an entity to be administratively independent of the 
individual or board that administers the State health 
security program and shall ensure that such entities 
do not provide financial incentives to reviewers to 
favor one pattern of practice over another. The 
Council shall ensure coordination and reporting by 
such entities to assure national consistency in qual-
ity standards. 
(4) REPORTING.—The Council shall report to 
the Board annually on the conduct of activities 
under such title and shall report to the Board annu-
ally specifically on findings from outcomes research 
and development of practice guidelines that may af-
fect the Board’s determination of coverage of serv-
ices under section 401(f)(1)(G). 
(5) OTHER
FUNCTIONS.—The Council shall 
perform the functions of the Council described in 
section 502. 
(c) APPOINTMENT AND TERMS OF MEMBERS.— 
(1) IN GENERAL.—The Council shall be com-
posed of 10 members appointed by the President. 
The President shall first appoint individuals on a 
timely basis so as to provide for the operation of the 
Council by not later than January 1, 2008. 
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(2) SELECTION OF MEMBERS.—Each member 
of the Council shall be a member of a health profes-
sion. Five members of the Council shall be physi-
cians. Individuals shall be appointed to the Council 
on the basis of national reputations for clinical and 
academic excellence. To the greatest extent feasible, 
the membership of the Council shall represent the 
various geographic regions of the United States and 
shall reflect the racial, ethnic, and gender composi-
tion of the population of the United States. 
(3) TERMS
OF
MEMBERS.—Individuals ap-
pointed to the Council shall serve for a term of 5 
years, except that the terms of 4 of the individuals 
initially appointed shall be, as designated by the 
President at the time of their appointment, for 1, 2, 
3, and 4 years. 
(d) VACANCIES.— 
(1) IN GENERAL.—The President shall fill any 
vacancy in the membership of the Council in the 
same manner as the original appointment. The va-
cancy shall not affect the power of the remaining 
members to execute the duties of the Council. 
(2) VACANCY
APPOINTMENTS.—Any member 
appointed to fill a vacancy shall serve for the re-
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mainder of the term for which the predecessor of the 
member was appointed. 
(3) REAPPOINTMENT.—The President may re-
appoint a member of the Council for a second term 
in the same manner as the original appointment. A 
member who has served for 2 consecutive 5-year 
terms shall not be eligible for reappointment until 2 
years after the member has ceased to serve. 
(e) CHAIR.—The President shall designate 1 of the 
members of the Council to serve at the will of the Presi-
dent as Chair of the Council. 
(f) COMPENSATION.—Members of the Council who 
are not employees of the Federal Government shall be en-
titled to compensation at a level equivalent to level II of 
the Executive Schedule, in accordance with section 5313 
of title 5, United States Code. 
SEC. 502. DEVELOPMENT OF CERTAIN METHODOLOGIES, 
GUIDELINES, AND STANDARDS. 
(a) PROFILING OF PATTERNS OF PRACTICE; IDENTI-
FICATION OF OUTLIERS.—The Council shall adopt meth-
odologies for profiling the patterns of practice of health 
care professionals and for identifying outliers (as defined 
in subsection (e)). 
(b) CENTERS OF EXCELLENCE.—The Council shall 
develop guidelines for certain medical procedures des-
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ignated by the Board to be performed only at tertiary care 
centers which can meet standards for frequency of proce-
dure performance and intensity of support mechanisms 
that are consistent with the high probability of desired pa-
tient outcome. Reimbursement under this Act for such a 
designated procedure may only be provided if the proce-
dure was performed at a center that meets such stand-
ards. 
(c) REMEDIAL ACTIONS.—The Council shall develop 
standards for education and sanctions with respect to 
outliers so as to assure the quality of health care services 
provided under this Act. The Council shall develop criteria 
for referral of providers to the State licensing board if edu-
cation proves ineffective in correcting provider practice be-
havior. 
(d) DISSEMINATION.—The Council shall disseminate 
to the State— 
(1) the methodologies adopted under subsection 
(a); 
(2) the guidelines developed under subsection 
(b); and 
(3) the standards developed under subsection 
(c); 
for use by the States under section 503. 
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(e) OUTLIER DEFINED.—In this title, the term 
‘‘outlier’’ means a health care provider whose pattern of 
practice, relative to applicable practice guidelines, suggests 
deficiencies in the quality of health care services being pro-
vided. 
SEC. 503. STATE QUALITY REVIEW PROGRAMS. 
(a) REQUIREMENT.—In order to meet the require-
ment of section 404(b)(1)(H), each State health security 
program shall establish 1 or more qualified entities to con-
duct quality reviews of persons providing covered services 
under the program, in accordance with standards estab-
lished under subsection (b)(1) (except as provided in sub-
section (b)(2)) and subsection (d). 
(b) FEDERAL STANDARDS.— 
(1) IN GENERAL.—The Council shall establish 
standards with respect to— 
(A) the adoption of practice guidelines 
(whether developed by the Federal Government 
or other entities); 
(B) the identification of outliers (con-
sistent with methodologies adopted under sec-
tion 502(a)); 
(C) the development of remedial programs 
and monitoring for outliers; and 
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(D) the application of sanctions (consistent 
with the standards developed under section 
502(c)). 
(2) STATE DISCRETION.—A State may apply 
under subsection (a) standards other than those es-
tablished under paragraph (1) so long as the State 
demonstrates to the satisfaction of the Council on an 
annual basis that the standards applied have been as 
efficacious in promoting and achieving improved 
quality of care as the application of the standards 
established under paragraph (1). Positive improve-
ments in quality shall be documented by reductions 
in the variations of clinical care process and im-
provement in patient outcomes. 
(c) QUALIFICATIONS.—An entity is not qualified to 
conduct quality reviews under subsection (a) unless the 
entity satisfies the criteria for competence for such entities 
developed by the Council under section 501(b)(3). 
(d) INTERNAL QUALITY REVIEW.—Nothing in this 
section shall preclude an institutional provider from estab-
lishing its own internal quality review and enhancement 
programs. 
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SEC. 504. ELIMINATION OF UTILIZATION REVIEW PRO-
GRAMS; TRANSITION. 
(a) INTENT.—It is the intention of this title to re-
place by January 1, 2011, random utilization controls with 
a systematic review of patterns of practice that com-
promise the quality of care. 
(b) SUPERSEDING CASE REVIEWS.— 
(1) IN
GENERAL.—Subject to the succeeding 
provisions of this subsection, the program of quality 
review provided under the previous sections of this 
title supersede all existing Federal requirements for 
utilization review programs, including requirements 
for random case-by-case reviews and programs re-
quiring pre-certification of medical procedures on a 
case-by-case basis. 
(2) TRANSITION.—Before January 1, 2011, the 
Board and the States may employ existing utiliza-
tion review standards and mechanisms as may be 
necessary to effect the transition to pattern of prac-
tice-based reviews. 
(3) CONSTRUCTION.—Nothing in this sub-
section shall be construed— 
(A) as precluding the case-by-case review 
of the provision of care— 
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(i) in individual incidents where the 
quality of care has significantly deviated 
from acceptable standards of practice; and 
(ii) with respect to a provider who has 
been determined to be an outlier; or 
(B) as precluding the case management of 
catastrophic, mental health, or substance abuse 
cases or long-term care where such manage-
ment is necessary to achieve appropriate, cost- 
effective, and beneficial comprehensive medical 
care, as provided for in section 204. 
TITLE 
VI—HEALTH 
SECURITY 
BUDGET; 
PAYMENTS; 
COST 
CONTAINMENT MEASURES 
Subtitle A—Budgeting and 
Payments to States 
SEC. 601. NATIONAL HEALTH SECURITY BUDGET. 
(a) NATIONAL HEALTH SECURITY BUDGET.— 
(1) IN GENERAL.—By not later than September 
1 before the beginning of each year (beginning with 
2008), the Board shall establish a national health 
security budget, which— 
(A) specifies the total expenditures (includ-
ing expenditures for administrative costs) to be 
made by the Federal Government and the 
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States for covered health care services under 
this Act; and 
(B) allocates those expenditures among the 
States consistent with section 604. 
Pursuant to subsection (b), such budget for a year 
shall not exceed the budget for the preceding year 
increased by the percentage increase in gross domes-
tic product. 
(2) DIVISION OF BUDGET INTO COMPONENTS.— 
The national health security budget shall consist of 
at least 4 components: 
(A) A component for quality assessment 
activities (described in title V). 
(B) A component for health professional 
education expenditures. 
(C) A component for administrative costs. 
(D) A component (in this title referred to 
as the ‘‘operating component’’) for operating 
and other expenditures not described in sub-
paragraphs (A) through (C), consisting of 
amounts not included in the other components. 
A State may provide for the allocation of this 
component between capital expenditures and 
other expenditures. 
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