCORDANCE
WITH
FEE
SCHEDULE.—Section 
1833(a)(1) 
(42 
U.S.C.
1101
1395l(a)(1)), as amended by section 10619(b)(1), is
amended—
(A) by striking ‘‘and (P)’’ and inserting
‘‘(P)’’; and
(B) by striking the semicolon at the end
and inserting the following: ‘‘, and (Q) with re-
spect to ambulance service, the amounts paid
shall be 80 percent of the lesser of the actual
charge for the services or the amount deter-
mined by a fee schedule established by the Sec-
retary under section 1834(l);’’.
(2) ESTABLISHMENT
OF
SCHEDULE.—Section
1834 (42 U.S.C. 1395m), as amended by section
10421(a)(2), is amended by adding at the end the
following new subsection:
‘‘(l) ESTABLISHMENT OF FEE SCHEDULE FOR AM-
BULANCE SERVICES.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish a fee schedule for payment for ambulance serv-
ices under this part through a negotiated rulemaking
process described in title 5, United States Code, and
in accordance with the requirements of this sub-
section.
‘‘(2) CONSIDERATIONS.—In establishing such
fee schedule the Secretary shall—
1102
‘‘(A) establish mechanisms to control in-
creases in expenditures for ambulance services
under this part;
‘‘(B) establish definitions for ambulance
services which link payments to the type of
services provided;
‘‘(C) consider appropriate regional and
operational differences;
‘‘(D) consider adjustments to payment
rates to account for inflation and other relevant
factors; and
‘‘(E) phase in the application of the pay-
ment rates under the fee schedule in an effi-
cient and fair manner.
‘‘(3) SAVINGS.—In establishing such fee sched-
ule the Secretary shall—
‘‘(A) ensure that the aggregate amount of
payments made for ambulance services under
this part during 2000 does not exceed the ag-
gregate amount of payments which would have
been made for such services under this part
during such year if the amendments made by
section 10431 of the Balanced Budget Act of
1997 had not been made; and