338
Title VIII, Subtitle A
into a contract under this section shall have, for
the duration of such contract, an enrolled mem-
bership at least one-half of which consists of in-
dividuals who are not entitled to benefits under
this title or under a State plan approved under
title XIX.
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply to—
‘‘(i) an organization that has been
certified by a national organization recog-
nized by the Secretary and has been found
to have met performance standards estab-
lished by the Secretary for at least 2 years,
or
‘‘(ii) a provider-sponsored organiza-
tion for which commercial payments to
providers participating in the organization
exceed the payments to the organization
under this part.
‘‘(C) MODIFICATION
AND
WAIVER.—The
Secretary may modify or waive the requirement
imposed by subparagraph (A)—
‘‘(i) to the extent that more than 50
percent of the population of the area
served by the organization consists of indi-
339
Title VIII, Subtitle A
viduals who are entitled to benefits under
this title or under a State plan approved
under title XIX, or
‘‘(ii) in the case of an organization
that is owned and operated by a govern-
mental entity, only with respect to a period
of three years beginning on the date the
organization first enters into a contract
under this section, and only if the organi-
zation has taken and is making reasonable
efforts to enroll individuals who are not en-
titled to benefits under this title or under
a State plan approved under title XIX.
‘‘(D) ENFORCEMENT.—If the Secretary
determines that an organization has failed to
comply with the requirements of this para-
graph, the Secretary may provide for the sus-
pension of enrollment of individuals under this
part or of payment to the organization under
this part for individuals newly enrolled with the
organization, after the date the Secretary noti-
fies the organization of such noncompliance.
‘‘(c) CONTRACT PERIOD AND EFFECTIVENESS.—
‘‘(1) PERIOD.—Each contract under this sec-
tion shall be for a term of at least one year, as de-
340
Title VIII, Subtitle A
termined by the Secretary, and may be made auto-
matically renewable from term to term in the ab-
sence of notice by either party of intention to termi-
nate at the end of the current term.
‘‘(2) TERMINATION
AUTHORITY.—In accord-
ance with procedures established under subsection
(h), the Secretary may at any time terminate any
such contract or may impose the intermediate sanc-
tions described in an applicable paragraph of sub-
section (g) on the Medicare Choice organization if
the Secretary determines that the organization—
‘‘(A) has failed substantially to carry out
the contract;
‘‘(B) is carrying out the contract in a man-
ner inconsistent with the efficient and effective
administration of this part;
‘‘(C) is operating in a manner that is not
in the best interests of the individuals covered
under the contract; or
‘‘(D) no longer substantially meets the ap-
plicable conditions of this part.
‘‘(3) EFFECTIVE
DATE
OF
CONTRACTS.—The
effective date of any contract executed pursuant to
this section shall be specified in the contract.
341
Title VIII, Subtitle A
‘‘(4) PREVIOUS TERMINATIONS.—The Secretary
may not enter into a contract with a Medicare
Choice organization if a previous contract with that
organization under this section was terminated at
the request of the organization within the preceding
five-year period, except in circumstances which war-
rant special consideration, as determined by the Sec-
retary.
‘‘(5) NO CONTRACTING AUTHORITY.—The au-
thority vested in the Secretary by this part may be
performed without regard to such provisions of law
or regulations relating to the making, performance,
amendment, or modification of contracts of the
United States as the Secretary may determine to be
inconsistent with the furtherance of the purpose of
this title.
‘‘(d) PROTECTIONS AGAINST FRAUD
AND BENE-
FICIARY PROTECTIONS.—
‘‘(1) INSPECTION AND AUDIT.—Each contract
under this section shall provide that the Secretary,
or any person or organization designated by the Sec-
retary—
‘‘(A) shall have the right to inspect or oth-
erwise evaluate (i) the quality, appropriateness,
and timeliness of services performed under the
342
Title VIII, Subtitle A
contract and (ii) the facilities of the organiza-
tion when there is reasonable evidence of some
need for such inspection, and
‘‘(B) shall have the right to audit and in-
spect any books and records of the Medicare
Choice organization that pertain (i) to the abil-
ity of the organization to bear the risk of poten-
tial financial losses, or (ii) to services performed
or determinations of amounts payable under the
contract.
‘‘(2) ENROLLEE NOTICE AT TIME OF TERMI-
NATION.—Each contract under this section shall re-
quire the organization to provide (and pay for) writ-
ten notice in advance of the contract’s termination,
as well as a description of alternatives for obtaining
benefits under this title, to each individual enrolled
with the organization under this part.
‘‘(3) DISCLOSURE.—
‘‘(A) IN GENERAL.—Each Medicare Choice
organization shall, in accordance with regula-
tions of the Secretary, report to the Secretary
financial information which shall include the
following:
343
Title VIII, Subtitle A
‘‘(i) Such information as the Sec-
retary may require demonstrating that the
organization has a fiscally sound operation.
‘‘(ii) A copy of the report, if any, filed
with the Health Care Financing Adminis-
tration containing the information required
to be reported under section 1124 by dis-
closing entities.
‘‘(iii) A description of transactions, as
specified by the Secretary, between the or-
ganization and a party in interest. Such
transactions shall include—
‘‘(I) any sale or exchange, or
leasing of any property between the
organization and a party in interest;
‘‘(II) any furnishing for consider-
ation of goods, services (including
management services), or facilities be-
tween the organization and a party in
interest, but not including salaries
paid to employees for services pro-
vided in the normal course of their
employment and health services pro-
vided to members by hospitals and
other providers and by staff, medical
344
Title VIII, Subtitle A
group (or groups), individual practice
association (or associations), or any
combination thereof; and
‘‘(III) any lending of money or
other extension of credit between an
organization and a party in interest.
The Secretary may require that information re-
ported respecting an organization which con-
trols, is controlled by, or is under common con-
trol with, another entity be in the form of a
consolidated financial statement for the organi-
zation and such entity.
‘‘(B) PARTY IN INTEREST DEFINED.—For
the purposes of this paragraph, the term ‘party
in interest’ means—
‘‘(i) any director, officer, partner, or
employee responsible for management or
administration of a Medicare Choice orga-
nization, any person who is directly or in-
directly the beneficial owner of more than
5 percent of the equity of the organization,
any person who is the beneficial owner of
a mortgage, deed of trust, note, or other
interest secured by, and valuing more than
5 percent of the organization, and, in the
345
Title VIII, Subtitle A
case of a Medicare Choice organization or-
ganized as a nonprofit corporation, an in-
corporator or member of such corporation
under applicable State corporation law;
‘‘(ii) any entity in which a person de-
scribed in clause (i)—
‘‘(I) is an officer or director;
‘‘(II) is a partner (if such entity
is organized as a partnership);
‘‘(III) has directly or indirectly a
beneficial interest of more than 5 per-
cent of the equity; or
‘‘(IV) has a mortgage, deed of
trust, note, or other interest valuing
more than 5 percent of the assets of
such entity;
‘‘(iii) any person directly or indirectly
controlling, controlled by, or under com-
mon control with an organization; and
‘‘(iv) any spouse, child, or parent of
an individual described in clause (i).
‘‘(C) ACCESS
TO
INFORMATION.—Each
Medicare Choice organization shall make the in-
formation reported pursuant to subparagraph
346
Title VIII, Subtitle A
(A) available to its enrollees upon reasonable
request.
‘‘(4) LOAN INFORMATION.—The contract shall
require the organization to notify the Secretary of
loans and other special financial arrangements which
are made between the organization and subcontrac-
tors, affiliates, and related parties.
‘‘(f) ADDITIONAL CONTRACT TERMS.—The contract
shall contain such other terms and conditions not incon-
sistent with this part (including requiring the organization
to provide the Secretary with such information) as the
Secretary may find necessary and appropriate.
‘‘(g) INTERMEDIATE SANCTIONS.—
‘‘(1) IN GENERAL.—If the Secretary determines
that a Medicare Choice organization with a contract
under this section—
‘‘(A) fails substantially to provide medi-
cally necessary items and services that are re-
quired (under law or under the contract) to be
provided to an individual covered under the con-
tract, if the failure has adversely affected (or
has substantial likelihood of adversely affecting)
the individual;
347
Title VIII, Subtitle A
‘‘(B) imposes premiums on individuals en-
rolled under this part in excess of the premiums
permitted;
‘‘(C) acts to expel or to refuse to re-enroll
an individual in violation of the provisions of
this part;
‘‘(D) engages in any practice that would
reasonably be expected to have the effect of de-
nying or discouraging enrollment (except as
permitted by this part) by eligible individuals
with the organization whose medical condition
or history indicates a need for substantial fu-
ture medical services;
‘‘(E) misrepresents or falsifies information
that is furnished—
‘‘(i) to the Secretary under this part,
or
‘‘(ii) to an individual or to any other
entity under this part;
‘‘(F) fails to comply with the requirements
of section 1852(f)(3); or
‘‘(G) employs or contracts with any indi-
vidual or entity that is excluded from participa-
tion under this title under section 1128 or
1128A for the provision of health care, utiliza-
348
Title VIII, Subtitle A
tion review, medical social work, or administra-
tive services or employs or contracts with any
entity for the provision (directly or indirectly)
through such an excluded individual or entity of
such services;
the Secretary may provide, in addition to any other
remedies authorized by law, for any of the remedies
described in paragraph (2).
‘‘(2) REMEDIES.—The remedies described in
this paragraph are—
‘‘(A) civil money penalties of not more
than $25,000 for each determination under
paragraph (1) or, with respect to a determina-
tion under subparagraph (D) or (E)(i) of such
paragraph, of not more than $100,000 for each
such determination, plus, with respect to a de-
termination under paragraph (1)(B), double the
excess amount charged in violation of such
paragraph (and the excess amount charged
shall be deducted from the penalty and returned
to the individual concerned), and plus, with re-
spect to a determination under paragraph
(1)(D), $15,000 for each individual not enrolled
as a result of the practice involved,
349
Title VIII, Subtitle A
‘‘(B) suspension of enrollment of individ-
uals under this part after the date the Sec-
retary notifies the organization of a determina-
tion under paragraph (1) and until the Sec-
retary is satisfied that the basis for such deter-
mination has been corrected and is not likely to
recur, or
‘‘(C) suspension of payment to the organi-
zation under this part for individuals enrolled
after the date the Secretary notifies the organi-
zation of a determination under paragraph (1)
and until the Secretary is satisfied that the
basis for such determination has been corrected
and is not likely to recur.
‘‘(3) OTHER
INTERMEDIATE
SANCTIONS.—In
the case of a Medicare Choice organization for which
the Secretary makes a determination under sub-
section (c)(2) the basis of which is not described in
paragraph (1), the Secretary may apply the follow-
ing intermediate sanctions:
‘‘(A) civil money penalties of not more
than $25,000 for each determination under
subsection (c)(2) if the deficiency that is the
basis of the determination has directly adversely
affected (or has the substantial likelihood of ad-
350
Title VIII, Subtitle A
versely affecting) an individual covered under
the organization’s contract;
‘‘(B) civil money penalties of not more
than $10,000 for each week beginning after the
initiation of procedures by the Secretary under
subsection (h) during which the deficiency that
is the basis of a determination under subsection
(c)(2) exists; and
‘‘(C) suspension of enrollment of individ-
uals under this part after the date the Sec-
retary notifies the organization of a determina-
tion under subsection (c)(2) and until the Sec-
retary is satisfied that the deficiency that is the
basis for the determination has been corrected
and is not likely to recur.
‘‘(4) 
PROCEDURES
FOR
IMPOSING
SANC-
TIONS.—The provisions of section 1128A (other
than subsections (a) and (b)) shall apply to a civil
money penalty under paragraph (1) or (2) in the
same manner as they apply to a civil money penalty
or proceeding under section 1128A(a).
‘‘(h) PROCEDURES FOR IMPOSING SANCTIONS.—The
Secretary may terminate a contract with a Medicare
Choice organization under this section or may impose the
intermediate sanctions described in subsection (g) on the
351
Title VIII, Subtitle A
organization in accordance with formal investigation and
compliance procedures established by the Secretary under
which—
‘‘(1) the Secretary provides the organization
with the opportunity to develop and implement a
corrective action plan to correct the deficiencies that
were the basis of the Secretary’s determination
under subsection (c)(2);
‘‘(2) the Secretary shall impose more severe
sanctions on organizations that have a history of de-
ficiencies or that have not taken steps to correct de-
ficiencies the Secretary has brought to their atten-
tion;
‘‘(3) there are no unreasonable or unnecessary
delays between the finding of a deficiency and the
imposition of sanctions; and
‘‘(4) the Secretary provides the organization
with reasonable notice and opportunity for hearing
(including the right to appeal an initial decision) be-
fore imposing any sanction or terminating the con-
tract.
‘‘DEMONSTRATION PROJECT FOR HIGH DEDUCTIBLE/
MEDISAVE PRODUCTS
‘‘SEC. 1859. (a) PERMITTING
DEMONSTRATION
PROJECTS.—
352
Title VIII, Subtitle A
‘‘(1) IN GENERAL.—The Secretary shall permit,
on a demonstration project basis, the offering of
high deductible/medisave products under this part,
subject to the special rules provided under this sec-
tion.
‘‘(2) LIMITATION ON NUMBER AND DURATION
OF
PROJECTS.—The Secretary shall not permit
under this section the offering of more than 10 dem-
onstration projects and each such project shall not
exceed 7 years in duration.
‘‘(b) HIGH DEDUCTIBLE/MEDISAVE PRODUCT DE-
FINED.—
‘‘(1) IN GENERAL.—In this part, the term ‘high
deductible/medisave product’ means a Medicare
Choice product that—
‘‘(A) provides reimbursement for at least
the items and services described in section
1852(a)(1) in a year but only after the enrollee
incurs countable expenses (as specified under
the product) equal to the amount of a deduct-
ible (described in paragraph (2));
‘‘(B) counts as such expenses (for purposes
of such deductible) at least all amounts that
would have been payable under parts A and B
or by the enrollee if the enrollee had elected to
353
Title VIII, Subtitle A
receive benefits through the provisions of such
parts; and
‘‘(C) provides, after such deductible is met
for a year and for all subsequent expenses for
benefits referred to in subparagraph (A) in the
year, for a level of reimbursement that is not
less than—
‘‘(i) 100 percent of such expenses, or
‘‘(ii) 100 percent of the amounts that
would have been paid (without regard to
any deductibles or coinsurance) under
parts A and B with respect to such ex-
penses,
whichever is less. Such term does not include
the Medicare Choice MSA itself or any con-
tribution into such account.
‘‘(2) DEDUCTIBLE.—The amount of deductible
under a high deductible/medisave product—
‘‘(A) for contract year 1997 shall be not
more than $10,000; and
‘‘(B) for a subsequent contract year shall
be not more than the maximum amount of such
deductible for the previous contract year under
this paragraph increased by the national aver-
354
Title VIII, Subtitle A
age per capita growth rate under section
1855(c)(3) for the year.
If the amount of the deductible under subparagraph
(B) is not a multiple of $50, the amount shall be
rounded to the nearest multiple of $50.
‘‘(c) SPECIAL RULES RELATING TO ENROLLMENT.—
The rule under section 1805 relating to election of medi-
care choice products shall apply to election of high deduct-
ible/medisave products offered under the demonstration
project under this section, except as follows:
‘‘(1) SPECIAL
RULE
FOR
CERTAIN
ANNU-
ITANTS.—An individual is not eligible to elect a high
deductible/medisave product under section 1805 if
the individual is entitled to benefits under chapter
89 of title 5, United States Code, as an annuitant
or spouse of an annuitant.
‘‘(2) TRANSITION PERIOD RULE.—During the
transition 
period 
(as 
defined 
in 
section
1805(e)(1)(B)), an individual who has elected a high
deductible/medisave product may not change such
election to a Medicare Choice product that is not a
high deductible/medisave product unless the individ-
ual has had such election in effect for 12 months.
‘‘(3) NO
90-DAY
DISENROLLMENT
OPTION.—
Paragraph (4)(A) of section 1805(e) shall not apply
355
Title VIII, Subtitle A
to an individual who elects a high deductible/
medisave product.
‘‘(4) TIMING OF ELECTION.—An individual may
elect a high deductible/medisave product only during
an annual, coordinated election period described in
section 1805(e)(3)(B) or during the month of Octo-
ber, 1996.
‘‘(5) EFFECTIVENESS OF ELECTION.—An elec-
tion of coverage for a high deductible/medisave prod-
uct made in a year shall take effect as of the first
day of the following year.
‘‘(d) SPECIAL RULES RELATING TO BENEFITS.—
‘‘(1) IN GENERAL.—Paragraphs (1) and (3) of
section 1852(a) shall not apply to high deductible/
medisave products.
‘‘(2) PREMIUMS.—
‘‘(A) APPLICATION OF ALTERNATIVE PRE-
MIUM.—In applying section 1852(d)(2) in the
case of a high deductible/medisave product, in-
stead of the amount specified in subparagraph
(B) there shall be substituted the monthly ad-
justed Medicare Choice capitation rate specified
in section 1855(b)(1) for the individual and pe-
riod involved.
356
Title VIII, Subtitle A
‘‘(B) CLASS ADJUSTED PREMIUMS.—Not-
withstanding section 1852(d)(3), a Medicare
Choice organization shall establish premiums
for any high deductible/medisave product it of-
fers in a payment area based on each of the
risk adjustment categories established for pur-
poses of determining the amount of the pay-
ment to Medicare Choice organizations under
section 1855(b)(1) and using the identical de-
mographic and other adjustments among such
categories as are used for such purposes.
‘‘(C) 
REQUIREMENT
FOR
ADDITIONAL
BENEFITS
NOT
APPLICABLE.—Section
1852(e)(1)(A) shall not apply to a high deduct-
ible/medisave product.
‘‘(e) ADDITIONAL DISCLOSURE.—In any disclosure
made pursuant to section 1853(a)(1) for a high deduct-
ible/medisave product, the disclosure shall include a com-
parison of benefits under such a product with benefits
under other Medicare Choice products.
‘‘(f) SPECIAL RULES FOR INDIVIDUALS ELECTING
HIGH DEDUCTIBLE/MEDISAVE PRODUCT.—
‘‘(1) IN GENERAL.—In the case of an individual
who has elected a high deductible/medisave product,
notwithstanding the provisions of section 1855—
357
Title VIII, Subtitle A
‘‘(A) the amount of the payment to the
Medicare Choice organization offering the high
deductible/medisave product shall not exceed
the premium for the product, and
‘‘(B) subject to paragraph (2), the dif-
ference between the amount of payment that
would otherwise be made and the amount of
payment to such organization shall be made di-
rectly into a Medicare Choice MSA established
(and, if applicable, designated) by the individual
under paragraph (2).
‘‘(2) ESTABLISHMENT
AND
DESIGNATION
OF
MEDICARE CHOICE MEDICAL SAVINGS ACCOUNT AS
REQUIREMENT FOR PAYMENT OF CONTRIBUTION.—
In the case of an individual who has elected coverage
under a high deductible/medisave product, no pay-
ment shall be made under paragraph (1)(B) on be-
half of an individual for a month unless the individ-
ual—
‘‘(A) has established before the beginning
of the month (or by such other deadline as the
Secretary may specify) a Medicare Choice MSA
(as defined in section 137(b) of the Internal
Revenue Code of 1986), and
358
Title VIII, Subtitle A
‘‘(B) if the individual has established more
than one Medicare Choice MSA, has designated
one of such accounts as the individual’s Medi-
care Choice MSA for purposes of this part.
Under rules under this section, such an individual
may change the designation of such account under
subparagraph (B) for purposes of this part.
‘‘(3) LUMP SUM DEPOSIT OF MEDICAL SAVINGS
ACCOUNT CONTRIBUTION.—In the case of an indi-
vidual electing a high deductible/medisave product
effective beginning with a month in a year, the
amount of the contribution to the Medicare Choice
MSA on behalf of the individual for that month and
all successive months in the year shall be deposited
during that first month. In the case of a termination
of such an election as of a month before the end of
a year, the Secretary shall provide for a procedure
for the recovery of deposits attributable to the re-
maining months in the year.
‘‘(g) SPECIAL CONTRACT RULES.—
‘‘(1) ENROLLMENT REQUIREMENTS WAIVED.—
Subsection (b) of section 1858 shall not apply with
respect to a contract that relates only to one or more
high deductible/medisave products.
359
Title VIII, Subtitle A
‘‘(2) EFFECTIVE DATE OF CONTRACTS.—In no
case shall a contract under section 1858 which pro-
vides for coverage under a high deductible/medisave
account be effective before January 1997 with re-
spect to such coverage.’’.
(b) CONFORMING REFERENCES TO PREVIOUS PART
C.—Any reference in law (in effect before the date of the
enactment of this Act) to part C of title XVIII of the So-
cial Security Act is deemed a reference to part D of such
title (as in effect after such date).
(c) USE
OF INTERIM, FINAL REGULATIONS.—In
order to carry out the amendment made by subsection (a)
in a timely manner, the Secretary of Health and Human
Services may promulgate regulations that take effect on
an interim basis, after notice and pending opportunity for
public comment.
(d) ADVANCE DIRECTIVES.—Section 1866(f)(1) (42
U.S.C. 1395cc(f)(1)) is amended—
(1) in paragraph (1)—
(A) 
by 
inserting 
‘‘1853(g),’’ 
after
‘‘1833(s),’’, and
(B) by inserting ‘‘, Medicare Choice orga-
nization,’’ after ‘‘provider of services’’, and
(2) by adding at the end the following new
paragraph:
360
Title VIII, Subtitle A
‘‘(4) Nothing in this subsection shall be construed to
require the provision of information regarding assisted
suicide, euthanasia, or mercy killing.’’.
(e) 
CONFORMING
AMENDMENT.—Section
1866(a)(1)(O) (42 U.S.C. 1395cc(a)(1)(O)) is amended
by inserting before the semicolon at the end the following:
‘‘and in the case of hospitals to accept as payment in full
for inpatient hospital services that are covered under this
title and are furnished to any individual enrolled under
part C with a Medicare Choice organization which does
not have a contract establishing payment amounts for
services furnished to members of the organization the
amounts that would be made as a payment in full under
this title if the individuals were not so enrolled’’.
SEC. 8003. REPORTS.
(a) ALTERNATIVE PAYMENT APPROACHES.—By not
later than 18 months after the date of the enactment of
this Act, the Secretary of Health and Human Services (in
this title referred to as the ‘‘Secretary’’) shall submit to
Congress a report on alternative provider payment ap-
proaches under the medicare program, including—
(1) combined hospital and physician payments
per admission,
(2) partial capitation models for subsets of
medicare benefits, and
361
Title VIII, Subtitle A
(3) risk-sharing arrangements in which the Sec-
retary defines the risk corridor and shares in gains
and losses.
Such report shall include recommendations for implement-
ing and testing such approaches and legislation that may
be required to implement and test such approaches.
(b) COVERAGE OF RETIRED WORKERS.—
(1) IN
GENERAL.—The Secretary shall work
with employers and health benefit plans to develop
standards and payment methodologies to allow re-
tired workers to continue to participate in employer
health plans instead of participating in the medicare
program. Such standards shall also cover workers
covered under the Federal Employees Health Bene-
fits Program under chapter 89 of title 5, United
States Code.
(2) REPORT.—Not later than 18 months after
the date of the enactment of this Act, the Secretary
shall submit to Congress a report on the develop-
ment of such standards and payment methodologies.
The report shall include recommendations relating to
such legislation as may be necessary.
SEC. 8004. TRANSITIONAL RULES FOR CURRENT MEDICARE
HMO PROGRAM.
(a) TRANSITION FROM CURRENT CONTRACTS.—
362
Title VIII, Subtitle A
(1) LIMITATION
ON
NEW
CONTRACTS.—The
Secretary of Health and Human Services (in this
section referred to as the ‘‘Secretary’’) shall not
enter into any risk-sharing or cost reimbursement
contract under section 1876 of the Social Security
Act with an eligible organization for any contract
year beginning on or after the date standards for
Medicare Choice organizations and products are first
established under section 1856(a) of such Act with
respect to Medicare Choice organizations that are in-
surers or health maintenance organizations unless
such a contract had been in effect under section
1876 of such Act for the organization for the pre-
vious contract year.
(2) TERMINATION OF CURRENT CONTRACTS.—
(A) RISK-SHARING CONTRACTS.—Notwith-
standing any other provision of law, the Sec-
retary shall not extend or continue any risk-
sharing contract with an eligible organization
under section 1876 of the Social Security Act
(for which a contract was entered into consist-
ent with paragraph (1)(A)) for any contract
year beginning on or after 1 year after the date
standards described in paragraph (1)(A) are es-
tablished.
363
Title VIII, Subtitle A
(B) COST REIMBURSEMENT CONTRACTS.—
The Secretary shall not extend or continue any
reasonable cost reimbursement contract with an
eligible organization under section 1876 of the
Social Security Act for any contract year begin-
ning on or after January 1, 1998.
(b) CONFORMING PAYMENT RATES UNDER RISK-
SHARING CONTRACTS.—Notwithstanding any other provi-
sion of law, the Secretary shall provide that payment
amounts under risk-sharing contracts under section
1876(a) of the Social Security Act for months in a year
(beginning with January 1996) shall be computed—
(1) with respect to individuals entitled to bene-
fits under both parts A and B of title XVIII of such
Act, by substituting payment rates under section
1855(a) of such Act for the payment rates otherwise
established under section 1876(a) of such Act, and
(2) with respect to individuals only entitled to
benefits under part B of such title, by substituting
an appropriate proportion of such rates (reflecting
the relative proportion of payments under such title
attributable to such part) for the payment rates oth-
erwise established under section 1876(a) of such
Act.
364
Title VIII, Subtitle A
For purposes of carrying out this paragraph for payment
for months in 1996, the Secretary shall compute, an-
nounce, and apply the payment rates under section
1855(a) of such Act (notwithstanding any deadlines speci-
fied in such section) in as timely a manner as possible
and may (to the extent necessary) provide for retroactive
adjustment in payments made not in accordance with such
rates.
PART 2—SPECIAL RULES FOR MEDICARE CHOICE
MEDICAL SAVINGS ACCOUNTS
SEC. 8011. MEDICARE CHOICE MSA’S.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
amounts specifically excluded from gross income) is
amended by redesignating section 137 as section 138 and
by inserting after section 136 the following new section:
‘‘SEC. 137. MEDICARE CHOICE MSA’S.
‘‘(a) EXCLUSION.—Gross income shall not include
any payment to the Medicare Choice MSA of an individual
by the Secretary of Health and Human Services under
section 1859(f)(1)(B) of the Social Security Act.
‘‘(b) MEDICARE CHOICE MSA.—For purposes of this
section—
‘‘(1) MEDICARE CHOICE MSA.—The term ‘Medi-
care Choice MSA’ means a trust created or orga-
365
Title VIII, Subtitle A
nized in the United States exclusively for the pur-
pose of paying the qualified medical expenses of the
account holder, but only if the written governing in-
strument creating the trust meets the following re-
quirements:
‘‘(A) Except in the case of a trustee-to-
trustee transfer described in subsection (d)(4),
no contribution will be accepted unless it is
made by the Secretary of Health and Human
Services under section 1859(f)(1)(B) of the So-
cial Security Act.
‘‘(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as de-
fined in section 816), or another person who
demonstrates to the satisfaction of the Sec-
retary that the manner in which such person
will administer the trust will be consistent with
the requirements of this section.
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts.
‘‘(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment
fund.
366
Title VIII, Subtitle A
‘‘(E) The interest of an individual in the
balance in his account is nonforfeitable.
‘‘(F) Trustee-to-trustee transfers described
in subsection (d)(4) may be made to and from
the trust.
‘‘(2) QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
medical expenses’ means, with respect to an ac-
count holder, amounts paid by such holder—
‘‘(i) for medical care (as defined in
section 213(d)) for the account holder, but
only to the extent such amounts are not
compensated for by insurance or otherwise,
or
‘‘(ii) for long-term care insurance for
the account holder.
‘‘(B) HEALTH
INSURANCE
MAY
NOT
BE
PURCHASED
FROM
ACCOUNT.—Subparagraph
(A)(i) shall not apply to any payment for insur-
ance.
‘‘(3) ACCOUNT
HOLDER.—The term ‘account
holder’ means the individual on whose behalf the
Medicare Choice MSA is maintained.
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Title VIII, Subtitle A
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar
to the rules of subsections (g) and (h) of section 408
shall apply for purposes of this section.
‘‘(c) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—A Medicare Choice MSA is
exempt from taxation under this subtitle unless such
MSA has ceased to be a Medicare Choice MSA by
reason of paragraph (2). Notwithstanding the pre-
ceding sentence, any such MSA is subject to the
taxes imposed by section 511 (relating to imposition
of tax on unrelated business income of charitable,
etc. organizations).
‘‘(2) ACCOUNT ASSETS TREATED AS DISTRIB-
UTED IN THE CASE OF PROHIBITED TRANSACTIONS
OR ACCOUNT PLEDGED AS SECURITY FOR LOAN.—
Rules similar to the rules of paragraphs (2) and (4)
of section 408(e) shall apply to Medicare Choice
MSA’s, and any amount treated as distributed under
such rules shall be treated as not used to pay quali-
fied medical expenses.
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION OF AMOUNTS NOT USED FOR
QUALIFIED MEDICAL EXPENSES.—No amount shall
be included in the gross income of the account hold-
er by reason of a payment or distribution from a
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Title VIII, Subtitle A
Medicare Choice MSA which is used exclusively to
pay the qualified medical expenses of the account
holder. Any amount paid or distributed from a Medi-
care Choice MSA which is not so used shall be in-
cluded in the gross income of such holder.
‘‘(2) PENALTY FOR DISTRIBUTIONS NOT USED
FOR
QUALIFIED
MEDICAL
EXPENSES
IF
MINIMUM
BALANCE NOT MAINTAINED.—
‘‘(A) IN GENERAL.—The tax imposed by
this chapter for any taxable year in which there
is a payment or distribution from a Medicare
Choice MSA which is not used exclusively to
pay the qualified medical expenses of the ac-
count holder shall be increased by 50 percent of
the excess (if any) of—
‘‘(i) the amount of such payment or
distribution, over
‘‘(ii) the excess (if any) of—
‘‘(I) the fair market value of the
assets in the Medicare Choice MSA as
of the close of the calendar year pre-
ceding the calendar year in which the
taxable year begins, over
‘‘(II) an amount equal to 60 per-
cent of the deductible under the cata-
369
Title VIII, Subtitle A
strophic health plan covering the ac-
count holder as of January 1 of the
calendar year in which the taxable
year begins.
‘‘(B) 
EXCEPTIONS.—Subparagraph 
(A)
shall not apply if the payment or distribution is
made on or after the date the account holder—
‘‘(i) becomes disabled within the
meaning of section 72(m)(7), or
‘‘(ii) dies.
‘‘(C) SPECIAL
RULES.—For purposes of
subparagraph (A)—
‘‘(i) all Medicare Choice MSA’s of the
account holder shall be treated as 1 ac-
count,
‘‘(ii) all payments and distributions
not used exclusively to pay the qualified
medical expenses of the account holder
during any taxable year shall be treated as
1 distribution, and
‘‘(iii) any distribution of property
shall be taken into account at its fair mar-
ket value on the date of the distribution.
‘‘(3) WITHDRAWAL OF ERRONEOUS CONTRIBU-
TIONS.—Paragraphs (1) and (2) shall not apply to
370
Title VIII, Subtitle A
any payment or distribution from a Medicare Choice
MSA to the Secretary of Health and Human Serv-
ices of an erroneous contribution to such MSA and
of the net income attributable to such contribution.
‘‘(4) 
TRUSTEE-TO-TRUSTEE
TRANSFERS.—
Paragraphs (1) and (2) shall not apply to any trust-
ee-to-trustee transfer from a Medicare Choice MSA
of an account holder to another Medicare Choice
MSA of such account holder.
‘‘(5) COORDINATION WITH MEDICAL EXPENSE
DEDUCTION.—For purposes of section 213, any pay-
ment or distribution out of a Medicare Choice MSA
for qualified medical expenses shall not be treated as
an expense paid for medical care.
‘‘(e) TREATMENT OF ACCOUNT AFTER DEATH OF
ACCOUNT HOLDER.—
‘‘(1) TREATMENT IF DESIGNATED BENEFICIARY
IS SPOUSE.—
‘‘(A) IN GENERAL.—In the case of an ac-
count holder’s interest in a Medicare Choice
MSA which is payable to (or for the benefit of)
such holder’s spouse upon the death of such
holder, such Medicare Choice MSA shall be
treated as a Medicare Choice MSA of such
spouse as of the date of such death.
371
Title VIII, Subtitle A
‘‘(B) SPECIAL RULES IF SPOUSE NOT MED-
ICARE ELIGIBLE.—If, as of the date of such
death, such spouse is not entitled to benefits
under title XVIII of the Social Security Act,
then after the date of such death—
‘‘(i) the Secretary of Health and
Human Services may not make any pay-
ments to such Medicare Choice MSA, other
than payments attributable to periods be-
fore such date,
‘‘(ii) in applying subsection (b)(2)
with respect to such Medicare Choice
MSA, references to the account holder
shall be treated as including references to
any dependent (as defined in section 152)
of such spouse and any subsequent spouse
of such spouse, and
‘‘(iii) in lieu of applying subsection
(d)(2), the rules of section 220(f)(2) shall
apply.
‘‘(2) TREATMENT IF DESIGNATED BENEFICIARY
IS NOT SPOUSE.—In the case of an account holder’s
interest in a Medicare Choice MSA which is payable
to (or for the benefit of) any person other than such
holder’s spouse upon the death of such holder—
372
Title VIII, Subtitle A
‘‘(A) such account shall cease to be a Med-
icare Choice MSA as of the date of death, and
‘‘(B) an amount equal to the fair market
value of the assets in such account on such date
shall be includible—
‘‘(i) if such person is not the estate of
such holder, in such person’s gross income
for the taxable year which includes such
date, or
‘‘(ii) if such person is the estate of
such holder, in such holder’s gross income
for last taxable year of such holder.
‘‘(f) REPORTS.—
‘‘(1) IN GENERAL.—The trustee of a Medicare
Choice MSA shall make such reports regarding such
account to the Secretary and to the account holder
with respect to—
‘‘(A) the fair market value of the assets in
such Medicare Choice MSA as of the close of
each calendar year, and
‘‘(B) contributions, distributions, and other
matters,
as the Secretary may require by regulations.
‘‘(2) TIME AND MANNER OF REPORTS.—The re-
ports required by this subsection—
373
Title VIII, Subtitle A
‘‘(A) shall be filed at such time and in
such manner as the Secretary prescribes in
such regulations, and
‘‘(B) shall be furnished to the account
holder—
‘‘(i) not later than January 31 of the
calendar year following the calendar year
to which such reports relate, and
‘‘(ii) in such manner as the Secretary
prescribes in such regulations.’’
(b) EXCLUSION OF MEDICARE CHOICE MSA’S FROM
ESTATE TAX.—Part IV of subchapter A of chapter 11 of
such Code is amended by adding at the end the following
new section:
‘‘SEC. 2057. MEDICARE CHOICE MSA’S.
‘‘For purposes of the tax imposed by section 2001,
the value of the taxable estate shall be determined by de-
ducting from the value of the gross estate an amount
equal to the value of any Medicare Choice MSA (as de-
fined in section 137(b)) included in the gross estate.’’
(c) TAX ON PROHIBITED TRANSACTIONS.—
(1) Section 4975 of such Code (relating to tax
on prohibited transactions) is amended by adding at
the end of subsection (c) the following new para-
graph:
374
Title VIII, Subtitle A
‘‘(5) SPECIAL
RULE
FOR MEDICARE CHOICE
MSA’S.—An individual for whose benefit a Medicare
Choice MSA (within the meaning of section 137(b))
is established shall be exempt from the tax imposed
by this section with respect to any transaction con-
cerning such account (which would otherwise be tax-
able under this section) if, with respect to such
transaction, the account ceases to be a Medicare
Choice MSA by reason of the application of section
137(c)(2) to such account.’’
(2) Paragraph (1) of section 4975(e) of such
Code is amended to read as follows:
‘‘(1) PLAN.—For purposes of this section, the
term ‘plan’ means—
‘‘(A) a trust described in section 401(a)
which forms a part of a plan, or a plan de-
scribed in section 403(a), which trust or plan is
exempt from tax under section 501(a),
‘‘(B) an individual retirement account de-
scribed in section 408(a),
‘‘(C) an individual retirement annuity de-
scribed in section 408(b),
‘‘(D) a medical savings account described
in section 220(d),
375
Title VIII, Subtitle A
‘‘(E) a Medicare Choice MSA described in
section 137(b), or
‘‘(F) a trust, plan, account, or annuity
which, at any time, has been determined by the
Secretary to be described in any preceding sub-
paragraph of this paragraph.’’
(d) FAILURE TO PROVIDE REPORTS ON MEDICARE
CHOICE MSA’S.—
(1) Subsection (a) of section 6693 of such Code
(relating to failure to provide reports on individual
retirement accounts or annuities) is amended to read
as follows:
‘‘(a) REPORTS.—
‘‘(1) IN GENERAL.—If a person required to file
a report under a provision referred to in paragraph
(2) fails to file such report at the time and in the
manner required by such provision, such person
shall pay a penalty of $50 for each failure unless it
is shown that such failure is due to reasonable
cause.
‘‘(2) PROVISIONS.—The provisions referred to
in this paragraph are—
‘‘(A) subsections (i) and (l) of section 408
(relating to individual retirement plans),
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Title VIII, Subtitle A
‘‘(B) section 220(h) (relating to medical
savings accounts), and
‘‘(C) section 137(f) (relating to Medicare
Choice MSA’s).’’
(2) The section heading for section 6693 of
such Code is amended to read as follows:
‘‘SEC. 6693. FAILURE TO FILE REPORTS ON INDIVIDUAL RE-
TIREMENT PLANS AND CERTAIN OTHER TAX-
FAVORED ACCOUNTS; PENALTIES RELATING
TO 
DESIGNATED 
NONDEDUCTIBLE 
CON-
TRIBUTIONS.’’
(e) CLERICAL AMENDMENTS.—
(1) The table of sections for part III of sub-
chapter B of chapter 1 of such Code is amended by
striking the last item and inserting the following:
‘‘Sec. 137. Medicare Choice MSA’s.
‘‘Sec. 138. Cross references to other Acts.’’
(2) The table of sections for subchapter B of
chapter 68 of such Code is amended by striking the
item relating to section 6693 and inserting the fol-
lowing new item:
‘‘Sec. 6693. Failure to file reports on individual retirement plans
and certain other tax-favored accounts; penalties re-
lating to designated nondeductible contributions.’’
(3) The table of sections for part IV of sub-
chapter A of chapter 11 of such Code is amended by
adding at the end the following new item:
‘‘Sec. 2057. Medicare Choice MSA’s.’’
377
Title VIII, Subtitle A
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 8012. CERTAIN REBATES EXCLUDED FROM GROSS IN-
COME.
(a) IN GENERAL.—Section 105 of the Internal Reve-
nue Code of 1986 (relating to amounts received under ac-
cident and health plans) is amended by adding at the end
the following new subsection:
‘‘(j) CERTAIN REBATES UNDER SOCIAL SECURITY
ACT.—Gross income does not include any rebate received
under section 1852(e)(1)(A) of the Social Security Act
during the taxable year.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to amounts received after the
date of the enactment of this Act.
PART 3—SPECIAL ANTITRUST RULE FOR
PROVIDER SERVICE NETWORKS
SEC. 8021. APPLICATION OF ANTITRUST RULE OF REASON
TO PROVIDER SERVICE NETWORKS.
(a) RULE OF REASON STANDARD.—In any action
under the antitrust laws, or under any State law similar
to the antitrust laws—
(1) the conduct of a provider service network in
negotiating, making, or performing a contract (in-
378
Title VIII, Subtitle A
cluding the establishment and modification of a fee
schedule and the development of a panel of physi-
cians), to the extent such contract is for the purpose
of providing health care services to individuals under
the terms of a Medicare Choice PSO product, and
(2) the conduct of any member of such network
for the purpose of providing such health care serv-
ices under such contract to such extent,
shall not be deemed illegal per se. Such conduct shall be
judged on the basis of its reasonableness, taking into ac-
count all relevant factors affecting competition, including
the effects on competition in properly defined markets.
(b) DEFINITIONS.—For purposes of subsection (a):
(1) ANTITRUST
LAWS.—The term ‘‘antitrust
laws’’ has the meaning given it in subsection (a) of
the first section of the Clayton Act (15 U.S.C. 12),
except that such term includes section 5 of the Fed-
eral Trade Commission Act (15 U.S.C. 45) to the
extent that such section 5 applies to unfair methods
of competition.
(2) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means any individual or en-
tity that is engaged in the delivery of health care
services in a State and that is required by State law
or regulation to be licensed or certified by the State
379
Title VIII, Subtitle A
to engage in the delivery of such services in the
State.
(3) HEALTH CARE SERVICE.—The term ‘‘health
care service’’ means any service for which payment
may be made under a Medicare Choice PSO product
including services related to the delivery or adminis-
tration of such service.
(4) MEDICARE
CHOICE
PROGRAM.—The term
‘‘Medicare Choice program’’ means the program
under part C of title XVIII of the Social Security
Act.
(5) MEDICARE
CHOICE
PSO
PRODUCT.—The
term ‘‘Medicare Choice PSO product’’ means a Med-
icare Choice product offered by a provider-sponsored
organization under part C of title XVIII of the So-
cial Security Act.
(6) PROVIDER SERVICE NETWORK.—The term
‘‘provider service network’’ means an organization
that—
(A) is organized by, operated by, and com-
posed of members who are health care providers
and for purposes that include providing health
care services,
380
Title VIII, Subtitle A
(B) is funded in part by capital contribu-
tions made by the members of such organiza-
tion,
(C) with respect to each contract made by
such organization for the purpose of providing
a type of health care service to individuals
under the terms of a Medicare Choice PSO
product—
(i) requires all members of such orga-
nization who engage in providing such type
of health care service to agree to provide
health care services of such type under
such contract,
(ii) receives the compensation paid for
the health care services of such type pro-
vided under such contract by such mem-
bers, and
(iii) provides for the distribution of
such compensation,
(D) has established, consistent with the re-
quirements of the Medicare Choice program for
provider-sponsored organizations, a program to
review, pursuant to written guidelines, the qual-
ity, efficiency, and appropriateness of treatment
methods and setting of services for all health
381
Title VIII, Subtitle A
care providers and all patients participating in
such product, along with internal procedures to
correct identified deficiencies relating to such
methods and such services,
(E) has established, consistent with the re-
quirements of the Medicare Choice program for
provider-sponsored organizations, a program to
monitor and control utilization of health care
services provided under such product, for the
purpose of improving efficient, appropriate care
and eliminating the provision of unnecessary
health care services,
(F) has established a management pro-
gram to coordinate the delivery of health care
services for all health care providers and all pa-
tients participating in such product, for the
purpose of achieving efficiencies and enhancing
the quality of health care services provided, and
(G) has established, consistent with the re-
quirements of the Medicare Choice program for
provider-sponsored organizations, a grievance
and appeal process for such organization de-
signed to review and promptly resolve bene-
ficiary or patient grievances and complaints.
382
Title VIII, Subtitle A
Such term may include a provider-sponsored organi-
zation.
(7) PROVIDER-SPONSORED
ORGANIZATION.—
The term ‘‘provider-sponsored organization’’ means
a Medicare Choice organization under the Medicare
Choice program that is a provider-sponsored organi-
zation (as defined in section 1854(a)(1) of the Social
Security Act).
(8) STATE.—The term ‘‘State’’ has the mean-
ing given it in section 4G(2) of the Clayton Act (15
U.S.C. 15g(2)).
(c) ISSUANCE OF GUIDELINES.—Not later than 120
days after the date of the enactment of this Act, the Attor-
ney General and the Federal Trade Commission shall
issue jointly guidelines specifying the enforcement policies
and analytical principles that will be applied by the De-
partment of Justice and the Commission with respect to
the operation of subsection (a).
PART 4—COMMISSIONS
SEC. 8031. MEDICARE PAYMENT REVIEW COMMISSION.
(a) IN GENERAL.—Title XVIII, as amended by sec-
tion 8001(a), is amended by inserting after section 1805
the following new section:
383
Title VIII, Subtitle A
‘‘MEDICARE PAYMENT REVIEW COMMISSION
‘‘SEC. 1806. (a) ESTABLISHMENT.—There is hereby
established the Medicare Payment Review Commission (in
this section referred to as the ‘Commission’).
‘‘(b) DUTIES.—
‘‘(1) GENERAL
DUTIES
AND
REPORTS.—The
Commission shall review, and make recommenda-
tions to Congress concerning, payment policies under
this title. By not later than June 1 of each year, the
Commission shall submit a report to Congress con-
taining an examination of issues affecting the medi-
care program, including the implications of changes
in health care delivery in the United States and in
the market for health care services on the medicare
program. The Commission may submit to Congress
from time to time such other reports as the Commis-
sion deems appropriate. The Secretary shall respond
to recommendations of the Commission in notices of
rulemaking proceedings under this title.
‘‘(2) SPECIFIC DUTIES RELATING TO MEDICARE
CHOICE
PROGRAM.—Specifically, the Commission
shall review, with respect to the Medicare Choice
program under part C—
‘‘(A) the appropriateness of the methodol-
ogy for making payment to plans under such
384
Title VIII, Subtitle A
program, including the making of differential
payments and the distribution of differential
updates among different payment areas,
‘‘(B) the appropriateness of the mecha-
nisms used to adjust payments for risk and the
need to adjust such mechanisms to take into ac-
count health status of beneficiaries,
‘‘(C) the implications of risk selection both
among Medicare Choice organizations and be-
tween the Medicare Choice option and the non-
Medicare Choice option,
‘‘(D) in relation to payment under part C,
the development and implementation of mecha-
nisms to assure the quality of care for those en-
rolled with Medicare Choice organizations,
‘‘(E) the impact of the Medicare Choice
program on access to care for medicare bene-
ficiaries, and
‘‘(F) other major issues in implementation
and further development of the Medicare Choice
program.
‘‘(3) SPECIFIC DUTIES RELATING TO THE FEE-
FOR-SERVICE SYSTEM.—Specifically, the Commission
shall review payment policies under parts A and B,
including—
385
Title VIII, Subtitle A
‘‘(A) the factors affecting expenditures for
services in different sectors, including the proc-
ess for updating hospital, physician, and other
fees,
‘‘(B) payment methodologies; and
‘‘(C) the impact of payment policies on ac-
cess and quality of care for medicare bene-
ficiaries.
‘‘(4) SPECIFIC
DUTIES
RELATING
TO
INTER-
ACTION OF PAYMENT POLICIES WITH HEALTH CARE
DELIVERY
GENERALLY.—Specifically the Commis-
sion shall review the effect of payment policies under
this title on the delivery of health care services
under this title and assess the implications of
changes in the health services market on the medi-
care program.
‘‘(c) MEMBERSHIP.—
‘‘(1) NUMBER AND APPOINTMENT.—The Com-
mission shall be composed of 15 members appointed
by the Comptroller General.
‘‘(2) QUALIFICATIONS.—The membership of the
Commission shall include individuals with national
recognition for their expertise in health finance and
economics, actuarial science, health facility manage-
ment, health plans and integrated delivery systems,
386
Title VIII, Subtitle A
reimbursement of health facilities, physicians, and
other providers of services, and other related fields,
who provide a mix of different professionals, broad
geographic representation, and a balance between
urban and rural representatives, including physicians
and other health professionals, employers, third
party payors, individuals skilled in the conduct and
interpretation of biomedical, health services, and
health economics research and expertise in outcomes
and effectiveness research and technology assess-
ment. Such membership shall also include represent-
atives of consumers and the elderly.
‘‘(3) CONSIDERATIONS
IN
INITIAL
APPOINT-
MENT.—To the extent possible, in first appointing
members to the Commission the Comptroller Gen-
eral shall consider appointing individuals who (as of
the date of the enactment of this section) were serv-
ing on the Prospective Payment Assessment Com-
mission or the Physician Payment Review Commis-
sion.
‘‘(4) TERMS.—
‘‘(A) IN GENERAL.—The terms of mem-
bers of the Commission shall be for 3 years ex-
cept that the Comptroller General shall des-
387
Title VIII, Subtitle A
ignate staggered terms for the members first
appointed.
‘‘(B) VACANCIES.—Any member appointed
to fill a vacancy occurring before the expiration
of the term for which the member’s predecessor
was appointed shall be appointed only for the
remainder of that term. A member may serve
after the expiration of that member’s term until
a successor has taken office. A vacancy in the
Commission shall be filled in the manner in
which the original appointment was made.
‘‘(5) COMPENSATION.—While serving on the
business of the Commission (including traveltime), a
member of the Commission shall be entitled to com-
pensation at the per diem equivalent of the rate pro-
vided for level IV of the Executive Schedule under
section 5315 of title 5, United States Code; and
while so serving away from home and member’s reg-
ular place of business, a member may be allowed
travel expenses, as authorized by the Chairman of
the Commission. Physicians serving as personnel of
the Commission may be provided a physician com-
parability allowance by the Commission in the same
manner as Government physicians may be provided
such an allowance by an agency under section 5948
388
Title VIII, Subtitle A
of title 5, United States Code, and for such purpose
subsection (i) of such section shall apply to the Com-
mission in the same manner as it applies to the Ten-
nessee Valley Authority. For purposes of pay (other
than pay of members of the Commission) and em-
ployment benefits, rights, and privileges, all person-
nel of the Commission shall be treated as if they
were employees of the United States Senate.
‘‘(6) CHAIRMAN; VICE CHAIRMAN.—The Comp-
troller General shall designate a member of the
Commission, at the time of appointment of the mem-
ber, as Chairman and a member as Vice Chairman
for that term of appointment.
‘‘(7) MEETINGS.—The Commission shall meet
at the call of the Chairman.
‘‘(d) DIRECTOR AND STAFF; EXPERTS AND CON-
SULTANTS.—Subject to such review as the Comptroller
General deems necessary to assure the efficient adminis-
tration of the Commission, the Commission may—
‘‘(1) employ and fix the compensation of an Ex-
ecutive Director (subject to the approval of the
Comptroller General) and such other personnel as
may be necessary to carry out its duties (without re-
gard to the provisions of title 5, United States Code,
governing appointments in the competitive service);
389
Title VIII, Subtitle A
‘‘(2) seek such assistance and support as may
be required in the performance of its duties from ap-
propriate Federal departments and agencies;
‘‘(3) enter into contracts or make other ar-
rangements, as may be necessary for the conduct of
the work of the Commission (without regard to sec-
tion 3709 of the Revised Statutes (41 U.S.C. 5));
‘‘(4) make advance, progress, and other pay-
ments which relate to the work of the Commission;
‘‘(5) provide transportation and subsistence for
persons serving without compensation; and
‘‘(6) prescribe such rules and regulations as it
deems necessary with respect to the internal organi-
zation and operation of the Commission.
‘‘(e) POWERS.—
‘‘(1) OBTAINING
OFFICIAL
DATA.—The Com-
mission may secure directly from any department or
agency of the United States information necessary
to enable it to carry out this section. Upon request
of the Chairman, the head of that department or
agency shall furnish that information to the Com-
mission on an agreed upon schedule.
‘‘(2) DATA COLLECTION.—In order to carry out
its functions, the Commission shall collect and as-
sess information.
390
Title VIII, Subtitle A
‘‘(A) utilize existing information, both pub-
lished and unpublished, where possible, collected
and assessed either by its own staff or under
other arrangements made in accordance with
this section,
‘‘(B) carry out, or award grants or con-
tracts for, original research and experimen-
tation, where existing information is inad-
equate, and
‘‘(C) adopt procedures allowing any inter-
ested party to submit information for the Com-
mission’s use in making reports and rec-
ommendations.
‘‘(3) ACCESS OF GAO TO INFORMATION.—The
Comptroller General shall have unrestricted access
to all deliberations, records, and data of the Com-
mission, immediately upon request.
‘‘(4) PERIODIC AUDIT.—The Commission shall
be subject to periodic audit by the General Account-
ing Office.
‘‘(f) AUTHORIZATION OF APPROPRIATIONS.—
‘‘(1) REQUEST
FOR
APPROPRIATIONS.—The
Commission shall submit requests for appropriations
in the same manner as the Comptroller General sub-
mits requests for appropriations, but amounts ap-
391
Title VIII, Subtitle A
propriated for the Commission shall be separate
from amounts appropriated for the Comptroller Gen-
eral.
‘‘(2) AUTHORIZATION.—There are authorized to
be appropriated such sums as may be necessary to
carry out the provisions of this section. 60 percent
of such appropriation shall be payable from the Fed-
eral Hospital Insurance Trust Fund, and 40 percent
of such appropriation shall be payable from the Fed-
eral 
Supplementary 
Medical 
Insurance 
Trust
Fund.’’.
(b) ABOLITION OF PROPAC AND PPRC.—
(1) PROPAC.—
(A) IN
GENERAL.—Section 1886(e) (42
U.S.C. 1395ww(e)) is amended—
(i) by striking paragraphs (2) and (6);
and
(ii) in paragraph (3), by striking ‘‘(A)
The Commission’’ and all that follows
through ‘‘(B)’’.
(B) CONFORMING
AMENDMENT.—Section
1862 (42 U.S.C. 1395y) is amended by striking
‘‘Prospective Payment Assessment Commis-
sion’’ each place it appears in subsection
392
Title VIII, Subtitle A
(a)(1)(D) and subsection (i) and inserting
‘‘Medicare Payment Review Commission’’.
(2) PPRC.—
(A) IN GENERAL.—Title XVIII is amended
by striking section 1845 (42 U.S.C. 1395w–1).
(B) CONFORMING AMENDMENTS.—
(i) Section 1834(b)(2) (42 U.S.C.
1395m(b)(2)) is amended by striking
‘‘Physician Payment Review Commission’’
and inserting ‘‘Medicare Payment Review
Commission’’.
(ii) 
Section 
1842(b) 
(42 
U.S.C.
1395u(b)) is amended by striking ‘‘Physi-
cian Payment Review Commission’’ each
place it appears in paragraphs (2)(C),
(9)(D), and (14)(C)(i) and inserting ‘‘Med-
icare Payment Review Commission’’.
(iii) 
Section 
1848 
(42 
U.S.C.
1395w@4) is amended by striking ‘‘Physi-
cian Payment Review Commission’’ and in-
serting ‘‘Medicare Payment Review Com-
mission’’ each place it appears in para-
graph (2)(A)(ii), (2)(B)(iii), and (5) of
subsection (c), subsection (d)(2)(F), para-
graphs (1)(B), (3), and (4)(A) of sub-
393
Title VIII, Subtitle A
section (f), and paragraphs (6)(C) and
(7)(C) of subsection (g).
(c) EFFECTIVE DATE; TRANSITION.—
(1) IN
GENERAL.—The Comptroller General
shall first provide for appointment of members to
the Medicare Payment Review Commission (in this
subsection referred to as ‘‘MPRC’’) by not later
than March 31, 1996.
(2) TRANSITION.—Effective on a date (not later
than 30 days after the date a majority of members
of the MPRC have first been appointed, the Pro-
spective Payment Assessment Commission (in this
subsection referred to as ‘‘ProPAC’’) and the Physi-
cian Payment Review Commission (in this subsection
referred to as ‘‘PPRC’’), and amendments made by
subsection (b), are terminated. The Comptroller
General, to the maximum extent feasible, shall pro-
vide for the transfer to the MPRC of assets and
staff of ProPAC and PPRC, without any loss of
benefits or seniority by virtue of such transfers.
Fund balances available to the ProPAC or PPRC
for any period shall be available to the MPRC for
such period for like purposes.
(3) CONTINUING
RESPONSIBILITY
FOR
RE-
PORTS.—The MPRC shall be responsible for the
394
Title VIII, Subtitle A
preparation and submission of reports required by
law to be submitted (and which have not been sub-
mitted by the date of establishment of the MPRC)
by the ProPAC and PPRC, and, for this purpose,
any reference in law to either such Commission is
deemed, after the appointment of the MPRC, to
refer to the MPRC.
SEC. 8032. COMMISSION ON THE EFFECT OF THE BABY
BOOM GENERATION ON THE MEDICARE PRO-
GRAM.
(a) ESTABLISHMENT.—There is established a com-
mission to be known as the Commission on the Effect of
the Baby Boom Generation on the Medicare Program (in
this section referred to as the ‘‘Commission’’).
(b) DUTIES.—
(1) IN GENERAL.—The Commission shall—
(A) examine the financial impact on the
medicare program of the significant increase in
the number of medicare eligible individuals
which will occur beginning approximately dur-
ing 2010 and lasting for approximately 25
years, and
(B) make specific recommendations to the
Congress respecting a comprehensive approach
to preserve the medicare program for the period
395
Title VIII, Subtitle A
during which such individuals are eligible for
medicare.
(2) 
CONSIDERATIONS
IN
MAKING
REC-
OMMENDATIONS.—In making its recommendations,
the Commission shall consider the following:
(A) The amount and sources of Federal
funds to finance the medicare program, includ-
ing the potential use of innovative financing
methods.
(B) The most efficient and effective man-
ner of administering the program, including the
appropriateness of continuing the enforcement
of medicare budget targets under section 8701
for fiscal years after fiscal year 2002 and the
appropriate long-term growth rates for con-
tributions electing coverage under Medicare
Choice under part C of title XVIII of such Act.
(C) Methods used by other nations to re-
spond to comparable demographic patterns in
eligibility for health care benefits for elderly
and disabled individuals.
(D) Modifying age-based eligibility to cor-
respond to changes in age-based eligibility
under the OASDI program.
396
Title VIII, Subtitle A
(E) Trends in employment-related health
care for retirees, including the use of medical
savings accounts and similar financing devices.
(c) MEMBERSHIP.—
(1) APPOINTMENT.—The Commission shall be
composed of 15 members appointed as follows:
(A) The President shall appoint 3 mem-
bers.
(B) The Majority Leader of the Senate
shall appoint, after consultation with the minor-
ity leader of the Senate, 6 members, of whom
not more than 4 may be of the same political
party.
(C) The Speaker of the House of Rep-
resentatives shall appoint, after consultation
with the minority leader of the House of Rep-
resentatives, 6 members, of whom not more
than 4 may be of the same political party.
(2) CHAIRMAN
AND
VICE
CHAIRMAN.—The
Commission shall elect a Chairman and Vice Chair-
man from among its members.
(3) VACANCIES.—Any vacancy in the member-
ship of the Commission shall be filled in the manner
in which the original appointment was made and
397
Title VIII, Subtitle A
shall not affect the power of the remaining members
to execute the duties of the Commission.
(4) QUORUM.—A quorum shall consist of 8
members of the Commission, except that 4 members
may conduct a hearing under subsection (e).
(5) MEETINGS.—The Commission shall meet at
the call of its Chairman or a majority of its mem-
bers.
(6) COMPENSATION AND REIMBURSEMENT OF
EXPENSES.—Members of the Commission are not
entitled to receive compensation for service on the
Commission. Members may be reimbursed for travel,
subsistence, and other necessary expenses incurred
in carrying out the duties of the Commission.
(d) STAFF AND CONSULTANTS.—
(1) STAFF.—The Commission may appoint and
determine the compensation of such staff as may be
necessary to carry out the duties of the Commission.
Such appointments and compensation may be made
without regard to the provisions of title 5, United
States Code, that govern appointments in the com-
petitive services, and the provisions of chapter 51
and subchapter III of chapter 53 of such title that
relate to classifications and the General Schedule
pay rates.
398
Title VIII, Subtitle A
(2) CONSULTANTS.—The Commission may pro-
cure such temporary and intermittent services of
consultants under section 3109(b) of title 5, United
States Code, as the Commission determines to be
necessary to carry out the duties of the Commission.
(e) POWERS.—
(1) HEARINGS
AND
OTHER
ACTIVITIES.—For
the purpose of carrying out its duties, the Commis-
sion may hold such hearings and undertake such
other activities as the Commission determines to be
necessary to carry out its duties.
(2) STUDIES BY GAO.—Upon the request of the
Commission, the Comptroller General shall conduct
such studies or investigations as the Commission de-
termines to be necessary to carry out its duties.
(3) COST
ESTIMATES
BY
CONGRESSIONAL
BUDGET OFFICE.—
(A) Upon the request of the Commission,
the Director of the Congressional Budget Office
shall provide to the Commission such cost esti-
mates as the Commission determines to be nec-
essary to carry out its duties.
(B) The Commission shall reimburse the
Director of the Congressional Budget Office for
expenses relating to the employment in the of-
399
Title VIII, Subtitle A
fice of the Director of such additional staff as
may be necessary for the Director to comply
with requests by the Commission under sub-
paragraph (A).
(4) DETAIL OF FEDERAL EMPLOYEES.—Upon
the request of the Commission, the head of any Fed-
eral agency is authorized to detail, without reim-
bursement, any of the personnel of such agency to
the Commission to assist the Commission in carry-
ing out its duties. Any such detail shall not interrupt
or otherwise affect the civil service status or privi-
leges of the Federal employee.
(5) TECHNICAL
ASSISTANCE.—Upon the re-
quest of the Commission, the head of a Federal
agency shall provide such technical assistance to the
Commission as the Commission determines to be
necessary to carry out its duties.
(6) USE OF MAILS.—The Commission may use
the United States mails in the same manner and
under the same conditions as Federal agencies and
shall, for purposes of the frank, be considered a
commission of Congress as described in section 3215
of title 39, United States Code.
(7) OBTAINING
INFORMATION.—The Commis-
sion may secure directly from any Federal agency
400
Title VIII, Subtitle A
information necessary to enable it to carry out its
duties, if the information may be disclosed under
section 552 of title 5, United States Code. Upon re-
quest of the Chairman of the Commission, the head
of such agency shall furnish such information to the
Commission.
(8) ADMINISTRATIVE
SUPPORT
SERVICES.—
Upon the request of the Commission, the Adminis-
trator of General Services shall provide to the Com-
mission on a reimbursable basis such administrative
support services as the Commission may request.
(9) ACCEPTANCE OF DONATIONS.—The Com-
mission may accept, use, and dispose of gifts or do-
nations of services or property.
(10) PRINTING.—For purposes of costs relating
to printing and binding, including the cost of per-
sonnel detailed from the Government Printing Of-
fice, the Commission shall be deemed to be a com-
mittee of the Congress.
(f) REPORT.—Not later than May 1, 1997, the Com-
mission shall submit to Congress a report containing its
findings and recommendations regarding how to protect
and preserve the medicare program in a financially solvent
manner until 2030 (or, if later, throughout the period of
projected solvency of the Federal Old-Age and Survivors
401
Title VIII, Subtitle A
Insurance Trust Fund). The report shall include detailed
recommendations for appropriate legislative initiatives re-
specting how to accomplish this objective.
(g) TERMINATION.—The Commission shall terminate
60 days after the date of submission of the report required
in subsection (f).
(h) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated $1,500,000 to carry out
this section. Amounts appropriated to carry out this sec-
tion shall remain available until expended.
PART 5—PREEMPTION OF STATE ANTI-MANAGED
CARE LAWS
SEC. 8041. PREEMPTION OF STATE LAW RESTRICTIONS ON
MANAGED CARE ARRANGEMENTS.
(a) LIMITATION
ON RESTRICTIONS
ON NETWORK
PLANS.—Effective as of January 1, 1997—
(1) a State may not prohibit or limit a carrier
or group health plan providing health coverage from
including incentives for enrollees to use the services
of participating providers;
(2) a State may not prohibit or limit such a
carrier or plan from limiting coverage of services to
those provided by a participating provider, except as
provided in section 1013;
402
Title VIII, Subtitle A
(3) a State may not prohibit or limit the nego-
tiation of rates and forms of payments for providers
by such a carrier or plan with respect to health cov-
erage;
(4) a State may not prohibit or limit such a
carrier or plan from limiting the number of partici-
pating providers;
(5) a State may not prohibit or limit such a
carrier or plan from requiring that services be pro-
vided (or authorized) by a practitioner selected by
the enrollee from a list of available participating pro-
viders or, except for services of a physician who spe-
cializes in obstetrics and gynecology, from requiring
enrollees to obtain referral in order to have coverage
for treatment by a specialist or health institution;
and
(6) a State may not prohibit or limit the cor-
porate practice of medicine.
(b) DEFINITIONS.—In this section:
(1) MANAGED
CARE
COVERAGE.—The term
‘‘managed care coverage’’ means health coverage to
the extent the coverage is provided through a man-
aged care arrangement (as defined in paragraph (3))
that meets the applicable requirements of such sec-
tion.
403
Title VIII, Subtitle A
(2) 
PARTICIPATING
PROVIDER.—The 
term
‘‘participating provider’’ means an entity or individ-
ual which provides, sells, or leases health care serv-
ices as part of a provider network (as defined in
paragraph (4)).
(3) MANAGED CARE ARRANGEMENT.—The term
‘‘managed care arrangement’’ means, with respect to
a group health plan or under health insurance cov-
erage, an arrangement under such plan or coverage
under which providers agree to provide items and
services covered under the arrangement to individ-
uals covered under the plan or who have such cov-
erage.
(4) PROVIDER NETWORK.—The term ‘‘provider
network’’ means, with respect to a group health plan
or health insurance coverage, providers who have en-
tered into an agreement described in paragraph (3).
SEC. 8042. PREEMPTION OF STATE LAWS RESTRICTING UTI-
LIZATION REVIEW PROGRAMS.
(a) IN GENERAL.—Effective January 1, 1997, no
State law or regulation shall prohibit or regulate activities
under a utilization review program (as defined in sub-
section (b)).
(b) UTILIZATION REVIEW PROGRAM DEFINED.—In
this section, the term ‘‘utilization review program’’ means
404
Title VIII, Subtitle B
a system of reviewing the medical necessity and appro-
priateness of patient services (which may include inpatient
and outpatient services) using specified guidelines. Such
a system may include preadmission certification, the appli-
cation of practice guidelines, continued stay review, dis-
charge planning, preauthorization of ambulatory proce-
dures, and retrospective review.
(c) EXEMPTION OF LAWS PREVENTING DENIAL OF
LIFESAVING MEDICAL TREATMENT PENDING TRANSFER
TO ANOTHER HEALTH CARE PROVIDER.—Nothing in this
subtitle shall be construed to invalidate any State law that
has the effect of preventing involuntary denial of life-pre-
serving medical treatment when such denial would cause
the involuntary death of the patient pending transfer of
the patient to a health care provider willing to provide
such treatment.
Subtitle B—Provisions Relating to
Regulatory Relief
PART 1—PROVISIONS RELATING TO PHYSICIAN
FINANCIAL RELATIONSHIPS
SEC. 8101. REPEAL OF PROHIBITIONS BASED ON COM-
PENSATION ARRANGEMENTS.
(a) IN GENERAL.—Section 1877(a)(2) (42 U.S.C.
1395nn(a)(2)) is amended by striking ‘‘is—’’ and all that
follows through ‘‘equity,’’ and inserting the following: ‘‘is
405
Title VIII, Subtitle B
(except as provided in subsection (c)) an ownership or in-
vestment interest in the entity through equity,’’.
(b) CONFORMING AMENDMENTS.—Section 1877 (42
U.S.C. 1395nn) is amended as follows:
(1) In subsection (b)—
(A) in the heading, by striking ‘‘TO BOTH
OWNERSHIP
AND
COMPENSATION
ARRANGE-
MENT PROVISIONS’’ and inserting ‘‘WHERE FI-
NANCIAL RELATIONSHIP EXISTS’’; and
(B) by redesignating paragraph (4) as
paragraph (7).
(2) In subsection (c)—
(A) by amending the heading to read as
follows: ‘‘EXCEPTION FOR OWNERSHIP OR IN-
VESTMENT INTEREST
IN PUBLICLY TRADED
SECURITIES AND MUTUAL FUNDS’’; and
(B) in the matter preceding paragraph (1),
by striking ‘‘subsection (a)(2)(A)’’ and inserting
‘‘subsection (a)(2)’’.
(3) In subsection (d)—
(A) by striking the matter preceding para-
graph (1);
(B) in paragraph (3), by striking ‘‘para-
graph (1)’’ and inserting ‘‘paragraph (4)’’; and
406
Title VIII, Subtitle B
(C) by redesignating paragraphs (1), (2),
and (3) as paragraphs (4), (5), and (6), and by
transferring and inserting such paragraphs
after paragraph (3) of subsection (b).
(4) By striking subsection (e).
(5) In subsection (f)(2), as amended by section
152(a) of the Social Security Act Amendments of
1994—
(A) in the matter preceding paragraph (1),
by striking ‘‘ownership, investment, and com-
pensation’’ and inserting ‘‘ownership and in-
vestment’’;
(B) in paragraph (2), by striking ‘‘sub-
section (a)(2)(A)’’ and all that follows through
‘‘subsection (a)(2)(B)),’’ and inserting ‘‘sub-
section (a)(2),’’; and
(C) in paragraph (2), by striking ‘‘or who
have such a compensation relationship with the
entity’’.
(6) In subsection (h)—
(A) by striking paragraphs (1), (2), and
(3);
(B) in paragraph (4)(A), by striking
clauses (iv) and (vi);
407
Title VIII, Subtitle B
(C) in paragraph (4)(B), by striking
‘‘RULES.—’’ and all that follows through ‘‘(ii)
FACULTY’’ and inserting ‘‘RULES
FOR
FAC-
ULTY; and
(D) by adding at the end of paragraph (4)
the following new subparagraph:
‘‘(C) MEMBER OF A GROUP.—A physician
is a ‘member’ of a group if the physician is an
owner or a bona fide employee, or both, of the
group.’’.
SEC. 8102. REVISION OF DESIGNATED HEALTH SERVICES
SUBJECT TO PROHIBITION.
(a) IN GENERAL.—Section 1877(h)(6) (42 U.S.C.
1395nn(h)(6)) is amended by striking subparagraphs (B)
through (K) and inserting the following:
‘‘(B) Items and services furnished by a
community pharmacy (as defined in paragraph
(1)).
‘‘(C) Magnetic resonance imaging and
computerized tomography services.
‘‘(D) Outpatient physical therapy serv-
ices.’’.
(b) COMMUNITY
PHARMACY
DEFINED.—Section
1877(h) (42 U.S.C. 1395nn(h)), as amended by section
408
Title VIII, Subtitle B
8101(b)(6), is amended by inserting before paragraph (4)
the following new paragraph:
‘‘(1) COMMUNITY PHARMACY.—The term ‘com-
munity pharmacy’ means any entity licensed or cer-
tified to dispense prescription drugs by the State in
which the entity is located (including an entity which
dispenses such drugs by mail order).’’.
(c) CONFORMING AMENDMENTS.—
(1) 
Section 
1877(b)(2) 
(42 
U.S.C.
1395nn(b)(2)) is amended in the matter preceding
subparagraph (A) by striking ‘‘services’’ and all that
follows through ‘‘supplies)—’’ and inserting ‘‘serv-
ices—’’.
(2) 
Section 
1877(h)(5)(C) 
(42 
U.S.C.
1395nn(h)(5)(C)) is amended—
(A) by striking ‘‘, a request by a radiolo-
gist for diagnostic radiology services, and a re-
quest by a radiation oncologist for radiation
therapy,’’ and inserting ‘‘and a request by a ra-
diologist for magnetic resonance imaging or for
computerized tomography’’, and
(B) by striking ‘‘radiologist, or radiation
oncologist’’ and inserting ‘‘or radiologist’’.
409
Title VIII, Subtitle B
SEC. 8103. DELAY IN IMPLEMENTATION UNTIL PROMULGA-
TION OF REGULATIONS.
(a) IN GENERAL.—Section 13562(b) of OBRA–1993
(42 U.S.C. 1395nn note) is amended—
(1) in paragraph (1), by striking ‘‘paragraph
(2)’’ and inserting ‘‘paragraphs (2) and (3)’’; and
(2) by adding at the end the following new
paragraph:
‘‘(3) PROMULGATION OF REGULATIONS.—Not-
withstanding paragraphs (1) and (2), the amend-
ments made by this section shall not apply to any
referrals made before the effective date of final regu-
lations promulgated by the Secretary of Health and
Human Services to carry out such amendments.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall take effect as if included in the enact-
ment of OBRA–1993.
SEC. 8104. EXCEPTIONS TO PROHIBITION.
(a) REVISIONS TO EXCEPTION FOR IN-OFFICE AN-
CILLARY SERVICES.—
(1) REPEAL
OF
SITE-OF-SERVICE
REQUIRE-
MENT.—Section 1877 (42 U.S.C. 1395nn) is amend-
ed—
(A) by amending subparagraph (A) of sub-
section (b)(2) to read as follows:
410
Title VIII, Subtitle B
‘‘(A) that are furnished personally by the
referring physician, personally by a physician
who is a member of the same group practice as
the referring physician, or personally by individ-
uals who are under the general supervision of
the physician or of another physician in the
group practice, and’’, and
(B) by adding at the end of subsection (h)
the following new paragraph:
‘‘(7) GENERAL SUPERVISION.—An individual is
considered to be under the ‘general supervision’ of a
physician if the physician (or group practice of
which the physician is a member) is legally respon-
sible for the services performed by the individual and
for ensuring that the individual meets licensure and
certification requirements, if any, applicable under
other provisions of law, regardless of whether or not
the physician is physically present when the individ-
ual furnishes an item or service.’’.
(2) CLARIFICATION OF TREATMENT OF PHYSI-
CIAN
OWNERS
OF
GROUP
PRACTICE.—Section
1877(b)(2)(B) (42 U.S.C. 1395nn(b)(2)(B)) is
amended by striking ‘‘physician or such group prac-
tice’’ and inserting ‘‘physician, such group practice,
or the physician owners of such group practice’’.
411
Title VIII, Subtitle B
(3) 
CONFORMING
AMENDMENT.—Section
1877(b)(2) (42 U.S.C. 1395nn(b)(2)) is amended by
amending the heading to read as follows: ‘‘ANCIL-
LARY
SERVICES
FURNISHED
PERSONALLY
OR
THROUGH GROUP PRACTICE.—’’.
(b) CLARIFICATION OF EXCEPTION FOR SERVICES
FURNISHED IN A RURAL AREA.—Paragraph (5) of section
1877(b) (42 U.S.C. 1395nn(b)), as transferred by section
8101(b)(3)(C), is amended by striking ‘‘substantially all’’
and inserting ‘‘not less than 75 percent’’.
(c) REVISION OF EXCEPTION FOR CERTAIN MAN-
AGED CARE ARRANGEMENTS.—Section 1877(b)(3) (42
U.S.C. 1395nn(b)(3)) is amended—
(1) in the heading by inserting ‘‘MANAGED
CARE ARRANGEMENTS’’ after ‘‘PREPAID PLANS’’;
(2) in the matter preceding subparagraph (A),
by striking ‘‘organization—’’ and inserting ‘‘organi-
zation, directly or through contractual arrangements
with other entities, to individuals enrolled with the
organization—’’;
(3) in subparagraph (A), by inserting ‘‘or part
C’’ after ‘‘section 1876’’;
(4) by striking ‘‘or’’ at the end of subparagraph
(C);
412
Title VIII, Subtitle B
(5) by striking the period at the end of sub-
paragraph (D) and inserting a comma; and
(6) by adding at the end the following new sub-
paragraphs:
‘‘(E) with a contract with a State to pro-
vide services under the State plan under title
XIX (in accordance with section 1903(m)) or a
State MediGrant plan under title XXI; or
‘‘(F) which—
‘‘(i) provides health care items or
services directly or through one or more
subsidiary entities or arranges for the pro-
vision of health care items or services sub-
stantially through the services of health
care providers under contract with the or-
ganization, and
‘‘(ii)(I) assumes financial risk for the
provision of health services through mecha-
nisms (such as capitation, risk pools, with-
holds, and per diem payments) or offers its
network of contract health providers to an
entity (including self-insured employers
and indemnity plans) which assumes finan-
cial risk for the provision of such health
services, or
413
Title VIII, Subtitle B
‘‘(II) has in effect a written agree-
ment with the provider of services under
which the provider is at significant finan-
cial risk (whether through a withhold, capi-
tation, incentive pool, per diem payments,
or similar risk sharing arrangement) for
the cost or utilization of services that the
provider is obligated to provide.’’.
(d) NEW EXCEPTION FOR SHARED FACILITY SERV-
ICES.—
(1) IN GENERAL.—Section 1877(b) (42 U.S.C.
1395nn(b)), as amended by section 8101(b)(3)(C), is
amended—
(A) 
by 
redesignating 
paragraphs 
(4)
through (7) as paragraphs (5) through (8); and
(B) by inserting after paragraph (3) the
following new paragraph:
‘‘(4) SHARED FACILITY SERVICES.—In the case
of a designated health service consisting of a shared
facility service of a shared facility—
‘‘(A) that is furnished—
‘‘(i) personally by the referring physi-
cian who is a shared facility physician or
personally by an individual directly em-
414
Title VIII, Subtitle B
ployed or under the general supervision of
such a physician,
‘‘(ii) by a shared facility in a building
in which the referring physician furnishes
substantially all of the services of the phy-
sician that are unrelated to the furnishing
of shared facility services, and
‘‘(iii) to a patient of a shared facility
physician; and
‘‘(B) that is billed by the referring physi-
cian or a group practice of which the physician
is a member.’’.
(2) DEFINITIONS.—Section 1877(h) (42 U.S.C.
1395nn(h)), as amended by section 8101(b)(6) and
section 8102(b), is amended by inserting after para-
graph (1) the following new paragraph:
‘‘(2) SHARED
FACILITY
RELATED
DEFINI-
TIONS.—
‘‘(A) SHARED
FACILITY
SERVICE.—The
term ‘shared facility service’ means, with re-
spect to a shared facility, a designated health
service furnished by the facility to patients of
shared facility physicians.
‘‘(B) 
SHARED
FACILITY.—The 
term
‘shared facility’ means an entity that furnishes
708
Title IX, Subtitle C
plan to such a family with no income (without regard to
adjustments under subsection (b) of this section) for the
lesser of—
‘‘(1) 9 months; or
‘‘(2) the number of months in which the indi-
vidual was employed in the program.
‘‘(e) RULES OF INTERPRETATION.—
‘‘(1) This section shall not be construed as re-
quiring the State or local agency administering the
State plan to provide employee status to an eligible
individual to whom the State or local agency pro-
vides a job under the work supplementation program
(or with respect to whom the State or local agency
provides all or part of the wages paid to the individ-
ual by another entity under the program), or as re-
quiring any State or local agency to provide that an
eligible individual filling a job position provided by
another entity under the program be provided em-
ployee status by the entity during the first 13 weeks
the individual fills the position.
‘‘(2) Wages paid under a work supplementation
program shall be considered to be earned income for
purposes of any provision of law.
‘‘(f) PRESERVATION OF MEDICAID ELIGIBILITY.—
Any State that chooses to operate a work supplementation