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pital if it were not reimbursed under such
section.’’.
(b) PAYMENT TO HOSPITALS OF INDIRECT MEDICAL
EDUCATION
COSTS.—Section 
1886(d) 
(42 
U.S.C.
1395ww(d)) is amended by adding at the end the following:
‘‘(11) ADDITIONAL
PAYMENTS
FOR
MANAGED
CARE SAVINGS.—
‘‘(A) IN GENERAL.—For portions of cost re-
porting periods occurring on or after January 1,
1998, the Secretary shall provide for an addi-
tional payment amount for each applicable dis-
charge of any subsection (d) hospital (or any
hospital reimbursed under a reimbursement sys-
tem authorized under section 1814(b)(3)) that
has an approved medical residency training pro-
gram.
‘‘(B) APPLICABLE
DISCHARGE.—For pur-
poses of this paragraph, the term ‘applicable dis-
charge’ means the discharge of any individual
who is enrolled under a risk-sharing contract
with an eligible organization under section 1876
and who is entitled to benefits under part A or
any individual who is enrolled with a Medicare
Choice organization under part C.
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‘‘(C) DETERMINATION
OF
AMOUNT.—The
amount of the payment under this paragraph
with respect to any applicable discharge shall be
equal to the applicable percentage (as defined in
subsection (h)(3)(D)(ii)) of the estimated average
per discharge amount that would otherwise have
been paid under paragraph (1)(A) if the individ-
uals had not been enrolled as described in sub-
paragraph (B).’’.
SEC. 5452. DEMONSTRATION PROJECT ON USE OF CONSOR-
TIA.
(a) IN GENERAL.—The Secretary of Health and
Human Services (in this section referred to as the ‘‘Sec-
retary’’) shall establish a demonstration project under
which, instead of making payments to teaching hospitals
pursuant to section 1886(h) of the Social Security Act, the
Secretary shall make payments under this section to each
consortium that meets the requirements of subsection (b).
(b) QUALIFYING CONSORTIA.—For purposes of sub-
section (a), a consortium meets the requirements of this sub-
section if the consortium is in compliance with the follow-
ing:
(1) The consortium consists of an approved med-
ical residency training program in a teaching hos-
pital and one or more of the following entities:
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(A) A school of allopathic medicine or osteo-
pathic medicine.
(B) Another teaching hospital, which may
be a children’s hospital.
(C) Another approved medical residency
training program.
(D) A federally qualified health center.
(E) A medical group practice.
(F) A managed care entity.
(G) An entity furnishing outpatient serv-
ices.
(I) Such other entity as the Secretary deter-
mines to be appropriate.
(2) The members of the consortium have agreed
to participate in the programs of graduate medical
education that are operated by the entities in the con-
sortium.
(3) With respect to the receipt by the consortium
of payments made pursuant to this section, the mem-
bers of the consortium have agreed on a method for
allocating the payments among the members.
(4) The consortium meets such additional re-
quirements as the Secretary may establish.
(c) AMOUNT AND SOURCE OF PAYMENT.—The total of
payments to a qualifying consortium for a fiscal year pur-
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suant to subsection (a) shall not exceed the amount that
would have been paid under section 1886(h) of the Social
Security Act for the teaching hospital (or hospitals) in the
consortium. Such payments shall be made in such propor-
tion from each of the trust funds established under title
XVIII of such Act as the Secretary specifies.
CHAPTER 4—OTHER HOSPITAL PAYMENTS
SEC. 5461. DISPROPORTIONATE SHARE PAYMENTS TO HOS-
PITALS FOR MANAGED CARE AND MEDICARE
CHOICE ENROLLEES.
Section 1886(d) (42 U.S.C. 1395ww(d)) (as amended
by section 5451) is amended by adding at the end the fol-
lowing:
‘‘(12) ADDITIONAL
PAYMENTS
FOR
MANAGED
CARE AND MEDICARE CHOICE SAVINGS.—
‘‘(A) IN GENERAL.—For portions of cost re-
porting periods occurring on or after January 1,
1998, the Secretary shall provide for an addi-
tional payment amount for each applicable dis-
charge of—
(i) any subsection (d) hospital that is
a disproportionate share hospital (as de-
scribed in paragraph (5)(F)(i)); or
(ii) any hospital reimbursed under a
reimbursement system authorized under sec-
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tion 1814(b)(3)) if such hospital would
qualify as a disproportionate share hospital
were it not so reimbursed.
‘‘(B) APPLICABLE
DISCHARGE.—For pur-
poses of this paragraph, the term ‘applicable dis-
charge’ means the discharge of any individual
who is enrolled under a risk-sharing contract
with an eligible organization under section 1876
and who is entitled to benefits under part A or
any individual who is enrolled with a Medicare
Choice organization under part C.
‘‘(C) DETERMINATION
OF
AMOUNT.—The
amount of the payment under this paragraph
with respect to any applicable discharge shall be
equal to the applicable percentage (as defined in
subsection (h)(3)(D)(ii)) of the estimated average
per discharge amount that would otherwise have
been paid under paragraph (1)(A) if the individ-
uals had not been enrolled as described in sub-
paragraph (B).’’.
SEC. 5462. REFORM OF DISPROPORTIONATE SHARE PAY-
MENTS TO HOSPITALS SERVING VULNERABLE
POPULATIONS.
(a) IN GENERAL.—Section 1886(d)(5)(F) of the Social
Security Act (42 U.S.C. 1395ww(d)(5)(F)) is amended—
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(1) in clause (i), by inserting ‘‘and before De-
cember 31, 1998,’’ after ‘‘May, 1, 1986,’’;
(2) in clause (ii), by striking ‘‘The amount’’ and
inserting ‘‘Subject to clauses (ix) and (x), the
amount’’; and
(3) by adding at the end the following:
‘‘(ix) In the case of discharges occurring on or
after October 1, 1997, and before December 31, 1998,
the additional payment amount otherwise determined
under clause (ii) shall be reduced by 4 percent.
‘‘(x)(I) In the case of discharges occurring dur-
ing calendar years 1999 and succeeding calendar
years, the additional payment amount shall be deter-
mined in accordance with the formula established
under subclause (II).
‘‘(II) Not later than January 1, 1999, the Sec-
retary shall establish a formula for determining addi-
tional payment amounts under this subparagraph. In
determining such formula the Secretary shall—
‘‘(aa) establish a single threshold for costs
incurred by hospitals in serving low-income pa-
tients,
‘‘(bb) consider the costs described in sub-
clause (III), and
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‘‘(cc) ensure that such formula complies
with the requirement described in subclause (IV).
‘‘(III) The costs described in this subclause are
as follows:
‘‘(aa) The costs incurred by the hospital
during a period (as determined by the Secretary)
of furnishing inpatient and outpatient hospital
services to individuals who are entitled to bene-
fits under part A of this title and are entitled to
supplemental security income benefits under title
XVI (excluding any supplementation of those
benefits by a State under section 1616).
‘‘(bb) The costs incurred by the hospital
during a period (as so determined) of furnishing
inpatient and outpatient hospital services to in-
dividuals who are eligible for medical assistance
under the State plan under title XIX and are
not entitled to benefits under part A of this title
(including individuals enrolled in a health
maintenance organization (as defined in section
1903(m)(1)(A)) or any other managed care plan
under such title, individuals who are eligible for
medical assistance under such title pursuant to
a waiver approved by the Secretary under sec-
tion 1115, and individuals who are eligible for
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medical assistance under the State plan under
title XIX (regardless of whether the State has
provided reimbursement for any such assistance
provided under such title)).
‘‘(cc) The costs incurred by the hospital dur-
ing a period (as so determined) of furnishing in-
patient and outpatient hospital services to indi-
viduals who are not described in item (aa) or
(bb) and who do not have health insurance cov-
erage (or any other source of third party pay-
ment for such services) and for which the hos-
pital did not receive compensation.
‘‘(IV)(aa) The requirement described in this sub-
clause is that for each calendar year for which the
formula established under this clause applies, the ad-
ditional payment amount determined for such cal-
endar year under such formula shall not exceed an
amount equal to the additional payment amount
that, in the absence of such formula, would have been
determined under this subparagraph, reduced by the
applicable percentage for such calendar year.
‘‘(bb) For purposes of subclause (aa), the appli-
cable percentage for—
‘‘(AA) calendar year 1999 is 8 percent;
‘‘(BB) calendar year 2000 is 12 percent;
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‘‘(CC) calendar year 2001 is 16 percent;
‘‘(DD) calendar year 2002 is 20 percent;
‘‘(EE) calendar year 2003 and subsequent
calendar years, is 0 percent’’.
(b) DATA COLLECTION.—
(1) IN
GENERAL.—In developing the formula
under section 1886(g)(5)(F)(x) of the Social Security
Act (42 U.S.C. 1395ww(g)(5)(F)(x)), as added by sub-
section (a), and in implementing the provisions of
and amendments made by this section, the Secretary
of Health and Human Services may require any sub-
section 
(d) 
hospital 
(as 
defined 
in 
section
1886(d)(1)(B) of the Social Security Act (42 U.S.C.
1395ww(d)(1)(B))) receiving additional payments by
reason of section 1886(d)(5)(F) of that Act (42 U.S.C.
1395ww(d)(5)(F)) (as amended by subsection (a) of
this section) to submit to the Secretary any informa-
tion that the Secretary determines is necessary to im-
plement the provisions of and amendments made by
this section.
(2) FAILURE TO COMPLY.—Any subsection (d)
hospital (as so defined) that fails to submit to the
Secretary of Health and Human Services any infor-
mation requested under paragraph (1), shall be
deemed ineligible for an additional payment amount
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under section 1886(d)(5)(F) of the Social Security
Act (42 U.S.C. 1395ww(d)(5)(F)) (as amended by
subsection (a) of this section).
(c) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to discharges occurring on and after
October 1, 1997.
SEC. 5463. MEDICARE CAPITAL ASSET SALES PRICE EQUAL
TO BOOK VALUE.
(a) IN GENERAL.—Section 1861(v)(1)(O) (42 U.S.C.
1395x(v)(1)(O)) is amended—
(1) in clause (i)—
(A) by striking ‘‘and (if applicable) a re-
turn on equity capital’’;
(B) by striking ‘‘hospital or skilled nursing
facility’’ and inserting ‘‘provider of services’’;
(C) by striking ‘‘clause (iv)’’ and inserting
‘‘clause (iii)’’; and
(D) by striking ‘‘the lesser of the allowable
acquisition cost’’ and all that follows and insert-
ing ‘‘the historical cost of the asset, as recognized
under this title, less depreciation allowed, to the
owner of record as of the date of enactment of the
Balanced Budget Act of 1997 (or, in the case of
an asset not in existence as of that date, the first
owner of record of the asset after that date).’’;
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(2) by striking clause (ii); and
(3) by redesignating clauses (iii) and (iv) as
clauses (ii) and (iii), respectively.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) apply to changes of ownership that occur after
the third month beginning after the date of enactment of
this section.
SEC. 5464. ELIMINATION OF IME AND DSH PAYMENTS AT-
TRIBUTABLE TO OUTLIER PAYMENTS.
(a) 
INDIRECT
MEDICAL
EDUCATION.—Section
1886(d)(5)(B)(i)(I) (42 U.S.C. 1395ww(d)(5)(B)(i)(I)) is
amended by inserting ‘‘, for cases qualifying for additional
payment under subparagraph (A)(i),’’ before ‘‘the amount
paid to the hospital under subparagraph (A)’’.
(b) DISPROPORTIONATE SHARE ADJUSTMENTS.—Sec-
tion 
1886(d)(5)(F)(ii)(I) 
(42 
U.S.C.
1395ww(d)(5)(F)(ii)(I)) is amended by inserting ‘‘, for
cases qualifying for additional payment under subpara-
graph (A)(i),’’ before ‘‘the amount paid to the hospital
under subparagraph (A)’’.
(c) 
COST
OUTLIER
PAYMENTS.—Section
1886(d)(5)(A)(ii) (42 U.S.C. 1395ww(d)(5)(A)(ii)) is
amended by striking ‘‘exceed the applicable DRG prospec-
tive payment rate’’ and inserting ‘‘exceed the sum of the
applicable DRG prospective payment rate plus any
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amounts payable under subparagraphs (B) and (F) of sub-
section (d)(5)’’.
(d) EFFECTIVE DATE.—The amendments made by this
section apply to discharges occurring after September 30,
1997.
SEC. 5465. TREATMENT OF TRANSFER CASES.
(a) TRANSFERS TO PPS EXEMPT HOSPITALS AND
SKILLED NURSING FACILITIES.—Section 1886(d)(5)(I) (42
U.S.C. 1395ww(d)(5)(I)) is amended by adding at the end
the following new clause:
‘‘(iii) In carrying out this subparagraph, the Secretary
shall treat the term ‘transfer case’ as including the case of
an individual who, immediately upon discharge from, and
pursuant to the discharge planning process (as defined in
section 1861(ee)) of, a subsection (d) hospital—
‘‘(I) is admitted as an inpatient to a hospital or
hospital unit that is not a subsection (d) hospital for
the receipt of inpatient hospital services; or
‘‘(II) is admitted to a skilled nursing facility or
facility described in section 1861(y)(1) for the receipt
of extended care services.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply with respect to discharges occurring
on or after October 1, 1997.
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SEC. 5466. REDUCTIONS IN PAYMENTS FOR ENROLLEE BAD
DEBT.
Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amend-
ed by adding at the end the following new subparagraph:
‘‘(T) In determining such reasonable costs for hos-
pitals, the amount of bad debts otherwise treated as allow-
able costs which are attributable to the deductibles and coin-
surance amounts under this title shall be reduced—
‘‘(i) for cost reporting periods beginning on or
after October 1, 1997 and on or before December 31,
1998, by 25 percent of such amount otherwise allow-
able,
‘‘(ii) for cost reporting periods beginning during
calendar year 1999, by 40 percent of such amount
otherwise allowable, and
‘‘(iii) for cost reporting periods beginning during
a subsequent calendar year, by 50 percent of such
amount otherwise allowable.’’.
SEC. 5467. FLOOR ON AREA WAGE INDEX.
(a) 
IN
GENERAL.—For 
purposes 
of 
section
1886(d)(3)(E) of the Social Security Act (42 U.S.C.
1395ww(d)(3)(E)) for discharges occurring on or after Octo-
ber 1, 1997, the area wage index applicable under such sec-
tion to any hospital which is not located in a rural area
(as defined in section 1886(d)(2)(D) of such Act (42 U.S.C.
1395ww(d)(2)(D)) may not be less than the average of the
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area wage indices applicable under such section to hospitals
located in rural areas in the State in which the hospital
is located.
(b) IMPLEMENTATION.—The Secretary of Health and
Human Services shall adjust the area wage indices referred
to in subsection (a) for hospitals not described in such sub-
section in a manner which assures that the aggregate pay-
ments made under section 1886(d) of the Social Security
Act (42 U.S.C. 1395ww(d)) in a fiscal year for the operat-
ing costs of inpatient hospital services are not greater or
less than those which would have been made in the year
if this section did not apply.
(c) EXCLUSION OF CERTAIN WAGES.—In the case of
a hospital that is owned by a municipality and that was
reclassified as an urban hospital under section 1886(d)(10)
of the Social Security Act for fiscal year 1996, in calculat-
ing the hospital’s average hourly wage for purposes of geo-
graphic reclassification under such section for fiscal year
1998, the Secretary of Health and Human Services shall
exclude the general service wages and hours of personnel as-
sociated with a skilled nursing facility that is owned by
the hospital of the same municipality and that is physically
separated from the hospital to the extent that such wages
and hours of such personnel are not shared with the hospital
and are separately documented. A hospital that applied for
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and was denied reclassification as an urban hospital for
fiscal year 1998, but that would have received reclassifica-
tion had the exclusion required by this section been applied
to it, shall be reclassified as an urban hospital for fiscal
year 1998.
SEC. 5468. INCREASE BASE PAYMENT RATE TO PUERTO
RICO HOSPITALS.
Section 1886(d)(9)(A) (42 U.S.C. 1395ww(d)(9)(A)) is
amended—
(1) in the matter preceding clause (i), by strik-
ing ‘‘in a fiscal year beginning on or after October
1, 1987,’’,
(2) in clause (i), by striking ‘‘75 percent’’ and
inserting ‘‘for discharges beginning on or after Octo-
ber 1, 1997, 50 percent (and for discharges between
October 1, 1987, and September 30, 1997, 75 per-
cent)’’, and
(3) in clause (ii), by striking ‘‘25 percent’’ and
inserting ‘‘for discharges beginning in a fiscal year
beginning on or after October 1, 1997, 50 percent
(and for discharges between October 1, 1987 and Sep-
tember 30, 1997, 25 percent)’’.
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SEC. 5469. PERMANENT EXTENSION OF HEMOPHILIA PASS-
THROUGH.
Effective October 1, 1997, section 6011(d) of OBRA–
1989 (as amended by section 13505 of OBRA–1993) is
amended by striking ‘‘and shall expire September 30,
1994’’.
SEC. 5470. COVERAGE OF SERVICES IN RELIGIOUS NON-
MEDICAL 
HEALTH 
CARE 
INSTITUTIONS
UNDER THE MEDICARE AND MEDICAID PRO-
GRAMS.
(a) MEDICARE COVERAGE.—
(1) IN GENERAL.—Section 1861 of the Social Se-
curity Act (42 U.S.C. 1395x) (as amended by section
5361) is amended—
(1) in the sixth sentence of subsection (e)—
(A) by striking ‘‘includes’’ and all that fol-
lows up to ‘‘but only’’ and inserting ‘‘includes a
religious nonmedical health care institution (as
defined in subsection (rr)(1)),’’, and
(B) by inserting ‘‘consistent with section
1821’’ before the period;
(2) in subsection (y)—
(A) by amending the heading to read as fol-
lows:
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‘‘Extended Care in Religious Nonmedical Health Care
Institutions’’,
(B) in paragraph (1), by striking ‘‘in-
cludes’’ and all that follows up to ‘‘but only’’ and
inserting ‘‘includes a religious nonmedical health
care institution (as defined in subsection
(rr)(1)),’’, and
(C) by inserting ‘‘consistent with section
1821’’ before the period; and
(3) by adding at the end the following:
‘‘Religious Nonmedical Health Care Institution
‘‘(rr)(1) The term ‘religious nonmedical health care in-
stitution’ means an institution that—
‘‘(A) is described in subsection (c)(3) of sec-
tion 501 of the Internal Revenue Code of 1986
and is exempt from taxes under subsection (a) of
such section;
‘‘(B) is lawfully operated under all applica-
ble Federal, State, and local laws and regula-
tions;
‘‘(C) provides only nonmedical nursing
items and services exclusively to patients who
choose to rely solely upon a religious method of
healing and for whom the acceptance of medical
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health services would be inconsistent with their
religious beliefs;
‘‘(D) provides such nonmedical items and
services exclusively through nonmedical nursing
personnel who are experienced in caring for the
physical needs of such patients;
‘‘(E) provides such nonmedical items and
services to inpatients on a 24-hour basis;
‘‘(F) on the basis of its religious beliefs, does
not provide through its personnel or otherwise
medical items and services (including any medi-
cal screening, examination, diagnosis, prognosis,
treatment, or the administration of drugs) for its
patients;
‘‘(G) is not a part of, or owned by, or under
common ownership with, or affiliated through
ownership with, a health care facility that pro-
vides medical services;
‘‘(H) has in effect a utilization review plan
which—
‘‘(i) provides for the review of admis-
sions to the institution, of the duration of
stays therein, of cases of continuous ex-
tended duration, and of the items and serv-
ices furnished by the institution,
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‘‘(ii) requires that such reviews be
made by an appropriate committee of the
institution that includes the individuals re-
sponsible for overall administration and for
supervision of nursing personnel at the in-
stitution,
‘‘(iii) provides that records be main-
tained of the meetings, decisions, and ac-
tions of such committee, and
‘‘(iv) meets such other requirements as
the Secretary finds necessary to establish an
effective utilization review plan;
‘‘(I) provides the Secretary with such infor-
mation as the Secretary may require to imple-
ment section 1821, to monitor quality of care,
and to provide for coverage determinations; and
‘‘(J) meets such other requirements as the
Secretary finds necessary in the interest of the
health and safety of individuals who are fur-
nished services in the institution.
‘‘(2) If the Secretary finds that the accreditation of an
institution by a State, regional, or national agency or asso-
ciation provides reasonable assurances that any or all of
the requirements of paragraph (1) are met or exceeded, the
Secretary shall, to the extent the Secretary deems it appro-
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priate, treat such institution as meeting the condition or
conditions with respect to which the Secretary made such
finding.
‘‘(3)(A)(i) In administering this subsection and section
1821, the Secretary shall not require any patient of a reli-
gious nonmedical health care institution to undergo any
medical screening, examination, diagnosis, prognosis, or
treatment or to accept any other medical health care service,
if such patient (or legal representative of the patient) objects
thereto on religious grounds.
‘‘(ii) Clause (i) shall not be construed as preventing
the Secretary from requiring under section 1821(a)(2) the
provision of sufficient information regarding an individ-
ual’s condition as a condition for receipt of benefits under
part A for services provided in such an institution.
‘‘(B)(i) In administering this subsection and section
1821, the Secretary shall not subject a religious nonmedical
health care institution to any medical supervision, regula-
tion, or control, insofar as such supervision, regulation, or
control would be contrary to the religious beliefs observed
by the institution.
‘‘(ii) Clause (i) shall not be construed as preventing
the Secretary from reviewing items and services billed by
the institution to the extent the Secretary determines such
review to be necessary to determine whether such items and
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services were not covered under part A, are excessive, or
are fraudulent.’’.
(2) CONDITIONS OF COVERAGE.—Part A of title
XVIII of the Social Security Act is amended by add-
ing at the end the following new section:
‘‘CONDITIONS FOR COVERAGE OF RELIGIOUS NONMEDICAL
HEALTH CARE INSTITUTIONAL SERVICES
‘‘SEC. 1821. (a) IN GENERAL.—Subject to subsections
(c) and (d), payment under this part may be made for in-
patient hospital services or post-hospital extended care serv-
ices furnished an individual in a religious nonmedical
health care institution only if—
‘‘(1) the individual has an election in effect for
such benefits under subsection (b); and
‘‘(2) the individual has a condition such that the
individual would qualify for benefits under this part
for inpatient hospital services or extended care serv-
ices, respectively, if the individual were an inpatient
or resident in a hospital or skilled nursing facility
that was not such an institution.
‘‘(b) ELECTION.—
‘‘(1) IN GENERAL.—An individual may make an
election under this subsection in a form and manner
specified by the Secretary consistent with this sub-
section. Unless otherwise provided, such an election
shall take effect immediately upon its execution. Such
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an election, once made, shall continue in effect until
revoked.
‘‘(2) FORM.—The election form under this sub-
section shall include the following:
‘‘(A) A statement, signed by the individual
(or 
such 
individual’s 
legal 
representative),
that—
‘‘(i) the individual is conscientiously
opposed to acceptance of nonexcepted medi-
cal treatment; and
‘‘(ii) the individual’s acceptance of
nonexcepted medical treatment would be in-
consistent with the individual’s sincere reli-
gious beliefs.
‘‘(B) A statement that the receipt of non-ex-
cepted medical services shall constitute a revoca-
tion of the election and may limit further receipt
of services described in subsection (a).
‘‘(3) REVOCATION.—An election under this sub-
section by an individual may be revoked in a form
and manner specified by the Secretary and shall be
deemed to be revoked if the individual receives medi-
care reimbursable non-excepted medical treatment, re-
gardless of whether or not benefits for such treatment
are provided under this title.
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‘‘(4) LIMITATION ON SUBSEQUENT ELECTIONS.—
Once an individual’s election under this subsection
has been made and revoked twice—
‘‘(A) the next election may not become effec-
tive until the date that is 1 year after the date
of most recent previous revocation, and
‘‘(B) any succeeding election may not be-
come effective until the date that is 5 years after
the date of the most recent previous revocation.
‘‘(5) EXCEPTED
MEDICAL
TREATMENT.—For
purposes of this subsection:
‘‘(A) EXCEPTED
MEDICAL
TREATMENT.—
The term ‘excepted medical treatment’ means
medical care or treatment (including medical
and other health services)—
‘‘(i) for the setting of fractured bones,
‘‘(ii) received involuntarily, or
‘‘(iii) required under Federal or State
law or law of a political subdivision of a
State.
‘‘(B) 
NON-EXCEPTED
MEDICAL
TREAT-
MENT.—The term ‘nonexcepted medical treat-
ment’ means medical care or treatment (includ-
ing medical and other health services) other than
excepted medical treatment.
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‘‘(c) MONITORING AND SAFEGUARD AGAINST EXCES-
SIVE EXPENDITURES.—
‘‘(1) ESTIMATE OF EXPENDITURES.—Before the
beginning of each fiscal year (beginning with fiscal
year 2000), the Secretary shall estimate the level of
expenditures under this part for services described in
subsection (a)for that fiscal year.
‘‘(2) ADJUSTMENT IN PAYMENTS.—
‘‘(A) PROPORTIONAL ADJUSTMENT.—If the
Secretary determines that the level estimated
under paragraph (1) for a fiscal year will exceed
the trigger level (as defined in subparagraph
(C)) for that fiscal year, the Secretary shall, sub-
ject to subparagraph (B), provide for such a pro-
portional reduction in payment amounts under
this part for services described in subsection (a)
for the fiscal year involved as will assure that
such level (taking into account any adjustment
under subparagraph (B)) does not exceed the
trigger level for that fiscal year.
‘‘(B) 
ALTERNATIVE
ADJUSTMENTS.—The
Secretary may, instead of making some or all of
the reduction described in subparagraph (A), im-
pose such other conditions or limitations with re-
spect to the coverage of covered services (includ-
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ing limitations on new elections of coverage and
new facilities) as may be appropriate to reduce
the level of expenditures described in paragraph
(1) to the trigger level.
‘‘(C) TRIGGER LEVEL.—For purposes of this
subsection, subject to adjustment under para-
graph (3)(B), the ‘trigger level’ for—
‘‘(i) fiscal year 1998, is $20,000,000,
or
‘‘(ii) a succeeding fiscal year is the
amount specified under this subparagraph
for the previous fiscal year increased by the
percentage increase in the consumer price
index for all urban consumers (all items;
United States city average) for the 12-
month period ending with July preceding
the beginning of the fiscal year.
‘‘(D) PROHIBITION OF ADMINISTRATIVE AND
JUDICIAL REVIEW.—There shall be no adminis-
trative or judicial review under section 1869,
1878, or otherwise of the estimation of expendi-
tures under subparagraph (A) or the application
of reduction amounts under subparagraph (B).
‘‘(E) EFFECT ON BILLING.—Notwithstand-
ing any other provision of this title, in the case
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of a reduction in payment provided under this
subsection for services of a religious nonmedical
health care institution provided to an individ-
ual, the amount that the institution is otherwise
permitted to charge the individual for such serv-
ices is increased by the amount of such reduc-
tion.
‘‘(3) MONITORING EXPENDITURE LEVEL.—
‘‘(A) IN
GENERAL.—The Secretary shall
monitor the expenditure level described in para-
graph (2)(A) for each fiscal year (beginning with
fiscal year 1999).
‘‘(B) ADJUSTMENT IN TRIGGER LEVEL.—If
the Secretary determines that such level for a fis-
cal year exceeded, or was less than, the trigger
level for that fiscal year, then the trigger level for
the succeeding fiscal year shall be reduced, or in-
creased, respectively, by the amount of such ex-
cess or deficit.
‘‘(d) SUNSET.—If the Secretary determines that the
level of expenditures described in subsection (c)(1) for 3 con-
secutive fiscal years (with the first such year being not ear-
lier than fiscal year 2002) exceeds the trigger level for such
expenditures for such years (as determined under subsection
(c)(2)), benefits shall be paid under this part for services
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described in subsection (a) and furnished on or after the
first January 1 that occurs after such 3 consecutive years
only with respect to an individual who has an election in
effect under subsection (b) as of such January 1 and only
during the duration of such election.
‘‘(e) ANNUAL REPORT.—At the beginning of each fiscal
year (beginning with fiscal year 1999), the Secretary shall
submit to the Committees on Ways and Means of the House
of Representatives and the Committee on Finance of the
Senate an annual report on coverage and expenditures for
services described in subsection (a) under this part and
under State plans under title XIX. Such report shall in-
clude—
‘‘(1) level of expenditures described in subsection
(c)(1) for the previous fiscal year and estimated for
the fiscal year involved;
‘‘(2) trends in such level; and
‘‘(3) facts and circumstances of any significant
change in such level from the level in previous fiscal
years.’’.
(b) MEDICAID.—
(1) The third sentence of section 1902(a) of such
Act (42 U.S.C. 1396a(a)) is amended by striking all
that follows ‘‘shall not apply’’ and inserting ‘‘to a re-
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ligious nonmedical health care institution (as defined
in section 1861(rr)(1)).’’.
(2) Section 1908(e)(1) of such Act (42 U.S.C.
1396g–1(e)(1)) is amended by striking all that follows
‘‘does not include’’ and inserting ‘‘a religious non-
medical health care institution (as defined in section
1861(rr)(1)).’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 1122(h) of such Act (42 U.S.C.
1320a–1(h)) is amended by striking all that follows
‘‘shall not apply to’’ and inserting ‘‘a religious non-
medical health care institution (as defined in section
1861(rr)(1)).’’.
(2) Section 1162 of such Act (42 U.S.C. 1320c–
11) is amended—
(A) by amending the heading to read as fol-
lows:
‘‘EXEMPTIONS FOR RELIGIOUS NONMEDICAL HEALTH CARE
INSTITUTIONS’’; and
(B) by striking all that follows ‘‘shall not
apply with respect to a’’ and inserting ‘‘religious
nonmedical health care institution (as defined in
section 1861(rr)(1)).’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
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Act and shall apply to items and services furnished on or
after such date. By not later than July 1, 1998, the Sec-
retary of Health and Human Services shall first issue regu-
lations to carry out such amendments. Such regulations
may be issued so they are effective on an interim basis
pending notice and opportunity for public comment. For
periods before the effective date of such regulations, such reg-
ulations shall recognize elections entered into in good faith
in order to comply with the requirements of section 1821(b)
of the Social Security Act.
CHAPTER 5—PAYMENTS FOR HOSPICE
SERVICES
SEC. 5481. PAYMENT FOR HOME HOSPICE CARE BASED ON
LOCATION WHERE CARE IS FURNISHED.
(a) IN GENERAL.—Section 1814(i)(2) (42 U.S.C.
1395f(i)(2)) is amended by adding at the end the following:
‘‘(D) A hospice program shall submit claims for pay-
ment for hospice care furnished in an individual’s home
under this title only on the basis of the geographic location
at which the service is furnished, as determined by the Sec-
retary.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) applies to cost reporting periods beginning on
or after October 1, 1997.
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SEC. 5482. HOSPICE CARE BENEFITS PERIODS.
(a) RESTRUCTURING OF BENEFIT PERIOD.—Section
1812 (42 U.S.C. 1395d) is amended in subsections (a)(4)
and (d)(1), by striking ‘‘, a subsequent period of 30 days,
and a subsequent extension period’’ and inserting ‘‘and an
unlimited number of subsequent periods of 60 days each’’.
(b) CONFORMING AMENDMENTS.—(1) Section 1812 (42
U.S.C. 1395d) is amended in subsection (d)(2)(B) by strik-
ing ‘‘90- or 30-day period or a subsequent extension period’’
and inserting ‘‘90-day period or a subsequent 60-day pe-
riod’’.
(2) Section 1814(a)(7)(A) (42 U.S.C. 1395f(a)(7)(A))
is amended—
(A) in clause (i), by inserting ‘‘and’’ at the end;
(B) in clause (ii)—
(i) by striking ‘‘30-day’’ and inserting ‘‘60-
day’’; and
(ii) by striking ‘‘, and’’ at the end and in-
serting a period; and
(C) by striking clause (iii).
SEC. 5483. OTHER ITEMS AND SERVICES INCLUDED IN HOS-
PICE CARE.
Section 1861(dd)(1) (42 U.S.C. 1395x(dd)(1)) is
amended—
(1) in subparagraph (G), by striking ‘‘and’’ at
the end;
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(2) in subparagraph (H), by striking the period
at the end and inserting ‘‘, and’’; and
(3) by inserting after subparagraph (H) the fol-
lowing:
‘‘(I) any other item or service which is specified
in the plan and for which payment may otherwise be
made under this title.’’.
SEC. 5484. CONTRACTING WITH INDEPENDENT PHYSICIANS
OR PHYSICIAN GROUPS FOR HOSPICE CARE
SERVICES PERMITTED.
Section 1861(dd)(2) (42 U.S.C. 1395x(dd)(2)) is
amended—
(1) in subparagraph (A)(ii)(I), by striking
‘‘(F),’’; and
(2) in subparagraph (B)(i), by inserting ‘‘or, in
the case of a physician described in subclause (I),
under contract with’’ after ‘‘employed by’’.
SEC. 5485. WAIVER OF CERTAIN STAFFING REQUIREMENTS
FOR HOSPICE CARE PROGRAMS IN NON-UR-
BANIZED AREAS.
Section 1861(dd)(5) (42 U.S.C. 1395x(dd)(5)) is
amended—
(1) in subparagraph (B), by inserting ‘‘or (C)’’
after ‘‘subparagraph (A)’’ each place it appears; and
(2) by adding at the end the following:
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‘‘(C) The Secretary may waive the requirements of
paragraph clauses (i) and (ii) of paragraph (2)(A) for an
agency or organization with respect to the services described
in paragraph (1)(B) and, with respect to dietary counsel-
ing, paragraph (1)(H), if such agency or organization—
‘‘(i) is located in an area which is not an urban-
ized area (as defined by the Bureau of the Census),
and
‘‘(ii) demonstrates to the satisfaction of the Sec-
retary that the agency or organization has been un-
able, despite diligent efforts, to recruit appropriate
personnel.’’.
SEC. 5486. LIMITATION ON LIABILITY OF BENEFICIARIES
FOR CERTAIN HOSPICE COVERAGE DENIALS.
Section 1879 (42 U.S.C. 1395pp) is amended—
(1) in subsection (a), in the matter following
paragraph (2), by inserting ‘‘and except as provided
in subsection (i),’’ after ‘‘to the extent permitted by
this title,’’;
(2) in subsection (g)—
(A) by redesignating paragraphs (1) and
(2) as subparagraphs (A) and (B), respectively,
and 
indenting 
such 
subparagraphs 
appro-
priately;
(B) by striking ‘‘is,’’ and inserting ‘‘is—’’;
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(C) by making the remaining text of sub-
section (g) (as amended) that follows ‘‘is—’’ a
new paragraph (1) and indenting that para-
graph appropriately;
(D) by striking the period at the end and
inserting ‘‘; and’’; and
(E) by adding at the end the following:
‘‘(2) with respect to the provision of hospice care
to an individual, a determination that the individual
is not terminally ill.’’; and
(3) by adding at the end the following:
‘‘(i) In any case involving a coverage denial with re-
spect to hospice care described in subsection (g)(2), only the
individual that received such care shall, notwithstanding
such determination, be indemnified for any payments that
the individual made to a provider or other person for such
care that would, but for such denial, otherwise be paid to
the individual under part A or B of this title.’’.
SEC. 5487. EXTENDING THE PERIOD FOR PHYSICIAN CER-
TIFICATION OF AN INDIVIDUAL’S TERMINAL
ILLNESS.
Section 1814(a)(7)(A)(i) (42 U.S.C. 1395f(a)(7)(A)(i))
is amended, in the matter following subclause (II), by strik-
ing ‘‘, not later than 2 days after hospice care is initiated
(or, if each certify verbally not later than 2 days after hos-
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pice care is initiated, not later than 8 days after such care
is initiated)’’ and inserting ‘‘at the beginning of the pe-
riod’’.
SEC. 5488. EFFECTIVE DATE.
Except as otherwise provided in this chapter, the
amendments made by this chapter apply to benefits pro-
vided on or after the date of the enactment of this chapter,
regardless of whether or not an individual has made an
election under section 1812(d) of the Social Security Act
(42 U.S.C. 1395d(d)) before such date.
Subtitle G—Provisions Relating to
Part B Only
CHAPTER 1—PAYMENTS FOR PHYSICIANS
AND OTHER HEALTH CARE PROVIDERS
SEC. 5501. ESTABLISHMENT OF SINGLE CONVERSION FAC-
TOR FOR 1998.
(a) IN GENERAL.—Section 1848(d)(1) (42 U.S.C.
1395w–4(d)(1)) is amended to read as follows:
‘‘(1) ESTABLISHMENT.—
‘‘(A) IN GENERAL.—The conversion factor
for each year shall be the conversion factor estab-
lished under this subsection for the previous
year, adjusted by the update established under
paragraph (3) for the year involved.
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‘‘(B) SPECIAL RULE FOR 1998.—The single
conversion factor for 1998 shall be the conversion
factor for primary care services for 1997, in-
creased by the Secretary’s estimate of the weight-
ed average of the 3 separate updates that would
otherwise occur but for the enactment of chapter
1 of subtitle G of title V of the Balanced Budget
Act of 1997.
‘‘(C) PUBLICATION.—The Secretary shall,
during the last 15 days of October of each year,
publish the conversion factor which will apply to
physicians’ services for the following year and
the update determined under paragraph (3) for
such year.’’.
(b) CONFORMING AMENDMENT.—Section 1848(i)(1)(C)
(42 U.S.C. 1395w–4(i)(1)(C)) is amended by striking ‘‘con-
version factors’’ and inserting ‘‘the conversion factor’’.
SEC. 5502. ESTABLISHING UPDATE TO CONVERSION FAC-
TOR TO MATCH SPENDING UNDER SUSTAIN-
ABLE GROWTH RATE.
(a) UPDATE.—
(1) IN GENERAL.—Section 1848(d)(3) (42 U.S.C.
1395w–4(d)(3)) is amended to read as follows:
‘‘(3) UPDATE.—
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‘‘(A) IN GENERAL.—Unless otherwise pro-
vided by law, subject to subparagraph (D) and
the budget-neutrality factor determined by the
Secretary under subsection (c)(2)(B)(ii), the up-
date to the single conversion factor established in
paragraph (1)(B) for a year beginning with
1999 is equal to the product of—
‘‘(i) 1 plus the Secretary’s estimate of
the percentage increase in the MEI (as de-
fined in section 1842(i)(3)) for the year (di-
vided by 100), and
‘‘(ii) 1 plus the Secretary’s estimate of
the update adjustment factor for the year
(divided by 100),
minus 1 and multiplied by 100.
‘‘(B) UPDATE ADJUSTMENT FACTOR.—For
purposes of subparagraph (A)(ii), the ‘update
adjustment factor’ for a year is equal to the
quotient (as estimated by the Secretary) of—
‘‘(i) the difference between (I) the sum
of the allowed expenditures for physicians’
services (as determined under subparagraph
(C)) for the period beginning July 1, 1997,
and ending on June 30 of the year involved,
and (II) the amount of actual expenditures
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for physicians’ services furnished during the
period beginning July 1, 1997, and ending
on June 30 of the preceding year; divided
by
‘‘(ii) the actual expenditures for physi-
cians’ services for the 12-month period end-
ing on June 30 of the preceding year, in-
creased by the sustainable growth rate
under subsection (f) for the fiscal year
which begins during such 12-month period.
‘‘(C) DETERMINATION
OF
ALLOWED
EX-
PENDITURES.—For purposes of this paragraph,
the allowed expenditures for physicians’ services
for the 12-month period ending with June 30
of—
‘‘(i) 1997 is equal to the actual expend-
itures for physicians’ services furnished dur-
ing such 12-month period, as estimated by
the Secretary; or
‘‘(ii) a subsequent year is equal to the
allowed expenditures for physicians’ services
for the previous year, increased by the sus-
tainable growth rate under subsection (f) for
the fiscal year which begins during such 12-
month period.
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‘‘(D) RESTRICTION
ON
VARIATION
FROM
MEDICARE
ECONOMIC
INDEX.—Notwithstanding
the amount of the update adjustment factor de-
termined under subparagraph (B) for a year, the
update in the conversion factor under this para-
graph for the year may not be—
‘‘(i) greater than 100 times the follow-
ing amount: (1.03 + (MEI percentage/100))
¥1; or
‘‘(ii) less than 100 times the following
amount: (0.93 + (MEI percentage/100))
¥1,
where ‘MEI percentage’ means the Secretary’s es-
timate of the percentage increase in the MEI (as
defined in section 1842(i)(3)) for the year in-
volved.’’.
(b) ELIMINATION OF REPORT.—Section 1848(d) (42
U.S.C. 1395w–4(d)) is amended by striking paragraph (2).
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to the update for years beginning with
1999.
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SEC. 5503. REPLACEMENT OF VOLUME PERFORMANCE
STANDARD 
WITH 
SUSTAINABLE 
GROWTH
RATE.
(a) IN GENERAL.—Section 1848(f) (42 U.S.C. 1395w–
4(f)) is amended by striking paragraphs (2) through (5)
and inserting the following:
‘‘(2) SPECIFICATION
OF
GROWTH
RATE.—The
sustainable growth rate for all physicians’ services for
a fiscal year (beginning with fiscal year 1998) shall
be equal to the product of—
‘‘(A) 1 plus the Secretary’s estimate of the
weighted average percentage increase (divided by
100) in the fees for all physicians’ services in the
fiscal year involved,
‘‘(B) 1 plus the Secretary’s estimate of the
percentage change (divided by 100) in the aver-
age number of individuals enrolled under this
part (other than Medicare Choice plan enrollees)
from the previous fiscal year to the fiscal year
involved,
‘‘(C) 1 plus the Secretary’s estimate of the
projected percentage growth in real gross domes-
tic product per capita (divided by 100) from the
previous fiscal year to the fiscal year involved,
and
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‘‘(D) 1 plus the Secretary’s estimate of the
percentage change (divided by 100) in expendi-
tures for all physicians’ services in the fiscal
year (compared with the previous fiscal year)
which will result from changes in law and regu-
lations, determined without taking into account
estimated changes in expenditures due to changes
in the volume and intensity of physicians’ serv-
ices resulting from changes in the update to the
conversion factor under subsection (d)(3),
minus 1 and multiplied by 100.
‘‘(3) DEFINITIONS.—In this subsection:
‘‘(A) SERVICES INCLUDED IN PHYSICIANS’
SERVICES.—The term ‘physicians’ services’ in-
cludes other items and services (such as clinical
diagnostic laboratory tests and radiology serv-
ices), specified by the Secretary, that are com-
monly performed or furnished by a physician or
in a physician’s office, but does not include serv-
ices furnished to a Medicare Choice plan en-
rollee.
‘‘(B) MEDICARE CHOICE PLAN ENROLLEE.—
The term ‘Medicare Choice plan enrollee’ means,
with respect to a fiscal year, an individual en-
rolled under this part who has elected to receive
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benefits under this title for the fiscal year
through a Medicare Choice plan offered under
part C, and also includes an individual who is
receiving benefits under this part through enroll-
ment with an eligible organization with a risk-
sharing contract under section 1876.’’.
(b) CONFORMING AMENDMENTS.—So much of section
1848(f) (42 U.S.C. 1395w–4(f)) as precedes paragraph (2)
is amended to read as follows:
‘‘(f) SUSTAINABLE GROWTH RATE.—
‘‘(1) PUBLICATION.—The Secretary shall cause to
have published in the Federal Register the sustainable
growth rate for each fiscal year beginning with fiscal
year 1998. Such publication shall occur in the last 15
days of October of the year in which the fiscal year
begins, except that such rate for fiscal year 1998 shall
be published not later than January 1, 1998.’’.
SEC. 5504. PAYMENT RULES FOR ANESTHESIA SERVICES.
(a) IN GENERAL.—Section 1848(d)(1) (42 U.S.C.
1395w–4(d)(1)), as amended by section 5501, is amended—
(A) in subparagraph (B), striking ‘‘The sin-
gle’’ and inserting ‘‘Except as provided in sub-
paragraph (C), the single’’;
(B) by redesignating subparagraph (C) as
subparagraph (D); and
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(C) by inserting after subparagraph (B) the
following new subparagraph:
‘‘(C) SPECIAL
RULES
FOR
ANESTHESIA
SERVICES.—The separate conversion factor for
anesthesia services for a year shall be equal to 46
percent of the single conversion factor established
for other physicians’ services, except as adjusted
for changes in work, practice expense, or mal-
practice relative value units.’’.
(b) CLASSIFICATION OF ANESTHESIA SERVICES.—The
first sentence of section 1848(j)(1) (42 U.S.C. 1395w–
4(j)(1)) is amended—
(1) by striking ‘‘and including anesthesia serv-
ices’’; and
(2) by inserting before the period the following:
‘‘(including anesthesia services)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to services furnished on or after January
1, 1998.
SEC. 5505. IMPLEMENTATION OF RESOURCE-BASED METH-
ODOLOGIES.
(a) ADJUSTMENTS TO RELATIVE VALUE UNITS FOR
1998.—Section 1848(c)(2) (42 U.S.C. 1395w–4(c)(2)) is
amended by adding at the end the following new subpara-
graph:
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‘‘(G) ADJUSTMENTS
IN
RELATIVE
VALUE
UNITS FOR 1998.—
‘‘(i) 
IN
GENERAL.—The 
Secretary
shall—
‘‘(I) reduce the practice expense
relative value units applied to any
services described in clause (ii) fur-
nished in 1998 to a number equal to
110 percent of the number of work rel-
ative value units, and
‘‘(II) increase the practice expense
relative value units for office visit pro-
cedure codes during 1998 by a uniform
percentage which the Secretary esti-
mates will result in an aggregate in-
crease in payments for such services
equal to the aggregate decrease in pay-
ments by reason of subclause (I).
‘‘(ii) SERVICES
COVERED.—For pur-
poses of clause (i), the services described in
this clause are physicians’ services that are
not described in clause (iii) and for
which—
‘‘(I) there are work relative value
units, and
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‘‘(II) the number of practice ex-
pense relative value units (determined
for 1998) exceeds 110 percent of the
number of work relative value units
(determined for such year).
‘‘(iii) EXCLUDED SERVICES.—For pur-
poses of clause (ii), the services described in
this clause are services which the Secretary
determines at least 75 percent of which are
provided under this title in an office set-
ting.’’.
(b) DELAY OF IMPLEMENTATION TO 1999; PHASEIN OF
IMPLEMENTATION.—Section 1848(c)(2) (42 U.S.C. 1395w–
4(c)(2)), as amended by subsection (a), is amended—
(1) in subparagraph (C)(ii)—
(A) by striking ‘‘1998’’ each place it ap-
pears and inserting ‘‘1999’’, and
(B) by inserting ‘‘, to the extent provided
under subparagraph (H),’’ after ‘‘based’’ in the
matter following subclause (II), and
(2) by adding at the end the following new sub-
paragraph:
‘‘(H) 3-YEAR ADDITIONAL PHASEIN OF RE-
SOURCE-BASED PRACTICE EXPENSE UNITS.—Not-
withstanding subparagraph (C)(ii), the Sec-
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retary shall implement the resource-based prac-
tice expense unit methodology described in such
subparagraph ratably over the 3-year period be-
ginning with 1999 such that such methodology is
fully implemented for 2001 and succeeding
years.’’.
(c) REVIEW BY COMPTROLLER GENERAL.—The Comp-
troller General of the United States shall review and evalu-
ate the proposed rule on resource-based methodology for
practice expenses issued by the Health Care Financing Ad-
ministration. The Comptroller General shall, within 6
months of the date of the enactment of this Act, report to
the Committee on Ways and Means of the House of Rep-
resentatives and the Committee on Finance of the Senate
the results of its evaluation, including an analysis of—
(1) the adequacy of the data used in preparing
the rule,
(2) categories of allowable costs,
(3) methods for allocating direct and indirect ex-
penses,
(4) the potential impact of the rule on bene-
ficiary access to services, and
(5) any other matters related to the appropriate-
ness of resource-based methodology for practice ex-
penses.
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The Comptroller General shall consult with representatives
of physicians’ organizations with respect to matters of both
data and methodology.
(d) CONSULTATION.—
(1) IN GENERAL.—The Secretary of Health and
Human Services shall assemble a group of physicians
with expertise in both surgical and nonsurgical areas
(including primary care physicians and academics),
accounting experts, and the chair of the Prospective
Payment Review Commission (or its successor) to so-
licit their individual views on whether sufficient data
exist to allow the Health Care Financing Administra-
tion to proceed with implementation of the rule de-
scribed in subsection (c). After hearing the views of
individual members of the group, the Secretary shall
determine whether sufficient data exists to proceed
with practice expense relative value determination
and shall report on such views of the individual mem-
bers to the committees described in subsection (c), in-
cluding any recommendations for modifying such
rule.
(2) ACTION.—If the Secretary determines under
paragraph (1) that insufficient data exists or that the
rule described in subsection (c) needs to be revised, the
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Secretary shall provide for additional data collection
and such other actions to correct any deficiencies.
(e) APPLICATION OF RESOURCE-BASED METHODOL-
OGY TO MALPRACTICE RELATIVE VALUE UNITS.—Section
1848(c)(2)(C)(iii) (42 U.S.C. 1395w–4(c)(2)(C)(iii)) is
amended—
(1) by inserting ‘‘for years before 1999’’ before
‘‘equal’’, and
(2) by striking the period at the end and insert-
ing a comma and by adding at the end the following
flush matter:
‘‘and for years beginning with 1999 based
on the malpractice expense resources in-
volved in furnishing the service’’.
(f) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to years beginning on and
after January 1, 1998.
(2) MALPRACTICE.—The amendments made by
subsection (e) shall apply to years beginning on and
after January 1, 1999.
SEC. 5506. INCREASED MEDICARE REIMBURSEMENT FOR
NURSE 
PRACTITIONERS 
AND 
CLINICAL
NURSE SPECIALISTS.
(a) REMOVAL OF RESTRICTIONS ON SETTINGS.—
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(1) 
IN
GENERAL.—Clause 
(ii) 
of 
section
1861(s)(2)(K) (42 U.S.C. 1395x(s)(2)(K)) is amended
to read as follows:
‘‘(ii) services which would be physicians’ services
if furnished by a physician (as defined in subsection
(r)(1)) and which are performed by a nurse practi-
tioner or clinical nurse specialist (as defined in sub-
section (aa)(5)) working in collaboration (as defined
in subsection (aa)(6)) with a physician (as defined in
subsection (r)(1)) which the nurse practitioner or
clinical nurse specialist is legally authorized to per-
form by the State in which the services are performed,
and such services and supplies furnished as an inci-
dent to such services as would be covered under sub-
paragraph (A) if furnished incident to a physician’s
professional service, but only if no facility or other
provider charges or is paid any amounts with respect
to the furnishing of such services;’’.
(2) CONFORMING
AMENDMENTS.—(A) Section
1861(s)(2)(K) of such Act (42 U.S.C. 1395x(s)(2)(K))
is further amended—
(i) in clause (i), by inserting ‘‘and such
services and supplies furnished as incident to
such services as would be covered under subpara-
graph (A) if furnished incident to a physician’s
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professional service; and’’ after ‘‘are performed,’’;
and
(ii) by striking clauses (iii) and (iv).
(B) Section 1861(b)(4) (42 U.S.C. 1395x(b)(4))
is amended by striking ‘‘clauses (i) or (iii) of sub-
section 
(s)(2)(K)’’ 
and 
inserting 
‘‘subsection
(s)(2)(K)’’.
(C) 
Section 
1862(a)(14) 
(42 
U.S.C.
1395y(a)(14)) is amended by striking ‘‘section
1861(s)(2)(K)(i) or 1861(s)(2)(K)(iii)’’ and inserting
‘‘section 1861(s)(2)(K)’’.
(D) 
Section 
1866(a)(1)(H) 
(42 
U.S.C.
1395cc(a)(1)(H)) is amended by striking ‘‘section
1861(s)(2)(K)(i) or 1861(s)(2)(K)(iii)’’ and inserting
‘‘section 1861(s)(2)(K)’’.
(E) 
Section 
1888(e)(2)(A)(ii) 
(42 
U.S.C.
1395yy(e)(2)(A)(ii)), as added by section 5301(a), is
amended by striking ‘‘through (iii)’’ and inserting
‘‘and (ii)’’.
(b) INCREASED PAYMENT.—
(1) FEE SCHEDULE AMOUNT.—Clause (O) of sec-
tion 1833(a)(1) (42 U.S.C. 1395l(a)(1)) is amended to
read as follows: ‘‘(O) with respect to services described
in section 1861(s)(2)(K)(ii) (relating to nurse practi-
tioner or clinical nurse specialist services), the
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amounts paid shall be equal to 80 percent of (i) the
lesser of the actual charge or 85 percent of the fee
schedule amount provided under section 1848, or (ii)
in the case of services as an assistant at surgery, the
lesser of the actual charge or 85 percent of the amount
that would otherwise be recognized if performed by a
physician who is serving as an assistant at surgery;
and’’.
(2) CONFORMING
AMENDMENTS.—(A) Section
1833(r) (42 U.S.C. 1395l(r)) is amended—
(i) in paragraph (1), by striking ‘‘section
1861(s)(2)(K)(iii) (relating to nurse practitioner
or clinical nurse specialist services provided in a
rural 
area)’’ 
and 
inserting 
‘‘section
1861(s)(2)(K)(ii) (relating to nurse practitioner
or clinical nurse specialist services)’’;
(ii) by striking paragraph (2);
(iii) in paragraph (3), by striking ‘‘section
1861(s)(2)(K)(iii)’’ 
and 
inserting 
‘‘section
1861(s)(2)(K)(ii)’’; and
(iv) by redesignating paragraph (3) as
paragraph (2).
(B) 
Section 
1842(b)(12)(A) 
(42 
U.S.C.
1395u(b)(12)(A)) is amended, in the matter preceding
clause (i), by striking ‘‘clauses (i), (ii), or (iv) of sec-
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tion 1861(s)(2)(K) (relating to a physician assistants
and nurse practitioners)’’ and inserting ‘‘section
1861(s)(2)(K)(i) (relating to physician assistants)’’.
(c) DIRECT PAYMENT
FOR NURSE PRACTITIONERS
AND CLINICAL NURSE SPECIALISTS.—
(1) IN GENERAL.—Section 1832(a)(2)(B)(iv) (42
U.S.C. 1395k(a)(2)(B)(iv)) is amended by striking
‘‘provided in a rural area (as defined in section
1886(d)(2)(D))’’ and inserting ‘‘but only if no facility
or other provider charges or is paid any amounts
with respect to the furnishing of such services’’.
(2) 
CONFORMING
AMENDMENT.—Section
1842(b)(6)(C) (42 U.S.C. 1395u(b)(6)(C)) is amend-
ed—
(A) by striking ‘‘clauses (i), (ii), or (iv)’’
and inserting ‘‘clause (i)’’; and
(B) by striking ‘‘or nurse practitioner’’.
(d) DEFINITION
OF CLINICAL NURSE SPECIALIST
CLARIFIED.—Section 1861(aa)(5) (42 U.S.C. 1395x(aa)(5))
is amended—
(1) by inserting ‘‘(A)’’ after ‘‘(5)’’;
(2) by striking ‘‘The term ‘physician assistant’ ’’
and all that follows through ‘‘who performs’’ and in-
serting ‘‘The term ‘physician assistant’ and the term
‘nurse practitioner’ mean, for purposes of this title, a
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physician assistant or nurse practitioner who per-
forms’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(B) The term ‘clinical nurse specialist’ means, for
purposes of this title, an individual who—
‘‘(i) is a registered nurse and is licensed to prac-
tice nursing in the State in which the clinical nurse
specialist services are performed; and
‘‘(ii) holds a master’s degree in a defined clinical
area of nursing from an accredited educational insti-
tution.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply with respect to services furnished and
supplies provided on and after January 1, 1998.
SEC. 5507. INCREASED MEDICARE REIMBURSEMENT FOR
PHYSICIAN ASSISTANTS.
(a) REMOVAL OF RESTRICTION ON SETTINGS.—Sec-
tion 1861(s)(2)(K)(i) (42 U.S.C. 1395x(s)(2)(K)(i)), as
amended by the section 5506, is amended—
(1) by striking ‘‘(I) in a hospital’’ and all that
follows through ‘‘shortage area,’’, and
(2) by adding at the end the following: ‘‘but only
if no facility or other provider charges or is paid any
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amounts with respect to the furnishing of such serv-
ices,’’.
(b) INCREASED PAYMENT.—Paragraph (12) of section
1842(b) (42 U.S.C. 1395u(b)), as amended by section
5506(b)(2)(B), is amended to read as follows:
‘‘(12) With respect to services described in section
1861(s)(2)(K)(i)—
‘‘(A) payment under this part may only be made
on an assignment-related basis; and
‘‘(B) the amounts paid under this part shall be
equal to 80 percent of (i) the lesser of the actual
charge or 85 percent of the fee schedule amount pro-
vided under section 1848 for the same service pro-
vided by a physician who is not a specialist; or (ii)
in the case of services as an assistant at surgery, the
lesser of the actual charge or 85 percent of the amount
that would otherwise be recognized if performed by a
physician who is serving as an assistant at surgery.’’.
(c) REMOVAL OF RESTRICTION ON EMPLOYMENT RE-
LATIONSHIP.—Section 1842(b)(6) (42 U.S.C. 1395u(b)(6))
is amended by adding at the end the following new sentence:
‘‘For purposes of clause (C) of the first sentence of this para-
graph, an employment relationship may include any inde-
pendent contractor arrangement, and employer status shall
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be determined in accordance with the law of the State in
which the services described in such clause are performed.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply with respect to services furnished and
supplies provided on and after January 1, 1998.
CHAPTER 2—OTHER PAYMENT
PROVISIONS
SEC. 5521. REDUCTION IN UPDATES TO PAYMENT AMOUNTS
FOR 
CLINICAL 
DIAGNOSTIC 
LABORATORY
TESTS; STUDY ON LABORATORY SERVICES.
(a) CHANGE IN UPDATE.—Section 1833(h)(2)(A)(ii)
(42 U.S.C. 1395l(h)(2)(A)(ii)) is amended by striking
‘‘and’’ at the end of subclause (III), by striking the period
at the end of subclause (IV) and inserting ‘‘, and’’, and
by adding at the end the following:
‘‘(V) the annual adjustment in the
fee schedules determined under clause
(i) for each of the years 1998 through
2002 shall be reduced (but not below
zero) by 2.0 percentage points.’’.
(b) LOWERING CAP ON PAYMENT AMOUNTS.—Section
1833(h)(4)(B) (42 U.S.C. 1395l(h)(4)(B)) is amended—
(1) in clause (vi), by striking ‘‘and’’ at the end;
(2) in clause (vii)—
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(A) by inserting ‘‘and before January 1,
1998,’’ after ‘‘1995,’’, and
(B) by striking the period at the end and
inserting ‘‘, and’’; and
(3) by adding at the end the following new
clause:
‘‘(viii) after December 31, 1997, is equal to 74
percent of such median.’’.
(c) STUDY AND REPORT ON CLINICAL LABORATORY
SERVICES.—
(1) IN GENERAL.—The Secretary shall request
the Institute of Medicine of the National Academy of
Sciences to conduct a study of payments under part
B of title XVIII of the Social Security Act for clinical
laboratory services. The study shall include a review
of the adequacy of the current methodology and rec-
ommendations regarding alternative payment sys-
tems. The study shall also analyze and discuss the re-
lationship between such payment systems and access
to high quality laboratory services for medicare bene-
ficiaries, including availability and access to new
testing methodologies.
(2) REPORT TO CONGRESS.—The Secretary shall,
not later than 2 years after the date of enactment of
this section, report to the appropriate committees of
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Congress the results of the study described in para-
graph (1), including any recommendations for legisla-
tion.
SEC. 5522. IMPROVEMENTS IN ADMINISTRATION OF LAB-
ORATORY SERVICES BENEFIT.
(a) SELECTION OF REGIONAL CARRIERS.—
(1) IN GENERAL.—The Secretary of Health and
Human Services (in this section referred to as the
‘‘Secretary’’) shall—
(A) divide the United States into no more
than 5 regions, and
(B) designate a single carrier for each such
region,
for the purpose of payment of claims under part B
of title XVIII of the Social Security Act with respect
to clinical diagnostic laboratory services furnished on
or after such date (not later than January 1, 1999)
as the Secretary specifies.
(2) DESIGNATION.—In designating such carriers,
the Secretary shall consider, among other criteria—
(A) a carrier’s timeliness, quality, and ex-
perience in claims processing, and
(B) a carrier’s capacity to conduct elec-
tronic data interchange with laboratories and
data matches with other carriers.
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(3) SINGLE
DATA
RESOURCE.—The Secretary
shall select one of the designated carriers to serve as
a central statistical resource for all claims informa-
tion relating to such clinical diagnostic laboratory
services handled by all the designated carriers under
such part.
(4) ALLOCATION OF CLAIMS.—The allocation of
claims for clinical diagnostic laboratory services to
particular designated carriers shall be based on
whether a carrier serves the geographic area where the
laboratory specimen was collected or other method
specified by the Secretary.
(5) TEMPORARY
EXCEPTION.—Paragraph (1)
shall not apply with respect to clinical diagnostic lab-
oratory services furnished by independent physician
offices until such time as the Secretary determines
that such offices would not be unduly burdened by the
application of billing responsibilities with respect to
more than one carrier.
(b) ADOPTION OF UNIFORM POLICIES FOR CLINICAL
LABORATORY BENEFITS.—
(1) IN GENERAL.—Not later than July 1, 1998,
the Secretary shall first adopt, consistent with para-
graph (2), uniform coverage, administration, and
payment policies for clinical diagnostic laboratory
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tests under part B of title XVIII of the Social Secu-
rity Act, using a negotiated rulemaking process under
subchapter III of chapter 5 of title 5, United States
Code.
(2) CONSIDERATIONS
IN
DESIGN
OF
UNIFORM
POLICIES.—The policies under paragraph (1) shall be
designed to promote program integrity and uniform-
ity and simplify administrative requirements with re-
spect to clinical diagnostic laboratory tests payable
under such part in connection with the following:
(A) Beneficiary information required to be
submitted with each claim or order for labora-
tory services.
(B) Physicians’ obligations regarding docu-
mentation requirements and recordkeeping.
(C) Procedures for filing claims and for
providing remittances by electronic media.
(D) The documentation of medical necessity.
(E) Limitation on frequency of coverage for
the same tests performed on the same individual.
(3) CHANGES IN LABORATORY POLICIES PENDING
ADOPTION OF UNIFORM POLICY.—During the period
that begins on the date of the enactment of this Act
and ends on the date the Secretary first implements
uniform policies pursuant to regulations promulgated
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under this subsection, a carrier under such part may
implement changes relating to requirements for the
submission of a claim for clinical diagnostic labora-
tory tests.
(4) USE OF INTERIM POLICIES.—After the date
the Secretary first implements such uniform policies,
the Secretary shall permit any carrier to develop and
implement interim policies of the type described in
paragraph (1), in accordance with guidelines estab-
lished by the Secretary, in cases in which a uniform
national policy has not been established under this
subsection and there is a demonstrated need for a pol-
icy to respond to aberrant utilization or provision of
unnecessary services. Except as the Secretary specifi-
cally permits, no policy shall be implemented under
this paragraph for a period of longer than 2 years.
(5) INTERIM NATIONAL GUIDELINES.—After the
date the Secretary first designates regional carriers
under subsection (a), the Secretary shall establish a
process under which designated carriers can collec-
tively develop and implement interim national guide-
lines of the type described in paragraph (1). No such
policy shall be implemented under this paragraph for
a period of longer than 2 years.
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(6) BIENNIAL REVIEW PROCESS.—Not less often
than once every 2 years, the Secretary shall solicit
and review comments regarding changes in the uni-
form policies established under this subsection. As
part of such biennial review process, the Secretary
shall specifically review and consider whether to in-
corporate or supersede interim, regional, or national
policies developed under paragraph (4) or (5). Based
upon such review, the Secretary may provide for ap-
propriate changes in the uniform policies previously
adopted under this subsection.
(7) REQUIREMENT AND NOTICE.—The Secretary
shall ensure that any guidelines adopted under para-
graph (3), (4), or (5) shall apply to all laboratory
claims payable under part B of title XVIII of the So-
cial Security Act, and shall provide for advance no-
tice to interested parties and a 45-day period in
which such parties may submit comments on the pro-
posed change.
(c) INCLUSION OF LABORATORY REPRESENTATIVE ON
CARRIER ADVISORY COMMITTEES.—The Secretary shall di-
rect that any advisory committee established by such a car-
rier, to advise with respect to coverage, administration or
payment policies under part B of title XVIII of the Social
Security Act, shall include an individual to represent the
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interest and views of independent clinical laboratories and
such other laboratories as the Secretary deems appropriate.
Such individual shall be selected by such committee from
among nominations submitted by national and local orga-
nizations that represent independent clinical laboratories.
SEC. 5523. PAYMENTS FOR DURABLE MEDICAL EQUIPMENT.
(a) REDUCTION IN PAYMENT AMOUNTS FOR ITEMS OF
DURABLE MEDICAL EQUIPMENT.—
(1) FREEZE IN UPDATE FOR COVERED ITEMS.—
Section 1834(a)(14) (42 U.S.C. 1395m(a)(14)) is
amended to read as follows:
‘‘(14) COVERED
ITEM
UPDATE.—In this sub-
section—
‘‘(A) IN GENERAL.—The term ‘covered item
update’ means, with respect to any year, the per-
centage increase in the consumer price index for
all urban consumers (U.S. city average) for the
12-month period ending with June of the pre-
vious year.
‘‘(B) REDUCTION FOR CERTAIN YEARS.—In
the case of each of the years 1998 through 2002,
the covered item update under subparagraph (A)
shall be reduced (but not below zero) by 2.0 per-
centage points.’’.
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(2) UPDATE
FOR
ORTHOTICS
AND
PROSTHET-
ICS.—Section 
1834(h)(4)(A) 
(42 
U.S.C.
1395m(h)(4)(A)) is amended to read as follows:
‘‘(A) the term ‘applicable percentage in-
crease’ means, with respect to any year, the per-
centage increase in the consumer price index for
all urban consumers (U.S. city average) for the
12-month period ending with June of the pre-
vious year, except that in each of the years 1998
through 2000, such increase shall be reduced (but
not below zero) by 2.0 percentage points;’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection applies to items furnished on and
after January 1, 1998.
(b) REDUCTION IN INCREASE FOR PARENTERAL AND
ENTERAL NUTRIENTS, SUPPLIES, AND EQUIPMENT.—The
reasonable charge under part B of title XVIII of the Social
Security Act for parenteral and enteral nutrients, supplies,
and equipment furnished during each of the years 1998
through 2002, shall not exceed the reasonable charge for such
items furnished during the previous year (after application
of this subsection), increased by the percentage increase in
the consumer price index for all urban consumers (United
States city average) for the 12-month period ending with
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determined under paragraph (1) for any drug or biological
shall not exceed—
‘‘(i) in the case of 1998, the amount of the pay-
ment under this part on May 1, 1997, and
‘‘(ii) in the case of 1999 and each succeeding
year, the amount determined under this subpara-
graph for the previous year, increased by the percent-
age increase in the consumer price index for all urban
consumers (U.S. city average) for the 12-month pe-
riod ending with June of the previous year.
‘‘(B) In the case of a drug or biological not described
in subparagraph (A), the amount determined under para-
graph (1) for any year following the first year for which
payment is made under this part for such drug or biological
shall not exceed the amount payable under this part (after
application of this subparagraph) for the previous year, in-
creased by the percentage increase in the consumer price
index for all urban consumers (U.S. city average) for the
12-month period ending with June of the previous year.
‘‘(3) If payment for a drug or biological is made to
a licensed pharmacy approved to dispense drugs or
biologicals under this part, the Secretary shall pay a dis-
pensing fee (less the applicable deductible and insurance
amounts) to the pharmacy, as the Secretary determines ap-
propriate.