1074
under subsection (d)(5)(I) in relation to pay-
ments under subsection (d).
‘‘(8) LIMITATION ON REVIEW.—There shall be
no administrative or judicial review under section
1869, 1878, or otherwise of—
‘‘(A) the establishment of case mix groups,
of the methodology for the classification of pa-
tients within such groups, and of the appro-
priate weighting factors thereof under para-
graph (2),
‘‘(B) the establishment of the prospective
payment rates under paragraph (3),
‘‘(C) the establishment of outlier and spe-
cial payments under paragraph (4),
‘‘(D) the establishment of area wage ad-
justments under paragraph (6), and
‘‘(E) the establishment of additional ad-
justments under paragraph (7).’’.
(b) CONFORMING AMENDMENTS.—Section 1886(b)
of such Act (42 U.S.C. 1395ww(b)) is amended—
(1) in paragraph (1), by inserting ‘‘and other
than a rehabilitation facility described in subsection
(j)(1)’’ after ‘‘subsection (d)(1)(B)’’, and
1075
(2) in paragraph (3)(B)(i), by inserting ‘‘and
subsection (j)’’ after ‘‘For purposes of subsection
(d)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to cost reporting periods beginning
on or after October 1, 2000, except that the Secretary of
Health and Human Services may require the submission
of data under section 1886(j)(2)(D) of the Social Security
Act (as added by subsection (a)) on and after the date
of the enactment of this section.
CHAPTER 2—PAYMENT UNDER PART B
Subchapter A—Payment for Hospital
Outpatient Department Services
SEC. 10411. ELIMINATION OF FORMULA-DRIVEN OVERPAY-
MENTS (FDO) FOR CERTAIN OUTPATIENT
HOSPITAL SERVICES.
(a) ELIMINATION OF FDO FOR AMBULATORY SUR-
GICAL
CENTER
PROCEDURES.—Section
1833(i)(3)(B)(i)(II) (42 U.S.C. 1395l(i)(3)(B)(i)(II)) is
amended—
(1) by striking ‘‘of 80 percent’’; and
(2) by striking the period at the end and insert-
ing the following: ‘‘, less the amount a provider may
charge as described in clause (ii) of section
1866(a)(2)(A).’’.
1076
(b) ELIMINATION OF FDO FOR RADIOLOGY SERV-
ICES
AND
DIAGNOSTIC
PROCEDURES.—Section
1833(n)(1)(B)(i) (42 U.S.C. 1395l(n)(1)(B)(i)) is amend-
ed—
(1) by striking ‘‘of 80 percent’’, and
(2) by inserting before the period at the end the
following: ‘‘, less the amount a provider may charge
as described in clause (ii) of section 1866(a)(2)(A)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to services furnished during por-
tions of cost reporting periods occurring on or after Octo-
ber 1, 1997.
SEC. 10412. EXTENSION OF REDUCTIONS IN PAYMENTS FOR
COSTS OF HOSPITAL OUTPATIENT SERVICES.
(a) REDUCTION IN PAYMENTS FOR CAPITAL-RELAT-
ED
COSTS.—Section 1861(v)(1)(S)(ii)(I) (42 U.S.C.
1395x(v)(1)(S)(ii)(I)) is amended by striking ‘‘through
1998’’ and inserting ‘‘through 1999 and during fiscal year
2000 before January 1, 2000’’.
(b) REDUCTION IN PAYMENTS FOR OTHER COSTS.—
Section 
1861(v)(1)(S)(ii)(II) 
(42 
U.S.C.
1395x(v)(1)(S)(ii)(II)) is amended by striking ‘‘through
1998’’ and inserting ‘‘through 1999 and during fiscal year
2000 before January 1, 2000’’.
1077
SEC. 10413. PROSPECTIVE PAYMENT SYSTEM FOR HOS-
PITAL OUTPATIENT DEPARTMENT SERVICES.
(a) IN GENERAL.—Section 1833 (42 U.S.C. 1395l)
is amended by adding at the end the following:
‘‘(t) PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL
OUTPATIENT DEPARTMENT SERVICES.—
‘‘(1) IN
GENERAL.—With respect to hospital
outpatient services designated by the Secretary (in
this section referred to as ‘covered OPD services’)
and furnished during a year beginning with 1999,
the amount of payment under this part shall be de-
termined under a prospective payment system estab-
lished by the Secretary in accordance with this sub-
section.
‘‘(2) SYSTEM REQUIREMENTS.—Under the pay-
ment system—
‘‘(A) the Secretary shall develop a classi-
fication system for covered OPD services;
‘‘(B) the Secretary may establish groups of
covered OPD services, within the classification
system described in subparagraph (A), so that
services classified within each group are com-
parable clinically and with respect to the use of
resources;
‘‘(C) the Secretary shall, using data on
claims from 1996 and using data from the most
1078
recent available cost reports, establish relative
payment weights for covered OPD services (and
any groups of such services described in sub-
paragraph (B)) based on median hospital costs
and shall determine projections of the frequency
of utilization of each such service (or group of
services) in 1999;
‘‘(D) the Secretary shall determine a wage
adjustment factor to adjust the portion of pay-
ment and coinsurance attributable to labor-re-
lated costs for relative differences in labor and
labor-related costs across geographic regions in
a budget neutral manner;
‘‘(E) the Secretary shall establish other ad-
justments, in a budget neutral manner, as de-
termined to be necessary to ensure equitable
payments, such as outlier adjustments, adjust-
ments to account for variations in coinsurance
payments for procedures with similar resource
costs, or adjustments for certain classes of hos-
pitals; and
‘‘(F) the Secretary shall develop a method
for controlling unnecessary increases in the vol-
ume of covered OPD services.
‘‘(3) CALCULATION OF BASE AMOUNTS.—
1079
‘‘(A) AGGREGATE AMOUNTS THAT WOULD
BE
PAYABLE
IF
DEDUCTIBLES
WERE
DIS-
REGARDED.—The Secretary shall estimate the
total amounts that would be payable from the
Trust Fund under this part for covered OPD
services in 1999, determined without regard to
this subsection, as though the deductible under
section 1833(b) did not apply, and as though
the 
coinsurance 
described 
in 
section
1866(a)(2)(A)(ii) (as in effect before the date
of the enactment of this subsection) continued
to apply.
‘‘(B) 
UNADJUSTED
COPAYMENT
AMOUNT.—
‘‘(i) IN
GENERAL.—For purposes of
this subsection, subject to clause (ii), the
‘unadjusted copayment amount’ applicable
to a covered OPD service (or group of such
services) is 20 percent of national median
of the charges for the service (or services
within the group) furnished during 1996,
updated to 1999 using the Secretary’s esti-
mate of charge growth during the period.
‘‘(ii) ADJUSTED TO BE 20 PERCENT
WHEN FULLY PHASED IN.—If the pre-de-
1080
ductible payment percentage for a covered
OPD service (or group of such services)
furnished in a year would be equal to or
exceed 80 percent, then the unadjusted co-
payment amount shall be 25 percent of
amount determined under subparagraph
(D)(i).
‘‘(iii) RULES FOR NEW SERVICES.—
The Secretary shall establish rules for es-
tablishment of an unadjusted copayment
amount for a covered OPD service not fur-
nished during 1996, based upon its classi-
fication within a group of such services.
‘‘(C) CALCULATION OF CONVERSION FAC-
TORS.—
‘‘(i) FOR 1999.—
‘‘(I) IN
GENERAL.—The Sec-
retary shall establish a 1999 conver-
sion factor for determining the medi-
care pre-deductible OPD fee payment
amounts for each covered OPD serv-
ice (or group of such services) fur-
nished in 1999. Such conversion fac-
tor shall be established on the basis of
the weights and frequencies described
1081
in paragraph (2)(C) and in a manner
such that the sum for all services and
groups of the products (described in
subclause (II) for each such service or
group) equals the total projected
amount described in subparagraph
(A).
‘‘(II) 
PRODUCT
DESCRIBED.—The
product described in this subclause, for a
service or group, is the product of the med-
icare pre-deductible OPD fee payment
amounts (taking into account appropriate
adjustments 
described 
in 
paragraphs
(2)(D) and (2)(E)) and the frequencies for
such service or group.
‘‘(ii) SUBSEQUENT
YEARS.—Subject
to paragraph (8)(B), the Secretary shall
establish a conversion factor for covered
OPD services furnished in subsequent
years in an amount equal to the conversion
factor established under this subparagraph
and applicable to such services furnished in
the previous year increased by the OPD
payment increase factor specified under
clause (iii) for the year involved.
1082
‘‘(iii) OPD PAYMENT INCREASE FAC-
TOR.—For purposes of this subparagraph,
the ‘OPD payment increase factor’ for
services furnished in a year is equal to the
sum of—
‘‘(I) market basket percentage in-
crease 
(applicable 
under 
section
1886(b)(3)(B)(iii) to hospital dis-
charges occurring during the fiscal
year ending in such year, and
‘‘(II) in the case of a covered
OPD service (or group of such serv-
ices) furnished in a year in which the
pre-deductible 
payment 
percentage
would not exceed 80 percent, 3.5 per-
centage points, but in no case greater
than such number of percentage
points as will result in the pre-deduct-
ible payment percentage exceeding 80
percent.
In applying the previous sentence for years
beginning with 2000, the Secretary may
substitute for the market basket percent-
age increase under subclause (I) an annual
percentage increase that is computed and
1083
applied with respect to covered OPD serv-
ices furnished in a year in the same man-
ner as the market basket percentage in-
crease is determined and applied to inpa-
tient hospital services for discharges occur-
ring in a fiscal year.
‘‘(D) PRE-DEDUCTIBLE
PAYMENT
PER-
CENTAGE.—The pre-deductible payment per-
centage for a covered OPD service (or group of
such services) furnished in a year is equal to
the ratio of—
‘‘(i) the conversion factor established
under subparagraph (C) for the year, mul-
tiplied by the weighting factor established
under paragraph (2)(C) for the service (or
group), to
‘‘(ii) the sum of the amount deter-
mined under clause (i) and the unadjusted
copayment amount determined under sub-
paragraph (B) for such service or group.
‘‘(E) CALCULATION
OF
MEDICARE
OPD
FEE
SCHEDULE
AMOUNTS.—The 
Secretary
shall compute a medicare OPD fee schedule
amount for each covered OPD service (or group
1084
of such services) furnished in a year, in an
amount equal to the product of—
‘‘(i) the conversion factor computed
under subparagraph (C) for the year, and
‘‘(ii) the relative payment weight (de-
termined under paragraph (2)(C)) for the
service or group.
‘‘(4) 
MEDICARE
PAYMENT
AMOUNT.—The
amount of payment made from the Trust Fund
under this part for a covered OPD service (and such
services classified within a group) furnished in a
year is determined as follows:
‘‘(A) FEE
SCHEDULE
AND
COPAYMENT
AMOUNT.—Add (i) the medicare OPD fee
schedule amount (computed under paragraph
(3)(E)) for the service or group and year, and
(ii) the unadjusted copayment amount (deter-
mined under paragraph (3)(B)) for the service
or group.
‘‘(B) SUBTRACT
APPLICABLE
DEDUCT-
IBLE.—Reduce the sum determined under sub-
paragraph (A) by the amount of the deductible
under section 1833(b), to the extent applicable.
‘‘(C) APPLY PAYMENT PROPORTION TO RE-
MAINDER.—Multiply the amount so determined
1085
under subparagraph (B) by the pre-deductible
payment percentage (as determined under para-
graph (3)(D)) for the service or group and year
involved.
‘‘(D) 
LABOR-RELATED
ADJUSTMENT.—
The amount of payment is the product deter-
mined under subparagraph (C) with the labor-
related portion of such product adjusted for rel-
ative differences in the cost of labor and other
factors determined by the Secretary, as com-
puted under paragraph (2)(D).
‘‘(5) COPAYMENT AMOUNT.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the copayment amount
under this subsection is determined as follows:
‘‘(i) 
UNADJUSTED
COPAYMENT.—
Compute the amount by which the amount
described in paragraph (4)(B) exceeds the
amount of payment determined under
paragraph (4)(C).
‘‘(ii) LABOR ADJUSTMENT.—The co-
payment amount is the difference deter-
mined under clause (i) with the labor-relat-
ed portion of such difference adjusted for
relative differences in the cost of labor and
1086
other factors determined by the Secretary,
as computed under paragraphs (2)(D).
The adjustment under this clause shall be
made in a manner that does not result in
any change in the aggregate copayments
made in any year if the adjustment had
not been made.
‘‘(B) ELECTION TO OFFER REDUCED CO-
PAYMENT AMOUNT.—The Secretary shall estab-
lish a procedure under which a hospital, before
the beginning of a year (beginning with 1999),
may elect to reduce the copayment amount oth-
erwise established under subparagraph (A) for
some or all covered OPD services to an amount
that is not less than 25 percent of the medicare
OPD fee schedule amount (computed under
paragraph (3)(E)) for the service involved, ad-
justed for relative differences in the cost of
labor and other factors determined by the Sec-
retary, as computed under subparagraphs (D)
and (E) of paragraph (2). Under such proce-
dures, such reduced copayment amount may
not be further reduced or increased during the
year involved and the hospital may disseminate
1087
information on the reduction of copayment
amount effected under this subparagraph.
‘‘(C) NO
IMPACT
ON
DEDUCTIBLES.—
Nothing in this paragraph shall be construed as
affecting a hospital’s authority to waive the
charging of a deductible under section 1833(b).
‘‘(6) PERIODIC
REVIEW
AND
ADJUSTMENTS
COMPONENTS OF PROSPECTIVE PAYMENT SYSTEM.—
‘‘(A) PERIODIC
REVIEW.—The Secretary
may periodically review and revise the groups,
the relative payment weights, and the wage and
other adjustments described in paragraph (2) to
take into account changes in medical practice,
changes in technology, the addition of new serv-
ices, new cost data, and other relevant informa-
tion and factors.
‘‘(B) 
BUDGET
NEUTRALITY
ADJUST-
MENT.—If the Secretary makes adjustments
under subparagraph (A), then the adjustments
for a year may not cause the estimated amount
of expenditures under this part for the year to
increase or decrease from the estimated amount
of expenditures under this part that would have
been made if the adjustments had not been
made.
1088
‘‘(C) UPDATE FACTOR.—If the Secretary
determines under methodologies described in
subparagraph (2)(F) that the volume of services
paid for under this subsection increased beyond
amounts established through those methodolo-
gies, the Secretary may appropriately adjust the
update to the conversion factor otherwise appli-
cable in a subsequent year.
‘‘(7) SPECIAL
RULE
FOR
AMBULANCE
SERV-
ICES.—The Secretary shall pay for hospital out-
patient services that are ambulance services on the
basis described in the matter in subsection (a)(1)
preceding subparagraph (A).
‘‘(8) SPECIAL
RULES
FOR
CERTAIN
HOS-
PITALS.—In the case of hospitals described in sec-
tion 1886(d)(1)(B)(v)—
‘‘(A) the system under this subsection shall
not apply to covered OPD services furnished be-
fore January 1, 2000; and
‘‘(B) the Secretary may establish a sepa-
rate conversion factor for such services in a
manner that specifically takes into account the
unique costs incurred by such hospitals by vir-
tue of their patient population and service in-
tensity.
1089
‘‘(9) LIMITATION ON REVIEW.—There shall be
no administrative or judicial review under section
1869, 1878, or otherwise of—
‘‘(A) the development of the classification
system under paragraph (2), including the es-
tablishment of groups and relative payment
weights for covered OPD services, of wage ad-
justment factors, other adjustments, and meth-
ods described in paragraph (2)(F);
‘‘(B) the calculation of base amounts
under paragraph (3);
‘‘(C) periodic adjustments made under
paragraph (6); and
‘‘(D) the establishment of a separate con-
version factor under paragraph (8)(B).’’.
(b) COINSURANCE.—Section 1866(a)(2)(A)(ii) (42
U.S.C. 1395cc(a)(2)(A)(ii)) is amended by adding at the
end the following: ‘‘In the case of items and services for
which payment is made under part B under the prospec-
tive payment system established under section 1833(t),
clause (ii) of the first sentence shall be applied by sub-
stituting for 20 percent of the reasonable charge, the ap-
plicable copayment amount established under section
1833(t)(5).’’.
1090
(c) TREATMENT
OF REDUCTION
IN COPAYMENT
AMOUNT.—Section 1128A(i)(6) (42 U.S.C. 1320a–
7a(i)(6)) is amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(B),
(2) by striking the period at the end of sub-
paragraph (C) and inserting ‘‘; or’’, and
(3) by adding at the end the following new sub-
paragraph:
‘‘(D) a reduction in the copayment amount
for 
covered 
OPD 
services 
under 
section
1833(t)(5)(B).’’.
(d) CONFORMING AMENDMENTS.—
(1) APPROVED ASC PROCEDURES PERFORMED
IN HOSPITAL OUTPATIENT DEPARTMENTS.—
(A)(i) Section 1833(i)(3)(A) (42 U.S.C.
13951(i)(3)(A)) is amended—
(I) by inserting ‘‘before January 1,
1999,’’ after ‘‘furnished’’, and
(II) by striking ‘‘in a cost reporting
period’’.
(ii) The amendment made by clause (i)
shall apply to services furnished on or after
January 1, 1999.
1091
(B) 
Section 
1833(a)(4) 
(42 
U.S.C.
13951(a)(4)) is amended by inserting ‘‘or sub-
section (t)’’ before the semicolon.
(2) RADIOLOGY AND OTHER DIAGNOSTIC PRO-
CEDURES.—
(A) Section 1833(n)(1)(A) (42 U.S.C.
1395l(n)(1)(A)) is amended by inserting ‘‘and
before January 1, 1999,’’ after ‘‘October 1,
1988,’’ and after ‘‘October 1, 1989,’’.
(B) Section 1833(a)(2)(E) (42 U.S.C.
1395l(a)(2)(E)) is amended by inserting ‘‘or,
for services or procedures performed on or after
January 1, 1999, (t)’’ before the semicolon.
(3) OTHER
HOSPITAL
OUTPATIENT
SERV-
ICES.—Section 
–1833(a)(2)(B) 
(42 
U.S.C.
1395l(a)(2)(B)) is amended—
(A) in clause (i), by inserting ‘‘furnished
before January 1, 1999,’’ after ‘‘(i)’’,
(B) in clause (ii), by inserting ‘‘before Jan-
uary 1, 1999,’’ after ‘‘furnished’’,
(C) by redesignating clause (iii) as clause
(iv),and
(D) by inserting after clause (ii), the fol-
lowing new clause:
1092
‘‘(iii) if such services are furnished on
or after January 1, 1999, the amount de-
termined under subsection (t), or’’.
Subchapter B—Rehabilitation Services
SEC. 10421. REHABILITATION AGENCIES AND SERVICES.
(a) PAYMENT BASED ON FEE SCHEDULE.—
(1) 
SPECIAL
PAYMENT
RULES.—Section
1833(a) (42 U.S.C. 1395l(a)) is amended—
(A) in paragraph (2) in the matter before
subparagraph (A), by inserting ‘‘(C),’’ before
‘‘(D)’’;
(B) in paragraph (6), by striking ‘‘and’’ at
the end;
(C) in paragraph (7), by striking the pe-
riod at the end and inserting ‘‘; and’’;
(D) by adding at the end the following new
paragraph:
‘‘(8) in the case of services described in section
1832(a)(2)(C) (that are not described in section
1832(a)(2)(B)), the amounts described in section
1834(k).’’.
(2) 
PAYMENT
RATES.—Section 
1834 
(42
U.S.C. 1395m) is amended by adding at the end the
following new subsection:
1093
‘‘(k) PAYMENT FOR OUTPATIENT THERAPY SERV-
ICES.—
‘‘(1) IN GENERAL.—With respect to outpatient
physical therapy services (which includes outpatient
speech-language pathology services) and outpatient
occupational therapy services for which payment is
determined under this subsection, the payment basis
shall be—
‘‘(A) for services furnished during 1998,
the amount determined under paragraph (2); or
‘‘(B) for services furnished during a subse-
quent year, 80 percent of the lesser of—
‘‘(i) the actual charge for the services,
or
‘‘(ii) 
the 
applicable 
fee 
schedule
amount (as defined in paragraph (3)) for
the services.
‘‘(2) PAYMENT IN 1998 BASED UPON ADJUSTED
REASONABLE COSTS.—The amount under this para-
graph for services is the lesser of—
‘‘(A) the charges imposed for the services,
or
‘‘(B) the adjusted reasonable costs (as de-
fined in paragraph (4)) for the services,
1094
less 20 percent of the amount of the charges im-
posed for such services.
‘‘(3) APPLICABLE FEE SCHEDULE AMOUNT.—
In this paragraph, the term ‘applicable fee schedule
amount’ means, with respect to services furnished in
a year, the fee schedule amount established under
section 1848 for such services furnished during the
year or, if there is no such fee schedule amount es-
tablished for such services, for such comparable
services as the Secretary specifies.
‘‘(4) ADJUSTED REASONABLE COSTS.—In para-
graph (2), the term ‘adjusted reasonable costs’
means reasonable costs determined reduced by—
‘‘(A) 5.8 percent of the reasonable costs
for operating costs, and
‘‘(B) 10 percent of the reasonable costs for
capital costs.
‘‘(5) UNIFORM CODING.—For claims for serv-
ices submitted on or after April 1, 1998, for which
the amount of payment is determined under this
subsection, the claim shall include a code (or codes)
under a uniform coding system specified by the Sec-
retary that identifies the services furnished.
‘‘(6) RESTRAINT ON BILLING.—The provisions
of 
subparagraphs 
(A) 
and 
(B) 
of 
section
1095
1842(b)(18) shall apply to therapy services for
which payment is made under this subsection in the
same manner as they apply to services provided by
a practitioner described in section 1842(b)(18)(C).’’.
(b) APPLICATION OF STANDARDS TO OUTPATIENT
OCCUPATIONAL AND PHYSICAL THERAPY SERVICES PRO-
VIDED AS AN INCIDENT TO A PHYSICIAN’S PROFESSIONAL
SERVICES.—Section 1862(a), as amended by section
10401(b), (42 U.S.C. 1395y(a)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(16);
(2) by striking the period at the end of para-
graph (17) and inserting ‘‘; or’’; and
(3) by inserting after paragraph (17) the fol-
lowing:
‘‘(18) in the case of outpatient occupational
therapy services or outpatient physical therapy serv-
ices furnished as an incident to a physician’s profes-
sional 
services 
(as 
described 
in 
section
1861(s)(2)(A)), that do not meet the standards and
conditions under the second sentence of section
1861(g) or 1861(p) as such standards and condi-
tions would apply to such therapy services if fur-
nished by a therapist.’’.
1096
(c) APPLYING FINANCIAL LIMITATION TO ALL RE-
HABILITATION SERVICES.—Section 1833(g) (42 U.S.C.
1395l(g)) is amended—
(1) in the first sentence, by striking ‘‘services
described in the second sentence of section 1861(p)’’
and inserting ‘‘physical therapy services of the type
described in section 1861(p) (regardless of who fur-
nishes the services or whether the services may be
covered as physicians’ services so long as the serv-
ices are furnished other than in a hospital setting)’’,
and
(2) in the second sentence, by striking ‘‘out-
patient occupational therapy services which are de-
scribed in the second sentence of section 1861(p)
through the operation of section 1861(g)’’ and in-
serting ‘‘occupational therapy services (of the type
that are described in section 1861(p) through the
operation of section 1861(g)), regardless of who fur-
nishes the services or whether the services may be
covered as physicians’ services so long as the serv-
ices are furnished other than in a hospital setting’’.
(d) INDEXING LIMITATION.—Section 1833(g) (42
U.S.C. 1395l(g)), as amended by subsection (c), is further
amended—
1097
(1) by striking ‘‘$900’’ each place it appears
and inserting ‘‘the amount specified in paragraph
(2) for the year’’,
(2) by inserting ‘‘(1)’’ after ‘‘(g)’’,
(3) by designating the last sentence as a para-
graph (3), and
(4) by inserting before paragraph (3), as so
designated, the following:
‘‘(2) The amount specified in this paragraph—
‘‘(A) for 1999, and each preceding year, is
$900, and
‘‘(B) for a subsequent year is the amount speci-
fied in this paragraph for the preceding year in-
creased by the Secretary’s estimate of the projected
percentage growth in real gross domestic product
per capita from the fiscal year ending in the preced-
ing year to the fiscal year ending in such subsequent
year.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section apply to services furnished on or after Janu-
ary 1, 1998; except that the amendments made by sub-
section (c) apply to services furnished on or after January
1, 1999.
1098
SEC. 10422. COMPREHENSIVE OUTPATIENT REHABILITA-
TION FACILITIES (CORF).
(a) PAYMENT BASED ON FEE SCHEDULE.—
(1) 
SPECIAL
PAYMENT
RULES.—Section
1833(a) (42 U.S.C. 1395l(a)), as amended by sec-
tion 10421(a), is amended—
(A) in paragraph (3), by striking ‘‘sub-
paragraphs (D) and (E) of section 1832(a)(2)’’
and inserting ‘‘section 1832(a)(2)(E)’’;
(B) in paragraph (7), by striking ‘‘and’’ at
the end;
(C) in paragraph (8), by striking the pe-
riod at the end and inserting ‘‘; and’’;
(D) by adding at the end the following new
paragraph:
‘‘(9) in the case of services described in section
1832(a)(2)(E), the amounts described in section
1834(k).’’.
(2) PAYMENT
RATES.—Section 1834(k) (42
U.S.C. 1395m(k)), as added by section 10421(a), is
amended—
(A) in the heading, by inserting ‘‘AND
COMPREHENSIVE
OUTPATIENT
REHABILITA-
TION FACILITY SERVICES’’ after ‘‘THERAPY
SERVICES’’; and
1099
(B) in paragraph (1), by inserting ‘‘and
with respect to comprehensive outpatient reha-
bilitation facility services’’ after ‘‘occupational
therapy services’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to services furnished on or after
January 1, 1998, and to portions of cost reporting periods
occurring on or after such date.
Subchapter C—Ambulance Services
SEC. 10431. PAYMENTS FOR AMBULANCE SERVICES.
(a) INTERIM REDUCTIONS.—
(1) PAYMENTS DETERMINED ON REASONABLE
COST
BASIS.—Section 
1861(v)(1) 
(42 
U.S.C.
1395x(v)(1)) is amended by adding at the end the
following new subparagraph:
‘‘(U) In determining the reasonable cost of am-
bulance services (as described in subsection (s)(7))
provided during a fiscal year (beginning with fiscal
year 1998 and ending with fiscal year 2002), the
Secretary shall not recognize any costs in excess of
costs recognized as reasonable for ambulance serv-
ices provided during the previous fiscal year after
application of this subparagraph, increased by the
percentage increase in the consumer price index for
all urban consumers (U.S. city average) as estimated
1100
by the Secretary for the 12-month period ending
with the midpoint of the fiscal year involved reduced
(in the case of each of fiscal years 1998 and 1999)
by 1 percentage point.’’.
(2) PAYMENTS DETERMINED ON REASONABLE
CHARGE
BASIS.—Section 
1842(b) 
(42 
U.S.C.
1395u(b)) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(19) For purposes of section 1833(a)(1), the reason-
able charge for ambulance services (as described in section
1861(s)(7)) provided during a fiscal year (beginning with
fiscal year 1998 and ending with fiscal year 2002) may
not exceed the reasonable charge for such services pro-
vided during the previous fiscal year after the application
of this paragraph, increased by the percentage increase
in the consumer price index for all urban consumers (U.S.
city average) as estimated by the Secretary for the 12-
month period ending with the midpoint of the year in-
volved reduced (in the case of each of fiscal years 1998
and 1999) by 1 percentage point.’’.
(b) ESTABLISHMENT OF PROSPECTIVE FEE SCHED-
ULE.—
(1) PAYMENT
IN
ACCORDANCE
WITH
FEE
SCHEDULE.—Section 
1833(a)(1) 
(42 
U.S.C.
1101
1395l(a)(1)), as amended by section 10619(b)(1), is
amended—
(A) by striking ‘‘and (P)’’ and inserting
‘‘(P)’’; and
(B) by striking the semicolon at the end
and inserting the following: ‘‘, and (Q) with re-
spect to ambulance service, the amounts paid
shall be 80 percent of the lesser of the actual
charge for the services or the amount deter-
mined by a fee schedule established by the Sec-
retary under section 1834(l);’’.
(2) ESTABLISHMENT
OF
SCHEDULE.—Section
1834 (42 U.S.C. 1395m), as amended by section
10421(a)(2), is amended by adding at the end the
following new subsection:
‘‘(l) ESTABLISHMENT OF FEE SCHEDULE FOR AM-
BULANCE SERVICES.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish a fee schedule for payment for ambulance serv-
ices under this part through a negotiated rulemaking
process described in title 5, United States Code, and
in accordance with the requirements of this sub-
section.
‘‘(2) CONSIDERATIONS.—In establishing such
fee schedule the Secretary shall—
1102
‘‘(A) establish mechanisms to control in-
creases in expenditures for ambulance services
under this part;
‘‘(B) establish definitions for ambulance
services which link payments to the type of
services provided;
‘‘(C) consider appropriate regional and
operational differences;
‘‘(D) consider adjustments to payment
rates to account for inflation and other relevant
factors; and
‘‘(E) phase in the application of the pay-
ment rates under the fee schedule in an effi-
cient and fair manner.
‘‘(3) SAVINGS.—In establishing such fee sched-
ule the Secretary shall—
‘‘(A) ensure that the aggregate amount of
payments made for ambulance services under
this part during 2000 does not exceed the ag-
gregate amount of payments which would have
been made for such services under this part
during such year if the amendments made by
section 10431 of the Balanced Budget Act of
1997 had not been made; and
1103
‘‘(B) set the payment amounts provided
under the fee schedule for services furnished in
2001 and each subsequent year at amounts
equal to the payment amounts under the fee
schedule for service furnished during the pre-
vious year, increased by the percentage increase
in the consumer price index for all urban con-
sumers (U.S. city average) for the 12-month
period ending with June of the previous year.
‘‘(4) CONSULTATION.—In establishing the fee
schedule for ambulance services under this sub-
section, the Secretary shall consult with various na-
tional organizations representing individuals and en-
tities who furnish and regulate ambulance services
and share with such organizations relevant data in
establishing such schedule.
‘‘(5) LIMITATION ON REVIEW.—There shall be
no administrative or judicial review under section
1869 or otherwise of the amounts established under
the fee schedule for ambulance services under this
subsection, including matters described in paragraph
(2).
‘‘(6) RESTRAINT ON BILLING.—The provisions
of 
subparagraphs 
(A) 
and 
(B) 
of 
section
1842(b)(18) shall apply to ambulance services for
1104
which payment is made under this subsection in the
same manner as they apply to services provided by
a practitioner described in section 1842(b)(18)(C).’’.
(3) EFFECTIVE DATE.—The amendments made
by this section apply to ambulance services furnished
on or after January 1, 2000.
(c) AUTHORIZING PAYMENT FOR PARAMEDIC INTER-
CEPT SERVICE PROVIDERS IN RURAL COMMUNITIES.—In
promulgating regulations to carry out section 1861(s)(7)
of the Social Security Act (42 U.S.C. 1395x(s)(7)) with
respect to the coverage of ambulance service, the Secretary
of Health and Human Services may include coverage of
advanced life support services (in this subsection referred
to as ‘‘ALS intercept services’’) provided by a paramedic
intercept service provider in a rural area if the following
conditions are met:
(1) The ALS intercept services are provided
under a contract with one or more volunteer ambu-
lance services and are medically necessary based on
the health condition of the individual being trans-
ported.
(2) The volunteer ambulance service involved—
(A) is certified as qualified to provide am-
bulance service for purposes of such section,
1105
(B) provides only basic life support serv-
ices at the time of the intercept, and
(C) is prohibited by State law from billing
for any services.
(3) The entity supplying the ALS intercept
services—
(A) is certified as qualified to provide such
services under the medicare program under title
XVIII of the Social Security Act, and
(B) bills all recipients who receive ALS
intercept services from the entity, regardless of
whether or not such recipients are medicare
beneficiaries.
SEC. 10432. DEMONSTRATION OF COVERAGE OF AMBU-
LANCE 
SERVICES 
UNDER 
MEDICARE
THROUGH 
CONTRACTS 
WITH 
UNITS 
OF
LOCAL GOVERNMENT.
(a) DEMONSTRATION PROJECT CONTRACTS
WITH
LOCAL GOVERNMENTS.—The Secretary of Health and
Human Services shall establish up to 3 demonstration
projects under which, at the request of a county or parish,
the Secretary enters into a contract with the county or
parish under which—
(1) the county or parish furnishes (or arranges
for the furnishing) of ambulance services for which
1106
payment may be made under part B of title XVIII
of the Social Security Act for individuals residing in
the county or parish who are enrolled under such
part, except that the county or parish may not enter
into the contract unless the contract covers at least
80 percent of the individuals residing in the county
or parish who are enrolled under such part;
(2) any individual or entity furnishing ambu-
lance services under the contract meets the require-
ments otherwise applicable to individuals and enti-
ties furnishing such services under such part; and
(3) for each month during which the contract is
in effect, the Secretary makes a capitated payment
to the county or parish in accordance with sub-
section (b).
The projects may extend over a period of not to exceed
3 years each.
(b) AMOUNT OF PAYMENT.—
(1) IN GENERAL.—The amount of the monthly
payment made for months occurring during a cal-
endar year to a county or parish under a demonstra-
tion project contract under subsection (a) shall be
equal to the product of—
1107
(A) the Secretary’s estimate of the number
of individuals covered under the contract for the
month; and
(B) 1⁄12 of the capitated payment rate for
the year established under paragraph (2).
(2) CAPITATED PAYMENT RATE DEFINED.—In
this subsection, the ‘‘capitated payment rate’’ appli-
cable to a contract under this subsection for a cal-
endar year is equal to 95 percent of—
(A) for the first calendar year for which
the contract is in effect, the average annual per
capita payment made under part B of title
XVIII of the Social Security Act with respect to
ambulance services furnished to such individ-
uals during the 3 most recent calendar years
for which data on the amount of such payment
is available; and
(B) for a subsequent year, the amount pro-
vided under this paragraph for the previous
year increased by the percentage increase in the
consumer price index for all urban consumers
(U.S. city average) for the 12-month period
ending with June of the previous year.
(c) OTHER TERMS OF CONTRACT.—The Secretary
and the county or parish may include in a contract under
1108
this section such other terms as the parties consider ap-
propriate, including—
(1) covering individuals residing in additional
counties or parishes (under arrangements entered
into between such counties or parishes and the coun-
ty or parish involved);
(2) permitting the county or parish to transport
individuals to non-hospital providers if such provid-
ers are able to furnish quality services at a lower
cost than hospital providers; or
(3) implementing such other innovations as the
county or parish may propose to improve the quality
of ambulance services and control the costs of such
services.
(d) CONTRACT PAYMENTS IN LIEU OF OTHER BENE-
FITS.—Payments under a contract to a county or parish
under this section shall be instead of the amounts which
(in the absence of the contract) would otherwise be pay-
able under part B of title XVIII of the Social Security
Act for the services covered under the contract which are
furnished to individuals who reside in the county or parish.
(e) REPORT
ON EFFECTS
OF CAPITATED CON-
TRACTS.—
(1) STUDY.—The Secretary shall evaluate the
demonstration projects conducted under this section.
1109
Such evaluation shall include an analysis of the
quality and cost-effectiveness of ambulance services
furnished under the projects.
(2) REPORT.—Not later than January 1, 2000,
the Secretary shall submit a report to Congress on
the study conducted under paragraph (1), and shall
include in the report such recommendations as the
Secretary considers appropriate, including rec-
ommendations regarding modifications to the meth-
odology used to determine the amount of payments
made under such contracts and extending or expand-
ing such projects.
CHAPTER 3—PAYMENT UNDER PARTS A
AND B
SEC. 10441. PROSPECTIVE PAYMENT FOR HOME HEALTH
SERVICES.
(a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et
seq.), as amended by section 10011, is amended by adding
at the end the following new section:
‘‘PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES
‘‘SEC. 1895. (a) IN GENERAL.—Notwithstanding sec-
tion 1861(v), the Secretary shall provide, for cost report-
ing periods beginning on or after October 1, 1999, for pay-
ments for home health services in accordance with a pro-
spective payment system established by the Secretary
under this section.
1110
‘‘(b) SYSTEM OF PROSPECTIVE PAYMENT FOR HOME
HEALTH SERVICES.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish under this subsection a prospective payment sys-
tem for payment for all costs of home health serv-
ices. Under the system under this subsection all
services covered and paid on a reasonable cost basis
under the medicare home health benefit as of the
date of the enactment of the this section, including
medical supplies, shall be paid for on the basis of a
prospective payment amount determined under this
subsection and applicable to the services involved. In
implementing the system, the Secretary may provide
for a transition (of not longer than 4 years) during
which a portion of such payment is based on agency-
specific costs, but only if such transition does not re-
sult in aggregate payments under this title that ex-
ceed the aggregate payments that would be made if
such a transition did not occur.
‘‘(2) UNIT OF PAYMENT.—In defining a pro-
spective payment amount under the system under
this subsection, the Secretary shall consider an ap-
propriate unit of service and the number, type, and
duration of visits provided within that unit, potential
changes in the mix of services provided within that
1111
unit and their cost, and a general system design that
provides for continued access to quality services.
‘‘(3) PAYMENT BASIS.—
‘‘(A) INITIAL BASIS.—
‘‘(i) IN GENERAL.—Under such sys-
tem the Secretary shall provide for com-
putation of a standard prospective pay-
ment amount (or amounts). Such amount
(or amounts) shall initially be based on the
most current audited cost report data
available to the Secretary and shall be
computed in a manner so that the total
amounts payable under the system for fis-
cal year 2000 shall be equal to the total
amount that would have been made if the
system had not been in effect but if the re-
duction in limits described in clause (ii)
had been in effect. Such amount shall be
standardized in a manner that eliminates
the effect of variations in relative case mix
and wage levels among different home
health agencies in a budget neutral manner
consistent with the case mix and wage level
adjustments provided under paragraph
(4)(A). Under the system, the Secretary
1112
may recognize regional differences or dif-
ferences based upon whether or not the
services or agency are in an urbanized
area.
‘‘(ii) REDUCTION.—The reduction de-
scribed in this clause is a reduction by 15
percent in the cost limits and per bene-
ficiary 
limits 
described 
in 
section
1861(v)(1)(L), as those limits are in effect
on September 30, 1999.
‘‘(B) ANNUAL UPDATE.—
‘‘(i) IN GENERAL.—The standard pro-
spective payment amount (or amounts)
shall be adjusted for each fiscal year (be-
ginning with fiscal year 2001) in a pro-
spective manner specified by the Secretary
by the home health market basket percent-
age increase applicable to the fiscal year
involved.
‘‘(ii) HOME HEALTH MARKET BASKET
PERCENTAGE INCREASE.—For purposes of
this subsection, the term ‘home health
market basket percentage increase’ means,
with respect to a fiscal year, a percentage
(estimated by the Secretary before the be-
1113
ginning of the fiscal year) determined and
applied with respect to the mix of goods
and services included in home health serv-
ices in the same manner as the market
basket percentage increase under section
1886(b)(3)(B)(iii) is determined and ap-
plied to the mix of goods and services com-
prising inpatient hospital services for the
fiscal year.
‘‘(C) ADJUSTMENT
FOR
OUTLIERS.—The
Secretary shall reduce the standard prospective
payment amount (or amounts) under this para-
graph applicable to home health services fur-
nished during a period by such proportion as
will result in an aggregate reduction in pay-
ments for the period equal to the aggregate in-
crease in payments resulting from the applica-
tion of paragraph (5) (relating to outliers).
‘‘(4) PAYMENT COMPUTATION.—
‘‘(A) IN GENERAL.—The payment amount
for a unit of home health services shall be the
applicable 
standard 
prospective 
payment
amount adjusted as follows:
‘‘(i) CASE
MIX
ADJUSTMENT.—The
amount shall be adjusted by an appro-
1114
priate case mix adjustment factor (estab-
lished under subparagraph (B)).
‘‘(ii) AREA WAGE ADJUSTMENT.—The
portion of such amount that the Secretary
estimates to be attributable to wages and
wage-related costs shall be adjusted for ge-
ographic differences in such costs by an
area wage adjustment factor (established
under subparagraph (C)) for the area in
which the services are furnished or such
other area as the Secretary may specify.
‘‘(B) ESTABLISHMENT OF CASE MIX AD-
JUSTMENT FACTORS.—The Secretary shall es-
tablish appropriate case mix adjustment factors
for home health services in a manner that ex-
plains a significant amount of the variation in
cost among different units of services.
‘‘(C) ESTABLISHMENT OF AREA WAGE AD-
JUSTMENT FACTORS.—The Secretary shall es-
tablish area wage adjustment factors that re-
flect the relative level of wages and wage-related
costs applicable to the furnishing of home
health services in a geographic area compared
to the national average applicable level. Such
1115
factors may be the factors used by the Sec-
retary for purposes of section 1886(d)(3)(E).
‘‘(5) OUTLIERS.—The Secretary may provide
for an addition or adjustment to the payment
amount otherwise made in the case of outliers be-
cause of unusual variations in the type or amount of
medically necessary care. The total amount of the
additional payments or payment adjustments made
under this paragraph with respect to a fiscal year
may not exceed 5 percent of the total payments pro-
jected or estimated to be made based on the prospec-
tive payment system under this subsection in that
year.
‘‘(6) PRORATION
OF
PROSPECTIVE
PAYMENT
AMOUNTS.—If a beneficiary elects to transfer to, or
receive services from, another home health agency
within the period covered by the prospective payment
amount, the payment shall be prorated between the
home health agencies involved.
‘‘(c) REQUIREMENTS
FOR
PAYMENT
INFORMA-
TION.—With respect to home health services furnished on
or after October 1, 1998, no claim for such a service may
be paid under this title unless—
‘‘(1) the claim has the unique identifier (pro-
vided under section 1842(r)) for the physician who
1116
prescribed the services or made the certification de-
scribed in section 1814(a)(2) or 1835(a)(2)(A); and
‘‘(2) in the case of a service visit described in
paragraph (1), (2), (3), or (4) of section 1861(m),
the claim has information (coded in an appropriate
manner) on the length of time of the service visit,
as measured in 15 minute increments.
‘‘(d) LIMITATION ON REVIEW.—There shall be no ad-
ministrative or judicial review under section 1869, 1878,
or otherwise of—
‘‘(1) the establishment of a transition period
under subsection (b)(1);
‘‘(2) the definition and application of payment
units under subsection (b)(2);
‘‘(3) the computation of initial standard pro-
spective 
payment 
amounts 
under 
subsection
(b)(3)(A) (including the reduction described in
clause (ii) of such subsection);
‘‘(4) the establishment of the adjustment for
outliers under subsection (b)(3)(C);
‘‘(5) the establishment of case mix and area
wage adjustments under subsection (b)(4);
‘‘(6) the establishment of any adjustments for
outliers under subsection (b)(5); and
1117
‘‘(7) the amounts or types of adjustments under
subsection (b)(7).’’.
(b) ELIMINATION OF PERIODIC INTERIM PAYMENTS
FOR HOME HEALTH AGENCIES.—Section 1815(e)(2) (42
U.S.C. 1395g(e)(2)) is amended—
(1) by inserting ‘‘and’’ at the end of subpara-
graph (C),
(2) by striking subparagraph (D), and
(3) by redesignating subparagraph (E) as sub-
paragraph (D).
(c) CONFORMING AMENDMENTS.—
(1) 
PAYMENTS
UNDER
PART
A.—Section
1814(b) (42 U.S.C. 1395f(b)) is amended in the
matter preceding paragraph (1) by striking ‘‘and
1886’’ and inserting ‘‘1886, and 1895’’.
(2) TREATMENT OF ITEMS AND SERVICES PAID
UNDER PART B.—
(A) PAYMENTS UNDER PART B.—Section
1833(a)(2) (42 U.S.C. 1395l(a)(2)) is amend-
ed—
(i) by amending subparagraph (A) to
read as follows:
‘‘(A) with respect to home health services
(other than a covered osteoporosis drug) (as de-
fined in section 1861(kk)), the amount deter-
1118
mined under the prospective payment system
under section 1895;’’;
(ii) by striking ‘‘and’’ at the end of
subparagraph (E);
(iii) by adding ‘‘and’’ at the end of
subparagraph (F); and
(iv) by adding at the end the following
new subparagraph:
‘‘(G) with respect to items and services de-
scribed in section 1861(s)(10)(A), the lesser
of—
‘‘(i) the reasonable cost of such serv-
ices, as determined under section 1861(v),
or
‘‘(ii) the customary charges with re-
spect to such services,
or, if such services are furnished by a public
provider of services, or by another provider
which demonstrates to the satisfaction of the
Secretary that a significant portion of its pa-
tients are low-income (and requests that pay-
ment be made under this provision), free of
charge or at nominal charges to the public, the
amount determined in accordance with section
1814(b)(2);’’.
1119
(B) REQUIRING PAYMENT FOR ALL ITEMS
AND SERVICES TO BE MADE TO AGENCY.—
(i) IN GENERAL.—The first sentence
of 
section 
1842(b)(6) 
(42 
U.S.C.
1395u(b)(6)), as amended by section
10401(b)(2), is amended—
(I) by striking ‘‘and (E)’’ and in-
serting ‘‘(E)’’; and
(II) by striking the period at the
end and inserting the following: ‘‘,
and (F) in the case of home health
services furnished to an individual
who (at the time the item or service is
furnished) is under a plan of care of
a home health agency, payment shall
be made to the agency (without re-
gard to whether or not the item or
service was furnished by the agency,
by others under arrangement with
them made by the agency, or when
any other contracting or consulting
arrangement, or otherwise).’’.
(ii) CONFORMING AMENDMENT.—Sec-
tion 1832(a)(1) (42 U.S.C. 1395k(a)(1)),
as amended by section 10401(b), is amend-
1120
ed by striking ‘‘and section 1842(b)(6)(E)’’
and inserting ‘‘, section 1842(b)(6)(E),
and section 1842(b)(6)(F)’’.
(C) EXCLUSIONS FROM COVERAGE.—Sec-
tion 1862(a) (42 U.S.C. 1395y(a)), as amended
by sections 10401(b) and 10421(b), is amend-
ed—
(i) by striking ‘‘or’’ at the end of
paragraph (17);
(ii) by striking the period at the end
of paragraph (18) and inserting ‘‘; or’’;
and
(iii) inserting after paragraph (18) the
following new paragraph:
‘‘(19) where such expenses are for home health
services furnished to an individual who is under a
plan of care of the home health agency if the claim
for payment for such services is not submitted by
the agency.’’.
(d) EFFECTIVE DATE.—Except as otherwise pro-
vided, the amendments made by this section shall apply
to cost reporting periods beginning on or after October
1, 1999.
1121
Subtitle F—Provisions Relating to
Part A
CHAPTER 1—PAYMENT OF PPS
HOSPITALS
SEC. 10501. PPS HOSPITAL PAYMENT UPDATE.
Section 
1886(b)(3)(B)(i) 
(42 
U.S.C.
1395ww(b)(3)(B)(i)) is amended—
(1) by striking ‘‘and’’ at the end of subclause
(XII), and
(2) by striking subclause (XIII) and inserting
the following:
‘‘(XIII) for fiscal year 1998, 0 percent,
‘‘(XIV) for each of the fiscal years 1999
through 2002, the market basket percentage in-
crease minus 1.0 percentage point for hospitals in all
areas, and
‘‘(XV) for fiscal year 2003 and each subsequent
fiscal year, the market basket percentage increase
for hospitals in all areas.’’.
SEC. 10502. CAPITAL PAYMENTS FOR PPS HOSPITALS.
(a) MAINTAINING SAVINGS FROM TEMPORARY RE-
DUCTION
IN
PPS 
CAPITAL
RATES.—Section
1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A)) is amended
by adding at the end the following: ‘‘In addition to the
reduction described in the preceding sentence, for dis-
1122
charges occurring on or after October 1, 1997, the Sec-
retary shall apply the budget neutrality adjustment factor
used to determine the Federal capital payment rate in ef-
fect on September 30, 1995 (as described in section
412.352 of title 42 of the Code of Federal Regulations),
to (i) the unadjusted standard Federal capital payment
rate (as described in section 412.308(c) of that title, as
in effect on September 30, 1997), and (ii) the unadjusted
hospital-specific 
rate 
(as 
described 
in 
section
412.328(e)(1) of that title, as in effect on September 30,
1997).’’.
(b) REVISION
OF EXCEPTIONS PROCESS UNDER
PROSPECTIVE
PAYMENT
SYSTEM
FOR
CERTAIN
PROJECTS.—
(1) IN
GENERAL.—Section 1886(g)(1) (42
U.S.C. 1395ww(g)(1)) is amended—
(A) by redesignating subparagraph (C) as
subparagraph (F), and
(B) by inserting after subparagraph (B)
the following subparagraphs:
‘‘(C) The exceptions under the system provided by
the Secretary under subparagraph (B)(iii) shall include
the provision of exception payments under the special ex-
ceptions process provided under section 412.348(g) of title
42, Code of Federal Regulations (as in effect on Septem-
1123
ber 1, 1995), except that the Secretary shall revise such
process, effective for discharges occurring after September
30, 1997, as follows:
‘‘(i) A hospital with at least 100 beds which is
located in an urban area shall be eligible under such
process without regard to its disproportionate pa-
tient percentage under subsection (d)(5)(F) or
whether it qualifies for additional payment amounts
under such subsection.
‘‘(ii) The minimum payment level for qualifying
hospitals shall be 85 percent (or such lower percent-
age, but no lower than 75 percent, as the Secretary
may provide to comply with subparagraph (D)).
‘‘(iii) A hospital shall be considered to meet the
requirement that it complete the project involved no
later than the end of the hospital’s last cost report-
ing period beginning before October 1, 2001, if—
‘‘(I) the hospital has obtained a certificate
of need for the project approved by the State or
a local planning authority by September 1,
1995, and
‘‘(II) by September 1, 1995, the hospital
has expended on the project at least $750,000
or 10 percent of the estimated cost of the
project.
1124
‘‘(iv) Offsetting amounts, as described in sec-
tion 412.348(g)(8)(ii) of title 42, Code of Federal
Regulations, shall apply except that subparagraph
(B) of such section shall be revised to require that
the additional payment that would otherwise be pay-
able for the cost reporting period shall be reduced by
the amount (if any) by which the hospital’s current
year medicare capital payments (excluding, if appli-
cable, 75 percent of the hospital’s capital-related dis-
proportionate share payments) exceeds its medicare
capital costs for such year.
‘‘(D) The Secretary may reduce the percent specified
under subparagraph (C)(ii) (but not below 75 percent)
and shall reduce the Federal capital rate for a fiscal year
by such percentage as the Secretary determines to be nec-
essary to ensure that the application of subparagraph (C)
does not result in an increase in the total amount that
would have been paid under this subsection in the fiscal
year if such subparagraph did not apply.
‘‘(E) The Secretary shall provide for publication in
the Federal Register each year (beginning with 1999) a
description of the distributional impact of the application
of subparagraph (C) on hospitals which receive, and do
not receive, an exception payment under such subpara-
graph.’’.
1125
(2) 
CONFORMING
AMENDMENT.—Section
1886(g)(1)(B)(iii) (42 U.S.C. 1395ww(g)(1)(B)(iii))
is amended by striking ‘‘may provide’’ and inserting
‘‘shall provide (in accordance with subparagraph
(C))’’.
SEC. 10503. FREEZE IN DISPROPORTIONATE SHARE.
(a) NO UPDATE IN DISPROPORTIONATE SHARE FOR
FISCAL YEARS 1998 AND 1999.—Section 1886(d)(5)(F)
(42 U.S.C. 1395ww(d)(5)(F)) is amended in clause (ii) by
adding at the end the following new sentence: ‘‘For dis-
charges occurring on or after October 1, 1997, the sum
described in subclause (I) shall be determined as if the
applicable percentage increase described in subsection
(b)(3)(B)(i) for discharges for fiscal years 1998 and 1999
were zero percent.’’.
(b) DEVELOPMENT OF REVISED QUALIFYING CRI-
TERIA AND PAYMENT METHODOLOGY FOR HOSPITALS
THAT SERVE A DISPROPORTIONATE SHARE OF LOW-IN-
COME PATIENTS.—
(1) DEVELOPMENT
OF
PROPOSAL.—The Sec-
retary of Health and Human Services shall develop
a proposal to modify the current qualifying criteria
and payment methodology under which hospitals
that are paid under section 1886(d) of the Social Se-
curity Act (42 U.S.C. 1395ww(d)) receive an addi-
1126
tional payment because they serve a disproportionate
share of low-income patients.
(2) REPORT.—Not later than April 1, 1999, the
Secretary shall transmit the proposal developed
under paragraph (1) to the Committee on Ways and
Means of the House of Representatives and the
Committee on Finance of the Senate.
SEC. 10504. MEDICARE CAPITAL ASSET SALES PRICE
EQUAL TO BOOK VALUE.
(a) IN GENERAL.—Section 1861(v)(1)(O) (42 U.S.C.
1395x(v)(1)(O)) is amended—
(1) in clause (i)—
(A) by striking ‘‘and (if applicable) a re-
turn on equity capital’’;
(B) by striking ‘‘hospital or skilled nursing
facility’’ and inserting ‘‘provider of services’’;
(C) by striking ‘‘clause (iv)’’ and inserting
‘‘clause (iii)’’; and
(D) by striking ‘‘the lesser of the allowable
acquisition cost’’ and all that follows and insert-
ing ‘‘the historical cost of the asset, as recog-
nized under this title, less depreciation allowed,
to the owner of record as of the date of enact-
ment of the Balanced Budget Act of 1997 (or,
in the case of an asset not in existence as of
1127
that date, the first owner of record of the asset
after that date).’’;
(2) by striking clause (ii); and
(3) by redesignating clauses (iii) and (iv) as
clauses (ii) and (iii), respectively.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) apply to changes of ownership that occur
after the third month beginning after the date of enact-
ment of this section.
SEC. 10505. ELIMINATION OF IME AND DSH PAYMENTS AT-
TRIBUTABLE TO OUTLIER PAYMENTS.
(a) 
INDIRECT
MEDICAL
EDUCATION.—Section
1886(d)(5)(B)(i)(I) (42 U.S.C. 1395ww(d)(5)(B)(i)(I)) is
amended by inserting ‘‘, for cases qualifying for additional
payment under subparagraph (A)(i),’’ before ‘‘the amount
paid to the hospital under subparagraph (A)’’.
(b) DISPROPORTIONATE SHARE ADJUSTMENTS.—
Section 
1886(d)(5)(F)(ii)(I) 
(42 
U.S.C.
1395ww(d)(5)(F)(ii)(I)) is amended by inserting ‘‘, for
cases qualifying for additional payment under subpara-
graph (A)(i),’’ before ‘‘the amount paid to the hospital
under subparagraph (A)’’.
(c) 
COST
OUTLIER
PAYMENTS.—Section
1886(d)(5)(A)(ii) (42 U.S.C. 1395ww(d)(5)(A)(ii)) is
amended by striking ‘‘exceed the applicable DRG prospec-
1128
tive payment rate’’ and inserting ‘‘exceed the sum of the
applicable DRG prospective payment rate plus any
amounts payable under paragraphs (d)(5)(B) and
(d)(5)(F)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section apply to discharges occurring after September
30, 1997.
SEC. 10506. REDUCTION IN ADJUSTMENT FOR INDIRECT
MEDICAL EDUCATION.
(a) IN GENERAL.—Section 1886(d)(5)(B)(ii) (42
U.S.C. 1395ww(d)(5)(B)(ii)) is amended to read as fol-
lows:
‘‘(ii) For purposes of clause (i)(II), the indirect
teaching adjustment factor for discharges occur-
ring—
‘‘(I) on or after October 1, 1988 and be-
fore October 1, 1997, is equal to 1.89 ×
(((1+r) to the nth power) ¥1),
‘‘(II) during fiscal year 1998, is equal to
1.62 × (((1+r) to the nth power) ¥1), and
‘‘(III) during or after fiscal year 1999, is
equal to 1.35 × (((1+r) to the nth power) ¥1),
where ‘r’ is the ratio of the hospital’s full-time equiv-
alent interns and residents to beds and ‘n’ equals
0.405, subject to clause (vi).’’.
1129
(b) CONFORMING AMENDMENT RELATING TO DE-
TERMINATION
OF STANDARDIZED
AMOUNTS.—Section
1886(d)(2)(C)(i) (42 U.S.C. 1395ww(d)(2)(C)(i)) is
amended by adding at the end the following: ‘‘except that
the Secretary shall not take into account any reductions
in the amount of additional payments under paragraph
(5)(B)(ii) resulting from the amendments made by section
10506(a) of the Balanced Budget Act of 1997,’’.
(c) LIMITATION ON NUMBER OF RESIDENTS FOR
CERTAIN FISCAL YEARS.—Section 1886(d)(5)(B) (42
U.S.C. 1395ww(d)(5)(B)), as amended by subsection (a),
is amended by adding at the end the following new clauses:
‘‘(v) In determining the adjustment with re-
spect to a hospital for discharges occurring on or
after October 1, 1997, the total number of interns
and residents in either a hospital or non-hospital set-
ting may not exceed the number of interns and resi-
dents in the hospital with respect to the hospital’s
cost reporting period beginning on or before Decem-
ber 31, 1996.
‘‘(vi) For purposes of clause (ii)—
‘‘(I) ‘r’ may not exceed the ratio of the
number of interns and residents as determined
under clause (v) with respect to the hospital for
its most recent cost reporting period, to the
1130
hospital’s available beds (as defined by the Sec-
retary) during that cost reporting period,
‘‘(II) for the hospital’s first cost reporting
period beginning on or after October 1, 1997,
subject to the limits described in clauses (iv)
and (v), the total number of full-time equivalent
residents for payment purposes shall equal the
average of the actual full-time equivalent resi-
dent count for the hospital’s most recent cost
reporting period and the preceding cost report-
ing period, and
‘‘(III) for the cost reporting period begin-
ning on or after October 1, 1998, and each sub-
sequent cost reporting period, subject to the
limits described in clauses (iv) and (v), the total
number of full-time equivalent residents for
payment purposes shall equal the average of the
actual full-time equivalent resident count for
the cost reporting period and the preceding two
cost reporting periods.
‘‘(vii) If the hospital’s fiscal year 1998 or later
cost reporting period is not equal to twelve months,
the Secretary shall make appropriate modifications
to ensure that the average full-time equivalent resi-
dency count pursuant to subclauses (II) and (III) of
1131
clause (vi) is based on the equivalent of full twelve
month cost reporting periods.
‘‘(viii) The Secretary may establish rules, con-
sistent with the policies in clauses (v) through (vii)
and in subsection (h)(6)(A)(ii), with respect to the
application of clauses (v) through (vii) in the case of
medical residency training programs established on
or after January 1, 1997.’’.
SEC. 10507. TREATMENT OF TRANSFER CASES.
(a) TRANSFERS TO PPS EXEMPT HOSPITALS AND
SKILLED NURSING FACILITIES.—Section 1886(d)(5)(I)
(42 U.S.C. 1395ww(d)(5)(I)) is amended by adding at the
end the following new clause:
‘‘(iii) In carrying out this subparagraph, the Sec-
retary shall treat the term ‘transfer case’ as including the
case of an individual who, upon discharge from a sub-
section (d) hospital—
‘‘(I) is admitted as an inpatient to a hospital or
hospital unit that is not a subsection (d) hospital for
the receipt of inpatient hospital services; or
‘‘(II) is admitted to a skilled nursing facility or
facility described in section 1861(y)(1) for the re-
ceipt of extended care services.’’.
(b) TRANSFERS FOR PURPOSES OF HOME HEALTH
SERVICES.—Section 
1886(d)(5)(I)(iii) 
(42 
U.S.C.
1132
1395ww(d)(5)(I)(iii)), as amended by subsection (a), is
amended—
(1) in subclause (I), by striking ‘‘or’’;
(2) in subclause (II), by striking the period at
the end and inserting ‘‘; or’’ and
(2) by adding at the end the following new sub-
clause:
‘‘(III) receives home health services from a
home health agency, if such services relate to the
condition or diagnosis for which such individual re-
ceived inpatient hospital services from the subsection
(d) hospital, and if such services are provided within
an appropriate period as determined by the Sec-
retary in regulations promulgated not later than
September 1, 1998.’’.
(c) EFFECTIVE DATES.—
(1) The amendment made by subsection (a)
shall apply with respect to discharges occurring on
or after October 1, 1997.
(2) The amendment made by subsection (b)
shall apply with respect to discharges occurring on
or after October 1, 1998.
1133
SEC. 10508. INCREASE BASE PAYMENT RATE TO PUERTO
RICO HOSPITALS.
Section 1886(d)(9)(A) (42 U.S.C. 1395ww(d)(9)(A))
is amended—
(1) in the matter preceding clause (i), by strik-
ing ‘‘in a fiscal year beginning on or after October
1, 1987,’’,
(2) in clause (i), by striking ‘‘75 percent’’ and
inserting, ‘‘for discharges beginning on or after Oc-
tober 1, 1997, 50 percent (and for discharges be-
tween October 1, 1987, and September 30, 1997, 75
percent)’’, and
(3) in clause (ii), by striking ‘‘25 percent’’ and
inserting, ‘‘for discharges beginning in a fiscal year
beginning on or after October 1, 1997, 50 percent
(and for discharges between October 1, 1987 and
September 30, 1997, 25 percent)’’.
CHAPTER 2—PAYMENT OF PPS EXEMPT
HOSPITALS
SEC. 10511. PAYMENT UPDATE.
(a) IN GENERAL.—Section 1886(b)(3)(B) (42 U.S.C.
1395ww(b)(3)(B)) is amended—
(1) in clause (ii)—
(A) by striking ‘‘and’’ at the end of sub-
clause (V),
1134
(B) by redesignating subclause (VI) as
subclause (VIII); and
(C) by inserting after subclause (V), the
following subclauses:
‘‘(VI) for fiscal year 1998, is 0 percent;
‘‘(VII) for fiscal years 1999 through 2002, is
the applicable update factor specified under clause
(vi) for the fiscal year; and’’; and
(2) by adding at the end the following new
clause:
‘‘(vi) For purposes of clause (ii)(VII) for a fiscal year,
if a hospital’s allowable operating costs of inpatient hos-
pital services recognized under this title for the most re-
cent cost reporting period for which information is avail-
able—
‘‘(I) is equal to, or exceeds, 110 percent of the
hospital’s target amount (as determined under sub-
paragraph (A)) for such cost reporting period, the
applicable update factor specified under this clause
is the market basket percentage;
‘‘(II) exceeds 100 percent, but is less than 110
percent, of such target amount for the hospital, the
applicable update factor specified under this clause
is 0 percent or, if greater, the market basket per-
centage minus 0.25 percentage points for each per-
1135
centage point by which such allowable operating
costs (expressed as a percentage of such target
amount) is less than 110 percent of such target
amount;
‘‘(III) is equal to, or less than 100 percent, but
exceeds 2⁄3 of such target amount for the hospital,
the applicable update factor specified under this
clause is 0 percent or, if greater, the market basket
percentage minus 2.5 percentage points; or
‘‘(IV) does not exceed 2⁄3 of such target amount
for the hospital, the applicable update factor speci-
fied under this clause is 0 percent.’’.
(b) NO EFFECT OF PAYMENT REDUCTION ON EX-
CEPTIONS
AND
ADJUSTMENTS.—Section
1886(b)(4)(A)(ii) (42 U.S.C. 1395ww(b)(4)(A)(ii)) is
amended by adding at the end the following new sentence:
‘‘In making such reductions, the Secretary shall treat the
applicable update factor described in paragraph (3)(B)(vi)
for a fiscal year as being equal to the market basket per-
centage for that year.’’.
SEC. 10512. REDUCTIONS TO CAPITAL PAYMENTS FOR CER-
TAIN PPS-EXEMPT HOSPITALS AND UNITS.
Section 1886(g) (42 U.S.C. 1395ww(g)) is amended
by adding at the end the following new paragraph:
1136
‘‘(4) In determining the amount of the payments that
are attributable to portions of cost reporting periods oc-
curring during fiscal years 1998 through 2002 and that
may be made under this title with respect to capital-relat-
ed costs of inpatient hospital services of a hospital which
is described in clause (i), (ii), or (iv) of subsection
(d)(1)(B) or a unit described in the matter after clause
(v) of such subsection, the Secretary shall reduce the
amounts of such payments otherwise determined under
this title by 10 percent.’’.
SEC. 10513. CAP ON TEFRA LIMITS.
Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)) is
amended—
(1) in subparagraph (A) by striking ‘‘subpara-
graphs (C), (D), and (E)’’ and inserting ‘‘subpara-
graph (C) and succeeding subparagraphs’’, and
(2) by adding at the end the following:
‘‘(F)(i) In the case of a hospital or unit that is within
a class of hospital described in clause (ii), for cost report-
ing periods beginning on or after October 1, 1997, and
before October 1, 2002, such target amount may not be
greater than the 90th percentile of the target amounts for
such hospitals within such class for cost reporting periods
beginning during that fiscal year.
1137
‘‘(ii) For purposes of this subparagraph, each of the
following shall be treated as a separate class of hospital:
‘‘(I) Hospitals described in clause (i) of sub-
section (d)(1)(B) and psychiatric units described in
the matter following clause (v) of such subsection.
‘‘(II) Hospitals described in clause (ii) of such
subsection and rehabilitation units described in the
matter following clause (v) of such subsection.
‘‘(III) Hospitals described in clause (iv) of such
subsection.’’.
SEC. 10514. CHANGE IN BONUS AND RELIEF PAYMENTS.
(a) 
CHANGE
IN
BONUS
PAYMENT.—Section
1886(b)(1)(A) (42 U.S.C. 1395ww(b)(1)(A)) is amended
by striking all that follows ‘‘plus—’’ and inserting the fol-
lowing:
‘‘(i) 10 percent of the amount by which the
target amount exceeds the amount of the oper-
ating costs, or
‘‘(ii) 1 percent of the operating costs,
whichever is less;’’.
(b) 
CHANGE
IN
RELIEF
PAYMENTS.—Section
1886(b)(1) (42 U.S.C. 1395ww(b)(1)) is amended—
(1) in subparagraph (B)—
1138
(A) by striking ‘‘greater than the target
amount’’ and inserting ‘‘greater than 110 per-
cent of the target amount’’,
(B) 
by 
striking 
‘‘exceed 
the 
target
amount’’ and inserting ‘‘exceed 110 percent of
the target amount’’,
(C) by striking ‘‘10 percent’’ and inserting
‘‘20 percent’’, and
(D) by redesignating such subparagraph as
subparagraph (C); and
(2) by inserting after subparagraph (A) the fol-
lowing new subparagraph:
‘‘(B) are greater than the target amount but do
not exceed 110 percent of the target amount, the
amount of the payment with respect to those operat-
ing costs payable under part A on a per discharge
basis shall equal the target amount; or’’.
SEC. 10515. CHANGE IN PAYMENT AND TARGET AMOUNT
FOR NEW PROVIDERS.
Section 1886(b) (42 U.S.C. 1395ww(b)) is amend-
ed—
(1) by inserting after paragraph (1) the follow-
ing new paragraph:
‘‘(2)(A) Notwithstanding paragraph (1), in the case
of a hospital or unit that is within a class of hospital de-
1139
scribed in subparagraph (B) which first receives payments
under this section on or after October 1, 1997—
‘‘(i) for each of the first 2 full or partial cost
reporting periods, the amount of the payment with
respect to operating costs described in paragraph (1)
under part A on a per discharge or per admission
basis (as the case may be) is equal to the lesser of—
‘‘(I) the amount of operating costs for such
respective period, or
‘‘(II) 150 percent of the national median
of the operating costs for hospitals in the same
class as the hospital for cost reporting periods
beginning during the same fiscal year, as ad-
justed under subparagraph (C); and
‘‘(ii) for purposes of computing the target
amount for the subsequent cost reporting period, the
target amount for the preceding cost reporting pe-
riod is equal to the amount determined under clause
(i) for such preceding period.
‘‘(B) For purposes of this paragraph, each of the fol-
lowing shall be treated as a separate class of hospital:
‘‘(i) Hospitals described in clause (i) of sub-
section (d)(1)(B) and psychiatric units described in
the matter following clause (v) of such subsection.
1140
‘‘(ii) Hospitals described in clause (ii) of such
subsection and rehabilitation units described in the
matter following clause (v) of such subsection.
‘‘(iii) A class of hospitals described in sub-
section (d)(1)(B)(iv) that the Secretary shall estab-
lish based upon a measure of case mix that takes
into account acuity.
‘‘(iv) 
Hospitals 
described 
in 
subsection
(d)(1)(B)(iv) that are not within the class described
in clause (iii).
‘‘(C) In applying subparagraph (A)(i)(II) in the case
of a hospital or unit, the Secretary shall provide for an
appropriate adjustment to the labor-related portion of the
amount determined under such subparagraph to take into
account differences between average wage-related costs in
the area of the hospital and the national average of such
costs within the same class of hospital.’’; and
(2) in paragraph (3)(A), as amended in section
10513, by inserting ‘‘and in paragraph (2)(A)(ii),’’
before ‘‘for purposes of’’.
SEC. 10516. REBASING.
(a) OPTION OF REBASING FOR HOSPITALS IN OPER-
ATION BEFORE 1990.—Section 1886(b)(3)(42 U.S.C.
1395ww(b)(3)), as amended in section 10513, is amended
by adding at the end the following new subparagraph:
1141
‘‘(G)(i) In the case of a hospital (or unit described
in the matter following clause (v) of subsection (d)(1)(B))
that received payment under this subsection for inpatient
hospital services furnished during cost reporting periods
before October 1, 1990, that is within a class of hospital
described in clause (iii), and that elects (in a form and
manner determined by the Secretary) this subparagraph
to apply to the hospital, the target amount for the hos-
pital’s 12-month cost reporting period beginning during
fiscal year 1998 is equal to the average described in clause
(ii).
‘‘(ii) The average described in this clause for a hos-
pital or unit shall be determined by the Secretary as fol-
lows:
‘‘(I) The Secretary shall determine the allow-
able operating costs for inpatient hospital services
for the hospital or unit for each of the 5 cost report-
ing periods for which the Secretary has the most re-
cent settled cost reports as of the date of the enact-
ment of this subparagraph.
‘‘(II) The Secretary shall increase the amount
determined under subclause (I) for each cost report-
ing period by the applicable percentage increase
under subparagraph (B)(ii) for each subsequent cost
1142
reporting period up to the cost reporting period de-
scribed in clause (i).
‘‘(III) The Secretary shall identify among such
5 cost reporting periods the cost reporting periods
for which the amount determined under subclause
(II) is the highest, and the lowest.
‘‘(IV) The Secretary shall compute the averages
of the amounts determined under subclause (II) for
the 3 cost reporting periods not identified under
subclause (III).
‘‘(iii) For purposes of this subparagraph, each of the
following shall be treated as a separate class of hospital:
‘‘(I) Hospitals described in clause (i) of sub-
section (d)(1)(B) and psychiatric units described in
the matter following clause (v) of such subsection.
‘‘(II) Hospitals described in clause (ii) of such
subsection and rehabilitation units described in the
matter following clause (v) of such subsection.
‘‘(III) Hospitals described in clause (iii) of such
subsection.
‘‘(IV) Hospitals described in clause (iv) of such
subsection.
‘‘(V) Hospitals described in clause (v) of such
subsection.’’.
1143
(b) CERTAIN LONG-TERM CARE HOSPITALS.—Sec-
tion 1886(b)(3) (42 U.S.C. 1395ww(b)(3)), as amended
by subsection (a), is amended by adding at the end the
following new subparagraph:
‘‘(H)(i) In the case of a qualified long-term care hos-
pital (as defined in clause (ii)) that elects (in a form and
manner determined by the Secretary) this subparagraph
to apply to the hospital, the target amount for the hos-
pital’s 12-month cost reporting period beginning during
fiscal year 1998 is equal to the allowable operating costs
of inpatient hospital services (as defined in subsection
(a)(4)) recognized under this title for the hospital for the
12-month cost reporting period beginning during fiscal
year 1996, increased by the applicable percentage increase
for the cost reporting period beginning during fiscal year
1997.
‘‘(ii) In clause (i), a ‘qualified long-term care hospital’
means, with respect to a cost reporting period, a hospital
described in clause (iv) of subsection (d)(1)(B) during
each of the 2 cost reporting periods for which the Sec-
retary has the most recent settled cost reports as of the
date of the enactment of this subparagraph for each of
which—
‘‘(I) the hospital’s allowable operating costs of
inpatient hospital services recognized under this title
1144
exceeded 115 percent of the hospital’s target
amount, and
‘‘(II) the hospital would have a disproportionate
patient percentage of at least 70 percent (as deter-
mined 
by 
the 
Secretary 
under 
subsection
(d)(5)(F)(vi)) if the hospital were a subsection (d)
hospital.’’.
(c) CERTAIN
LONG-TERM
CARE
CANCER
HOS-
PITALS.—
(1) IN
GENERAL.—Section 1886(d)(1)(B)(iv)
(42 U.S.C. 1395ww(d)(1)(B)(iv)) is amended by
adding at the end the following: ‘‘a hospital that
first received payment under this subsection in 1986
which has an average inpatient length of stay (as de-
termined by the Secretary) of greater than 20 days
and that has 80 percent or more of its annual total
inpatient discharges with a principal diagnosis that
reflects a finding of neoplastic disease, or’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to cost reporting peri-
ods beginning on or after the date of the enactment
of this Act.
1145
SEC. 10517. TREATMENT OF CERTAIN LONG-TERM CARE
HOSPITALS.
(a) IN GENERAL.—Section 1886(d)(1)(B) (42 U.S.C.
1395ww(d)(1)(B)) is amended by adding at the end the
following new sentence: ‘‘A hospital that was classified by
the Secretary on or before September 30, 1995, as a hos-
pital described in clause (iv) shall continue to be so classi-
fied notwithstanding that it is located in the same building
as, or on the same campus as, another hospital.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to discharges occurring on or
after October 1, 1995.
SEC. 10518. ELIMINATION OF EXEMPTIONS; REPORT ON EX-
CEPTIONS AND ADJUSTMENTS.
(a) ELIMINATION OF EXEMPTIONS.—
(1) IN GENERAL.—Section 1886(b)(4)(A)(i) (42
U.S.C. 1395ww(b)(4)(A)(i)) is amended by striking
‘‘exemption from, or an exception and adjustment
to,’’ and inserting ‘‘an exception and adjustment to’’
each place it appears.
(2) EFFECTIVE DATE.—The amendments made
by paragraph (1) shall apply to hospitals or units
that first qualify as a hospital or unit described in
section 1886(d)(1)(B) (42 U.S.C. 1395ww(d)(1)(B))
on or after October 1, 1997.
1146
(b) REPORT.—The Secretary of Health and Human
Services shall publish annually in the Federal Register a
report describing the total amount of payments made to
hospitals by reason of section 1886(b)(4) of the Social Se-
curity Act (42 U.S.C. 1395ww(b)(4)), as amended by sub-
section (a), for cost reporting periods ending during the
previous fiscal year.
CHAPTER 3—PROVISIONS RELATED TO
HOSPICE SERVICES
SEC. 10521. PAYMENTS FOR HOSPICE SERVICES.
(a) PAYMENT UPDATE.—Section 1814(i)(1)(C)(ii)
(42 U.S.C. 1395f(i)(1)(C)(ii)) is amended—
(1) in subclause (V), by striking ‘‘and’’ at the
end;
(2) by redesignating subclause (VI) as sub-
clause (VII); and
(3) by inserting after subclause (V) the follow-
ing new subclause:
‘‘(VI) for each of fiscal years 1998 through
2002, the market basket percentage increase for the
fiscal year involved minus 1.0 percentage points;
and’’.
(b) REPORT.—Section 1814(i) (42 U.S.C. 1395f(i))
is amended by adding at the end the following new para-
graph:
1147
‘‘(3) The Secretary shall provide for the collection of
data, from hospice programs providing hospice care for
which payment is made under this subsection, with respect
to the costs for providing such care for each fiscal year
beginning with fiscal year 1999.’’.
SEC. 10522. PAYMENT FOR HOME HOSPICE CARE BASED ON
LOCATION WHERE CARE IS FURNISHED.
(a) IN GENERAL.—Section 1814(i)(2) (42 U.S.C.
1395f(i)(2)) is amended by adding at the end the follow-
ing:
‘‘(D) A hospice program shall submit claims for pay-
ment for hospice care furnished in an individual’s home
under this title only on the basis of the geographic location
at which the service is furnished, as determined by the
Secretary.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) applies to cost reporting periods beginning
on or after October 1, 1997.
SEC. 10523. HOSPICE CARE BENEFITS PERIODS.
(a) RESTRUCTURING OF BENEFIT PERIOD.—Section
1812 (42 U.S.C. 1395d) is amended, in subsections (a)(4)
and (d)(1), by striking ‘‘, a subsequent period of 30 days,
and a subsequent extension period’’ and inserting ‘‘and
an unlimited number of subsequent periods of 60 days
each’’.
1148
(b) CONFORMING AMENDMENTS.—(1) Section 1812
(42 U.S.C. 1395d) is amended in subsection (d)(2)(B) by
striking ‘‘90- or 30-day period or a subsequent extension
period’’ and inserting ‘‘90-day period or a subsequent 60-
day period’’.
(2) 
Section 
1814(a)(7)(A) 
(42 
U.S.C.
1395f(a)(7)(A)) is amended—
(A) in clause (i), by inserting ‘‘and’’ at the end;
(B) in clause (ii)—
(i) by striking ‘‘30-day’’ and inserting ‘‘60-
day’’; and
(ii) by striking ‘‘, and’’ at the end and in-
serting a period; and
(C) by striking clause (iii).
SEC. 10524. OTHER ITEMS AND SERVICES INCLUDED IN
HOSPICE CARE.
Section 1861(dd)(1) (42 U.S.C. 1395x(dd)(1)) is
amended—
(1) in subparagraph (G), by striking ‘‘and’’ at
the end;
(2) in subparagraph (H), by striking the period
at the end and inserting ‘‘, and’’; and
(3) by inserting after subparagraph (H) the fol-
lowing:
1149
‘‘(I) any other item or service which is specified
in the plan and for which payment may otherwise be
made under this title.’’.
SEC. 10525. CONTRACTING WITH INDEPENDENT PHYSI-
CIANS OR PHYSICIAN GROUPS FOR HOSPICE
CARE SERVICES PERMITTED.
Section 1861(dd)(2) (42 U.S.C. 1395x(dd)(2)) is
amended—
(1) in subparagraph (A)(ii)(I), by striking
‘‘(F),’’; and
(2) in subparagraph (B)(i), by inserting ‘‘or, in
the case of a physician described in subclause (I),
under contract with’’ after ‘‘employed by’’.
SEC. 10526. WAIVER OF CERTAIN STAFFING REQUIRE-
MENTS FOR HOSPICE CARE PROGRAMS IN
NON-URBANIZED AREAS.
Section 1861(dd)(5) (42 U.S.C. 1395x(dd)(5)) is
amended—
(1) in subparagraph (B), by inserting ‘‘or (C)’’
after ‘‘subparagraph (A)’’ each place it appears; and
(2) by adding at the end the following:
‘‘(C) The Secretary may waive the requirements of
paragraph (2)(A)(i) and (2)(A)(ii) for an agency or orga-
nization with respect to the services described in para-
1150
graph (1)(B) and, with respect to dietary counseling,
paragraph (1)(H), if such agency or organization—
‘‘(i) is located in an area which is not an urban-
ized area (as defined by the Bureau of Census), and
‘‘(ii) demonstrates to the satisfaction of the
Secretary that the agency or organization has been
unable, despite diligent efforts, to recruit appro-
priate personnel.’’.
SEC. 10527. LIMITATION ON LIABILITY OF BENEFICIARIES
FOR CERTAIN HOSPICE COVERAGE DENIALS.
Section 1879(g) (42 U.S.C. 1395pp(g)) is amend-
ed—
(1) by redesignating paragraphs (1) and (2) as
subparagraphs (A) and (B), respectively, and mov-
ing such subparagraphs 2 ems to the right;
(2) by striking ‘‘is,’’ and inserting ‘‘is—’’;
(3) by making the remaining text of subsection
(g), as amended, that follows ‘‘is—’’ a new para-
graph (1) and indenting such paragraph 2 ems to
the right;
(4) by striking the period at the end and insert-
ing ‘‘; and’’; and
(5) by adding at the end the following new
paragraph:
1151
‘‘(2) with respect to the provision of hospice
care to an individual, a determination that the indi-
vidual is not terminally ill.’’.
SEC. 10528. EXTENDING THE PERIOD FOR PHYSICIAN CER-
TIFICATION OF AN INDIVIDUAL’S TERMINAL
ILLNESS.
Section 
1814(a)(7)(A)(i) 
(42 
U.S.C.
1395f(a)(7)(A)(i)) is amended, in the matter following
subclause (II), by striking ‘‘, not later than 2 days after
hospice care is initiated (or, if each certify verbally not
later than 2 days after hospice care is initiated, not later
than 8 days after such care is initiated)’’ and inserting
‘‘at the beginning of the period’’.
SEC. 10529. EFFECTIVE DATE.
Except as otherwise provided in this chapter, the
amendments made by this chapter apply to benefits pro-
vided on or after the date of the enactment of this chapter,
regardless of whether or not an individual has made an
election under section 1812(d) of the Social Security Act
(42 U.S.C. 1395d(d)) before such date.
1152
CHAPTER 4—MODIFICATION OF PART A
HOME HEALTH BENEFIT
SEC. 10531. MODIFICATION OF PART A HOME HEALTH BEN-
EFIT FOR INDIVIDUALS ENROLLED UNDER
PART B.
(a) IN GENERAL.—Section 1812 (42 U.S.C. 1395d)
is amended—
(1) in subsection (a)(3), by striking ‘‘home
health services’’ and inserting ‘‘for individuals not
enrolled in part B, home health services, and for in-
dividuals so enrolled, part A home health services
(as defined in subsection (g))’’;
(2) by redesignating subsection (g) as sub-
section (h); and
(3) by inserting after subsection (f) the follow-
ing new subsection:
‘‘(g)(1) For purposes of this section, the term ‘part
A home health services’ means—
‘‘(A) for services furnished during each year be-
ginning with 1998 and ending with 2002, home
health services subject to the transition reduction
applied under paragraph (2)(C) for services fur-
nished during the year, and
‘‘(B) for services furnished on or after January
1, 2003, post-institutional home health services for
1153
up to 100 visits during a home health spell of ill-
ness.
‘‘(2) For purposes of paragraph (1)(B), the Secretary
shall specify, before the beginning of each year beginning
with 1998 and ending with 2002, a transition reduction
in the home health services benefit under this part as fol-
lows:
‘‘(A) The Secretary first shall estimate the
amount of payments that would have been made
under this part for home health services furnished
during the year if—
‘‘(i) part A home health services were all
home health services, and
‘‘(ii) part A home health services were lim-
ited to services described in paragraph (1)(B).
‘‘(B)(i) The Secretary next shall compute a
transfer reduction amount equal to the appropriate
proportion (specified under clause (ii)) of the
amount by which the amount estimated under sub-
paragraph (A)(i) for the year exceeds the amount es-
timated under subparagraph (A)(ii) for the year.
‘‘(ii) For purposes of clause (i), the ‘appropriate
proportion’ is equal to—
‘‘(I) 1⁄6 for 1998,
‘‘(II) 2⁄6 for 1999,
1154
‘‘(III) 3⁄6 for 2000,
‘‘(IV) 4⁄6 for 2001, and
‘‘(V) 5⁄6 for 2002.
‘‘(C) The Secretary shall establish a transition
reduction by specifying such a visit limit (during a
home health spell of illness) or such a post-institu-
tional limitation on home health services furnished
under this part during the year as the Secretary es-
timates will result in a reduction in the amount of
payments that would otherwise be made under this
part for home health services furnished during the
year equal to the transfer amount computed under
subparagraph (B)(i) for the year.
‘‘(3) Payment under this part for home health serv-
ices furnished an individual enrolled under part B—
‘‘(A) during a year beginning with 1998
and ending with 2003, may not be made for
services that are not within the visit limit or
other limitation specified by the Secretary
under the transition reduction under paragraph
(3)(C) for services furnished during the year; or
‘‘(B) on or after January 1, 2004, may not
be made for home health services that are not
post-institutional home health services or for
post-institutional furnished to the individual
1155
after such services have been furnished to the
individual for a total of 100 visits during a
home health spell of illness.
‘‘(4) With respect to computing the monthly actuarial
rate for enrollees age 65 and over for purposes of applying
section 1839, such rate shall be computed as though any
reference in a previous provision of this subsection to 2002
or 2003 is a reference to the succeeding year and as
through the appropriate proportion described in para-
graph (3)(B)(ii) were equal to—
‘‘(A) 1⁄7 for 1998,
‘‘(B) 2⁄7 for 1999,
‘‘(C) 3⁄7 for 2000,
‘‘(D) 4⁄7 for 2001,
‘‘(E) 5⁄7 for 2002, and
‘‘(F) 6⁄7 for 2003.’’.
(b) POST-INSTITUTIONAL HOME HEALTH SERVICES
DEFINED.—Section 1861 (42 U.S.C. 1395x), as amended
by section 10105(a)(1)(B) is amended by adding at the
end the following:
‘‘Post-Institutional Home Health Services; Home Health
Spell of Illness
‘‘(rr)(1) The term ‘post-institutional home health
services’ means home health services furnished to an indi-
vidual—
1156
‘‘(A) after discharge from a hospital or rural
primary care hospital in which the individual was an
inpatient for not less than 3 consecutive days before
such discharge if such home health services were ini-
tiated within 14 days after the date of such dis-
charge; or
‘‘(B) after discharge from a skilled nursing fa-
cility in which the individual was provided post-hos-
pital extended care services if such home health serv-
ices were initiated within 14 days after the date of
such discharge.
‘‘(2) The term ‘home health spell of illness’ with re-
spect to any individual means a period of consecutive
days—
‘‘(A) beginning with the first day (not included
in a previous home health spell of illness) (i) on
which such individual is furnished post-institutional
home health services, and (B) which occurs in a
month for which the individual is entitled to benefits
under part A, and
‘‘(B) ending with the close of the first period of
60 consecutive days thereafter on each of which the
individual is neither an inpatient of a hospital or
rural primary care hospital nor an inpatient of a fa-
1157
cility described in section 1819(a)(1) or subsection
(y)(1) nor provided home health services.’’.
(c) MAINTAINING
APPEAL
RIGHTS
FOR
HOME
HEALTH SERVICES.—Section 1869(b)(2)(B) (42 U.S.C.
1395ff(b)(2)(B)) is amended by inserting ‘‘(or $100 in the
case of home health services)’’ after ‘‘$500’’.
(d) 
MAINTAINING
SEAMLESS
ADMINISTRATION
THROUGH FISCAL INTERMEDIARIES.—Section 1842(b)(2)
(42 U.S.C. 1395u(b)(2)) is amended by adding at the end
the following:
‘‘(E) With respect to the payment of claims for home
health services under this part that, but for the amend-
ments made by section 10531 of the Balanced Budget Act
of 1997, would be payable under part A instead of under
this part, the Secretary shall continue administration of
such claims through fiscal intermediaries under section
1816.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section apply to services furnished on or after Janu-
ary 1, 1998. For purpose of applying such amendments,
any home health spell of illness that began, but not end,
before such date shall be considered to have begun as of
such date.
1159
1993) is amended by striking ‘‘and shall expire September
30, 1994’’.
SEC. 10543. REDUCTION IN PART A MEDICARE PREMIUM
FOR CERTAIN PUBLIC RETIREES.
(a) IN
GENERAL.—Section 1818(d) (42 U.S.C.
1395i–2(d)) is amended—
(1) in paragraph (2), by striking ‘‘paragraph
(4)’’ and inserting ‘‘paragraphs (4) and (5)’’; and
(2) by adding at the end the following new
paragraph:
‘‘(5)(A) The amount of the monthly premium shall
be zero in the case of an individual who is a person de-
scribed in subparagraph (B) for a month, if—
‘‘(i) the individual’s premium under this section
for the month is not (and will not be) paid for, in
whole or in part, by a State (under title XIX or oth-
erwise), a political subdivision of a State, or an
agency or instrumentality of one or more States or
political subdivisions thereof; and
‘‘(ii) in each of 60 months before such month,
the individual was enrolled in this part under this
section and the payment of the individual’s premium
under this section for the month was not paid for,
in whole or in part, by a State (under title XIX or
otherwise), a political subdivision of a State, or an
1160
agency or instrumentality of one or more States or
political subdivisions thereof.
‘‘(B) A person described in this subparagraph for an
month is a person who establishes to the satisfaction of
the Secretary that, as of the last day of the previous
month—
‘‘(i)(I) the person was receiving cash benefits
under a qualified State or local government retire-
ment system (as defined in subparagraph (C)) on
the basis of the person’s employment in one or more
positions covered under any such system, and (II)
the person would have at least 40 quarters of cov-
erage under title II if remuneration for medicare
qualified government employment (as defined in
paragraph (1) of section 210(p), but determined
without regard to paragraph (3) of such section)
paid to such person were treated as wages paid to
such person and credited for purposes of determin-
ing quarters of coverage under section 213;
‘‘(ii)(I) the person was married (and had been
married for the previous 1-year period) to an indi-
vidual who is described in clause (i), or (II) the per-
son met the requirement of clause (i)(II) and was
married (and had been married for the previous 1-
1161
year period) to an individual described in clause
(i)(I);
‘‘(iii) the person had been married to an indi-
vidual for a period of at least 1 year (at the time
of such individual’s death) if (I) the individual was
described in clause (i) at the time of the individual’s
death, or (II) the person met the requirement of
clause (i)(II) and the individual was described in
clause (i)(I) at the time of the individual’s death; or
‘‘(iv) the person is divorced from an individual
and had been married to the individual for a period
of at least 10 years (at the time of the divorce) if
(I) the individual was described in clause (i) at the
time of the divorce, or (II) the person met the re-
quirement of clause (i)(II) and the individual was
described in clause (i)(I) at the time of the divorce.
‘‘(C) For purposes of subparagraph (B)(i)(I), the
term ‘qualified State or local government retirement sys-
tem’ means a retirement system that—
‘‘(i) is established or maintained by a State or
political subdivision thereof, or an agency or instru-
mentality of one or more States or political subdivi-
sions thereof;
1162
‘‘(ii) covers positions of some or all employees
of such a State, subdivision, agency, or instrumen-
tality; and
‘‘(iii) does not adjust cash retirement benefits
based on eligibility for a reduction in premium under
this paragraph.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to premiums for months begin-
ning with January 1998, and months before such month
may be taken into account for purposes of meeting the
requirement of section 1818(d)(5)(B)(iii) of the Social Se-
curity Act, as added by subsection (a).
Subtitle G—Provisions Relating to
Part B Only
CHAPTER 1—PHYSICIANS’ SERVICES
SEC. 10601. ESTABLISHMENT OF SINGLE CONVERSION FAC-
TOR FOR 1998.
(a) IN GENERAL.—Section 1848(d)(1) (42 U.S.C.
1395w–4(d)(1)) is amended—
(1) by redesignating subparagraph (C) as sub-
paragraph (D), and
(2) by inserting after subparagraph (B) the fol-
lowing:
‘‘(C) SPECIAL RULES FOR 1998.—The sin-
gle conversion factor for 1998 under this sub-
1163
section shall be the conversion factor for pri-
mary care services for 1997, increased by the
Secretary’s estimate of the weighted average of
the three separate updates that would otherwise
occur were it not for the enactment of chapter
1 of subtitle G of title X of the Balanced Budg-
et Act of 1997.’’.
(b) CONFORMING AMENDMENTS.—Section 1848 (42
U.S.C. 1395w–4) is amended—
(1) by striking ‘‘(or factors)’’ each place it ap-
pears in subsection (d)(1)(A) and (d)(1)(D)(ii) (as
redesignated by subsection (a)(1)),
(2) in subsection (d)(1)(A), by striking ‘‘or up-
dates’’,
(3) in subsection (d)(1)(D) (as redesignated by
subsection (a)(1)), by striking ‘‘(or updates)’’ each
place it appears, and
(4) in subsection (i)(1)(C), by striking ‘‘conver-
sion factors’’ and inserting ‘‘the conversion factor’’.
SEC. 10602. ESTABLISHING UPDATE TO CONVERSION FAC-
TOR TO MATCH SPENDING UNDER SUSTAIN-
ABLE GROWTH RATE.
(a) UPDATE.—
1164
(1) IN
GENERAL.—Section 1848(d)(3) (42
U.S.C. 1395w–4(d)(3)) is amended to read as fol-
lows:
‘‘(3) UPDATE.—
‘‘(A) IN GENERAL.—Unless otherwise pro-
vided by law, subject to subparagraph (D) and
the budget-neutrality factor determined by the
Secretary under subsection (c)(2)(B)(ii), the
update to the single conversion factor estab-
lished in paragraph (1)(C) for a year beginning
with 1999 is equal to the product of—
‘‘(i) 1 plus the Secretary’s estimate of
the percentage increase in the MEI (as de-
fined in section 1842(i)(3)) for the year
(divided by 100), and
‘‘(ii) 1 plus the Secretary’s estimate of
the update adjustment factor for the year
(divided by 100),
minus 1 and multiplied by 100.
‘‘(B) UPDATE ADJUSTMENT FACTOR.—For
purposes of subparagraph (A)(ii), the ‘update
adjustment factor’ for a year is equal to the
quotient (as estimated by the Secretary) of—
‘‘(i) the difference between (I) the
sum of the allowed expenditures for physi-