employer welfare arrangement are employees of a
single employer (within the meaning of clauses (i)
and (ii) of section 3(40)(B)), if all other employees
covered under the arrangement are employed by em-
ployers who are related to such single employer—
‘‘(A) subsection (a)(1) shall not apply if
the sponsor of the arrangement is the person
who would be the plan sponsor if the related
employers were disregarded in determining
whether the requirements of section 3(40)(B)
are met, and
‘‘(B) subsection (a)(2) shall be treated as
satisfied if the board of trustees is the named
fiduciary in connection with the arrangement.
‘‘(2) RELATED EMPLOYERS.—For purposes of
paragraph (1), employers are ‘related’ if there is
among all such employers a common ownership in-
terest or a substantial commonality of business oper-
ations based on common suppliers or customers.
‘‘SEC. 704. OTHER REQUIREMENTS FOR EXEMPTION.
‘‘A multiple employer welfare arrangement exempt
under section 514(b)(6)(B) shall meet the following re-
quirements:
‘‘(1) 
CONTENTS
OF
GOVERNING
INSTRU-
MENTS.—The instruments governing the arrange-
ment include a written instrument, meeting the re-
quirements of an instrument required under section
402(a)(1), which—
‘‘(A) provides that the board of trustees
serves as the named fiduciary required for plans
under section 402(a)(1) and serves in the ca-
pacity of a plan administrator (referred to in
section 3(16)(A)),
‘‘(B) provides that the sponsor of the ar-
rangement is to serve as plan sponsor (referred
to in section 3(16)(B)), and
‘‘(C) incorporates the requirements of sec-
tion 705.
‘‘(2) CONTRIBUTION RATES.—The contribution
rates referred to in section 702(b)(3)(F)(ii) are ade-
quate.
‘‘(3) 
REGULATORY
REQUIREMENTS.—Such
other requirements as the Secretary may prescribe
by regulation as necessary to carry out the purposes
of this part.
‘‘SEC. 705. MAINTENANCE OF RESERVES.
‘‘(a) IN GENERAL.—Each multiple employer welfare
arrangement which is or has been exempt under section
514(b)(6)(B) and under which benefits are not fully in-
sured shall establish and maintain reserves, consisting
of—
‘‘(1) a reserve sufficient for unearned contribu-
tions,
‘‘(2) a reserve sufficient for benefit liabilities
which have been incurred, which have not been satis-
fied, and for which risk of loss has not yet been
transferred, and for expected administrative costs
with respect to such benefit liabilities, and
‘‘(3) a reserve, in an amount recommended by
the qualified actuary, for any other obligations of
the arrangement.
‘‘(b) MINIMUM AMOUNT FOR CERTAIN RESERVES.—
The total of the reserves described in subsection (a)(2)
shall not be less than an amount equal to the greater of—
‘‘(1) 25 percent of expected incurred claims and
expenses for the plan year, or
‘‘(2) $400,000.
‘‘(c) REQUIRED
MARGIN.—In determining the
amounts of reserves required under this section in connec-
tion with any multiple employer welfare arrangement, the
qualified actuary shall include a margin for error and
other fluctuations taking into account the specific cir-
cumstances of such arrangement.
‘‘(d) ADDITIONAL REQUIREMENTS.—The Secretary
may provide such additional requirements relating to re-
serves and excess/stop loss coverage as the Secretary con-
siders appropriate. Such requirements may be provided,
by regulation or otherwise, with respect to any arrange-
ment or any class of arrangements.
‘‘(e) ADJUSTMENTS FOR EXCESS/STOP LOSS COV-
ERAGE.—The Secretary may provide for adjustments to
the levels of reserves otherwise required under subsections
(a) and (b) with respect to any arrangement or class of
arrangements to take into account excess/stop loss cov-
erage provided with respect to such arrangement or ar-
rangements.
‘‘(f) ALTERNATIVE MEANS OF COMPLIANCE.—The
Secretary may permit an arrangement to substitute, for
all or part of the requirements of this section, such secu-
rity, guarantee, hold-harmless arrangement, or other fi-
nancial arrangement as the Secretary determines to be
adequate to enable the arrangement to fully meet all its
financial obligations on a timely basis. The Secretary may
take into account, for purposes of this subsection, evidence
provided by the arrangement or sponsor which dem-
onstrates an assumption of liability with respect to the ar-
rangement. Such evidence may be in the form of a con-
tract of indemnification, lien, bonding, insurance, letter of
credit, recourse under applicable terms of the arrangement
in the form of assessments of participating employers, se-
curity, or other financial arrangement.
‘‘SEC. 706. NOTICE REQUIREMENTS FOR VOLUNTARY TER-
MINATION.
‘‘Except as provided in section 707(b), a multiple em-
ployer welfare arrangement which is or has been exempt
under section 514(b)(6)(B) may terminate only if the
board of trustees—
‘‘(1) not less than 60 days before the proposed
termination date, provides to the participants and
beneficiaries a written notice of intent to terminate
stating that such termination is intended and the
proposed termination date,
‘‘(2) develops a plan for winding up the affairs
of the arrangement in connection with such termi-
nation in a manner which will result in timely pay-
ment of all benefits for which the arrangement is ob-
ligated, and
‘‘(3) submits such plan in writing to the Sec-
retary.
Actions required under this paragraph shall be taken in
such form and manner as may be prescribed in regulations
of the Secretary.
‘‘SEC. 707. CORRECTIVE ACTIONS AND MANDATORY TERMI-
NATION.
‘‘(a) ACTIONS
TO
AVOID
DEPLETION
OF
RE-
SERVES.—A multiple employer welfare arrangement which
is or has been exempt under section 514(b)(6)(B) shall
continue to meet the requirements of section 705, irrespec-
tive of whether such exemption continues in effect. The
board of trustees of such arrangement shall determine
quarterly whether the requirements of section 705 are
met. In any case in which the committee determines that
there is reason to believe that there is or will be a failure
to meet such requirements, or the Secretary makes such
a determination and so notifies the committee, the com-
mittee shall immediately notify the qualified actuary en-
gaged by the arrangement, and such actuary shall, not
later than the end of the next following month, make such
recommendations to the committee for corrective action as
the actuary determines necessary to ensure compliance
with section 705. Not later than 10 days after receiving
from the actuary recommendations for corrective actions,
the committee shall notify the Secretary (in such form and
manner as the Secretary may prescribe by regulation) of
such recommendations of the actuary for corrective action,
together with a description of the actions (if any) that the
committee has taken or plans to take in response to such
recommendations. The committee shall thereafter report
to the Secretary, in such form and frequency as the Sec-
retary may specify to the committee, regarding corrective
action taken by the committee until the requirements of
section 705 are met.
‘‘(b) MANDATORY TERMINATION.—In any case in
which—
‘‘(1) the Secretary has been notified under sub-
section (a) of a failure of a multiple employer wel-
fare arrangement which is or has been exempt under
section 514(b)(6)(B) to meet the requirements of
section 705 and has not been notified by the board
of trustees of the arrangement that corrective action
has restored compliance with such requirements, and
‘‘(2) the Secretary determines that the continu-
ing failure to meet the requirements of section 705
can be reasonably expected to result in a continuing
failure to pay benefits for which the arrangement is
obligated,
the board of trustees of the arrangement shall, at the di-
rection of the Secretary, terminate the arrangement and,
in the course of the termination, take such actions as the
Secretary may require, including recovering for the ar-
rangement any liability under section 705(f), as necessary
to ensure that the affairs of the arrangement will be, to
the maximum extent possible, wound up in a manner
which will result in timely provision of all benefits for
which the arrangement is obligated.
‘‘SEC. 708. ADDITIONAL RULES REGARDING STATE AU-
THORITY.
‘‘(a) EXCLUSION
OF ARRANGEMENTS FROM
THE
SMALL GROUP MARKET IN ANY STATE UPON STATE’S
CERTIFICATION OF GUARANTEED ACCESS TO HEALTH
INSURANCE COVERAGE IN SUCH STATE.—
‘‘(1) IN GENERAL.—If a State certifies to the
Secretary that such State provides to its residents
guaranteed access to health insurance coverage, dur-
ing the period for which such certification is in ef-
fect, the law of such State may regulate any health
care coverage provided in the small group market in
such State (or prohibit the provision of such cov-
erage) by a multiple employer welfare arrangement
which 
is 
otherwise 
exempt 
under 
section
514(b)(6)(B) and whose sponsor is described in sec-
tion 703(a)(1), notwithstanding such exemption.
Any such certification shall be in effect for such pe-
riod, not greater than 3 years, as is designated in
such certification. Such certification shall apply with
respect to such arrangements as are identified, indi-
vidually or by class, in the certification.
‘‘(2) GUARANTEED ACCESS.—For purposes of
this subsection, the certification by a State that such
State provides ‘guaranteed access’ to health insur-
ance coverage to the residents of such State
means—
‘‘(A) certification that the number of resi-
dents of such State who are covered by a group
health plan or otherwise have health insurance
coverage exceeds 90 percent of the total number
of the residents of such State, or
‘‘(B) certification that—
‘‘(i) the small group market in such
State provides guaranteed issue for em-
ployees with respect to at least one option
of health insurance coverage offered by in-
surers and health maintenance organiza-
tions in such market, and
‘‘(ii) the State has implemented rating
reforms in the small group market in such
State which are designed to make health
insurance coverage more affordable.
‘‘(b) EXCEPTIONS.—
‘‘(1) CERTAIN
MULTISTATE
ASSOCIATIONS.—
Subsection (a) shall not apply in the case of a mul-
tiple employer welfare arrangement operating in any
State which has made a certification under sub-
section (a)(2)(B) if—
‘‘(A) in the application for the exemption
under section 514(b)(6)(B), the sponsor of such
arrangement demonstrates to the Secretary (in
such form and manner as shall be prescribed in
regulations of the Secretary) that—
‘‘(i) such sponsor operates in the ma-
jority of the 50 States and in at least 2 of
the regions of the United States, and
‘‘(ii) the arrangement covers, or is to
cover (in the case of a newly established
arrangement), at least 7,500 participants
and beneficiaries, and
‘‘(B) at the time of such application, the
arrangement does not have pending against it
any enforcement action by the State.
‘‘(2) EXISTING
ARRANGEMENTS.—Subsection
(a) shall not apply with respect to an arrangement
operating in any State if—
‘‘(A) such arrangement was operating in
such State as of March 6, 1996, and
‘‘(B) at the time of the application for the
exemption under section 514(b)(6), the ar-
rangement does not have pending against it any
enforcement action by the State.
‘‘(3) LIMITATIONS.—Paragraphs (1) and (2)
shall not apply in the case of any State which has
made a certification under subsection (a) and which,
as of January 1, 1996, had enacted a law that ei-
ther—
‘‘(A) provided guaranteed issue of individ-
ual health insurance coverage offered by insur-
ers and health maintenance organizations in the
individual market using pure community rating
and did not provide for any transition period
(after the effective date of the guaranteed issue
requirement) in the implementation of pure
community rating; or
‘‘(B) required insurers offering health in-
surance coverage in connection with group
health plans to reimburse insurers offering indi-
vidual health insurance coverage for losses re-
sulting from those insurers offering individual
health insurance coverage on an open enroll-
ment basis.
Regulations under this part may provide for an ex-
emption from the applicability of paragraph (1) in
the case of certain arrangements that are limited to
a single industry.
‘‘(c) ASSESSMENT AUTHORITY WITH RESPECT TO
NEW ARRANGEMENTS.—
‘‘(1) IN
GENERAL.—Notwithstanding section
514, a State may impose by law a premium tax on
multiple employer welfare arrangements which are
otherwise exempt under section 514(b)(6)(B) and
the sponsor of which is described in section
703(a)(1)—
‘‘(A) in the case of an arrangement estab-
lished after March 6, 1996, and
‘‘(B) in the case of an arrangement in ex-
istence as of March 6, 1996, if the arrangement
commenced operations in such State after
March 6, 1996.
‘‘(2) PREMIUM TAX.—For purposes of this sub-
section, the term ‘premium tax’ imposed by a State
on a multiple employer welfare arrangement means
any tax imposed by such State if—
‘‘(A) such tax is computed by applying a
rate to the amount of premiums or contribu-
tions received by the arrangement from partici-
pating employers located in such State with re-
spect to individuals covered under the arrange-
ment who are residents of such State,
‘‘(B) the rate of such tax does not exceed
the rate of any tax imposed by such State on
premiums or contributions received by insurers
or health maintenance organizations for health
insurance coverage offered in such State in con-
nection with a group health plan,
‘‘(C) such tax is otherwise nondiscrim-
inatory, and
‘‘(D) the amount of any such tax assessed
on the arrangement is reduced by the amount
of any tax or assessment imposed by the State
on premiums or contributions received by insur-
ers or health maintenance organizations for
health insurance coverage (or other insurance
related to the provision of medical care under
the arrangement) provided by such insurers or
health maintenance organizations in such State
to such arrangement.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) SMALL GROUP MARKET.—The term ‘small
group market’ means the health insurance coverage
market under which individuals obtain health insur-
ance coverage (directly or through any arrangement)
on behalf of themselves (and their dependents) on
the basis of employment or other relationship with
respect to a small employer.
‘‘(2) SMALL EMPLOYER.—The term ‘small em-
ployer’ means, in connection with a group health
plan with respect to a calandar year, an employer
who employs at least 2 but fewer than 51 employees
on a typical business day in the year. For purposes
of this paragraph, 2 or more trades or businesses,
whether or not incorporated, shall be deemed a sin-
gle employer if such trades or businesses are within
the same control group (within the meaning of sec-
tion 3(40)(B)(ii)).
‘‘(3) REGION.—The term ‘region’ means any of
the following regions:
‘‘(A) The East Region, consisting of the
States of Maine, New Hampshire, Vermont,
New York, Massachusetts, Rhode Island, Con-
necticut, New Jersey, Pennsylvania, Delaware,
Maryland, West Virginia, and Ohio, and the
District of Columbia.
‘‘(B) The Southeast Region, consisting of
the States of Texas, Arkansas, Louisiana, Mis-
sissippi, Alabama, Georgia, Florida, South
Carolina, North Carolina, Virginia, and Ten-
nessee.
‘‘(C) The Midwest Region, consisting of
the States of Montana, South Dakota, North
Dakota, Nebraska, Kansas, Oklahoma, Min-
nesota, Iowa, Missouri, Wisconsin, Michigan, Il-
linois, and Indiana.
‘‘(D) The West Region, consisting of the
States of Oregon, Washington, Idaho, Nevada,
California, New Mexico, Arizona, Nebraska,
Wyoming, 
Hawaii, 
Alaska, 
Colorado, 
and
Utah.’’.
(b) CONFORMING AMENDMENTS
TO PREEMPTION
RULES.—
(1) Section 514(b)(6)(A)(i) of such Act (29
U.S.C. 1144(b)(6)(A)(i)) is amended by striking ‘‘is
fully insured’’ and inserting ‘‘under which all bene-
fits are fully insured’’, and by inserting ‘‘and which
is not described in section 702(a)(1)’’ after ‘‘sub-
paragraph (B)’’.
(2) Section 514(b)(6)(B) of such Act (29
U.S.C. 1144(b)(6)(B)) is amended—
(A) by inserting ‘‘(i)’’ after ‘‘(B)’’;
(B) by striking ‘‘which are not fully in-
sured’’ and inserting ‘‘under which any benefit
is not fully insured’’; and
(C) by striking ‘‘Any such exemption’’ and
inserting:
‘‘(ii) Subject to part 7, any exemption under clause
(i)’’.
(c) CONFORMING AMENDMENT TO DEFINITION OF
PLAN SPONSOR.—Section 3(16)(B) of such Act (29
U.S.C. 1002(16)(B)) is amended by adding at the end the
following new sentence: ‘‘Such term also includes the spon-
sor (as defined in section 701(6)) of a multiple employer
welfare arrangement which is or has been a multiple em-
ployer health plan (as defined in section 701(4)).’’.
(d) DEFINITIONS.—
(1) GROUP HEALTH PLAN.—Section 3 of such
Act (29 U.S.C. 1002) is amended by adding at the
end the following new paragraph:
‘‘(42) Except as otherwise provided in this title, the
term ‘group health plan’ means an employee welfare bene-
fit plan to the extent that the plan provides medical care
(within the meaning of section 607(1)) to employees or
their dependents (as defined under the terms of the plan)
directly or through insurance, reimbursement, or other-
wise.’’.
(2) INCLUSION
OF
CERTAIN
PARTNERS
AND
SELF-EMPLOYED SPONSORS IN DEFINITION OF PAR-
TICIPANT.—Section 3(7) of such Act (29 U.S.C.
1002(7)) is amended—
(A) by inserting ‘‘(A)’’ after ‘‘(7)’’; and
(B) by adding at the end the following new
paragraph:
‘‘(B) In the case of a group health plan, such term
includes—
‘‘(i) in connection with a group health plan
maintained by a partnership, an individual who is a
partner in relation to the partnership, or
‘‘(ii) in connection with a group health plan
maintained by a self-employed individual (under
which one or more employees are participants), the
self-employed individual,
if such individual is or may become eligible to receive a
benefit under the plan or such individual’s beneficiaries
may be eligible to receive any such benefit.’’.
(3) HEALTH INSURANCE COVERAGE.—Section 3
of such Act (as amended by paragraph (1)) is
amended further by adding at the end the following
new paragraph:
‘‘(43)(A) Except as provided in subparagraph (B),
the term ‘health insurance coverage’ means benefits con-
sisting of medical care (provided directly, through insur-
ance or reimbursement, or otherwise) under any hospital
or medical service policy or certificate, hospital or medical
service plan contract, or health maintenance organization
group contract offered by an insurer or a health mainte-
nance organization.
‘‘(B) Such term does not include coverage under any
separate policy, certificate, or contract only for one or
more of any of the following:
‘‘(i) Coverage for accident, credit-only, vision,
disability income, long-term care, nursing home care,
community-based care dental, on-site medical clinics,
or employee assistance programs, or any combina-
tion thereof.
‘‘(ii) Medicare supplemental health insurance
(within the meaning of section 1882(g)(1) of the So-
cial Security Act (42 U.S.C. 1395ss(g)(1))) and
similar supplemental coverage provided under a
group health plan.
‘‘(iii) Coverage issued as a supplement to liabil-
ity insurance.
‘‘(iv) Liability insurance, including general li-
ability insurance and automobile liability insurance.
‘‘(v) Workers’ compensation or similar insur-
ance.
‘‘(vi) Automobile medical-payment insurance.
‘‘(vii) Coverage for a specified disease or illness.
‘‘(viii) Hospital or fixed indemnity insurance.
‘‘(ix) Short-term limited duration insurance.
‘‘(x) Such other coverage, comparable to that
described in previous clauses, as may be specified in
regulations.’’.
(4) MEDICAL CARE.—Section 607(1) of such
Act (29 U.S.C. 1167(1)) is amended—
(A) by striking ‘‘The term’’ and inserting
the following:
‘‘(A) IN GENERAL.—The term’’;
(B) by striking ‘‘(as defined’’ and all that
follows through ‘‘1986)’’; and
(C) by adding at the end the following new
subparagraph:
‘‘(B) MEDICAL
CARE.—For purposes of
this 
paragraph, 
the 
term 
‘medical 
care’
means—
‘‘(i) amounts paid for, or items or
services in the form of, the diagnosis, cure,
mitigation, treatment, or prevention of dis-
ease, or amounts paid for, or items or serv-
ices provided for, the purpose of affecting
any structure or function of the body,
‘‘(ii) amounts paid for, or services in
the form of, transportation primarily for
and essential to medical care referred to in
clause (i), and
‘‘(iii) amounts paid for insurance cov-
ering medical care referred to in clauses (i)
and (ii).’’.
(5) OTHER DEFINITIONS.—Section 514 of such
Act is further amended by adding at the end the fol-
lowing new subsection:
‘‘(e) For purposes of this section, the terms ‘fully in-
sured’, ‘health maintenance organization’, and ‘insurer’
have the meanings given such terms in section 701.’’.
(e) CLERICAL AMENDMENT.—The table of contents
in section 1 of the Employee Retirement Income Security
Act of 1974 (as amended by section 102(g)) is amended
by inserting after the item relating to section 609 the fol-
lowing new items:
‘‘PART 7—RULES GOVERNING REGULATION OF MULTIPLE EMPLOYER
HEALTH PLANS
‘‘Sec. 701. Definitions.
‘‘Sec. 702. Clarification of duty of the Secretary to implement provisions of cur-
rent law provising for exemptions and solvency standards for
multiple employer health plans.
‘‘Sec. 703. Requirements relating to sponsors, boards of trustees, and plan op-
erations.
‘‘Sec. 704. Other requirements for exemption.
‘‘Sec. 705. Maintenance of reserves.
‘‘Sec. 706. Notice requirements for voluntary termination.
‘‘Sec. 707. Corrective actions and mandatory termination.
‘‘Sec. 708. Additional rules regarding State authority.
SEC. 162. AFFORDABLE AND AVAILABLE FULLY INSURED
HEALTH COVERAGE THROUGH VOLUNTARY
HEALTH INSURANCE ASSOCIATIONS.
Section 514 of the Employee Retirement Income Se-
curity Act of 1974 is amended—
(1) by redesignating subsections (d) as sub-
section (e); and
(2) by inserting after subsection (c) the follow-
ing new subsection:
‘‘(d)(1) The provisions of this title shall supercede
any and all State laws which regulate insurance insofar
as they may now or hereafter—
‘‘(A) preclude an insurer or health maintenance
organization from offering health insurance coverage
under voluntary health insurance associations,
‘‘(B) preclude an insurer or health maintenance
organization from setting premium rates under a
voluntary health insurance association based on the
claims experience of the voluntary health insurance
association (without varying the premium rates of
any particular employer on the basis of the claims
experience of such employer alone), or
‘‘(C) require—
‘‘(i) health insurance coverage in connec-
tion with a voluntary health insurance associa-
tion to include specific items or services consist-
ing of medical care, or
‘‘(ii) an insurer or health maintenance or-
ganization offering health insurance coverage in
connection with a voluntary health insurance
association to include in such health insurance
coverage specific items or services consisting of
medical care,
except to the extent that such State laws prohibit an
exclusion for a specific disease in such health insur-
ance coverage.
Subparagraph (C) shall apply only with respect to items
and services which shall be specified in a list which shall
be prescribed in regulations of the Secretary.
‘‘(2)(A) If a State certifies to the Secretary that such
State provides to its residents guaranteed access to health
insurance coverage, during the period for which such cer-
tification is in effect, the law of such State may regulate
any health insurance coverage provided in the small group
market in such State (or prohibit the provision of such
coverage) by a voluntary health insurance association. Any
such certification shall be in effect for such period, not
greater than 3 years, as is designated in such certification.
‘‘(B) For purposes of this paragraph, the certification
by a State that such State provides ‘guaranteed access’
to health insurance coverage to the residents of such State
means—
‘‘(i) certification that the number of residents
of such State who are covered by a group health
plan or otherwise have health insurance coverage ex-
ceeds 90 percent of the total number of the residents
of such State, or
‘‘(ii) certification that—
‘‘(I) the small group market in such State
provides guaranteed issue for employees with
respect to at least one option of health insur-
ance coverage offered by insurers and health
maintenance organizations in such market, and
‘‘(II) the State has implemented rating re-
forms in the small group market in such State
which are designed to make health insurance
coverage more affordable.
‘‘(3)(A) Paragraph (2) shall not apply in the case of
any voluntary health insurance association with respect to
any State if the qualified association demonstrates to the
Secretary (in such form and manner as shall be prescribed
in regulations of the Secretary) that—
‘‘(i) such qualified association operates in the
majority of the 50 States and in at least 2 of the
regions of the United States,
‘‘(ii) the arrangement covers, or is to cover (in
the case of a newly established arrangement), at
least 7,500 participants and beneficiaries, and
‘‘(iii) under the terms of the arrangement, ei-
ther—
‘‘(I) the qualified association does not ex-
clude from membership any small employer in
the State, or
‘‘(II) the arrangement accepts every small
employer in the State that applies for coverage.
‘‘(B)(i) Subject to clause (ii), paragraph (2) shall not
apply with respect to a voluntary health insurance associa-
tion operating in any State if such association was operat-
ing in such State as of March 6, 1996.
‘‘(ii) Clause (i) shall apply in the case of an arrange-
ment in connection with any State only if the qualified
association demonstrates to the Secretary (in such form
and manner as shall be prescribed in regulations of the
Secretary) either—
‘‘(I) that the qualified association does not ex-
clude from membership any small employer in the
State, or
‘‘(II) that the arrangement accepts every small
employer in such State that applies for coverage.
‘‘(C) Subparagraphs (A) and (B) shall not apply in
the case of any State which has made a certification under
paragraph (2) and which, as of January 1, 1996, had en-
acted a law that either—
‘‘(i) provided guaranteed issue of individual
health insurance coverage offered by insurers and
health maintenance organizations in the individual
market using pure community rating and did not
provide for any transition period (after the effective
date of the guaranteed issue requirement) in the im-
plementation of pure community rating; or
‘‘(ii) required insurers offering health insurance
coverage in connection with group health plans to re-
imburse insurers offering individual health insurance
coverage for losses resulting from those insurers of-
fering individual health insurance coverage on an
open enrollment basis.
‘‘(5) For purposes of this subsection—
‘‘(A) The term ‘voluntary health insurance as-
sociation’ means a multiple employer welfare ar-
rangement—
‘‘(i) under which benefits include medical
care (within the meaning of section 607(1)),
‘‘(ii) under which all benefits consisting of
such medical care are fully insured,
‘‘(iii) which is maintained by a qualified
association,
‘‘(iv) under which no employer is excluded
as a participating employer (except to the ex-
tent that requirements of the type referred to in
section 131(d)(2) of the Health Coverage Avail-
ability and Affordability Act of 1996 are not
met), the requirements of section 103 of such
Act (as referred to in section 104(b)(1) of such
Act) are met, and all health insurance coverage
options are aggressively marketed to eligible
employees and their dependents, and
‘‘(v) under which, with respect to the oper-
ations of the arrangement in any State, the
health insurance coverage is provided by an in-
surer or health maintenance organization to
which the laws of such State applies.
‘‘(B) The term ‘qualified association’ means an
association with respect to which the following re-
quirements are met:
‘‘(i) The sponsor of the association is, and
has been (together with its immediate prede-
cessor, if any) for a continuous period of not
less than 5 years, organized and maintained in
good faith, with a constitution and bylaws spe-
through any arrangement) on behalf of themselves
(and their dependents) on the basis of employment
or other relationship with respect to a small em-
ployer.
‘‘(D) The term ‘small employer’ means, in con-
nection with a group health plan with respect to a
calandar year, an employer who employs at least 2
but fewer than 51 employees on a typical business
day in the year. For purposes of this paragraph, 2
or more trades or businesses, whether or not incor-
porated, shall be deemed a single employer if such
trades or businesses are within the same control
group (within the meaning of section 3(40)(B)(ii)).
‘‘(E) The term ‘region’ means any of the follow-
ing regions:
‘‘(i) The East Region, consisting of the
States of Maine, New Hampshire, Vermont,
New York, Massachusetts, Rhode Island, Con-
necticut, New Jersey, Pennsylvania, Delaware,
Maryland, West Virginia, and Ohio and the
District of Columbia.
‘‘(ii) The Southeast Region, consisting of
the States of Texas, Arkansas, Louisiana, Mis-
sissippi, Alabama, Georgia, Florida, South
100
Carolina, North Carolina, Virginia, and Ten-
nessee.
‘‘(iii) The Midwest Region, consisting of
the States of Montana, South Dakota, North
Dakota, Nebraska, Kansas, Oklahoma, Min-
nesota, Iowa, Missouri, Wisconsin, Michigan, Il-
linois, and Indiana.
‘‘(iv) The West Region, consisting of the
States of Oregon, Washington, Idaho, Nevada,
California, New Mexico, Arizona, Nebraska,
Wyoming, 
Hawaii, 
Alaska, 
Colorado, 
and
Utah.’’.
SEC. 163. STATE AUTHORITY FULLY APPLICABLE TO SELF-
INSURED MULTIPLE EMPLOYER WELFARE
ARRANGEMENTS PROVIDING MEDICAL CARE
WHICH ARE NOT EXEMPTED UNDER NEW
PART 7.
(a) IN GENERAL.—Section 514(b)(6)(A)(ii) of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1144(b)(6)(A)(ii)) is amended by inserting before
the period the following: ‘‘, except that, in any such case,
if the arrangement provides medical care (within the
meaning of section 607(1)), such a law of any State may
apply without limitation under this title’’.
101
(b) CROSS-REFERENCE.—Section 514(b)(6) of such
Act (29 U.S.C. 1144(b)(6)) (as amended by section 301)
is amended by adding at the end the following new sub-
paragraph:
‘‘(G) For additional rules relating to exemption from
subparagraph (A)(ii) of multiple employer health plans,
see part 7.’’.
SEC. 164. CLARIFICATION OF TREATMENT OF SINGLE EM-
PLOYER ARRANGEMENTS.
Section 3(40)(B) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1002(40)(B)) is amend-
ed—
(1) in clause (i), by inserting ‘‘for any plan year
of any such plan, or any fiscal year of any such
other arrangement,’’ after ‘‘single employer’’, and by
inserting ‘‘during such year or at any time during
the preceding 1-year period’’ after ‘‘control group’’;
(2) in clause (iii)—
(A) by striking ‘‘common control shall not
be based on an interest of less than 25 percent’’
and inserting ‘‘an interest of greater than 25
percent may not be required as the minimum
interest necessary for common control’’; and
(B) by striking ‘‘similar to’’ and inserting
‘‘consistent and coextensive with’’;
102
(3) by redesignating clauses (iv) and (v) as
clauses (v) and (vi), respectively; and
(4) by inserting after clause (iii) the following
new clause:
‘‘(iv) in determining, after the application of
clause (i), whether benefits are provided to employ-
ees of two or more employers, the arrangement shall
be treated as having only 1 participating employer
if, after the application of clause (i), the number of
individuals who are employees and former employees
of any one participating employer and who are cov-
ered under the arrangement is greater than 75 per-
cent of the aggregate number of all individuals who
are employees or former employees of participating
employers and who are covered under the arrange-
ment,’’.
SEC. 165. CLARIFICATION OF TREATMENT OF CERTAIN
COLLECTIVELY 
BARGAINED 
ARRANGE-
MENTS.
(a) IN GENERAL.—Section 3(40)(A)(i) of the Em-
ployee Retirement Income Security Act of 1974 (29
U.S.C. 1002(40)(A)(i)) is amended to read as follows:
‘‘(i)(I) under or pursuant to one or more collec-
tive bargaining agreements which are reached pursu-
ant to collective bargaining described in section 8(d)
103
of the National Labor Relations Act (29 U.S.C.
158(d)) or paragraph Fourth of section 2 of the
Railway Labor Act (45 U.S.C. 152, paragraph
Fourth) or which are reached pursuant to labor-
management negotiations under similar provisions of
State public employee relations laws, and (II) in ac-
cordance with subparagraphs (C), (D), and (E),’’.
(b) LIMITATIONS.—Section 3(40) of such Act (29
U.S.C. 1002(40)) is amended by adding at the end the
following new subparagraphs:
‘‘(C) A plan or other arrangement is established or
maintained in accordance with this subparagraph only if
the following requirements are met:
‘‘(i) The plan or other arrangement, and the
employee organization or any other entity sponsoring
the plan or other arrangement, do not—
‘‘(I) utilize the services of any licensed in-
surance agent or broker for soliciting or enroll-
ing employers or individuals as participating
employers or covered individuals under the plan
or other arrangement, or
‘‘(II) pay a commission or any other type
of compensation to a person, other than a full
time employee of the employee organization (or
a member of the organization to the extent pro-
104
vided in regulations of the Secretary), that is
related either to the volume or number of em-
ployers or individuals solicited or enrolled as
participating employers or covered individuals
under the plan or other arrangement, or to the
dollar amount or size of the contributions made
by participating employers or covered individ-
uals to the plan or other arrangement,
except to the extent that the services used by the
plan, arrangement, organization, or other entity con-
sist solely of preparation of documents necessary for
compliance with the reporting and disclosure re-
quirements of part 1 or administrative, investment,
or consulting services unrelated to solicitation or en-
rollment of covered individuals.
‘‘(ii) As of the end of the preceding plan year,
the number of covered individuals under the plan or
other arrangement who are identified to the plan or
arrangement and who are neither—
‘‘(I) employed within a bargaining unit
covered by any of the collective bargaining
agreements with a participating employer (nor
covered on the basis of an individual’s employ-
ment in such a bargaining unit), nor
105
‘‘(II) present employees (or former employ-
ees who were covered while employed) of the
sponsoring employee organization, of an em-
ployer who is or was a party to any of the col-
lective bargaining agreements, or of the plan or
other arrangement or a related plan or arrange-
ment (nor covered on the basis of such present
or former employment),
does not exceed 15 percent of the total number of
individuals who are covered under the plan or ar-
rangement and who are present or former employees
who are or were covered under the plan or arrange-
ment pursuant to a collective bargaining agreement
with a participating employer. The requirements of
the preceding provisions of this clause shall be treat-
ed as satisfied if, as of the end of the preceding plan
year, such covered individuals are comprised solely
of individuals who were covered individuals under
the plan or other arrangement as of the date of the
enactment of the Health Coverage Availability and
Affordability Act 1996 and, as of the end of the pre-
ceding plan year, the number of such covered indi-
viduals does not exceed 25 percent of the total num-
ber of present and former employees enrolled under
the plan or other arrangement.
106
‘‘(iii) The employee organization or other entity
sponsoring the plan or other arrangement certifies
to the Secretary each year, in a form and manner
which shall be prescribed in regulations of the Sec-
retary that the plan or other arrangement meets the
requirements of clauses (i) and (ii).
‘‘(D) A plan or arrangement is established or main-
tained in accordance with this subparagraph only if—
‘‘(i) all of the benefits provided under the plan
or arrangement are fully insured (as defined in sec-
tion 701(2)), or
‘‘(ii)(I) the plan or arrangement is a multiem-
ployer plan, and
‘‘(II) the requirements of clause (B) of the pro-
viso to clause (5) of section 302(c) of the Labor
Management Relations Act, 1947 (29 U.S.C.
186(c)) are met with respect to such plan or other
arrangement.
‘‘(E) A plan or arrangement is established or main-
tained in accordance with this subparagraph only if—
‘‘(i) the plan or arrangement is in effect as of
the date of the enactment of the Health Coverage
Availability and Affordability Act of 1996, or
‘‘(ii) the employee organization or other entity
sponsoring the plan or arrangement—
107
‘‘(I) has been in existence for at least 3
years or is affiliated with another employee or-
ganization which has been in existence for at
least 3 years, or
‘‘(II) demonstrates to the satisfaction of
the Secretary that the requirements of subpara-
graphs (C) and (D) are met with respect to the
plan or other arrangement.’’.
(c) CONFORMING AMENDMENTS TO DEFINITIONS OF
PARTICIPANT AND BENEFICIARY.—Section 3(7) of such
Act (29 U.S.C. 1002(7)) is amended by adding at the end
the following new sentence: ‘‘Such term includes an indi-
vidual who is a covered individual described in paragraph
(40)(C)(ii).’’.
SEC. 166. TREATMENT OF CHURCH PLANS.
(a) SPECIAL RULES FOR CHURCH PLANS.—
(1) IN GENERAL.—Part 7 of subtitle B of title
I of such Act (as added and amended by the preced-
ing provisions of this Act) is amended by adding at
the end the following new section:
‘‘SEC. 709. SPECIAL RULES FOR CHURCH PLANS.
‘‘(a) ELECTION FOR CHURCH PLANS.—
‘‘(1) IN
GENERAL.—Notwithstanding section
4(b)(2), if the church or convention or association of
churches which maintains a church plan covered
108
under this section makes an election with respect to
such plan under this subsection (in such form and
manner as the Secretary may by regulations pre-
scribe), then, subject to this section, the provisions
of this part (and other provisions of this title to the
extent that they apply to group health plans which
are multiple employer welfare arrangements) shall
apply to such church plan, with respect to benefits
provided under such plan consisting of medical care,
as if—
‘‘(A) section 4(b)(2) did not contain an ex-
clusion for church plans, and
‘‘(B) such plan were an arrangement eligi-
ble to apply for an exemption under this part.
‘‘(2) ELECTION
IRREVOCABLE.—An election
under this subsection with respect to any church
plan shall be binding with respect to such plan, and,
once made, shall be irrevocable.
‘‘(b) COVERED CHURCH PLANS.—A church plan is
covered under this section if such plan provides benefits
which include medical care and some or all of such benefits
are not fully insured.
‘‘(c) SPONSOR AND BOARD OF TRUSTEES.—For pur-
poses of this part, in the case of a church plan to which
this part applies pursuant to an election under subsection
109
(a), in treating such plan as if it were a multiple employer
welfare arrangement under this part—
‘‘(1) the church, convention or association of
churches, or other organization described in section
3(33)(C)(i) which is the entity maintaining the plan
shall be treated as the sponsor referred to in section
703(a)(1), and the requirements of section 703(a)(1)
shall not apply, and
‘‘(2) the board of trustees, board of directors,
or other similar governing body of such sponsor shall
be treated as the board of trustees referred to in
section 703(a)(2), and the requirements of section
703(a)(2) shall be deemed satisfied with respect to
the board of trustees.
‘‘(d) DEEMED SATISFACTION OF TRUST REQUIRE-
MENTS.—The requirements of section 403 shall not be
treated as not satisfied with respect to a church plan to
which this part applies pursuant to an election under sub-
section (a) solely because assets of the plan are held by
an organization described in section 3(33)(C)(i), if—
‘‘(1) such organization is incorporated sepa-
rately from the church or convention or association
of churches involved, and
‘‘(2) such assets with respect to medical care
are separately accounted for.
110
‘‘(e) DEEMED SATISFACTION OF EXCLUSIVE BENE-
FIT REQUIREMENTS.—The requirements of section 404
shall not be treated as not satisfied with respect to a
church plan to which this part applies pursuant to an elec-
tion under subsection (a) solely because assets of the plan
which are in excess of reserves required for exemption
under section 514(b)(6)(B) are held in a fund in which
such assets are pooled with assets of other church plans,
if the assets held by such fund may not, under the terms
of the plan and the terms governing such fund, be used
for, or diverted to, any purpose other than for the exclu-
sive benefit of the participants and beneficiaries of the
church plans whose assets are pooled in such fund.
‘‘(f) INAPPLICABILITY OF CERTAIN PROVISIONS.—
‘‘(1) PROHIBITED TRANSACTIONS.—Section 406
shall not apply to a church plan by reason of an
election under subsection (a).
‘‘(2) CONTINUATION COVERAGE.—Section 601
shall not apply to a church plan by reason of an
election under subsection (a).’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 4(b)(2) of such Act (29 U.S.C.
1003(b)(2)) is amended by inserting before the semi-
colon the following: ‘‘, except with respect to provi-
111
sions made applicable under any election made
under section 704(a) of this Act’’.
(2) Section 514 of such Act (29 U.S.C. 1144)
is amended—
(A) in subsection (a), by inserting ‘‘(in-
cluding a church plan which is not exempt
under section 4(b)(2) by reason of an election
under section 704)’’ before the period in the
first sentence; and
(B) in subsection (b)(2)(B), by inserting
‘‘and including a church plan which is not ex-
empt under section 4(b)(2) by reason of an
election under section 704’’ after ‘‘death bene-
fits’’.
(c) CLERICAL AMENDMENT.—The table of contents
in section 1 of such Act (as amended by the preceding
provisions of this title) is further amended by inserting
after the item relating to section 703 the following new
item:
‘‘Sec. 709. Special rules for church plans.’’.
SEC. 167. ENFORCEMENT PROVISIONS RELATING TO MUL-
TIPLE 
EMPLOYER 
WELFARE 
ARRANGE-
MENTS.
(a) ENFORCEMENT
OF FILING REQUIREMENTS.—
Section 502 of the Employee Retirement Income Security
112
Act of 1974 (29 U.S.C. 1132) (as amended by sections
102(c)) is further amended—
(1) in subsection (a)(6), by striking ‘‘paragraph
(2) or (5)’’ and inserting ‘‘paragraph (2), (5), or
(6)’’; and
(2) by adding at the end of subsection (c) the
following new paragraph:
‘‘(6) The Secretary may assess a civil penalty against
any person of up to $1,000 a day from the date of such
person’s failure or refusal to file the information required
to be filed with the Secretary under section 101(g).’’.
(b) ACTIONS BY STATES IN FEDERAL COURT.—Sec-
tion 502(a) of such Act (29 U.S.C. 1132(a)) is amended—
(1) in paragraph (8), by striking ‘‘or’’ at the
end;
(2) in paragraph (9), by striking the period and
inserting ‘‘, or’’; and
(3) by adding at the end the following:
‘‘(10) by a State official having authority under
the law of such State to enforce the laws of such
State regulating insurance, to enjoin any act or
practice which violates any requirement under part
7 for an exemption under section 514(b)(6)(B)
which such State has the power to enforce pursuant
to section 506(c)(1).’’.
113
(c) CRIMINAL PENALTIES FOR CERTAIN WILLFUL
MISREPRESENTATIONS.—Section 501 of such Act (29
U.S.C. 1131) is amended—
(1) by inserting ‘‘(a)’’ after ‘‘SEC. 501.’’; and
(2) by adding at the end the following new sub-
section:
‘‘(b) Any person who, either willfully or with willful
blindness, falsely represents, to any employee, any employ-
ee’s beneficiary, any employer, the Secretary, or any State,
an arrangement established or maintained for the purpose
of offering or providing any benefit described in section
3(1) to employees or their beneficiaries as—
‘‘(1) being a multiple employer welfare arrange-
ment to which an exemption has been granted under
section 514(b)(6)(B),
‘‘(2) having been established or maintained
under or pursuant to one or more collective bargain-
ing agreements which are reached pursuant to col-
lective bargaining described in section 8(d) of the
National Labor Relations Act (29 U.S.C. 158(d)) or
paragraph Fourth of section 2 of the Railway Labor
Act (45 U.S.C. 152, paragraph Fourth) or which are
reached pursuant to labor-management negotiations
under similar provisions of State public employee re-
lations laws, or
114
‘‘(3) being a plan or arrangement with respect
to which the requirements of subparagraph (C), (D),
or (E) of section 3(40) are met,
shall, upon conviction, be imprisoned not more than five
years, be fined under title 18, United States Code, or
both.’’.
(d) CESSATION OF ACTIVITIES IN ABSENCE OF EF-
FECTIVE
STATE
REGULATION
UNLESS
STANDARDS
UNDER ERISA EXEMPTION ARE MET.—Section 502 of
such Act (29 U.S.C. 1132) is amended by adding at the
end the following new subsection:
‘‘(n)(1) Subject to paragraph (2), upon application
by the Secretary showing the operation, promotion, or
marketing of a multiple employer welfare arrangement
providing benefits consisting of medical care (within the
meaning of section 607(1)) that—
‘‘(A) is not licensed, registered, or otherwise ap-
proved under the insurance laws of the States in
which the arrangement offers or provides benefits,
and
‘‘(B) if there is in effect with respect to such
arrangement 
an 
exemption 
under 
section
514(b)(6)(B), is not operating in accordance with
the requirements under part 7 for such an exemp-
tion,
115
a district court of the United States shall enter an order
requiring that the arrangement cease activities.
‘‘(2) Paragraph (1) shall not apply in the case of a
multiple employer welfare arrangement if the arrangement
shows that—
‘‘(A) all benefits under it referred to in para-
graph (1) are fully insured, within the meaning of
section 701(1), and
‘‘(B) with respect to each State in which the ar-
rangement offers or provides benefits, the arrange-
ment is operating in accordance with applicable
State insurance laws that are not superseded under
section 514.
‘‘(3) The court may grant such additional equitable
relief, including any relief available under this title, as it
deems necessary to protect the interests of the public and
of persons having claims for benefits against the arrange-
ment.’’.
(e) RESPONSIBILITY
FOR CLAIMS PROCEDURE.—
Section 503 of such Act (29 U.S.C. 1133) is amended by
adding at the end (after and below paragraph (2)) the fol-
lowing new sentence: ‘‘The terms of each multiple em-
ployer health plan (within the meaning of section 701(4))
shall require the board of trustees or the named fiduciary
(as applicable) to ensure that the requirements of this sec-
116
tion are met in connection with claims filed under the
plan.’’.
SEC. 168. COOPERATION BETWEEN FEDERAL AND STATE
AUTHORITIES.
Section 506 of the Employee Retirement Income Se-
curity Act of 1974 (29 U.S.C. 1136) is amended by adding
at the end the following new subsection:
‘‘(c) STATE AUTHORITY WITH RESPECT TO MUL-
TIPLE EMPLOYER WELFARE ARRANGEMENTS.—
‘‘(1) STATE ENFORCEMENT.—
‘‘(A) 
AGREEMENTS
WITH
STATES.—A
State may enter into an agreement with the
Secretary for delegation to the State of some or
all of the Secretary’s authority under sections
502 and 504 to enforce the requirements under
section 514(d) or the requirements under part
7 for an exemption under section 514(b)(6)(B).
The Secretary shall enter into the agreement if
the Secretary determines that the delegation
provided for therein would not result in a lower
level or quality of enforcement of the provisions
of this title.
‘‘(B) 
DELEGATIONS.—Any 
department,
agency, or instrumentality of a State to which
authority is delegated pursuant to an agree-
117
ment entered into under this paragraph may, if
authorized under State law and to the extent
consistent with such agreement, exercise the
powers of the Secretary under this title which
relate to such authority.
‘‘(C) CONCURRENT
AUTHORITY
OF
THE
SECRETARY.—If the Secretary delegates author-
ity to a State in an agreement entered into
under subparagraph (A), the Secretary may
continue to exercise such authority concurrently
with the State.
‘‘(D) RECOGNITION OF PRIMARY DOMICILE
STATE.—In entering into any agreement with a
State under subparagraph (A), the Secretary
shall ensure that, as a result of such agreement
and all other agreements entered into under
subparagraph (A), only one State will be recog-
nized, with respect to any particular multiple
employer welfare arrangement, as the primary
domicile State to which authority has been dele-
gated pursuant to such agreements.
‘‘(2) ASSISTANCE TO STATES.—The Secretary
shall—
‘‘(A) provide enforcement assistance to the
States with respect to multiple employer welfare
118
arrangements, including, but not limited to, co-
ordinating Federal and State efforts through
the establishment of cooperative agreements
with appropriate State agencies under which
the Pension and Welfare Benefits Administra-
tion keeps the States informed of the status of
its cases and makes available to the States in-
formation obtained by it,
‘‘(B) provide continuing technical assist-
ance to the States with respect to issues involv-
ing multiple employer welfare arrangements
and this Act,
‘‘(C) make readily available to the States
timely and complete responses to requests for
advisory opinions on issues described in sub-
paragraph (B), and
‘‘(D) distribute copies of all advisory opin-
ions described in subparagraph (C) to the State
insurance commissioner of each State.’’.
SEC. 169. FILING AND DISCLOSURE REQUIREMENTS FOR
MULTIPLE EMPLOYER WELFARE ARRANGE-
MENTS OFFERING HEALTH BENEFITS.
(a) IN GENERAL.—Section 101 of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C. 1021)
is amended—
119
(1) by redesignating subsection (g) as sub-
section (i); and
(2) by inserting after subsection (f) the follow-
ing new subsections:
‘‘(g) REGISTRATION OF MULTIPLE EMPLOYER WEL-
FARE ARRANGEMENTS.—(1) Each multiple employer wel-
fare arrangement shall file with the Secretary a registra-
tion statement described in paragraph (2) within 60 days
before commencing operations (in the case of an arrange-
ment commencing operations on or after January 1, 1997)
and no later than February 15 of each year (in the case
of an arrangement in operation since the beginning of
such year), unless, as of the date by which such filing oth-
erwise must be made, such arrangement provides no bene-
fits consisting of medical care (within the meaning of sec-
tion 607(1))).
‘‘(2) Each registration statement—
‘‘(A) shall be filed in such form, and contain
such information concerning the multiple employer
welfare arrangement and any persons involved in its
operation (including whether coverage under the ar-
rangement is fully insured), as shall be provided in
regulations which shall be prescribed by the Sec-
retary, and
120
‘‘(B) if any benefits under the arrangement
consisting of medical care (within the meaning of
section 607(1)) are not fully insured, shall contain
a certification that copies of such registration state-
ment have been transmitted by certified mail to—
‘‘(i) in the case of an arrangement which
is a multiple employer health plan (as defined
in section 701(4)), the State insurance commis-
sioner of the domicile State of such arrange-
ment, or
‘‘(ii) in the case of an arrangement which
is not a multiple employer health plan, the
State insurance commissioner of each State in
which the arrangement is located.
‘‘(3) The person or persons responsible for filing the
annual registration statement are—
‘‘(A) the trustee or trustees so designated by
the terms of the instrument under which the mul-
tiple employer welfare arrangement is established or
maintained, or
‘‘(B) in the case of a multiple employer welfare
arrangement for which the trustee or trustees can-
not be identified, or upon the failure of the trustee
or trustees of an arrangement to file, the person or
persons actually responsible for the acquisition, dis-
121
position, control, or management of the cash or
property of the arrangement, irrespective of whether
such acquisition, disposition, control, or management
is exercised directly by such person or persons or
through an agent designated by such person or per-
sons.
‘‘(4) Any agreement entered into under section
506(c) with a State as the primary domicile State with
respect to any multiple employer welfare arrangement
shall provide for simultaneous filings of reports required
under this subsection with the Secretary and with the
State insurance commissioner of such State.
‘‘(5) For purposes of this subsection, the term ‘domi-
cile State’ means, in connection with a multiple employer
welfare arrangement, the State in which, according to the
application for an exemption under this 514(b)(6)(B),
most individuals to be covered under the arrangement are
located, except that, in any case in which information con-
tained in the latest annual report of the arrangement filed
under this part indicates that most individuals covered
under the arrangement are located in a different State,
such term means such different State.
‘‘(6) The Secretary may exempt from the require-
ments of this subsection such class of multiple employer
welfare arrangements as the Secretary deems appropriate.
122
‘‘(h) FILING REQUIREMENTS FOR MULTIPLE EM-
PLOYER WELFARE ARRANGEMENTS.—
‘‘(1) IN GENERAL.—A multiple employer wel-
fare arrangement which provides benefits consisting
of medical care (within the meaning of section
607(1)) shall issue to each participating employer—
‘‘(A) a document equivalent to the sum-
mary plan description required of plans under
this part,
‘‘(B) information describing the contribu-
tion rates applicable to participating employers,
and
‘‘(C) a statement indicating—
‘‘(i) that the arrangement is not a li-
censed insurer under the laws of any State,
‘‘(ii) the extent to which any benefits
under the arrangement are fully insured,
‘‘(iii) if any benefits under the ar-
rangement are not fully insured, whether
the arrangement has been granted an ex-
emption under section 514(b)(6)(B) (or
whether such an exemption has ceased to
be effective).
‘‘(2) TIME FOR DISCLOSURE.—Such informa-
tion shall be issued to employers within such reason-
123
able period of time before becoming participating
employers as may be prescribed in regulations of the
Secretary.’’.
(b) EFFECTIVE DATES.—Section 101(g) of the Em-
ployee Retirement Income Security Act of 1974 (added by
subsection (a)) shall take effect on the date of the enact-
ment of this Act. Section 101(h) of such Act (added by
subsection (a)) shall take effect as provided in section 171.
SEC. 170. SINGLE ANNUAL FILING FOR ALL PARTICIPATING
EMPLOYERS.
(a) IN GENERAL.—Section 110 of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C. 1030)
is amended by adding at the end the following new sub-
section:
‘‘(c) The Secretary shall prescribe by regulation or
otherwise an alternative method providing for the filing
of a single annual report (as referred to in section
104(a)(1)(A)) with respect to all employers who are par-
ticipating employers under a multiple employer welfare ar-
rangement under which all coverage consists of medical
care (within the meaning of section 607(1)) and is fully
insured (as defined in section 701(1)).’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on the date of the enact-
ment of this Act. The Secretary of Labor shall prescribe
124
the alternative method referred to in section 110(c) of the
Employee Retirement Income Security Act of 1974, as
added by such amendment, within 90 days after the date
of the enactment of this Act.
SEC. 171. EFFECTIVE DATE; TRANSITIONAL RULE.
(a) EFFECTIVE DATE.—Except as otherwise provided
in section 170(b), the amendments made by this subtitle
shall take effect January 1, 1998. The Secretary shall
issue all regulations necessary to carry out the amend-
ments made by this subtitle before January 1, 1998.
(b) TRANSITIONAL RULE.—
(1) IN GENERAL.—If the sponsor of a multiple
employer welfare arrangement which, as of the effec-
tive date specified in subsection (a), provides bene-
fits consisting of medical care (within the meaning
of section 607(1) of the Employee Retirement In-
come Security Act of 1974) files with the Secretary
of Labor an application for an exemption under sec-
tion 514(b)(6)(B) of such Act within 180 days after
such date and the Secretary has not, as of 90 days
after receipt of such application, found such applica-
tion to be materially deficient, then section
514(b)(6)(A) of such Act (29 U.S.C. 1144(b)(6)(A))
shall not apply with respect to such arrangement
125
during the period following such date and ending on
the earlier of—
(A) the date on which the Secretary denies
the application under the amendments made by
this title or determines, in the Secretary’s sole
discretion, that such exclusion from coverage
under 
the 
provisions 
of 
such 
section
514(b)(6)(A) of such arrangement would be
detrimental to the interests of individuals cov-
ered under such arrangement, or
(B) 18 months after such effective date.
(2) NO
PENDING
STATE
ACTION.—Subpara-
graph (A) shall apply in the case of an arrangement
only if, at the time of the application for the exemp-
tion under section 514(b)(6)(B), the arrangement
does not have pending against it an enforcement ac-
tion by a State.
Subtitle D—Definitions; General
Provisions
SEC. 191. DEFINITIONS; SCOPE OF COVERAGE.
(a) GROUP HEALTH PLAN.—
(1) DEFINITION.—Subject to the succeeding
provisions of this subsection and subsection (d)(1),
the term ‘‘group health plan’’ means an employee
welfare benefit plan to the extent that the plan pro-
126
vides medical care (as defined in subsection (c)(9))
to employees or their dependents (as defined under
the terms of the plan) directly or through insurance,
reimbursement, or otherwise, and includes a group
health 
plan 
(within 
the 
meaning 
of 
section
5000(b)(1) of the Internal Revenue Code of 1986).
(2) LIMITATION OF REQUIREMENTS TO PLANS
WITH 2 OR MORE EMPLOYEE PARTICIPANTS.—The
requirements of subtitle A and part 1 of subtitle B
shall apply in the case of a group health plan for
any plan year, or for health insurance coverage of-
fered in connection with a group health plan for a
year, only if the group health plan has two or more
participants as current employees on the first day of
the plan year.
(3) EXCLUSION OF PLANS WITH LIMITED COV-
ERAGE.—An employee welfare benefit plan shall be
treated as a group health plan under this title only
with respect to medical care which is provided under
the plan and which does not consist of coverage ex-
cluded from the definition of health insurance cov-
erage under subsection (c)(4)(B).
(4) TREATMENT OF CHURCH PLANS.—
127
(A) EXCLUSION.—The requirements of
this title insofar as they apply to group health
plans shall not apply to church plans.
(B) OPTIONAL DISREGARD IN DETERMIN-
ING PERIOD OF COVERAGE.—For purposes of
applying section 101(b)(3)(B)(i), a group health
plan may elect to disregard periods of coverage
of an individual under a church plan that, pur-
suant to subparagraph (A), is not subject to the
requirements of this title.
(5) TREATMENT OF GOVERNMENTAL PLANS.—
(A) ELECTION TO BE EXCLUDED.—If the
plan sponsor of a governmental plan which is a
group health plan to which the provisions of
this subtitle otherwise apply makes an election
under this paragraph for any specified period
(in such form and manner as the Secretary of
Health and Human Services may by regulations
prescribe), then the requirements of this title
insofar as they apply to group health plans
shall not apply to such governmental plans for
such period.
(B) OPTIONAL DISREGARD IN DETERMIN-
ING
PERIOD
OF
COVERAGE
IF
ELECTION
MADE.—For purposes of applying section
128
101(b)(3)(B)(i), a group health plan may elect
to disregard periods of coverage of an individual
under a governmental plan that, under an elec-
tion under subparagraph (A), is not subject to
the requirements of this title.
(6) TREATMENT OF MEDICAID PLAN AS GROUP
HEALTH PLAN.—A State plan under title XIX of the
Social Security Act shall be treated as a group
health plan for purposes of applying section
101(c)(1), unless the State elects not to be so treat-
ed.
(7) TREATMENT
OF
MEDICARE
AND
INDIAN
HEALTH
SERVICE
PROGRAMS
AS
GROUP
HEALTH
PLAN.—Title XVIII of the Social Security Act and
a program of the Indian Health Service shall be
treated as a group health plan for purposes of apply-
ing section 101(c)(1).
(b) INCORPORATION OF CERTAIN DEFINITIONS IN
EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF
1974.—Except as provided in this section, the terms ‘‘ben-
eficiary’’, ‘‘church plan’’, ‘‘employee’’, ‘‘employee welfare
benefit plan’’, ‘‘employer’’, ‘‘governmental plan’’, ‘‘multi-
employer plan’’, ‘‘multiple employer welfare arrange-
ment’’, ‘‘participant’’, ‘‘plan sponsor’’, and ‘‘State’’ have
129
the meanings given such terms in section 3 of the Em-
ployee Retirement Income Security Act of 1974.
(c) OTHER DEFINITIONS.—For purposes of this title:
(1) APPLICABLE STATE AUTHORITY.—The term
‘‘applicable State authority’’ means, with respect to
an insurer or health maintenance organization in a
State, the State insurance commissioner or official
or officials designated by the State to enforce the re-
quirements of this title for the State involved with
respect to such insurer or organization.
(2) BONA FIDE ASSOCIATION.—The term ‘‘bona
fide association’’ means an association which—
(A) has been actively in existence for at
least 5 years,
(B) has been formed and maintained in
good faith for purposes other than obtaining in-
surance,
(C) does not condition membership in the
association on health status,
(D) makes health insurance coverage of-
fered through the association available to all
members regardless of health status,
(E) does not make health insurance cov-
erage offered through the association available
to any individual who is not a member (or de-
130
pendent of a member) of the association at the
time the coverage is initially issued,
(F) does not impose preexisting condition
exclusions except in a manner consistent with
the requirements of sections 101 and 102 as
they relate to group health plans, and
(G) provides for renewal and continuation
of health insurance coverage in a manner con-
sistent with the requirements of section 132 as
they relate to the renewal and continuation in
force of coverage in a group market.
(3) COBRA CONTINUATION
PROVISION.—The
term ‘‘COBRA continuation provision’’ means any of
the following:
(A) Section 4980B of the Internal Revenue
Code of 1986, other than subsection (f)(1) of
such section insofar as it relates to pediatric
vaccines.
(B) Part 6 of subtitle B of title I of the
Employee Retirement Income Security Act of
1974 (29 U.S.C. 1161 et seq.), other than sec-
tion 609.
(C) Title XXII of the Public Health Serv-
ice Act.
(4) HEALTH INSURANCE COVERAGE.—
131
(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘‘health insurance
coverage’’ means benefits consisting of medical
care (provided directly, through insurance or re-
imbursement, or otherwise) under any hospital
or medical service policy or certificate, hospital
or medical service plan contract, or health
maintenance organization group contract of-
fered by an insurer or a health maintenance or-
ganization.
(B) EXCEPTION.—Such term does not in-
clude coverage under any separate policy, cer-
tificate, or contract only for one or more of any
of the following:
(i) Coverage for accident, credit-only,
vision, disability income, long-term care,
nursing home care, community-based care
dental, on-site medical clinics, or employee
assistance programs, or any combination
thereof.
(ii) Medicare supplemental health in-
surance (within the meaning of section
1882(g)(1) of the Social Security Act (42
U.S.C. 1395ss(g)(1))) and similar supple-
132
mental coverage provided under a group
health plan.
(iii) Coverage issued as a supplement
to liability insurance.
(iv) Liability insurance, including gen-
eral liability insurance and automobile li-
ability insurance.
(v) Workers’ compensation or similar
insurance.
(vi) Automobile medical-payment in-
surance.
(vii) Coverage for a specified disease
or illness.
(viii) Hospital or fixed indemnity in-
surance.
(ix) Short-term limited duration in-
surance.
(x) Such other coverage, comparable
to that described in previous clauses, as
may be specified in regulations prescribed
under this title.
(5) HEALTH
MAINTENANCE
ORGANIZATION;
HMO.—The terms ‘‘health maintenance organiza-
tion’’ and ‘‘HMO’’ mean—
133
(A) a Federally qualified health mainte-
nance organization (as defined in section
1301(a) of the Public Health Service Act (42
U.S.C. 300e(a))),
(B) an organization recognized under State
law as a health maintenance organization, or
(C) a similar organization regulated under
State law for solvency in the same manner and
to the same extent as such a health mainte-
nance organization,
if (other than for purposes of part 2 of subtitle B)
it is subject to State law which regulates insurance
(within the meaning of section 514(b)(2) of the Em-
ployee Retirement Income Security Act of 1974).
(6) HEALTH STATUS.—The term ‘‘health sta-
tus’’ includes, with respect to an individual, medical
condition, claims experience, receipt of health care,
medical history, genetic information, evidence of in-
surability (including conditions arising out of acts of
domestic violence), or disability.
(7) INDIVIDUAL
HEALTH
INSURANCE
COV-
ERAGE.—The term ‘‘individual health insurance cov-
erage’’ means health insurance coverage offered to
individuals if the coverage is not offered in connec-
tion with a group health plan (other than such a
134
plan that has fewer than two participants as current
employees on the first day of the plan year).
(8) INSURER.—The term ‘‘insurer’’ means an
insurance company, insurance service, or insurance
organization which is licensed to engage in the busi-
ness of insurance in a State and which (except for
purposes of part 2 of subtitle B) is subject to State
law which regulates insurance (within the meaning
of section 514(b)(2)(A) of the Employee Retirement
Income Security Act of 1974).
(9) MEDICAL CARE.—The term ‘‘medical care’’
means—
(A) amounts paid for, or items or services
in the form of, the diagnosis, cure, mitigation,
treatment, or prevention of disease, or amounts
paid for, or items or services provided for, the
purpose of affecting any structure or function
of the body,
(B) amounts paid for, or services in the
form of, transportation primarily for and essen-
tial to medical care referred to in subparagraph
(A), and
(C) amounts paid for insurance covering
medical care referred to in subparagraphs (A)
and (B).
135
(10) NETWORK
PLAN.—The term ‘‘network
plan’’ means, with respect to health insurance cov-
erage, an arrangement of an insurer or a health
maintenance organization under which the financing
and delivery of medical care are provided, in whole
or in part, through a defined set of providers under
contract with the insurer or health maintenance or-
ganization.
(11) WAITING PERIOD.—The term ‘‘waiting pe-
riod’’ means, with respect to a group health plan
and an individual who is a potential participant or
beneficiary in the plan, the minimum period that
must pass with respect to the individual before the
individual is eligible to be covered for benefits under
the plan.
(d) TREATMENT OF PARTNERSHIPS.—
(1) TREATMENT AS A GROUP HEALTH PLAN.—
Any plan, fund, or program which would not be (but
for this paragraph) an employee welfare benefit plan
and which is established or maintained by a partner-
ship, to the extent that such plan, fund, or program
provides medical care to present or former partners
in the partnership or to their dependents (as defined
under the terms of the plan, fund, or program), di-
rectly or through insurance, reimbursement, or oth-
136
erwise, shall be treated (subject to paragraph (1)) as
an employee welfare benefit plan which is a group
health plan.
(2) TREATMENT OF PARTNERSHIP AND PART-
NERS AND EMPLOYER AND PARTICIPANTS.—In the
case of a group health plan—
(A) the term ‘‘employer’’ includes the part-
nership in relation to any partner; and
(B) the term ‘‘participant’’ includes—
(i) in connection with a group health
plan maintained by a partnership, an indi-
vidual who is a partner in relation to the
partnership, or
(ii) in connection with a group health
plan maintained by a self-employed individ-
ual (under which one or more employees
are participants), the self-employed individ-
ual,
if such individual is or may become eligible to
receive a benefit under the plan or such individ-
ual’s beneficiaries may be eligible to receive any
such benefit.
(e) DEFINITIONS
RELATING
TO
MARKETS
AND
SMALL EMPLOYERS.—As used in this title:
137
(1) INDIVIDUAL MARKET.—The term ‘‘individ-
ual market’’ means the market for health insurance
coverage offered to individuals and not to employers
or in connection with a group health plan and does
not include the market for such coverage issued only
by an insurer or HMO that makes such coverage
available only on the basis of affiliation with a bona
fide association (as defined in subsection (c)(2)).
(2) LARGE GROUP MARKET.—The term ‘‘large
group market’’ means the market for health insur-
ance coverage offered to employers (other than small
employers) on behalf of their employees (and their
dependents) and does not include health insurance
coverage available solely in connection with a bona
fide association (as defined in subsection (c)(2)).
(3) SMALL EMPLOYER.—The term ‘‘small em-
ployer’’ means, in connection with a group health
plan with respect to a calendar year, an employer
who employs at least 2 but fewer than 51 employees
on a typical business day in the year. All persons
treated as a single employer under subsection (a) or
(b) of section 52 of the Internal Revenue Code of
1986 shall be treated as a single employer for pur-
poses of this title.
138
(4) SMALL GROUP MARKET.—The term ‘‘small
group market’’ means the health insurance market
under which individuals obtain health insurance cov-
erage (directly or through any arrangement) on be-
half of themselves (and their dependents) on the
basis of employment or other relationship with re-
spect to a small employer and does not include
health insurance coverage available solely in connec-
tion with a bona fide association (as defined in sub-
section (c)(2)).
SEC. 192. STATE FLEXIBILITY TO PROVIDE GREATER PRO-
TECTION.
(a) STATE FLEXIBILITY TO PROVIDE GREATER PRO-
TECTION.—Subject to subsection (b), nothing in this sub-
title or subtitle A or B shall be construed to preempt State
laws—
(1) that relate to matters not specifically ad-
dressed in such subtitles; or
(2) that require insurers or HMOs—
(A) to impose a limitation or exclusion of
benefits relating to the treatment of a preexist-
ing condition for a period that is shorter than
the applicable period provided for under such
subtitles;
139
(B) to allow individuals, participants, and
beneficiaries to be considered to be in a period
of previous qualifying coverage if such individ-
ual, participant, or beneficiary experiences a
lapse in coverage that is greater than the 60-
day 
periods 
provided 
for 
under 
sections
101(b)(3)(A), 101(b)(3)(B)(ii), and 102(b)(2);
or
(C) in defining pre-existing condition, to
have a look-back period that is shorter than the
6-month 
period 
described 
in 
section
101(b)(1)(A).
(b) NO OVERRIDE OF ERISA PREEMPTION.—Except
as provided specifically in subtitle C, nothing in this Act
shall be construed to affect or modify the provisions of
section 514 of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1144).
SEC. 193. EFFECTIVE DATE.
(a) IN GENERAL.—Except as otherwise provided for
in this title, the provisions of this title shall apply with
respect to—
(1) group health plans, and health insurance
coverage offered in connection with group health
plans, for plan years beginning on or after January
1, 1998, and
140
(2) individual health insurance coverage issued,
renewed, in effect, or operated on or after July 1,
1998.
(b) CONSIDERATION OF PREVIOUS COVERAGE.—The
Secretaries of Health and Human Services, Treasury, and
Labor shall jointly establish rules regarding the treatment
(in determining qualified coverage periods under sections
102(b) and 141(b)) of coverage before the applicable effec-
tive date specified in subsection (a).
(c) TIMELY ISSUANCE OF REGULATIONS.—The Sec-
retaries of Health and Human Services, the Treasury, and
Labor shall issue such regulations on a timely basis as
may be required to carry out this title.
SEC. 194. RULE OF CONSTRUCTION.
Nothing in this title or any amendment made thereby
may be construed to require (or to authorize any regula-
tion that requires) the coverage of any specific procedure,
treatment, or service under a group health plan or health
insurance coverage.
SEC. 195. FINDINGS RELATING TO EXERCISE OF COM-
MERCE CLAUSE AUTHORITY.
Congress finds the following in relation to the provi-
sions of this title:
(1) Provisions in group health plans and health
insurance coverage that impose certain pre-existing
141
conditions impact the ability of employees to seek
employment in interstate commerce, thereby imped-
ing such commerce.
(2) Health insurance coverage is commercial in
nature and is in and affects interstate commerce.
(3) It is a necessary and proper exercise of
Congressional authority to impose requirements
under this title on group health plans and health in-
surance coverage (including coverage offered to indi-
viduals previously covered under group health plans)
in order to promote commerce among the States.
(4) Congress, however, intends to defer to
States, to the maximum extent practicable, in carry-
ing out such requirements with respect to insurers
and health maintenance organizations that are sub-
ject to State regulation, consistent with the provi-
sions of the Employee Retirement Income Security
Act of 1974.
142
TITLE II—PREVENTING HEALTH
CARE FRAUD AND ABUSE; AD-
MINISTRATIVE 
SIMPLIFICA-
TION; MEDICAL LIABILITY RE-
FORM
SEC. 200. REFERENCES IN TITLE.
Except as otherwise specifically provided, whenever in
this title an amendment is expressed in terms of an
amendment to or repeal of a section or other provision,
the reference shall be considered to be made to that sec-
tion or other provision of the Social Security Act.
Subtitle A—Fraud and Abuse
Control Program
SEC. 201. FRAUD AND ABUSE CONTROL PROGRAM.
(a) ESTABLISHMENT OF PROGRAM.—Title XI (42
U.S.C. 1301 et seq.) is amended by inserting after section
1128B the following new section:
‘‘FRAUD AND ABUSE CONTROL PROGRAM
‘‘SEC. 1128C. (a) ESTABLISHMENT OF PROGRAM.—
‘‘(1) IN GENERAL.—Not later than January 1,
1997, the Secretary, acting through the Office of the
Inspector General of the Department of Health and
Human Services, and the Attorney General shall es-
tablish a program—
143
‘‘(A) to coordinate Federal, State, and
local law enforcement programs to control fraud
and abuse with respect to health plans,
‘‘(B) to conduct investigations, audits,
evaluations, and inspections relating to the de-
livery of and payment for health care in the
United States,
‘‘(C) to facilitate the enforcement of the
provisions of sections 1128, 1128A, and 1128B
and other statutes applicable to health care
fraud and abuse,
‘‘(D) to provide for the modification and
establishment of safe harbors and to issue advi-
sory opinions and special fraud alerts pursuant
to section 1128D, and
‘‘(E) to provide for the reporting and dis-
closure of certain final adverse actions against
health care providers, suppliers, or practitioners
pursuant to the data collection system estab-
lished under section 1128E.
‘‘(2) COORDINATION WITH HEALTH PLANS.—In
carrying out the program established under para-
graph (1), the Secretary and the Attorney General
shall consult with, and arrange for the sharing of
data with representatives of health plans.
144
‘‘(3) GUIDELINES.—
‘‘(A) IN GENERAL.—The Secretary and the
Attorney General shall issue guidelines to carry
out the program under paragraph (1). The pro-
visions of sections 553, 556, and 557 of title 5,
United States Code, shall not apply in the issu-
ance of such guidelines.
‘‘(B) INFORMATION GUIDELINES.—
‘‘(i) IN
GENERAL.—Such guidelines
shall include guidelines relating to the fur-
nishing of information by health plans,
providers, and others to enable the Sec-
retary and the Attorney General to carry
out the program (including coordination
with health plans under paragraph (2)).
‘‘(ii) CONFIDENTIALITY.—Such guide-
lines shall include procedures to assure
that such information is provided and uti-
lized in a manner that appropriately pro-
tects the confidentiality of the information
and the privacy of individuals receiving
health care services and items.
‘‘(iii) QUALIFIED IMMUNITY FOR PRO-
VIDING INFORMATION.—The provisions of
section 1157(a) (relating to limitation on
145
liability) shall apply to a person providing
information to the Secretary or the Attor-
ney General in conjunction with their per-
formance of duties under this section.
‘‘(4) ENSURING ACCESS TO DOCUMENTATION.—
The Inspector General of the Department of Health
and Human Services is authorized to exercise such
authority described in paragraphs (3) through (9) of
section 6 of the Inspector General Act of 1978 (5
U.S.C. App.) as necessary with respect to the activi-
ties under the fraud and abuse control program es-
tablished under this subsection.
‘‘(5) AUTHORITY
OF
INSPECTOR
GENERAL.—
Nothing in this Act shall be construed to diminish
the authority of any Inspector General, including
such authority as provided in the Inspector General
Act of 1978 (5 U.S.C. App.).
‘‘(b) ADDITIONAL USE OF FUNDS BY INSPECTOR
GENERAL.—
‘‘(1) 
REIMBURSEMENTS
FOR
INVESTIGA-
TIONS.—The Inspector General of the Department
of Health and Human Services is authorized to re-
ceive and retain for current use reimbursement for
the costs of conducting investigations and audits and
for monitoring compliance plans when such costs are
146
ordered by a court, voluntarily agreed to by the
payor, or otherwise.
‘‘(2) CREDITING.—Funds received by the In-
spector General under paragraph (1) as reimburse-
ment for costs of conducting investigations shall be
deposited to the credit of the appropriation from
which initially paid, or to appropriations for similar
purposes currently available at the time of deposit,
and shall remain available for obligation for 1 year
from the date of the deposit of such funds.
‘‘(c) HEALTH PLAN DEFINED.—For purposes of this
section, the term ‘health plan’ means a plan or program
that provides health benefits, whether directly, through in-
surance, or otherwise, and includes—
‘‘(1) a policy of health insurance;
‘‘(2) a contract of a service benefit organiza-
tion; and
‘‘(3) a membership agreement with a health
maintenance organization or other prepaid health
plan.’’.
(b) ESTABLISHMENT OF HEALTH CARE FRAUD AND
ABUSE CONTROL ACCOUNT IN FEDERAL HOSPITAL IN-
SURANCE TRUST FUND.—Section 1817 (42 U.S.C. 1395i)
is amended by adding at the end the following new sub-
section:
147
‘‘(k) HEALTH CARE FRAUD AND ABUSE CONTROL
ACCOUNT.—
‘‘(1) ESTABLISHMENT.—There is hereby estab-
lished in the Trust Fund an expenditure account to
be known as the ‘Health Care Fraud and Abuse
Control Account’ (in this subsection referred to as
the ‘Account’).
‘‘(2) APPROPRIATED
AMOUNTS
TO
TRUST
FUND.—
‘‘(A) IN GENERAL.—There are hereby ap-
propriated to the Trust Fund—
‘‘(i) such gifts and bequests as may be
made as provided in subparagraph (B);
‘‘(ii) such amounts as may be depos-
ited in the Trust Fund as provided in sec-
tions 242(b) and 249(c) of the Health Cov-
erage Availability and Affordability Act of
1996, and title XI; and
‘‘(iii) such amounts as are transferred
to the Trust Fund under subparagraph
(C).
‘‘(B) AUTHORIZATION TO ACCEPT GIFTS.—
The Trust Fund is authorized to accept on be-
half of the United States money gifts and be-
quests made unconditionally to the Trust Fund,
148
for the benefit of the Account or any activity fi-
nanced through the Account.
‘‘(C) TRANSFER OF AMOUNTS.—The Man-
aging Trustee shall transfer to the Trust Fund,
under rules similar to the rules in section 9601
of the Internal Revenue Code of 1986, an
amount equal to the sum of the following:
‘‘(i) Criminal fines recovered in cases
involving a Federal health care offense (as
defined in section 982(a)(6)(B) of title 18,
United States Code).
‘‘(ii) Civil monetary penalties and as-
sessments imposed in health care cases, in-
cluding amounts recovered under titles XI,
XVIII, and XIX, and chapter 38 of title
31, United States Code (except as other-
wise provided by law).
‘‘(iii) Amounts resulting from the for-
feiture of property by reason of a Federal
health care offense.
‘‘(iv) Penalties and damages obtained
and otherwise creditable to miscellaneous
receipts of the general fund of the Treas-
ury obtained under sections 3729 through
3733 of title 31, United States Code
149
(known as the False Claims Act), in cases
involving claims related to the provision of
health care items and services (other than
funds awarded to a relator, for restitution
or otherwise authorized by law).
‘‘(3) APPROPRIATED
AMOUNTS
TO
ACCOUNT
FOR FRAUD AND ABUSE CONTROL PROGRAM, ETC.—
‘‘(A) DEPARTMENTS
OF
HEALTH
AND
HUMAN SERVICES AND JUSTICE.—
‘‘(i) IN GENERAL.—There are hereby
appropriated to the Account from the
Trust Fund such sums as the Secretary
and the Attorney General certify are nec-
essary to carry out the purposes described
in subparagraph (C), to be available with-
out further appropriation, in an amount
not to exceed—
‘‘(I) 
for 
fiscal 
year 
1997,
$104,000,000,
‘‘(II) for each of the fiscal years
1998 through 2003, the limit for the
preceding fiscal year, increased by 15
percent; and
150
‘‘(III) for each fiscal year after
fiscal year 2003, the limit for fiscal
year 2003.
‘‘(ii) MEDICARE
AND
MEDICAID
AC-
TIVITIES.—For each fiscal year, of the
amount appropriated in clause (i), the fol-
lowing amounts shall be available only for
the purposes of the activities of the Office
of the Inspector General of the Depart-
ment of Health and Human Services with
respect to the medicare and medicaid pro-
grams—
‘‘(I) for fiscal year 1997, not less
than $60,000,000 and not more than
$70,000,000;
‘‘(II) for fiscal year 1998, not
less than $80,000,000 and not more
than $90,000,000;
‘‘(III) for fiscal year 1999, not
less than $90,000,000 and not more
than $100,000,000;
‘‘(IV) for fiscal year 2000, not
less than $110,000,000 and not more
than $120,000,000;
151
‘‘(V) for fiscal year 2001, not
less than $120,000,000 and not more
than $130,000,000;
‘‘(VI) for fiscal year 2002, not
less than $140,000,000 and not more
than $150,000,000; and
‘‘(VII) for each fiscal year after
fiscal year 2002, not less than
$150,000,000 and not more than
$160,000,000.
‘‘(B) FEDERAL
BUREAU
OF
INVESTIGA-
TION.—There are hereby appropriated from the
general fund of the United States Treasury and
hereby appropriated to the Account for transfer
to the Federal Bureau of Investigation to carry
out the purposes described in subparagraph
(C), to be available without further appropria-
tion—
‘‘(i) for fiscal year 1997, $47,000,000;
‘‘(ii) 
for 
fiscal 
year 
1998,
$56,000,000;
‘‘(iii) 
for 
fiscal 
year 
1999,
$66,000,000;
‘‘(iv) 
for 
fiscal 
year 
2000,
$76,000,000;
152
‘‘(v) 
for 
fiscal 
year 
2001,
$88,000,000;
‘‘(vi) 
for 
fiscal 
year 
2002,
$101,000,000; and
‘‘(vii) for each fiscal year after fiscal
year 2002, $114,000,000.
‘‘(C) USE OF FUNDS.—The purposes de-
scribed in this subparagraph are to cover the
costs (including equipment, salaries and bene-
fits, and travel and training) of the administra-
tion and operation of the health care fraud and
abuse control program established under section
1128C(a), including the costs of—
‘‘(i) prosecuting health care matters
(through criminal, civil, and administrative
proceedings);
‘‘(ii) investigations;
‘‘(iii) financial and performance audits
of health care programs and operations;
‘‘(iv) inspections and other evalua-
tions; and
‘‘(v) provider and consumer education
regarding compliance with the provisions of
title XI.
153
‘‘(4) APPROPRIATED
AMOUNTS
TO
ACCOUNT
FOR MEDICARE INTEGRITY PROGRAM.—
‘‘(A) IN GENERAL.—There are hereby ap-
propriated to the Account from the Trust Fund
for each fiscal year such amounts as are nec-
essary to carry out the Medicare Integrity Pro-
gram under section 1893, subject to subpara-
graph (B) and to be available without further
appropriation.
‘‘(B) AMOUNTS SPECIFIED.—The amount
appropriated under subparagraph (A) for a fis-
cal year is as follows:
‘‘(i) For fiscal year 1997, such
amount 
shall 
be 
not 
less 
than
$430,000,000 
and 
not 
more 
than
$440,000,000.
‘‘(ii) For fiscal year 1998, such
amount 
shall 
be 
not 
less 
than
$490,000,000 
and 
not 
more 
than
$500,000,000.
‘‘(iii) For fiscal year 1999, such
amount 
shall 
be 
not 
less 
than
$550,000,000 
and 
not 
more 
than
$560,000,000.
154
‘‘(iv) For fiscal year 2000, such
amount 
shall 
be 
not 
less 
than
$620,000,000 
and 
not 
more 
than
$630,000,000.
‘‘(v) For fiscal year 2001, such
amount 
shall 
be 
not 
less 
than
$670,000,000 
and 
not 
more 
than
$680,000,000.
‘‘(vi) For fiscal year 2002, such
amount 
shall 
be 
not 
less 
than
$690,000,000 
and 
not 
more 
than
$700,000,000.
‘‘(vii) For each fiscal year after fiscal
year 2002, such amount shall be not less
than $710,000,000 and not more than
$720,000,000.
‘‘(5) ANNUAL REPORT.—The Secretary and the
Attorney General shall submit jointly an annual re-
port to Congress on the amount of revenue which is
generated and disbursed, and the justification for
such disbursements, by the Account in each fiscal
year.’’.
155
SEC. 202. MEDICARE INTEGRITY PROGRAM.
(a) ESTABLISHMENT OF MEDICARE INTEGRITY PRO-
GRAM.—Title XVIII is amended by adding at the end the
following new section:
‘‘MEDICARE INTEGRITY PROGRAM
‘‘SEC. 1893. (a) ESTABLISHMENT OF PROGRAM.—
There is hereby established the Medicare Integrity Pro-
gram (in this section referred to as the ‘Program’) under
which the Secretary shall promote the integrity of the
medicare program by entering into contracts in accord-
ance with this section with eligible private entities to carry
out the activities described in subsection (b).
‘‘(b) ACTIVITIES DESCRIBED.—The activities de-
scribed in this subsection are as follows:
‘‘(1) Review of activities of providers of services
or other individuals and entities furnishing items
and services for which payment may be made under
this title (including skilled nursing facilities and
home health agencies), including medical and utiliza-
tion review and fraud review (employing similar
standards, processes, and technologies used by pri-
vate health plans, including equipment and software
technologies which surpass the capability of the
equipment and technologies used in the review of
claims under this title as of the date of the enact-
ment of this section).
156
‘‘(2) Audit of cost reports.
‘‘(3) Determinations as to whether payment
should not be, or should not have been, made under
this title by reason of section 1862(b), and recovery
of payments that should not have been made.
‘‘(4) Education of providers of services, bene-
ficiaries, and other persons with respect to payment
integrity and benefit quality assurance issues.
‘‘(5) Developing (and periodically updating) a
list of items of durable medical equipment in accord-
ance with section 1834(a)(15) which are subject to
prior authorization under such section.
‘‘(c) ELIGIBILITY OF ENTITIES.—An entity is eligible
to enter into a contract under the Program to carry out
any of the activities described in subsection (b) if—
‘‘(1) the entity has demonstrated capability to
carry out such activities;
‘‘(2) in carrying out such activities, the entity
agrees to cooperate with the Inspector General of
the Department of Health and Human Services, the
Attorney General of the United States, and other
law enforcement agencies, as appropriate, in the in-
vestigation and deterrence of fraud and abuse in re-
lation to this title and in other cases arising out of
such activities;
157
‘‘(3) the entity demonstrates to the Secretary
that the entity’s financial holdings, interests, or rela-
tionships will not interfere with its ability to perform
the functions to be required by the contract in an ef-
fective and impartial manner; and
‘‘(4) the entity meets such other requirements
as the Secretary may impose.
In the case of the activity described in subsection (b)(5),
an entity shall be deemed to be eligible to enter into a
contract under the Program to carry out the activity if
the entity is a carrier with a contract in effect under sec-
tion 1842.
‘‘(d) PROCESS FOR ENTERING INTO CONTRACTS.—
The Secretary shall enter into contracts under the Pro-
gram in accordance with such procedures as the Secretary
shall by regulation establish, except that such procedures
shall include the following:
‘‘(1) The Secretary shall determine the appro-
priate number of separate contracts which are nec-
essary to carry out the Program and the appropriate
times at which the Secretary shall enter into such
contracts.
‘‘(2)(A) Except as provided in subparagraph
(B), the provisions of section 1153(e)(1) shall apply
158
to contracts and contracting authority under this
section.
‘‘(B) Competitive procedures must be used
when entering into new contracts under this section,
or at any other time considered appropriate by the
Secretary, except that the Secretary may contract
with entities that are carrying out the activities de-
scribed in this section pursuant to agreements under
section 1816 or contracts under section 1842 in ef-
fect on the date of the enactment of this section.
‘‘(3) A contract under this section may be re-
newed without regard to any provision of law requir-
ing competition if the contractor has met or ex-
ceeded the performance requirements established in
the current contract.
‘‘(e) LIMITATION ON CONTRACTOR LIABILITY.—The
Secretary shall by regulation provide for the limitation of
a contractor’s liability for actions taken to carry out a con-
tract under the Program, and such regulation shall, to the
extent the Secretary finds appropriate, employ the same
or comparable standards and other substantive and proce-
dural provisions as are contained in section 1157.’’.
(b) ELIMINATION OF FI AND CARRIER RESPONSIBIL-
ITY FOR CARRYING OUT ACTIVITIES SUBJECT TO PRO-
GRAM.—
159
(1) 
RESPONSIBILITIES
OF
FISCAL
INTERMEDIARIES
UNDER
PART
A.—Section 1816
(42 U.S.C. 1395h) is amended by adding at the end
the following new subsection:
‘‘(l) No agency or organization may carry out (or re-
ceive payment for carrying out) any activity pursuant to
an agreement under this section to the extent that the ac-
tivity is carried out pursuant to a contract under the Med-
icare Integrity Program under section 1893.’’.
(2) RESPONSIBILITIES
OF
CARRIERS
UNDER
PART B.—Section 1842(c) (42 U.S.C. 1395u(c)) is
amended by adding at the end the following new
paragraph:
‘‘(6) No carrier may carry out (or receive payment
for carrying out) any activity pursuant to a contract under
this subsection to the extent that the activity is carried
out pursuant to a contract under the Medicare Integrity
Program under section 1893. The previous sentence shall
not apply with respect to the activity described in section
1893(b)(5) (relating to prior authorization of certain
items of durable medical equipment under section
1834(a)(15)).’’.
SEC. 203. BENEFICIARY INCENTIVE PROGRAMS.
(a) CLARIFICATION OF REQUIREMENT TO PROVIDE
EXPLANATION OF MEDICARE BENEFITS.—The Secretary
160
of Health and Human Services (in this section referred
to as the ‘‘Secretary’’) shall provide an explanation of ben-
efits under the medicare program under title XVIII of the
Social Security Act with respect to each item or service
for which payment may be made under the program which
is furnished to an individual, without regard to whether
or not a deductible or coinsurance may be imposed against
the individual with respect to the item or service.
(b) PROGRAM TO COLLECT INFORMATION ON FRAUD
AND ABUSE.—
(1) ESTABLISHMENT OF PROGRAM.—Not later
than 3 months after the date of the enactment of
this Act, the Secretary shall establish a program
under which the Secretary shall encourage individ-
uals to report to the Secretary information on indi-
viduals and entities who are engaging or who have
engaged in acts or omissions which constitute
grounds for the imposition of a sanction under sec-
tion 1128, section 1128A, or section 1128B of the
Social Security Act, or who have otherwise engaged
in fraud and abuse against the medicare program
for which there is a sanction provided under law.
The program shall discourage provision of, and not
consider, information which is frivolous or otherwise
161
not relevant or material to the imposition of such a
sanction.
(2) PAYMENT OF PORTION OF AMOUNTS COL-
LECTED.—If an individual reports information to
the Secretary under the program established under
paragraph (1) which serves as the basis for the col-
lection by the Secretary or the Attorney General of
any amount of at least $100 (other than any
amount paid as a penalty under section 1128B of
the Social Security Act), the Secretary may pay a
portion of the amount collected to the individual
(under procedures similar to those applicable under
section 7623 of the Internal Revenue Code of 1986
to payments to individuals providing information on
violations of such Code).
(c) PROGRAM TO COLLECT INFORMATION ON PRO-
GRAM EFFICIENCY.—
(1) ESTABLISHMENT OF PROGRAM.—Not later
than 3 months after the date of the enactment of
this Act, the Secretary shall establish a program
under which the Secretary shall encourage individ-
uals to submit to the Secretary suggestions on meth-
ods to improve the efficiency of the medicare pro-
gram.
162
(2) PAYMENT OF PORTION OF PROGRAM SAV-
INGS.—If an individual submits a suggestion to the
Secretary under the program established under
paragraph (1) which is adopted by the Secretary and
which results in savings to the program, the Sec-
retary may make a payment to the individual of
such amount as the Secretary considers appropriate.
SEC. 204. APPLICATION OF CERTAIN HEALTH ANTI-FRAUD
AND ABUSE SANCTIONS TO FRAUD AND
ABUSE AGAINST FEDERAL HEALTH CARE
PROGRAMS.
(a) IN
GENERAL.—Section 1128B (42 U.S.C.
1320a–7b) is amended as follows:
(1) In the heading, by striking ‘‘MEDICARE OR
STATE
HEALTH
CARE
PROGRAMS’’ and inserting
‘‘FEDERAL HEALTH CARE PROGRAMS’’.
(2) In subsection (a)(1), by striking ‘‘a program
under title XVIII or a State health care program (as
defined in section 1128(h))’’ and inserting ‘‘a Fed-
eral health care program’’.
(3) In subsection (a)(5), by striking ‘‘a program
under title XVIII or a State health care program’’
and inserting ‘‘a Federal health care program’’.
(4) In the second sentence of subsection (a)—
163
(A) by striking ‘‘a State plan approved
under title XIX’’ and inserting ‘‘a Federal
health care program’’, and
(B) by striking ‘‘the State may at its op-
tion (notwithstanding any other provision of
that title or of such plan)’’ and inserting ‘‘the
administrator of such program may at its op-
tion (notwithstanding any other provision of
such program)’’.
(5) In subsection (b), by striking ‘‘title XVIII
or a State health care program’’ each place it ap-
pears and inserting ‘‘a Federal health care pro-
gram’’.
(6) In subsection (c), by inserting ‘‘(as defined
in section 1128(h))’’ after ‘‘a State health care pro-
gram’’.
(7) By adding at the end the following new sub-
section:
‘‘(f) For purposes of this section, the term ‘Federal
health care program’ means—
‘‘(1) any plan or program that provides health
benefits, whether directly, through insurance, or oth-
erwise, which is funded directly, in whole or in part,
by the United States Government (other than the
164
health insurance program under chapter 89 of title
5, United States Code); or
‘‘(2) any State health care program, as defined
in section 1128(h).’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 1997.
SEC. 205. GUIDANCE REGARDING APPLICATION OF HEALTH
CARE FRAUD AND ABUSE SANCTIONS.
Title XI (42 U.S.C. 1301 et seq.), as amended by
section 201, is amended by inserting after section 1128C
the following new section:
‘‘GUIDANCE REGARDING APPLICATION OF HEALTH CARE
FRAUD AND ABUSE SANCTIONS
‘‘SEC. 1128D. (a) SOLICITATION AND PUBLICATION
OF MODIFICATIONS TO EXISTING SAFE HARBORS AND
NEW SAFE HARBORS.—
‘‘(1) IN GENERAL.—
‘‘(A) SOLICITATION
OF
PROPOSALS
FOR
SAFE
HARBORS.—Not later than January 1,
1997, and not less than annually thereafter, the
Secretary shall publish a notice in the Federal
Register soliciting proposals, which will be ac-
cepted during a 60-day period, for—
‘‘(i) modifications to existing safe har-
bors issued pursuant to section 14(a) of
the Medicare and Medicaid Patient and
165
Program Protection Act of 1987 (42
U.S.C. 1320a–7b note);
‘‘(ii) additional safe harbors specifying
payment practices that shall not be treated
as a criminal offense under section
1128B(b) and shall not serve as the basis
for an exclusion under section 1128(b)(7);
‘‘(iii) advisory opinions to be issued
pursuant to subsection (b); and
‘‘(iv) special fraud alerts to be issued
pursuant to subsection (c).
‘‘(B) PUBLICATION
OF
PROPOSED
MODI-
FICATIONS AND PROPOSED ADDITIONAL SAFE
HARBORS.—After considering the proposals de-
scribed in clauses (i) and (ii) of subparagraph
(A), the Secretary, in consultation with the At-
torney General, shall publish in the Federal
Register proposed modifications to existing safe
harbors and proposed additional safe harbors, if
appropriate, with a 60-day comment period.
After considering any public comments received
during this period, the Secretary shall issue
final rules modifying the existing safe harbors
and establishing new safe harbors, as appro-
priate.
166
‘‘(C) REPORT.—The Inspector General of
the Department of Health and Human Services
(in this section referred to as the ‘Inspector
General’) shall, in an annual report to Congress
or as part of the year-end semiannual report re-
quired by section 5 of the Inspector General
Act of 1978 (5 U.S.C. App.), describe the pro-
posals received under clauses (i) and (ii) of sub-
paragraph (A) and explain which proposals
were included in the publication described in
subparagraph (B), which proposals were not in-
cluded in that publication, and the reasons for
the rejection of the proposals that were not in-
cluded.
‘‘(2) CRITERIA
FOR
MODIFYING
AND
ESTAB-
LISHING SAFE HARBORS.—In modifying and estab-
lishing safe harbors under paragraph (1)(B), the
Secretary may consider the extent to which provid-
ing a safe harbor for the specified payment practice
may result in any of the following:
‘‘(A) An increase or decrease in access to
health care services.
‘‘(B) An increase or decrease in the quality
of health care services.
167
‘‘(C) An increase or decrease in patient
freedom of choice among health care providers.
‘‘(D) An increase or decrease in competi-
tion among health care providers.
‘‘(E) An increase or decrease in the ability
of health care facilities to provide services in
medically underserved areas or to medically un-
derserved populations.
‘‘(F) An increase or decrease in the cost to
Federal health care programs (as defined in
section 1128B(f)).
‘‘(G) An increase or decrease in the poten-
tial overutilization of health care services.
‘‘(H) The existence or nonexistence of any
potential financial benefit to a health care pro-
fessional or provider which may vary based on
their decisions of—
‘‘(i) whether to order a health care
item or service; or
‘‘(ii) whether to arrange for a referral
of health care items or services to a par-
ticular practitioner or provider.
‘‘(I) Any other factors the Secretary deems
appropriate in the interest of preventing fraud
168
and abuse in Federal health care programs (as
so defined).
‘‘(b) ADVISORY OPINIONS.—
‘‘(1) ISSUANCE OF ADVISORY OPINIONS.—The
Secretary shall issue written advisory opinions as
provided in this subsection.
‘‘(2) MATTERS
SUBJECT
TO
ADVISORY
OPIN-
IONS.—The Secretary shall issue advisory opinions
as to the following matters:
‘‘(A) What constitutes prohibited remu-
neration 
within 
the 
meaning 
of 
section
1128B(b).
‘‘(B) Whether an arrangement or proposed
arrangement satisfies the criteria set forth in
section 1128B(b)(3) for activities which do not
result in prohibited remuneration.
‘‘(C) Whether an arrangement or proposed
arrangement satisfies the criteria which the
Secretary has established, or shall establish by
regulation for activities which do not result in
prohibited remuneration.
‘‘(D) What constitutes an inducement to
reduce or limit services to individuals entitled to
benefits under title XVIII or title XIX or title
XXI within the meaning of section 1128B(b).
169
‘‘(E) Whether any activity or proposed ac-
tivity constitutes grounds for the imposition of
a sanction under section 1128, 1128A, or
1128B.
‘‘(3) MATTERS
NOT
SUBJECT
TO
ADVISORY
OPINIONS.—Such advisory opinions shall not address
the following matters:
‘‘(A) Whether the fair market value shall
be, or was paid or received for any goods, serv-
ices or property.
‘‘(B) Whether an individual is a bona fide
employee within the requirements of section
3121(d)(2) of the Internal Revenue Code of
1986.
‘‘(4) EFFECT OF ADVISORY OPINIONS.—
‘‘(A) BINDING
AS
TO
SECRETARY
AND
PARTIES INVOLVED.—Each advisory opinion is-
sued by the Secretary shall be binding as to the
Secretary and the party or parties requesting
the opinion.
‘‘(B) FAILURE
TO
SEEK
OPINION.—The
failure of a party to seek an advisory opinion
may not be introduced into evidence to prove
that the party intended to violate the provisions
of sections 1128, 1128A, or 1128B.
170
‘‘(5) REGULATIONS.—
‘‘(A) IN
GENERAL.—Not later than 180
days after the date of the enactment of this sec-
tion, the Secretary shall issue regulations to
carry out this section. Such regulations shall
provide for—
‘‘(i) the procedure to be followed by a
party applying for an advisory opinion;
‘‘(ii) the procedure to be followed by
the Secretary in responding to a request
for an advisory opinion;
‘‘(iii) the interval in which the Sec-
retary shall respond;
‘‘(iv) the reasonable fee to be charged
to the party requesting an advisory opin-
ion; and
‘‘(v) the manner in which advisory
opinions will be made available to the pub-
lic.
‘‘(B) SPECIFIC
CONTENTS.—Under the
regulations promulgated pursuant to subpara-
graph (A)—
‘‘(i) the Secretary shall be required to
respond to a party requesting an advisory
171
opinion by not later than 30 days after the
request is received; and
‘‘(ii) the fee charged to the party re-
questing an advisory opinion shall be equal
to the costs incurred by the Secretary in
responding to the request.
‘‘(c) SPECIAL FRAUD ALERTS.—
‘‘(1) IN GENERAL.—
‘‘(A) 
REQUEST
FOR
SPECIAL
FRAUD
ALERTS.—Any person may present, at any
time, a request to the Inspector General for a
notice which informs the public of practices
which the Inspector General considers to be
suspect or of particular concern under the med-
icare program or a State health care program,
as defined in section 1128(h) (in this subsection
referred to as a ‘special fraud alert’).
‘‘(B) ISSUANCE AND PUBLICATION OF SPE-
CIAL FRAUD ALERTS.—Upon receipt of a re-
quest described in subparagraph (A), the In-
spector General shall investigate the subject
matter of the request to determine whether a
special fraud alert should be issued. If appro-
priate, the Inspector General shall issue a spe-
cial fraud alert in response to the request. All
172
special fraud alerts issued pursuant to this sub-
paragraph shall be published in the Federal
Register.
‘‘(2) CRITERIA FOR SPECIAL FRAUD ALERTS.—
In determining whether to issue a special fraud alert
upon a request described in paragraph (1), the In-
spector General may consider—
‘‘(A) whether and to what extent the prac-
tices that would be identified in the special
fraud alert may result in any of the con-
sequences described in subsection (a)(2); and
‘‘(B) the volume and frequency of the con-
duct that would be identified in the special
fraud alert.’’.
Subtitle B—Revisions to Current
Sanctions for Fraud and Abuse
SEC. 211. MANDATORY EXCLUSION FROM PARTICIPATION
IN MEDICARE AND STATE HEALTH CARE PRO-
GRAMS.
(a) INDIVIDUAL CONVICTED OF FELONY RELATING
TO HEALTH CARE FRAUD.—
(1) IN GENERAL.—Section 1128(a) (42 U.S.C.
1320a–7(a)) is amended by adding at the end the
following new paragraph:
173
‘‘(3) 
FELONY
CONVICTION
RELATING
TO
HEALTH
CARE
FRAUD.—Any individual or entity
that has been convicted after the date of the enact-
ment of the Health Coverage Availability and Af-
fordability Act of 1996, under Federal or State law,
in connection with the delivery of a health care item
or service or with respect to any act or omission in
a health care program (other than those specifically
described in paragraph (1)) operated by or financed
in whole or in part by any Federal, State, or local
government agency, of a criminal offense consisting
of a felony relating to fraud, theft, embezzlement,
breach of fiduciary responsibility, or other financial
misconduct.’’.
(2) CONFORMING AMENDMENT.—Paragraph (1)
of section 1128(b) (42 U.S.C. 1320a–7(b)) is
amended to read as follows:
‘‘(1) CONVICTION RELATING TO FRAUD.—Any
individual or entity that has been convicted after the
date of the enactment of the Health Coverage Avail-
ability and Affordability Act of 1996, under Federal
or State law—
‘‘(A) of a criminal offense consisting of a
misdemeanor relating to fraud, theft, embezzle-
175
that has been convicted after the date of the enact-
ment of the Health Coverage Availability and Af-
fordability Act of 1996, under Federal or State law,
of a criminal offense consisting of a felony relating
to the unlawful manufacture, distribution, prescrip-
tion, or dispensing of a controlled substance.’’.
(2) 
CONFORMING
AMENDMENT.—Section
1128(b)(3) (42 U.S.C. 1320a–7(b)(3)) is amended—
(A) in the heading, by striking ‘‘CONVIC-
TION’’ and inserting ‘‘MISDEMEANOR CONVIC-
TION’’; and
(B) by striking ‘‘criminal offense’’ and in-
serting ‘‘criminal offense consisting of a mis-
demeanor’’.
SEC. 212. ESTABLISHMENT OF MINIMUM PERIOD OF EX-
CLUSION FOR CERTAIN INDIVIDUALS AND
ENTITIES SUBJECT TO PERMISSIVE EXCLU-
SION FROM MEDICARE AND STATE HEALTH
CARE PROGRAMS.
Section 1128(c)(3) (42 U.S.C. 1320a–7(c)(3)) is
amended by adding at the end the following new subpara-
graphs:
‘‘(D) In the case of an exclusion of an individual or
entity under paragraph (1), (2), or (3) of subsection (b),
the period of the exclusion shall be 3 years, unless the
176
Secretary determines in accordance with published regula-
tions that a shorter period is appropriate because of miti-
gating circumstances or that a longer period is appro-
priate because of aggravating circumstances.
‘‘(E) In the case of an exclusion of an individual or
entity under subsection (b)(4) or (b)(5), the period of the
exclusion shall not be less than the period during which
the individual’s or entity’s license to provide health care
is revoked, suspended, or surrendered, or the individual
or the entity is excluded or suspended from a Federal or
State health care program.
‘‘(F) In the case of an exclusion of an individual or
entity under subsection (b)(6)(B), the period of the exclu-
sion shall be not less than 1 year.’’.
SEC. 213. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH
OWNERSHIP 
OR 
CONTROL 
INTEREST 
IN
SANCTIONED ENTITIES.
Section 1128(b) (42 U.S.C. 1320a–7(b)) is amended
by adding at the end the following new paragraph:
‘‘(15) INDIVIDUALS
CONTROLLING
A
SANC-
TIONED ENTITY.—(A) Any individual—
‘‘(i) who has a direct or indirect ownership
or control interest in a sanctioned entity and
who knows or should know (as defined in sec-
tion 1128A(i)(6)) of the action constituting the
177
basis for the conviction or exclusion described
in subparagraph (B); or
‘‘(ii) who is an officer or managing em-
ployee (as defined in section 1126(b)) of such
an entity.
‘‘(B) For purposes of subparagraph (A), the
term ‘sanctioned entity’ means an entity—
‘‘(i) that has been convicted of any offense
described in subsection (a) or in paragraph (1),
(2), or (3) of this subsection; or
‘‘(ii) that has been excluded from partici-
pation under a program under title XVIII or
under a State health care program.’’.
SEC. 214. SANCTIONS AGAINST PRACTITIONERS AND PER-
SONS FOR FAILURE TO COMPLY WITH STATU-
TORY OBLIGATIONS.
(a) MINIMUM PERIOD OF EXCLUSION FOR PRACTI-
TIONERS AND PERSONS FAILING TO MEET STATUTORY
OBLIGATIONS.—
(1) IN GENERAL.—The second sentence of sec-
tion 1156(b)(1) (42 U.S.C. 1320c–5(b)(1)) is
amended by striking ‘‘may prescribe)’’ and inserting
‘‘may prescribe, except that such period may not be
less than 1 year)’’.
178
(2) 
CONFORMING
AMENDMENT.—Section
1156(b)(2) (42 U.S.C. 1320c–5(b)(2)) is amended
by striking ‘‘shall remain’’ and inserting ‘‘shall (sub-
ject to the minimum period specified in the second
sentence of paragraph (1)) remain’’.
(b) REPEAL OF ‘‘UNWILLING OR UNABLE’’ CONDI-
TION FOR IMPOSITION OF SANCTION.—Section 1156(b)(1)
(42 U.S.C. 1320c–5(b)(1)) is amended—
(1) in the second sentence, by striking ‘‘and de-
termines’’ and all that follows through ‘‘such obliga-
tions,’’; and
(2) by striking the third sentence.
SEC. 215. INTERMEDIATE SANCTIONS FOR MEDICARE
HEALTH MAINTENANCE ORGANIZATIONS.
(a) APPLICATION OF INTERMEDIATE SANCTIONS FOR
ANY PROGRAM VIOLATIONS.—
(1) IN
GENERAL.—Section 1876(i)(1) (42
U.S.C. 1395mm(i)(1)) is amended by striking ‘‘the
Secretary may terminate’’ and all that follows and
inserting ‘‘in accordance with procedures established
under paragraph (9), the Secretary may at any time
terminate any such contract or may impose the in-
termediate sanctions described in paragraph (6)(B)
or (6)(C) (whichever is applicable) on the eligible or-
179
ganization if the Secretary determines that the orga-
nization—
‘‘(A) has failed substantially to carry out the
contract;
‘‘(B) is carrying out the contract in a manner
substantially inconsistent with the efficient and ef-
fective administration of this section; or
‘‘(C) no longer substantially meets the applica-
ble conditions of subsections (b), (c), (e), and (f).’’.
(2) OTHER
INTERMEDIATE
SANCTIONS
FOR
MISCELLANEOUS
PROGRAM
VIOLATIONS.—Section
1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is amended by
adding at the end the following new subparagraph:
‘‘(C) In the case of an eligible organization for which
the Secretary makes a determination under paragraph (1)
the basis of which is not described in subparagraph (A),
the Secretary may apply the following intermediate sanc-
tions:
‘‘(i) Civil money penalties of not more than
$25,000 for each determination under paragraph (1)
if the deficiency that is the basis of the determina-
tion has directly adversely affected (or has the sub-
stantial likelihood of adversely affecting) an individ-
ual covered under the organization’s contract.
180
‘‘(ii) Civil money penalties of not more than
$10,000 for each week beginning after the initiation
of procedures by the Secretary under paragraph (9)
during which the deficiency that is the basis of a de-
termination under paragraph (1) exists.
‘‘(iii) Suspension of enrollment of individuals
under this section after the date the Secretary noti-
fies the organization of a determination under para-
graph (1) and until the Secretary is satisfied that
the deficiency that is the basis for the determination
has been corrected and is not likely to recur.’’.
(3) PROCEDURES FOR IMPOSING SANCTIONS.—
Section 1876(i) (42 U.S.C. 1395mm(i)) is amended
by adding at the end the following new paragraph:
‘‘(9) The Secretary may terminate a contract with an
eligible organization under this section or may impose the
intermediate sanctions described in paragraph (6) on the
organization in accordance with formal investigation and
compliance procedures established by the Secretary under
which—
‘‘(A) the Secretary first provides the organiza-
tion with the reasonable opportunity to develop and
implement a corrective action plan to correct the de-
ficiencies that were the basis of the Secretary’s de-
181
termination under paragraph (1) and the organiza-
tion fails to develop or implement such a plan;
‘‘(B) in deciding whether to impose sanctions,
the Secretary considers aggravating factors such as
whether an organization has a history of deficiencies
or has not taken action to correct deficiencies the
Secretary has brought to the organization’s atten-
tion;
‘‘(C) there are no unreasonable or unnecessary
delays between the finding of a deficiency and the
imposition of sanctions; and
‘‘(D) the Secretary provides the organization
with reasonable notice and opportunity for hearing
(including the right to appeal an initial decision) be-
fore imposing any sanction or terminating the con-
tract.’’.
(4) 
CONFORMING
AMENDMENTS.—Section
1876(i)(6)(B) (42 U.S.C. 1395mm(i)(6)(B)) is
amended by striking the second sentence.
(b) AGREEMENTS WITH PEER REVIEW ORGANIZA-
TIONS.—Section 
1876(i)(7)(A) 
(42 
U.S.C.
1395mm(i)(7)(A)) is amended by striking ‘‘an agreement’’
and inserting ‘‘a written agreement’’.
182
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to contract years be-
ginning on or after January 1, 1996.
SEC. 216. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PEN-
ALTIES FOR DISCOUNTING AND MANAGED
CARE ARRANGEMENTS.
(a) IN GENERAL.—Section 1128B(b)(3) (42 U.S.C.
1320a–7b(b)(3)) is amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (D);
(2) by striking the period at the end of sub-
paragraph (E) and inserting ‘‘; and’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(F) any remuneration between an organization
and an individual or entity providing items or serv-
ices, or a combination thereof, pursuant to a written
agreement between the organization and the individ-
ual or entity if the organization is an eligible organi-
zation under section 1876 or if the written agree-
ment places the individual or entity at substantial fi-
nancial risk for the cost or utilization of the items
or services, or a combination thereof, which the indi-
vidual or entity is obligated to provide, whether
through a withhold, capitation, incentive pool, per
183
diem payment, or any other similar risk arrange-
ment which places the individual or entity at sub-
stantial financial risk.’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to written agreements entered into
on or after January 1, 1997.
SEC. 217. CRIMINAL PENALTY FOR FRAUDULENT DISPOSI-
TION OF ASSETS IN ORDER TO OBTAIN MED-
ICAID BENEFITS.
Section 1128B(a) (42 U.S.C. 1320a–7b(a)) is
amended—
(1) by striking ‘‘or’’ at the end of paragraph
(4);
(2) by adding ‘‘or’’ at the end of paragraph (5);
and
(3) by inserting after paragraph (5) the follow-
ing new paragraph:
‘‘(6) knowingly and willfully disposes of assets
(including by any transfer in trust) in order for an
individual to become eligible for medical assistance
under a State plan under title XIX, if disposing of
the assets results in the imposition of a period of in-
eligibility 
for 
such 
assistance 
under 
section
1917(c),’’.
184
SEC. 218. EFFECTIVE DATE.
Except as otherwise provided, the amendments made
by this subtitle shall take effect January 1, 1997.
Subtitle C—Data Collection
SEC. 221. ESTABLISHMENT OF THE HEALTH CARE FRAUD
AND ABUSE DATA COLLECTION PROGRAM.
(a) IN GENERAL.—Title XI (42 U.S.C. 1301 et seq.),
as amended by sections 201 and 205, is amended by in-
serting after section 1128D the following new section:
‘‘HEALTH CARE FRAUD AND ABUSE DATA COLLECTION
PROGRAM
‘‘SEC. 1128E. (a) GENERAL PURPOSE.—Not later
than January 1, 1997, the Secretary shall establish a na-
tional health care fraud and abuse data collection program
for the reporting of final adverse actions (not including
settlements in which no findings of liability have been
made) against health care providers, suppliers, or practi-
tioners as required by subsection (b), with access as set
forth in subsection (c).
‘‘(b) REPORTING OF INFORMATION.—
‘‘(1) IN GENERAL.—Each Government agency
and health plan shall report any final adverse action
(not including settlements in which no findings of li-
ability have been made) taken against a health care
provider, supplier, or practitioner.
185
‘‘(2) INFORMATION TO BE REPORTED.—The in-
formation to be reported under paragraph (1) in-
cludes:
‘‘(A) The name and TIN (as defined in
section 7701(a)(41) of the Internal Revenue
Code of 1986) of any health care provider, sup-
plier, or practitioner who is the subject of a
final adverse action.
‘‘(B) The name (if known) of any health
care entity with which a health care provider,
supplier, or practitioner is affiliated or associ-
ated.
‘‘(C) The nature of the final adverse action
and whether such action is on appeal.
‘‘(D) A description of the acts or omissions
and injuries upon which the final adverse action
was based, and such other information as the
Secretary determines by regulation is required
for appropriate interpretation of information re-
ported under this section.
‘‘(3) CONFIDENTIALITY.—In determining what
information is required, the Secretary shall include
procedures to assure that the privacy of individuals
receiving health care services is appropriately pro-
tected.
186
‘‘(4) TIMING AND FORM OF REPORTING.—The
information required to be reported under this sub-
section shall be reported regularly (but not less often
than monthly) and in such form and manner as the
Secretary prescribes. Such information shall first be
required to be reported on a date specified by the
Secretary.
‘‘(5) TO WHOM REPORTED.—The information
required to be reported under this subsection shall
be reported to the Secretary.
‘‘(c) DISCLOSURE AND CORRECTION OF INFORMA-
TION.—
‘‘(1) DISCLOSURE.—With respect to the infor-
mation about final adverse actions (not including
settlements in which no findings of liability have
been made) reported to the Secretary under this sec-
tion respecting a health care provider, supplier, or
practitioner, the Secretary shall, by regulation, pro-
vide for—
‘‘(A) disclosure of the information, upon
request, to the health care provider, supplier, or
licensed practitioner, and
‘‘(B) procedures in the case of disputed ac-
curacy of the information.
187
‘‘(2) CORRECTIONS.—Each Government agency
and health plan shall report corrections of informa-
tion already reported about any final adverse action
taken against a health care provider, supplier, or
practitioner, in such form and manner that the Sec-
retary prescribes by regulation.
‘‘(d) ACCESS TO REPORTED INFORMATION.—
‘‘(1) AVAILABILITY.—The information in this
database shall be available to Federal and State gov-
ernment agencies and health plans pursuant to pro-
cedures that the Secretary shall provide by regula-
tion.
‘‘(2) FEES FOR DISCLOSURE.—The Secretary
may establish or approve reasonable fees for the dis-
closure of information in this database (other than
with respect to requests by Federal agencies). The
amount of such a fee shall be sufficient to recover
the full costs of operating the database. Such fees
shall be available to the Secretary or, in the Sec-
retary’s discretion to the agency designated under
this section to cover such costs.
‘‘(e) PROTECTION FROM LIABILITY FOR REPORT-
ING.—No person or entity, including the agency des-
ignated by the Secretary in subsection (b)(5) shall be held
liable in any civil action with respect to any report made
188
as required by this section, without knowledge of the fal-
sity of the information contained in the report.
‘‘(f) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section:
‘‘(1) FINAL ADVERSE ACTION.—
‘‘(A) IN GENERAL.—The term ‘final ad-
verse action’ includes:
‘‘(i) Civil judgments against a health
care provider, supplier, or practitioner in
Federal or State court related to the deliv-
ery of a health care item or service.
‘‘(ii) Federal or State criminal convic-
tions related to the delivery of a health
care item or service.
‘‘(iii) Actions by Federal or State
agencies responsible for the licensing and
certification of health care providers, sup-
pliers, and licensed health care practition-
ers, including—
‘‘(I) formal or official actions,
such as revocation or suspension of a
license (and the length of any such
suspension), reprimand, censure or
probation,
189
‘‘(II) any other loss of license or
the right to apply for, or renew, a li-
cense of the provider, supplier, or
practitioner, whether by operation of
law, voluntary surrender, non-renew-
ability, or otherwise, or
‘‘(III) any other negative action
or finding by such Federal or State
agency that is publicly available infor-
mation.
‘‘(iv) Exclusion from participation in
Federal or State health care programs.
‘‘(v) Any other adjudicated actions or
decisions that the Secretary shall establish
by regulation.
‘‘(B) EXCEPTION.—The term does not in-
clude any action with respect to a malpractice
claim.
‘‘(2) 
PRACTITIONER.—The 
terms 
‘licensed
health care practitioner’, ‘licensed practitioner’, and
‘practitioner’ mean, with respect to a State, an indi-
vidual who is licensed or otherwise authorized by the
State to provide health care services (or any individ-
ual who, without authority holds himself or herself
out to be so licensed or authorized).
190
‘‘(3) GOVERNMENT AGENCY.—The term ‘Gov-
ernment agency’ shall include:
‘‘(A) The Department of Justice.
‘‘(B) The Department of Health and
Human Services.
‘‘(C) Any other Federal agency that either
administers or provides payment for the deliv-
ery of health care services, including, but not
limited to the Department of Defense and the
Veterans’ Administration.
‘‘(D) State law enforcement agencies.
‘‘(E) State medicaid fraud control units.
‘‘(F) Federal or State agencies responsible
for the licensing and certification of health care
providers and licensed health care practitioners.
‘‘(4) HEALTH PLAN.—The term ‘health plan’
has the meaning given such term by section
1128C(c).
‘‘(5) DETERMINATION
OF
CONVICTION.—For
purposes of paragraph (1), the existence of a convic-
tion shall be determined under paragraph (4) of sec-
tion 1128(i).’’.
(b) IMPROVED PREVENTION IN ISSUANCE OF MEDI-
CARE PROVIDER NUMBERS.—Section 1842(r) (42 U.S.C.
1395u(r)) is amended by adding at the end the following
191
new sentence: ‘‘Under such system, the Secretary may im-
pose appropriate fees on such physicians to cover the costs
of investigation and recertification activities with respect
to the issuance of the identifiers.’’.
Subtitle D—Civil Monetary
Penalties
SEC. 231. SOCIAL SECURITY ACT CIVIL MONETARY PEN-
ALTIES.
(a) GENERAL CIVIL MONETARY PENALTIES.—Sec-
tion 1128A (42 U.S.C. 1320a–7a) is amended as follows:
(1) In the third sentence of subsection (a), by
striking ‘‘programs under title XVIII’’ and inserting
‘‘Federal health care programs (as defined in section
1128B(f)(1))’’.
(2) In subsection (f)—
(A) by redesignating paragraph (3) as
paragraph (4); and
(B) by inserting after paragraph (2) the
following new paragraph:
‘‘(3) With respect to amounts recovered arising
out of a claim under a Federal health care program
(as defined in section 1128B(f)), the portion of such
amounts as is determined to have been paid by the
program shall be repaid to the program, and the
portion of such amounts attributable to the amounts
192
recovered under this section by reason of the amend-
ments made by the Health Coverage Availability and
Affordability Act of 1996 (as estimated by the Sec-
retary) shall be deposited into the Federal Hospital
Insurance 
Trust 
Fund 
pursuant 
to 
section
1817(k)(2)(C).’’.
(3) In subsection (i)—
(A) in paragraph (2), by striking ‘‘title V,
XVIII, XIX, or XX of this Act’’ and inserting
‘‘a Federal health care program (as defined in
section 1128B(f))’’,
(B) in paragraph (4), by striking ‘‘a health
insurance or medical services program under
title XVIII or XIX of this Act’’ and inserting
‘‘a Federal health care program (as so de-
fined)’’, and
(C) in paragraph (5), by striking ‘‘title V,
XVIII, XIX, or XX’’ and inserting ‘‘a Federal
health care program (as so defined)’’.
(4) By adding at the end the following new sub-
section:
‘‘(m)(1) For purposes of this section, with respect to
a Federal health care program not contained in this Act,
references to the Secretary in this section shall be deemed
to be references to the Secretary or Administrator of the
193
department or agency with jurisdiction over such program
and references to the Inspector General of the Department
of Health and Human Services in this section shall be
deemed to be references to the Inspector General of the
applicable department or agency.
‘‘(2)(A) The Secretary and Administrator of the de-
partments and agencies referred to in paragraph (1) may
include in any action pursuant to this section, claims with-
in the jurisdiction of other Federal departments or agen-
cies as long as the following conditions are satisfied:
‘‘(i) The case involves primarily claims submit-
ted to the Federal health care programs of the de-
partment or agency initiating the action.
‘‘(ii) The Secretary or Administrator of the de-
partment or agency initiating the action gives notice
and an opportunity to participate in the investiga-
tion to the Inspector General of the department or
agency with primary jurisdiction over the Federal
health care programs to which the claims were sub-
mitted.
‘‘(B) If the conditions specified in subparagraph (A)
are fulfilled, the Inspector General of the department or
agency initiating the action is authorized to exercise all
powers granted under the Inspector General Act of 1978
with respect to the claims submitted to the other depart-
194
ments or agencies to the same manner and extent as pro-
vided in that Act with respect to claims submitted to such
departments or agencies.’’.
(b) EXCLUDED INDIVIDUAL RETAINING OWNERSHIP
OR CONTROL INTEREST IN PARTICIPATING ENTITY.—
Section 1128A(a) (42 U.S.C. 1320a–7a(a)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(1)(D);
(2) by striking ‘‘, or’’ at the end of paragraph
(2) and inserting a semicolon;
(3) by striking the semicolon at the end of
paragraph (3) and inserting ‘‘; or’’; and
(4) by inserting after paragraph (3) the follow-
ing new paragraph:
‘‘(4) in the case of a person who is not an orga-
nization, agency, or other entity, is excluded from
participating in a program under title XVIII or a
State health care program in accordance with this
subsection or under section 1128 and who, at the
time of a violation of this subsection—
‘‘(A) retains a direct or indirect ownership
or control interest in an entity that is partici-
pating in a program under title XVIII or a
State health care program, and who knows or
195
should know of the action constituting the basis
for the exclusion; or
‘‘(B) is an officer or managing employee
(as defined in section 1126(b)) of such an en-
tity;’’.
(c) MODIFICATIONS
OF AMOUNTS
OF PENALTIES
AND
ASSESSMENTS.—Section 1128A(a) (42 U.S.C.
1320a–7a(a)), as amended by subsection (b), is amended
in the matter following paragraph (4)—
(1) 
by 
striking 
‘‘$2,000’’ 
and 
inserting
‘‘$10,000’’;
(2) by inserting ‘‘; in cases under paragraph
(4), $10,000 for each day the prohibited relationship
occurs’’ after ‘‘false or misleading information was
given’’; and
(3) by striking ‘‘twice the amount’’ and insert-
ing ‘‘3 times the amount’’.
(d) CLAIM FOR ITEM OR SERVICE BASED ON INCOR-
RECT CODING
OR MEDICALLY UNNECESSARY SERV-
ICES.—Section 1128A(a)(1) (42 U.S.C. 1320a–7a(a)(1))
is amended—
(1) in subparagraph (A) by striking ‘‘claimed,’’
and inserting ‘‘claimed, including any person who
engages in a pattern or practice of presenting or
causing to be presented a claim for an item or serv-
196
ice that is based on a code that the person knows
or should know will result in a greater payment to
the person than the code the person knows or should
know is applicable to the item or service actually
provided,’’;
(2) in subparagraph (C), by striking ‘‘or’’ at
the end; and
(3) by inserting after subparagraph (D) the fol-
lowing new subparagraph:
‘‘(E) is for a medical or other item or serv-
ice that a person knows or should know is not
medically necessary; or’’.
(e) SANCTIONS AGAINST PRACTITIONERS AND PER-
SONS FOR FAILURE TO COMPLY WITH STATUTORY OBLI-
GATIONS.—Section 1156(b)(3) (42 U.S.C. 1320c–5(b)(3))
is amended by striking ‘‘the actual or estimated cost’’ and
inserting ‘‘up to $10,000 for each instance’’.
(f) PROCEDURAL PROVISIONS.—Section 1876(i)(6)
(42 U.S.C. 1395mm(i)(6)), as amended by section
215(a)(2), is amended by adding at the end the following
new subparagraph:
‘‘(D) The provisions of section 1128A (other than
subsections (a) and (b)) shall apply to a civil money pen-
alty under subparagraph (B)(i) or (C)(i) in the same man-
197
ner as such provisions apply to a civil money penalty or
proceeding under section 1128A(a).’’.
(g) PROHIBITION AGAINST OFFERING INDUCEMENTS
TO
INDIVIDUALS
ENROLLED
UNDER
PROGRAMS
OR
PLANS.—
(1) 
OFFER
OF
REMUNERATION.—Section
1128A(a) (42 U.S.C. 1320a–7a(a)), as amended by
subsection (b), is amended—
(A) by striking ‘‘or’’ at the end of para-
graph (3);
(B) by striking the semicolon at the end of
paragraph (4) and inserting ‘‘; or’’; and
(D) by inserting after paragraph (4) the
following new paragraph:
‘‘(5) offers to or transfers remuneration to any
individual eligible for benefits under title XVIII of
this Act, or under a State health care program (as
defined in section 1128(h)) that such person knows
or should know is likely to influence such individual
to order or receive from a particular provider, practi-
tioner, or supplier any item or service for which pay-
ment may be made, in whole or in part, under title
XVIII, or a State health care program (as so de-
fined);’’.
198
(2) 
REMUNERATION
DEFINED.—Section
1128A(i) (42 U.S.C. 1320a–7a(i)) is amended by
adding at the end the following new paragraph:
‘‘(6) The term ‘remuneration’ includes the waiv-
er of coinsurance and deductible amounts (or any
part thereof), and transfers of items or services for
free or for other than fair market value. The term
‘remuneration’ does not include—
‘‘(A) the waiver of coinsurance and deduct-
ible amounts by a person, if—
‘‘(i) the waiver is not offered as part
of any advertisement or solicitation;
‘‘(ii) the person does not routinely
waive coinsurance or deductible amounts;
and
‘‘(iii) the person—
‘‘(I) waives the coinsurance and
deductible amounts after determining
in good faith that the individual is in
financial need;
‘‘(II) fails to collect coinsurance
or deductible amounts after making
reasonable collection efforts; or
‘‘(III) provides for any permis-
sible waiver as specified in section
199
1128B(b)(3) or in regulations issued
by the Secretary;
‘‘(B) differentials in coinsurance and de-
ductible amounts as part of a benefit plan de-
sign as long as the differentials have been dis-
closed in writing to all beneficiaries, third party
payers, and providers, to whom claims are pre-
sented and as long as the differentials meet the
standards as defined in regulations promulgated
by the Secretary not later than 180 days after
the date of the enactment of the Health Cov-
erage Availability and Affordability Act of
1996; or
‘‘(C) incentives given to individuals to pro-
mote the delivery of preventive care as deter-
mined by the Secretary in regulations so pro-
mulgated.’’.
(h) EFFECTIVE DATE.—The amendments made by
this section shall take effect January 1, 1997.
SEC. 232. CLARIFICATION OF LEVEL OF INTENT REQUIRED
FOR IMPOSITION OF SANCTIONS.
(a) CLARIFICATION OF LEVEL OF KNOWLEDGE RE-
QUIRED
FOR IMPOSITION
OF CIVIL MONETARY PEN-
ALTIES.—
200
(1) 
IN
GENERAL.—Section 
1128A(a) 
(42
U.S.C. 1320a–7a(a)) is amended—
(A) in paragraphs (1) and (2), by inserting
‘‘knowingly’’ before ‘‘presents’’ each place it ap-
pears; and
(B) in paragraph (3), by striking ‘‘gives’’
and inserting ‘‘knowingly gives or causes to be
given’’.
(2) 
DEFINITION
OF
STANDARD.—Section
1128A(i) (42 U.S.C. 1320a–7a(i)), as amended by
section 231(g)(2), is amended by adding at the end
the following new paragraph:
‘‘(7) The term ‘should know’ means that a per-
son, with respect to information—
‘‘(A) acts in deliberate ignorance of the
truth or falsity of the information; or
‘‘(B) acts in reckless disregard of the truth
or falsity of the information,
and no proof of specific intent to defraud is re-
quired.’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to acts or omissions occurring on
or after January 1, 1997.
201
SEC. 233. PENALTY FOR FALSE CERTIFICATION FOR HOME
HEALTH SERVICES.
(a) IN GENERAL.—Section 1128A(b) (42 U.S.C.
1320a–7a(b)) is amended by adding at the end the follow-
ing new paragraph:
‘‘(3)(A) Any physician who executes a document de-
scribed in subparagraph (B) with respect to an individual
knowing that all of the requirements referred to in such
subparagraph are not met with respect to the individual
shall be subject to a civil monetary penalty of not more
than the greater of—
‘‘(i) $5,000, or
‘‘(ii) three times the amount of the payments
under title XVIII for home health services which are
made pursuant to such certification.
‘‘(B) A document described in this subparagraph is
any document that certifies, for purposes of title XVIII,
that an individual meets the requirements of section
1814(a)(2)(C) or 1835(a)(2)(A) in the case of home
health services furnished to the individual.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to certifications made on or
after the date of the enactment of this Act.
202
Subtitle E—Revisions to Criminal
Law
SEC. 241. DEFINITIONS RELATING TO FEDERAL HEALTH
CARE OFFENSE.
(a) IN GENERAL.—Chapter 1 of title 18, United
States Code, is amended by adding at the end the follow-
ing:
‘‘§ 24. Definitions relating to Federal health care of-
fense
‘‘(a) As used in this title, the term ‘Federal health
care offense’ means a violation of, or a criminal conspiracy
to violate—
‘‘(1) section 669, 1035, 1347, or 1518 of this
title; or
‘‘(2) section 287, 371, 664, 666, 1001, 1027,
1341, 1343, or 1954 of this title, if the violation or
conspiracy relates to a health care benefit program.
‘‘(b) As used in this title, the term ‘health care bene-
fit program’ means any public or private plan or contract,
affecting commerce, under which any medical benefit,
item, or service is provided to any individual, and includes
any individual or entity who is providing a medical benefit,
item, or service for which payment may be made under
the plan or contract.’’.
203
(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 2 of title 18, United States
Code, is amended by inserting after the item relating to
section 23 the following new item:
‘‘24. Definitions relating to Federal health care offense.’’.
SEC. 242. HEALTH CARE FRAUD.
(a) OFFENSE.—
(1) IN GENERAL.—Chapter 63 of title 18, Unit-
ed States Code, is amended by adding at the end the
following:
‘‘§ 1347. Health care fraud
‘‘Whoever knowingly executes, or attempts to execute,
a scheme or artifice—
‘‘(1) to defraud any health care benefit pro-
gram; or
‘‘(2) to obtain, by means of false or fraudulent
pretenses, representations, or promises, any of the
money or property owned by, or under the custody
or control of, any health care benefit program,
in connection with the delivery of or payment for health
care benefits, items, or services, shall be fined under this
title or imprisoned not more than 10 years, or both. If
the violation results in serious bodily injury (as defined
in section 1365 of this title), such person shall be fined
under this title or imprisoned not more than 20 years, or
both; and if the violation results in death, such person
204
shall be fined under this title, or imprisoned for any term
of years or for life, or both.’’.
(2) CLERICAL AMENDMENT.—The table of sec-
tions at the beginning of chapter 63 of title 18,
United States Code, is amended by adding at the
end the following:
‘‘1347. Health care fraud.’’.
(b) CRIMINAL FINES DEPOSITED IN FEDERAL HOS-
PITAL INSURANCE TRUST FUND.—The Secretary of the
Treasury shall deposit into the Federal Hospital Insurance
Trust Fund pursuant to section 1817(k)(2)(C) of the So-
cial Security Act (42 U.S.C. 1395i) an amount equal to
the criminal fines imposed under section 1347 of title 18,
United States Code (relating to health care fraud).
SEC. 243. THEFT OR EMBEZZLEMENT.
(a) IN GENERAL.—Chapter 31 of title 18, United
States Code, is amended by adding at the end the follow-
ing:
‘‘§ 669. Theft or embezzlement in connection with
health care
‘‘(a) Whoever embezzles, steals, or otherwise without
authority knowingly converts to the use of any person
other than the rightful owner, or intentionally misapplies
any of the moneys, funds, securities, premiums, credits,
property, or other assets of a health care benefit program,
shall be fined under this title or imprisoned not more than
205
10 years, or both; but if the value of such property does
not exceed the sum of $100 the defendant shall be fined
under this title or imprisoned not more than one year, or
both.
‘‘(b) As used in this section, the term ‘health care
benefit program’ has the meaning given such term in sec-
tion 1347(b) of this title.’’.
(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 31 of title 18, United States
Code, is amended by adding at the end the following:
‘‘669. Theft or embezzlement in connection with health care.’’.
SEC. 244. FALSE STATEMENTS.
(a) IN GENERAL.—Chapter 47 of title 18, United
States Code, is amended by adding at the end the follow-
ing:
‘‘§ 1035. False statements relating to health care mat-
ters
‘‘(a) Whoever, in any matter involving a health care
benefit program, knowingly—
‘‘(1) falsifies, conceals, or covers up by any
trick, scheme, or device a material fact; or
‘‘(2) makes any false, fictitious, or fraudulent
statements or representations, or makes or uses any
false writing or document knowing the same to con-
tain any false, fictitious, or fraudulent statement or
entry,
206
in connection with the delivery of or payment for health
care benefits, items, or services, shall be fined under this
title or imprisoned not more than 5 years, or both.
‘‘(b) As used in this section, the term ‘health care
benefit program’ has the meaning given such term in sec-
tion 1347(b) of this title.’’.
(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 47 of title 18, United States
Code, is amended by adding at the end the following new
item:
‘‘1035. False statements relating to health care matters.’’.
SEC. 245. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF
HEALTH CARE OFFENSES.
(a) IN GENERAL.—Chapter 73 of title 18, United
States Code, is amended by adding at the end the follow-
ing:
‘‘§ 1518. Obstruction of criminal investigations of
health care offenses
‘‘(a) Whoever willfully prevents, obstructs, misleads,
delays or attempts to prevent, obstruct, mislead, or delay
the communication of information or records relating to
a violation of a Federal health care offense to a criminal
investigator shall be fined under this title or imprisoned
not more than 5 years, or both.
‘‘(b) As used in this section the term ‘criminal inves-
tigator’ means any individual duly authorized by a depart-
208
(b) FREEZING OF ASSETS.—Section 1345(a)(2) of
title 18, United States Code, is amended by inserting ‘‘or
a Federal health care offense’’ after ‘‘title)’’.
SEC. 248. AUTHORIZED INVESTIGATIVE DEMAND PROCE-
DURES.
(a) IN GENERAL.—Chapter 223 of title 18, United
States Code, is amended by adding after section 3485 the
following:
‘‘§ 3486. Authorized investigative demand procedures
‘‘(a) AUTHORIZATION.—In any investigation relating
to any act or activity involving a Federal health care of-
fense, the Attorney General or the Attorney General’s des-
ignee may issue in writing and cause to be served a sub-
poena requiring the production of any records (including
any books, papers, documents, electronic media, or other
objects or tangible things), which may be relevant to an
authorized law enforcement inquiry, that a person or legal
entity may possess or have care, custody, or control. A
subpoena shall describe the objects required to be pro-
duced and prescribe a return date within a reasonable pe-
riod of time within which the objects can be assembled
and made available.
‘‘(b) SERVICE.—A subpoena issued under this section
may be served by any person designated in the subpoena
to serve it. Service upon a natural person may be made
209
by personal delivery of the subpoena to him. Service may
be made upon a domestic or foreign corporation or upon
a partnership or other unincorporated association which
is subject to suit under a common name, by delivering the
subpoena to an officer, to a managing or general agent,
or to any other agent authorized by appointment or by
law to receive service of process. The affidavit of the per-
son serving the subpoena entered on a true copy thereof
by the person serving it shall be proof of service.
‘‘(c) ENFORCEMENT.—In the case of contumacy by
or refusal to obey a subpoena issued to any person, the
Attorney General may invoke the aid of any court of the
United States within the jurisdiction of which the inves-
tigation is carried on or of which the subpoenaed person
is an inhabitant, or in which he carries on business or may
be found, to compel compliance with the subpoena. The
court may issue an order requiring the subpoenaed person
to appear before the Attorney General to produce records,
if so ordered, or to give testimony touching the matter
under investigation. Any failure to obey the order of the
court may be punished by the court as a contempt thereof.
All process in any such case may be served in any judicial
district in which such person may be found.
‘‘(d) IMMUNITY FROM CIVIL LIABILITY.—Notwith-
standing any Federal, State, or local law, any person, in-
210
cluding officers, agents, and employees, receiving a sum-
mons under this section, who complies in good faith with
the summons and thus produces the materials sought,
shall not be liable in any court of any State or the United
States to any customer or other person for such produc-
tion or for nondisclosure of that production to the cus-
tomer.
‘‘(e) LIMITATION ON USE.—(1) Health information
about an individual that is disclosed under this section
may not be used in, or disclosed to any person for use
in, any administrative, civil, or criminal action or inves-
tigation directed against the individual who is the subject
of the information unless the action or investigation arises
out of and is directly related to receipt of health care or
payment for health care or action involving a fraudulent
claim related to health; or if authorized by an appropriate
order of a court of competent jurisdiction, granted after
application showing good cause therefor.
‘‘(2) In assessing good cause, the court shall weigh
the public interest and the need for disclosure against the
injury to the patient, to the physician-patient relationship,
and to the treatment services.
‘‘(3) Upon the granting of such order, the court, in
determining the extent to which any disclosure of all or
211
any part of any record is necessary, shall impose appro-
priate safeguards against unauthorized disclosure.’’.
(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 223 of title 18, United States
Code, is amended by inserting after the item relating to
section 3485 the following new item:
‘‘3486. Authorized investigative demand procedures.’’.
(c) 
CONFORMING
AMENDMENT.—Section
1510(b)(3)(B) of title 18, United States Code, is amended
by inserting ‘‘or a Department of Justice subpoena (issued
under section 3486 of title 18),’’ after ‘‘subpoena’’.
SEC. 249. FORFEITURES FOR FEDERAL HEALTH CARE OF-
FENSES.
(a) IN GENERAL.—Section 982(a) of title 18, United
States Code, is amended by adding after paragraph (5)
the following new paragraph:
‘‘(6) The court, in imposing sentence on a person con-
victed of a Federal health care offense, shall order the per-
son to forfeit property, real or personal, that constitutes
or is derived, directly or indirectly, from gross proceeds
traceable to the commission of the offense.’’.
(b) 
CONFORMING
AMENDMENT.—Section
982(b)(1)(A) of title 18, United States Code, is amended
by inserting ‘‘or (a)(6)’’ after ‘‘(a)(1)’’.
(c) PROPERTY FORFEITED DEPOSITED IN FEDERAL
HOSPITAL INSURANCE TRUST FUND.—
212
(1) IN GENERAL.—After the payment of the
costs of asset forfeiture has been made, and notwith-
standing any other provision of law, the Secretary of
the Treasury shall deposit into the Federal Hospital
Insurance 
Trust 
Fund 
pursuant 
to 
section
1817(k)(2)(C) of the Social Security Act, as added
by section 301(b), an amount equal to the net
amount realized from the forfeiture of property by
reason of a Federal health care offense pursuant to
section 982(a)(6) of title 18, United States Code.
(2) COSTS OF ASSET FORFEITURE.—For pur-
poses of paragraph (1), the term ‘‘payment of the
costs of asset forfeiture’’ means—
(A) the payment, at the discretion of the
Attorney General, of any expenses necessary to
seize, detain, inventory, safeguard, maintain,
advertise, sell, or dispose of property under sei-
zure, detention, or forfeited, or of any other
necessary expenses incident to the seizure, de-
tention, forfeiture, or disposal of such property,
including payment for—
(i) contract services;
(ii) the employment of outside con-
tractors to operate and manage properties
or provide other specialized services nec-
213
essary to dispose of such properties in an
effort to maximize the return from such
properties; and
(iii) reimbursement of any Federal,
State, or local agency for any expenditures
made to perform the functions described in
this subparagraph;
(B) at the discretion of the Attorney Gen-
eral, the payment of awards for information or
assistance leading to a civil or criminal forfeit-
ure involving any Federal agency participating
in the Health Care Fraud and Abuse Control
Account;
(C) the compromise and payment of valid
liens and mortgages against property that has
been forfeited, subject to the discretion of the
Attorney General to determine the validity of
any such lien or mortgage and the amount of
payment to be made, and the employment of at-
torneys and other personnel skilled in State real
estate law as necessary;
(D) payment authorized in connection with
remission or mitigation procedures relating to
property forfeited; and
214
(E) the payment of State and local prop-
erty taxes on forfeited real property that ac-
crued between the date of the violation giving
rise to the forfeiture and the date of the forfeit-
ure order.
SEC. 250. RELATION TO ERISA AUTHORITY.
Nothing in this subtitle shall be construed as affect-
ing the authority of the Secretary of Labor under section
506(b) of the Employee Retirement Income Security Act
of 1974, including the Secretary’s authority with respect
to violations of title 18, United States Code (as amended
by this subtitle).
Subtitle F—Administrative
Simplification
SEC. 251. PURPOSE.
It is the purpose of this subtitle to improve the medi-
care program under title XVIII of the Social Security Act,
the medicaid program under title XIX of such Act, and
the efficiency and effectiveness of the health care system,
by encouraging the development of a health information
system through the establishment of standards and re-
quirements for the electronic transmission of certain
health information.
215
SEC. 252. ADMINISTRATIVE SIMPLIFICATION.
(a) IN GENERAL.—Title XI (42 U.S.C. 1301 et seq.)
is amended by adding at the end the following:
‘‘PART C—ADMINISTRATIVE SIMPLIFICATION
‘‘DEFINITIONS
‘‘SEC. 1171. For purposes of this part:
‘‘(1) CLEARINGHOUSE.—The term ‘clearing-
house’ means a public or private entity that proc-
esses or facilitates the processing of nonstandard
data elements of health information into standard
data elements.
‘‘(2) CODE SET.—The term ‘code set’ means
any set of codes used for encoding data elements,
such as tables of terms, medical concepts, medical
diagnostic codes, or medical procedure codes.
‘‘(3) HEALTH
CARE
PROVIDER.—The term
‘health care provider’ includes a provider of services
(as defined in section 1861(u)), a provider of medi-
cal or other health services (as defined in section
1861(s)), and any other person furnishing health
care services or supplies.
‘‘(4) HEALTH INFORMATION.—The term ‘health
information’ means any information, whether oral or
recorded in any form or medium that—
‘‘(A) is created or received by a health care
provider, insurance plan, public health author-
216
ity, employer, life insurer, school or university,
or clearinghouse; and
‘‘(B) relates to the past, present, or future
physical or mental health or condition of an in-
dividual, the provision of health care to an indi-
vidual, or the past, present, or future payment
for the provision of health care to an individual.
‘‘(5) HEALTH PLAN.—The term ‘health plan’
means a plan which provides, or pays the cost of,
health benefits. Such term includes the following,
and any combination thereof:
‘‘(A) Part A or part B of the medicare
program under title XVIII.
‘‘(B) The medicaid program under title
XIX.
‘‘(C) A medicare supplemental policy (as
defined in section 1882(g)(1)).
‘‘(D) A long-term care policy, including a
nursing home fixed indemnity policy (unless the
Secretary determines that such a policy does
not provide sufficiently comprehensive coverage
of a benefit so that the policy should be treated
as a health plan).
‘‘(E) A hospital or fixed indemnity income-
protection policy.
217
‘‘(F) An employee welfare benefit plan, as
defined in section 3(1) of the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C.
1002(1)), but only to the extent the plan is es-
tablished or maintained for the purpose of pro-
viding health benefits and has 50 or more par-
ticipants (as defined in section 3(7) of such
Act).
‘‘(G) An employee welfare benefit plan or
any other arrangement which is established or
maintained for the purpose of offering or pro-
viding health benefits to the employees of 2 or
more employers.
‘‘(H) The health care program for active
military personnel under title 10, United States
Code.
‘‘(I) The veterans health care program
under chapter 17 of title 38, United States
Code.
‘‘(J) The Civilian Health and Medical Pro-
gram of the Uniformed Services (CHAMPUS),
as defined in section 1073(4) of title 10, United
States Code.
218
‘‘(K) The Indian health service program
under the Indian Health Care Improvement Act
(25 U.S.C. 1601 et seq.).
‘‘(L) The Federal Employees Health Bene-
fit Plan under chapter 89 of title 5, United
States Code.
‘‘(M) Such other plan or arrangement as
the Secretary determines is a health plan.
‘‘(6) INDIVIDUALLY IDENTIFIABLE HEALTH IN-
FORMATION.—The term ‘individually identifiable
health information’ means any information, includ-
ing demographic information collected from an indi-
vidual, that—
‘‘(A) is created or received by a health care
provider, insurance plan, employer, or clearing-
house; and
‘‘(B) relates to the past, present, or future
physical or mental health or condition of an in-
dividual, the provision of health care to an indi-
vidual, or the past, present, or future payment
for the provision of health care to an individual,
and—
‘‘(i) identifies the individual; or
‘‘(ii) with respect to which there is a
reasonable basis to believe that the infor-
219
mation can be used to identify the individ-
ual.
‘‘(7) INSURANCE PLAN.—The term ‘insurance
plan’ means any of the following, or any combination
thereof:
‘‘(A) A health plan.
‘‘(B) General liability insurance.
‘‘(C) Coverage issued as a supplement to
liability insurance.
‘‘(D) Worker’s compensation or similar in-
surance.
‘‘(E) Automobile or automobile medical-
payment insurance.
‘‘(8) STANDARD.—The term ‘standard’, when
used with reference to a data element of health in-
formation or a transaction referred to in section
1173(a)(1), means any such data element or trans-
action that meets each of the standards and imple-
mentation specifications adopted or established by
the Secretary with respect to the data element or
transaction under sections 1172 through 1174.
‘‘(9) STANDARD SETTING ORGANIZATION.—The
term ‘standard setting organization’ means a stand-
ard setting organization accredited by the American
National Standards Institute, including the National
220
Council for Prescription Drug Programs, that devel-
ops standards for information transactions, data ele-
ments, or any other standard that is necessary to,
or will facilitate, the implementation of this part.
‘‘GENERAL REQUIREMENTS FOR ADOPTION OF
STANDARDS
‘‘SEC. 1172. (a) APPLICABILITY.—Any standard
adopted under this part shall apply, in whole or in part,
to the following persons:
‘‘(1) An insurance plan.
‘‘(2) A clearinghouse.
‘‘(3) A health care provider who transmits any
health information in electronic form in connection
with a transaction referred to in section 1173(a)(1).
‘‘(b) REDUCTION OF COSTS.—Any standard adopted
under this part shall be consistent with the objective of
reducing the administrative costs of providing and paying
for health care.
‘‘(c) ROLE
OF
STANDARD
SETTING
ORGANIZA-
TIONS.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), any standard adopted under this part
shall be a standard that has been developed, adopt-
ed, or modified by a standard setting organization.
‘‘(2) SPECIAL RULES.—
221
‘‘(A) DIFFERENT STANDARDS.—The Sec-
retary may adopt a standard that is different
from any standard developed, adopted, or modi-
fied by a standard setting organization, if—
‘‘(i) the different standard will sub-
stantially reduce administrative costs to
health care providers and insurance plans
compared to the alternatives; and
‘‘(ii) the standard is promulgated in
accordance with the rulemaking procedures
of subchapter III of chapter 5 of title 5,
United States Code.
‘‘(B) NO STANDARD BY STANDARD SET-
TING
ORGANIZATION.—If no standard setting
organization has developed, adopted, or modi-
fied any standard relating to a standard that
the Secretary is authorized or required to adopt
under this part—
‘‘(i) paragraph (1) shall not apply;
and
‘‘(ii) subsection (f) shall apply.
‘‘(d) IMPLEMENTATION SPECIFICATIONS.—The Sec-
retary shall establish specifications for implementing each
of the standards adopted under this part.
222
‘‘(e) PROTECTION OF TRADE SECRETS.—Except as
otherwise required by law, a standard adopted under this
part shall not require disclosure of trade secrets or con-
fidential commercial information by a person required to
comply with this part.
‘‘(f) ASSISTANCE TO THE SECRETARY.—In complying
with the requirements of this part, the Secretary shall rely
on the recommendations of the National Committee on
Vital and Health Statistics established under section
306(k) of the Public Health Service Act (42 U.S.C.
242k(k)) and shall consult with appropriate Federal and
State agencies and private organizations. The Secretary
shall publish in the Federal Register any recommendation
of the National Committee on Vital and Health Statistics
regarding the adoption of a standard under this part.
‘‘(g) APPLICATION TO MODIFICATIONS OF STAND-
ARDS.—This section shall apply to a modification to a
standard (including an addition to a standard) adopted
under section 1174(b) in the same manner as it applies
to an initial standard adopted under section 1174(a).
‘‘STANDARDS FOR INFORMATION TRANSACTIONS AND
DATA ELEMENTS
‘‘SEC. 1173. (a) STANDARDS
TO ENABLE ELEC-
TRONIC EXCHANGE.—
‘‘(1) IN GENERAL.—The Secretary shall adopt
standards for transactions, and data elements for
223
such transactions, to enable health information to be
exchanged electronically, that are appropriate for—
‘‘(A) the financial and administrative
transactions described in paragraph (2); and
‘‘(B) other financial and administrative
transactions determined appropriate by the Sec-
retary consistent with the goals of improving
the operation of the health care system and re-
ducing administrative costs.
‘‘(2) TRANSACTIONS.—The transactions re-
ferred to in paragraph (1)(A) are the following:
‘‘(A) Claims (including coordination of
benefits) or equivalent encounter information.
‘‘(B) Claims attachments.
‘‘(C) Enrollment and disenrollment.
‘‘(D) Eligibility.
‘‘(E) Health care payment and remittance
advice.
‘‘(F) Premium payments.
‘‘(G) First report of injury.
‘‘(H) Claims status.
‘‘(I) Referral certification and authoriza-
tion.
‘‘(3) ACCOMMODATION
OF
SPECIFIC
PROVID-
ERS.—The standards adopted by the Secretary
224
under paragraph (1) shall accommodate the needs of
different types of health care providers.
‘‘(b) UNIQUE HEALTH IDENTIFIERS.—
‘‘(1) IN GENERAL.—The Secretary shall adopt
standards providing for a standard unique health
identifier for each individual, employer, insurance
plan, and health care provider for use in the health
care system. In carrying out the preceding sentence
for each insurance plan and health care provider, the
Secretary shall take into account multiple uses for
identifiers and multiple locations and specialty clas-
sifications for health care providers.
‘‘(2) USE
OF
IDENTIFIERS.—The standards
adopted under paragraphs (1) shall specify the pur-
poses for which a unique health identifier may be
used.
‘‘(c) CODE SETS.—
‘‘(1) IN GENERAL.—The Secretary shall adopt
standards that—
‘‘(A) select code sets for appropriate data
elements for the transactions referred to in sub-
section (a)(1) from among the code sets that
have been developed by private and public enti-
ties; or
225
‘‘(B) establish code sets for such data ele-
ments if no code sets for the data elements
have been developed.
‘‘(2) DISTRIBUTION.—The Secretary shall es-
tablish efficient and low-cost procedures for distribu-
tion (including electronic distribution) of code sets
and modifications made to such code sets under sec-
tion 1174(b).
‘‘(d) SECURITY STANDARDS FOR HEALTH INFORMA-
TION.—
‘‘(1) SECURITY
STANDARDS.—The Secretary
shall adopt security standards that—
‘‘(A) take into account—
‘‘(i) the technical capabilities of record
systems used to maintain health informa-
tion;
‘‘(ii) the costs of security measures;
‘‘(iii) the need for training persons
who have access to health information;
‘‘(iv) the value of audit trails in com-
puterized record systems; and
‘‘(v) the needs and capabilities of
small health care providers and rural
health care providers (as such providers
are defined by the Secretary); and
226
‘‘(B) ensure that a clearinghouse, if it is
part of a larger organization, has policies and
security procedures which isolate the activities
of the clearinghouse with respect to processing
information in a manner that prevents unau-
thorized access to such information by such
larger organization.
‘‘(2) SAFEGUARDS.—Each person described in
section 1172(a) who maintains or transmits health
information shall maintain reasonable and appro-
priate administrative, technical, and physical safe-
guards—
‘‘(A) to ensure the integrity and confiden-
tiality of the information;
‘‘(B) to protect against any reasonably an-
ticipated—
‘‘(i) threats or hazards to the security
or integrity of the information; and
‘‘(ii) unauthorized uses or disclosures
of the information; and
‘‘(C) otherwise to ensure compliance with
this part by the officers and employees of such
person.
‘‘(e) PRIVACY STANDARDS FOR HEALTH INFORMA-
TION.—The Secretary shall adopt standards with respect
227
to the privacy of individually identifiable health informa-
tion. Such standards shall include standards concerning
at least the following:
‘‘(1) The rights of an individual who is a sub-
ject of such information.
‘‘(2) The procedures to be established for the
exercise of such rights.
‘‘(3) The uses and disclosures of such informa-
tion that are authorized or required.
‘‘(f) ELECTRONIC SIGNATURE.—
‘‘(1) IN GENERAL.—
‘‘(A) STANDARDS.—The Secretary, in co-
ordination with the Secretary of Commerce,
shall adopt standards specifying procedures for
the electronic transmission and authentication
of signatures with respect to the transactions
referred to in subsection (a)(1).
‘‘(B) EFFECT
OF
COMPLIANCE.—Compli-
ance with the standards adopted under sub-
paragraph (A) shall be deemed to satisfy Fed-
eral and State statutory requirements for writ-
ten signatures with respect to the transactions
referred to in subsection (a)(1).
‘‘(2) PAYMENTS
FOR
SERVICES
AND
PRE-
MIUMS.—Nothing in this part shall be construed to
228
prohibit payment for health care services or insur-
ance plan premiums by debit, credit, payment card
or numbers, or other electronic means.
‘‘(g) TRANSFER OF INFORMATION AMONG INSUR-
ANCE PLANS.—The Secretary shall adopt standards for
transferring among insurance plans appropriate standard
data elements needed for the coordination of benefits, the
sequential processing of claims, and other data elements
for individuals who have more than one insurance plan.
‘‘TIMETABLES FOR ADOPTION OF STANDARDS
‘‘SEC. 1174. (a) INITIAL STANDARDS.—The Sec-
retary shall carry out section 1173 not later than 18
months after the date of the enactment of the Health Cov-
erage Availability and Affordability Act of 1996, except
that standards relating to claims attachments shall be
adopted not later than 30 months after such date.
‘‘(b) ADDITIONS AND MODIFICATIONS TO STAND-
ARDS.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the Secretary shall review the standards
adopted under section 1173, and shall adopt modi-
fications to the standards (including additions to the
standards), as determined appropriate, but not more
frequently than once every 6 months. Any addition
or modification to a standard shall be completed in
229
a manner which minimizes the disruption and cost
of compliance.
‘‘(2) SPECIAL RULES.—
‘‘(A) FIRST
12-MONTH
PERIOD.—Except
with respect to additions and modifications to
code sets under subparagraph (B), the Sec-
retary may not adopt any modification to a
standard adopted under this part during the
12-month period beginning on the date the
standard is initially adopted, unless the Sec-
retary determines that the modification is nec-
essary in order to permit compliance with the
standard.
‘‘(B) ADDITIONS AND MODIFICATIONS TO
CODE SETS.—
‘‘(i) IN
GENERAL.—The Secretary
shall ensure that procedures exist for the
routine maintenance, testing, enhancement,
and expansion of code sets.
‘‘(ii) ADDITIONAL RULES.—If a code
set is modified under this subsection, the
modified code set shall include instructions
on how data elements of health informa-
tion that were encoded prior to the modi-
fication may be converted or translated so
230
as to preserve the informational value of
the data elements that existed before the
modification. Any modification to a code
set under this subsection shall be imple-
mented in a manner that minimizes the
disruption and cost of complying with such
modification.
‘‘REQUIREMENTS
‘‘SEC. 1175. (a) CONDUCT OF TRANSACTIONS BY
PLANS.—
‘‘(1) IN GENERAL.—If a person desires to con-
duct a transaction referred to in section 1173(a)(1)
with an insurance plan as a standard transaction—
‘‘(A) the insurance plan may not refuse to
conduct such transaction as a standard trans-
action;
‘‘(B) the insurance plan may not delay
such transaction, or otherwise adversely affect,
or attempt to adversely affect, the person or the
transaction on the ground that the transaction
is a standard transaction; and
‘‘(C) the information transmitted and re-
ceived in connection with the transaction shall
be in the form of standard data elements of
health information.
231
‘‘(2) SATISFACTION
OF
REQUIREMENTS.—An
insurance plan may satisfy the requirements under
paragraph (1) by—
‘‘(A) directly transmitting and receiving
standard data elements of health information;
or
‘‘(B) submitting nonstandard data ele-
ments to a clearinghouse for processing into
standard data elements and transmission by the
clearinghouse, and receiving standard data ele-
ments through the clearinghouse.
‘‘(3) TIMETABLE
FOR
COMPLIANCE.—Para-
graph (1) shall not be construed to require an insur-
ance plan to comply with any standard, implementa-
tion specification, or modification to a standard or
specification adopted or established by the Secretary
under sections 1172 through 1174 at any time prior
to the date on which the plan is required to comply
with the standard or specification under subsection
(b).
‘‘(b) COMPLIANCE WITH STANDARDS.—
‘‘(1) INITIAL COMPLIANCE.—
‘‘(A) IN
GENERAL.—Not later than 24
months after the date on which an initial stand-
ard or implementation specification is adopted
232
or established under sections 1172 and 1173,
each person to whom the standard or imple-
mentation specification applies shall comply
with the standard or specification.
‘‘(B) SPECIAL
RULE
FOR
SMALL
INSUR-
ANCE PLANS.—In the case of a small insurance
plan, paragraph (1) shall be applied by sub-
stituting ‘36 months’ for ‘24 months’. For pur-
poses of this subsection, the Secretary shall de-
termine the plans that qualify as small insur-
ance plans.
‘‘(2) COMPLIANCE
WITH
MODIFIED
STAND-
ARDS.—If the Secretary adopts a modification to a
standard or implementation specification under this
part, each person to whom the standard or imple-
mentation specification applies shall comply with the
modified standard or implementation specification at
such time as the Secretary determines appropriate,
taking into account the time needed to comply due
to the nature and extent of the modification. The
time determined appropriate under the preceding
sentence may not be earlier than the last day of the
180-day period beginning on the date such modifica-
tion is adopted. The Secretary may extend the time
233
for compliance for small insurance plans, if the Sec-
retary determines that such extension is appropriate.
‘‘GENERAL PENALTY FOR FAILURE TO COMPLY WITH
REQUIREMENTS AND STANDARDS
‘‘SEC. 1176. (a) GENERAL PENALTY.—
‘‘(1) IN GENERAL.—Except as provided in sub-
section (b), the Secretary shall impose on any person
who violates a provision of this part a penalty of not
more than $100 for each such violation, except that
the total amount imposed on the person for all viola-
tions of an identical requirement or prohibition dur-
ing a calendar year may not exceed $25,000.
‘‘(2) PROCEDURES.—The provisions of section
1128A (other than subsections (a) and (b) and the
second sentence of subsection (f)) shall apply to the
imposition of a civil money penalty under this sub-
section in the same manner as such provisions apply
to the imposition of a penalty under such section
1128A.
‘‘(b) LIMITATIONS.—
‘‘(1) OFFENSES OTHERWISE PUNISHABLE.—A
penalty may not be imposed under subsection (a)
with respect to an act if the act constitutes an of-
fense punishable under section 1177.
‘‘(2) NONCOMPLIANCE
NOT
DISCOVERED.—A
penalty may not be imposed under subsection (a)
234
with respect to a provision of this part if it is estab-
lished to the satisfaction of the Secretary that the
person liable for the penalty did not know, and by
exercising reasonable diligence would not have
known, that such person violated the provision.
‘‘(3) FAILURES DUE TO REASONABLE CAUSE.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), a penalty may not be im-
posed under subsection (a) if—
‘‘(i) the failure to comply was due to
reasonable cause and not to willful neglect;
and
‘‘(ii) the failure to comply is corrected
during the 30-day period beginning on the
first date the person liable for the penalty
knew, or by exercising reasonable diligence
would have known, that the failure to com-
ply occurred.
‘‘(B) EXTENSION OF PERIOD.—
‘‘(i) NO
PENALTY.—The period re-
ferred to in subparagraph (A)(ii) may be
extended as determined appropriate by the
Secretary based on the nature and extent
of the failure to comply.
235
‘‘(ii) ASSISTANCE.—If the Secretary
determines that a person failed to comply
because the person was unable to comply,
the Secretary may provide technical assist-
ance to the person during the period de-
scribed in subparagraph (A)(ii). Such as-
sistance shall be provided in any manner
determined appropriate by the Secretary.
‘‘(4) REDUCTION.—In the case of a failure to
comply which is due to reasonable cause and not to
willful neglect, any penalty under subsection (a) that
is not entirely waived under paragraph (3) may be
waived to the extent that the payment of such pen-
alty would be excessive relative to the compliance
failure involved.
‘‘WRONGFUL DISCLOSURE OF INDIVIDUALLY
IDENTIFIABLE HEALTH INFORMATION
‘‘SEC. 1177. (a) OFFENSE.—A person who knowingly
and in violation of this part—
‘‘(1) uses or causes to be used a unique health
identifier;
‘‘(2) obtains individually identifiable health in-
formation relating to an individual; or
‘‘(3) discloses individually identifiable health in-
formation to another person,
shall be punished as provided in subsection (b).
236
‘‘(b) PENALTIES.—A person described in subsection
(a) shall—
‘‘(1) be fined not more than $50,000, impris-
oned not more than 1 year, or both;
‘‘(2) if the offense is committed under false pre-
tenses, be fined not more than $100,000, imprisoned
not more than 5 years, or both; and
‘‘(3) if the offense is committed with intent to
sell, transfer, or use individually identifiable health
information for commercial advantage, personal
gain, or malicious harm, fined not more than
$250,000, imprisoned not more than 10 years, or
both.
‘‘EFFECT ON STATE LAW
‘‘SEC. 1178. (a) GENERAL EFFECT.—
‘‘(1) GENERAL RULE.—Except as provided in
paragraph (2), a provision or requirement under this
part, or a standard or implementation specification
adopted or established under sections 1172 through
1174, shall supersede any contrary provision of
State law, including a provision of State law that re-
quires medical or insurance plan records (including
billing information) to be maintained or transmitted
in written rather than electronic form.
‘‘(2) EXCEPTIONS.—A provision or requirement
under this part, or a standard or implementation
237
specification adopted or established under sections
1172 through 1174, shall not supersede a contrary
provision of State law, if the provision of State
law—
‘‘(A) imposes requirements, standards, or
implementation specifications that are more
stringent than the requirements, standards, or
implementation specifications under this part
with respect to the privacy of individually iden-
tifiable health information; or
‘‘(B) is a provision the Secretary deter-
mines—
‘‘(i) is necessary to prevent fraud and
abuse, or for other purposes; or
‘‘(ii) addresses controlled substances.
‘‘(b) PUBLIC HEALTH REPORTING.—Nothing in this
part shall be construed to invalidate or limit the authority,
power, or procedures established under any law providing
for the reporting of disease or injury, child abuse, birth,
or death, public health surveillance, or public health inves-
tigation or intervention.’’.
(b) CONFORMING AMENDMENTS.—
(1) REQUIREMENT
FOR
MEDICARE
PROVID-
ERS.—Section 1866(a)(1) (42 U.S.C. 1395cc(a)(1))
is amended—
238
(A) by striking ‘‘and’’ at the end of sub-
paragraph (P);
(B) by striking the period at the end of
subparagraph (Q) and inserting ‘‘; and’’; and
(C) by inserting immediately after sub-
paragraph (Q) the following new subparagraph:
‘‘(R) to contract only with a clearinghouse (as
defined in section 1171) that meets each standard
and implementation specification adopted or estab-
lished under part C of title XI on or after the date
on which the clearinghouse is required to comply
with the standard or specification.’’.
(2) TITLE
HEADING.—Title XI (42 U.S.C.
1301 et seq.) is amended by striking the title head-
ing and inserting the following:
‘‘TITLE XI—GENERAL PROVISIONS, PEER RE-
VIEW, AND ADMINISTRATIVE SIMPLIFICA-
TION’’.
SEC. 253. CHANGES IN MEMBERSHIP AND DUTIES OF NA-
TIONAL COMMITTEE ON VITAL AND HEALTH
STATISTICS.
Section 306(k) of the Public Health Service Act (42
U.S.C. 242k(k)) is amended—
(1) in paragraph (1), by striking ‘‘16’’ and in-
serting ‘‘18’’;
239
(2) by amending paragraph (2) to read as fol-
lows:
‘‘(2) The members of the Committee shall be ap-
pointed, not later than 60 days after the date of the enact-
ment of the Health Coverage Availability and Affordability
Act of 1996, from among persons who have distinguished
themselves in the fields of health statistics, electronic
interchange of health care information, privacy and secu-
rity of electronic information, population-based public
health, purchasing or financing health care services, inte-
grated computerized health information systems, health
services research, consumer interests in health informa-
tion, health data standards, epidemiology, and the provi-
sion of health services. Members of the Committee shall
be appointed for terms of 4 years.’’;
(3) by redesignating paragraphs (3) through
(5) as paragraphs (4) through (6), respectively, and
inserting after paragraph (2) the following:
‘‘(3) Of the members of the Committee—
‘‘(A) 1 shall be appointed by the Speaker of the
House of Representatives after consultation with the
minority leader of the House of Representatives;
‘‘(B) 1 shall be appointed by the President pro
tempore of the Senate after consultation with the
minority leader of the Senate; and
240
‘‘(C) 16 shall be appointed by the Secretary.’’;
(4) by amending paragraph (5) (as so redesig-
nated) to read as follows:
‘‘(5) The Committee—
‘‘(A) shall assist and advise the Secretary—
‘‘(i) to delineate statistical problems bear-
ing on health and health services which are of
national or international interest;
‘‘(ii) to stimulate studies of such problems
by other organizations and agencies whenever
possible or to make investigations of such prob-
lems through subcommittees;
‘‘(iii) to determine, approve, and revise the
terms, definitions, classifications, and guidelines
for assessing health status and health services,
their distribution and costs, for use (I) within
the Department of Health and Human Services,
(II) by all programs administered or funded by
the Secretary, including the Federal-State-local
cooperative health statistics system referred to
in subsection (e), and (III) to the extent pos-
sible as determined by the head of the agency
involved, by the Department of Veterans Af-
fairs, the Department of Defense, and other
241
Federal agencies concerned with health and
health services;
‘‘(iv) with respect to the design of and ap-
proval of health statistical and health informa-
tion systems concerned with the collection, proc-
essing, and tabulation of health statistics within
the Department of Health and Human Services,
with respect to the Cooperative Health Statis-
tics System established under subsection (e),
and with respect to the standardized means for
the collection of health information and statis-
tics to be established by the Secretary under
subsection (j)(1);
‘‘(v) to review and comment on findings
and proposals developed by other organizations
and agencies and to make recommendations for
their adoption or implementation by local,
State, national, or international agencies;
‘‘(vi) to cooperate with national committees
of other countries and with the World Health
Organization and other national agencies in the
studies of problems of mutual interest;
‘‘(vii) to issue an annual report on the
state of the Nation’s health, its health services,
their costs and distributions, and to make pro-
242
posals for improvement of the Nation’s health
statistics and health information systems; and
‘‘(viii) in complying with the requirements
imposed on the Secretary under part C of title
XI of the Social Security Act;
‘‘(B) shall study the issues related to the adop-
tion of uniform data standards for patient medical
record information and the electronic exchange of
such information;
‘‘(C) shall report to the Secretary not later than
4 years after the date of the enactment of the
Health Coverage Availability and Affordability Act
of 1996 recommendations and legislative proposals
for such standards and electronic exchange; and
‘‘(D) shall be responsible generally for advising
the Secretary and the Congress on the status of the
implementation of part C of title XI of the Social
Security Act.’’; and
(5) by adding at the end the following:
‘‘(7) Not later than 1 year after the date of the enact-
ment of the Health Coverage Availability and Affordability
Act of 1996, and annually thereafter, the Committee shall
submit to the Congress, and make public, a report regard-
ing—
243
‘‘(A) the extent to which persons required to
comply with part C of title XI of the Social Security
Act are cooperating in implementing the standards
adopted under such part;
‘‘(B) the extent to which such entities are meet-
ing the privacy and security standards adopted
under such part and the types of penalties assessed
for noncompliance with such standards;
‘‘(C) whether the Federal and State Govern-
ments are receiving information of sufficient quality
to meet their responsibilities under such part;
‘‘(D) any problems that exist with respect to
implementation of such part; and
‘‘(E) the extent to which timetables under such
part are being met.’’.
Subtitle G—Duplication and Co-
ordination of Medicare-Related
Plans
SEC. 261. DUPLICATION AND COORDINATION OF MEDI-
CARE-RELATED PLANS.
(a) TREATMENT OF CERTAIN HEALTH INSURANCE
POLICIES AS NONDUPLICATIVE.—Effective as if included
in the enactment of section 4354 of the Omnibus Budget
Reconciliation Act of 1990, section 1882(d)(3)(A) (42
U.S.C. 1395ss(d)(3)(A)) is amended—
244
(1) in clause (iii), by striking ‘‘clause (i)’’ and
inserting ‘‘clause (i)(II)’’; and
(2) by adding at the end the following:
‘‘(iv) For purposes of this subparagraph, a health in-
surance policy providing for benefits which are payable to
or on behalf of an individual without regard to other
health benefit coverage of such individual is not considered
to ‘duplicate’ any health benefits under this title, under
title XIX, or under a health insurance policy, and
subclauses (I) and (III) of clause (i) does not apply to
such a policy.
‘‘(v)(I) For purposes of this subparagraph, a health
insurance policy (or a rider to an insurance contract which
is not a health insurance policy), providing benefits for
long-term care, nursing home care, home health care, or
community-based care and that coordinates against or ex-
cludes items and services available or paid for under this
title and (for policies sold or issued on or after 90 days
after the date of enactment of this clause) that discloses
such coordination or exclusion in the policy’s outline of
coverage, is not considered to ‘duplicate’ health benefits
under this title.
‘‘(II) For purposes of this subparagraph, a health in-
surance policy (which may be a contract with a health
maintenance organization) that is a replacement product
245
for another health insurance policy that is being termi-
nated by the issuer, that is being provided to an individual
entitled to benefits under part A on the basis of section
226(b), and that coordinates against or excludes items and
services available or paid for under this title is not consid-
ered to ‘duplicate’ health benefits under this title.
‘‘(III) For purposes of this clause, the terms ‘coordi-
nates’ and ‘coordination’ mean, with respect to a policy
in relation to health benefits under this title, that the pol-
icy under its terms is secondary to, or excludes from pay-
ment, items and services to the extent available or paid
for under this title.
‘‘(vi) Notwithstanding any other provision of law, no
criminal or civil penalty may be imposed at any time under
this subparagraph and no legal action may be brought or
continued at any time in any Federal or State court if
the penalty or action is based on an act or omission that
occurred after November 5, 1991, and before the date of
the enactment of this clause, and relates to the sale, issu-
ance, or renewal of any health insurance policy or rider
during such period, if such policy or rider meets the non-
duplication requirements of clause (iv) or (v).
‘‘(vii) A State may not impose, in the case of the sale,
issuance, or renewal of a health insurance policy (other
than a medicare supplemental policy) or rider to an insur-
246
ance contract which is not a health insurance policy, that
meets the nonduplication requirements of this section pur-
suant to clause (iv) or (v) to an individual entitled to bene-
fits under part A or enrolled under part B, any require-
ment relating to any duplication (or nonduplication) of
health benefits under such policy or rider with health ben-
efits to which the individual is otherwise entitled to under
this title.’’.
(b) 
CONFORMING
AMENDMENTS.—Section
1882(d)(3) (42 U.S.C. 1395ss(d)(3)) is amended—
(1) in subparagraph (C)—
(A) by striking ‘‘with respect to (i)’’ and
inserting ‘‘with respect to’’, and
(B) by striking ‘‘, (ii) the sale’’ and all
that follows up to the period at the end; and
(2) by striking subparagraph (D).
Subtitle H—Medical Liability
Reform
PART 1—GENERAL PROVISIONS
SEC. 271. FEDERAL REFORM OF HEALTH CARE LIABILITY
ACTIONS.
(a) APPLICABILITY.—This subtitle shall apply with
respect to any health care liability action brought in any
State or Federal court, except that this subtitle shall not
apply to—
247
(1) an action for damages arising from a vac-
cine-related injury or death to the extent that title
XXI of the Public Health Service Act applies to the
action, or
(2) an action under the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1001 et
seq.).
(b) PREEMPTION.—This subtitle shall preempt any
State law to the extent such law is inconsistent with the
limitations contained in this subtitle. This subtitle shall
not preempt any State law that provides for defenses or
places limitations on a person’s liability in addition to
those contained in this subtitle or otherwise imposes great-
er restrictions than those provided in this subtitle.
(c) EFFECT ON SOVEREIGN IMMUNITY AND CHOICE
OF LAW OR VENUE.—Nothing in subsection (b) shall be
construed to—
(1) waive or affect any defense of sovereign im-
munity asserted by any State under any provision of
law;
(2) waive or affect any defense of sovereign im-
munity asserted by the United States;
(3) affect the applicability of any provision of
the Foreign Sovereign Immunities Act of 1976;
248
(4) preempt State choice-of-law rules with re-
spect to claims brought by a foreign nation or a citi-
zen of a foreign nation; or
(5) affect the right of any court to transfer
venue or to apply the law of a foreign nation or to
dismiss a claim of a foreign nation or of a citizen
of a foreign nation on the ground of inconvenient
forum.
(d) AMOUNT
IN CONTROVERSY.—In an action to
which this subtitle applies and which is brought under sec-
tion 1332 of title 28, United States Code, the amount of
noneconomic damages or punitive damages, and attorneys’
fees or costs, shall not be included in determining whether
the matter in controversy exceeds the sum or value of
$50,000.
(e) FEDERAL COURT JURISDICTION NOT ESTAB-
LISHED ON FEDERAL QUESTION GROUNDS.—Nothing in
this subtitle shall be construed to establish any jurisdiction
in the district courts of the United States over health care
liability actions on the basis of section 1331 or 1337 of
title 28, United States Code.
SEC. 272. DEFINITIONS.
As used in this subtitle:
249
(1) ACTUAL DAMAGES.—The term ‘‘actual dam-
ages’’ means damages awarded to pay for economic
loss.
(2) ALTERNATIVE DISPUTE RESOLUTION SYS-
TEM; ADR.—The term ‘‘alternative dispute resolution
system’’ or ‘‘ADR’’ means a system established
under Federal or State law that provides for the res-
olution of health care liability claims in a manner
other than through health care liability actions.
(3) CLAIMANT.—The term ‘‘claimant’’ means
any person who brings a health care liability action
and any person on whose behalf such an action is
brought. If such action is brought through or on be-
half of an estate, the term includes the claimant’s
decedent. If such action is brought through or on be-
half of a minor or incompetent, the term includes
the claimant’s legal guardian.
(4) CLEAR AND CONVINCING EVIDENCE.—The
term ‘‘clear and convincing evidence’’ is that meas-
ure or degree of proof that will produce in the mind
of the trier of fact a firm belief or conviction as to
the truth of the allegations sought to be established.
Such measure or degree of proof is more than that
required under preponderance of the evidence but
250
less than that required for proof beyond a reason-
able doubt.
(5) COLLATERAL
SOURCE
PAYMENTS.—The
term ‘‘collateral source payments’’ means any
amount paid or reasonably likely to be paid in the
future to or on behalf of a claimant, or any service,
product, or other benefit provided or reasonably like-
ly to be provided in the future to or on behalf of a
claimant, as a result of an injury or wrongful death,
pursuant to—
(A) any State or Federal health, sickness,
income-disability, accident or workers’ com-
pensation Act;
(B) any health, sickness, income-disability,
or accident insurance that provides health bene-
fits or income-disability coverage;
(C) any contract or agreement of any
group, organization, partnership, or corporation
to provide, pay for, or reimburse the cost of
medical, hospital, dental, or income disability
benefits; and
(D) any other publicly or privately funded
program.
(6) DRUG.—The term ‘‘drug’’ has the meaning
given such term in section 201(g)(1) of the Federal
251
Food, 
Drug, 
and 
Cosmetic 
Act 
(21 
U.S.C.
321(g)(1)).
(7) ECONOMIC
LOSS.—The term ‘‘economic
loss’’ means any pecuniary loss resulting from injury
(including the loss of earnings or other benefits re-
lated to employment, medical expense loss, replace-
ment services loss, loss due to death, burial costs,
and loss of business or employment opportunities),
to the extent recovery for such loss is allowed under
applicable State law.
(8) HARM.—The term ‘‘harm’’ means any le-
gally cognizable wrong or injury for which punitive
damages may be imposed.
(9) 
HEALTH
BENEFIT
PLAN.—The 
term
‘‘health benefit plan’’ means—
(A) a hospital or medical expense incurred
policy or certificate,
(B) a hospital or medical service plan con-
tract,
(C) a health maintenance subscriber con-
tract,
(D) a multiple employer welfare arrange-
ment or employee benefit plan (as defined
under the Employee Retirement Income Secu-
rity Act of 1974), or
252
(E) a MedicarePlus product (offered under
part C of title XVIII of the Social Security
Act),
that provides benefits with respect to health care
services.
(10) HEALTH
CARE
LIABILITY
ACTION.—The
term ‘‘health care liability action’’ means a civil ac-
tion brought in a State or Federal court against a
health care provider, an entity which is obligated to
provide or pay for health benefits under any health
benefit plan (including any person or entity acting
under a contract or arrangement to provide or ad-
minister any health benefit), or the manufacturer,
distributor, supplier, marketer, promoter, or seller of
a medical product, in which the claimant alleges a
claim (including third party claims, cross claims,
counter claims, or distribution claims) based upon
the provision of (or the failure to provide or pay for)
health care services or the use of a medical product,
regardless of the theory of liability on which the
claim is based or the number of plaintiffs, defend-
ants, or causes of action.
(11) HEALTH
CARE
LIABILITY
CLAIM.—The
term ‘‘health care liability claim’’ means a claim in
which the claimant alleges that injury was caused by
253
the provision of (or the failure to provide) health
care services.
(12) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means any person that is en-
gaged in the delivery of health care services in a
State and that is required by the laws or regulations
of the State to be licensed or certified by the State
to engage in the delivery of such services in the
State.
(13) 
HEALTH
CARE
SERVICE.—The 
term
‘‘health care service’’ means any service for which
payment may be made under a health benefit plan
including services related to the delivery or adminis-
tration of such service.
(14) MEDICAL DEVICE.—The term ‘‘medical de-
vice’’ has the meaning given such term in section
201(h) of the Federal Food, Drug, and Cosmetic
Act (21 U.S.C. 321(h)).
(15) 
NONECONOMIC
DAMAGES.—The 
term
‘‘noneconomic damages’’ means damages paid to an
individual for pain and suffering, inconvenience,
emotional distress, mental anguish, loss of consor-
tium, injury to reputation, humiliation, and other
nonpecuniary losses.
254
(16) PERSON.—The term ‘‘person’’ means any
individual, corporation, company, association, firm,
partnership, society, joint stock company, or any
other entity, including any governmental entity.
(17) PRODUCT
SELLER.—The term ‘‘product
seller’’ means a person who, in the course of a busi-
ness conducted for that purpose, sells, distributes,
rents, leases, prepares, blends, packages, labels a
product, is otherwise involved in placing a product in
the stream of commerce, or installs, repairs, or
maintains the harm-causing aspect of a product.
The term does not include—
(A) a seller or lessor of real property;
(B) a provider of professional services in
any case in which the sale or use of a product
is incidental to the transaction and the essence
of the transaction is the furnishing of judg-
ment, skill, or services; or
(C) any person who—
(i) acts in only a financial capacity
with respect to the sale of a product; or
(ii) leases a product under a lease ar-
rangement in which the selection, posses-
sion, maintenance, and operation of the
255
product are controlled by a person other
than the lessor.
(18) PUNITIVE DAMAGES.—The term ‘‘punitive
damages’’ means damages awarded against any per-
son not to compensate for actual injury suffered, but
to punish or deter such person or others from en-
gaging in similar behavior in the future.
(19) STATE.—The term ‘‘State’’ means each of
the several States, the District of Columbia, Puerto
Rico, the Virgin Islands, Guam, American Samoa,
the Northern Mariana Islands, and any other terri-
tory or possession of the United States.
SEC. 273. EFFECTIVE DATE.
This subtitle will apply to any health care liability ac-
tion brought in a Federal or State court and to any health
care liability claim subject to an alternative dispute resolu-
tion system, that is initiated on or after the date of enact-
ment of this subtitle, except that any health care liability
claim or action arising from an injury occurring prior to
the date of enactment of this subtitle shall be governed
by the applicable statute of limitations provisions in effect
at the time the injury occurred.
256
PART 2—UNIFORM STANDARDS FOR HEALTH
CARE LIABILITY ACTIONS
SEC. 281. STATUTE OF LIMITATIONS.
A health care liability action may not be brought
after the expiration of the 2-year period that begins on
the date on which the alleged injury that is the subject
of the action was discovered or should reasonably have
been discovered, but in no case after the expiration of the
5-year period that begins on the date the alleged injury
occurred.
SEC. 282. CALCULATION AND PAYMENT OF DAMAGES.
(a) TREATMENT OF NONECONOMIC DAMAGES.—
(1) LIMITATION ON NONECONOMIC DAMAGES.—
The total amount of noneconomic damages that may
be awarded to a claimant for losses resulting from
the injury which is the subject of a health care liabil-
ity action may not exceed $250,000, regardless of
the number of parties against whom the action is
brought or the number of actions brought with re-
spect to the injury.
(2) JOINT AND SEVERAL LIABILITY.—In any
health care liability action brought in State or Fed-
eral court, a defendant shall be liable only for the
amount of noneconomic damages attributable to
such defendant in direct proportion to such defend-
ant’s share of fault or responsibility for the claim-
257
ant’s actual damages, as determined by the trier of
fact. In all such cases, the liability of a defendant
for noneconomic damages shall be several and not
joint.
(b) TREATMENT OF PUNITIVE DAMAGES.—
(1) GENERAL RULE.—Punitive damages may,
to the extent permitted by applicable State law, be
awarded in any health care liability action for harm
in any Federal or State court against a defendant if
the claimant establishes by clear and convincing evi-
dence that the harm suffered was the result of con-
duct—
(A) specifically intended to cause harm, or
(B) conduct manifesting a conscious, fla-
grant indifference to the rights or safety of oth-
ers.
(2) PROPORTIONAL AWARDS.—The amount of
punitive damages that may be awarded in any health
care liability action subject to this subtitle shall not
exceed 3 times the amount of damages awarded to
the claimant for economic loss, or $250,000, which-
ever is greater. This paragraph shall be applied by
the court and shall not be disclosed to the jury.
(3) 
APPLICABILITY.—This 
subsection 
shall
apply to any health care liability action brought in
258
any Federal or State court on any theory where pu-
nitive damages are sought. This subsection does not
create a cause of action for punitive damages. This
subsection does not preempt or supersede any State
or Federal law to the extent that such law would
further limit the award of punitive damages.
(4) BIFURCATION.—At the request of any
party, the trier of fact shall consider in a separate
proceeding whether punitive damages are to be
awarded and the amount of such award. If a sepa-
rate proceeding is requested, evidence relevant only
to the claim of punitive damages, as determined by
applicable State law, shall be inadmissible in any
proceeding to determine whether actual damages are
to be awarded.
(5) DRUGS AND DEVICES.—
(A) IN
GENERAL.—(i) Punitive damages
shall not be awarded against a manufacturer or
product seller of a drug or medical device which
caused the claimant’s harm where—
(I) such drug or device was subject to
premarket approval by the Food and Drug
Administration with respect to the safety
of the formulation or performance of the
aspect of such drug or device which caused
259
the claimant’s harm, or the adequacy of
the packaging or labeling of such drug or
device which caused the harm, and such
drug, device, packaging, or labeling was
approved by the Food and Drug Adminis-
tration; or
(II) the drug is generally recognized
as safe and effective pursuant to conditions
established by the Food and Drug Admin-
istration and applicable regulations, includ-
ing packaging and labeling regulations.
(ii) Clause (i) shall not apply in any case
in which the defendant, before or after pre-
market approval of a drug or device—
(I) intentionally and wrongfully with-
held from or misrepresented to the Food
and Drug Administration information con-
cerning such drug or device required to be
submitted under the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 301 et seq.)
or section 351 of the Public Health Service
Act (42 U.S.C. 262) that is material and
relevant to the harm suffered by the claim-
ant, or
260
(II) made an illegal payment to an of-
ficial or employee of the Food and Drug
Administration for the purpose of securing
or maintaining approval of such drug or
device.
(B) PACKAGING.—In a health care liability
action for harm which is alleged to relate to the
adequacy of the packaging or labeling of a drug
which is required to have tamper-resistant
packaging under regulations of the Secretary of
Health and Human Services (including labeling
regulations related to such packaging), the
manufacturer or product seller of the drug shall
not be held liable for punitive damages unless
such packaging or labeling is found by the court
by clear and convincing evidence to be substan-
tially out of compliance with such regulations.
(c) PERIODIC PAYMENTS FOR FUTURE LOSSES.—
(1) GENERAL RULE.—In any health care liabil-
ity action in which the damages awarded for future
economic and noneconomic loss exceeds $50,000, a
person shall not be required to pay such damages in
a single, lump-sum payment, but shall be permitted
to make such payments periodically based on when
261
the damages are found likely to occur, as such pay-
ments are determined by the court.
(2) FINALITY OF JUDGMENT.—The judgment
of the court awarding periodic payments under this
subsection may not, in the absence of fraud, be re-
opened at any time to contest, amend, or modify the
schedule or amount of the payments.
(3) 
LUMP-SUM
SETTLEMENTS.—This 
sub-
section shall not be construed to preclude a settle-
ment providing for a single, lump-sum payment.
(d) TREATMENT
OF COLLATERAL SOURCE PAY-
MENTS.—
(1) INTRODUCTION
INTO
EVIDENCE.—In any
health care liability action, any defendant may intro-
duce evidence of collateral source payments. If any
defendant elects to introduce such evidence, the
claimant may introduce evidence of any amount paid
or contributed or reasonably likely to be paid or con-
tributed in the future by or on behalf of the claim-
ant to secure the right to such collateral source pay-
ments.
(2) NO SUBROGATION.—No provider of collat-
eral source payments shall recover any amount
against the claimant or receive any lien or credit
against the claimant’s recovery or be equitably or le-
262
gally subrogated the right of the claimant in a
health care liability action.
(3) APPLICATION TO SETTLEMENTS.—This sub-
section shall apply to an action that is settled as well
as an action that is resolved by a fact finder.
SEC. 283. ALTERNATIVE DISPUTE RESOLUTION.
Any ADR used to resolve a health care liability action
or claim shall contain provisions relating to statute of limi-
tations, non-economic damages, joint and several liability,
punitive damages, collateral source rule, and periodic pay-
ments which are identical to the provisions relating to
such matters in this subtitle.
TITLE III—TAX-RELATED
HEALTH PROVISIONS
SEC. 300. AMENDMENT OF 1986 CODE.
Except as otherwise expressly provided, whenever in
this title an amendment or repeal is expressed in terms
of an amendment to, or repeal of, a section or other provi-
sion, the reference shall be considered to be made to a
section or other provision of the Internal Revenue Code
of 1986.