all children, conducting along with their affiliated
departments of pediatrics almost 20 percent of all
pediatric research sponsored by the National Insti-
tutes of Health.
(6) Their ability to sustain their academic and
patient care missions is increasingly threatened by
the lack of graduate medical education funding,
which represents the major source of shortfall be-
tween patient costs and patient revenues for many
children’s hospitals with significant teaching pro-
grams, even as these hospital strive to reduce their
costs.
SEC. 2. PROGRAM OF PAYMENTS TO CHILDREN’S HOS-
PITALS THAT OPERATE GRADUATE MEDICAL
EDUCATION PROGRAMS.
(a) PAYMENTS.—The Secretary shall make payment
under this section to each children’s hospital for each hos-
pital cost reporting period beginning during fiscal year
1999 or fiscal year 2000 for the direct and indirect ex-
penses associated with operating approved medical resi-
dency training programs.
(b) AMOUNT OF PAYMENT.—
(1) IN GENERAL.—Subject to paragraph (3),
the amount payable under this section to a chil-
dren’s hospital for direct and indirect expenses relat-
ing to approved medical residency training programs
for a cost reporting period is equal to the product
of—
(A) the per resident rate, as determined
under paragraph (2); and
(B) the weighted average number of full-
time equivalent residents in the hospital’s ap-
proved medical residency training programs (as
determined under section 1886(h)(4) of the So-
cial Security Act) for the cost reporting period.
(2) PER RESIDENT RATE.—
(A) IN GENERAL.—The per resident rate
under this paragraph for a cost reporting pe-
riod is equal to the sum of the direct medical
education component (computed under subpara-
graph (B)), and the indirect medical education
component 
(computed 
under 
subparagraph
(C)(iii).
(B) DIRECT MEDICAL EDUCATION COMPO-
NENT.—The Secretary shall compute the direct
medical education component described in this
subparagraph for a hospital as follows:
(i) COMPUTATION OF BASE NATIONAL
DME AVERAGE PER RESIDENT RATE.—The
Secretary shall compute a base national
DME average per resident rate equal to
the simple average of the per resident rates
computed under section 1886(h)(2) of the
Social Security Act for cost reporting peri-
ods ending during fiscal year 1997.
(ii) UPDATING RATE.—The Secretary
shall update such rate by the estimated
percentage increase in the consumer price
index for all urban consumers during the
period beginning October 1997 and ending
with the midpoint of the hospital’s cost re-
porting period that begins during fiscal
year 1999.
(iii) ADJUSTMENT FOR VARIATIONS IN
LABOR-RELATED
COSTS.—For each hos-
pital the Secretary shall adjust the portion
of such updated rate that is related to
labor and labor-related costs to account for
variations in wage costs in the geographic
area in which the hospital is located using
the 
factor 
determined 
under 
section
1886(d)(4)(E) of the Social Security Act
for discharges occurring during fiscal year
1998.
(iv) DIRECT
MEDICAL
EDUCATION
COMPONENT.—The direct medical edu-
cation component described in this sub-
paragraph for a hospital is the updated
rate, computed under clause (ii), as ad-
justed under clause (iii) for the hospital.
(C) INDIRECT MEDICAL EDUCATION COM-
PONENT.—The Secretary shall compute the in-
direct medical education component described
in this subparagraph for a hospital as follows:
(i) COMPUTATION OF HOSPITAL AVER-
AGE IME PER RESIDENT PAYMENTS.—The
Secretary shall determine, for each hospital
with a graduate medical education pro-
gram which is paid under section 1886(d)
of the Social Security Act, the amount
paid to that hospital pursuant to section
1886(d)(5)(B) of such Act for its cost re-
porting period ending during fiscal year
1997, and shall divide such amount by the
number of FTE residents participating in
its approved residency programs and used
to calculate the amount of payment under
such section in that cost reporting period.
(ii) COMPUTING
NATIONAL
AVER-
AGE.—The Secretary shall take the sum of
the amounts determined under clause (i)
for all the hospitals described in such
clause and divide that sum by the number
of hospitals so described.
(iii) UPDATING.—The Secretary shall
update the amount computed under clause
(ii) for a hospital by applicable percentage
increase 
(as 
defined 
in 
section
1886(b)(3)(B)(i) of the Social Security
Act) during the period between October
1997 and ending with the midpoint of the
hospital’s cost reporting period that begins
during fiscal year 1999.
(iv) INDIRECT
MEDICAL
EDUCATION
COMPONENT.—The indirect medical edu-
cation component described in this sub-
paragraph for a hospital is the average
computed under clause (ii), updated under
clause (iii).
(3) PRO RATA REDUCTIONS.—If the Sec-
retary determines that the amount of funds
provided under subsection (d) for cost reporting
periods ending in a fiscal year is insufficient to