H. R. 1—190
(i) in the heading, by inserting ‘‘AND MANUFACTUR-
ER’S AVERAGE SALES PRICE’’ after ‘‘PRICE’’; and
(ii) by inserting ‘‘and manufacturer’s average sales
prices (including wholesale acquisition cost) if required
to make payment’’ after ‘‘manufacturer prices’’; and
(D) in subsection (b)(3)(D)—
(i) in the matter preceding clause (i), by inserting
‘‘(other than the wholesale acquisition cost for purposes
of carrying out section 1847A)’’ after ‘‘subsection
(a)(6)(A)(ii)’’; and
(ii) in clause (i), by inserting ‘‘, to carry out section
1847A (including the determination and implementa-
tion of the payment amount), or to carry out section
1847B’’ after ‘‘this section’’.
(5) IMPLEMENTATION.—The provisions of chapter 8 of title
5, United States Code, shall not apply with respect to regula-
tions implementing the amendments made by subsections (a),
(b), and (e)(3), to regulations implementing section 304, and
to regulations implementing the amendment made by section
305(a), insofar as such regulations apply in 2004.
(6) REPEAL OF STUDY.—Section 4556 of the Balanced Budget
Act of 1997 (42 U.S.C. 1395u note) is amended by striking
subsection (c).
(j) APPLICATION TO CERTAIN PHYSICIAN SPECIALTIES.—Insofar
as the amendments made by this section apply to payments for
drugs or biologicals and drug administration services furnished
by physicians, such amendments shall only apply to physicians
in the specialties of hematology, hematology/oncology, and medical
oncology under title XVIII of the Social Security Act.
SEC. 304. EXTENSION OF APPLICATION OF PAYMENT REFORM FOR
COVERED OUTPATIENT DRUGS AND BIOLOGICALS TO
OTHER PHYSICIAN SPECIALTIES.
Notwithstanding section 303(j), the amendments made by sec-
tion 303 shall also apply to payments for drugs or biologicals
and drug administration services furnished by physicians in special-
ties other than the specialties of hematology, hematology/oncology,
and medical oncology.
SEC. 305. PAYMENT FOR INHALATION DRUGS.
(a) 
IN
GENERAL.—Section 
1842(o)(1)(G) 
(42 
U.S.C.
1395u(o)(1)(G)), as added by section 303(b), is amended to read
as follows:
‘‘(G) In the case of inhalation drugs or biologicals furnished
through durable medical equipment covered under section
1861(n) that are furnished—
‘‘(i) in 2004, the amount provided under paragraph
(4) for the drug or biological; and
‘‘(ii) in 2005 and subsequent years, the amount pro-
vided under section 1847A for the drug or biological.’’.
(b) GAO STUDY
OF
MEDICARE
PAYMENT
FOR
INHALATION
THERAPY.—
(1) STUDY.—The Comptroller General of the United States
shall conduct a study to examine the adequacy of current
reimbursements for inhalation therapy under the medicare pro-
gram.
(2) REPORT.—Not later than 1 year after the date of the
enactment of this Act, the Comptroller General shall submit
H. R. 1—191
to Congress a report on the study conducted under paragraph
(1).
SEC. 306. DEMONSTRATION PROJECT FOR USE OF RECOVERY AUDIT
CONTRACTORS.
(a) IN GENERAL.—The Secretary shall conduct a demonstration
project under this section (in this section referred to as the ‘‘project’’)
to demonstrate the use of recovery audit contractors under the
Medicare Integrity Program in identifying underpayments and over-
payments and recouping overpayments under the medicare program
for services for which payment is made under part A or B of
title XVIII of the Social Security Act. Under the project—
(1) payment may be made to such a contractor on a contin-
gent basis;
(2) such percentage as the Secretary may specify of the
amount recovered shall be retained by the Secretary and shall
be available to the program management account of the Centers
for Medicare & Medicaid Services; and
(3) the Secretary shall examine the efficacy of such use
with respect to duplicative payments, accuracy of coding, and
other payment policies in which inaccurate payments arise.
(b) SCOPE AND DURATION.—
(1) SCOPE.—The project shall cover at least 2 States that
are among the States with—
(A) the highest per capita utilization rates of medicare
services, and
(B) at least 3 contractors.
(2) DURATION.—The project shall last for not longer than
3 years.
(c) WAIVER.—The Secretary shall waive such provisions of title
XVIII of the Social Security Act as may be necessary to provide
for payment for services under the project in accordance with sub-
section (a).
(d) QUALIFICATIONS OF CONTRACTORS.—
(1) IN GENERAL.—The Secretary shall enter into a recovery
audit contract under this section with an entity only if the
entity has staff that has the appropriate clinical knowledge
of and experience with the payment rules and regulations under
the medicare program or the entity has or will contract with
another entity that has such knowledgeable and experienced
staff.
(2) INELIGIBILITY OF CERTAIN CONTRACTORS.—The Secretary
may not enter into a recovery audit contract under this section
with an entity to the extent that the entity is a fiscal inter-
mediary under section 1816 of the Social Security Act (42
U.S.C. 1395h), a carrier under section 1842 of such Act (42
U.S.C. 1395u), or a Medicare Administrative Contractor under
section 1874A of such Act.
(3) PREFERENCE FOR ENTITIES WITH DEMONSTRATED PRO-
FICIENCY.—In awarding contracts to recovery audit contractors
under this section, the Secretary shall give preference to those
risk entities that the Secretary determines have demonstrated
more than 3 years direct management experience and a pro-
ficiency for cost control or recovery audits with private insurers,
health care providers, health plans, or under the medicaid
program under title XIX of the Social Security Act.
H. R. 1—192
(e) CONSTRUCTION RELATING TO CONDUCT OF INVESTIGATION
OF FRAUD.—A recovery of an overpayment to a provider by a
recovery audit contractor shall not be construed to prohibit the
Secretary or the Attorney General from investigating and pros-
ecuting, if appropriate, allegations of fraud or abuse arising from
such overpayment.
(f) REPORT.—The Secretary shall submit to Congress a report
on the project not later than 6 months after the date of its comple-
tion. Such reports shall include information on the impact of the
project on savings to the medicare program and recommendations
on 
the 
cost-effectiveness 
of 
extending 
or 
expanding 
the
project.information’ means information about a conviction for a
relevant crime or a finding of patient or resident abuse.
SEC. 307. PILOT PROGRAM FOR NATIONAL AND STATE BACKGROUND
CHECKS ON DIRECT PATIENT ACCESS EMPLOYEES OF
LONG-TERM CARE FACILITIES OR PROVIDERS.
(a) AUTHORITY TO CONDUCT PROGRAM.—The Secretary, in con-
sultation with the Attorney General, shall establish a pilot program
to identify efficient, effective, and economical procedures for long
term care facilities or providers to conduct background checks on
prospective direct patient access employees.
(b) REQUIREMENTS.—
(1) IN GENERAL.—Under the pilot program, a long-term
care facility or provider in a participating State, prior to
employing a direct patient access employee that is first hired
on or after the commencement date of the pilot program in
the State, shall conduct a background check on the employee
in accordance with such procedures as the participating State
shall establish.
(2) PROCEDURES.—
(A) IN
GENERAL.—The procedures established by a
participating State under paragraph (1) should be designed
to—
(i) give a prospective direct access patient employee
notice that the long-term care facility or provider is
required to perform background checks with respect
to new employees;
(ii) require, as a condition of employment, that
the employee—
(I) provide a written statement disclosing any
disqualifying information;
(II) provide a statement signed by the
employee authorizing the facility to request
national and State criminal history background
checks;
(III) provide the facility with a rolled set of
the employee’s fingerprints; and
(IV) provide any other identification informa-
tion the participating State may require;
(iii) require the facility or provider to check any
available registries that would be likely to contain
disqualifying information about a prospective employee
of a long-term care facility or provider; and
(iv) permit the facility or provider to obtain State
and national criminal history background checks on
the prospective employee through a 10-fingerprint
H. R. 1—193
check that utilizes State criminal records and the
Integrated 
Automated 
Fingerprint 
Identification
System of the Federal Bureau of Investigation.
(B) ELIMINATION OF UNNECESSARY CHECKS.—The proce-
dures established by a participating State under paragraph
(1) shall permit a long-term care facility or provider to
terminate the background check at any stage at which
the facility or provider obtains disqualifying information
regarding a prospective direct patient access employee.
(3) PROHIBITION ON HIRING OF ABUSIVE WORKERS.—
(A) IN GENERAL.—A long-term care facility or provider
may not knowingly employ any direct patient access
employee who has any disqualifying information.
(B) PROVISIONAL EMPLOYMENT.—
(i) IN
GENERAL.—Under the pilot program, a
participating State may permit a long-term care facility
or provider to provide for a provisional period of
employment for a direct patient access employee
pending completion of a background check, subject to
such supervision during the employee’s provisional
period of employment as the participating State deter-
mines appropriate.
(ii) SPECIAL CONSIDERATION FOR CERTAIN FACILI-
TIES AND PROVIDERS.—In determining what constitutes
appropriate supervision of a provisional employee, a
participating State shall take into account cost or other
burdens that would be imposed on small rural long-
term care facilities or providers, as well as the nature
of care delivered by such facilities or providers that
are home health agencies or providers of hospice care.
(4) USE OF INFORMATION; IMMUNITY FROM LIABILITY.—
(A) USE OF INFORMATION.—A participating State shall
ensure that a long-term care facility or provider that
obtains information about a direct patient access employee
pursuant to a background check uses such information
only for the purpose of determining the suitability of the
employee for employment.
(B) IMMUNITY FROM LIABILITY.—A participating State
shall ensure that a long-term care facility or provider that,
in denying employment for an individual selected for hire
as a direct patient access employee (including during any
period of provisional employment), reasonably relies upon
information obtained through a background check of the
individual, shall not be liable in any action brought by
the individual based on the employment determination
resulting from the information.
(5) AGREEMENTS WITH EMPLOYMENT AGENCIES.—A partici-
pating State may establish procedures for facilitating the con-
duct of background checks on prospective direct patient access
employees that are hired by a long-term care facility or provider
through an employment agency (including a temporary employ-
ment agency).
(6) PENALTIES.—A participating State may impose such
penalties as the State determines appropriate to enforce the
requirements of the pilot program conducted in that State.
(c) PARTICIPATING STATES.—
H. R. 1—194
(1) IN GENERAL.—The Secretary shall enter into agreements
with not more than 10 States to conduct the pilot program
under this section in such States.
(2) REQUIREMENTS FOR STATES.—An agreement entered into
under paragraph (1) shall require that a participating State—
(A) be responsible for monitoring compliance with the
requirements of the pilot program;
(B) have procedures by which a provisional employee
or an employee may appeal or dispute the accuracy of
the information obtained in a background check performed
under the pilot program; and
(C) agree to—
(i) review the results of any State or national
criminal 
history 
background 
checks 
conducted
regarding a prospective direct patient access employee
to determine whether the employee has any conviction
for a relevant crime;
(ii) immediately report to the entity that requested
the criminal history background checks the results of
such review; and
(iii) in the case of an employee with a conviction
for a relevant crime that is subject to reporting under
section 1128E of the Social Security Act (42 U.S.C.
1320a–7e), report the existence of such conviction to
the database established under that section.
(3) APPLICATION AND SELECTION CRITERIA.—
(A) APPLICATION.—A State seeking to participate in
the pilot program established under this section, shall
submit an application to the Secretary containing such
information and at such time as the Secretary may specify.
(B) SELECTION CRITERIA.—
(i) IN GENERAL.—In selecting States to participate
in the pilot program, the Secretary shall establish cri-
teria to ensure—
(I) geographic diversity;
(II) the inclusion of a variety of long-term
care facilities or providers;
(III) the evaluation of a variety of payment
mechanisms for covering the costs of conducting
the background checks required under the pilot
program; and
(IV) the evaluation of a variety of penalties
(monetary and otherwise) used by participating
States to enforce the requirements of the pilot
program in such States.
(ii) ADDITIONAL CRITERIA.—The Secretary shall, to
the greatest extent practicable, select States to partici-
pate in the pilot program in accordance with the fol-
lowing:
(I) At least one participating State should
permit long-term care facilities or providers to pro-
vide for a provisional period of employment
pending completion of a background check and
at least one such State should not permit such
a period of employment.
(II) At least one participating State should
establish procedures under which employment
H. R. 1—195
agencies (including temporary employment agen-
cies) may contact the State directly to conduct
background checks on prospective direct patient
access employees.
(III) At least one participating State should
include 
patient 
abuse 
prevention 
training
(including behavior training and interventions) for
managers and employees of long-term care facili-
ties and providers as part of the pilot program
conducted in that State.
(iii) INCLUSION
OF
STATES
WITH
EXISTING
PRO-
GRAMS.—Nothing in this section shall be construed
as prohibiting any State which, as of the date of the
enactment of this Act, has procedures for conducting
background checks on behalf of any entity described
in subsection (g)(5) from being selected to participate
in the pilot program conducted under this section.
(d) PAYMENTS.—Of the amounts made available under sub-
section (f) to conduct the pilot program under this section, the
Secretary shall—
(1) make payments to participating States for the costs
of conducting the pilot program in such States; and
(2) reserve up to 4 percent of such amounts to conduct
the evaluation required under subsection (e).
(e) EVALUATION.—The Secretary, in consultation with the
Attorney General, shall conduct by grant, contract, or interagency
agreement an evaluation of the pilot program conducted under
this section. Such evaluation shall—
(1) review the various procedures implemented by partici-
pating States for long-term care facilities or providers to con-
duct background checks of direct patient access employees and
identify the most efficient, effective, and economical procedures
for conducting such background checks;
(2) assess the costs of conducting such background checks
(including start-up and administrative costs);
(3) consider the benefits and problems associated with
requiring employees or facilities or providers to pay the costs
of conducting such background checks;
(4) consider whether the costs of conducting such
background checks should be allocated between the medicare
and medicaid programs and if so, identify an equitable method-
ology for doing so;
(5) determine the extent to which conducting such
background checks leads to any unintended consequences,
including a reduction in the available workforce for such facili-
ties or providers;
(6) review forms used by participating States in order to
develop, in consultation with the Attorney General, a model
form for such background checks;
(7) determine the effectiveness of background checks con-
ducted by employment agencies; and
(8) recommend appropriate procedures and payment
mechanisms for implementing a national criminal background
check program for such facilities and providers.
(f) FUNDING.—Out of any funds in the Treasury not otherwise
appropriated, there are appropriated to the Secretary to carry out
H. R. 1—196
the pilot program under this section for the period of fiscal years
2004 through 2007, $25,000,000.
(g) DEFINITIONS.—In this section:
(1) CONVICTION FOR A RELEVANT CRIME.—The term ‘‘convic-
tion for a relevant crime’’ means any Federal or State criminal
conviction for—
(A) any offense described in section 1128(a) of the
Social Security Act (42 U.S.C. 1320a–7); and
(B) such other types of offenses as a participating
State may specify for purposes of conducting the pilot pro-
gram in such State.
(2) DISQUALIFYING INFORMATION.—The term ‘‘disqualifying
information’’ means a conviction for a relevant crime or a
finding of patient or resident abuse.
(3) FINDING OF PATIENT OR RESIDENT ABUSE.—The term
‘‘finding of patient or resident abuse’’ means any substantiated
finding by a State agency under section 1819(g)(1)(C) or
1919(g)(1)(C) of the Social Security Act (42 U.S.C. 1395i–
3(g)(1)(C), 1396r(g)(1)(C)) or a Federal agency that a direct
patient access employee has committed—
(A) an act of patient or resident abuse or neglect or
a misappropriation of patient or resident property; or
(B) such other types of acts as a participating State
may specify for purposes of conducting the pilot program
in such State.
(4) DIRECT PATIENT ACCESS EMPLOYEE.—The term ‘‘direct
patient access employee’’ means any individual (other than
a volunteer) that has access to a patient or resident of a
long-term care facility or provider through employment or
through a contract with such facility or provider, as determined
by a participating State for purposes of conducting the pilot
program in such State.
(5) LONG-TERM CARE FACILITY OR PROVIDER.—
(A) IN
GENERAL.—The term ‘‘long-term care facility
or provider’’ means the following facilities or providers
which receive payment for services under title XVIII or
XIX of the Social Security Act:
(i) A skilled nursing facility (as defined in section
1819(a) of the Social Security Act) (42 U.S.C. 1395i–
3(a)).
(ii) A nursing facility (as defined in section 1919(a)
in such Act) (42 U.S.C. 1396r(a)).
(iii) A home health agency.
(iv) A provider of hospice care (as defined in section
1861(dd)(1) of such Act) (42 U.S.C. 1395x(dd)(1)).
(v) A long-term care hospital (as described in sec-
tion 
1886(d)(1)(B)(iv) 
of 
such 
Act) 
(42 
U.S.C.
1395ww(d)(1)(B)(iv)).
(vi) A provider of personal care services.
(vii) A residential care provider that arranges for,
or directly provides, long-term care services.
(viii) An intermediate care facility for the mentally
retarded (as defined in section 1905(d) of such Act)
42 U.S.C. 1396d(d)).
(B) ADDITIONAL FACILITIES OR PROVIDERS.—During the
first year in which a pilot program under this section
is conducted in a participating State, the State may expand
H. R. 1—197
the list of facilities or providers under subparagraph (A)
(on a phased-in basis or otherwise) to include such other
facilities or providers of long-term care services under such
titles as the participating State determines appropriate.
(C) EXCEPTIONS.—Such term does not include—
(i) any facility or entity that provides, or is a
provider of, services described in subparagraph (A) that
are exclusively provided to an individual pursuant to
a self-directed arrangement that meets such require-
ments as the participating State may establish in
accordance with guidance from the Secretary; or
(ii) any such arrangement that is obtained by a
patient or resident functioning as an employer.
(6) PARTICIPATING STATE.—The term ‘‘participating State’’
means a State with an agreement under subsection (c)(1).
TITLE IV—RURAL PROVISIONS
Subtitle A—Provisions Relating to Part A
Only
SEC. 401. EQUALIZING URBAN AND RURAL STANDARDIZED PAYMENT
AMOUNTS UNDER THE MEDICARE INPATIENT HOSPITAL
PROSPECTIVE PAYMENT SYSTEM.
(a) 
IN
GENERAL.—Section 
1886(d)(3)(A)(iv) 
(42 
U.S.C.
1395ww(d)(3)(A)(iv)) is amended—
(1) by striking ‘‘(iv) For discharges’’ and inserting ‘‘(iv)(I)
Subject to subclause (II), for discharges’’; and
(2) by adding at the end the following new subclause:
‘‘(II) For discharges occurring in a fiscal year (beginning
with fiscal year 2004), the Secretary shall compute a standard-
ized amount for hospitals located in any area within the United
States and within each region equal to the standardized amount
computed for the previous fiscal year under this subparagraph
for hospitals located in a large urban area (or, beginning with
fiscal year 2005, for all hospitals in the previous fiscal year)
increased by the applicable percentage increase under sub-
section (b)(3)(B)(i) for the fiscal year involved.’’.
(b) CONFORMING AMENDMENTS.—
(1) COMPUTING DRG-SPECIFIC RATES.—Section 1886(d)(3)(D)
(42 U.S.C. 1395ww(d)(3)(D)) is amended—
(A) in the heading, by striking ‘‘IN DIFFERENT AREAS’’;
(B) in the matter preceding clause (i), by striking ‘‘,
each of’’;
(C) in clause (i)—
(i) in the matter preceding subclause (I), by
inserting ‘‘for fiscal years before fiscal year 2004,’’
before ‘‘for hospitals’’; and
(ii) in subclause (II), by striking ‘‘and’’ after the
semicolon at the end;
(D) in clause (ii)—
(i) in the matter preceding subclause (I), by
inserting ‘‘for fiscal years before fiscal year 2004,’’
before ‘‘for hospitals’’; and
H. R. 1—198
(ii) in subclause (II), by striking the period at
the end and inserting ‘‘; and’’; and
(E) by adding at the end the following new clause:
‘‘(iii) for a fiscal year beginning after fiscal year 2003,
for hospitals located in all areas, to the product of—
‘‘(I) the applicable standardized amount (computed
under subparagraph (A)), reduced under subparagraph
(B), and adjusted or reduced under subparagraph (C)
for the fiscal year; and
‘‘(II) the weighting factor (determined under para-
graph (4)(B)) for that diagnosis-related group.’’.
(2) TECHNICAL
CONFORMING
SUNSET.—Section 1886(d)(3)
(42 U.S.C. 1395ww(d)(3)) is amended—
(A) in the matter preceding subparagraph (A), by
inserting ‘‘, for fiscal years before fiscal year 1997,’’ before
‘‘a regional adjusted DRG prospective payment rate’’; and
(B) in subparagraph (D), in the matter preceding clause
(i), by inserting ‘‘, for fiscal years before fiscal year 1997,’’
before ‘‘a regional DRG prospective payment rate for each
region,’’.
(3) 
ADDITIONAL
TECHNICAL
AMENDMENT.—Section
1886(d)(3)(A)(iii) (42 U.S.C. 1395ww(d)(3)(A)(iii)) is amended
by striking ‘‘in an other urban area’’ and inserting ‘‘in an
urban area’’.
(c) EQUALIZING URBAN
AND RURAL STANDARDIZED PAYMENT
AMOUNTS UNDER THE MEDICARE INPATIENT HOSPITAL PROSPECTIVE
PAYMENT SYSTEM FOR HOSPITALS IN PUERTO RICO.—
(1) 
IN
GENERAL.—Section 
1886(d)(9)(A) 
(42 
U.S.C.
1395ww(d)(9)(A)), as amended by section 504, is amended—
(A) in clause (i), by striking ‘‘and’’ after the comma
at the end; and
(B) by striking clause (ii) and inserting the following
new clause:
‘‘(ii) the applicable Federal percentage (specified in
subparagraph (E)) of—
‘‘(I) for discharges beginning in a fiscal year beginning
on or after October 1, 1997, and before October 1, 2003,
the discharge-weighted average of—
‘‘(aa) the national adjusted DRG prospective pay-
ment rate (determined under paragraph (3)(D)) for hos-
pitals located in a large urban area,
‘‘(bb) such rate for hospitals located in other urban
areas, and
‘‘(cc) such rate for hospitals located in a rural
area,
for such discharges, adjusted in the manner provided in
paragraph (3)(E) for different area wage levels; and
‘‘(II) for discharges in a fiscal year beginning on or
after October 1, 2003, the national DRG prospective pay-
ment rate determined under paragraph (3)(D)(iii) for hos-
pitals located in any area for such discharges, adjusted
in the manner provided in paragraph (3)(E) for different
area wage levels.
As used in this section, the term ‘subsection (d) Puerto Rico hospital’
means a hospital that is located in Puerto Rico and that would
be a subsection (d) hospital (as defined in paragraph (1)(B)) if
it were located in one of the 50 States.’’.
H. R. 1—199
(2) APPLICATION OF PUERTO RICO STANDARDIZED AMOUNT
BASED
ON
LARGE
URBAN
AREAS.—Section 1886(d)(9)(C) (42
U.S.C. 1395ww(d)(9)(C)) is amended—
(A) in clause (i)—
(i) by striking ‘‘(i) The Secretary’’ and inserting
‘‘(i)(I) For discharges in a fiscal year after fiscal year
1988 and before fiscal year 2004, the Secretary’’; and
(ii) by adding at the end the following new sub-
clause:
‘‘(II) For discharges occurring in a fiscal year (beginning
with fiscal year 2004), the Secretary shall compute an average
standardized amount for hospitals located in any area of Puerto
Rico that is equal to the average standardized amount computed
under subclause (I) for fiscal year 2003 for hospitals in a
large urban area (or, beginning with fiscal year 2005, for all
hospitals in the previous fiscal year) increased by the applicable
percentage increase under subsection (b)(3)(B) for the fiscal
year involved.’’;
(B) in clause (ii), by inserting ‘‘(or for fiscal year 2004
and thereafter, the average standardized amount)’’ after
‘‘each of the average standardized amounts’’; and
(C) in clause (iii)(I), by striking ‘‘for hospitals located
in an urban or rural area, respectively’’.
(d) IMPLEMENTATION.—
(1) IN GENERAL.—The amendments made by subsections
(a), (b), and (c)(1) of this section shall have no effect on the
authority of the Secretary, under subsection (b)(2) of section
402 of Public Law 108–89, to delay implementation of the
extension of provisions equalizing urban and rural standardized
inpatient hospital payments under subsection (a) of such section
402.
(2) APPLICATION OF PUERTO RICO STANDARDIZED AMOUNT
BASED ON LARGE URBAN AREAS.—The authority of the Secretary
referred to in paragraph (1) shall apply with respect to the
amendments made by subsection (c)(2) of this section in the
same manner as that authority applies with respect to the
extension of provisions equalizing urban and rural standardized
inpatient hospital payments under subsection (a) of such section
402, except that any reference in subsection (b)(2)(A) of such
section 402 is deemed to be a reference to April 1, 2004.
SEC. 402. ENHANCED DISPROPORTIONATE SHARE HOSPITAL (DSH)
TREATMENT FOR RURAL HOSPITALS AND URBAN HOS-
PITALS WITH FEWER THAN 100 BEDS.
(a) DOUBLING
THE
CAP.—Section 1886(d)(5)(F) (42 U.S.C.
1395ww(d)(5)(F)) is amended by adding at the end the following
new clause:
‘‘(xiv)(I) In the case of discharges occurring on or after April
1, 2004, subject to subclause (II), there shall be substituted for
the disproportionate share adjustment percentage otherwise deter-
mined under clause (iv) (other than subclause (I)) or under clause
(viii), (x), (xi), (xii), or (xiii), the disproportionate share adjustment
percentage determined under clause (vii) (relating to large, urban
hospitals).
‘‘(II) Under subclause (I), the disproportionate share adjustment
percentage shall not exceed 12 percent for a hospital that is not
classified as a rural referral center under subparagraph (C).’’.
H. R. 1—201
SEC. 404. MORE FREQUENT UPDATE IN WEIGHTS USED IN HOSPITAL
MARKET BASKET.
(a) MORE FREQUENT UPDATES IN WEIGHTS.—After revising the
weights used in the hospital market basket under section
1886(b)(3)(B)(iii) 
of 
the 
Social 
Security 
Act 
(42 
U.S.C.
1395ww(b)(3)(B)(iii)) to reflect the most current data available, the
Secretary shall establish a frequency for revising such weights,
including the labor share, in such market basket to reflect the
most current data available more frequently than once every 5
years.
(b) INCORPORATION OF EXPLANATION IN RULEMAKING.—The Sec-
retary shall include in the publication of the final rule for payment
for inpatient hospital services under section 1886(d) of the Social
Security Act (42 U.S.C. 1395ww(d)) for fiscal year 2006, an expla-
nation of the reasons for, and options considered, in determining
frequency established under subsection (a).
SEC. 405. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.
(a) INCREASE IN PAYMENT AMOUNTS.—
(1) 
IN
GENERAL.—Sections 
1814(l), 
1834(g)(1), 
and
1883(a)(3) (42 U.S.C. 1395f(l), 1395m(g)(1), and 1395tt(a)(3))
are each amended by inserting ‘‘equal to 101 percent of’’ before
‘‘the reasonable costs’’.
(2) EFFECTIVE DATE.—The amendments made by paragraph
(1) shall apply to payments for services furnished during cost
reporting periods beginning on or after January 1, 2004.
(b) COVERAGE OF COSTS FOR CERTAIN EMERGENCY ROOM ON-
CALL PROVIDERS.—
(1) IN GENERAL.—Section 1834(g)(5) (42 U.S.C. 1395m(g)(5))
is amended—
(A) in the heading—
(i) by inserting ‘‘CERTAIN’’ before ‘‘EMERGENCY’’; and
(ii) by striking ‘‘PHYSICIANS’’ and inserting ‘‘PRO-
VIDERS’’;
(B) by striking ‘‘emergency room physicians who are
on-call (as defined by the Secretary)’’ and inserting ‘‘physi-
cians, physician assistants, nurse practitioners, and clinical
nurse specialists who are on-call (as defined by the Sec-
retary) to provide emergency services’’; and
(C) by striking ‘‘physicians’ services’’ and inserting
‘‘services covered under this title’’.
(2) EFFECTIVE DATE.—The amendments made by paragraph
(1) shall apply with respect to costs incurred for services fur-
nished on or after January 1, 2005.
(c) AUTHORIZATION OF PERIODIC INTERIM PAYMENT (PIP).—
(1) IN GENERAL.—Section 1815(e)(2) (42 U.S.C. 1395g(e)(2))
is amended—
(A) in the matter before subparagraph (A), by inserting
‘‘, in the cases described in subparagraphs (A) through
(D)’’ after ‘‘1986’’;
(B) by striking ‘‘and’’ at the end of subparagraph (C);
(C) by adding ‘‘and’’ at the end of subparagraph (D);
and
(D) by inserting after subparagraph (D) the following
new subparagraph:
‘‘(E) inpatient critical access hospital services;’’.
H. R. 1—202
(2) DEVELOPMENT
OF
ALTERNATIVE
TIMING
METHODS
OF
PERIODIC INTERIM PAYMENTS.—With respect to periodic interim
payments to critical access hospitals for inpatient critical access
hospital services under section 1815(e)(2)(E) of the Social Secu-
rity Act, as added by paragraph (1), the Secretary shall develop
alternative methods for the timing of such payments.
(3) AUTHORIZATION
OF
PIP.—The amendments made by
paragraph (1) shall apply to payments made on or after July
1, 2004.
(d) CONDITION
FOR APPLICATION
OF SPECIAL PROFESSIONAL
SERVICE PAYMENT ADJUSTMENT.—
(1) IN GENERAL.—Section 1834(g)(2) (42 U.S.C. 1395m(g)(2))
is amended by adding after and below subparagraph (B) the
following:
‘‘The Secretary may not require, as a condition for applying
subparagraph (B) with respect to a critical access hospital,
that each physician or other practitioner providing professional
services in the hospital must assign billing rights with respect
to such services, except that such subparagraph shall not apply
to those physicians and practitioners who have not assigned
such billing rights.’’.
(2) EFFECTIVE DATE.—
(A) IN GENERAL.—Except as provided in subparagraph
(B), the amendment made by paragraph (1) shall apply
to cost reporting periods beginning on or after July 1,
2004.
(B) RULE OF APPLICATION.—In the case of a critical
access hospital that made an election under section
1834(g)(2) of the Social Security Act (42 U.S.C. 1395m(g)(2))
before November 1, 2003, the amendment made by para-
graph (1) shall apply to cost reporting periods beginning
on or after July 1, 2001.
(e) REVISION OF BED LIMITATION FOR HOSPITALS.—
(1) IN
GENERAL.—Section 1820(c)(2)(B)(iii) (42 U.S.C.
1395i–4(c)(2)(B)(iii)) is amended by striking ‘‘15 (or, in the
case of a facility under an agreement described in subsection
(f), 25)’’ and inserting ‘‘25’’.
(2) CONFORMING AMENDMENT.—Section 1820(f) (42 U.S.C.
1395i–4(f)) is amended by striking ‘‘and the number of beds
used at any time for acute care inpatient services does not
exceed 15 beds’’.
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to designations made before, on, or after
January 1, 2004, but any election made pursuant to regulations
promulgated to carry out such amendments shall only apply
prospectively.
(f) PROVISIONS RELATING TO FLEX GRANTS.—
(1) ADDITIONAL
4-YEAR
PERIOD
OF
FUNDING.—Section
1820(j) (42 U.S.C. 1395i–4(j)) is amended by inserting before
the period at the end the following: ‘‘, and for making grants
to all States under paragraphs (1) and (2) of subsection (g),
$35,000,000 in each of fiscal years 2005 through 2008’’.
(2) ADDITIONAL REQUIREMENTS AND ADMINISTRATION.—Sec-
tion 1820(g) (42 U.S.C. 1395i–4(g)) is amended by adding at
the end the following new paragraphs:
‘‘(4) ADDITIONAL
REQUIREMENTS
WITH
RESPECT
TO
FLEX
GRANTS.—With respect to grants awarded under paragraph (1)
H. R. 1—203
or (2) from funds appropriated for fiscal year 2005 and subse-
quent fiscal years—
‘‘(A) CONSULTATION WITH THE STATE HOSPITAL ASSOCIA-
TION AND RURAL HOSPITALS ON THE MOST APPROPRIATE WAYS
TO USE GRANTS.—A State shall consult with the hospital
association of such State and rural hospitals located in
such State on the most appropriate ways to use the funds
under such grant.
‘‘(B) LIMITATION ON USE OF GRANT FUNDS FOR ADMINIS-
TRATIVE EXPENSES.—A State may not expend more than
the lesser of—
‘‘(i) 15 percent of the amount of the grant for
administrative expenses; or
‘‘(ii) the State’s federally negotiated indirect rate
for administering the grant.
‘‘(5) 
USE
OF
FUNDS
FOR
FEDERAL
ADMINISTRATIVE
EXPENSES.—Of the total amount appropriated for grants under
paragraphs (1) and (2) for a fiscal year (beginning with fiscal
year 2005), up to 5 percent of such amount shall be available
to the Health Resources and Services Administration for pur-
poses of administering such grants.’’.
(g) AUTHORITY TO ESTABLISH PSYCHIATRIC AND REHABILITATION
DISTINCT PART UNITS.—
(1) IN
GENERAL.—Section 1820(c)(2) (42 U.S.C. 1395i–
4(c)(2)) is amended by adding at the end the following:
‘‘(E) AUTHORITY
TO
ESTABLISH
PSYCHIATRIC
AND
REHABILITATION DISTINCT PART UNITS.—
‘‘(i) IN GENERAL.—Subject to the succeeding provi-
sions of this subparagraph, a critical access hospital
may establish—
‘‘(I) a psychiatric unit of the hospital that is
a distinct part of the hospital; and
‘‘(II) a rehabilitation unit of the hospital that
is a distinct part of the hospital,
if the distinct part meets the requirements (including
conditions of participation) that would otherwise apply
to the distinct part if the distinct part were established
by a subsection (d) hospital in accordance with the
matter following clause (v) of section 1886(d)(1)(B),
including any regulations adopted by the Secretary
under such section.
‘‘(ii) LIMITATION ON NUMBER OF BEDS.—The total
number of beds that may be established under clause
(i) for a distinct part unit may not exceed 10.
‘‘(iii) EXCLUSION OF BEDS FROM BED COUNT.—In
determining the number of beds of a critical access
hospital for purposes of applying the bed limitations
referred to in subparagraph (B)(iii) and subsection (f),
the Secretary shall not take into account any bed estab-
lished under clause (i).
‘‘(iv) EFFECT OF FAILURE TO MEET REQUIREMENTS.—
If a psychiatric or rehabilitation unit established under
clause (i) does not meet the requirements described
in such clause with respect to a cost reporting period,
no payment may be made under this title to the hos-
pital for services furnished in such unit during such
period. Payment to the hospital for services furnished
H. R. 1—204
in the unit may resume only after the hospital has
demonstrated to the Secretary that the unit meets
such requirements.’’.
(2) PAYMENT ON A PROSPECTIVE PAYMENT BASIS.—Section
1814(l) (42 U.S.C. 1395f(l)) is amended—
(A) by striking ‘‘(l) The amount’’ and inserting ‘‘(l)(1)
Except as provided in paragraph (2), the amount’’; and
(B) by adding at the end the following new paragraph:
‘‘(2) In the case of a distinct part psychiatric or rehabilitation
unit of a critical access hospital described in section 1820(c)(2)(E),
the amount of payment for inpatient critical access hospital services
of such unit shall be equal to the amount of the payment that
would otherwise be made if such services were inpatient hospital
services of a distinct part psychiatric or rehabilitation unit, respec-
tively, described in the matter following clause (v) of section
1886(d)(1)(B).’’.
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to cost reporting periods beginning on or
after October 1, 2004.
(h) WAIVER AUTHORITY.—
(1) IN
GENERAL.—Section 1820(c)(2)(B)(i)(II) (42 U.S.C.
1395i–4(c)(2)(B)(i)(II)) is amended by inserting ‘‘before January
1, 2006,’’ after ‘‘is certified’’.
(2) GRANDFATHERING
WAIVER
AUTHORITY
FOR
CERTAIN
FACILITIES.—Section 
1820(h) 
(42 
U.S.C. 
1395i–4(h)) 
is
amended—
(A) in the heading preceding paragraph (1), by striking
‘‘OF CERTAIN FACILITIES’’ and inserting ‘‘PROVISIONS’’; and
(B) by adding at the end the following new paragraph:
‘‘(3) STATE AUTHORITY TO WAIVE 35-MILE RULE.—In the case
of a facility that was designated as a critical access hospital
before January 1, 2006, and was certified by the State as
being a necessary provider of health care services to residents
in the area under subsection (c)(2)(B)(i)(II), as in effect before
such date, the authority under such subsection with respect
to any redesignation of such facility shall continue to apply
notwithstanding the amendment made by section 405(h)(1) of
the Medicare Prescription Drug, Improvement, and Moderniza-
tion Act of 2003.’’.
SEC. 406. MEDICARE INPATIENT HOSPITAL PAYMENT ADJUSTMENT
FOR LOW-VOLUME HOSPITALS.
(a) IN GENERAL.—Section 1886(d) (42 U.S.C. 1395ww(d)) is
amended by adding at the end the following new paragraph:
‘‘(12) PAYMENT ADJUSTMENT FOR LOW-VOLUME HOSPITALS.—
‘‘(A) IN GENERAL.—In addition to any payments cal-
culated under this section for a subsection (d) hospital,
for discharges occurring during a fiscal year (beginning
with fiscal year 2005), the Secretary shall provide for an
additional payment amount to each low-volume hospital
(as defined in subparagraph (C)(i)) for discharges occurring
during that fiscal year that is equal to the applicable
percentage increase (determined under subparagraph (B)
for the hospital involved) in the amount paid to such hos-
pital under this section for such discharges (determined
without regard to this paragraph).