1036
(c) 
EFFECTIVE
DATE.—The 
amendment 
made by subsection (a) shall apply to mam-
mography performed on or after January 1, 
2004.
Subtitle C—Other Services 
SEC. 621. HOSPITAL OUTPATIENT DEPARTMENT (HOPD) 
PAYMENT REFORM. 
(a) PAYMENT FOR DRUGS.—
(1) MODIFICATION OF AMBULATORY PAY-
MENT
CLASSIFICATION
(APC)
GROUPS.—Sec-
tion 1833(t) (42 U.S.C. 1395l(t)) is amend-
ed—
(A) by redesignating paragraph 
(13) as paragraph (14); and 
(B) by inserting after paragraph 
(12) the following new paragraph: 
‘‘(13) DRUG APC PAYMENT RATES.—
‘‘(A) IN GENERAL.—With respect to 
payment for covered OPD services 
that includes a specified covered out-
patient drug (defined in subpara-
graph (B)), the amount provided for 
payment for such drug under the pay-
ment system under this subsection 
for services furnished in—
1037
‘‘(i) 2004, 2005, or 2006, shall 
in no case—
‘‘(I) exceed 95 percent of 
the average wholesale price 
for the drug; or 
‘‘(II) be less than the tran-
sition percentage (under sub-
paragraph (C)) of the average 
wholesale price for the drug; 
or 
‘‘(ii) a subsequent year, shall 
be equal to the average price for 
the drug for that area and year 
established under the competitive 
acquisition program under sec-
tion 1847A as calculated and ap-
plied by the Secretary for pur-
poses of this paragraph. 
‘‘(B) 
SPECIFIED
COVERED
OUT-
PATIENT DRUG DEFINED.—
‘‘(i) IN GENERAL.—In this para-
graph, the term ‘specified covered 
outpatient drug’ means, subject to 
clause (ii), a covered outpatient
1038
drug (as defined in 1927(k)(2), 
that is—
‘‘(I) 
a 
radiopharma-
ceutical; or 
‘‘(II) a drug or biological 
for which payment was made 
under paragraph (6) (relating 
to pass-through payments) on 
or before December 31, 2002. 
‘‘(ii) 
EXCEPTION.—Such 
term 
does not include—
‘‘(I) a drug for which pay-
ment is first made on or after 
January 1, 2003, under para-
graph (6); or 
‘‘(II) a drug for a which a 
temporary HCPCS code has 
not been assigned. 
‘‘(C) TRANSITION TOWARDS HISTOR-
ICAL AVERAGE ACQUISITION COST.—The 
transition percentage under this sub-
paragraph for drugs furnished in a 
year is determined in accordance 
with the following table:
1039
For the year—
The transition percentage for—
Single source 
drugs are—
Innovator mul-
tiple source 
drugs are—
Generic drugs 
are—
2004 ...................
83% 
81.5%
46%
2005 ...................
77%
75%
46%
2006 ...................
71%
68%
46%
‘‘(D) PAYMENT
FOR
NEW
DRUGS 
UNTIL
TEMPORARY
HCPCS CODE
AS-
SIGNED.—With respect to payment for 
covered OPD services that includes a 
covered outpatient drug (as defined 
in 1927(k)) for a which a temporary 
HCPCS code has not been assigned, 
the amount provided for payment for 
such drug under the payment system 
under this subsection shall be equal 
to 95 percent of the average whole-
sale price for the drug. 
‘‘(E) CLASSES OF DRUGS.—For pur-
poses of this paragraph, each of the 
following shall be treated as a sepa-
rate class of drugs: 
‘‘(i) SOLE
SOURCE
DRUGS.—A 
sole source drug which for pur-
poses of this paragraph means a 
drug or biological that is not a 
multiple source drug (as defined
1040
in subclauses (I) and (II) of sec-
tion 1927(k)(7)(A)(i)) and is not a 
drug approved under an abbre-
viated 
new 
drug 
application 
under section 355(j) of the Fed-
eral Food, Drug, and Cosmetic 
Act. 
‘‘(ii) 
INNOVATOR
MULTIPLE 
SOURCE
DRUGS.—Innovator 
mul-
tiple source drugs (as defined in 
section 1927(k)(7)(A)(ii)). 
‘‘(iii) NONINNOVATOR MULTIPLE 
SOURCE
DRUGS.—Noninnovator 
multiple source drugs (as defined 
in section 1927(k)(7)(A)(iii)). 
‘‘(F) INAPPLICABILITY
OF
EXPENDI-
TURES
IN
DETERMINING
CONVERSION 
FACTORS.—Additional expenditures re-
sulting from this paragraph and para-
graph (14)(C) in a year shall not be 
taken into account in establishing the 
conversion factor for that year.’’. 
(2) REDUCTION IN THRESHOLD FOR SEPA-
RATE
APCS
FOR
DRUGS.—Section 
1833(t)(14), as redesignated by paragraph
1041
(1)(A), is amended by adding at the end 
the following new subparagraph: 
‘‘(B) THRESHOLD
FOR
ESTABLISH-
MENT OF SEPARATE APCS FOR DRUGS.—
The 
Secretary 
shall 
reduce 
the 
threshold for the establishment of 
separate ambulatory procedure clas-
sification groups (APCs) with respect 
to drugs to $50 per administration.’’. 
(3) EXCLUSION OF SEPARATE DRUG APCS 
FROM
OUTLIER
PAYMENTS.—Section 
1833(t)(5) is amended by adding at the 
end the following new subparagraph: 
‘‘(E) EXCLUSION OF SEPARATE DRUG 
APCS FROM OUTLIER PAYMENTS.—No ad-
ditional payment shall be made under 
subparagraph (A) in the case of am-
bulatory procedure codes established 
separately for drugs.’’. 
(4) 
PAYMENT
FOR
PASS
THROUGH 
DRUGS.—Clause (i) of section 1833(t)(6)(D) 
(42 U.S.C. 1395l(t)(6)(D)) is amended by 
inserting after ‘‘under section 1842(o)’’ 
the following: ‘‘(or if the drug is covered 
under a competitive acquisition contract
1042
under section 1847A for an area, an 
amount determined by the Secretary 
equal to the average price for the drug 
for that area and year established under 
such section as calculated and applied by 
the Secretary for purposes of this para-
graph)’’. 
(5) EFFECTIVE DATE.—The amendments 
made by this subsection shall apply to 
services furnished on or after January 1, 
2004. 
(b) 
SPECIAL
PAYMENT
FOR 
BRACHYTHERAPY.—
(1) IN
GENERAL.—Section 1833(t)(14), 
as so redesignated and amended by sub-
section (a)(2), is amended by adding at 
the end the following new subparagraph: 
‘‘(C) PAYMENT
FOR
DEVICES
OF 
BRACHYTHERAPY AT CHARGES ADJUSTED 
TO
COST.—Notwithstanding the pre-
ceding provisions of this subsection, 
for a device of brachytherapy fur-
nished on or after January 1, 2004, 
and before January 1, 2007, the pay-
ment basis for the device under this
1043
subsection shall be equal to the hos-
pital’s charges for each device fur-
nished, adjusted to cost.’’. 
(2) 
SPECIFICATION
OF
GROUPS
FOR 
BRACHYTHERAPY
DEVICES.—Section 
1833(t)(2) (42 U.S.C. 1395l(t)(2) is amend-
ed—
(A) in subparagraph (F), by strik-
ing ‘‘and’’ at the end; 
(B) in subparagraph (G), by strik-
ing the period at the end and insert-
ing ‘‘; and’’; and 
(C) by adding at the end the fol-
lowing new subparagraph: 
‘‘(H) with respect to devices of 
brachytherapy, the Secretary shall 
create additional groups of covered 
OPD services that classify such de-
vices separately from the other serv-
ices (or group of services) paid for 
under this subsection in a manner re-
flecting the number, isotope, and ra-
dioactive intensity of such devices 
furnished, including separate groups
1044
for palladium-103 and iodine-125 de-
vices.’’. 
(3) GAO 
REPORT.—The Comptroller 
General of the United States shall con-
duct a study to determine appropriate 
payment 
amounts 
under 
section 
1833(t)(13)(B) of the Social Security Act, 
as added by paragraph (1), for devices of 
brachytherapy. Not later than January 1, 
2005, the Comptroller General shall sub-
mit to Congress and the Secretary a re-
port on the study conducted under this 
paragraph, and shall include specific rec-
ommendations for appropriate payments 
for such devices.
(c) APPLICATION
OF FUNCTIONAL EQUIVA-
LENCE TEST.—
(1) IN GENERAL.—Section 1833(t)(6) (42 
U.S.C. 1395l(t)(6)) is amended by adding 
at the end the following new subpara-
graph: 
‘‘(F) LIMITATION ON APPLICATION OF 
FUNCTIONAL EQUIVALENCE STANDARD.—
The Secretary may not apply a ‘func-
tional equivalence’ payment standard
1045
(including 
such 
standard 
promul-
gated on November 1, 2002) or any 
other similar standard in order to 
deem a particular drug or biological 
to be identical to or similar to an-
other drug or biological with respect 
to its mechanism of action or clinical 
effect to deny pass-through status to 
new drugs or biologics or to remove 
such status of an existing eligible 
drug or biologic under this paragraph 
unless—
‘‘(i) the Secretary develops by 
regulation (after providing notice 
and a period for public comment) 
criteria for the application of 
such standard; and 
‘‘(ii) such criteria provide for 
coordination with the Federal 
Food and Drug Administration 
and require scientific studies that 
show the clinical relationship be-
tween the drugs or biologicals 
treated as functionally equiva-
lent.’’.
1046
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall apply to the 
application of a functional equivalence 
standard to a drug or biological on or 
after the date of the enactment of this 
Act, unless such application was being 
made to such drug or biological prior to 
June 13, 2003. 
(d) HOSPITAL ACQUISITION COST STUDY.—
(1) IN GENERAL.—The Secretary shall 
conduct a study on the costs incurred by 
hospitals in acquiring covered outpatient 
drugs for which payment is made under 
section 1833(t) of the Social Security Act 
(42 U.S.C. 1395l(t)). 
(2) DRUGS
COVERED.—The study in 
paragraph (1) shall not include those 
drugs for which the acquisition costs is 
less than $50 per administration. 
(3) REPRESENTATIVE
SAMPLE
OF
HOS-
PITALS.—In conducting the study under 
paragraph (1), the Secretary shall collect 
data from a statistically valid sample of 
hospitals with an urban/rural stratifica-
tion.
1047
(4) REPORT.—Not later than January 
1, 2006, the Secretary shall submit to 
Congress a report on the study conducted 
under paragraph (1), and shall include 
recommendations with respect to the fol-
lowing: 
(A) Whether the study should be 
repeated, and if so, how frequently. 
(B) Whether the study produced 
useful data on hospital acquisition 
cost. 
(C) Whether data produced in the 
study is appropriate for use in mak-
ing 
adjustments 
to 
payments 
for 
drugs and biologicals under section 
1847A of the Social Security Act. 
(D) Whether separate estimates 
can made of overhead costs, includ-
ing handing and administering costs 
for drugs.
SEC. 622. PAYMENT FOR AMBULANCE SERVICES. 
(a) PHASE-IN
PROVIDING
FLOOR
USING 
BLEND OF FEE SCHEDULE AND REGIONAL FEE 
SCHEDULES.—Section 
1834(l) 
(42 
U.S.C.
1048
1395m(l)), as amended by section 410(a), is 
amended—
(1) in paragraph (2)(E), by inserting 
‘‘consistent with paragraph (11)’’ after ‘‘in 
an efficient and fair manner’’; and 
(2) by adding at the end the following 
new paragraph: 
‘‘(11) PHASE-IN PROVIDING FLOOR USING 
BLEND OF FEE SCHEDULE AND REGIONAL FEE 
SCHEDULES.—In carrying out the phase-in 
under paragraph (2)(E) for each level of 
service furnished in a year, the portion of 
the payment amount that is based on the 
fee schedule shall not be less than the fol-
lowing blended rate of the fee schedule 
under paragraph (1) and of a regional fee 
schedule for the region involved: 
‘‘(A) For 2004, the blended rate 
shall be based 20 percent on the fee 
schedule under paragraph (1) and 80 
percent on the regional fee schedule. 
‘‘(B) For 2005, the blended rate 
shall be based 40 percent on the fee 
schedule under paragraph (1) and 60 
percent on the regional fee schedule.
1049
‘‘(C) For 2006, the blended rate 
shall be based 60 percent on the fee 
schedule under paragraph (1) and 40 
percent on the regional fee schedule. 
‘‘(D) For 2007, 2008, and 2009, the 
blended rate shall be based 80 per-
cent on the fee schedule under para-
graph (1) and 20 percent on the re-
gional fee schedule. 
‘‘(E) For 2010 and each succeeding 
year, the blended rate shall be based 
100 percent on the fee schedule under 
paragraph (1). 
For purposes of this paragraph, the Sec-
retary shall establish a regional fee 
schedule for each of the 9 Census divi-
sions using the methodology (used in es-
tablishing the fee schedule under para-
graph (1)) to calculate a regional conver-
sion factor and a regional mileage pay-
ment rate and using the same payment 
adjustments and the same relative value 
units as used in the fee schedule under 
such paragraph.’’.
1050
(b) ADJUSTMENT IN PAYMENT FOR CERTAIN 
LONG TRIPS.—Section 1834(l), as amended by 
subsection (a), is further amended by adding 
at the end the following new paragraph: 
‘‘(12) ADJUSTMENT IN PAYMENT FOR CER-
TAIN LONG TRIPS.—In the case of ground 
ambulance services furnished on or after 
January 1, 2004, and before January 1, 
2009, regardless of where the transpor-
tation originates, the fee schedule estab-
lished under this subsection shall provide 
that, with respect to the payment rate for 
mileage for a trip above 50 miles the per 
mile rate otherwise established shall be 
increased by 1⁄4 of the payment per mile 
otherwise applicable to such miles.’’. 
(c) GAO REPORT ON COSTS AND ACCESS.—
Not later than December 31, 2005, the Comp-
troller General of the United States shall sub-
mit to Congress an initial report on how costs 
differ among the types of ambulance pro-
viders and on access, supply, and quality of 
ambulance services in those regions and 
States that have a reduction in payment 
under the medicare ambulance fee schedule
1051
(under section 1834(l) of the Social Security 
Act, as amended by this section). Not later 
than December 31, 2007, the Comptroller Gen-
eral shall submit to Congress a final report on 
such access and supply. 
(d) EFFECTIVE
DATE.—The amendments 
made by this section shall apply to ambulance 
services furnished on or after January 1, 2004.
SEC. 623. RENAL DIALYSIS SERVICES. 
(a) DEMONSTRATION OF ALTERNATIVE DELIV-
ERY MODELS.—
(1) USE OF ADVISORY BOARD.—In car-
rying out the demonstration project re-
lating to improving care for people with 
end-stage renal disease through alter-
native delivery models (as published in 
the Federal Register of June 4, 2003), the 
Secretary shall establish an advisory 
board comprised of representatives de-
scribed in paragraph (2) to provide ad-
vice and recommendations with respect 
to the establishment and operation of 
such demonstration project.
1052
(2) 
REPRESENTATIVES.—Representa-
tives referred to in paragraph (1) include 
representatives of the following: 
(A) Patient organizations. 
(B) Clinicians. 
(C) The medicare payment advi-
sory commission, established under 
section 1805 of the Social Security Act 
(42 U.S.C. 1395b–6). 
(D) The National Kidney Founda-
tion. 
(E) The National Institute of Dia-
betes and Digestive and Kidney Dis-
eases of National Institutes of Health. 
(F) End-stage renal disease net-
works. 
(G) Medicare contractors to mon-
itor quality of care. 
(I) providers of services and renal 
dialysis facilities furnishing end-stage 
renal disease services. 
(J) Economists. 
(K) Researchers. 
(b) RESTORING
COMPOSITE
RATE
EXCEP-
TIONS FOR PEDIATRIC FACILITIES.—
1053
(1) IN
GENERAL.—Section 422(a)(2) of 
BIPA is amended—
(A) in subparagraph (A), by strik-
ing ‘‘and (C)’’ and inserting ‘‘, (C), and 
(D)’’; 
(B) in subparagraph (B), by strik-
ing ‘‘In the case’’ and inserting ‘‘Sub-
ject to subparagraph (D), in the case’’; 
and 
(C) by adding at the end the fol-
lowing new subparagraph: 
‘‘(D) INAPPLICABILITY TO PEDIATRIC 
FACILITIES.—Subparagraphs (A) and 
(B) shall not apply, as of October 1, 
2002, to pediatric facilities that do 
not have an exception rate described 
in subparagraph (C) in effect on such 
date. For purposes of this subpara-
graph, the term ‘pediatric facility’ 
means a renal facility at least 50 per-
cent of whose patients are individuals 
under 18 years of age.’’. 
(2) 
CONFORMING
AMENDMENT.—The 
fourth sentence of section 1881(b)(7) (42 
U.S.C. 1395rr(b)(7)), as amended by sub-
1054
section (b), is further amended by strik-
ing ‘‘Until’’ and inserting ‘‘Subject to sec-
tion 422(a)(2) of the Medicare, Medicaid, 
and SCHIP Benefits Improvement and 
Protection Act of 2000, and until’’. 
(c) INCREASE IN RENAL DIALYSIS COMPOSITE 
RATE FOR SERVICES FURNISHED IN 2004.—Not-
withstanding any other provision of law, with 
respect to payment under part B of title XVIII 
of the Social Security Act for renal dialysis 
services furnished in 2004, the composite pay-
ment rate otherwise established under sec-
tion 
1881(b)(7) 
of 
such 
Act 
(42 
U.S.C. 
1395rr(b)(7)) shall be increased by 1.6 percent. 
SEC. 624. ONE-YEAR MORATORIUM ON THERAPY CAPS; 
PROVISIONS RELATING TO REPORTS. 
(a) 
1-YEAR
MORATORIUM
ON
THERAPY 
CAPS.—Section 
1833(g)(4) 
(42 
U.S.C. 
1395l(g)(4)) is amended by striking ‘‘and 2002’’ 
and inserting ‘‘2002, and 2004’’. 
(b) PROMPT SUBMISSION OF OVERDUE RE-
PORTS ON PAYMENT AND UTILIZATION OF OUT-
PATIENT THERAPY SERVICES.—Not later than 
December 31, 2003, the Secretary shall submit 
to Congress the reports required under sec-
1055
tion 4541(d)(2) of the Balanced Budget Act of 
1997 (relating to alternatives to a single an-
nual dollar cap on outpatient therapy) and 
under section 221(d) of the Medicare, Med-
icaid, and SCHIP Balanced Budget Refine-
ment Act of 1999 (relating to utilization pat-
terns for outpatient therapy).
(c) IDENTIFICATION OF CONDITIONS AND DIS-
EASES JUSTIFYING WAIVER OF THERAPY CAP.—
(1) STUDY.—The Secretary shall re-
quest the Institute of Medicine of the Na-
tional Academy of Sciences to identify 
conditions or diseases that should justify 
conducting an assessment of the need to 
waive the therapy caps under section 
1833(g)(4) of the Social Security Act (42 
U.S.C. 1395l(g)(4)). 
(2) REPORTS TO CONGRESS.—
(A) 
PRELIMINARY
REPORT.—Not 
later than July 1, 2004, the Secretary 
shall submit to Congress a prelimi-
nary report on the conditions and 
diseases identified under paragraph 
(1).
1056
(B) FINAL REPORT.—Not later than 
September 1, 2004, the Secretary shall 
submit to Congress a final report on 
such conditions and diseases. 
(C) RECOMMENDATIONS.—Not later 
than October 1, 2004, the Secretary 
shall 
submit 
to 
Congress 
a 
rec-
ommendation of criteria, with respect 
to such conditions and disease, under 
which a waiver of the therapy caps 
would apply. 
(d) GAO STUDY
OF PATIENT ACCESS
TO 
PHYSICAL THERAPIST SERVICES.—
(1) STUDY.—The Comptroller General 
of the United States shall conduct a study 
on access to physical therapist services in 
States authorizing such services without 
a physician referral and in States that re-
quire such a physician referral. The 
study shall—
(A) examine the use of and refer-
ral patterns for physical therapist 
services for patients age 50 and older 
in States that authorize such services 
without a physician referral and in
1057
States that require such a physician 
referral; 
(B) examine the use of and refer-
ral patterns for physical therapist 
services for patients who are medi-
care beneficiaries; 
(C) examine the potential effect of 
prohibiting a physician from refer-
ring patients to physical therapy 
services owned by the physician and 
provided in the physician’s office; 
(D) examine the delivery of phys-
ical therapists’ services within the fa-
cilities of Department of Defense; and 
(E) analyze the potential impact 
on medicare beneficiaries and on ex-
penditures under the medicare pro-
gram of eliminating the need for a 
physician referral and physician cer-
tification for physical therapist serv-
ices under the medicare program. 
(2) REPORT.—The Comptroller Gen-
eral shall submit to Congress a report on 
the study conducted under paragraph (1)
1058
by not later than 1 year after the date of 
the enactment of this Act. 
SEC. 625. ADJUSTMENT TO PAYMENTS FOR SERVICES FUR-
NISHED IN AMBULATORY SURGICAL CEN-
TERS. 
Section 
1833(i)(2)(C) 
(42 
U.S.C. 
1395l(i)(2)(C)) is amended in the last sentence 
by inserting ‘‘and each of fiscal years 2004 
through 2008’’ after ‘‘In each of the fiscal 
years 1998 through 2002’’. 
SEC. 626. PAYMENT FOR CERTAIN SHOES AND INSERTS 
UNDER THE FEE SCHEDULE FOR ORTHOTICS 
AND PROSTHETICS. 
(a) IN GENERAL.—Section 1833(o) (42 U.S.C. 
1395l(o)) is amended—
(1) in paragraph (1), by striking ‘‘no 
more than the limits established under 
paragraph (2)’’ and inserting ‘‘no more 
than the amount of payment applicable 
under paragraph (2)’’; and 
(2) in paragraph (2), to read as fol-
lows: 
‘‘(2)(A) Except as provided by the Sec-
retary under subparagraphs (B) and (C), the 
amount of payment under this paragraph for
1059
custom molded shoes, extra depth shoes, and 
inserts shall be the amount determined for 
such items by the Secretary under section 
1834(h). 
‘‘(B) The Secretary or a carrier may estab-
lish payment amounts for shoes and inserts 
that are lower than the amount established 
under section 1834(h) if the Secretary finds 
that shoes and inserts of an appropriate qual-
ity are readily available at or below the 
amount established under such section. 
‘‘(C) In accordance with procedures estab-
lished by the Secretary, an individual entitled 
to benefits with respect to shoes described in 
section 1861(s)(12) may substitute modifica-
tion of such shoes instead of obtaining one (or 
more, as specified by the Secretary) pair of in-
serts (other than the original pair of inserts 
with respect to such shoes). In such case, the 
Secretary shall substitute, for the payment 
amount established under section 1834(h), a 
payment amount that the Secretary estimates 
will assure that there is no net increase in ex-
penditures under this subsection as a result 
of this subparagraph.’’.
1060
(b) CONFORMING AMENDMENTS.—(1) Section 
1834(h)(4)(C) (42 U.S.C. 1395m(h)(4)(C)) is 
amended by inserting ‘‘(and includes shoes 
described in section 1861(s)(12))’’ after ‘‘in sec-
tion 1861(s)(9)’’. 
(2) 
Section 
1842(s)(2) 
(42 
U.S.C. 
1395u(s)(2)) is amended by striking subpara-
graph (C). 
(c) EFFECTIVE
DATE.—The amendments 
made by this section shall apply to items fur-
nished on or after January 1, 2004.
SEC. 627. WAIVER OF PART B LATE ENROLLMENT PENALTY 
FOR CERTAIN MILITARY RETIREES; SPECIAL 
ENROLLMENT PERIOD. 
(a) WAIVER OF PENALTY.—
(1) IN
GENERAL.—Section 1839(b) (42 
U.S.C. 1395r(b)) is amended by adding at 
the end the following new sentence: ‘‘No 
increase in the premium shall be effected 
for a month in the case of an individual 
who is 65 years of age or older, who en-
rolls under this part during 2001, 2002, 
2003, or 2004 and who demonstrates to 
the Secretary before December 31, 2004, 
that the individual is a covered bene-
1061
ficiary (as defined in section 1072(5) of 
title 10, United States Code). The Sec-
retary of Health and Human Services 
shall consult with the Secretary of De-
fense in identifying individuals described 
in the previous sentence.’’. 
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall apply to pre-
miums for months beginning with Janu-
ary 2004. The Secretary of Health and 
Human Services shall establish a method 
for providing rebates of premium pen-
alties paid for months on or after Janu-
ary 2004 for which a penalty does not 
apply under such amendment but for 
which a penalty was previously collected. 
(b) MEDICARE PART B SPECIAL ENROLLMENT 
PERIOD.—
(1) IN GENERAL.—In the case of any in-
dividual who, as of the date of the enact-
ment of this Act, is 65 years of age or 
older, is eligible to enroll but is not en-
rolled under part B of title XVIII of the 
Social Security Act, and is a covered ben-
eficiary (as defined in section 1072(5) of
1062
title 10, United States Code), the Sec-
retary of Health and Human Services 
shall provide for a special enrollment pe-
riod during which the individual may en-
roll under such part. Such period shall 
begin as soon as possible after the date of 
the enactment of this Act and shall end 
on December 31, 2004. 
(2) COVERAGE PERIOD.—In the case of 
an individual who enrolls during the spe-
cial enrollment period provided under 
paragraph (1), the coverage period under 
part B of title XVIII of the Social Security 
Act shall begin on the first day of the 
month following the month in which the 
individual enrolls. 
SEC. 628. PART B DEDUCTIBLE. 
Section 1833(b) (42 U.S.C. 1395l(b)) is 
amended—
(1) by striking ‘‘1991 and’’ and insert-
ing ‘‘1991,’’; and 
(2) 
by 
striking 
‘‘and 
subsequent 
years’’ and inserting ‘‘and each subse-
quent year through 2003, and for a subse-
quent year after 2003 the amount of such
1063
deductible for the previous year in-
creased by the annual percentage in-
crease in the monthly actuarial rate 
under section 1839(a)(1) ending with such 
subsequent year (rounded to the nearest 
$1)’’.
SEC. 629. EXTENSION OF COVERAGE OF INTRAVENOUS IM-
MUNE GLOBULIN (IVIG) FOR THE TREAT-
MENT OF PRIMARY IMMUNE DEFICIENCY DIS-
EASES IN THE HOME. 
(a) IN GENERAL.—Section 1861 (42 U.S.C. 
1395x), as amended by sections 611(a) and 
612(a) is amended—
(1) in subsection (s)(2)—
(A) by striking ‘‘and’’ at the end of 
subparagraph (W); 
(B) by adding ‘‘and’’ at the end of 
subparagraph (X); and 
(C) by adding at the end the fol-
lowing new subparagraph: 
‘‘(Y) intravenous immune globulin 
for the treatment of primary immune 
deficiency diseases in the home (as 
defined in subsection (yy));’’; and
1064
(2) by adding at the end the following 
new subsection: 
‘‘Intravenous Immune Globulin 
‘‘(yy) The term ‘intravenous immune glob-
ulin’ means an approved pooled plasma deriv-
ative for the treatment in the patient’s home 
of a patient with a diagnosed primary im-
mune deficiency disease, but not including 
items or services related to the administra-
tion of the derivative, if a physician deter-
mines administration of the derivative in the 
patient’s home is medically appropriate.’’. 
(b) PAYMENT AS A DRUG OR BIOLOGICAL.—
Section 1833(a)(1)(S) (42 U.S.C. 1395l(a)(1)(S)) 
is amended by inserting ‘‘(including intra-
venous immune globulin (as defined in sec-
tion 1861(yy)))’’ after ‘‘with respect to drugs 
and biologicals’’. 
(c) EFFECTIVE
DATE.—The amendments 
made by this section shall apply to items fur-
nished administered on or after January 1, 
2004.
1065
TITLE VII—PROVISIONS 
RELATING TO PARTS A AND B 
Subtitle A—Home Health Services 
SEC. 701. UPDATE IN HOME HEALTH SERVICES. 
(a) CHANGE TO CALENDER YEAR UPDATE.—
(1) IN
GENERAL.—Section 1895(b) (42 
U.S.C. 1395fff(b)(3)) is amended—
(A) in paragraph (3)(B)(i)—
(i) by striking ‘‘each fiscal 
year (beginning with fiscal year 
2002)’’ and inserting ‘‘fiscal year 
2002 and for fiscal year 2003 and 
for each subsequent year (begin-
ning with 2004)’’; and 
(ii) by inserting ‘‘or year’’ 
after ‘‘the fiscal year’’; 
(B) in paragraph (3)(B)(ii)(II), by 
striking ‘‘any subsequent fiscal year’’ 
and inserting ‘‘2004 and any subse-
quent year’’; 
(C) in paragraph (3)(B)(iii), by in-
serting ‘‘or year’’ after ‘‘fiscal year’’ 
each place it appears; 
(D) in paragraph (3)(B)(iv)—
1066
(i) by inserting ‘‘or year’’ after 
‘‘fiscal year’’ each place it ap-
pears; and 
(ii) by inserting ‘‘or years’’ 
after ‘‘fiscal years’’; and 
(E) in paragraph (5), by inserting 
‘‘or year’’ after ‘‘fiscal year’’. 
(2) TRANSITION
RULE.—The standard 
prospective 
payment 
amount 
(or 
amounts) under section 1895(b)(3) of the 
Social Security Act for the calendar quar-
ter beginning on October 1, 2003, shall be 
such amount (or amounts) for the pre-
vious calendar quarter. 
(b) CHANGES IN UPDATES FOR 2004, 2005, 
AND 2006.—Section 1895(b)(3)(B)(ii) (42 U.S.C. 
1395fff(b)(3)(B)(ii)), as amended by subsection 
(a)(1)(B), is amended—
(1) by striking ‘‘or’’ at the end of sub-
clause (I); 
(2) by redesignating subclause (II) as 
subclause (III); 
(3) in subclause (III), as so redesig-
nated, by striking ‘‘2004’’ and inserting 
‘‘2007’’; and
1067
(4) by inserting after subclause (I) the 
following new subclause: 
‘‘(II) each of 2004, 2005, 
and 2006 the home health 
market basket percentage in-
crease minus 0.4 percentage 
points; or’’.
SEC. 702. ESTABLISHMENT OF REDUCED COPAYMENT FOR 
A HOME HEALTH SERVICE EPISODE OF CARE 
FOR CERTAIN BENEFICIARIES. 
(a) PART A.—
(1) IN
GENERAL.—Section 1813(a) (42 
U.S.C. 1395e(a)) is amended by adding at 
the end the following new paragraph: 
‘‘(5)(A)(i) Subject to clause (ii), the amount 
payable for home health services furnished to 
the individual under this title for each epi-
sode of care beginning in a year (beginning 
with 2004) shall be reduced by a copayment 
equal to the copayment amount specified in 
subparagraph (B)(ii) for such year. 
‘‘(ii) The copayment under clause (i) shall 
not apply—
‘‘(I) in the case of an individual who 
has been determined to be entitled to
1069
otherwise of the estimation of average pay-
ment under clause (i).’’. 
(2) TIMELY
IMPLEMENTATION.—Unless 
the Secretary of Health and Human Serv-
ices otherwise provides on a timely basis, 
the copayment amount specified under 
section 1813(a)(5)(B)(ii) of the Social Se-
curity Act (as added by paragraph (1)) for 
2004 shall be deemed to be $40. 
(b) CONFORMING PROVISIONS.—
(1) Section 1833(a)(2)(A) (42 U.S.C. 
1395l(a)(2)(A)) is amended by inserting 
‘‘less the copayment amount applicable 
under section 1813(a)(5)’’ after ‘‘1895’’. 
(2) Section 1866(a)(2)(A)(i) (42 U.S.C. 
1395cc(a)(2)(A)(i)) is amended—
(A) by striking ‘‘or coinsurance’’ 
and inserting ‘‘, coinsurance, or co-
payment’’; and 
(B) by striking ‘‘or (a)(4)’’ and in-
serting ‘‘(a)(4), or (a)(5)’’. 
SEC. 703. MEDPAC STUDY ON MEDICARE MARGINS OF 
HOME HEALTH AGENCIES. 
(a) STUDY.—The Medicare Payment Advi-
sory Commission shall conduct a study of pay-
1070
ment margins of home health agencies under 
the home health prospective payment system 
under section 1895 of the Social Security Act 
(42 U.S.C. 1395fff). Such study shall examine 
whether systematic differences in payment 
margins are related to differences in case mix 
(as measured by home health resource groups 
(HHRGs)) among such agencies. The study 
shall use the partial or full-year cost reports 
filed by home health agencies. 
(b) REPORT.—Not later than 2 years after 
the date of the enactment of this Act, the Com-
mission shall submit to Congress a report on 
the study under subsection (a).
Subtitle B—Direct Graduate 
Medical Education 
SEC. 711. EXTENSION OF UPDATE LIMITATION ON HIGH 
COST PROGRAMS. 
Section 
1886(h)(2)(D)(iv) 
(42 
U.S.C. 
1395ww(h)(2)(D)(iv)) is amended—
(1) in subclause (I)—
(A) 
by 
inserting 
‘‘AND
2004 
THROUGH 2013’’ after ‘‘AND 2002’’; and 
(B) by inserting ‘‘or during the pe-
riod beginning with fiscal year 2004
1071
and ending with fiscal year 2013’’ 
after ‘‘during fiscal year 2001 or fiscal 
year 2002’’; and 
(2) in subclause (II)—
(A) by striking ‘‘fiscal year 2004, 
or fiscal year 2005,’’ and 
(B) by striking ‘‘For a’’ and insert-
ing ‘‘For the’’.
Subtitle C—Chronic Care 
Improvement 
SEC. 721. VOLUNTARY CHRONIC CARE IMPROVEMENT 
UNDER TRADITIONAL FEE-FOR-SERVICE. 
Title XVIII, as amended by section 105(a), 
is amended by inserting after section 1807 the 
following new section: 
‘‘CHRONIC CARE IMPROVEMENT 
‘‘SEC. 1808. (a) IN GENERAL.—
‘‘(1) IN GENERAL.—The Secretary shall 
establish a process for providing chronic 
care improvement programs in each 
CCIA region for medicare beneficiaries 
who are not enrolled under part C or E 
and who have certain chronic conditions, 
such as congestive heart failure, diabetes, 
chronic obstructive pulmonary disease 
(COPD), stroke, or other disease as iden-
1072
tified by the Secretary as appropriate for 
chronic care improvement. Such a proc-
ess shall begin to be implemented no 
later than 1 year after the date of the en-
actment of this section. 
‘‘(2) TERMINOLOGY.—For purposes of 
this section: 
‘‘(A) 
CCIA 
REGION.—The 
term 
‘CCIA region’ means a chronic care 
improvement administrative region 
delineated under subsection (b)(2). 
‘‘(B) CHRONIC
CARE
IMPROVEMENT 
PROGRAM.—The terms ‘chronic care 
improvement program’ and ‘program’ 
means such a program provided by a 
contractor under this section. 
‘‘(C) CONTRACTOR.—The term ‘con-
tractor’ means an entity with a con-
tract to provide a chronic care im-
provement program in a CCIA region 
under this section. 
‘‘(D) INDIVIDUAL
PLAN.—The term 
‘individual plan’ means a chronic 
care improvement plan established
1073
under subsection (c)(5) for an indi-
vidual. 
‘‘(3) CONSTRUCTION.—Nothing in this 
section shall be construed as expanding 
the amount, duration, or scope of benefits 
under this title. 
‘‘(b) COMPETITIVE BIDDING PROCESS.—
‘‘(1) IN GENERAL.—Under this section 
the Secretary shall award contracts to 
qualified entities for chronic care im-
provement programs for each CCIA re-
gion under this section through a com-
petitive bidding process. 
‘‘(2) PROCESS.—Under such process—
‘‘(A) the Secretary shall delineate 
the United States into multiple chron-
ic care improvement administrative 
regions; and 
‘‘(B) the Secretary shall select at 
least 2 winning bidders in each CCIA 
region on the basis of the ability of 
each bidder to carry out a chronic 
care improvement program in accord-
ance with this section, in order to
1074
achieve improved health and finan-
cial outcomes. 
‘‘(3) ELIGIBLE
CONTRACTOR.—A con-
tractor may be a disease improvement or-
ganization, health insurer, provider orga-
nization, a group of physicians, or any 
other legal entity that the Secretary de-
termines appropriate. 
‘‘(c) CHRONIC
CARE
IMPROVEMENT
PRO-
GRAMS.—
‘‘(1) 
IN
GENERAL.—Each 
contract 
under this section shall provide for the 
operation of a chronic care improvement 
program by a contractor in a CCIA region 
consistent with this subsection. 
‘‘(2) IDENTIFICATION
OF
PROSPECTIVE 
PROGRAM PARTICIPANTS.—Each contractor 
shall have a method for identifying medi-
care beneficiaries in the region to whom 
it will offer services under its program. 
The contractor shall identify such bene-
ficiaries through claims or other data 
and other means permitted consistent 
with applicable disclosure provisions.
1075
‘‘(3) INITIAL CONTACT BY SECRETARY.—
The Secretary shall communicate with 
each beneficiary identified under para-
graph (2) as a prospective participant in 
one or more programs concerning par-
ticipation in a program. Such commu-
nication may be made by the Secretary 
(or on behalf of the Secretary) and shall 
include information on the following: 
‘‘(A) A description of the advan-
tages to the beneficiary in partici-
pating in a program. 
‘‘(B) Notification that the con-
tractor offering a program may con-
tact the beneficiary directly con-
cerning such participation. 
‘‘(C) Notification that participa-
tion in a program is voluntary. 
‘‘(D) A description of the method 
for the beneficiary to select the single 
program in which the beneficiary 
wishes to participate and for declin-
ing to participate and a method for 
obtaining additional information con-
cerning such participation.
1076
‘‘(4) PARTICIPATION.—A medicare bene-
ficiary may participate in only one pro-
gram under this section and may termi-
nate participation at any time in a man-
ner specified by the Secretary. 
‘‘(5) INDIVIDUAL
CHRONIC
CARE
IM-
PROVEMENT PLANS.—
‘‘(A) IN GENERAL.—For each bene-
ficiary participating in a program of 
a contractor under this section, the 
contractor shall develop with the 
beneficiary an individualized, goal-
oriented chronic care improvement 
plan. 
‘‘(B) 
ELEMENTS
OF
INDIVIDUAL 
PLAN.—Each individual plan devel-
oped under subparagraph (A) shall 
include a single point of contact to 
coordinate care and the following, as 
appropriate: 
‘‘(i) 
Self-improvement 
edu-
cation for the beneficiary and 
support education for health care 
providers, 
primary 
caregivers, 
and family members.
1077
‘‘(ii) Coordination of health 
care services, such as application 
of a prescription drug regimen 
and home health services. 
‘‘(iii) Collaboration with phy-
sicians and other providers to en-
hance communication of relevant 
clinical information. 
‘‘(iv) The use of monitoring 
technologies that enable patient 
guidance through the exchange of 
pertinent 
clinical 
information, 
such as vital signs, symptomatic 
information, and health self-as-
sessment. 
‘‘(v) The provision of informa-
tion about hospice care, pain and 
palliative 
care, 
and 
end-of-life 
care. 
‘‘(C) 
CONTRACTOR
RESPONSIBIL-
ITIES.—In establishing and carrying 
out individual plans under a pro-
gram, a contractor shall, directly or 
through subcontractors—
1078
‘‘(i) guide participants in man-
aging their health, including all 
their co-morbidities, and in per-
forming 
activities 
as 
specified 
under the elements of the plan; 
‘‘(ii) use decision support tools 
such as evidence-based practice 
guidelines or other criteria as de-
termined by the Secretary; and 
‘‘(iii) develop a clinical infor-
mation database to track and 
monitor each participant across 
settings 
and 
to 
evaluate 
out-
comes. 
‘‘(6) ADDITIONAL
REQUIREMENTS.—The 
Secretary may establish additional re-
quirements for programs and contractors 
under this section. 
‘‘(7) ACCREDITATION.—The Secretary 
may provide that programs that are ac-
credited by qualified organizations may 
be deemed to meet such requirements 
under this section as the Secretary may 
specify. 
‘‘(c) CONTRACT TERMS.—
1079
‘‘(1) IN
GENERAL.—A contract under 
this section shall contain such terms and 
conditions as the Secretary may specify 
consistent with this section. The Sec-
retary may not enter into a contract with 
an entity under this section unless the 
entity meets such clinical, quality im-
provement, financial, and other require-
ments as the Secretary deems to be ap-
propriate for the population to be served. 
‘‘(2) USE
OF
SUBCONTRACTORS
PER-
MITTED.—A contractor may carry out a 
program directly or through contracts 
with subcontractors. 
‘‘(3) BUDGET NEUTRAL PAYMENT CONDI-
TION.—In entering into a contract with an 
entity under this subsection, the Sec-
retary shall establish payment rates that 
assure that there will be no net aggregate 
increase in payments under this title 
over any period of 3 years or longer, as 
agreed to by the Secretary. Under this 
section, the Secretary shall assure that 
medicare program outlays plus adminis-
trative expenses (that would not have
1080
been paid under this title without imple-
mentation of this section), including con-
tractor fees, shall not exceed the expendi-
tures that would have been incurred 
under this title for a comparable popu-
lation in the absence of the program 
under this section for the 3-year contract 
period. 
‘‘(4) AT RISK RELATIONSHIP.—For pur-
poses of section 1128B(b)(3)(F), a contract 
under this section shall be treated as a 
risk-sharing arrangement referred to in 
such section. 
‘‘(5) PERFORMANCE
STANDARDS.—Pay-
ment to contractors under this section 
shall be subject to the contractor’s meet-
ing of clinical and financial performance 
standards set by the Secretary. 
‘‘(6) CONTRACTOR OUTCOMES REPORT.—
Each contractor offering a program shall 
monitor and report to the Secretary, in a 
manner specified by the Secretary, the 
quality of care and efficacy of such pro-
gram in terms of—
1081
‘‘(A) process measures, such as re-
ductions in errors of treatment and 
rehospitalization rates; 
‘‘(B) beneficiary and provider sat-
isfaction; 
‘‘(C) health outcomes; and 
‘‘(D) financial outcomes. 
‘‘(7) 
PHASED
IN
IMPLEMENTATION.—
Nothing in this section shall be construed 
as preventing the Secretary from phasing 
in the implementation of programs. 
‘‘(d) BIANNUAL OUTCOMES REPORTS.—The 
Secretary shall submit to the Congress bian-
nual reports on the implementation of this 
section. Each such report shall include infor-
mation on—
‘‘(1) the scope of implementation (in 
terms of both regions and chronic condi-
tions); 
‘‘(2) program design; and 
‘‘(3) improvements in health outcomes 
and financial efficiencies that result from 
such implementation. 
‘‘(e) CLINICAL TRIALS.—The Secretary shall 
conduct randomized clinical trials, that com-
1082
pare program participants with medicare 
beneficiaries who are offered, but decline, to 
participate, in order to assess the potential of 
programs to—
‘‘(1) reduce costs under this title; and 
‘‘(2) improve health outcomes under 
this title. 
‘‘(f) AUTHORIZATION OF APPROPRIATIONS.—
There are authorized to be appropriated to 
the Secretary, in appropriate part from the 
Hospital Insurance Trust Fund and the Sup-
plementary Medical Insurance Trust Fund, 
such sums as may be necessary to provide for 
contracts with chronic care improvement pro-
grams under this section. 
‘‘(g) LIMITATION ON FUNDING.—In no case 
shall the funding under this section exceed 
$100,000,000 over a period of 3 years.’’. 
SEC. 722. CHRONIC CARE IMPROVEMENT UNDER MEDI-
CARE ADVANTAGE AND ENHANCED FEE-FOR-
SERVICE PROGRAMS. 
(a) UNDER
MEDICARE
ADVANTAGE
PRO-
GRAM.—Section 1852 (42 U.S.C. 1395w–22) is 
amended—
1083
(1) by amending subsection (e) to 
read as follows: 
‘‘(e) IMPLEMENTATION OF CHRONIC CARE IM-
PROVEMENT PROGRAMS FOR BENEFICIARIES WITH 
MULTIPLE
OR SUFFICIENTLY SEVERE CHRONIC 
CONDITIONS.—
‘‘(1) IN GENERAL.—Each Medicare Ad-
vantage organization with respect to 
each Medicare Advantage plan it offers 
shall have in effect, for enrollees with 
multiple or sufficiently severe chronic 
conditions, a chronic care improvement 
program that is designed to manage the 
needs of such enrollees and that meets 
the requirements of this subsection. 
‘‘(2) ENROLLEE WITH MULTIPLE OR SUF-
FICIENTLY
SEVERE
CHRONIC
CONDITIONS.—
For purposes of this subsection, the term 
‘enrollee with multiple or sufficiently se-
vere chronic conditions’ means, with re-
spect to an enrollee in a Medicare Advan-
tage plan of a Medicare Advantage orga-
nization, an enrollee in the plan who has 
one or more chronic conditions, such as 
congestive heart failure, diabetes, COPD,
1084
stroke, or other disease as identified by 
the 
organization 
as 
appropriate 
for 
chronic care improvement. 
‘‘(3) GENERAL REQUIREMENTS.—
‘‘(A) IN
GENERAL.—Each chronic 
care improvement program under 
this subsection shall be conducted 
consistent with this subsection. 
‘‘(B) IDENTIFICATION
OF
ENROLL-
EES.—Each such program shall have a 
method for monitoring and identi-
fying enrollees with multiple or suffi-
ciently severe chronic conditions that 
meet the organization’s criteria for 
participation under the program. 
‘‘(C) DEVELOPMENT OF PLANS.—For 
an enrollee identified under subpara-
graph (B) for participation in a pro-
gram, the program shall develop, 
with the enrollee’s consent, an indi-
vidualized, goal-oriented chronic care 
improvement plan for chronic care 
improvement. 
‘‘(D) ELEMENTS
OF
PLANS.—Each 
chronic care improvement plan devel-
1085
oped under subparagraph (C) shall 
include a single point of contact to 
coordinate care and the following, as 
appropriate: 
‘‘(i) 
Self-improvement 
edu-
cation for the enrollee and sup-
port education for health care 
providers, 
primary 
caregivers, 
and family members. 
‘‘(ii) Coordination of health 
care services, such as application 
of a prescription drug regimen 
and home health services. 
‘‘(iii) Collaboration with phy-
sicians and other providers to en-
hance communication of relevant 
clinical information. 
‘‘(iv) The use of monitoring 
technologies that enable patient 
guidance through the exchange of 
pertinent 
clinical 
information, 
such as vital signs, symptomatic 
information, and health self-as-
sessment.
1086
‘‘(v) The provision of informa-
tion about hospice care, pain and 
palliative 
care, 
and 
end-of-life 
care. 
‘‘(E) 
ORGANIZATION
RESPONSIBIL-
ITIES.—In establishing and carrying 
out chronic care improvement plans 
for participants under this para-
graph, a Medicare Advantage organi-
zation shall, directly or through sub-
contractors—
‘‘(i) guide participants in man-
aging their health, including all 
their co-morbidities, and in per-
forming the activities as specified 
under the elements of the plan; 
‘‘(ii) use decision support tools 
such as evidence-based practice 
guidelines or other criteria as de-
termined by the Secretary; and 
‘‘(iii) develop a clinical infor-
mation database to track and 
monitor each participant across 
settings 
and 
to 
evaluate 
out-
comes.
1087
‘‘(3) ADDITIONAL
REQUIREMENTS.—The 
Secretary may establish additional re-
quirements for chronic care improvement 
programs under this section. 
‘‘(4) ACCREDITATION.—The Secretary 
may provide that chronic care improve-
ment programs that are accredited by 
qualified organizations may be deemed to 
meet such requirements under this sub-
section as the Secretary may specify. 
‘‘(5) OUTCOMES
REPORT.—Each Medi-
care Advantage organization with respect 
to its chronic care improvement program 
under this subsection shall monitor and 
report to the Secretary information on 
the quality of care and efficacy of such 
program as the Secretary may require.’’; 
and 
(2) by amending subparagraph (I) of 
subsection (c)(1) to read as follows: 
‘‘(I) CHRONIC
CARE
IMPROVEMENT 
PROGRAM.—A description of the orga-
nization’s chronic care improvement 
program under subsection (e).’’.
1088
(b) APPLICATION UNDER ENHANCED FEE-FOR-
SERVICE PROGRAM.—Section 1860E–2(c)(3), as 
inserted by section 201(a), is amended by in-
serting ‘‘, including subsection (e) (relating to 
implementation of chronic care improvement 
programs)’’ after ‘‘The provisions of section 
1852’’. 
(c) EFFECTIVE
DATE.—The amendments 
made by this section shall apply for contract 
years beginning on or after 1 year after the 
date of the enactment of this Act. 
SEC. 723. INSTITUTE OF MEDICINE REPORT. 
(a) STUDY.—
(1) IN
GENERAL.—The Secretary of 
Health and Human Services shall con-
tract with the Institute of Medicine of the 
National Academy of Sciences to conduct 
a study of the barriers to effective inte-
grated care improvement for medicare 
beneficiaries with multiple or severe 
chronic conditions across settings and 
over time and to submit a report under 
subsection (b). 
(2) SPECIFIC
ITEMS.—The study shall 
examine the statutory and regulatory
1089
barriers to coordinating care across set-
tings for medicare beneficiaries in transi-
tion from one setting to another (such as 
between hospital, nursing facility, home 
health, hospice, and home). The study 
shall specifically identify the following: 
(A) Clinical, financial, or adminis-
trative requirements in the medicare 
program that present barriers to ef-
fective, seamless transitions across 
care settings. 
(B) Policies that impede the es-
tablishment of administrative and 
clinical information systems to track 
health status, utilization, cost, and 
quality data across settings. 
(C) State-level requirements that 
may present barriers to better care 
for medicare beneficiaries. 
(3) CONSULTATION.—The study under 
this subsection shall be conducted in con-
sultation with experts in the field of 
chronic care, consumers, and family care-
givers, working to integrate care delivery
1090
and create more seamless transitions 
across settings and over time. 
(b) REPORT.—The report under this sub-
section shall be submitted to the Secretary 
and Congress not later than 18 months after 
the date of the enactment of this Act. 
SEC. 724. MEDPAC REPORT. 
(a) EVALUATION.—shall conduct an evalua-
tion that includes a description of the status 
of the implementation of chronic care im-
provement programs under section 1808 of 
the Social Security Act, the quality of health 
care services provided to individuals in such 
program, the health status of the participants 
of such program, and the cost savings attrib-
uted to implementation of such program. 
(b) REPORT.—Not later than 2 years after 
the date of implementation of such chronic 
care improvement programs, the Commission 
shall submit a report on such evaluation.
Subtitle D—Other Provisions 
SEC. 731. MODIFICATIONS TO MEDICARE PAYMENT ADVI-
SORY COMMISSION (MEDPAC). 
(a) 
EXAMINATION
OF
BUDGET
CON-
SEQUENCES.—Section 1805(b) (42 U.S.C. 1395b–
1091
6(b)) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(8) EXAMINATION
OF
BUDGET
CON-
SEQUENCES.—Before 
making 
any 
rec-
ommendations, the Commission shall ex-
amine the budget consequences of such 
recommendations, directly or through 
consultation with appropriate expert en-
tities.’’. 
(b) CONSIDERATION OF EFFICIENT PROVISION 
OF
SERVICES.—Section 
1805(b)(2)(B)(i) 
(42 
U.S.C. 1395b–6(b)(2)(B)(i)) is amended by in-
serting ‘‘the efficient provision of’’ after ‘‘ex-
penditures for’’. 
(c) APPLICATION OF DISCLOSURE REQUIRE-
MENTS.—
(1) IN GENERAL.—Section 1805(c)(2)(D) 
(42 U.S.C. 1395b–6(c)(2)(D)) is amended by 
adding at the end the following: ‘‘Mem-
bers of the Commission shall be treated 
as employees of the Congress for pur-
poses of applying title I of the Ethics in 
Government Act of 1978 (Public Law 95-
521).’’.
1092
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall take effect 
on January 1, 2004. 
(d) ADDITIONAL REPORTS.—
(1) DATA
NEEDS
AND
SOURCES.—The 
Medicare Payment Advisory Commission 
shall conduct a study, and submit a re-
port to Congress by not later than June 1, 
2004, on the need for current data, and 
sources of current data available, to de-
termine the solvency and financial cir-
cumstances of hospitals and other medi-
care providers of services. The Commis-
sion shall examine data on uncompen-
sated care, as well as the share of uncom-
pensated care accounted for by the ex-
penses for treating illegal aliens. 
(2) USE
OF
TAX-RELATED
RETURNS.—
Using return information provided under 
Form 990 of the Internal Revenue Serv-
ice, the Commission shall submit to Con-
gress, by not later than June 1, 2004, a re-
port on the following: 
(A) 
Investments, 
endowments, 
and fundraising of hospitals partici-
1093
pating under the medicare program 
and related foundations. 
(B) Access to capital financing for 
private and for not-for-profit hos-
pitals. 
SEC. 732. DEMONSTRATION PROJECT FOR MEDICAL ADULT 
DAY CARE SERVICES. 
(a) ESTABLISHMENT.—Subject to the suc-
ceeding provisions of this section, the Sec-
retary of Health and Human Services shall es-
tablish a demonstration project (in this sec-
tion 
referred 
to 
as 
the 
‘‘demonstration 
project’’) under which the Secretary shall, as 
part of a plan of an episode of care for home 
health services established for a medicare 
beneficiary, permit a home health agency, di-
rectly or under arrangements with a medical 
adult day care facility, to provide medical 
adult day care services as a substitute for a 
portion of home health services that would 
otherwise be provided in the beneficiary’s 
home. 
(b) PAYMENT.—
(1) IN GENERAL.—The amount of pay-
ment for an episode of care for home
1094
health services, a portion of which con-
sists of substitute medical adult day care 
services, under the demonstration project 
shall be made at a rate equal to 95 per-
cent of the amount that would otherwise 
apply for such home health services 
under section 1895 of the Social Security 
Act (42 u.s.c. 1395fff). In no case may a 
home health agency, or a medical adult 
day care facility under arrangements 
with a home health agency, separately 
charge a beneficiary for medical adult 
day care services furnished under the 
plan of care. 
(2) 
BUDGET
NEUTRALITY
FOR
DEM-
ONSTRATION
PROJECT.—Notwithstanding 
any other provision of law, the Secretary 
shall provide for an appropriate reduc-
tion in the aggregate amount of addi-
tional payments made under section 1895 
of the Social Security Act (42 U.S.C. 
1395fff) 
to 
reflect 
any 
increase 
in 
amounts expended from the Trust Funds 
as a result of the demonstration project 
conducted under this section.
1095
(c) DEMONSTRATION PROJECT SITES.—The 
project established under this section shall be 
conducted in not more than 5 States selected 
by the Secretary that license or certify pro-
viders of services that furnish medical adult 
day care services. 
(d) DURATION.—The Secretary shall con-
duct the demonstration project for a period of 
3 years. 
(e) VOLUNTARY PARTICIPATION.—Participa-
tion of medicare beneficiaries in the dem-
onstration project shall be voluntary. The 
total number of such beneficiaries that may 
participate in the project at any given time 
may not exceed 15,000. 
(f) PREFERENCE IN SELECTING AGENCIES.—
In selecting home health agencies to partici-
pate under the demonstration project, the 
Secretary shall give preference to those agen-
cies that are currently licensed or certified 
through common ownership and control to 
furnish medical adult day care services. 
(g) WAIVER
AUTHORITY.—The Secretary 
may waive such requirements of title XVIII of 
the Social Security Act as may be necessary
1096
for the purposes of carrying out the dem-
onstration project, other than waiving the re-
quirement that an individual be homebound 
in order to be eligible for benefits for home 
health services. 
(h) EVALUATION
AND REPORT.—The Sec-
retary shall conduct an evaluation of the clin-
ical and cost effectiveness of the demonstra-
tion project. Not later 30 months after the 
commencement of the project, the Secretary 
shall submit to Congress a report on the eval-
uation, and shall include in the report the fol-
lowing: 
(1) An analysis of the patient out-
comes and costs of furnishing care to the 
medicare beneficiaries participating in 
the project as compared to such out-
comes and costs to beneficiaries receiv-
ing only home health services for the 
same health conditions. 
(2) Such recommendations regarding 
the extension, expansion, or termination 
of the project as the Secretary deter-
mines appropriate. 
(i) DEFINITIONS.—In this section:
1097
(1) HOME HEALTH AGENCY.—The term 
‘‘home health agency’’ has the meaning 
given such term in section 1861(o) of the 
Social Security Act (42 U.S.C. 1395x(o)). 
(2) MEDICAL
ADULT
DAY
CARE
FACIL-
ITY.—The term ‘‘medical adult day care 
facility’’ means a facility that—
(A) has been licensed or certified 
by a State to furnish medical adult 
day care services in the State for a 
continuous 2-year period; 
(B) 
is 
engaged 
in 
providing 
skilled nursing services and other 
therapeutic services directly or under 
arrangement with a home health 
agency; 
(C) meets such standards estab-
lished by the Secretary to assure 
quality of care and such other re-
quirements as the Secretary finds 
necessary in the interest of the health 
and safety of individuals who are fur-
nished services in the facility; and 
(D) provides medical adult day 
care services.
1098
(3) MEDICAL
ADULT
DAY
CARE
SERV-
ICES.—The term ‘‘medical adult day care 
services’’ means—
(A) home health service items and 
services described in paragraphs (1) 
through (7) of section 1861(m) fur-
nished in a medical adult day care fa-
cility; 
(B) a program of supervised ac-
tivities furnished in a group setting 
in the facility that—
(i) meet such criteria as the 
Secretary 
determines 
appro-
priate; and 
(ii) is designed to promote 
physical and mental health of the 
individuals; and 
(C) such other services as the Sec-
retary may specify. 
(4) MEDICARE BENEFICIARY.—The term 
‘‘medicare beneficiary’’ means an indi-
vidual entitled to benefits under part A of 
this title, enrolled under part B of this 
title, or both.
1099
SEC. 733. IMPROVEMENTS IN NATIONAL AND LOCAL COV-
ERAGE DETERMINATION PROCESS TO RE-
SPOND TO CHANGES IN TECHNOLOGY. 
(a) NATIONAL AND LOCAL COVERAGE DETER-
MINATION PROCESS.—
(1) IN
GENERAL.—Section 1862 (42 
U.S.C. 1395y) is amended—
(A) in the third sentence of sub-
section (a) by inserting ‘‘consistent 
with subsection (k)’’ after ‘‘the Sec-
retary shall ensure’’; and 
(B) by adding at the end the fol-
lowing new subsection: 
‘‘(k) NATIONAL AND LOCAL COVERAGE DE-
TERMINATION PROCESS.—
‘‘(1) CRITERIA
AND
EVIDENCE
USED
IN 
MAKING
NATIONAL
COVERAGE
DETERMINA-
TIONS.—The Secretary shall make avail-
able to the public the criteria the Sec-
retary uses in making national coverage 
determinations, including how evidence 
to demonstrate that a procedure or de-
vice is reasonable and necessary is con-
sidered. 
‘‘(2) TIMEFRAME FOR DECISIONS ON RE-
QUESTS
FOR
NATIONAL
COVERAGE
DETER-
1100
MINATIONS.—In the case of a request for a 
national coverage determination that—
‘‘(A) does not require a technology 
assessment from an outside entity or 
deliberation from the Medicare Cov-
erage Advisory Committee, the deci-
sion on the request shall be made not 
later than 6 months after the date of 
the request; or 
‘‘(B) requires such an assessment 
or deliberation and in which a clin-
ical trial is not requested, the deci-
sion on the request shall be made not 
later than 12 months after the date of 
the request. 
‘‘(3) PROCESS FOR PUBLIC COMMENT IN 
NATIONAL
COVERAGE
DETERMINATIONS.—At 
the end of the 6-month period that begins 
on the date a request for a national cov-
erage determination is made, the Sec-
retary shall—
‘‘(A) make a draft of proposed de-
cision on the request available to the 
public through the Medicare Internet 
site of the Department of Health and
1101
Human Services or other appropriate 
means; 
‘‘(B) provide a 30-day period for 
public comment on such draft; 
‘‘(C) make a final decision on the 
request within 60 days of the conclu-
sion of the 30-day period referred to 
under subparagraph (B); 
‘‘(D) include in such final decision 
summaries of the public comments re-
ceived and responses thereto; 
‘‘(E) make available to the public 
the clinical evidence and other data 
used in making such a decision when 
the decision differs from the rec-
ommendations of the Medicare Cov-
erage Advisory Committee; and 
‘‘(F) in the case of a decision to 
grant the coverage determination, as-
sign a temporary or permanent code 
during the 60-day period referred to 
in subparagraph (C). 
‘‘(4) CONSULTATION
WITH
OUTSIDE
EX-
PERTS IN CERTAIN NATIONAL COVERAGE DE-
TERMINATIONS.—With respect to a request
1102
for a national coverage determination for 
which there is not a review by the Medi-
care Coverage Advisory Committee, the 
Secretary shall consult with appropriate 
outside clinical experts. 
‘‘(5) LOCAL
COVERAGE
DETERMINATION 
PROCESS.—With respect to local coverage 
determinations made on or after January 
1, 2004—
‘‘(A) PLAN
TO
PROMOTE
CONSIST-
ENCY OF COVERAGE DETERMINATIONS.—
The Secretary shall develop a plan to 
evaluate new local coverage deter-
minations to determine which deter-
minations should be adopted nation-
ally and to what extent greater con-
sistency can be achieved among local 
coverage determinations. 
‘‘(B) 
CONSULTATION.—The 
Sec-
retary shall require the fiscal inter-
mediaries or carriers providing serv-
ices within the same area to consult 
on all new local coverage determina-
tions within the area.
1103
‘‘(C) DISSEMINATION
OF
INFORMA-
TION.—The Secretary should serve as 
a center to disseminate information 
on 
local 
coverage 
determinations 
among fiscal intermediaries and car-
riers to reduce duplication of effort. 
‘‘(6) NATIONAL AND LOCAL COVERAGE DE-
TERMINATION
DEFINED.—For purposes of 
this subsection, the terms ‘national cov-
erage determination’ and ‘local coverage 
determination’ have the meaning given 
such terms in paragraphs (1)(B) and 
(2)(B), respectively, of section 1869(f).’’. 
(2) EFFECTIVE DATE.—The amendments 
made by paragraph (1) shall apply to na-
tional and local coverage determinations 
as of January 1, 2004. 
(b) MEDICARE COVERAGE OF ROUTINE COSTS 
ASSOCIATED WITH CERTAIN CLINICAL TRIALS.—
(1) IN GENERAL.—With respect to the 
coverage of routine costs of care for 
beneficiaries participating in a qualifying 
clinical trial, as set forth on the date of 
the enactment of this Act in National 
Coverage Determination 30-1 of the Medi-
1104
care Coverage Issues Manual, the Sec-
retary shall deem clinical trials con-
ducted in accordance with an investiga-
tional device exemption approved under 
section 520(g) of the Federal Food, Drug, 
and Cosmetic Act (42 U.S.C. 360j(g)) to be 
automatically qualified for such cov-
erage. 
(2) RULE
OF
CONSTRUCTION.—Nothing 
in this subsection shall be construed as 
authorizing or requiring the Secretary to 
modify the regulations set forth on the 
date of the enactment of this Act at sub-
part B of part 405 of title 42, Code of Fed-
eral Regulations, or subpart A of part 411 
of such title, relating to coverage of, and 
payment for, a medical device that is the 
subject of an investigational device ex-
emption by the Food and Drug Adminis-
tration (except as may be necessary to 
implement paragraph (1)). 
(3) EFFECTIVE DATE.—This subsection 
shall apply to clinical trials begun before, 
on, or after the date of the enactment of
1105
this Act and to items and services fur-
nished on or after such date. 
(c) ISSUANCE
OF
TEMPORARY
NATIONAL 
CODES.—Not later than January 1, 2004, the 
Secretary shall implement revised procedures 
for 
the 
issuance 
of 
temporary 
national 
HCPCS codes under part B of title XVIII of 
the Social Security Act. 
SEC. 734. TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY 
SERVICES. 
(a) IN GENERAL.—Section 1848(i) (42 U.S.C. 
1395w–4(i)) is amended by adding at the end 
the following new paragraph: 
‘‘(4) TREATMENT OF CERTAIN INPATIENT 
PHYSICIAN PATHOLOGY SERVICES.—
‘‘(A) IN GENERAL.—With respect to 
services furnished on or after Janu-
ary 1, 2001, and before January 1, 
2006, if an independent laboratory 
furnishes the technical component of 
a physician pathology service to a 
fee-for-service medicare beneficiary 
who is an inpatient or outpatient of a 
covered hospital, the Secretary shall 
treat such component as a service for
1106
which payment shall be made to the 
laboratory under this section and not 
as an inpatient hospital service for 
which payment is made to the hos-
pital under section 1886(d) or as a 
hospital outpatient service for which 
payment is made to the hospital 
under section 1833(t). 
‘‘(B) DEFINITIONS.—In this para-
graph: 
‘‘(i) COVERED HOSPITAL.—
‘‘(I) IN GENERAL.—The term 
‘covered hospital’ means, with 
respect to an inpatient or out-
patient, a hospital that had an 
arrangement with an inde-
pendent laboratory that was 
in effect as of July 22, 1999, 
under which a laboratory fur-
nished the technical compo-
nent of physician pathology 
services 
to 
fee-for-service 
medicare 
beneficiaries 
who 
were hospital inpatients or 
outpatients, respectively, and
1107
submitted claims for payment 
for such component to a car-
rier with a contract under 
section 1842 and not to the 
hospital. 
‘‘(II) CHANGE IN OWNERSHIP 
DOES
NOT
AFFECT
DETERMINA-
TION.—A change in ownership 
with respect to a hospital on 
or after the date referred to 
in subclause (I) shall not af-
fect 
the 
determination 
of 
whether such hospital is a 
covered hospital for purposes 
of such subclause. 
‘‘(ii) 
FEE-FOR-SERVICE
MEDI-
CARE BENEFICIARY.—The term ‘fee-
for-service medicare beneficiary’ 
means an individual who is enti-
tled to benefits under part A, or 
enrolled under this part, or both, 
but is not enrolled in any of the 
following: 
‘‘(I) 
A 
Medicare+Choice 
plan under part C.
1108
‘‘(II) A plan offered by an 
eligible 
organization 
under 
section 1876. 
‘‘(III) A program of all-in-
clusive care for the elderly 
(PACE) under section 1894. 
‘‘(IV) A social health main-
tenance organization (SHMO) 
demonstration project estab-
lished under section 4018(b) 
of the Omnibus Budget Rec-
onciliation Act of 1987 (Public 
Law 100–203).’’. 
(b) CONFORMING AMENDMENT.—Section 542 
of the Medicare, Medicaid, and SCHIP Bene-
fits Improvement and Protection Act of 2000 
(114 Stat. 2763A–550), as enacted into law by 
section 1(a)(6) of Public Law 106–554, is re-
pealed. 
(c) EFFECTIVE DATES.—The amendments 
made by this section shall take effect as if in-
cluded in the enactment of the Medicare, 
Medicaid, and SCHIP Benefits Improvement 
and Protection Act of 2000 (Appendix F, 114
1109
Stat. 2763A–463), as enacted into law by sec-
tion 1(a)(6) of Public Law 106–554.
TITLE VIII—MEDICARE 
BENEFITS ADMINISTRATION
SEC. 801. ESTABLISHMENT OF MEDICARE BENEFITS AD-
MINISTRATION. 
(a) IN GENERAL.—Title XVIII (42 U.S.C. 
1395 et seq.), as amended by sections 105 and 
721, is amended by inserting after 1808 the fol-
lowing new section: 
‘‘MEDICARE BENEFITS ADMINISTRATION 
‘‘SEC. 1809. (a) ESTABLISHMENT.—There is 
established within the Department of Health 
and Human Services an agency to be known 
as the Medicare Benefits Administration. 
‘‘(b) 
ADMINISTRATOR; 
DEPUTY
ADMINIS-
TRATOR; CHIEF ACTUARY.—
‘‘(1) ADMINISTRATOR.—
‘‘(A) IN
GENERAL.—The Medicare 
Benefits 
Administration 
shall 
be 
headed by an administrator to be 
known as the ‘Medicare Benefits Ad-
ministrator’ (in this section referred 
to as the ‘Administrator’) who shall 
be appointed by the President, by and 
with the advice and consent of the
1110
Senate. The Administrator shall be in 
direct line of authority to the Sec-
retary. 
‘‘(B) COMPENSATION.—The Admin-
istrator shall be paid at the rate of 
basic pay payable for level III of the 
Executive Schedule under section 
5314 of title 5, United States Code. 
‘‘(C) TERM OF OFFICE.—The Admin-
istrator shall be appointed for a term 
of 4 years. In any case in which a suc-
cessor does not take office at the end 
of an Administrator’s term of office, 
that Administrator may continue in 
office until the entry upon office of 
such a successor. An Administrator 
appointed to a term of office after the 
commencement of such term may 
serve under such appointment only 
for the remainder of such term. 
‘‘(D) 
GENERAL
AUTHORITY.—The 
Administrator shall be responsible for 
the exercise of all powers and the dis-
charge of all duties of the Administra-
tion, and shall have authority and
1111
control over all personnel and activi-
ties thereof. 
‘‘(E) RULEMAKING AUTHORITY.—The 
Administrator may prescribe such 
rules and regulations as the Adminis-
trator determines necessary or appro-
priate to carry out the functions of 
the Administration. The regulations 
prescribed by the Administrator shall 
be subject to the rulemaking proce-
dures established under section 553 
of title 5, United States Code. The Ad-
ministrator shall provide for the 
issuance of new regulations to carry 
out parts C, D, and E. 
‘‘(F) AUTHORITY TO ESTABLISH OR-
GANIZATIONAL
UNITS.—The 
Adminis-
trator may establish, alter, consoli-
date, or discontinue such organiza-
tional units or components within the 
Administration as the Administrator 
considers necessary or appropriate, 
except as specified in this section. 
‘‘(G) AUTHORITY
TO
DELEGATE.—
The Administrator may assign duties,
1112
and delegate, or authorize successive 
redelegations of, authority to act and 
to render decisions, to such officers 
and employees of the Administration 
as the Administrator may find nec-
essary. Within the limitations of such 
delegations, redelegations, or assign-
ments, all official acts and decisions 
of such officers and employees shall 
have the same force and effect as 
though performed or rendered by the 
Administrator. 
‘‘(2) DEPUTY ADMINISTRATOR.—
‘‘(A) IN GENERAL.—There shall be a 
Deputy Administrator of the Medi-
care 
Benefits 
Administration 
who 
shall be appointed by the President, 
by and with the advice and consent of 
the Senate. 
‘‘(B) COMPENSATION.—The Deputy 
Administrator shall be paid at the 
rate of basic pay payable for level IV 
of the Executive Schedule under sec-
tion 5315 of title 5, United States 
Code.
1113
‘‘(C) TERM OF OFFICE.—The Deputy 
Administrator shall be appointed for 
a term of 4 years. In any case in 
which a successor does not take of-
fice at the end of a Deputy Adminis-
trator’s term of office, such Deputy 
Administrator may continue in office 
until the entry upon office of such a 
successor. A Deputy Administrator 
appointed to a term of office after the 
commencement of such term may 
serve under such appointment only 
for the remainder of such term. 
‘‘(D) DUTIES.—The Deputy Admin-
istrator shall perform such duties and 
exercise such powers as the Adminis-
trator shall from time to time assign 
or delegate. The Deputy Adminis-
trator shall be Acting Administrator 
of the Administration during the ab-
sence or disability of the Adminis-
trator and, unless the President des-
ignates another officer of the Govern-
ment as Acting Administrator, in the
1114
event of a vacancy in the office of the 
Administrator. 
‘‘(3) CHIEF ACTUARY.—
‘‘(A) IN GENERAL.—There is estab-
lished in the Administration the posi-
tion of Chief Actuary. The Chief Actu-
ary shall be appointed by, and in di-
rect line of authority to, the Adminis-
trator of such Administration. The 
Chief Actuary shall be appointed 
from among individuals who have 
demonstrated, by their education and 
experience, superior expertise in the 
actuarial sciences. The Chief Actuary 
may be removed only for cause. 
‘‘(B) 
COMPENSATION.—The 
Chief 
Actuary shall be compensated at the 
highest rate of basic pay for the Sen-
ior Executive Service under section 
5382(b) of title 5, United States Code. 
‘‘(C) DUTIES.—The Chief Actuary 
shall exercise such duties as are ap-
propriate for the office of the Chief 
Actuary and in accordance with pro-
1115
fessional standards of actuarial inde-
pendence. 
‘‘(4) SECRETARIAL
COORDINATION
OF 
PROGRAM ADMINISTRATION.—The Secretary 
shall ensure appropriate coordination be-
tween the Administrator and the Admin-
istrator of the Centers for Medicare & 
Medicaid Services in carrying out the 
programs under this title. 
‘‘(c) DUTIES; ADMINISTRATIVE PROVISIONS.—
‘‘(1) DUTIES.—
‘‘(A) GENERAL DUTIES.—The Admin-
istrator shall carry out parts C, D, 
and E, including—
‘‘(i) negotiating, entering into, 
and 
enforcing, 
contracts 
with 
plans for the offering of Medicare 
Advantage plans under part C 
and EFFS plans under part E, in-
cluding the offering of qualified 
prescription drug coverage under 
such plans; and 
‘‘(ii) 
negotiating, 
entering 
into, 
and 
enforcing, 
contracts 
with PDP sponsors for the offer-
1116
ing of prescription drug plans 
under part D. 
‘‘(B) OTHER DUTIES.—The Adminis-
trator shall carry out any duty pro-
vided for under part C, part D, or 
part 
E, 
including 
demonstration 
projects carried out in part or in 
whole under such parts, the programs 
of all-inclusive care for the elderly 
(PACE program) under section 1894, 
the social health maintenance organi-
zation 
(SHMO) 
demonstration 
projects 
(referred 
to 
in 
section 
4104(c) of the Balanced Budget Act of 
1997), 
medicare 
cost 
contractors 
under section 1876(h), and through a 
Medicare 
Advantage 
project 
that 
demonstrates the application of capi-
tation payment rates for frail elderly 
medicare beneficiaries through the 
use of a interdisciplinary team and 
through the provision of primary 
care services to such beneficiaries by 
means of such a team at the nursing 
facility involved).
1117
‘‘(C) PRESCRIPTION
DRUG
CARD.—
The Administrator shall carry out 
section 1807 (relating to the medicare 
prescription drug discount card en-
dorsement program). 
‘‘(D) NONINTERFERENCE.—In car-
rying out its duties with respect to 
the provision of qualified prescrip-
tion drug coverage to beneficiaries 
under this title, the Administrator 
may not—
‘‘(i) require a particular for-
mulary or institute a price struc-
ture for the reimbursement of 
covered outpatient drugs; 
‘‘(ii) interfere in any way with 
negotiations between PDP spon-
sors and Medicare Advantage or-
ganizations and EFFS organiza-
tions and drug manufacturers, 
wholesalers, or other suppliers of 
covered outpatient drugs; and 
‘‘(iii) otherwise interfere with 
the competitive nature of pro-
1118
viding 
such 
coverage 
through 
such sponsors and organizations. 
‘‘(E) ANNUAL
REPORTS.—Not later 
March 31 of each year, the Adminis-
trator shall submit to Congress and 
the President a report on the admin-
istration of parts C, D, and E during 
the previous fiscal year. 
‘‘(2) STAFF.—
‘‘(A) IN
GENERAL.—The Adminis-
trator, with the approval of the Sec-
retary, may employ, without regard 
to chapter 31 of title 5, United States 
Code, 
other 
than 
sections 
3102 
through 3108, 3110 through 3113, 
3136m and 3151, such officers and em-
ployees as are necessary to admin-
ister the activities to be carried out 
through the Medicare Benefits Ad-
ministration. The Administrator shall 
employ staff with appropriate and 
necessary expertise in negotiating 
contracts in the private sector. 
‘‘(B) FLEXIBILITY WITH RESPECT TO 
COMPENSATION.—
1119
‘‘(i) IN GENERAL.—The staff of 
the Medicare Benefits Adminis-
tration shall, subject to clause (ii), 
be paid without regard to the pro-
visions of chapter 51 (other than 
section 
5101) 
and 
chapter 
(other than section 5301) of such 
title (relating to classification and 
schedule pay rates). 
‘‘(ii) MAXIMUM
RATE.—In no 
case may the rate of compensa-
tion determined under clause (i) 
exceed the rate of basic pay pay-
able for level IV of the Executive 
Schedule under section 5315 of 
title 5, United States Code. 
‘‘(C) 
LIMITATION
ON
FULL-TIME 
EQUIVALENT
STAFFING
FOR
CURRENT 
CMS FUNCTIONS BEING TRANSFERRED.—
The Administrator may not employ 
under this paragraph a number of 
full-time 
equivalent 
employees, 
to 
carry out functions that were pre-
viously conducted by the Centers for 
Medicare & Medicaid Services and
1120
that are conducted by the Adminis-
trator by reason of this section, that 
exceeds the number of such full-time 
equivalent employees authorized to 
be employed by the Centers for Medi-
care & Medicaid Services to conduct 
such functions as of the date of the 
enactment of this Act. 
‘‘(3) REDELEGATION
OF
CERTAIN
FUNC-
TIONS
OF
THE
CENTERS
FOR
MEDICARE
& 
MEDICAID SERVICES.—
‘‘(A) IN
GENERAL.—The Secretary, 
the Administrator, and the Adminis-
trator of the Centers for Medicare & 
Medicaid Services shall establish an 
appropriate transition of responsi-
bility in order to redelegate the ad-
ministration of part C from the Sec-
retary and the Administrator of the 
Centers for Medicare & Medicaid 
Services to the Administrator as is 
appropriate to carry out the purposes 
of this section. 
‘‘(B) TRANSFER OF DATA AND INFOR-
MATION.—The Secretary shall ensure
1121
that the Administrator of the Centers 
for Medicare & Medicaid Services 
transfers to the Administrator of the 
Medicare 
Benefits 
Administration 
such information and data in the pos-
session of the Administrator of the 
Centers for Medicare & Medicaid 
Services as the Administrator of the 
Medicare Benefits Administration re-
quires to carry out the duties de-
scribed in paragraph (1). 
‘‘(C) CONSTRUCTION.—Insofar as a 
responsibility of the Secretary or the 
Administrator of the Centers for 
Medicare & Medicaid Services is re-
delegated to the Administrator under 
this section, any reference to the Sec-
retary or the Administrator of the 
Centers for Medicare & Medicaid 
Services in this title or title XI with 
respect 
to 
such 
responsibility 
is 
deemed to be a reference to the Ad-
ministrator.
‘‘(d) OFFICE OF BENEFICIARY ASSISTANCE.—
1122
‘‘(1) ESTABLISHMENT.—The Secretary 
shall establish within the Medicare Bene-
fits Administration an Office of Bene-
ficiary Assistance to coordinate functions 
relating to outreach and education of 
medicare beneficiaries under this title, 
including the functions described in 
paragraph (2). The Office shall be sepa-
rate operating division within the Admin-
istration. 
‘‘(2) DISSEMINATION OF INFORMATION ON 
BENEFITS AND APPEALS RIGHTS.—
‘‘(A) DISSEMINATION
OF
BENEFITS 
INFORMATION.—The Office of Bene-
ficiary Assistance shall disseminate, 
directly or through contract, to medi-
care beneficiaries, by mail, by posting 
on the Internet site of the Medicare 
Benefits Administration and through 
a toll-free telephone number, infor-
mation with respect to the following: 
‘‘(i) Benefits, and limitations 
on payment (including cost-shar-
ing, stop-loss provisions, and for-
1123
mulary restrictions) under parts 
C, D, and E. 
‘‘(ii) Benefits, and limitations 
on payment under parts A and B, 
including information on medi-
care supplemental policies under 
section 1882. 
Such information shall be presented 
in a manner so that medicare bene-
ficiaries may compare benefits under 
parts A, B, D, and medicare supple-
mental policies with benefits under 
Medicare Advantage plans under part 
C and EFFS plans under part E. 
‘‘(B) DISSEMINATION
OF
APPEALS 
RIGHTS
INFORMATION.—The Office of 
Beneficiary Assistance shall dissemi-
nate to medicare beneficiaries in the 
manner 
provided 
under 
subpara-
graph (A) a description of procedural 
rights (including grievance and ap-
peals 
procedures) 
of 
beneficiaries 
under the original medicare fee-for-
service program under parts A and B, 
the 
Medicare 
Advantage 
program
1124
under part C, the Voluntary Prescrip-
tion Drug Benefit Program under 
part D, and the Enhanced Fee-for-
Service program under part E. 
‘‘(e) MEDICARE POLICY ADVISORY BOARD.—
‘‘(1) ESTABLISHMENT.—There is estab-
lished within the Medicare Benefits Ad-
ministration the Medicare Policy Advi-
sory Board (in this section referred to the 
‘Board’). The Board shall advise, consult 
with, and make recommendations to the 
Administrator of the Medicare Benefits 
Administration with respect to the ad-
ministration of parts C, D, and E, includ-
ing the review of payment policies under 
such parts. 
‘‘(2) REPORTS.—
‘‘(A) IN GENERAL.—With respect to 
matters of the administration of parts 
C, D, and E the Board shall submit to 
Congress and to the Administrator of 
the Medicare Benefits Administration 
such reports as the Board determines 
appropriate. Each such report may 
contain such recommendations as the
1125
Board determines appropriate for leg-
islative or administrative changes to 
improve the administration of such 
parts, including the topics described 
in subparagraph (B). Each such re-
port shall be published in the Federal 
Register. 
‘‘(B) TOPICS
DESCRIBED.—Reports 
required 
under 
subparagraph 
(A) 
may include the following topics: 
‘‘(i) FOSTERING COMPETITION.—
Recommendations or proposals to 
increase competition under parts 
C, D, and E for services furnished 
to medicare beneficiaries. 
‘‘(ii) EDUCATION
AND
ENROLL-
MENT.—Recommendations for the 
improvement to efforts to provide 
medicare beneficiaries informa-
tion and education on the pro-
gram under this title, and specifi-
cally parts C, D, and E, and the 
program for enrollment under the 
title.
1126
‘‘(iii) IMPLEMENTATION OF RISK-
ADJUSTMENT.—Evaluation of the 
implementation 
under 
section 
1853(a)(3)(C) of the risk adjust-
ment methodology to payment 
rates under that section to Medi-
care Advantage organizations of-
fering Medicare Advantage plans 
(and the corresponding payment 
provisions under part E) that ac-
counts for variations in per capita 
costs based on health status, ge-
ography, and other demographic 
factors. 
‘‘(iv) 
RURAL
ACCESS.—Rec-
ommendations to improve com-
petition 
and 
access 
to 
plans 
under parts C, D, and E in rural 
areas. 
‘‘(C) MAINTAINING
INDEPENDENCE 
OF
BOARD.—The Board shall directly 
submit to Congress reports required 
under subparagraph (A). No officer or 
agency of the United States may re-
quire the Board to submit to any offi-
1127
cer or agency of the United States for 
approval, comments, or review, prior 
to the submission to Congress of such 
reports. 
‘‘(3) DUTY OF ADMINISTRATOR OF MEDI-
CARE BENEFITS ADMINISTRATION.—With re-
spect to any report submitted by the 
Board under paragraph (2)(A), not later 
than 90 days after the report is sub-
mitted, the Administrator of the Medicare 
Benefits Administration shall submit to 
Congress and the President an analysis 
of recommendations made by the Board 
in such report. Each such analysis shall 
be published in the Federal Register. 
‘‘(4) MEMBERSHIP.—
‘‘(A) APPOINTMENT.—Subject to the 
succeeding provisions of this para-
graph, the Board shall consist of 
seven members to be appointed as fol-
lows: 
‘‘(i) Three members shall be 
appointed by the President. 
‘‘(ii) Two members shall be ap-
pointed by the Speaker of the
1128
House of Representatives, with 
the advice of the chairmen and 
the ranking minority members of 
the Committees on Ways and 
Means and on Energy and Com-
merce of the House of Represent-
atives. 
‘‘(iii) Two members shall be 
appointed by the President pro 
tempore of the Senate with the 
advice of the chairman and the 
ranking minority member of the 
Senate Committee on Finance. 
‘‘(B) QUALIFICATIONS.—The mem-
bers shall be chosen on the basis of 
their integrity, impartiality, and good 
judgment, and shall be individuals 
who are, by reason of their education 
and experience in health care bene-
fits management, exceptionally quali-
fied to perform the duties of members 
of the Board. 
‘‘(C) PROHIBITION ON INCLUSION OF 
FEDERAL
EMPLOYEES.—No officer or
1129
employee of the United States may 
serve as a member of the Board. 
‘‘(5) COMPENSATION.—Members of the 
Board shall receive, for each day (includ-
ing travel time) they are engaged in the 
performance of the functions of the 
board, compensation at rates not to ex-
ceed the daily equivalent to the annual 
rate in effect for level IV of the Executive 
Schedule under section 5315 of title 5, 
United States Code. 
‘‘(6) TERMS OF OFFICE.—
‘‘(A) IN GENERAL.—The term of of-
fice of members of the Board shall be 
3 years. 
‘‘(B) 
TERMS
OF
INITIAL
AP-
POINTEES.—As 
designated 
by 
the 
President at the time of appointment, 
of the members first appointed—
‘‘(i) one shall be appointed for 
a term of 1 year; 
‘‘(ii) three shall be appointed 
for terms of 2 years; and 
‘‘(iii) three shall be appointed 
for terms of 3 years.
1130
‘‘(C) REAPPOINTMENTS.—Any per-
son appointed as a member of the 
Board may not serve for more than 8 
years. 
‘‘(D) VACANCY.—Any member ap-
pointed to fill a vacancy occurring be-
fore the expiration of the term for 
which the member’s predecessor was 
appointed shall be appointed only for 
the remainder of that term. A mem-
ber may serve after the expiration of 
that member’s term until a successor 
has taken office. A vacancy in the 
Board shall be filled in the manner in 
which the original appointment was 
made. 
‘‘(7) CHAIR.—The Chair of the Board 
shall be elected by the members. The 
term of office of the Chair shall be 3 
years. 
‘‘(8) MEETINGS.—The Board shall meet 
at the call of the Chair, but in no event 
less than three times during each fiscal 
year. 
‘‘(9) DIRECTOR AND STAFF.—
1131
‘‘(A) APPOINTMENT OF DIRECTOR.—
The Board shall have a Director who 
shall be appointed by the Chair. 
‘‘(B) IN
GENERAL.—With the ap-
proval of the Board, the Director may 
appoint, without regard to chapter 31 
of title 5, United States Code, such 
additional personnel as the Director 
considers appropriate. 
‘‘(C) FLEXIBILITY WITH RESPECT TO 
COMPENSATION.—
‘‘(i) IN GENERAL.—The Director 
and staff of the Board shall, sub-
ject to clause (ii), be paid without 
regard to the provisions of chap-
ter 51 and chapter 53 of such title 
(relating 
to 
classification 
and 
schedule pay rates). 
‘‘(ii) MAXIMUM
RATE.—In no 
case may the rate of compensa-
tion determined under clause (i) 
exceed the rate of basic pay pay-
able for level IV of the Executive 
Schedule under section 5315 of 
title 5, United States Code.
1132
‘‘(D) ASSISTANCE FROM THE ADMIN-
ISTRATOR
OF
THE
MEDICARE
BENEFITS 
ADMINISTRATION.—The 
Administrator 
of the Medicare Benefits Administra-
tion shall make available to the 
Board such information and other as-
sistance as it may require to carry 
out its functions. 
‘‘(10) 
CONTRACT
AUTHORITY.—The 
Board may contract with and compensate 
government and private agencies or per-
sons to carry out its duties under this 
subsection, without regard to section 
3709 of the Revised Statutes (41 U.S.C. 5). 
‘‘(f) FUNDING.—There is authorized to be 
appropriated, in appropriate part from the 
Federal Hospital Insurance Trust Fund and 
from the Federal Supplementary Medical In-
surance Trust Fund (including the Medicare 
Prescription Drug Account), such sums as are 
necessary to carry out this section.’’. 
(b) EFFECTIVE DATE.—
(1) 
IN
GENERAL.—The 
amendment 
made by subsection (a) shall take effect 
on the date of the enactment of this Act.
1133
(2) DUTIES
WITH
RESPECT
TO
ELIGI-
BILITY DETERMINATIONS AND ENROLLMENT.—
The Administrator of the Medicare Bene-
fits Administration shall carry out enroll-
ment under title XVIII of the Social Secu-
rity Act, make eligibility determinations 
under such title, and carry out parts C 
and E of such title for years beginning or 
after January 1, 2006. 
(3) TRANSITION.—Before the date the 
Administrator of the Medicare Benefits 
Administration is appointed and assumes 
responsibilities under this section and 
section 1807 of the Social Security Act, 
the Secretary of Health and Human Serv-
ices shall provide for the conduct of any 
responsibilities of such Administrator 
that are otherwise provided under law. 
(c) MISCELLANEOUS ADMINISTRATIVE PROVI-
SIONS.—
(1) ADMINISTRATOR AS MEMBER OF THE 
BOARD
OF
TRUSTEES
OF
THE
MEDICARE 
TRUST
FUNDS.—Section 1817(b) and sec-
tion 1841(b) (42 U.S.C. 1395i(b), 1395t(b)) 
are each amended by striking ‘‘and the
1134
Secretary of Health and Human Services, 
all ex officio,’’ and inserting ‘‘the Sec-
retary of Health and Human Services, 
and the Administrator of the Medicare 
Benefits Administration, all ex officio,’’. 
(2) INCREASE
IN
GRADE
TO
EXECUTIVE 
LEVEL III FOR THE ADMINISTRATOR OF THE 
CENTERS FOR MEDICARE & MEDICAID SERV-
ICES; LEVEL FOR MEDICARE BENEFITS ADMIN-
ISTRATOR.—
(A) IN GENERAL.—Section 5314 of 
title 5, United States Code, by adding 
at the end the following: 
‘‘Administrator of the Centers for 
Medicare & Medicaid Services. 
‘‘Administrator of the Medicare Bene-
fits Administration.’’. 
(B) 
CONFORMING
AMENDMENT.—
Section 5315 of such title is amended 
by striking ‘‘Administrator of the 
Health Care Financing Administra-
tion.’’. 
(C) EFFECTIVE DATE.—The amend-
ments made by this paragraph take 
effect on January 1, 2004.
1135
TITLE IX—REGULATORY REDUC-
TION AND CONTRACTING RE-
FORM 
Subtitle A—Regulatory Reform 
SEC. 901. CONSTRUCTION; DEFINITION OF SUPPLIER. 
(a) CONSTRUCTION.—Nothing in this title 
shall be construed—
(1) to compromise or affect existing 
legal remedies for addressing fraud or 
abuse, whether it be criminal prosecu-
tion, civil enforcement, or administrative 
remedies, including under sections 3729 
through 3733 of title 31, United States 
Code (known as the False Claims Act); or 
(2) to prevent or impede the Depart-
ment of Health and Human Services in 
any way from its ongoing efforts to elimi-
nate waste, fraud, and abuse in the medi-
care program. 
Furthermore, the consolidation of medicare 
administrative contracting set forth in this 
Act does not constitute consolidation of the 
Federal Hospital Insurance Trust Fund and 
the Federal Supplementary Medical Insur-
1136
ance Trust Fund or reflect any position on 
that issue. 
(b) DEFINITION OF SUPPLIER.—Section 1861 
(42 U.S.C. 1395x) is amended by inserting after 
subsection (c) the following new subsection: 
‘‘Supplier 
‘‘(d) The term ‘supplier’ means, unless the 
context otherwise requires, a physician or 
other practitioner, a facility, or other entity 
(other than a provider of services) that fur-
nishes items or services under this title.’’. 
SEC. 902. ISSUANCE OF REGULATIONS. 
(a) REGULAR TIMELINE FOR PUBLICATION OF 
FINAL RULES.—
(1) IN
GENERAL.—Section 1871(a) (42 
U.S.C. 1395hh(a)) is amended by adding 
at the end the following new paragraph: 
‘‘(3)(A) The Secretary, in consultation with 
the Director of the Office of Management and 
Budget, shall establish and publish a regular 
timeline for the publication of final regula-
tions based on the previous publication of a 
proposed regulation or an interim final regu-
lation.
1137
‘‘(B) Such timeline may vary among dif-
ferent regulations based on differences in the 
complexity of the regulation, the number and 
scope of comments received, and other rel-
evant factors, but shall not be longer than 3 
years 
except 
under 
exceptional 
cir-
cumstances. If the Secretary intends to vary 
such timeline with respect to the publication 
of a final regulation, the Secretary shall cause 
to have published in the Federal Register no-
tice of the different timeline by not later than 
the timeline previously established with re-
spect to such regulation. Such notice shall in-
clude a brief explanation of the justification 
for such variation. 
‘‘(C) In the case of interim final regula-
tions, upon the expiration of the regular 
timeline established under this paragraph for 
the publication of a final regulation after op-
portunity for public comment, the interim 
final regulation shall not continue in effect 
unless the Secretary publishes (at the end of 
the regular timeline and, if applicable, at the 
end of each succeeding 1-year period) a notice 
of continuation of the regulation that in-
1138
cludes an explanation of why the regular 
timeline (and any subsequent 1-year exten-
sion) was not complied with. If such a notice 
is published, the regular timeline (or such 
timeline as previously extended under this 
paragraph) for publication of the final regula-
tion shall be treated as having been extended 
for 1 additional year. 
‘‘(D) The Secretary shall annually submit 
to Congress a report that describes the in-
stances in which the Secretary failed to pub-
lish a final regulation within the applicable 
regular timeline under this paragraph and 
that provides an explanation for such fail-
ures.’’. 
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall take effect 
on the date of the enactment of this Act. 
The Secretary shall provide for an appro-
priate transition to take into account the 
backlog of previously published interim 
final regulations. 
(b) LIMITATIONS ON NEW MATTER IN FINAL 
REGULATIONS.—
1139
(1) IN
GENERAL.—Section 1871(a) (42 
U.S.C. 1395hh(a)), as amended by sub-
section (a), is amended by adding at the 
end the following new paragraph: 
‘‘(4) If the Secretary publishes a final reg-
ulation that includes a provision that is not 
a logical outgrowth of a previously published 
notice of proposed rulemaking or interim 
final rule, such provision shall be treated as 
a proposed regulation and shall not take ef-
fect until there is the further opportunity for 
public comment and a publication of the pro-
vision again as a final regulation.’’. 
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall apply to 
final regulations published on or after 
the date of the enactment of this Act. 
SEC. 903. COMPLIANCE WITH CHANGES IN REGULATIONS 
AND POLICIES. 
(a) NO RETROACTIVE APPLICATION OF SUB-
STANTIVE CHANGES.—
(1) IN
GENERAL.—Section 1871 (42 
U.S.C. 1395hh), as amended by section 
902(a), is amended by adding at the end 
the following new subsection:
1140
‘‘(e)(1)(A) A substantive change in regula-
tions, 
manual 
instructions, 
interpretative 
rules, statements of policy, or guidelines of 
general applicability under this title shall not 
be applied (by extrapolation or otherwise) 
retroactively to items and services furnished 
before the effective date of the change, unless 
the Secretary determines that—
‘‘(i) such retroactive application is 
necessary to comply with statutory re-
quirements; or 
‘‘(ii) failure to apply the change retro-
actively would be contrary to the public 
interest.’’. 
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall apply to sub-
stantive changes issued on or after the 
date of the enactment of this Act. 
(b) TIMELINE FOR COMPLIANCE WITH SUB-
STANTIVE CHANGES AFTER NOTICE.—
(1) IN GENERAL.—Section 1871(e)(1), as 
added by subsection (a), is amended by 
adding at the end the following: 
‘‘(B)(i) Except as provided in clause (ii), a 
substantive change referred to in subpara-
1141
graph (A) shall not become effective before 
the end of the 30-day period that begins on 
the date that the Secretary has issued or pub-
lished, as the case may be, the substantive 
change. 
‘‘(ii) The Secretary may provide for such 
a substantive change to take effect on a date 
that precedes the end of the 30-day period 
under clause (i) if the Secretary finds that 
waiver of such 30-day period is necessary to 
comply with statutory requirements or that 
the application of such 30-day period is con-
trary to the public interest. If the Secretary 
provides for an earlier effective date pursu-
ant to this clause, the Secretary shall include 
in the issuance or publication of the sub-
stantive change a finding described in the 
first sentence, and a brief statement of the 
reasons for such finding. 
‘‘(C) No action shall be taken against a 
provider of services or supplier with respect 
to noncompliance with such a substantive 
change for items and services furnished be-
fore the effective date of such a change.’’.
1142
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall apply to 
compliance actions undertaken on or 
after the date of the enactment of this 
Act. 
(c) RELIANCE ON GUIDANCE.—
(1) IN
GENERAL.—Section 1871(e), as 
added 
by 
subsection 
(a), 
is 
further 
amended by adding at the end the fol-
lowing new paragraph: 
‘‘(2)(A) If—
‘‘(i) a provider of services or supplier 
follows the written guidance (which may 
be transmitted electronically) provided 
by the Secretary or by a medicare con-
tractor (as defined in section 1889(g)) act-
ing within the scope of the contractor’s 
contract authority, with respect to the 
furnishing of items or services and sub-
mission of a claim for benefits for such 
items or services with respect to such 
provider or supplier; 
‘‘(ii) the Secretary determines that 
the provider of services or supplier has 
accurately presented the circumstances
1143
relating to such items, services, and claim 
to the contractor in writing; and 
‘‘(iii) the guidance was in error; 
the provider of services or supplier shall not 
be subject to any sanction (including any pen-
alty or requirement for repayment of any 
amount) if the provider of services or supplier 
reasonably relied on such guidance. 
‘‘(B) Subparagraph (A) shall not be con-
strued as preventing the recoupment or re-
payment (without any additional penalty) re-
lating to an overpayment insofar as the over-
payment was solely the result of a clerical or 
technical operational error.’’. 
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall take effect 
on the date of the enactment of this Act 
but shall not apply to any sanction for 
which notice was provided on or before 
the date of the enactment of this Act. 
SEC. 904. REPORTS AND STUDIES RELATING TO REGU-
LATORY REFORM. 
(a) GAO STUDY ON ADVISORY OPINION AU-
THORITY.—
1144
(1) STUDY.—The Comptroller General 
of the United States shall conduct a study 
to determine the feasibility and appro-
priateness of establishing in the Sec-
retary authority to provide legally bind-
ing advisory opinions on appropriate in-
terpretation and application of regula-
tions to carry out the medicare program 
under title XVIII of the Social Security 
Act. Such study shall examine the appro-
priate timeframe for issuing such advi-
sory opinions, as well as the need for ad-
ditional staff and funding to provide such 
opinions. 
(2) REPORT.—The Comptroller Gen-
eral shall submit to Congress a report on 
the study conducted under paragraph (1) 
by not later than one year after the date 
of the enactment of this Act. 
(b) REPORT ON LEGAL AND REGULATORY IN-
CONSISTENCIES.—Section 
1871 
(42 
U.S.C. 
1395hh), as amended by section 2(a), is 
amended by adding at the end the following 
new subsection:
1145
‘‘(f)(1) Not later than 2 years after the date 
of the enactment of this subsection, and every 
2 years thereafter, the Secretary shall submit 
to Congress a report with respect to the ad-
ministration of this title and areas of incon-
sistency or conflict among the various provi-
sions under law and regulation. 
‘‘(2) In preparing a report under para-
graph (1), the Secretary shall collect—
‘‘(A) information from individuals en-
titled to benefits under part A or enrolled 
under part B, or both, providers of serv-
ices, and suppliers and from the Medi-
care Beneficiary Ombudsman and the 
Medicare Provider Ombudsman with re-
spect to such areas of inconsistency and 
conflict; and 
‘‘(B) information from medicare con-
tractors that tracks the nature of written 
and telephone inquiries. 
‘‘(3) A report under paragraph (1) shall in-
clude a description of efforts by the Secretary 
to reduce such inconsistency or conflicts, and 
recommendations for legislation or adminis-
trative action that the Secretary determines
1146
appropriate to further reduce such inconsist-
ency or conflicts.’’. 
Subtitle B—Contracting Reform 
SEC. 911. INCREASED FLEXIBILITY IN MEDICARE ADMINIS-
TRATION. 
(a) CONSOLIDATION
AND
FLEXIBILITY
IN 
MEDICARE ADMINISTRATION.—
(1) IN GENERAL.—Title XVIII is amend-
ed by inserting after section 1874 the fol-
lowing new section: 
‘‘CONTRACTS WITH MEDICARE ADMINISTRATIVE 
CONTRACTORS 
‘‘SEC. 1874A. (a) AUTHORITY.—
‘‘(1) AUTHORITY
TO
ENTER
INTO
CON-
TRACTS.—The Secretary may enter into 
contracts with any eligible entity to serve 
as a medicare administrative contractor 
with respect to the performance of any or 
all of the functions described in para-
graph (4) or parts of those functions (or, 
to the extent provided in a contract, to 
secure performance thereof by other enti-
ties). 
‘‘(2) ELIGIBILITY OF ENTITIES.—An enti-
ty is eligible to enter into a contract with 
respect to the performance of a par-
1147
ticular function described in paragraph 
(4) only if—
‘‘(A) the entity has demonstrated 
capability to carry out such function; 
‘‘(B) the entity complies with such 
conflict of interest standards as are 
generally applicable to Federal acqui-
sition and procurement; 
‘‘(C) the entity has sufficient as-
sets to financially support the per-
formance of such function; and 
‘‘(D) the entity meets such other 
requirements as the Secretary may 
impose. 
‘‘(3) MEDICARE
ADMINISTRATIVE
CON-
TRACTOR
DEFINED.—For purposes of this 
title and title XI—
‘‘(A) IN GENERAL.—The term ‘medi-
care 
administrative 
contractor’ 
means an agency, organization, or 
other person with a contract under 
this section. 
‘‘(B) APPROPRIATE
MEDICARE
AD-
MINISTRATIVE
CONTRACTOR.—With re-
spect to the performance of a par-
1148
ticular function in relation to an indi-
vidual entitled to benefits under part 
A or enrolled under part B, or both, a 
specific provider of services or sup-
plier (or class of such providers of 
services or suppliers), the ‘appro-
priate’ medicare administrative con-
tractor is the medicare administra-
tive contractor that has a contract 
under this section with respect to the 
performance of that function in rela-
tion to that individual, provider of 
services or supplier or class of pro-
vider of services or supplier. 
‘‘(4) FUNCTIONS DESCRIBED.—The func-
tions referred to in paragraphs (1) and (2) 
are payment functions, provider services 
functions, and functions relating to serv-
ices furnished to individuals entitled to 
benefits under part A or enrolled under 
part B, or both, as follows: 
‘‘(A) DETERMINATION
OF
PAYMENT 
AMOUNTS.—Determining 
(subject 
to 
the provisions of section 1878 and to 
such review by the Secretary as may
1149
be provided for by the contracts) the 
amount of the payments required 
pursuant to this title to be made to 
providers of services, suppliers and 
individuals. 
‘‘(B) MAKING
PAYMENTS.—Making 
payments described in subparagraph 
(A) (including receipt, disbursement, 
and accounting for funds in making 
such payments). 
‘‘(C) BENEFICIARY
EDUCATION
AND 
ASSISTANCE.—Providing education and 
outreach to individuals entitled to 
benefits under part A or enrolled 
under part B, or both, and providing 
assistance to those individuals with 
specific issues, concerns or problems. 
‘‘(D) PROVIDER CONSULTATIVE SERV-
ICES.—Providing consultative services 
to institutions, agencies, and other 
persons to enable them to establish 
and maintain fiscal records necessary 
for purposes of this title and other-
wise to qualify as providers of serv-
ices or suppliers.
1150
‘‘(E) COMMUNICATION
WITH
PRO-
VIDERS.—Communicating to providers 
of services and suppliers any infor-
mation or instructions furnished to 
the 
medicare 
administrative 
con-
tractor by the Secretary, and facili-
tating communication between such 
providers and suppliers and the Sec-
retary. 
‘‘(F) 
PROVIDER
EDUCATION
AND 
TECHNICAL
ASSISTANCE.—Performing 
the functions relating to provider 
education, training, and technical as-
sistance. 
‘‘(G) ADDITIONAL FUNCTIONS.—Per-
forming such other functions as are 
necessary to carry out the purposes 
of this title. 
‘‘(5) 
RELATIONSHIP
TO
MIP
CON-
TRACTS.—
‘‘(A) NONDUPLICATION OF DUTIES.—
In entering into contracts under this 
section, the Secretary shall assure 
that functions of medicare adminis-
trative contractors in carrying out ac-
1151
tivities under parts A and B do not 
duplicate activities carried out under 
the 
Medicare 
Integrity 
Program 
under section 1893. The previous sen-
tence shall not apply with respect to 
the 
activity 
described 
in 
section 
1893(b)(5) (relating to prior author-
ization of certain items of durable 
medical 
equipment 
under 
section 
1834(a)(15)). 
‘‘(B) 
CONSTRUCTION.—An 
entity 
shall not be treated as a medicare ad-
ministrative contractor merely by 
reason of having entered into a con-
tract with the Secretary under sec-
tion 1893. 
‘‘(6) APPLICATION OF FEDERAL ACQUISI-
TION
REGULATION.—Except to the extent 
inconsistent with a specific requirement 
of this title, the Federal Acquisition Reg-
ulation applies to contracts under this 
title. 
‘‘(b) CONTRACTING REQUIREMENTS.—
‘‘(1) 
USE
OF
COMPETITIVE
PROCE-
DURES.—
1152
‘‘(A) IN GENERAL.—Except as pro-
vided in laws with general applica-
bility to Federal acquisition and pro-
curement or in subparagraph (B), the 
Secretary shall use competitive pro-
cedures when entering into contracts 
with medicare administrative con-
tractors under this section, taking 
into account performance quality as 
well as price and other factors. 
‘‘(B) RENEWAL OF CONTRACTS.—The 
Secretary may renew a contract with 
a medicare administrative contractor 
under this section from term to term 
without regard to section 5 of title 41, 
United States Code, or any other pro-
vision of law requiring competition, if 
the 
medicare 
administrative 
con-
tractor has met or exceeded the per-
formance 
requirements 
applicable 
with respect to the contract and con-
tractor, except that the Secretary 
shall provide for the application of 
competitive procedures under such a
1153
contract not less frequently than once 
every five years. 
‘‘(C) TRANSFER OF FUNCTIONS.—The 
Secretary 
may 
transfer 
functions 
among medicare administrative con-
tractors consistent with the provi-
sions of this paragraph. The Sec-
retary shall ensure that performance 
quality is considered in such trans-
fers. The Secretary shall provide pub-
lic notice (whether in the Federal 
Register or otherwise) of any such 
transfer (including a description of 
the functions so transferred, a de-
scription of the providers of services 
and suppliers affected by such trans-
fer, and contact information for the 
contractors involved). 
‘‘(D) INCENTIVES FOR QUALITY.—The 
Secretary shall provide incentives for 
medicare administrative contractors 
to provide quality service and to pro-
mote efficiency. 
‘‘(2) 
COMPLIANCE
WITH
REQUIRE-
MENTS.—No contract under this section
1154
shall be entered into with any medicare 
administrative contractor unless the Sec-
retary finds that such medicare adminis-
trative contractor will perform its obliga-
tions under the contract efficiently and 
effectively and will meet such require-
ments as to financial responsibility, legal 
authority, quality of services provided, 
and other matters as the Secretary finds 
pertinent. 
‘‘(3) PERFORMANCE REQUIREMENTS.—
‘‘(A) 
DEVELOPMENT
OF
SPECIFIC 
PERFORMANCE
REQUIREMENTS.—In de-
veloping contract performance re-
quirements, the Secretary shall de-
velop performance requirements ap-
plicable to functions described in 
subsection (a)(4). 
‘‘(B) CONSULTATION.— In devel-
oping such requirements, the Sec-
retary may consult with providers of 
services and suppliers, organizations 
representing individuals entitled to 
benefits under part A or enrolled 
under part B, or both, and organiza-
1155
tions and agencies performing func-
tions necessary to carry out the pur-
poses of this section with respect to 
such performance requirements. 
‘‘(C) INCLUSION IN CONTRACTS.—All 
contractor performance requirements 
shall be set forth in the contract be-
tween the Secretary and the appro-
priate medicare administrative con-
tractor. Such performance require-
ments—
‘‘(i) shall reflect the perform-
ance 
requirements 
developed 
under subparagraph (A), but may 
include additional performance 
requirements; 
‘‘(ii) shall be used for evalu-
ating 
contractor 
performance 
under the contract; and 
‘‘(iii) shall be consistent with 
the written statement of work 
provided under the contract. 
‘‘(4) INFORMATION REQUIREMENTS.—The 
Secretary shall not enter into a contract 
with a medicare administrative con-
1156
tractor under this section unless the con-
tractor agrees—
‘‘(A) to furnish to the Secretary 
such timely information and reports 
as the Secretary may find necessary 
in performing his functions under 
this title; and 
‘‘(B) to maintain such records and 
afford such access thereto as the Sec-
retary finds necessary to assure the 
correctness and verification of the in-
formation and reports under subpara-
graph (A) and otherwise to carry out 
the purposes of this title. 
‘‘(5) SURETY BOND.—A contract with a 
medicare 
administrative 
contractor 
under this section may require the medi-
care administrative contractor, and any 
of its officers or employees certifying 
payments or disbursing funds pursuant 
to the contract, or otherwise partici-
pating in carrying out the contract, to 
give surety bond to the United States in 
such amount as the Secretary may deem 
appropriate.
1157
‘‘(c) TERMS AND CONDITIONS.—
‘‘(1) IN GENERAL.—A contract with any 
medicare 
administrative 
contractor 
under this section may contain such 
terms and conditions as the Secretary 
finds necessary or appropriate and may 
provide for advances of funds to the 
medicare administrative contractor for 
the making of payments by it under sub-
section (a)(4)(B). 
‘‘(2) PROHIBITION
ON
MANDATES
FOR 
CERTAIN DATA COLLECTION.—The Secretary 
may not require, as a condition of enter-
ing into, or renewing, a contract under 
this section, that the medicare adminis-
trative contractor match data obtained 
other than in its activities under this title 
with data used in the administration of 
this title for purposes of identifying situ-
ations in which the provisions of section 
1862(b) may apply. 
‘‘(d) LIMITATION ON LIABILITY OF MEDICARE 
ADMINISTRATIVE
CONTRACTORS
AND
CERTAIN 
OFFICERS.—
1158
‘‘(1) CERTIFYING
OFFICER.—No indi-
vidual designated pursuant to a contract 
under this section as a certifying officer 
shall, in the absence of the reckless dis-
regard of the individual’s obligations or 
the intent by that individual to defraud 
the United States, be liable with respect 
to any payments certified by the indi-
vidual under this section. 
‘‘(2) 
DISBURSING
OFFICER.—No 
dis-
bursing officer shall, in the absence of 
the reckless disregard of the officer’s ob-
ligations or the intent by that officer to 
defraud the United States, be liable with 
respect to any payment by such officer 
under this section if it was based upon an 
authorization (which meets the applica-
ble requirements for such internal con-
trols established by the Comptroller Gen-
eral) of a certifying officer designated as 
provided in paragraph (1) of this sub-
section. 
‘‘(3) LIABILITY
OF
MEDICARE
ADMINIS-
TRATIVE CONTRACTOR.—
1159
‘‘(A) IN
GENERAL.—No medicare ad-
ministrative contractor shall be liable to 
the United States for a payment by a cer-
tifying or disbursing officer unless, in 
connection with such payment, the medi-
care 
administrative 
contractor 
acted 
with reckless disregard of its obligations 
under its medicare administrative con-
tract or with intent to defraud the United 
States. 
‘‘(B) RELATIONSHIP
TO
FALSE
CLAIMS 
ACT.—Nothing in this subsection shall be 
construed to limit liability for conduct 
that would constitute a violation of sec-
tions 3729 through 3731 of title 31, United 
States Code (commonly known as the 
‘False Claims Act’). 
‘‘(4) INDEMNIFICATION BY SECRETARY.—
‘‘(A) IN GENERAL.—Subject to sub-
paragraphs (B) and (D), in the case of 
a medicare administrative contractor 
(or a person who is a director, officer, 
or employee of such a contractor or 
who is engaged by the contractor to 
participate directly in the claims ad-
1160
ministration process) who is made a 
party to any judicial or administra-
tive proceeding arising from or relat-
ing directly to the claims administra-
tion process under this title, the Sec-
retary may, to the extent the Sec-
retary determines to be appropriate 
and as specified in the contract with 
the contractor, indemnify the con-
tractor and such persons. 
‘‘(B) CONDITIONS.—The Secretary 
may 
not 
provide 
indemnification 
under subparagraph (A) insofar as 
the liability for such costs arises di-
rectly from conduct that is deter-
mined by the judicial proceeding or 
by the Secretary to be criminal in na-
ture, fraudulent, or grossly negligent. 
If indemnification is provided by the 
Secretary with respect to a con-
tractor before a determination that 
such costs arose directly from such 
conduct, the contractor shall reim-
burse the Secretary for costs of in-
demnification.
1161
‘‘(C) SCOPE OF INDEMNIFICATION.—
Indemnification 
by 
the 
Secretary 
under subparagraph (A) may include 
payment of judgments, settlements 
(subject 
to 
subparagraph 
(D)), 
awards, and costs (including reason-
able legal expenses). 
‘‘(D) WRITTEN
APPROVAL
FOR
SET-
TLEMENTS.—A contractor or other per-
son described in subparagraph (A) 
may not propose to negotiate a settle-
ment or compromise of a proceeding 
described in such subparagraph with-
out the prior written approval of the 
Secretary to negotiate such settle-
ment or compromise. Any indem-
nification under subparagraph (A) 
with respect to amounts paid under a 
settlement or compromise of a pro-
ceeding described in such subpara-
graph are conditioned upon prior 
written approval by the Secretary of 
the final settlement or compromise. 
‘‘(E) CONSTRUCTION.—Nothing in 
this paragraph shall be construed—
1162
‘‘(i) to change any common 
law immunity that may be avail-
able to a medicare administrative 
contractor or person described in 
subparagraph (A); or 
‘‘(ii) to permit the payment of 
costs 
not 
otherwise 
allowable, 
reasonable, or allocable under the 
Federal Acquisition Regulations.’’. 
(2) CONSIDERATION OF INCORPORATION 
OF
CURRENT
LAW
STANDARDS.—In devel-
oping 
contract 
performance 
require-
ments under section 1874A(b) of the So-
cial Security Act, as inserted by para-
graph (1), the Secretary shall consider in-
clusion of the performance standards de-
scribed in sections 1816(f)(2) of such Act 
(relating to timely processing of reconsid-
erations and applications for exemptions) 
and section 1842(b)(2)(B) of such Act (re-
lating to timely review of determinations 
and fair hearing requests), as such sec-
tions were in effect before the date of the 
enactment of this Act.
1163
(b) CONFORMING AMENDMENTS TO SECTION 
1816 (RELATING TO FISCAL INTERMEDIARIES).—
Section 1816 (42 U.S.C. 1395h) is amended as 
follows: 
(1) The heading is amended to read as 
follows: 
‘‘PROVISIONS RELATING TO THE ADMINISTRATION 
OF PART A’’. 
(2) Subsection (a) is amended to read 
as follows: 
‘‘(a) The administration of this part shall 
be conducted through contracts with medi-
care administrative contractors under section 
1874A.’’. 
(3) Subsection (b) is repealed. 
(4) Subsection (c) is amended—
(A) by striking paragraph (1); and 
(B) in each of paragraphs (2)(A) 
and (3)(A), by striking ‘‘agreement 
under this section’’ and inserting 
‘‘contract under section 1874A that 
provides for making payments under 
this part’’. 
(5) Subsections (d) through (i) are re-
pealed.
1164
(6) Subsections (j) and (k) are each 
amended—
(A) by striking ‘‘An agreement 
with an agency or organization under 
this section’’ and inserting ‘‘A con-
tract with a medicare administrative 
contractor under section 1874A with 
respect to the administration of this 
part’’; and 
(B) by striking ‘‘such agency or 
organization’’ 
and 
inserting 
‘‘such 
medicare administrative contractor’’ 
each place it appears. 
(7) Subsection (l) is repealed. 
(c) CONFORMING AMENDMENTS TO SECTION 
1842 (RELATING
TO CARRIERS).—Section 1842 
(42 U.S.C. 1395u) is amended as follows: 
(1) The heading is amended to read as 
follows: 
‘‘PROVISIONS RELATING TO THE ADMINISTRATION 
OF PART B’’. 
(2) Subsection (a) is amended to read 
as follows: 
‘‘(a) The administration of this part shall 
be conducted through contracts with medi-
1165
care administrative contractors under section 
1874A.’’. 
(3) Subsection (b) is amended—
(A) by striking paragraph (1); 
(B) in paragraph (2)—
(i) by striking subparagraphs 
(A) and (B); 
(ii) in subparagraph (C), by 
striking ‘‘carriers’’ and inserting 
‘‘medicare administrative contrac-
tors’’; and 
(iii) 
by 
striking 
subpara-
graphs (D) and (E); 
(C) in paragraph (3)—
(i) in the matter before sub-
paragraph (A), by striking ‘‘Each 
such contract shall provide that 
the carrier’’ and inserting ‘‘The 
Secretary’’; 
(ii) by striking ‘‘will’’ the first 
place it appears in each of sub-
paragraphs (A), (B), (F), (G), (H), 
and (L) and inserting ‘‘shall’’; 
(iii) in subparagraph (B), in 
the matter before clause (i), by
1166
striking ‘‘to the policyholders and 
subscribers of the carrier’’ and in-
serting ‘‘to the policyholders and 
subscribers of the medicare ad-
ministrative contractor’’; 
(iv) by striking subparagraphs 
(C), (D), and (E); 
(v) in subparagraph (H)—
(I) by striking ‘‘if it makes 
determinations or payments 
with respect to physicians’ 
services,’’ in the matter pre-
ceding clause (i); and 
(II) by striking ‘‘carrier’’ 
and inserting ‘‘medicare ad-
ministrative 
contractor’’ 
in 
clause (i); 
(vi) by striking subparagraph 
(I); 
(vii) in subparagraph (L), by 
striking the semicolon and insert-
ing a period; 
(viii) in the first sentence, 
after subparagraph (L), by strik-
ing ‘‘and shall contain’’ and all
1167
that follows through the period; 
and 
(ix) in the seventh sentence, 
by inserting ‘‘medicare adminis-
trative contractor,’’ after ‘‘car-
rier,’’; and 
(D) by striking paragraph (5); 
(E) in paragraph (6)(D)(iv), by 
striking 
‘‘carrier’’ 
and 
inserting 
‘‘medicare administrative contractor’’; 
and 
(F) in paragraph (7), by striking 
‘‘the carrier’’ and inserting ‘‘the Sec-
retary’’ each place it appears. 
(4) Subsection (c) is amended—
(A) by striking paragraph (1); 
(B) in paragraph (2)(A), by strik-
ing 
‘‘contract 
under 
this 
section 
which provides for the disbursement 
of funds, as described in subsection 
(a)(1)(B),’’ 
and 
inserting 
‘‘contract 
under section 1874A that provides for 
making payments under this part’’;
1168
(C) in paragraph (3)(A), by strik-
ing ‘‘subsection (a)(1)(B)’’ and insert-
ing ‘‘section 1874A(a)(3)(B)’’; 
(D) in paragraph (4), in the mat-
ter preceding subparagraph (A), by 
striking 
‘‘carrier’’ 
and 
inserting 
‘‘medicare administrative contractor’’; 
and 
(E) by striking paragraphs (5) and 
(6). 
(5) Subsections (d), (e), and (f) are re-
pealed. 
(6) Subsection (g) is amended by 
striking ‘‘carrier or carriers’’ and insert-
ing ‘‘medicare administrative contractor 
or contractors’’. 
(7) Subsection (h) is amended—
(A) in paragraph (2)—
(i) by striking ‘‘Each carrier 
having an agreement with the 
Secretary under subsection (a)’’ 
and inserting ‘‘The Secretary’’; 
and
1169
(ii) by striking ‘‘Each such 
carrier’’ and inserting ‘‘The Sec-
retary’’; 
(B) in paragraph (3)(A)—
(i) by striking ‘‘a carrier hav-
ing an agreement with the Sec-
retary under subsection (a)’’ and 
inserting ‘‘medicare administra-
tive contractor having a contract 
under section 1874A that provides 
for making payments under this 
part’’; and 
(ii) by striking ‘‘such carrier’’ 
and inserting ‘‘such contractor’’; 
(C) in paragraph (3)(B)—
(i) by striking ‘‘a carrier’’ and 
inserting ‘‘a medicare administra-
tive contractor’’ each place it ap-
pears; and 
(ii) by striking ‘‘the carrier’’ 
and inserting ‘‘the contractor’’ 
each place it appears; and 
(D) 
in 
paragraphs 
(5)(A) 
and 
(5)(B)(iii), by striking ‘‘carriers’’ and
1170
inserting 
‘‘medicare 
administrative 
contractors’’ each place it appears. 
(8) Subsection (l) is amended—
(A) in paragraph (1)(A)(iii), by 
striking 
‘‘carrier’’ 
and 
inserting 
‘‘medicare administrative contractor’’; 
and 
(B) in paragraph (2), by striking 
‘‘carrier’’ and inserting ‘‘medicare ad-
ministrative contractor’’. 
(9) Subsection (p)(3)(A) is amended by 
striking ‘‘carrier’’ and inserting ‘‘medi-
care administrative contractor’’. 
(10) Subsection (q)(1)(A) is amended 
by striking ‘‘carrier’’. 
(d) EFFECTIVE DATE; TRANSITION RULE.—
(1) EFFECTIVE DATE.—
(A) IN GENERAL.—Except as other-
wise provided in this subsection, the 
amendments made by this section 
shall take effect on October 1, 2005, 
and the Secretary is authorized to 
take such steps before such date as 
may be necessary to implement such 
amendments on a timely basis.
1171
(B) CONSTRUCTION
FOR
CURRENT 
CONTRACTS.—Such amendments shall 
not apply to contracts in effect before 
the date specified under subpara-
graph (A) that continue to retain the 
terms and conditions in effect on 
such date (except as otherwise pro-
vided under this Act, other than 
under this section) until such date as 
the contract is let out for competitive 
bidding under such amendments. 
(C) 
DEADLINE
FOR
COMPETITIVE 
BIDDING.—The Secretary shall provide 
for the letting by competitive bidding 
of all contracts for functions of medi-
care administrative contractors for 
annual contract periods that begin on 
or after October 1, 2010. 
(D) WAIVER OF PROVIDER NOMINA-
TION PROVISIONS DURING TRANSITION.—
During the period beginning on the 
date of the enactment of this Act and 
before the date specified under sub-
paragraph (A), the Secretary may 
enter into new agreements under sec-
1172
tion 1816 of the Social Security Act 
(42 U.S.C. 1395h) without regard to 
any of the provider nomination provi-
sions of such section. 
(2) GENERAL
TRANSITION
RULES.—The 
Secretary shall take such steps, con-
sistent with paragraph (1)(B) and (1)(C), 
as are necessary to provide for an appro-
priate transition from contracts under 
section 1816 and section 1842 of the So-
cial Security Act (42 U.S.C. 1395h, 1395u) 
to contracts under section 1874A, as 
added by subsection (a)(1). 
(3) AUTHORIZING CONTINUATION OF MIP 
FUNCTIONS UNDER CURRENT CONTRACTS AND 
AGREEMENTS
AND
UNDER
ROLLOVER
CON-
TRACTS.—The provisions contained in the 
exception in section 1893(d)(2) of the So-
cial Security Act (42 U.S.C. 1395ddd(d)(2)) 
shall continue to apply notwithstanding 
the amendments made by this section, 
and any reference in such provisions to 
an 
agreement 
or 
contract 
shall 
be 
deemed to include a contract under sec-
tion 1874A of such Act, as inserted by
1173
subsection (a)(1), that continues the ac-
tivities referred to in such provisions. 
(e) REFERENCES.—On and after the effec-
tive date provided under subsection (d)(1), 
any reference to a fiscal intermediary or car-
rier under title XI or XVIII of the Social Secu-
rity Act (or any regulation, manual instruc-
tion, interpretative rule, statement of policy, 
or guideline issued to carry out such titles) 
shall be deemed a reference to a medicare ad-
ministrative contractor (as provided under 
section 1874A of the Social Security Act). 
(f) REPORTS ON IMPLEMENTATION.—
(1) PLAN
FOR
IMPLEMENTATION.—By 
not later than October 1, 2004, the Sec-
retary shall submit a report to Congress 
and the Comptroller General of the 
United States that describes the plan for 
implementation of the amendments made 
by this section. The Comptroller General 
shall conduct an evaluation of such plan 
and shall submit to Congress, not later 
than 6 months after the date the report is 
received, a report on such evaluation and 
shall include in such report such rec-
1174
ommendations as the Comptroller Gen-
eral deems appropriate. 
(2) STATUS
OF
IMPLEMENTATION.—The 
Secretary shall submit a report to Con-
gress not later than October 1, 2008, that 
describes the status of implementation of 
such amendments and that includes a de-
scription of the following: 
(A) The number of contracts that 
have been competitively bid as of 
such date. 
(B) The distribution of functions 
among contracts and contractors. 
(C) A timeline for complete transi-
tion to full competition. 
(D) A detailed description of how 
the Secretary has modified oversight 
and management of medicare con-
tractors to adapt to full competition. 
SEC. 912. REQUIREMENTS FOR INFORMATION SECURITY 
FOR MEDICARE ADMINISTRATIVE CONTRAC-
TORS. 
(a) IN GENERAL.—Section 1874A, as added 
by section 911(a)(1), is amended by adding at 
the end the following new subsection:
1175
‘‘(e) REQUIREMENTS FOR INFORMATION SECU-
RITY.—
‘‘(1) DEVELOPMENT OF INFORMATION SE-
CURITY PROGRAM.—A medicare administra-
tive contractor that performs the func-
tions referred to in subparagraphs (A) 
and (B) of subsection (a)(4) (relating to 
determining and making payments) shall 
implement a contractor-wide information 
security program to provide information 
security for the operation and assets of 
the contractor with respect to such func-
tions under this title. An information se-
curity program under this paragraph 
shall meet the requirements for informa-
tion security programs imposed on Fed-
eral 
agencies 
under 
paragraphs 
(1) 
through (8) of section 3544(b) of title 44, 
United States Code (other than the re-
quirements under paragraphs (2)(D)(i), 
(5)(A), and (5)(B) of such section). 
‘‘(2) INDEPENDENT AUDITS.—
‘‘(A) 
PERFORMANCE
OF
ANNUAL 
EVALUATIONS.—Each year a medicare 
administrative contractor that per-
1176
forms the functions referred to in 
subparagraphs (A) and (B) of sub-
section (a)(4) (relating to determining 
and making payments) shall undergo 
an evaluation of the information se-
curity of the contractor with respect 
to such functions under this title. The 
evaluation shall—
‘‘(i) be performed by an entity 
that meets such requirements for 
independence as the Inspector 
General of the Department of 
Health and Human Services may 
establish; and 
‘‘(ii) test the effectiveness of 
information security control tech-
niques of an appropriate subset of 
the contractor’s information sys-
tems (as defined in section 3502(8) 
of title 44, United States Code) re-
lating to such functions under 
this title and an assessment of 
compliance 
with 
the 
require-
ments of this subsection and re-
lated information security poli-
1177
cies, procedures, standards and 
guidelines, including policies and 
procedures as may be prescribed 
by the Director of the Office of 
Management and Budget and ap-
plicable 
information 
security 
standards promulgated under sec-
tion 11331 of title 40, United 
States Code. 
‘‘(B) DEADLINE FOR INITIAL EVALUA-
TION.—
‘‘(i) NEW CONTRACTORS.—In the 
case of a medicare administrative 
contractor covered by this sub-
section that has not previously 
performed the functions referred 
to in subparagraphs (A) and (B) of 
subsection (a)(4) (relating to de-
termining and making payments) 
as a fiscal intermediary or carrier 
under section 1816 or 1842, the 
first independent evaluation con-
ducted 
pursuant 
subparagraph 
(A) shall be completed prior to 
commencing such functions.
1178
‘‘(ii) OTHER
CONTRACTORS.—In 
the case of a medicare adminis-
trative contractor covered by this 
subsection that is not described 
in clause (i), the first independent 
evaluation 
conducted 
pursuant 
subparagraph (A) shall be com-
pleted within 1 year after the 
date the contractor commences 
functions referred to in clause (i) 
under this section. 
‘‘(C) REPORTS ON EVALUATIONS.—
‘‘(i) TO
THE
DEPARTMENT
OF 
HEALTH AND HUMAN SERVICES.—The 
results of independent evalua-
tions 
under 
subparagraph 
(A) 
shall be submitted promptly to 
the Inspector General of the De-
partment of Health and Human 
Services and to the Secretary. 
‘‘(ii) TO
CONGRESS.—The In-
spector General of Department of 
Health and Human Services shall 
submit to Congress annual re-
ports on the results of such eval-
1179
uations, including assessments of 
the scope and sufficiency of such 
evaluations. 
‘‘(iii) AGENCY REPORTING.—The 
Secretary shall address the re-
sults of such evaluations in re-
ports 
required 
under 
section 
3544(c) of title 44, United States 
Code.’’. 
(b) APPLICATION OF REQUIREMENTS TO FIS-
CAL INTERMEDIARIES AND CARRIERS.—
(1) IN
GENERAL.—The provisions of 
section 1874A(e)(2) of the Social Security 
Act (other than subparagraph (B)), as 
added by subsection (a), shall apply to 
each fiscal intermediary under section 
1816 of the Social Security Act (42 U.S.C. 
1395h) and each carrier under section 
1842 of such Act (42 U.S.C. 1395u) in the 
same manner as they apply to medicare 
administrative contractors under such 
provisions. 
(2) DEADLINE
FOR
INITIAL
EVALUA-
TION.—In the case of such a fiscal inter-
mediary or carrier with an agreement or
1180
contract under such respective section in 
effect as of the date of the enactment of 
this Act, the first evaluation under sec-
tion 1874A(e)(2)(A) of the Social Security 
Act (as added by subsection (a)), pursu-
ant to paragraph (1), shall be completed 
(and a report on the evaluation sub-
mitted to the Secretary) by not later than 
1 year after such date. 
Subtitle C—Education and 
Outreach 
SEC. 921. PROVIDER EDUCATION AND TECHNICAL ASSIST-
ANCE. 
(a) COORDINATION
OF
EDUCATION
FUND-
ING.—
(1) IN GENERAL.—Title XVIII is amend-
ed by inserting after section 1888 the fol-
lowing new section: 
‘‘PROVIDER EDUCATION AND TECHNICAL 
ASSISTANCE 
‘‘SEC. 1889. (a) COORDINATION
OF
EDU-
CATION FUNDING.—The Secretary shall coordi-
nate 
the 
educational 
activities 
provided 
through medicare contractors (as defined in 
subsection (g), including under section 1893) 
in order to maximize the effectiveness of Fed-
1181
eral education efforts for providers of serv-
ices and suppliers.’’. 
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall take effect 
on the date of the enactment of this Act. 
(3) REPORT.—Not later than October 1, 
2004, the Secretary shall submit to Con-
gress a report that includes a description 
and evaluation of the steps taken to co-
ordinate the funding of provider edu-
cation under section 1889(a) of the Social 
Security Act, as added by paragraph (1). 
(b) INCENTIVES TO IMPROVE CONTRACTOR 
PERFORMANCE.—
(1) IN
GENERAL.—Section 1874A, as 
added by section 911(a)(1) and as amend-
ed by section 912(a), is amended by add-
ing at the end the following new sub-
section: 
‘‘(f) INCENTIVES TO IMPROVE CONTRACTOR 
PERFORMANCE
IN
PROVIDER
EDUCATION
AND 
OUTREACH.—The Secretary shall use specific 
claims payment error rates or similar method-
ology of medicare administrative contractors 
in the processing or reviewing of medicare
1182
claims in order to give such contractors an in-
centive to implement effective education and 
outreach programs for providers of services 
and suppliers.’’. 
(2) 
APPLICATION
TO
FISCAL
INTER-
MEDIARIES AND CARRIERS.—The provisions 
of section 1874A(f) of the Social Security 
Act, as added by paragraph (1), shall 
apply to each fiscal intermediary under 
section 1816 of the Social Security Act (42 
U.S.C. 1395h) and each carrier under sec-
tion 1842 of such Act (42 U.S.C. 1395u) in 
the same manner as they apply to medi-
care administrative contractors under 
such provisions. 
(3) GAO 
REPORT
ON
ADEQUACY
OF 
METHODOLOGY.—Not later than October 1, 
2004, the Comptroller General of the 
United States shall submit to Congress 
and to the Secretary a report on the ade-
quacy of the methodology under section 
1874A(f) of the Social Security Act, as 
added by paragraph (1), and shall include 
in the report such recommendations as 
the Comptroller General determines ap-
1183
propriate with respect to the method-
ology. 
(4) REPORT ON USE OF METHODOLOGY IN 
ASSESSING
CONTRACTOR
PERFORMANCE.—
Not later than October 1, 2004, the Sec-
retary shall submit to Congress a report 
that describes how the Secretary intends 
to use such methodology in assessing 
medicare contractor performance in im-
plementing effective education and out-
reach programs, including whether to use 
such methodology as a basis for perform-
ance bonuses. The report shall include an 
analysis of the sources of identified er-
rors and potential changes in systems of 
contractors and rules of the Secretary 
that could reduce claims error rates. 
(c) PROVISION OF ACCESS TO AND PROMPT 
RESPONSES
FROM
MEDICARE
ADMINISTRATIVE 
CONTRACTORS.—
(1) IN
GENERAL.—Section 1874A, as 
added by section 911(a)(1) and as amend-
ed by section 912(a) and subsection (b), is 
further amended by adding at the end 
the following new subsection:
1184
‘‘(g) COMMUNICATIONS WITH BENEFICIARIES, 
PROVIDERS OF SERVICES AND SUPPLIERS.—
‘‘(1) COMMUNICATION
STRATEGY.—The 
Secretary shall develop a strategy for 
communications with individuals entitled 
to benefits under part A or enrolled 
under part B, or both, and with providers 
of services and suppliers under this title. 
‘‘(2) RESPONSE TO WRITTEN INQUIRIES.—
Each medicare administrative contractor 
shall, for those providers of services and 
suppliers which submit claims to the con-
tractor for claims processing and for 
those individuals entitled to benefits 
under part A or enrolled under part B, or 
both, with respect to whom claims are 
submitted for claims processing, provide 
general written responses (which may be 
through electronic transmission) in a 
clear, concise, and accurate manner to in-
quiries of providers of services, suppliers 
and individuals entitled to benefits under 
part A or enrolled under part B, or both, 
concerning the programs under this title
1185
within 45 business days of the date of re-
ceipt of such inquiries. 
‘‘(3) RESPONSE
TO
TOLL-FREE
LINES.—
The Secretary shall ensure that each 
medicare administrative contractor shall 
provide, for those providers of services 
and suppliers which submit claims to the 
contractor for claims processing and for 
those individuals entitled to benefits 
under part A or enrolled under part B, or 
both, with respect to whom claims are 
submitted for claims processing, a toll-
free telephone number at which such in-
dividuals, providers of services and sup-
pliers may obtain information regarding 
billing, coding, claims, coverage, and 
other appropriate information under this 
title. 
‘‘(4) MONITORING
OF
CONTRACTOR
RE-
SPONSES.—
‘‘(A) IN GENERAL.—Each medicare 
administrative contractor shall, con-
sistent with standards developed by 
the Secretary under subparagraph 
(B)—
1186
‘‘(i) maintain a system for 
identifying who provides the in-
formation referred to in para-
graphs (2) and (3); and 
‘‘(ii) monitor the accuracy, 
consistency, and timeliness of the 
information so provided. 
‘‘(B) 
DEVELOPMENT
OF
STAND-
ARDS.—
‘‘(i) 
IN
GENERAL.—The 
Sec-
retary shall establish and make 
public standards to monitor the 
accuracy, consistency, and timeli-
ness of the information provided 
in response to written and tele-
phone inquiries under this sub-
section. Such standards shall be 
consistent with the performance 
requirements established under 
subsection (b)(3). 
‘‘(ii) 
EVALUATION.—In 
con-
ducting evaluations of individual 
medicare administrative contrac-
tors, the Secretary shall take into 
account the results of the moni-
1187
toring conducted under subpara-
graph (A) taking into account as 
performance 
requirements 
the 
standards 
established 
under 
clause (i). The Secretary shall, in 
consultation with organizations 
representing providers of serv-
ices, suppliers, and individuals 
entitled to benefits under part A 
or enrolled under part B, or both, 
establish standards relating to 
the accuracy, consistency, and 
timeliness of the information so 
provided. 
‘‘(C) DIRECT MONITORING.—Nothing 
in this paragraph shall be construed 
as preventing the Secretary from di-
rectly monitoring the accuracy, con-
sistency, and timeliness of the infor-
mation so provided.’’. 
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall take effect 
October 1, 2004. 
(3) 
APPLICATION
TO
FISCAL
INTER-
MEDIARIES AND CARRIERS.—The provisions
1188
of section 1874A(g) of the Social Security 
Act, as added by paragraph (1), shall 
apply to each fiscal intermediary under 
section 1816 of the Social Security Act (42 
U.S.C. 1395h) and each carrier under sec-
tion 1842 of such Act (42 U.S.C. 1395u) in 
the same manner as they apply to medi-
care administrative contractors under 
such provisions. 
(d) IMPROVED PROVIDER EDUCATION
AND 
TRAINING.—
(1) IN
GENERAL.—Section 1889, as 
added by subsection (a), is amended by 
adding at the end the following new sub-
sections: 
‘‘(b) ENHANCED EDUCATION AND TRAINING.—
‘‘(1) 
ADDITIONAL
RESOURCES.—There 
are authorized to be appropriated to the 
Secretary (in appropriate part from the 
Federal Hospital Insurance Trust Fund 
and the Federal Supplementary Medical 
Insurance Trust Fund) $25,000,000 for 
each of fiscal years 2005 and 2006 and 
such sums as may be necessary for suc-
ceeding fiscal years.
1189
‘‘(2) USE.—The funds made available 
under paragraph (1) shall be used to in-
crease the conduct by medicare contrac-
tors of education and training of pro-
viders of services and suppliers regard-
ing billing, coding, and other appropriate 
items and may also be used to improve 
the accuracy, consistency, and timeliness 
of contractor responses. 
‘‘(c) TAILORING EDUCATION
AND TRAINING 
ACTIVITIES
FOR
SMALL
PROVIDERS
OR
SUP-
PLIERS.—
‘‘(1) IN GENERAL.—Insofar as a medi-
care contractor conducts education and 
training activities, it shall tailor such ac-
tivities to meet the special needs of small 
providers of services or suppliers (as de-
fined in paragraph (2)). 
‘‘(2) SMALL PROVIDER OF SERVICES OR 
SUPPLIER.—In this subsection, the term 
‘small provider of services or supplier’ 
means—
‘‘(A) a provider of services with 
fewer than 25 full-time-equivalent em-
ployees; or
1190
‘‘(B) a supplier with fewer than 10 
full-time-equivalent employees.’’. 
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall take effect 
on October 1, 2004. 
(e) REQUIREMENT TO MAINTAIN INTERNET 
SITES.—
(1) IN
GENERAL.—Section 1889, as 
added by subsection (a) and as amended 
by subsection (d), is further amended by 
adding at the end the following new sub-
section: 
‘‘(d) INTERNET
SITES; FAQS.—The Sec-
retary, and each medicare contractor insofar 
as it provides services (including claims proc-
essing) for providers of services or suppliers, 
shall maintain an Internet site which—
‘‘(1) provides answers in an easily ac-
cessible format to frequently asked ques-
tions, and 
‘‘(2) includes other published mate-
rials of the contractor, 
that relate to providers of services and sup-
pliers under the programs under this title
1191
(and title XI insofar as it relates to such pro-
grams).’’. 
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall take effect 
on October 1, 2004. 
(f) ADDITIONAL PROVIDER EDUCATION PRO-
VISIONS.—
(1) IN
GENERAL.—Section 1889, as 
added by subsection (a) and as amended 
by subsections (d) and (e), is further 
amended by adding at the end the fol-
lowing new subsections: 
‘‘(e) ENCOURAGEMENT OF PARTICIPATION IN 
EDUCATION PROGRAM ACTIVITIES.—A medicare 
contractor may not use a record of attendance 
at (or failure to attend) educational activities 
or other information gathered during an edu-
cational program conducted under this sec-
tion or otherwise by the Secretary to select or 
track providers of services or suppliers for 
the purpose of conducting any type of audit 
or prepayment review. 
‘‘(f) CONSTRUCTION.—Nothing in this sec-
tion or section 1893(g) shall be construed as 
providing for disclosure by a medicare con-
1192
tractor of information that would compromise 
pending law enforcement activities or reveal 
findings of law enforcement-related audits. 
‘‘(g) DEFINITIONS.—For purposes of this 
section, the term ‘medicare contractor’ in-
cludes the following: 
‘‘(1) A medicare administrative con-
tractor with a contract under section 
1874A, including a fiscal intermediary 
with a contract under section 1816 and a 
carrier with a contract under section 
1842. 
‘‘(2) An eligible entity with a contract 
under section 1893. 
Such term does not include, with respect to 
activities of a specific provider of services or 
supplier an entity that has no authority under 
this title or title IX with respect to such activi-
ties and such provider of services or sup-
plier.’’. 
(2) EFFECTIVE DATE.—The amendment 
made by paragraph (1) shall take effect 
on the date of the enactment of this Act.
1193
SEC. 922. SMALL PROVIDER TECHNICAL ASSISTANCE DEM-
ONSTRATION PROGRAM. 
(a) ESTABLISHMENT.—
(1) IN GENERAL.—The Secretary shall 
establish a demonstration program (in 
this section referred to as the ‘‘dem-
onstration program’’) under which tech-
nical assistance described in paragraph 
(2) is made available, upon request and 
on a voluntary basis, to small providers 
of services or suppliers in order to im-
prove compliance with the applicable re-
quirements of the programs under medi-
care program under title XVIII of the So-
cial Security Act (including provisions of 
title XI of such Act insofar as they relate 
to such title and are not administered by 
the Office of the Inspector General of the 
Department of Health and Human Serv-
ices). 
(2) FORMS OF TECHNICAL ASSISTANCE.—
The technical assistance described in this 
paragraph is—
(A) evaluation and recommenda-
tions regarding billing and related 
systems; and
1194
(B) information and assistance re-
garding 
policies 
and 
procedures 
under the medicare program, includ-
ing coding and reimbursement. 
(3) SMALL PROVIDERS OF SERVICES OR 
SUPPLIERS.—In this section, the term 
‘‘small providers of services or suppliers’’ 
means—
(A) a provider of services with 
fewer than 25 full-time-equivalent em-
ployees; or 
(B) a supplier with fewer than 10 
full-time-equivalent employees. 
(b) QUALIFICATION
OF
CONTRACTORS.—In 
conducting the demonstration program, the 
Secretary shall enter into contracts with 
qualified organizations (such as peer review 
organizations or entities described in section 
1889(g)(2) of the Social Security Act, as in-
serted by section 5(f)(1)) with appropriate ex-
pertise with billing systems of the full range 
of providers of services and suppliers to pro-
vide the technical assistance. In awarding 
such contracts, the Secretary shall consider 
any prior investigations of the entity’s work
1195
by the Inspector General of Department of 
Health and Human Services or the Comp-
troller General of the United States. 
(c) DESCRIPTION
OF
TECHNICAL
ASSIST-
ANCE.—The 
technical 
assistance 
provided 
under the demonstration program shall in-
clude a direct and in-person examination of 
billing systems and internal controls of small 
providers of services or suppliers to deter-
mine program compliance and to suggest 
more efficient or effective means of achieving 
such compliance. 
(d) AVOIDANCE OF RECOVERY ACTIONS FOR 
PROBLEMS
IDENTIFIED
AS
CORRECTED.—The 
Secretary shall provide that, absent evidence 
of fraud and notwithstanding any other provi-
sion of law, any errors found in a compliance 
review for a small provider of services or sup-
plier that participates in the demonstration 
program shall not be subject to recovery ac-
tion if the technical assistance personnel 
under the program determine that—
(1) the problem that is the subject of 
the compliance review has been cor-
rected to their satisfaction within 30 days
1196
of the date of the visit by such personnel 
to the small provider of services or sup-
plier; and 
(2) such problem remains corrected 
for such period as is appropriate. 
The previous sentence applies only to claims 
filed as part of the demonstration program 
and lasts only for the duration of such pro-
gram and only as long as the small provider 
of services or supplier is a participant in such 
program. 
(e) GAO EVALUATION.—Not later than 2 
years after the date of the date the dem-
onstration program is first implemented, the 
Comptroller General, in consultation with the 
Inspector General of the Department of 
Health and Human Services, shall conduct an 
evaluation of the demonstration program. The 
evaluation shall include a determination of 
whether claims error rates are reduced for 
small providers of services or suppliers who 
participated in the program and the extent of 
improper payments made as a result of the 
demonstration program. The Comptroller 
General shall submit a report to the Secretary
1197
and the Congress on such evaluation and 
shall include in such report recommendations 
regarding the continuation or extension of 
the demonstration program. 
(f) 
FINANCIAL
PARTICIPATION
BY
PRO-
VIDERS.—The provision of technical assistance 
to a small provider of services or supplier 
under the demonstration program is condi-
tioned upon the small provider of services or 
supplier paying an amount estimated (and 
disclosed in advance of a provider’s or sup-
plier’s participation in the program) to be 
equal to 25 percent of the cost of the technical 
assistance. 
(g) AUTHORIZATION
OF APPROPRIATIONS.—
There are authorized to be appropriated to 
the Secretary (in appropriate part from the 
Federal Hospital Insurance Trust Fund and 
the Federal Supplementary Medical Insur-
ance Trust Fund) to carry out the demonstra-
tion program— 
(1) for fiscal year 2005, $1,000,000, and 
(2) for fiscal year 2006, $6,000,000.
1198
SEC. 923. MEDICARE PROVIDER OMBUDSMAN; MEDICARE 
BENEFICIARY OMBUDSMAN. 
(a) MEDICARE PROVIDER OMBUDSMAN.—Sec-
tion 1868 (42 U.S.C. 1395ee) is amended—
(1) by adding at the end of the head-
ing the following: ‘‘; MEDICARE PROVIDER 
OMBUDSMAN’’; 
(2) by inserting ‘‘PRACTICING PHYSI-
CIANS ADVISORY COUNCIL.—(1)’’ after ‘‘(a)’’; 
(3) in paragraph (1), as so redesig-
nated under paragraph (2), by striking 
‘‘in this section’’ and inserting ‘‘in this 
subsection’’; 
(4) by redesignating subsections (b) 
and (c) as paragraphs (2) and (3), respec-
tively; and 
(5) by adding at the end the following 
new subsection: 
‘‘(b) MEDICARE
PROVIDER
OMBUDSMAN.—
The Secretary shall appoint within the De-
partment of Health and Human Services a 
Medicare Provider Ombudsman. The Om-
budsman shall—
‘‘(1) provide assistance, on a confiden-
tial basis, to providers of services and 
suppliers with respect to complaints,
1199
grievances, and requests for information 
concerning the programs under this title 
(including provisions of title XI insofar as 
they relate to this title and are not ad-
ministered by the Office of the Inspector 
General of the Department of Health and 
Human Services) and in the resolution of 
unclear or conflicting guidance given by 
the Secretary and medicare contractors 
to such providers of services and sup-
pliers regarding such programs and pro-
visions and requirements under this title 
and such provisions; and 
‘‘(2) submit recommendations to the 
Secretary for improvement in the admin-
istration of this title and such provisions, 
including—
‘‘(A) recommendations to respond 
to recurring patterns of confusion in 
this title and such provisions (includ-
ing recommendations regarding sus-
pending 
imposition 
of 
sanctions 
where there is widespread confusion 
in program administration), and
1200
‘‘(B) recommendations to provide 
for an appropriate and consistent re-
sponse (including not providing for 
audits) in cases of self-identified over-
payments by providers of services 
and suppliers. 
The Ombudsman shall not serve as an advo-
cate for any increases in payments or new 
coverage of services, but may identify issues 
and problems in payment or coverage poli-
cies.’’. 
(b) MEDICARE BENEFICIARY OMBUDSMAN.—
Title XVIII, as previously amended, is amend-
ed by inserting after section 1809 the fol-
lowing new section: 
‘‘MEDICARE BENEFICIARY OMBUDSMAN 
‘‘SEC. 1810. (a) IN GENERAL.—The Secretary 
shall appoint within the Department of 
Health and Human Services a Medicare Bene-
ficiary Ombudsman who shall have expertise 
and experience in the fields of health care 
and education of (and assistance to) individ-
uals entitled to benefits under this title. 
‘‘(b) DUTIES.—The Medicare Beneficiary 
Ombudsman shall—
1201
‘‘(1) receive complaints, grievances, 
and requests for information submitted 
by individuals entitled to benefits under 
part A or enrolled under part B, or both, 
with respect to any aspect of the medi-
care program; 
‘‘(2) provide assistance with respect 
to complaints, grievances, and requests 
referred to in paragraph (1), including—
‘‘(A) assistance in collecting rel-
evant information for such individ-
uals, to seek an appeal of a decision 
or determination made by a fiscal 
intermediary, 
carrier, 
Medicare+Choice organization, or the 
Secretary; 
‘‘(B) assistance to such individ-
uals with any problems arising from 
disenrollment 
from 
a 
Medicare+Choice plan under part C; 
and 
‘‘(C) assistance to such individ-
uals in presenting information under 
section 1860D–2(b)(4)(D)(v); and
1202
‘‘(3) submit annual reports to Con-
gress and the Secretary that describe the 
activities of the Office and that include 
such recommendations for improvement 
in the administration of this title as the 
Ombudsman determines appropriate. 
The Ombudsman shall not serve as an advo-
cate for any increases in payments or new 
coverage of services, but may identify issues 
and problems in payment or coverage poli-
cies. 
‘‘(c) WORKING
WITH
HEALTH
INSURANCE 
COUNSELING PROGRAMS.—To the extent pos-
sible, the Ombudsman shall work with health 
insurance counseling programs (receiving 
funding under section 4360 of Omnibus Budg-
et Reconciliation Act of 1990) to facilitate the 
provision of information to individuals enti-
tled to benefits under part A or enrolled 
under 
part 
B, 
or 
both 
regarding 
Medicare+Choice plans and changes to those 
plans. Nothing in this subsection shall pre-
clude further collaboration between the Om-
budsman and such programs.’’.
1203
(c) DEADLINE FOR APPOINTMENT.—The Sec-
retary shall appoint the Medicare Provider 
Ombudsman and the Medicare Beneficiary 
Ombudsman, under the amendments made by 
subsections (a) and (b), respectively, by not 
later than 1 year after the date of the enact-
ment of this Act. 
(d) FUNDING.—There are authorized to be 
appropriated to the Secretary (in appropriate 
part from the Federal Hospital Insurance 
Trust Fund and the Federal Supplementary 
Medical Insurance Trust Fund) to carry out 
the provisions of subsection (b) of section 
1868 of the Social Security Act (relating to the 
Medicare Provider Ombudsman), as added by 
subsection (a)(5) and section 1807 of such Act 
(relating to the Medicare Beneficiary Om-
budsman), as added by subsection (b), such 
sums as are necessary for fiscal year 2004 and 
each succeeding fiscal year. 
(e) USE OF CENTRAL, TOLL-FREE NUMBER 
(1–800–MEDICARE).—
(1) PHONE
TRIAGE
SYSTEM; LISTING
IN 
MEDICARE
HANDBOOK
INSTEAD
OF
OTHER 
TOLL-FREE NUMBERS.—Section 1804(b) (42
1204
U.S.C. 1395b–2(b)) is amended by adding 
at the end the following: ‘‘The Secretary 
shall provide, through the toll-free num-
ber 1–800–MEDICARE, for a means by 
which individuals seeking information 
about, or assistance with, such programs 
who phone such toll-free number are 
transferred (without charge) to appro-
priate entities for the provision of such 
information or assistance. Such toll-free 
number shall be the toll-free number list-
ed for general information and assistance 
in the annual notice under subsection (a) 
instead of the listing of numbers of indi-
vidual contractors.’’. 
(2) MONITORING ACCURACY.—
(A) STUDY.—The Comptroller Gen-
eral of the United States shall con-
duct a study to monitor the accuracy 
and consistency of information pro-
vided to individuals entitled to bene-
fits under part A or enrolled under 
part B, or both, through the toll-free 
number 1–800–MEDICARE, including 
an assessment of whether the infor-
1205
mation provided is sufficient to an-
swer questions of such individuals. In 
conducting the study, the Comp-
troller General shall examine the edu-
cation and training of the individuals 
providing information through such 
number. 
(B) REPORT.—Not later than 1 
year after the date of the enactment 
of this Act, the Comptroller General 
shall submit to Congress a report on 
the study conducted under subpara-
graph (A). 
SEC. 924. BENEFICIARY OUTREACH DEMONSTRATION PRO-
GRAM. 
(a) IN GENERAL.—The Secretary shall es-
tablish a demonstration program (in this sec-
tion referred to as the ‘‘demonstration pro-
gram’’) under which medicare specialists em-
ployed by the Department of Health and 
Human Services provide advice and assist-
ance to individuals entitled to benefits under 
part A of title XVIII of the Social Security Act, 
or enrolled under part B of such title, or both, 
regarding the medicare program at the loca-
1206
tion of existing local offices of the Social Secu-
rity Administration. 
(b) LOCATIONS.—
(1) IN
GENERAL.—The demonstration 
program shall be conducted in at least 6 
offices or areas. Subject to paragraph (2), 
in selecting such offices and areas, the 
Secretary shall provide preference for of-
fices with a high volume of visits by indi-
viduals referred to in subsection (a). 
(2) 
ASSISTANCE
FOR
RURAL
BENE-
FICIARIES.—The Secretary shall provide 
for the selection of at least 2 rural areas 
to participate in the demonstration pro-
gram. In conducting the demonstration 
program in such rural areas, the Sec-
retary shall provide for medicare special-
ists to travel among local offices in a 
rural area on a scheduled basis. 
(c) DURATION.—The demonstration pro-
gram shall be conducted over a 3-year period. 
(d) EVALUATION AND REPORT.—
(1) EVALUATION.—The Secretary shall 
provide for an evaluation of the dem-
1207
onstration 
program. 
Such 
evaluation 
shall include an analysis of—
(A) utilization of, and satisfaction 
of those individuals referred to in 
subsection (a) with, the assistance 
provided under the program; and 
(B) the cost-effectiveness of pro-
viding beneficiary assistance through 
out-stationing medicare specialists at 
local offices of the Social Security Ad-
ministration. 
(2) REPORT.—The Secretary shall sub-
mit to Congress a report on such evalua-
tion and shall include in such report rec-
ommendations regarding the feasibility 
of permanently out-stationing medicare 
specialists at local offices of the Social 
Security Administration. 
SEC. 925. INCLUSION OF ADDITIONAL INFORMATION IN NO-
TICES TO BENEFICIARIES ABOUT SKILLED 
NURSING FACILITY BENEFITS. 
(a) IN GENERAL.—The Secretary shall pro-
vide that in medicare beneficiary notices pro-
vided (under section 1806(a) of the Social Se-
curity Act, 42 U.S.C. 1395b–7(a)) with respect
1208
to the provision of post-hospital extended 
care services under part A of title XVIII of the 
Social Security Act, there shall be included in-
formation on the number of days of coverage 
of such services remaining under such part 
for the medicare beneficiary and spell of ill-
ness involved. 
(b) EFFECTIVE DATE.—Subsection (a) shall 
apply to notices provided during calendar 
quarters beginning more than 6 months after 
the date of the enactment of this Act. 
SEC. 
926. 
INFORMATION 
ON 
MEDICARE-CERTIFIED 
SKILLED NURSING FACILITIES IN HOSPITAL 
DISCHARGE PLANS. 
(a) AVAILABILITY OF DATA.—The Secretary 
shall publicly provide information that en-
ables hospital discharge planners, medicare 
beneficiaries, and the public to identify 
skilled nursing facilities that are partici-
pating in the medicare program. 
(b) INCLUSION OF INFORMATION IN CERTAIN 
HOSPITAL DISCHARGE PLANS.—
(1) 
IN
GENERAL.—Section 
1861(ee)(2)(D) (42 U.S.C. 1395x(ee)(2)(D)) 
is amended—
1209
(A) by striking ‘‘hospice services’’ 
and inserting ‘‘hospice care and post-
hospital extended care services’’; and 
(B) by inserting before the period 
at the end the following: ‘‘and, in the 
case of individuals who are likely to 
need 
post-hospital 
extended 
care 
services, the availability of such serv-
ices through facilities that partici-
pate in the program under this title 
and that serve the area in which the 
patient resides’’. 
(2) EFFECTIVE DATE.—The amendments 
made by paragraph (1) shall apply to dis-
charge plans made on or after such date 
as the Secretary shall specify, but not 
later than 6 months after the date the 
Secretary provides for availability of in-
formation under subsection (a). 
Subtitle D—Appeals and Recovery 
SEC. 931. TRANSFER OF RESPONSIBILITY FOR MEDICARE 
APPEALS. 
(a) TRANSITION PLAN.—
(1) IN GENERAL.—Not later than Octo-
ber 1, 2004, the Commissioner of Social
1210
Security and the Secretary shall develop 
and transmit to Congress and the Comp-
troller General of the United States a 
plan under which the functions of admin-
istrative law judges responsible for hear-
ing cases under title XVIII of the Social 
Security Act (and related provisions in 
title XI of such Act) are transferred from 
the responsibility of the Commissioner 
and the Social Security Administration to 
the Secretary and the Department of 
Health and Human Services. 
(2) 
GAO 
EVALUATION.—The 
Comp-
troller General of the United States shall 
evaluate the plan and, not later than the 
date that is 6 months after the date on 
which the plan is received by the Comp-
troller General, shall submit to Congress 
a report on such evaluation. 
(b) TRANSFER
OF ADJUDICATION AUTHOR-
ITY.—
(1) IN GENERAL.—Not earlier than July 
1, 2005, and not later than October 1, 
2005, the Commissioner of Social Security 
and the Secretary shall implement the
1211
transition plan under subsection (a) and 
transfer the administrative law judge 
functions described in such subsection 
from the Social Security Administration 
to the Secretary. 
(2) 
ASSURING
INDEPENDENCE
OF 
JUDGES.—The Secretary shall assure the 
independence 
of 
administrative 
law 
judges performing the administrative law 
judge functions transferred under para-
graph (1) from the Centers for Medicare 
& Medicaid Services and its contractors. 
In order to assure such independence, 
the Secretary shall place such judges in 
an administrative office that is organiza-
tionally and functionally separate from 
such Centers. Such judges shall report to, 
and be under the general supervision of, 
the Secretary, but shall not report to, or 
be subject to supervision by, another 
other officer of the Department. 
(3) 
GEOGRAPHIC
DISTRIBUTION.—The 
Secretary shall provide for an appro-
priate geographic distribution of admin-
istrative law judges performing the ad-
1212
ministrative law judge functions trans-
ferred under paragraph (1) throughout 
the United States to ensure timely access 
to such judges. 
(4) HIRING AUTHORITY.—Subject to the 
amounts provided in advance in appro-
priations Act, the Secretary shall have 
authority to hire administrative law 
judges to hear such cases, giving priority 
to those judges with prior experience in 
handling medicare appeals and in a man-
ner consistent with paragraph (3), and to 
hire support staff for such judges. 
(5) 
FINANCING.—Amounts 
payable 
under law to the Commissioner for ad-
ministrative law judges performing the 
administrative law judge functions trans-
ferred under paragraph (1) from the Fed-
eral Hospital Insurance Trust Fund and 
the Federal Supplementary Medical In-
surance Trust Fund shall become payable 
to the Secretary for the functions so 
transferred. 
(6) 
SHARED
RESOURCES.—The 
Sec-
retary shall enter into such arrangements
1213
with the Commissioner as may be appro-
priate with respect to transferred func-
tions of administrative law judges to 
share office space, support staff, and 
other resources, with appropriate reim-
bursement from the Trust Funds de-
scribed in paragraph (5). 
(c) INCREASED FINANCIAL SUPPORT.—In ad-
dition to any amounts otherwise appro-
priated, to ensure timely action on appeals be-
fore administrative law judges and the De-
partmental Appeals Board consistent with 
section 1869 of the Social Security Act (as 
amended by section 521 of BIPA, 114 Stat. 
2763A–534), there are authorized to be appro-
priated (in appropriate part from the Federal 
Hospital Insurance Trust Fund and the Fed-
eral Supplementary Medical Insurance Trust 
Fund) to the Secretary such sums as are nec-
essary for fiscal year 2005 and each subse-
quent fiscal year to—
(1) increase the number of adminis-
trative law judges (and their staffs) 
under subsection (b)(4);
1239
claims actually reviewed under a ran-
dom prepayment review. 
‘‘(D) 
RANDOM
PREPAYMENT
RE-
VIEW.—For 
purposes 
of 
this 
sub-
section, the term ‘random prepay-
ment review’ means a demand for the 
production of records or documenta-
tion absent cause with respect to a 
claim. 
‘‘(2) LIMITATIONS ON NON-RANDOM PRE-
PAYMENT REVIEW.—
‘‘(A) LIMITATIONS ON INITIATION OF 
NON-RANDOM
PREPAYMENT
REVIEW.—A 
medicare administrative contractor 
may not initiate non-random prepay-
ment review of a provider of services 
or supplier based on the initial iden-
tification by that provider of services 
or supplier of an improper billing 
practice unless there is a likelihood 
of sustained or high level of payment 
error 
(as 
defined 
in 
subsection 
(i)(3)(A)). 
‘‘(B) TERMINATION OF NON-RANDOM 
PREPAYMENT
REVIEW.—The Secretary
1275
cians on the use of such guidelines and 
that includes appropriate outreach. 
The Secretary shall make changes to the man-
ner in which existing evaluation and manage-
ment documentation guidelines are imple-
mented to reduce paperwork burdens on phy-
sicians. 
(b) PILOT PROJECTS TO TEST EVALUATION 
AND
MANAGEMENT
DOCUMENTATION
GUIDE-
LINES.—
(1) IN GENERAL.—The Secretary shall 
conduct under this subsection appro-
priate and representative pilot projects 
to test new evaluation and management 
documentation guidelines referred to in 
subsection (a). 
(2) LENGTH AND CONSULTATION.—Each 
pilot project under this subsection shall—
(A) be voluntary; 
(B) be of sufficient length as de-
termined by the Secretary to allow 
for preparatory physician and medi-
care contractor education, analysis, 
and use and assessment of potential