(2) the Secretary shall—
(A) increase the amount allocated under
section 103(a) to the class of services under the
medicare health expenditure budget for that
year by such amount, and
(B) decrease the amount allocated under
section 103(a) to the class of services under the
nonmedicare health expenditure budget for that
year by such amount.
(b) SUBSEQUENT YEARS.—If the Secretary makes a
change in a budget or allocation in a particular year under
subsection (a) with respect to a class of services—
(1) the budgets and allocations for subsequent
years shall be computed based upon the changes
made in the budget or allocations for the particular
year, and
(2) the Secretary may adjust the medicare
trend factor (under section 103(b)(1)(B)) and
nonmedicare 
trends 
factor 
(under 
section
103(b)(2)(B)) applied to such class of services in
subsequent years to the extent appropriate to reflect
any difference between the trend factor otherwise
applicable for the class and the annual rate of in-
crease in aggregate medicare and nonmedicare ex-
penditures for the services affected by the change.
SEC. 105. NATIONAL HEALTH EXPENDITURES REPORTING
SYSTEM.
(a) IN GENERAL.—The Secretary shall establish a
national health expenditures reporting system (in this sec-
tion referred to as the ‘‘system’’) for purposes of—
(1) establishing the national health expendi-
tures budget,
(2) allocating the health budgets among classes
of services,
(3) determining maximum payment rates,
(4) monitoring of State provider payment con-
trol systems, and
(5) otherwise carrying out this title.
(b) INFORMATION REPORTING.—
(1) BY PROVIDER.—Under the system, provid-
ers of health care services shall report (beginning
not later than January 1, 1995) such information
relating to the provision of health care services (in-
cluding the volume and receipts for such services) in
such form and manner (including the use of elec-
tronic transmission), by such classification, and at
such periodic intervals, as the Secretary shall specify
in regulation.
(2) USE OF REPORTING MECHANISMS.—To the
maximum extent practicable and appropriate, report-
ing under such system shall be done through report-
ing mechanisms (such as uniform hospital reports
provided under section 325) and using data bases
otherwise in use.
(3) USE
OF
SURVEYS.—The Secretary may,
where appropriate, provide for the collection of infor-
mation under the system through surveys of a sam-
ple of health care providers or with respect to a sam-
ple of information with respect to such providers.
(4) CONFIDENTIALITY.—Information gathered
pursuant to the authority provided under this sec-
tion shall not be disclosed in a manner that identi-
fies individual providers of services.
(5) TRANSITION.—Before January 1, 1995, for
purposes of this title, the Secretary may use such
other data collection and estimation techniques as
may be appropriate for purposes described in sub-
section (a).
(c) ENFORCEMENT.—If a provider of health services
is required, under the system under this section, to report
information and refuses, after being requested by the Sec-
retary, to provide the information required, or deliberately
provides information that is false, the Secretary may im-
pose a civil money penalty of not to exceed $10,000 for
each such refusal or provision of false information. The
provisions of section 1128A of the Social Security Act
(other than subsections (a) and (b)) shall apply to civil
money penalties under the previous sentence in the same
manner as such provisions apply to a penalty or proceed-
ing under section 1128A(a) of such Act.
(d) INCLUSION OF HEALTH MAINTENANCE ORGANI-
ZATIONS.—In this section, the term ‘‘provider of health
care services’’ includes health maintenance organizations.
Subtitle B—State Provider
Payment Control Systems
SEC. 121. STATE PROVIDER PAYMENT RATES.
(a) IN GENERAL.—In the case of a State with a State
provider payment control system (in this subtitle referred
to as a ‘‘State system’’) approved under this section—
(1) the payment rates provided under such sys-
tem shall apply to services covered under the system
and furnished in the State, and
(2) pursuant to section 140(a), maximum pay-
ment rates shall not be established or applied to
such services under subtitle C.
(b) PROCESS.—
(1) APPLICATION.—The Secretary may not ap-
prove a State system under this section unless the
State submits to the Secretary an application in
such form and manner as the Secretary may require
and containing the information and assurance re-
quired under this subtitle, together with any other
information and assurance as the Secretary may re-
quire.
(2) RESPONSE.—The Secretary shall be deemed
to have approved the application of a State under
paragraph (1) for a State system unless the Sec-
retary, within 90 days after the date the State sub-
mits the application to the Secretary, either denies
such application in writing or informs the State in
writing with respect to any additional information or
assurances needed to make a final determination
with respect to the application. After the date the
Secretary receives such additional information and
assurances, the application shall be deemed to be ap-
proved unless the Secretary, within 90 days of such
date, denies the application.
(3) DEEMED
APPROVAL
OF
CERTAIN
SYS-
TEMS.—
(A) IN GENERAL.—In the case of a hos-
pital reimbursement control system approved
under section 1886(c)(4) of the Social Security
Act or described in section 1814(b)(3) of such
Act and used for payment of hospital services
in the State under the medicare program, the
system is deemed to be a State system approved
under this section with respect to payment for
hospital services.
(B) TERMINATION.—Insofar as subpara-
graph (A) applies to a State system, the con-
tinuation of the approval of the system is condi-
tioned upon the system’s compliance with the
requirements of section 123(a).
(4) EFFECT OF APPROVAL.—The approval of a
State system under this section shall be deemed to
constitute the approval by the Secretary of a waiver
of such requirements relating to the determination
of payment amounts under the medicare and medic-
aid programs as may be necessary to implement
such system.
(c) CONDITIONS FOR APPROVAL.—
(1) IN GENERAL.—The Secretary shall approve
the application of a State with respect to a State
system only if the Secretary determines that the
conditions for approval described in sections 122 and
123 are met.
(2) LIMITATION ON DISAPPROVAL.—The Sec-
retary cannot deny the application of a State for a
State system on the ground that the methodology
used under the system to control payments for inpa-
tient hospital services is based on a payment meth-
(1) IN GENERAL.—Subject to paragraph (2),
the system applies to—
(A) inpatient hospital services (including
services of exempt hospitals (as defined in sec-
tion 151(f)(2)) statewide;
(B) inpatient and outpatient hospital serv-
ices (including services of exempt hospitals (as
so defined) statewide;
(C) physicians services statewide; or
(D) such inpatient and outpatient hospital
services and physicians services statewide.
(2) ADDITIONAL
CLASSES.—The system may
apply to services in a class of services in addition to
services described in paragraph (1) only if the sys-
tem applies to all services within such class of serv-
ices.
(b) APPLICATION
TO
ALL
PAYORS; EQUITABLE
TREATMENT.—
(1) APPLICATION TO ALL PAYORS.—The system
applies to substantially all payors (including the
medicare program and the medicaid program in the
State) for services to which the system applies.
(2) EQUITABLE
TREATMENT.—The Secretary
has been provided satisfactory assurances as to the
equitable treatment of all payors (including the med-
icare and medicaid programs and other Federal and
State programs) under the system.
(3) PAYMENT
RATE
DIFFERENTIALS
PER-
MITTED.—
(A) IN
GENERAL.—Subject to subpara-
graph (B), a State may provide for payment
rates for services furnished under the medicaid
program that are different from the payment
rates for services for which payment is made by
other payors.
(B) LIMITATION ON DIFFERENTIALS FOR
SERVICES UNDER MEDICAID.—The ratio of the
average rate of payment for services under the
medicaid program to such average rate of pay-
ment for the same services by health benefit
plans (other than the medicare and medicaid
programs) may not be less than the ratio of the
average of the rates of payment within the class
of services for which payment is provided under
the medicaid program to such average rate of
payment under other health benefit plans (other
than the medicare and medicaid programs) dur-
ing the most recent year before the implementa-
tion of the State system, as determined by the
Secretary.
(4) SEPARATE RATE NEGOTIATIONS PERMITTED
FOR
HEALTH
MAINTENANCE
ORGANIZATIONS.—A
State may provide that a health maintenance organi-
zation (as defined in section 2(b)) may negotiate di-
rectly with providers of services covered under the
system with respect to the organization’s rate of
payment for such services.
(5) MINIMUM
PAYMENT
RATES.—Under the
State system, the State may provide that the
amount of payment for any service within a class of
services under the system may not be less than a
minimum payment rate established by the State for
the services.
(c) OPERATION.—The system is operated directly by
the State or by a State agency or other public authority.
(d) REPORTS REQUIRED.—Providers of services cov-
ered under the system must make such reports as the Sec-
retary may require in order to monitor assurances pro-
vided under section 123 and make determinations under
section 124.
(e) ASSURANCES
OF
CONTINUED
ACCESS.—The
State must provide the Secretary with satisfactory assur-
ances that operation of the system will not result in any
change in hospital admission practices or the provision of
other services which result in—
(1) a significant reduction in the proportion of
patients (receiving services covered under the sys-
tem) who have no third-party coverage and who are
unable to pay for such services,
(2) a significant reduction in the proportion of
individuals provided services for which payment is
(or is likely to be) less than the anticipated charges
or costs of such services, or
(3) the refusal to provide services to individuals
who would be expected to require unusually costly or
prolonged treatment for reasons other than those re-
lated to the appropriateness of the care available
from the provider.
(f) SPECIAL REQUIREMENTS FOR HOSPITAL ADMIS-
SIONS AND EXCLUSIONS.—If the system applies to pay-
ment for hospital services, the system requires hospitals
to which the system applies to meet the requirement of
section 1866(a)(1)(G) of the Social Security Act with re-
spect to the medicare program and the system provides
for the exclusion of certain costs in accordance with sec-
tion 1862(a)(14) of such Act (except for such waivers
thereof as the Secretary provides by regulation).
SEC. 123. CONTROL OF AGGREGATE EXPENDITURES RE-
QUIREMENT FOR STATE SYSTEMS.
(a) ASSURANCES REQUIRED.—
(1) IN GENERAL.—A State system may not be
approved until the Secretary has been provided sat-
isfactory assurances that under the system, during a
3-year period (the first such period beginning with
the first month in which this section applies to that
system in the State)—
(A) the sum of the aggregate medicare and
nonmedicare expenditures (as defined in section
101(d)) for the class (or classes) of services
covered under the system will not exceed the
applicable total limit specified in paragraph (2);
and
(B) the aggregate medicare expenditures
for such class (or classes) under the system will
not exceed the applicable medicare limit speci-
fied in paragraph (3).
(2) APPLICABLE TOTAL LIMIT.—The applicable
total limit specified in this paragraph is the total of
the maximum amount of payments that would be
payable in the State for the covered class (or class-
es) of services if the State system were not in effect.
(3) APPLICABLE MEDICARE LIMIT.—The appli-
cable medicare limit specified in this paragraph is
the total of the maximum amount of payments that
would be payable in the State for the covered class
(or classes) of services under the medicare program
if the State system were not in effect.
(4) SPECIAL
RULE
FOR
EXPENDITURES
FOR
HMOS.—In determining aggregate expenditures for
purposes of subparagraphs (A) and (B) of para-
graph (1), the Secretary shall exclude expenditures
for services of staff or group model health mainte-
nance organizations if the State system provides
that such organizations may negotiate directly with
providers of services covered under the system with
respect to the organization’s rate of payment for
such services and, in determining the applicable lim-
its under paragraphs (2) and (3), the Secretary shall
exclude payments for services of such organizations.
(b) ANNUAL DETERMINATION BY SECRETARY.—
(1) IN GENERAL.—The Secretary shall annually
determine whether a State system met the assur-
ances required under subsection (a) for the most re-
cent 3-year period for which the State system was
in effect.
(2) AGGREGATION.—The Secretary may not de-
termine under paragraph (1) that—
(A) aggregate medicare and nonmedicare
expenditures under a State system exceeded the
applicable total limit for a 3-year period unless
the Secretary determines that, for all classes of
services covered under the system, aggregate
medicare and nonmedicare expenditures in the
State exceeded such limit for all such classes,
and
(B) aggregate medicare expenditures under
a State system exceeded the applicable medicare
limit for a 3-year period unless the Secretary
determines that, for all classes of services cov-
ered under the system, aggregate medicare ex-
penditures in the State exceeded the applicable
medicare limit for all such classes.
(c) USE OF MEDICARE SAVINGS.—
(1) IN GENERAL.—If the Secretary determines
that a State system under this subtitle has resulted
in medicare savings over a period of 3 consecutive
years, in the 4th year there shall be paid to the
State an amount equal to the medicare savings in
the first year of such 3-year period. Such payments
shall be made from the Federal Hospital Insurance
Trust Fund or the Federal Supplementary Medical
Insurance Trust Fund in such amounts as reflects
the medicare savings attributable to the respective
Trust Fund in such first year.
(2) DEFINITIONS.—In this subsection:
(A) The term ‘‘medicare spending’’ means,
with respect to a State in a year, aggregate
medicare expenditures incurred under the medi-
care program in the State in the year.
(B) The term ‘‘baseline medicare spend-
ing’’ means, with respect to a State in a year,
the amount of aggregate medicare expenditures
that the Secretary estimates would have been
incurred under the medicare program in the
State in the year if this subtitle did not apply
in the State.
(C) The term ‘‘medicare savings’’ means,
with respect to a State in a year, the amount
by which the baseline medicare spending for the
State in the year exceeds the medicare spending
for the State in the year.
SEC. 124. TREATMENT OF STATES FAILING TO CONTROL
AGGREGATE EXPENDITURES
(a) IN GENERAL.—The Secretary shall terminate the
State system (in accordance with section 125) or impose
a sanction described in subsection (b) on a State if the
Secretary determines that, with respect to a State system
under this subtitle for a 3-year period—
(1) the aggregate medicare and nonmedicare
expenditures (as defined in section 101(d)) for the
class (or classes) of services covered under the sys-
tem exceeded the applicable total limit specified in
section 123(a)(2); or
(2) the aggregate medicare expenditures for the
class (or classes) of services covered under the sys-
tem exceeded the applicable medicare limit specified
in section 123(a)(3).
(b) SANCTIONS.—The sanctions described in this
subsection are as follows:
(1) In the case of a determination under sub-
section (a)(1), a reduction in the aggregate
nonmedicare expenditures otherwise applicable for
the class (or classes) of services covered under the
system for the following year (or for the following 3-
year period, if the Secretary determines that a re-
duction for such period is appropriate in the case of
a State) in an amount equal to—
(A) the amount by which the aggregate
medicare and nonmedicare expenditures for the
class (or classes) for the preceding 3-year pe-
riod exceeded the applicable total limit, less
(B) the amount of any reduction under
paragraph (2).
(2) In the case of a determination under sub-
section (a)(2), a reduction in the aggregate medicare
expenditures otherwise applicable for the class (or
classes) of services covered under the system for the
following year (or for the following 3-year period, if
the Secretary determines that a reduction for such
period is appropriate in the case of a State) in an
amount equal to the amount by which the aggregate
medicare expenditures for the class (or classes) for
the preceding 3-year period exceeded the applicable
medicare limit.
(c) NOTICE.—The Secretary may not impose any
sanction against a State under subsection (b) unless the
Secretary has provided the State with notice of the Sec-
retary’s determination under subsection (a) and intent to
impose the sanction under subsection (b).
SEC. 125. TERMINATION OF APPROVAL OF STATE SYSTEM.
(a) PROCESS REQUIREMENTS.—
(1) NOTICE.—The Secretary may terminate the
approval of a State system under this subtitle only
after the expiration of a 90-day period beginning on
the date the Secretary informs the State of the Sec-
retary’s intention to terminate such approval, unless,
during such 90-day period, the State requests a
hearing with the Secretary.
(2) HEARING.—If the State requests a hearing
during the 90-day period described in paragraph (1),
under section 161 to services within the class
(or classes) of services that were covered under
a State system for which approval was termi-
nated under this section by such factor as the
Secretary determines necessary to decrease the
amount of aggregate medicare expenditures
that would otherwise be made for services pro-
vided in the State by the amount by which ag-
gregate medicare expenditures for such class
(or classes) of services exceeded the applicable
medicare limit specified in section 123(a)(3) for
the preceding year.
(B) NONMEDICARE.—The Secretary shall
reduce the maximum payment rates applicable
under part 1 of subtitle C to services within the
class (or classes) of services that were covered
under a State system for which approval was
terminated under this section by such factor as
the Secretary determines necessary to decrease
the amount of aggregate nonmedicare expendi-
tures that would otherwise be made for services
provided in the State by—
(i) the amount by which aggregate
medicare and nonmedicare expenditures
for such class (or classes) of services ex-
ceeded the applicable total limit specified
in section 123(a)(2) for the preceding year,
less
(ii) the amount of any decrease in ag-
gregate medicare expenditures in the State
provided under subparagraph (A).
Subtitle 
C—Maximum 
Payment
Rates for Services Not Subject
to State Provider Payment Con-
trol Systems or Provided by
Staff or Group Model Health
Maintenance Organizations
SEC. 140. EXEMPTION FOR SERVICES SUBJECT TO AP-
PROVED STATE PROVIDER PAYMENT CON-
TROL SYSTEMS OR PROVIDED BY STAFF OR
GROUP MODEL HEALTH MAINTENANCE OR-
GANIZATIONS.
(a) APPROVED STATE PROVIDER PAYMENT CON-
TROL SYSTEMS.—In the case of services furnished in a
State and to which the State provider payment control
system (approved by the Secretary under section 121) ap-
plies—
(1) the Secretary shall not propose, establish,
or apply maximum payment rates to such services
under part 1 of this subtitle, and
(2) the adjustments on payments rates for such
services made under the medicare program under
section 161 shall not apply.
(b) SERVICES PROVIDED
BY STAFF
OR GROUP
MODEL HEALTH MAINTENANCE ORGANIZATIONS.—
(1) IN GENERAL.—Subject to paragraph (2),
the maximum payment rates established under part
1 shall not apply to charges or payments for services
furnished to individuals who are enrolled in a staff
or group model health maintenance organization (as
defined in section 2(b)(2)) with respect to health
care services covered under the subscriber agree-
ment.
(2) CONTINUED APPLICATION TO OUT-OF-AREA
COVERAGE AND EMERGENCY SERVICES.—Paragraph
(1) shall not apply to services described in section
1876(c)(4)(B) of the Social Security Act.
(3) INDIRECT APPLICATION UNDER MEDICARE
PROGRAM.—Nothing in this subsection shall be con-
strued as affecting the payment of amounts to
health maintenance organizations under the medi-
care program under a risk-sharing contract under
section 1876 of the Social Security Act. However,
adjustments in payment rates under section 161
may affect the computation of the average adjusted
per capita cost under such section.
PART 1—ESTABLISHMENT AND APPLICATION OF MAXI-
MUM PAYMENT RATES (OTHER THAN UNDER MEDI-
CARE PROGRAM)
SEC. 141. PROCESS.
(a) PUBLICATION
OF RATES.—Subject to section
140, the Secretary shall cause to have published in the
Federal Register—
(1) not later than April 1 of each year (or not
later than September 1, 1994, in the case of rates
for 1995), proposed maximum payment rates under
this subtitle for the following year for public com-
ment, and
(2) during the last 15 days of October of each
year (or not later than December 1, 1994, in the
case of rates for 1995), after such consideration of
public comment on the proposed rates, the maximum
payment rates under this subtitle for the following
year.
(b) ITEMS INCLUDED IN PUBLICATIONS.—The Sec-
retary shall include in the publications referred to in sub-
section (a)—
(1) a description of the payment methodology
used in the establishment of maximum payment
rates; and
(2) in the case of a publication under sub-
section (a)(2), the extent that the rates differ from
the applicable Commission’s recommendations under
subsection (c), an explanation of the Secretary’s
grounds for not following such recommendations.
(c) REPORTS OF COMMISSIONS.—With respect to the
establishment of maximum payment rates for services
under this subtitle, the applicable Commission, not later
than June 1 of each year, shall report its recommenda-
tions to the Secretary and Congress concerning such rates
for the following year. Each such report may include such
other recommendations relating to the operation of this
subtitle as the Commission considers appropriate.
(d) PAYMENT RATE DEFINED.—In this subtitle, the
term ‘‘payment rate’’ means, with respect to health care
services for which amounts are payable under a plan or
program, the rate of payment provided for under the plan
or 
program 
and 
including 
cost-sharing 
(including
deductibles, coinsurance, and extra billing amounts) appli-
cable under the plan or program with respect to the serv-
ices.
SEC. 142. PAYMENT METHODOLOGY; RELATION TO BUDGET
ALLOCATION.
(a) PAYMENT METHODOLOGY.—
(1) IN GENERAL.—The Secretary shall establish
maximum payment rates under this subtitle consist-
ent with the payment rate methodology specified
under part 2.
(2) TREATMENT
OF
SERVICES
WITHIN
A
CLASS.—Nothing in this title shall be construed as
requiring that maximum payment rates established
under this subtitle for different health care services
within a class of services be the same or determined
under the same methodology.
(b) RELATION
TO OVERALL LIMIT
ON EXPENDI-
TURES FOR CLASSES OF SERVICES.—
(1) IN
GENERAL.—The maximum payment
rates for a year shall be established under this sub-
title in a manner so that, as applied under section
143—
(A) the aggregate nonmedicare expendi-
tures for all the services within each class sub-
ject to such rates, is equal to
(B) the allocation to the class for the year
under 
section 
102 
with 
respect 
to 
the
nonmedicare health expenditure budget (less
the amount of the reduction in the allocation
provided under paragraph (2)).
(2) REMOVAL OF PORTION OF ALLOCATION AT-
TRIBUTABLE TO STATE PROVIDER PAYMENT CON-
TROL
SYSTEMS
OR
STAFF
OR
GROUP
MODEL
HEALTH MAINTENANCE ORGANIZATIONS.—For pur-
poses of paragraph (1)(B), the allocation to a class
of services for a year shall be reduced by the product
of—
(A) such allocation, and
(B) the proportion of such allocation that
the Secretary estimates is attributable to serv-
ices exempt under section 140 from the estab-
lishment or application of maximum payment
rates under this part.
SEC. 143. GENERAL APPLICATION AND ENFORCEMENT OF
MAXIMUM PAYMENT RATES.
(a) LIMITS ON CHARGES.—Subject to section 140—
(1) IN GENERAL.—In the case of a provider
that provides health care services to an individual
for which a maximum payment rate is established
under this subtitle—
(A) the provider may not charge (i) an
amount in excess of such rate or (ii) on a pay-
ment basis other than the payment basis estab-
lished for such services under part 2;
(B) the provider may not collect for such
services an amount in excess of such rate; and
(C) the individual and other entities, in-
cluding a health benefit plan, are not liable col-
lectively for payment of any amount that ex-
ceeds such rate.
(2) RELATION TO MEDICARE PROGRAM.—This
subsection shall not apply to services furnished to an
individual who is entitled to benefits with respect to
such services under the medicare program.
(b) ENFORCEMENT THROUGH CIVIL MONEY PEN-
ALTIES.—
(1) IMPROPER
CHARGES.—If a provider im-
poses a charge in violation of subsection (a)(1)(A),
the provider is subject to civil money penalty in an
amount not to exceed $100 for each such charge.
(2) IMPROPER COLLECTION.—If a provider col-
lects excess amounts in violation of subsection
(a)(1)(B) and does not refund such excess amounts
within 30 days of date on which the provider is noti-
fied that the provider collected excess amount, the
provider is subject to a civil money penalty in an
amount equal to three times the amount of such ex-
cess which has not been so refunded or, if greater,
$500.
(3) PROCESS.—The provisions of section 1128A
of the Social Security Act (other subsections (a) and
(b)) shall apply to a civil money penalty under this
subsection in the same manner as such provisions
apply to a penalty or proceeding under section
1128A(a) of such Act.
(4) DEPOSIT
OF
PENALTIES
IN
ANTI-FRAUD
AND ABUSE TRUST FUND.—Any civil money pen-
alties collected under this subsection shall be paid
into the Anti-Fraud and Abuse Trust Fund estab-
lished under section 341(b).
SEC. 144. LIMITATION ON PAYMENT RATES UNDER MEDIC-
AID.
(a) IN GENERAL.—Subject to subsection (b), not-
withstanding any other provision of law, payment may not
be made under section 1903(a)(1) of the Social Security
Act to a State for amounts expended as medical assistance
for health care services for which maximum payment rates
are established under this part, to the extent that the rate
of payment for such services exceeds the maximum pay-
ment rate so established.
(b) 
APPLICATION
OF
MEDICAID
PAYMENT
FLOORS.—Subsection (a) shall not apply to the extent
payment rates do not exceed the applicable minimum pay-
ment rates required to be provided under section 401 or
under section 1902(a)(13)(G) of the Social Security Act.
PART 2—METHODOLOGIES
FOR DETERMINING MAXI-
MUM RATES (OTHER THAN UNDER MEDICARE PRO-
GRAM)
SEC. 151. BASIS FOR MAXIMUM RATES OF PAYMENT FOR
INPATIENT HOSPITAL SERVICES.
(a) IN GENERAL.—
(1) IN GENERAL.—Subject to additions under
subsection (d) and to other adjustments under sub-
section (e), the maximum payment rate established
under this subtitle for a service within the class of
services consisting of inpatient hospital services that
is provided by a hospital (as defined in paragraph
(2)) during a year shall be equal to the product of—
(A) the standardized amount applicable to
the hospital, as established in accordance with
subsection (b); and
(B) the weighting factor assigned to the
service (as determined in accordance with sub-
section (c)).
(2) HOSPITAL DEFINED.—In this section, the
term ‘‘hospital’’ does not include an exempt hospital
(as defined in subsection (f)).
(b) 
ESTABLISHMENT
OF
STANDARDIZED
AMOUNTS.—
(1) IN GENERAL.—The Secretary shall establish
a standardized amount under subsection (a) for hos-
pitals located in a large urban area and for other
hospitals for a year by standardizing the hospital’s
average cost per discharge (based on the hospital’s
allowed operating receipts, as determined under
paragraph (2)) in accordance with paragraph (3).
For purposes of the preceding sentence, a hospital is
located in a ‘‘large urban area’’ if the hospital is
treated as being located in a large urban area under
section 1886(d) of the Social Security Act for pur-
poses of the medicare program.
(2) 
ALLOWED
OPERATING
RECEIPTS
DE-
FINED.—
(A) IN GENERAL.—For purposes of para-
graph (1) and except as provided in subpara-
graph (B), a hospital’s ‘‘allowed operating re-
ceipts’’ means the total of all receipts of the
hospital (without regard to the source) attrib-
utable to routine operating costs, ancillary serv-
ice operating costs, and special care unit oper-
ating costs with respect to inpatient hospital
services, as determined on an average per ad-
mission or per discharge basis (as determined
by the Secretary), during 1993, increased by
the Secretary’s estimate of the percentage in-
crease in such receipts between the midpoint of
1993 and the midpoint of 1994.
(B) EXCLUSIONS.—In determining a hos-
pital’s allowed operating receipts under sub-
paragraph (A), the Secretary shall exclude the
following:
(i) Receipts attributable to services
for which payment was made to the hos-
pital under the medicare program.
(ii) The value of the costs of services
which are treated as bad debt or charity
care (as defined by the Secretary) for pur-
poses of the hospital’s cost reports.
(iii) The value of the costs of services
furnished under the medicaid program
which are in excess of the payment re-
ceived from such program by the hospital.
(C) CERTAIN
OUTPATIENT
RECEIPTS
IN-
CLUDED.—In determining a hospital’s allowed
operating receipts under subparagraph (A), the
Secretary shall include all receipts attributable
to services that are provided by the hospital (or
by an entity wholly owned or operated by the
hospital) to a patient during the 3 days imme-
diately preceding the date of the patient’s ad-
mission if such services are diagnostic services
(including clinical diagnostic laboratory tests)
or are other services related to the admission
(as defined by the Secretary).
(3) PROCESS FOR STANDARDIZING AMOUNTS.—
The Secretary shall standardize the average per dis-
charge amount for each hospital for a year by—
(A) adjusting for variations among hos-
pitals by area in the average hospital wage
level, using the area wage level applied for hos-
pitals under the medicare program under sec-
tion 1886(d)(3)(E) of the Social Security Act;
(B) adjusting for variations in case mix
among hospitals;
(C) excluding an estimate of the additional
payments to be made for outliers, using the
amounts paid to hospitals for outliers under the
medicare program under section 1886(d)(5)(A)
of such Act (except that the Secretary may
apply different amounts if the Secretary finds
that such different amounts more accurately re-
flect outliers for services furnished to individ-
uals who are not medicare beneficiaries);
(D) adjusting for variations among hos-
pitals by area in input prices other than wages
and wage-related costs;
(E) excluding an estimate of indirect medi-
cal education costs, using the indirect medical
education adjustment applied for hospitals
under the medicare program under section
1886(d)(5)(B) of such Act;
(F) excluding an estimate of direct grad-
uate medical education costs; and
(G) excluding an estimate of capital-related
costs.
(c) 
ESTABLISHMENT
OF
DIAGNOSIS-RELATED
GROUPS AND WEIGHTING FACTORS.—
(1) IN GENERAL.—
(A) DIAGNOSIS-RELATED
GROUPS.—For
purposes of this section, the Secretary shall es-
tablish a classification of inpatient hospital dis-
charges by diagnosis-related groups and a
methodology for classifying specific hospital dis-
charges within these groups.
(B) WEIGHTING FACTORS.—For each di-
agnosis-related group established under sub-
paragraph (A), the Secretary shall assign an
appropriate weighting factor which reflects the
relative hospital resources used with respect to
discharges classified within that group com-
pared to discharges classified within other
groups.
(C) USE OF MEDICARE GROUPS AND FAC-
TORS.—In establishing diagnosis-related groups
and assigning weighting factors for such groups
under this paragraph, the Secretary shall use
the diagnosis-related groups and weighting fac-
tors used under the medicare program under
section 1886(d)(4) of the Social Security Act,
except to the extent that the Secretary must es-
tablish diagnosis-related groups in addition to
the groups under such program, or adjust such
weighting factors, to take into account the ap-
plication of payment rates under this section to
inpatient hospital services furnished to individ-
uals who are not medicare beneficiaries.
(2) STANDARD BENEFIT PACKAGE.—The diag-
nosis-related groups and the weighting factors as-
signed to such groups shall be based upon a stand-
ard benefit package consisting of the standard inpa-
tient hospital services provided under health benefit
plans (other than the medicare program and the
medicaid program), as determined by the Secretary
on the basis of a survey of such plans.
(3) 
ADJUSTMENT
FOR
VARIATIONS
FROM
STANDARD BENEFIT PACKAGE.—The Secretary shall
establish a table of adjustment factors to adjust the
weighting factors to reflect the actuarial differences
between the value of the coverage under the stand-
ard benefit package described in paragraph (2) and
the value of the services provided under health bene-
fit plans that vary from the services provided under
the standard benefit package.
(d) INCREASES TO MAXIMUM PAYMENT RATES.—
(1) COSTS
OF
DIRECT
GRADUATE
MEDICAL
EDUCATION.—In the case of a hospital that has in-
curred costs for direct graduate medical education
during a year, the Secretary shall increase the maxi-
mum payment rate otherwise applicable under this
section to inpatient services furnished by the hos-
pital, consistent with the methodology used to make
payments to hospitals under the medicare program
for such costs under section 1886(h) of the Social
Security Act.
(2) ADJUSTMENT FOR INDIRECT MEDICAL EDU-
CATION.—The Secretary shall increase the maximum
payment rate otherwise applicable under this section
for a hospital for to take into account indirect costs
of medical education incurred by a hospital, in ac-
cordance with the methodology used to adjust pay-
ments to hospitals under the medicare program for
such costs under section 1886(d)(5)(B) of the Social
Security Act.
(3) ADJUSTMENT
FOR
OUTLIERS.—The Sec-
retary shall increase the maximum payment rate
otherwise applicable under this section for a hos-
pital—
(A) for length of stay outliers for dis-
charges in a diagnosis-related group (as deter-
mined by the Secretary in accordance with the
criteria used to adjust payments to hospitals
under the medicare program for such outliers
under section 1886(d)(5)(A)(i) of the Social Se-
curity Act); and
(B) for cost outliers for any discharges in
a diagnosis-related group (as determined by the
Secretary in accordance with the criteria used
to adjust payments to hospitals under the medi-
care program for such outliers under section
1886(d)(5)(A)(ii) of the Social Security Act).
(4) UNCOMPENSATED
CARE
ADJUSTMENT.—
The Secretary shall increase the maximum payment
rate otherwise applicable under this section for a
hospital to take into account the costs incurred by
a hospital in providing services described in clause
(ii) or (iii) of subsection (b)(2)(B).
(e) OTHER ADJUSTMENTS.—
(1) NEEDS OF CERTAIN FACILITIES.—The Sec-
retary may adjust the maximum payment rates oth-
erwise determined under this section in such manner
and to such extent as the Secretary considers appro-
priate to take into account the needs of—
(A) regional and national referral centers
described in section 1886(d)(5)(C) of the Social
Security Act;
(B) sole community hospitals described in
section 1886(d)(5)(D) of such Act; and
(C) essential access hospitals designated by
the Secretary under section 1820(i)(1) of such
Act.
(2) 
PAYMENTS
FOR
TRANSFERRED
PA-
TIENTS.—The Secretary shall provide for an adjust-
ment to the maximum payment rates under this sec-
tion to take into account inpatient hospital services
provided to patients transferred to (or from) the