415
Title VIII, Subtitle B
shared facility services under a shared facility
arrangement.
‘‘(C) SHARED FACILITY PHYSICIAN.—The
term ‘shared facility physician’ means, with re-
spect to a shared facility, a physician (or a
group practice of which the physician is a mem-
ber) who has a financial relationship under a
shared facility arrangement with the facility.
‘‘(D) SHARED FACILITY ARRANGEMENT.—
The term ‘shared facility arrangement’ means,
with respect to the provision of shared facility
services in a building, a financial arrange-
ment—
‘‘(i) which is only between physicians
who are providing services (unrelated to
shared facility services) in the same build-
ing,
‘‘(ii) in which the overhead expenses
of the facility are shared, in accordance
with methods previously determined by the
physicians in the arrangement, among the
physicians in the arrangement, and
‘‘(iii) which, in the case of a corpora-
tion, is wholly owned and controlled by
shared facility physicians.’’.
416
Title VIII, Subtitle B
(e) NEW EXCEPTION FOR SERVICES FURNISHED IN
COMMUNITIES WITH NO ALTERNATIVE PROVIDERS.—
Section 1877(b) (42 U.S.C. 1395nn(b)), as amended by
section 8101(b)(3)(C) and subsection (d)(1), is amend-
ed—
(1) by redesignating paragraphs (5) through
(8) as paragraphs (6) through (9); and
(2) by inserting after paragraph (4) the follow-
ing new paragraph:
‘‘(5) NO ALTERNATIVE PROVIDERS IN AREA.—
In the case of a designated health service furnished
in any area with respect to which the Secretary de-
termines that individuals residing in the area do not
have reasonable access to such a designated health
service for which subsection (a)(1) does not apply.’’.
(f) NEW EXCEPTION FOR SERVICES FURNISHED IN
AMBULATORY SURGICAL CENTERS.—Section 1877(b) (42
U.S.C. 1395nn(b)), as amended by section 8101(b)(3)(C),
subsection (d)(1), and subsection (e)(1), is amended—
(1) by redesignating paragraphs (6) through
(9) as paragraphs (7) through (10); and
(2) by inserting after paragraph (5) the follow-
ing new paragraph:
‘‘(6) SERVICES
FURNISHED
IN
AMBULATORY
SURGICAL CENTERS.—In the case of a designated
417
Title VIII, Subtitle B
health service furnished in an ambulatory surgical
center described in section 1832(a)(2)(F)(i).’’.
(g) NEW EXCEPTION FOR SERVICES FURNISHED IN
RENAL
DIALYSIS
FACILITIES.—Section 1877(b) (42
U.S.C. 1395nn(b)), as amended by section 8101(b)(3)(C),
subsection (d)(1), subsection (e)(1), and subsection (f), is
amended—
(1) by redesignating paragraphs (7) through
(10) as paragraphs (8) through (11); and
(2) by inserting after paragraph (6) the follow-
ing new paragraph:
‘‘(7) SERVICES FURNISHED IN RENAL DIALYSIS
FACILITIES.—In the case of a designated health
service furnished in a renal dialysis facility under
section 1881.’’.
(h) NEW EXCEPTION FOR SERVICES FURNISHED IN
A HOSPICE.—Section 1877(b) (42 U.S.C. 1395nn(b)), as
amended by section 8101(b)(3)(C), subsection (d)(1), sub-
section (e)(1), subsection (f), and subsection (g), is
amended—
(1) by redesignating paragraphs (8) through
(11) as paragraphs (9) through (12); and
(2) by inserting after paragraph (7) the follow-
ing new paragraph:
418
Title VIII, Subtitle B
‘‘(8) SERVICES FURNISHED BY A HOSPICE PRO-
GRAM.—In the case of a designated health service
furnished by a hospice program under section
1861(dd)(2).’’.
(i) NEW EXCEPTION FOR SERVICES FURNISHED IN
A COMPREHENSIVE OUTPATIENT REHABILITATION FA-
CILITY.—Section 1877(b) (42 U.S.C. 1395nn(b)), as
amended by section 8101(b)(3)(C), subsection (d)(1), sub-
section (e)(1), subsection (f), subsection (g), and sub-
section (h), is amended—
(1) by redesignating paragraphs (9) through
(12) as paragraphs (10) through (13); and
(2) by inserting after paragraph (8) the follow-
ing new paragraph:
‘‘(9) SERVICES FURNISHED IN A COMPREHEN-
SIVE
OUTPATIENT
REHABILITATION
FACILITY.—In
the case of a designated health service furnished in
a comprehensive outpatient rehabilitation facility (as
defined in section 1861(cc)(2)).’’.
(i) 
DEFINITION
OF
REFERRAL.—Section
1877(h)(5)(A) (42 U.S.C. 1395nn(h)(5)(A)) is amend-
ed—
(1) by striking ‘‘an item or service’’ and insert-
ing ‘‘a designated health service’’, and
419
Title VIII, Subtitle B
(2) by striking ‘‘the item or service’’ and insert-
ing ‘‘the designated health service’’.
SEC. 8105. REPEAL OF REPORTING REQUIREMENTS.
Section 1877 (42 U.S.C. 1395nn) is amended—
(1) by striking subsection (f); and
(2) by striking subsection (g)(5).
SEC. 8106. PREEMPTION OF STATE LAW.
Section 1877 (42 U.S.C. 1395nn) is amended by add-
ing at the end the following new subsection:
‘‘(i) PREEMPTION OF STATE LAW.—This section pre-
empts State law to the extent State law is inconsistent
with this section.’’.
SEC. 8107. EFFECTIVE DATE.
Except as provided in section 8103(b), the amend-
ments made by this part shall apply to referrals made on
or after August 14, 1995, regardless of whether or not
regulations are promulgated to carry out such amend-
ments.
PART 2—ANTITRUST REFORM
SEC. 8111. PUBLICATION OF ANTITRUST GUIDELINES ON
ACTIVITIES OF HEALTH PLANS.
(a) IN GENERAL.—The Attorney General shall pro-
vide for the development and publication of explicit guide-
lines on the application of antitrust laws to the activities
of health plans. The guidelines shall be designed to facili-
420
Title VIII, Subtitle B
tate development and operation of plans, consistent with
the antitrust laws.
(b) REVIEW PROCESS.—The Attorney General shall
establish a review process under which the administrator
or sponsor of a health plan (or organization that proposes
to administer or sponsor a health plan) may submit a re-
quest to the Attorney General to obtain a prompt opinion
(but in no event later than 90 days after the Attorney
General receives the request) from the Department of Jus-
tice on the plan’s conformity with the Federal antitrust
laws.
SEC. 8112. ISSUANCE OF HEALTH CARE CERTIFICATES OF
PUBLIC ADVANTAGE.
(a) ISSUANCE AND EFFECT OF CERTIFICATE.—The
Attorney General, after consultation with the Secretary,
shall issue in accordance with this section a certificate of
public advantage to each eligible health care collaborative
activity that complies with the requirements in effect
under this section on or after the expiration of the 1-year
period that begins on the date of the enactment of this
Act (without regard to whether or not the Attorney Gen-
eral has promulgated regulations to carry out this section
by such date). Such activity, and the parties to such activ-
ity, shall not be liable under any of the antitrust laws for
conduct described in such certificate and engaged in by
421
Title VIII, Subtitle B
such activity if such conduct occurs while such certificate
is in effect.
(b) REQUIREMENTS APPLICABLE TO ISSUANCE OF
CERTIFICATES.—
(1) STANDARDS
TO
BE
MET.—The Attorney
General shall issue a certificate to an eligible health
care collaborative activity if the Attorney General
finds that—
(A) the benefits that are likely to result
from carrying out the activity outweigh the re-
duction in competition (if any) that is likely to
result from the activity, and
(B) such reduction in competition is nec-
essary to obtain such benefits.
(2) FACTORS TO BE CONSIDERED.—
(A) WEIGHING OF BENEFITS AGAINST RE-
DUCTION
IN
COMPETITION.—For purposes of
making the finding described in paragraph
(1)(A), the Attorney General shall consider
whether the activity is likely—
(i) to maintain or to increase the
quality of health care by providing new
services not currently offered in the rel-
evant market,
(ii) to increase access to health care,
422
Title VIII, Subtitle B
(iii) to achieve cost efficiencies that
will be passed on to health care consumers,
such as economies of scale, reduced trans-
action costs, and reduced administrative
costs, that cannot be achieved by the provi-
sion of available services and facilities in
the relevant market,
(iv) to preserve the operation of
health care facilities located in underserved
geographical areas,
(v) to improve utilization of health
care resources, and
(vi) to reduce inefficient health care
resource duplication.
(B) NECESSITY OF REDUCTION IN COM-
PETITION.—For purposes of making the finding
described in paragraph (1)(B), the Attorney
General shall consider—
(i) the ability of the providers of
health care services that are (or likely to
be) affected by the health care collabo-
rative activity and the entities responsible
for making payments to such providers to
negotiate societally optimal payment and
service arrangements,
423
Title VIII, Subtitle B
(ii) the effects of the health care col-
laborative activity on premiums and other
charges imposed by the entities described
in clause (i), and
(iii) the availability of equally effi-
cient, less restrictive alternatives to achieve
the benefits that are intended to be
achieved by carrying out the activity.
(c) ESTABLISHMENT
OF CRITERIA
AND PROCE-
DURES.—Subject to subsections (d) and (e), not later than
1 year after the date of the enactment of this Act, the
Attorney General and the Secretary shall establish jointly
by rule the criteria and procedures applicable to the issu-
ance of certificates under subsection (a). The rules shall
specify the form and content of the application to be sub-
mitted to the Attorney General to request a certificate,
the information required to be submitted in support of
such application, the procedures applicable to denying and
to revoking a certificate, and the procedures applicable to
the administrative appeal (if such appeal is authorized by
rule) of the denial and the revocation of a certificate. Such
information may include the terms of the health care col-
laborative activity (in the case of an activity in existence
as of the time of the application) and implementation plan
for the collaborative activity.
424
Title VIII, Subtitle B
(d) ELIGIBLE HEALTH CARE COLLABORATIVE AC-
TIVITY.—To be an eligible health care collaborative activ-
ity for purposes of this section, a health care collaborative
activity shall submit to the Attorney General an applica-
tion that complies with the rules in effect under subsection
(c) and that includes—
(1) an agreement by the parties to the activity
that the activity will not foreclose competition by en-
tering into contracts that prevent health care provid-
ers from providing health care in competition with
the activity,
(2) an agreement that the activity will submit
to the Attorney General annually a report that de-
scribes the operations of the activity and information
regarding the impact of the activity on health care
and on competition in health care, and
(3) an agreement that the parties to the activity
will notify the Attorney General and the Secretary of
the termination of the activity not later than 30
days after such termination occurs.
(e) REVIEW OF APPLICATIONS FOR CERTIFICATES.—
Not later than 90 days after an eligible health care col-
laborative activity submits to the Attorney General an ap-
plication that complies with the rules in effect under sub-
section (c) and with subsection (d), the Attorney General
425
Title VIII, Subtitle B
shall issue or deny the issuance of such certificate. If, be-
fore the expiration of such 90-day period, the Attorney
General may extend the time for issuance for good cause.
(f) REVOCATION OF CERTIFICATE.—Whenever the
Attorney General finds that a health care collaborative ac-
tivity with respect to which a certificate is in effect does
not meet the standards specified in subsection (b), the At-
torney General shall revoke such certificate.
(g) WRITTEN REASONS; JUDICIAL REVIEW.—
(1) DENIAL
AND
REVOCATION
OF
CERTIFI-
CATES.—If the Attorney General denies an applica-
tion for a certificate or revokes a certificate, the At-
torney General shall include in the notice of denial
or revocation a statement of the reasons relied upon
for the denial or revocation of such certificate.
(2) JUDICIAL REVIEW.—
(A) AFTER
ADMINISTRATIVE
PROCEED-
ING.—(i) If the Attorney General denies an ap-
plication submitted or revokes a certificate is-
sued under this section after an opportunity for
hearing on the record, then any party to the
health care collaborative activity involved may
commence a civil action, not later than 60 days
after receiving notice of the denial or revoca-
tion, in an appropriate district court of the
426
Title VIII, Subtitle B
United States for review of the record of such
denial or revocation.
(ii) As part of the Attorney General’s an-
swer, the Attorney General shall file in such
court a certified copy of the record on which
such denial or revocation is based. The findings
of fact of the Attorney General may be set aside
only if found to be unsupported by substantial
evidence in such record taken as a whole.
(B) DENIAL OR REVOCATION WITHOUT AD-
MINISTRATIVE
PROCEEDING.—If the Attorney
General denies an application submitted or re-
vokes a certificate issued under this section
without an opportunity for hearing on the
record, then any party to the health care col-
laborative activity involved may commence a
civil action, not later than 60 days after receiv-
ing notice of the denial or revocation, in an ap-
propriate district court of the United States for
de novo review of such denial or revocation.
(h) EXEMPTION.—A person shall not be liable under
any of the antitrust laws for conduct necessary—
(1) to prepare, agree to prepare, or attempt to
agree to prepare an application to request a certifi-
cate under this section, or
427
Title VIII, Subtitle B
(2) to attempt to enter into any health care col-
laborative activity with respect to which such a cer-
tificate is in effect.
(i) DEFINITIONS.—In this section:
(1) The term ‘‘certificate’’ means a certificate
of public advantage authorized to be issued under
subsection (a).
(2) The term ‘‘health care collaborative activ-
ity’’ means an agreement (whether existing or pro-
posed) between 2 or more providers of health care
services that is entered into solely for the purpose of
sharing in the provision and coordination of health
care services and that involves substantial integra-
tion and financial risk-sharing between the parties,
but does not include the exchanging of information,
the entering into of any agreement, or the engage-
ment in any other conduct that is not reasonably re-
quired to carry out such agreement.
(3) The term ‘‘health care services’’ includes
services related to the delivery or administration of
health care services.
(4) The term ‘‘liable’’ means liable for any civil
or criminal violation of the antitrust laws.
(5) The term ‘‘provider of health care services’’
means any individual or entity that is engaged in the
428
Title VIII, Subtitle B
delivery of health care services in a State and that
is required by State law or regulation to be licensed
or certified by the State to engage in the delivery of
such services in the State.
SEC. 8113. STUDY OF IMPACT ON COMPETITION.
The Attorney General, in consultation with the Chair-
man of the Federal Trade Commission, annually shall sub-
mit to the Congress a report as part of the annual budget
oversight proceedings concerning the Antitrust Division of
the Department of Justice. The report shall enable the
Congress to determine how enforcement of antitrust laws
is affecting the formation of efficient, cost-saving joint
ventures and if the certificate of public advantage proce-
dure set forth in section 8112 has resulted in undesirable
reduction in competition in the health care marketplace.
The report shall include an evaluation of the factors set
forth in paragraphs (2)(A) and (2)(B) of section 8112(b).
SEC. 8114. ANTITRUST EXEMPTION.
The antitrust laws shall not apply with respect to—
(1) the merger of, or the attempt to merge, 2
or more hospitals,
(2) a contract entered into solely by 2 or more
hospitals to allocate hospital services, or
(3) the attempt by only 2 or more hospitals to
enter into a contract to allocate hospital services,
429
Title VIII, Subtitle B
if each of such hospitals satisfies all of the requirements
of section 8115 at the time such hospitals engage in the
conduct described in paragraph (1), (2), or (3), as the case
may be.
SEC. 8115. REQUIREMENTS.
The requirements referred to in section 8114 are as
follows:
(1) The hospital is located outside of a city, or
in a city that has less than 150,000 inhabitants, as
determined in accordance with the most recent data
available from the Bureau of the Census.
(2) In the most recently concluded calendar
year, the hospital received more than 40 percent of
its gross revenue from payments made under Fed-
eral programs.
(3) There is in effect with respect to the hos-
pital a certificate issued by the Health Care Financ-
ing Administration specifying that such Administra-
tion has determined that Federal expenditures would
be reduced, consumer costs would not increase, and
access to health care services would not be reduced,
if the hospital and the other hospitals that requested
such certificate merge, or allocate the hospital serv-
ices specified in such request, as the case may be.
430
Title VIII, Subtitle B
SEC. 8116. DEFINITION.
For purposes of this subtitle, the term ‘‘antitrust
laws’’ has the meaning given such term in subsection (a)
of the first section of the Clayton Act (15 U.S.C. 12), ex-
cept that such term includes section 5 of the Federal
Trade Commission Act (15 U.S.C. 45) to the extent that
such section 5 applies with respect to unfair methods of
competition.
PART 3—MALPRACTICE REFORM
Subpart A—Uniform Standards for Malpractice
Claims
SEC. 8121. APPLICABILITY.
Except as provided in section 8131, this subpart shall
apply to any medical malpractice liability action brought
in a Federal or State court, and to any medical mal-
practice claim subject to an alternative dispute resolution
system, that is initiated on or after January 1, 1996.
SEC. 8122. REQUIREMENT FOR INITIAL RESOLUTION OF AC-
TION THROUGH ALTERNATIVE DISPUTE RES-
OLUTION.
(a) IN GENERAL.—
(1) STATE CASES.—A medical malpractice li-
ability action may not be brought in any State court
during a calendar year unless the medical mal-
practice liability claim that is the subject of the ac-
tion has been initially resolved under an alternative
431
Title VIII, Subtitle B
dispute resolution system certified for the year by
the Secretary under section 8132(a), or, in the case
of a State in which such a system is not in effect
for the year, under the alternative Federal system
established under section 8132(b).
(2) FEDERAL DIVERSITY ACTIONS.—A medical
malpractice liability action may not be brought in
any Federal court under section 1332 of title 28,
United States Code, during a calendar year unless
the medical malpractice liability claim that is the
subject of the action has been initially resolved
under the alternative dispute resolution system re-
ferred to in paragraph (1) that applied in the State
whose law applies in such action.
(3) CLAIMS AGAINST UNITED STATES.—
(A) ESTABLISHMENT
OF
PROCESS
FOR
CLAIMS.—The Attorney General shall establish
an alternative dispute resolution process for the
resolution of tort claims consisting of medical
malpractice liability claims brought against the
United States under chapter 171 of title 28,
United States Code. Under such process, the
resolution of a claim shall occur after the com-
pletion of the administrative claim process ap-
432
Title VIII, Subtitle B
plicable to the claim under section 2675 of such
title.
(B) REQUIREMENT FOR INITIAL RESOLU-
TION UNDER PROCESS.—A medical malpractice
liability action based on a medical malpractice
liability claim described in subparagraph (A)
may not be brought in any Federal court unless
the claim has been initially resolved under the
alternative dispute resolution process estab-
lished by the Attorney General under such sub-
paragraph.
(b) INITIAL
RESOLUTION
OF
CLAIMS
UNDER
ADR.—For purposes of subsection (a), an action is ‘‘ini-
tially resolved’’ under an alternative dispute resolution
system if—
(1) the ADR reaches a decision on whether the
defendant is liable to the plaintiff for damages; and
(2) if the ADR determines that the defendant
is liable, the ADR reaches a decision on the amount
of damages assessed against the defendant.
(c) PROCEDURES FOR FILING ACTIONS.—
(1) NOTICE
OF
INTENT
TO
CONTEST
DECI-
SION.—Not later than 60 days after a decision is is-
sued with respect to a medical malpractice liability
claim under an alternative dispute resolution system,
433
Title VIII, Subtitle B
each party affected by the decision shall submit a
sealed statement to a court of competent jurisdiction
indicating whether or not the party intends to con-
test the decision.
(2) DEADLINE FOR FILING ACTION.—A medical
malpractice liability action may not be brought by a
party unless—
(A) the party has filed the notice of intent
required by paragraph (1); and
(B) the party files the action in a court of
competent jurisdiction not later than 90 days
after the decision resolving the medical mal-
practice liability claim that is the subject of the
action is issued under the applicable alternative
dispute resolution system.
(3) COURT
OF
COMPETENT
JURISDICTION.—
For purposes of this subsection, the term ‘‘court of
competent jurisdiction’’ means—
(A) with respect to actions filed in a State
court, the appropriate State trial court; and
(B) with respect to actions filed in a Fed-
eral court, the appropriate United States dis-
trict court.
(d) LEGAL EFFECT OF UNCONTESTED ADR DECI-
SION.—The decision reached under an alternative dispute
434
Title VIII, Subtitle B
resolution system shall, for purposes of enforcement by a
court of competent jurisdiction, have the same status in
the court as the verdict of a medical malpractice liability
action adjudicated in a State or Federal trial court. The
previous sentence shall not apply to a decision that is con-
tested by a party affected by the decision pursuant to sub-
section (c)(1).
SEC. 8123. OPTIONAL APPLICATION OF PRACTICE GUIDE-
LINES.
(a) DEVELOPMENT AND CERTIFICATION OF GUIDE-
LINES.—Each State may develop, for certification by the
Secretary, a set of specialty clinical practice guidelines,
based on recommended guidelines from national specialty
societies, to be updated annually. In the absence of rec-
ommended guidelines from such societies, each State may
develop such guidelines based on such criteria as the State
considers appropriate (including based on recommended
guidelines developed by the Agency for Health Care Policy
and Research).
(b) PROVISION OF HEALTH CARE UNDER GUIDE-
LINES.—Notwithstanding any other provision of law, in
any medical malpractice liability action arising from the
conduct of a health care provider or health care profes-
sional, if such conduct was in accordance with a guideline
developed by the State in which the conduct occurred and
435
Title VIII, Subtitle B
certified by the Secretary under subsection (a), the guide-
line—
(1) may be introduced by any party to the ac-
tion (including a health care provider, health care
professional, or patient); and
(2) if introduced, shall establish a rebuttable
presumption that the conduct was in accordance
with the appropriate standard of medical care, which
may only be overcome by the presentation of clear
and convincing evidence on behalf of the party
against whom the presumption operates.
SEC. 8124. TREATMENT OF NONECONOMIC AND PUNITIVE
DAMAGES.
(a) LIMITATION ON NONECONOMIC DAMAGES.—The
total amount of noneconomic damages that may be award-
ed to a claimant and the members of the claimant’s family
for losses resulting from the injury which is the subject
of a medical malpractice liability action may not exceed
$500,000, regardless of the number of parties against
whom the action is brought or the number of actions
brought with respect to the injury.
(b) NO AWARD OF PUNITIVE DAMAGES AGAINST
MANUFACTURER OF MEDICAL PRODUCT.—In the case of
a medical malpractice liability action in which the plaintiff
alleges a claim against the manufacturer of a medical
436
Title VIII, Subtitle B
product, no punitive or exemplary damages may be award-
ed against such manufacturer.
(c) JOINT
AND SEVERAL LIABILITY
FOR NON-
ECONOMIC DAMAGES.—The liability of each defendant for
noneconomic damages shall be several only and shall not
be joint, and each defendant shall be liable only for the
amount of noneconomic damages allocated to the defend-
ant in direct proportion to the defendant’s percentage of
responsibility (as determined by the trier of fact).
(d) USE OF PUNITIVE DAMAGE AWARDS FOR OPER-
ATION OF ADR SYSTEMS IN STATES.—
(1) IN GENERAL.—The total amount of any pu-
nitive damages awarded in a medical malpractice li-
ability action shall be paid to the State in which the
action is brought (or, in a case brought in Federal
court, in the State in which the health care services
that caused the injury that is the subject of the ac-
tion were provided), and shall be used by the State
solely to implement and operate the State alternative
dispute resolution system certified by the Secretary
under section 8132 (except as provided in paragraph
(2)).
(2) USE
OF
REMAINING
AMOUNTS
FOR
PRO-
VIDER LICENSING AND DISCIPLINARY ACTIVITIES.—
If the amount of punitive damages paid to a State
437
Title VIII, Subtitle B
under paragraph (1) for a year is greater than the
State’s costs of implementing and operating the
State alternative dispute resolution system during
the year, the balance of such punitive damages paid
to the State shall be used solely to carry out activi-
ties to assure the safety and quality of health care
services provided in the State, including (but not
limited to)—
(A) licensing or certifying health care pro-
fessionals and health care providers in the
State; and
(B) carrying out programs to reduce mal-
practice-related costs for providers volunteering
to provide services in medically underserved
areas.
(3) MAINTENANCE OF EFFORT.—A State shall
use any amounts paid pursuant to paragraph (1) to
supplement and not to replace amounts spent by the
State for implementing and operating the State al-
ternative dispute resolution system or carrying out
the activities described in paragraph (2).
(e) DRUGS AND DEVICES.—
(1)(A) Punitive damages shall not be awarded
against a manufacturer or product seller of a drug
(as defined in section 201(g)(1) of the Federal
439
Title VIII, Subtitle B
drug or device required to be submitted under
the Federal Food, Drug, and Cosmetic Act (21
U.S.C. 301 et seq.) or section 351 of the Public
Health Service Act (42 U.S.C. 262) that is ma-
terial and relevant to the harm suffered by the
claimant, or
(ii) made an illegal payment to an official
or employee of the Food and Drug Administra-
tion for the purpose of securing or maintaining
approval of such drug or device.
(2) PACKAGING.—In a product liability action
for harm which is alleged to relate to the adequacy
of the packaging (or labeling relating to such pack-
aging) of a drug which is required to have tamper-
resistant packaging under regulations of the Sec-
retary of Health and Human Services (including la-
beling regulations related to such packaging), the
manufacturer of the drug shall not be held liable for
punitive damages unless the drug is found by the
court by clear and convincing evidence to be sub-
stantially out of compliance with such regulations.
SEC. 8125. PERIODIC PAYMENTS FOR FUTURE LOSSES.
(a) IN GENERAL.—In any medical malpractice liabil-
ity action in which the damages awarded for future eco-
nomic loss exceeds $100,000, a defendant may not be re-
440
Title VIII, Subtitle B
quired to pay such damages in a single, lump-sum pay-
ment, but may be permitted to make such payments on
a periodic basis. The periods for such payments shall be
determined by the court, based upon projections of when
such expenses are likely to be incurred.
(b) WAIVER.—A court may waive the application of
subsection (a) with respect to a defendant if the court de-
termines that it is not in the best interests of the plaintiff
to receive payments for damages on such a periodic basis.
SEC. 8126. TREATMENT OF ATTORNEY’S FEES AND OTHER
COSTS.
(a) REQUIRING PARTY CONTESTING ADR RULING
TO PAY ATTORNEY’S FEES AND OTHER COSTS.—
(1) IN GENERAL.—The court in a medical mal-
practice liability action shall require the party that
(pursuant to section 8122(c)(1)) contested the ruling
of the alternative dispute resolution system with re-
spect to the medical malpractice liability claim that
is the subject of the action to pay to the opposing
party the costs incurred by the opposing party under
the action, including attorney’s fees, fees paid to ex-
pert witnesses, and other litigation expenses (but not
including court costs, filing fees, or other expenses
paid directly by the party to the court, or any fees
or costs associated with the resolution of the claim
441
Title VIII, Subtitle B
under the alternative dispute resolution system), but
only if—
(A) in the case of an action in which the
party that contested the ruling is the claimant,
the amount of damages awarded to the party
under the action is less than the amount of
damages awarded to the party under the ADR
system; and
(B) in the case of an action in which the
party that contested the ruling is the defendant,
the amount of damages assessed against the
party under the action is greater than the
amount of damages assessed under the ADR
system.
(2) EXCEPTIONS.—Paragraph (1) shall not
apply if—
(A) the party contesting the ruling made
under the previous alternative dispute resolu-
tion system shows that—
(i) the ruling was procured by corrup-
tion, fraud, or undue means,
(ii) there was partiality or corruption
under the system,
442
Title VIII, Subtitle B
(iii) there was other misconduct under
the system that materially prejudiced the
party’s rights, or
(iv) the ruling was based on an error
of law;
(B) the party contesting the ruling made
under the alternative dispute resolution system
presents new evidence before the trier of fact
that was not available for presentation under
the ADR system;
(C) the medical malpractice liability action
raised a novel issue of law; or
(D) the court finds that the application of
such paragraph to a party would constitute an
undue hardship, and issues an order waiving or
modifying the application of such paragraph
that specifies the grounds for the court’s deci-
sion.
(3) LIMIT ON ATTORNEYS’ FEES PAID.—Attor-
neys’ fees that are required to be paid under para-
graph (1) by the contesting party shall not exceed
the amount of the attorneys’ fees incurred by the
contesting party in the action. If the attorneys’ fees
of the contesting party are based on a contingency
fee agreement, the amount of attorneys’ fees for
443
Title VIII, Subtitle B
purposes of the preceding sentence shall not exceed
the reasonable value of those services.
(4) RECORDS.—In order to receive attorneys’
fees under paragraph (1), counsel of record in the
medical malpractice liability action involved shall
maintain accurate, complete records of hours worked
on the action, regardless of the fee arrangement
with the client involved.
(b) CONTINGENCY FEE DEFINED.—As used in this
section, the term ‘‘contingency fee’’ means any fee for pro-
fessional legal services which is, in whole or in part, con-
tingent upon the recovery of any amount of damages,
whether through judgment or settlement.
SEC. 8127. UNIFORM STATUTE OF LIMITATIONS.
(a) IN GENERAL.—Except as provided in subsection
(b), no medical malpractice claim may be initiated after
the expiration of the 2-year period that begins on the date
on which the alleged injury that is the subject of such
claim was discovered, but in no event may such a claim
be initiated after the expiration of the 4-year period that
begins on the date on which the alleged injury that is the
subject of such claim occurred.
(b) EXCEPTION FOR MINORS.—In the case of an al-
leged injury suffered by a minor who has not attained 6
years of age, a medical malpractice claim may not be initi-
444
Title VIII, Subtitle B
ated after the expiration of the 2-year period that begins
on the date on which the alleged injury that is the subject
of such claim was discovered or should reasonably have
been discovered, but in no event may such a claim be initi-
ated after the date on which the minor attains 12 years
of age.
SEC. 8128. SPECIAL PROVISION FOR CERTAIN OBSTETRIC
SERVICES.
(a) IN GENERAL.—In the case of a medical mal-
practice claim relating to services provided during labor
or the delivery of a baby, if the health care professional
or health care provider against whom the claim is brought
did not previously treat the claimant for the pregnancy,
the trier of fact may not find that such professional or
provider committed malpractice and may not assess dam-
ages against such professional or provider unless the mal-
practice is proven by clear and convincing evidence.
(b) APPLICABILITY
TO
GROUP
PRACTICES
OR
AGREEMENTS AMONG PROVIDERS.—For purposes of sub-
section (a), a health care professional shall be considered
to have previously treated an individual for a pregnancy
if the professional is a member of a group practice whose
members previously treated the individual for the preg-
nancy or is providing services to the individual during
445
Title VIII, Subtitle B
labor or the delivery of a baby pursuant to an agreement
with another professional.
SEC. 8129. JURISDICTION OF FEDERAL COURTS.
Nothing in this subpart shall be construed to estab-
lish any jurisdiction over any medical malpractice liability
action in the district courts of the United States on the
basis of sections 1331 or 1337 of title 28, United States
Code.
SEC. 8130. PREEMPTION.
(a) IN GENERAL.—The provisions of this subpart
shall preempt any State law to the extent such law is in-
consistent with such provisions, except that the provisions
of this subpart shall not preempt any State law that pro-
vides for defenses or places limitations on a person’s liabil-
ity in addition to those contained in this part, places great-
er limitations on the amount of attorneys’ fees that can
be collected, or otherwise imposes greater restrictions than
those provided in this part.
(b) EFFECT ON SOVEREIGN IMMUNITY AND CHOICE
OF LAW OR VENUE.—Nothing in this subpart shall be
construed to—
(1) waive or affect any defense of sovereign im-
munity asserted by any State under any provision of
law;
446
Title VIII, Subtitle B
(2) waive or affect any defense of sovereign im-
munity asserted by the United States;
(3) affect the applicability of any provision of
the Foreign Sovereign Immunities Act of 1976;
(4) preempt State choice-of-law rules with re-
spect to claims brought by a foreign nation or a citi-
zen of a foreign nation; or
(5) affect the right of any court to transfer
venue or to apply the law of a foreign nation or to
dismiss a claim of a foreign nation or of a citizen
of a foreign nation on the ground in inconvenient
forum.
Subpart B—Requirements for State Alternative
Dispute Resolution Systems (ADR)
SEC. 8131. BASIC REQUIREMENTS.
(a) IN GENERAL.—A State’s alternative dispute reso-
lution system meets the requirements of this section if the
system—
(1) applies to all medical malpractice liability
claims under the jurisdiction of the courts of that
State;
(2) requires that a written opinion resolving the
dispute be issued not later than 6 months after the
date by which each party against whom the claim is
filed has received notice of the claim (other than in
447
Title VIII, Subtitle B
exceptional cases for which a longer period is re-
quired for the issuance of such an opinion), and that
the opinion contain—
(A) findings of fact relating to the dispute,
and
(B) a description of the costs incurred in
resolving the dispute under the system (includ-
ing any fees paid to the individuals hearing and
resolving the claim), together with an appro-
priate assessment of the costs against any of
the parties;
(3) requires individuals who hear and resolve
claims under the system to meet such qualifications
as the State may require (in accordance with regula-
tions of the Secretary);
(4) is approved by the State or by local govern-
ments in the State;
(5) with respect to a State system that consists
of multiple dispute resolution procedures—
(A) permits the parties to a dispute to se-
lect the procedure to be used for the resolution
of the dispute under the system, and
(B) if the parties do not agree on the pro-
cedure to be used for the resolution of the dis-
448
Title VIII, Subtitle B
pute, assigns a particular procedure to the
parties;
(6) provides for the transmittal to the State
agency responsible for monitoring or disciplining
health care professionals and health care providers
of any findings made under the system that such a
professional or provider committed malpractice, un-
less, during the 90-day period beginning on the date
the system resolves the claim against the profes-
sional or provider, the professional or provider
brings an action contesting the decision made under
the system; and
(7) provides for the regular transmittal to the
Administrator for Health Care Policy and Research
of information on disputes resolved under the sys-
tem, in a manner that assures that the identity of
the parties to a dispute shall not be revealed.
(b) APPLICATION
OF
MALPRACTICE
LIABILITY
STANDARDS TO ALTERNATIVE DISPUTE RESOLUTION.—
The provisions of subpart A (other than section 8122)
shall apply with respect to claims brought under a State
alternative dispute resolution system or the alternative
Federal system in the same manner as such provisions
apply with respect to medical malpractice liability actions
brought in the State.
449
Title VIII, Subtitle B
SEC. 8132. CERTIFICATION OF STATE SYSTEMS; APPLICA-
BILITY OF ALTERNATIVE FEDERAL SYSTEM.
(a) CERTIFICATION.—
(1) IN GENERAL.—Not later than October 1 of
each year (beginning with 1995), the Secretary, in
consultation with the Attorney General, shall deter-
mine whether a State’s alternative dispute resolution
system meets the requirements of this subpart for
the following calendar year.
(2) BASIS FOR CERTIFICATION.—The Secretary
shall certify a State’s alternative dispute resolution
system under this subsection for a calendar year if
the Secretary determines under paragraph (1) that
the system meets the requirements of section 8131,
including the requirement described in section 8124
that punitive damages awarded under the system are
paid to the State for the uses described in such
section.
(b) APPLICABILITY
OF
ALTERNATIVE
FEDERAL
SYSTEM.—
(1) ESTABLISHMENT
AND
APPLICABILITY.—
Not later than October 1, 1995, the Secretary, in
consultation with the Attorney General, shall estab-
lish by rule an alternative Federal ADR system for
the resolution of medical malpractice liability claims
during a calendar year in States that do not have
450
Title VIII, Subtitle B
in effect an alternative dispute resolution system
certified under subsection (a) for the year.
(2) REQUIREMENTS FOR SYSTEM.—Under the
alternative Federal ADR system established under
paragraph (1)—
(A) paragraphs (1), (2), (6), and (7) of
section 8131(a) shall apply to claims brought
under the system;
(B) if the system provides for the resolu-
tion of claims through arbitration, the claims
brought under the system shall be heard and
resolved by arbitrators appointed by the Sec-
retary in consultation with the Attorney Gen-
eral; and
(C) with respect to a State in which the
system is in effect, the Secretary may (at the
State’s request) modify the system to take into
account the existence of dispute resolution pro-
cedures in the State that affect the resolution
of medical malpractice liability claims.
(3) TREATMENT
OF
STATES
WITH
ALTER-
NATIVE SYSTEM IN EFFECT.—If the alternative Fed-
eral ADR system established under this subsection is
applied with respect to a State for a calendar year,
the State shall make a payment to the United States
451
Title VIII, Subtitle B
(at such time and in such manner as the Secretary
may require) in an amount equal to 110 percent of
the costs incurred by the United States during the
year as a result of the application of the system with
respect to the State.
SEC. 8133. REPORTS ON IMPLEMENTATION AND EFFEC-
TIVENESS OF ALTERNATIVE DISPUTE RESO-
LUTION SYSTEMS.
(a) IN GENERAL.—Not later than 5 years after the
date of the enactment of this Act, the Secretary shall pre-
pare and submit to the Congress a report describing and
evaluating State alternative dispute resolution systems op-
erated pursuant to this subpart and the alternative Fed-
eral system established under section 8132(b).
(b) CONTENTS OF REPORT.—The Secretary shall in-
clude in the report prepared and submitted under sub-
section (a)—
(1) information on—
(A) the effect of the alternative dispute
resolution systems on the cost of health care
within each State,
(B) the impact of such systems on the ac-
cess of individuals to health care within the
State, and
452
Title VIII, Subtitle B
(C) the effect of such systems on the qual-
ity of health care provided within the State; and
(2) to the extent that such report does not pro-
vide information on no-fault systems operated by
States as alternative dispute resolution systems pur-
suant to this part, an analysis of the feasibility and
desirability of establishing a system under which
medical malpractice liability claims shall be resolved
on a no-fault basis.
Subpart C—Definitions
SEC. 8141. DEFINITIONS.
As used in this part:
(1) ALTERNATIVE DISPUTE RESOLUTION SYS-
TEM.—The term ‘‘alternative dispute resolution sys-
tem’’ means a system that is enacted or adopted by
a State to resolve medical malpractice claims other
than through a medical malpractice liability action.
(2) CLAIMANT.—The term ‘‘claimant’’ means
any person who brings a health care liability action
and, in the case of an individual who is deceased, in-
competent, or a minor, the person on whose behalf
such an action is brought.
(3) CLEAR AND CONVINCING EVIDENCE.—The
term ‘‘clear and convincing evidence’’ is that meas-
ure or degree of proof that will produce in the mind
453
Title VIII, Subtitle B
of the trier of fact a firm belief or conviction as to
the truth of the allegations sought to be established,
except that such measure or degree of proof is more
than that required under preponderance of the evi-
dence, but less than that required for proof beyond
a reasonable doubt.
(4) ECONOMIC DAMAGES.—The term ‘‘economic
damages’’ means damages paid to compensate an in-
dividual for losses for hospital and other medical ex-
penses, lost wages, lost employment, and other pecu-
niary losses.
(5) HEALTH CARE PROFESSIONAL.—The term
‘‘health care professional’’ means any individual who
provides health care services in a State and who is
required by State law or regulation to be licensed or
certified by the State to provide such services in the
State.
(6) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means any organization or
institution that is engaged in the delivery of health
care services in a State that is required by State law
or regulation to be licensed or certified by the State
to engage in the delivery of such services in the
State.
454
Title VIII, Subtitle B
(7) INJURY.—The term ‘‘injury’’ means any ill-
ness, disease, or other harm that is the subject of
a medical malpractice claim.
(8) MEDICAL
MALPRACTICE
LIABILITY
AC-
TION.—The term ‘‘medical malpractice liability ac-
tion’’ means any civil action brought pursuant to
State law in which a plaintiff alleges a medical mal-
practice claim against a health care provider or
health care professional, but does not include any
action in which the plaintiff’s sole allegation is an
allegation of an intentional tort.
(9) MEDICAL MALPRACTICE CLAIM.—The term
‘‘medical malpractice claim’’ means any claim relat-
ing to the provision of (or the failure to provide)
health care services or the use of a medical product,
without regard to the theory of liability asserted,
and includes any third-party claim, cross-claim,
counterclaim, or contribution claim in a medical
malpractice liability action.
(10) MEDICAL PRODUCT.—
(A) IN
GENERAL.—The term ‘‘medical
product’’ means, with respect to the allegation
of a claimant, a drug (as defined in section
201(g)(1) of the Federal Food, Drug, and Cos-
metic Act (21 U.S.C. 321(g)(1)) or a medical
455
Title VIII, Subtitle B
device (as defined in section 201(h) of the Fed-
eral Food, Drug, and Cosmetic Act (21 U.S.C.
321(h)) if—
(i) such drug or device was subject to
premarket approval under section 505,
507, or 515 of the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 355, 357, or
360e) or section 351 of the Public Health
Service Act (42 U.S.C. 262) with respect
to the safety of the formulation or per-
formance of the aspect of such drug or de-
vice which is the subject of the claimant’s
allegation or the adequacy of the packag-
ing or labeling of such drug or device, and
such drug or device is approved by the
Food and Drug Administration; or
(ii) the drug or device is generally rec-
ognized as safe and effective under regula-
tions issued by the Secretary of Health
and Human Services under section 201(p)
of the Federal Food, Drug, and Cosmetic
Act (21 U.S.C. 321(p)).
(B) EXCEPTION
IN
CASE
OF
MISREPRE-
SENTATION OR FRAUD.—Notwithstanding sub-
paragraph (A), the term ‘‘medical product’’
456
Title VIII, Subtitle B
shall not include any product described in such
subparagraph if the claimant shows that the
product is approved by the Food and Drug Ad-
ministration for marketing as a result of with-
held information, misrepresentation, or an ille-
gal payment by manufacturer of the product.
(11) 
NONECONOMIC
DAMAGES.—The 
term
‘‘noneconomic damages’’ means damages paid to
compensate an individual for losses for physical and
emotional pain, suffering, inconvenience, physical
impairment, mental anguish, disfigurement, loss of
enjoyment of life, loss of consortium, and other
nonpecuniary losses, but does not include punitive
damages.
(12) PUNITIVE DAMAGES.—The term ‘‘punitive
damages’’ means compensation, in addition to com-
pensation for actual harm suffered, that is awarded
for the purpose of punishing a person for conduct
deemed to be malicious, wanton, willful, or exces-
sively reckless.
457
Title VIII, Subtitle B
PART 4—PAYMENT AREAS FOR PHYSICIANS’
SERVICES UNDER MEDICARE
SEC. 8151. MODIFICATION OF PAYMENT AREAS USED TO
DETERMINE 
PAYMENTS 
FOR 
PHYSICIANS’
SERVICES UNDER MEDICARE.
(a) IN GENERAL.—Section 1848(j)(2) (42 U.S.C.
1395w@4(j)(2)) is amended to read as follows:
‘‘(2) FEE SCHEDULE AREA.—
‘‘(A) GENERAL RULE.—Except as provided
in subparagraph (B), the term ‘fee schedule
area’ means, with respect to physicians’ services
furnished in a State, the State.
‘‘(B) EXCEPTION FOR STATES WITH HIGH-
EST VARIATION AMONG AREAS.—In the case of
the 15 States with the greatest variation in cost
associated with physicians’ services among var-
ious geographic areas of the State (as deter-
mined by the Secretary in accordance with such
standards as the Secretary considers appro-
priate), the fee schedule area applicable with re-
spect to physicians’ services furnished in the
State shall be a locality used under section
1842(b) for purposes of computing payment
amounts for physicians’ services, except that
the Secretary shall revise the localities used
458
Title VIII, Subtitle C
under such section so that there are no more
than 5 such localities in any State.’’.
(b) 
BUDGET-NEUTRALITY
REQUIREMENT.—The
Secretary of Health and Human Services shall carry out
the amendment made by subsection (a) in a manner which
ensures that the aggregate amount of payment made for
physicians’ services under part B of the medicare program
in any year does not exceed the aggregate amount of pay-
ment which would have been made for such services under
part B during the year if the amendment were not in ef-
fect.
(c) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to physicians’ services furnished
on or after January 1, 1997.
Subtitle C—Medicare Payments to
Health Care Providers
PART 1—PROVISIONS AFFECTING ALL
PROVIDERS
SEC. 8201. ONE-YEAR FREEZE IN PAYMENTS TO PROVID-
ERS.
(a) FREEZE IN UPDATES.—
(1) IN GENERAL.—Notwithstanding any other
provision of law, except as otherwise provided in
paragraph (2), for purposes of determining the
amount to paid for an item or service under title
459
Title VIII, Subtitle C
XVIII of the Social Security Act, the percentage in-
crease in any economic index by which a payment
amount under title XVIII of the Social Security Act
is required to be increased during fiscal year 1996
shall be deemed to be zero.
(2) EXCEPTIONS.—Paragraph (1) shall not
apply to the determination of hospital-specific FTE
resident amounts under section 1886(h) of such Act.
(b) ECONOMIC INDEX.— The term ‘‘economic index’’
includes—
(1) the hospital market basket index (described
in section 1886(b)(3)(B)(iii) of the Social Security
Act),
(2) the medicare economic index (referred to in
the fourth sentence of section 1842(b)(3) of such
Act),
(3) the consumer price index for all urban con-
sumers (U.S. city average), and
(4) any other index used to adjust payment
amounts under title XVIII of such Act.
(c) EXTENSION OF PAYMENT FREEZE FOR SNFS
AND HHAS.—
(1) SKILLED NURSING FACILITIES.—
(A) NO CHANGE IN COST LIMITS.—Section
13503(a)(1) of OBRA–1993 is amended by
460
Title VIII, Subtitle C
striking ‘‘1994 and 1995’’ and inserting ‘‘1994,
1995, and 1996’’.
(B) DELAY IN UPDATES; NO CATCH UP.—
The last sentence of section 1888(a) (42 U.S.C.
1395yy(a)) is amended—
(i) by striking ‘‘1995’’ and inserting
‘‘1996’’, and
(ii) by striking ‘‘subsection.’’ and in-
serting ‘‘subsection (except that such up-
dates may not take into account any
changes in the routine service costs of
skilled nursing facilities during cost report-
ing periods which began during fiscal year
1994, 1995, or 1996).’’.
(C) 
PROSPECTIVE
PAYMENTS.—Section
13505(b) of OBRA–1993 is amended by strik-
ing ‘‘fiscal years 1994 and 1995’’ and inserting
‘‘fiscal years 1994, 1995, and 1996’’.
(2) HOME HEALTH AGENCIES.—
(A) NO CHANGE IN COST LIMITS.—Section
13564(a)(1) of OBRA–1993 is amended by
striking ‘‘1996’’ and inserting ‘‘1997’’.
(B) DELAY IN UPDATES; NO CATCH UP.—
Section 
1861(v)(1)(L)(iii) 
(42 
U.S.C.
1395x(v)(1)(L)(iii)) is amended—
461
Title VIII, Subtitle C
(i) by striking ‘‘1996’’ and inserting
‘‘1997’’, and
(ii) by adding at the end the follow-
ing: ‘‘In establishing limits under this sub-
paragraph, the Secretary may not take
into account any changes in the routine
service costs of the provision of services
furnished by home health agencies with re-
spect to cost reporting periods which began
on or after July 1, 1994, and before July
1, 1997.’’.
PART 2—PROVISIONS AFFECTING DOCTORS
SEC. 8211. PAYMENTS FOR PHYSICIANS’ SERVICES.
(a) ESTABLISHING UPDATE TO CONVERSION FACTOR
TO MATCH SPENDING UNDER SUSTAINABLE GROWTH
RATE.—
(1) IN
GENERAL.—Section 1848(d)(2) (42
U.S.C. 1395ww(d)(2)) is amended to read as fol-
lows:
‘‘(2) RECOMMENDATION OF UPDATE.—
‘‘(A) IN GENERAL.—Not later than April
15 of each year (beginning with 1996), the Sec-
retary shall transmit to the Congress a report
that includes a recommendation on the appro-
priate update in the conversion factor for all
462
Title VIII, Subtitle C
physicians’ services (as defined in subsection
(f)(3)(A)) in the following year. In making the
recommendation, the Secretary shall consider—
‘‘(i) the percentage change in the
medicare economic index (described in the
fourth sentence of section 1842(b)(3)) for
that year;
‘‘(ii) such factors as enter into the
calculation of the update adjustment factor
as described in paragraph (3)(B); and
‘‘(iii) access to services.
‘‘(B) ADDITIONAL
CONSIDERATIONS.—In
making recommendations under subparagraph
(A), the Secretary may also consider—
‘‘(i) unexpected changes by physicians
in response to the implementation of the
fee schedule;
‘‘(ii) unexpected changes in outlay
projections;
‘‘(iii) changes in the quality or appro-
priateness of care;
‘‘(iv) any other relevant factors not
measured in the resource-based payment
methodology; and
463
Title VIII, Subtitle C
‘‘(v) changes in volume or intensity of
services.
‘‘(C) COMMISSION REVIEW.—The Medicare
Payment Review Commission shall review the
report submitted under subparagraph (A) in a
year and shall submit to the Congress, by not
later than May 15 of the year, a report includ-
ing its recommendations respecting the update
in the conversion factor for the following year.’’.
(2) UPDATE.—Section 1848(d)(3) (42 U.S.C.
1395w@4(d)(3)) is amended to read as follows:
‘‘(3) UPDATE.—
‘‘(A) IN GENERAL.—Unless Congress oth-
erwise provides, subject to subparagraph (E),
for purposes of this section the update for a
year (beginning with 1997) is equal to the
product of—
‘‘(i) 1 plus the Secretary’s estimate of
the percentage increase in the medicare
economic index (described in the fourth
sentence of section 1842(b)(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),
464
Title VIII, Subtitle C
minus 1 and multiplied by 100.
‘‘(B) UPDATE ADJUSTMENT FACTOR.—The
‘update adjustment factor’ for a year is equal to
the quotient of—
‘‘(i) the difference between (I) the
sum of the allowed expenditures for physi-
cians’ services furnished during each of the
years 1995 through the year involved and
(II) the sum of the amount of actual ex-
penditures for physicians’ services fur-
nished during each of the years 1995
through the previous year; divided by
‘‘(ii) the Secretary’s estimate of al-
lowed expenditures for physicians’ services
furnished during the year.
‘‘(C) DETERMINATION
OF
ALLOWED
EX-
PENDITURES.—For purposes of subparagraph
(B), allowed expenditures for physicians’ serv-
ices shall be determined as follows (as esti-
mated by the Secretary):
‘‘(i) In the case of allowed expendi-
tures for 1995, such expenditures shall be
equal to actual expenditures for services
furnished during the 12-month period end-
ing with June 30, 1995.
465
Title VIII, Subtitle C
‘‘(ii) In the case of allowed expendi-
tures for 1996 and each subsequent year,
such expenditures shall be equal to allowed
expenditures for the previous year, in-
creased by the sustainable growth rate
under subsection (f) for the fiscal year
which begins during the year.
‘‘(D) DETERMINATION
OF
ACTUAL
EX-
PENDITURES.—For purposes of subparagraph
(B), the amount of actual expenditures for phy-
sicians’ services furnished during a year shall
be equal to the amount of expenditures for such
services during the 12-month period ending
with June of the previous year.
‘‘(E) RESTRICTION
ON
VARIATION
FROM
MEDICARE ECONOMIC INDEX.—Notwithstanding
the amount of the update adjustment factor de-
termined under subparagraph (B) for a year,
the update in the conversion factor under this
paragraph for the year may not be—
‘‘(i) greater than 103 percent of 1
plus the Secretary’s estimate of the per-
centage increase in the medicare economic
index (described in the fourth sentence of
466
Title VIII, Subtitle C
section 1842(b)(3)) for the year (divided
by 100), minus 1 and multiplied by 100; or
‘‘(ii) less than 91.75 percent of 1 plus
the Secretary’s estimate of the percentage
increase in the medicare economic index
(described in the fourth sentence of section
1842(b)(3)) for the year (divided by 100),
minus 1 and multiplied by 100.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to physicians’ services
furnished on or after January 1, 1997.
(b) REPLACEMENT
OF
VOLUME
PERFORMANCE
STANDARD WITH SUSTAINABLE GROWTH RATE.—Section
1848(f) (42 U.S.C. 1395w@4(f)) is amended to read as
follows:
‘‘(f) SUSTAINABLE GROWTH RATE.—
‘‘(1) PROCESS
FOR
ESTABLISHING
SUSTAIN-
ABLE GROWTH RATE OF INCREASE.—
‘‘(A) SECRETARY’S
RECOMMENDATION.—
By not later than April 15 of each year (begin-
ning with 1996), the Secretary shall transmit to
the Congress a recommendation on the sustain-
able growth rate for the fiscal year beginning in
such year. In making the recommendation, the
467
Title VIII, Subtitle C
Secretary shall confer with organizations rep-
resenting physicians and shall consider—
‘‘(i) inflation,
‘‘(ii) changes in numbers of enrollees
(other than private plan enrollees) under
this part,
‘‘(iii) changes in the age composition
of enrollees (other than private plan enroll-
ees) under this part,
‘‘(iv) changes in technology,
‘‘(v) evidence of inappropriate utiliza-
tion of services,
‘‘(vi) evidence of lack of access to nec-
essary physicians’ services, and
‘‘(vii) such other factors as the Sec-
retary considers appropriate.
‘‘(B) COMMISSION REVIEW.—The Medicare
Payment Review Commission shall review the
recommendation transmitted during a year
under subparagraph (A) and shall make its rec-
ommendation to Congress, by not later than
May 15 of the year, respecting the sustainable
growth rate for the fiscal year beginning in that
year.
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Title VIII, Subtitle C
‘‘(C) 
PUBLICATION
OF
SUSTAINABLE
GROWTH RATE.—The Secretary shall cause to
have the sustainable growth rate published in
the Federal Register, in the last 15 days of Oc-
tober of each calendar year (beginning with
1997), for the fiscal year beginning in that
year. The Secretary shall cause to have pub-
lished in the Federal Register, by not later than
January 1, 1997, the paragraph (2) for fiscal
year 1997.
‘‘(2) SPECIFICATION OF GROWTH RATE.—
‘‘(A) FISCAL YEAR 1996.—The sustainable
growth rate for all physicians’ services for fiscal
year 1996 shall be equal to the product of—
‘‘(i) 1 plus the Secretary’s estimate of
the percentage change in the medicare eco-
nomic index for 1996 (described in the
fourth sentence of section 1842(b)(3)) (di-
vided by 100),
‘‘(ii) 1 plus the Secretary’s estimate of
the percentage change (divided by 100) in
the average number of individuals enrolled
under this part (other than private plan
enrollees) from fiscal year 1995 to fiscal
year 1996,
470
Title VIII, Subtitle C
nomic index for the fiscal year involved
(described in the fourth sentence of section
1842(b)(3)) (divided by 100),
‘‘(ii) 1 plus the Secretary’s estimate of
the percentage change (divided by 100) in
the average number of individuals enrolled
under this part (other than private plan
enrollees) from the previous fiscal year to
the fiscal year involved,
‘‘(iii) 1 plus the Secretary’s estimate
of the projected percentage growth in real
gross domestic product per capita (divided
by 100) from the previous fiscal year to
the fiscal year involved, and
‘‘(iv) 1 plus the Secretary’s estimate
of the percentage change (divided by 100)
in expenditures for all physicians’ services
in the fiscal year (compared with the pre-
vious fiscal year) which will result from
changes in law, determined without taking
into account estimated changes in expendi-
tures due to changes in the volume and in-
tensity of physicians’ services or changes in
expenditures resulting from changes in the
471
Title VIII, Subtitle C
update to the conversion factor under sub-
section (d)(3),
minus 1 and multiplied by 100.
‘‘(3) DEFINITIONS.—In this subsection:
‘‘(A) SERVICES INCLUDED IN PHYSICIANS’
SERVICES.—The term ‘physicians’ services’ in-
cludes other items and services (such as clinical
diagnostic laboratory tests and radiology serv-
ices), specified by the Secretary, that are com-
monly performed or furnished by a physician or
in a physician’s office, but does not include
services furnished to a private plan enrollee.
‘‘(B) PRIVATE
PLAN
ENROLLEE.—The
term ‘private plan enrollee’ means, with respect
to a fiscal year, an individual enrolled under
this part who has elected to receive benefits
under this title for the fiscal year through a
Medicare Choice product under part C or
through enrollment with an eligible organization
with a risk-sharing contract under section
1876.’’.
(c) ESTABLISHMENT OF SINGLE CONVERSION FAC-
TOR FOR 1996.—
(1) IN
GENERAL.—Section 1848(d)(1) (42
U.S.C. 1395w@4(d)(1)) is amended—
472
Title VIII, Subtitle C
(A) by redesignating subparagraph (C) as
subparagraph (D); and
(B) by inserting after subparagraph (B)
the following new subparagraph:
‘‘(C) SPECIAL
RULE
FOR
1996.—For
1996, the conversion factor under this sub-
section shall be $36.40 for all physicians’ serv-
ices.’’.
(2) CONFORMING AMENDMENTS.—Section 1848
(42 U.S.C. 1395w@4), as amended by paragraph
(1), is amended—
(A) by striking ‘‘(or factors)’’ each place it
appears 
in 
subsection 
(d)(1)(A) 
and
(d)(1)(D)(ii);
(B) in subsection (d)(1)(A), by striking ‘‘or
updates’’;
(C) in subsection (d)(1)(D)(ii), by striking
‘‘(or updates)’’; and
(D) in subsection (i)(1)(C), by striking
‘‘conversion factors’’ and inserting ‘‘the conver-
sion factor’’.
473
Title VIII, Subtitle C
PART 3—PROVISIONS AFFECTING HOSPITALS
SEC. 8221. REDUCTION IN UPDATE FOR INPATIENT HOS-
PITAL SERVICES.
(a) PPS HOSPITALS.—Section 1886(b)(3)(B)(i) (42
U.S.C. 1395ww(b)(3)(B)(i)) is amended—
(1) by amending subclause (XII) to read as fol-
lows:
‘‘(XII) for each of the fiscal years 1997 through
2002, the market basket percentage increase minus
0.5 percentage point for hospitals in a rural area,
and the market basket percentage increase minus
1.5 percentage points for all other hospitals, and’’;
and
(2) in subclause (XIII), by striking ‘‘1998’’ and
inserting ‘‘2003’’.
(b) PPS-EXEMPT HOSPITALS.—
(1) IN
GENERAL.—Section 1886(b)(3)(B)(ii)
(42 U.S.C. 1395ww(b)(3)(B)(ii)) is amended—
(A) in subclause (V)—
(i) by striking ‘‘thorugh 1997’’ and
inserting ‘‘through 1996’’, and
(ii) by striking ‘‘and’’ at the end;
(B) by redesignating subclause (VI) as
subclause (VII); and
(C) by inserting after subclause (V) the
following new subclause:
474
Title VIII, Subtitle C
‘‘(VI) fiscal years 1997 through 2002, is the
market basket percentage increase minus 1.0 per-
centage point, and’’.
(2) 
CONFORMING
AMENDMENT.—Section
1886(b)(3)(B) (42 U.S.C. 1395ww(b)(3)(B)) is
amended by striking clause (v).
SEC. 8222. ELIMINATION OF FORMULA-DRIVEN OVERPAY-
MENTS FOR CERTAIN OUTPATIENT HOSPITAL
SERVICES.
(a) 
AMBULATORY
SURGICAL
CENTER
PROCE-
DURES.—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).’’.
(b) RADIOLOGY SERVICES AND DIAGNOSTIC PROCE-
DURES.—Section 
1833(n)(1)(B)(i)(II) 
(42 
U.S.C.
1395l(n)(1)(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).’’.
475
Title VIII, Subtitle C
(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 Janu-
ary 1, 1996.
SEC. 8223. ESTABLISHMENT OF PROSPECTIVE PAYMENT
SYSTEM FOR OUTPATIENT SERVICES.
(a) IN GENERAL.—Section 1833(a)(2)(B) (42 U.S.C.
1395l(a)(2)(B)) is amended by striking ‘‘section 1886)—
’’ and all that follows and inserting the following: ‘‘section
1886), an amount equal to a prospectively determined
payment rate established by the Secretary that provides
for payments for such items and services to be based upon
a national rate adjusted to take into account the relative
costs of furnishing such items and services in various geo-
graphic areas, except that for items and services furnished
during cost reporting periods (or portions thereof) in years
beginning with 1996, such amount shall be equal to 95
percent of the amount that would otherwise have been de-
termined;’’.
(b) ESTABLISHMENT
OF PROSPECTIVE PAYMENT
SYSTEM.—Not later than July 1, 1995, the Secretary of
Health and Human Services shall establish the prospective
payment system for hospital outpatient services necessary
to carry out section 1833(a)(2)(B) of the Social Security
Act (as amended by subsection (a)).
476
Title VIII, Subtitle C
(c) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to items and services furnished
on or after January 1, 1997.
SEC. 8224. REDUCTION IN MEDICARE PAYMENTS TO HOS-
PITALS FOR INPATIENT CAPITAL-RELATED
COSTS.
(a) PPS HOSPITALS.—Section 1886(g)(1)(A) (42
U.S.C. 1395ww(g)(1)(A)) is amended by striking ‘‘1995’’
and inserting ‘‘2002’’.
(b) PPS-EXEMPT HOSPITALS.—Section 1861(v)(1)
(42 U.S.C. 1395x(v)(1)) is amended by adding at the end
the following:
‘‘(T) Such regulations shall provide that,
in determining the amount of the payments
that may be made under this title with respect
to the capital-related costs of inpatient hospital
services furnished by a hospital that is not a
subsection (d) hospital (as defined in section
1886(d)(1)(B)) or a subsection (d) Puerto Rico
hospital (as defined in section 1886(d)(9)(A)),
the Secretary shall reduce the amounts of such
payments otherwise established under this title
by 10 percent for payments attributable to por-
tions of cost reporting periods occurring during
each of the fiscal year 1996 through 2002.’’.
477
Title VIII, Subtitle C
SEC. 8225. MORATORIUM ON PPS EXEMPTION FOR LONG-
TERM CARE HOSPITALS.
(a) IN GENERAL.—Section 1886(d)(1)(B)(iv) (42
U.S.C. 1395ww(d)(1)(B)(iv)) is amended by striking
‘‘Secretary)’’ and inserting ‘‘Secretary on or before Sep-
tember 30, 1995)’’.
(b) RECOMMENDATIONS ON APPROPRIATE STAND-
ARDS
FOR LONG-TERM CARE HOSPITALS.—Not later
than 1 year after the date of the enactment of this Act,
the Secretary of Health and Human Services shall submit
to Congress recommendations for modifications to the
standards used by the Secretary to determine whether a
hospital (including a distinct part of another hospital) is
classified as a long-term care hospital for purposes of de-
termining the amount of payment to the hospital under
part A of the medicare program for the operating costs
of inpatient hospital services.
PART 4—PROVISIONS AFFECTING OTHER
PROVIDERS
SEC. 8231. REVISION OF PAYMENT METHODOLOGY FOR
HOME HEALTH SERVICES.
(a) 
ADDITIONS
TO
COST
LIMITS.—Section
1861(v)(1)(L) (42 U.S.C. 1395x(v)(1)(L)) is amended by
adding at the end the following new clauses:
‘‘(iv) For services furnished by home
health agencies for cost reporting periods
478
Title VIII, Subtitle C
beginning on or after October 1, 1996, the
Secretary shall provide for an interim sys-
tem of limits. Payment shall be the lower
of—
‘‘(I) costs determined under the
preceding provisions of this subpara-
graph, or
‘‘(II) an agency-specific per bene-
ficiary annual limit calculated from
the agency’s 12-month cost reporting
period ending on or after January 1,
1994 and on or before December 31,
1994 based on reasonable costs (in-
cluding non-routine medical supplies),
updated by the home health market
basket index. The per beneficiary limi-
tation shall be multiplied by the agen-
cy’s unduplicated census count of
Medicare patients for the year subject
to the limitation. The limitation shall
represent total Medicare reasonable
costs divided by the unduplicated cen-
sus count of Medicare patients.
‘‘(v) For services furnished by home
health agencies for cost reporting periods
479
Title VIII, Subtitle C
beginning on or after October 1, 1996, the
following rules shall apply:
‘‘(I) For new providers and those
providers without a 12-month cost re-
porting period ending in calendar year
1994, the per beneficiary limit shall
be equal to the mean of these limits
(or the Secretary’s best estimates
thereof) applied to home health agen-
cies as determined by the Secretary.
Home health agencies that have al-
tered their corporate structure or
name may not be considered new pro-
viders for payment purposes.
‘‘(II) For beneficiaries who use
services furnished by more than one
home health agency, the per bene-
ficiary limitation shall be pro-rated
among agencies.
‘‘(vi) Home health agencies whose cost
or utilization experience is below 125 per-
cent of the mean national or census region
aggregate per beneficiary cost or utilization
experience for 1994, or best estimates
thereof, and whose year-end reasonable
480
Title VIII, Subtitle C
costs are below the agency-specific per ben-
eficiary limit, shall receive payment equal
to 50 percent of the difference between the
agency’s reasonable costs and its limit for
fiscal years 1996, 1997, 1998, and 1999.
Such payments may not exceed 5 percent
of an agency’s aggregate Medicare reason-
able cost in a year.
‘‘(vii) Effective January 1, 1997, or
as soon as feasible, the Secretary shall
modify the agency specific per beneficiary
annual limit described in clause (iv) to pro-
vide for regional or national variations in
utilization. For purposes of determining
payment under clause (iv), the limit shall
be calculated through a blend of 75 per-
cent of the agency-specific cost or utiliza-
tion experience in 1994 with 25 percent of
the national or census region cost or utili-
zation experience in 1994, or the Sec-
retary’s best estimates thereof.’’.
(b) USE OF INTERIM FINAL REGULATIONS.—The
Secretary shall implement the payment limits described in
section 1861(v)(1)(L)(iv) of the Social Security Act by
publishing in the Federal Register a notice of interim final
481
Title VIII, Subtitle C
payment limits by August 1, 1996 and allowing for a pe-
riod of public comments thereon. Payments subject to
these limits will be effective for cost reporting periods be-
ginning on or after October 1, 1996, without the necessity
for consideration of comments received, but the Secretary
shall, by Federal Register notice, affirm or modify the lim-
its after considering those comments.
(c) STUDIES.—The Secretary shall expand research
on a prospective payment system for home health agencies
that shall tie prospective payments to an episode of care,
including an intensive effort to develop a reliable case mix
adjuster that explains a significant amount of the
variances in costs. The Secretary shall develop such a sys-
tem for implementation in fiscal year 2000.
(d) PAYMENTS
DETERMINED
ON
PROSPECTIVE
BASIS.—Title XVIII is amended by adding at the end the
following new section:
‘‘PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES
‘‘SEC. 1893. (a) Notwithstanding section 1861(v),
the Secretary shall, for cost reporting periods beginning
on or after fiscal year 2000, provide for payments for
home health services in accordance with a prospective pay-
ment system, which pays home health agencies on a per
episode basis, established by the Secretary.
‘‘(b) Such a system shall include the following:
482
Title VIII, Subtitle C
‘‘(1) Per episode rates under the system shall
be 15 percent less than those that would otherwise
occur under fiscal year 2000 Medicare expenditures
for home health services.
‘‘(2) All services covered and paid on a reason-
able cost basis under the Medicare home health ben-
efit as of the date of the enactment of the Medicare
Enhancement Act of 1995, including medical sup-
plies, shall be subject to the per episode amount. In
defining an episode of care, the Secretary shall con-
sider an appropriate length of time for an episode
the use of services and the number of visits provided
within an episode, potential changes in the mix of
services provided within an episode and their cost,
and a general system design that will provide for
continued access to quality services. The per episode
amount shall be based on the most current audited
cost report data available to the Secretary.
‘‘(c) The Secretary shall employ an appropriate case
mix adjuster that explains a significant amount of the var-
iation in cost.
‘‘(d) The episode payment amount shall be adjusted
annually by the home health market basket index. The
labor portion of the episode amount shall be adjusted for
483
Title VIII, Subtitle C
geographic differences in labor-related costs based on the
most current hospital wage index.
‘‘(e) The Secretary may designate a payment provi-
sion for outliers, recognizing the need to adjust payments
due to unusual variations in the type or amount of medi-
cally necessary care.
‘‘(f) A home health agency shall be responsible for
coordinating all care for a beneficiary. If a beneficiary
elects to transfer to, or receive services from, another
home health agency within an episode period, the episode
payment shall be pro-rated between home health agen-
cies.’’.
SEC. 8232. LIMITATION OF HOME HEALTH COVERAGE
UNDER PART A.
(a) IN GENERAL.—Section 1812(a)(3) (42 U.S.C.
1395d(a)(3)) is amended by striking the semicolon and in-
serting ‘‘for up to 150 days during any spell of illness;’’.
(b) CONFORMING AMENDMENT.—Section 1812(b)
(42 U.S.C. 1395d(b)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(2),
(2) by striking the period at the end of para-
graph (3) and inserting ‘‘; or’’, and
(3) by adding at the end the following new
paragraph:
484
Title VIII, Subtitle C
‘‘(4) home health services furnished to the indi-
vidual during such spell after such services have
been furnished to the individual for 150 days during
such spell.’’.
(c) EXCLUSION
OF ADDITIONAL PART B COSTS
FROM DETERMINATION
OF PART B MONTHLY PRE-
MIUM.—Section 1839(a) (42 U.S.C. 1395r(a)) is amend-
ed—
(1) in the second sentence of paragraph (1), by
striking ‘‘enrollees.’’ and inserting ‘‘enrollees (except
as provided in paragraph (5)).’’; and
(2) by adding at the end the following new
paragraph:
‘‘(5) In estimating the benefits and administrative
costs which will be payable from the Federal Supple-
mentary Medical Insurance Trust Fund for a year (begin-
ning with 1996), the Secretary shall exclude an estimate
of any benefits and costs attributable to home health serv-
ices for which payment would have been made under part
A during the year but for paragraph (4) of section
1812(b).’’.
(d) EFFECTIVE DATE.—The amendments made by
this subsection shall apply to spells of illness beginning
on or after October 1, 1995.
485
Title VIII, Subtitle C
SEC. 8233. REDUCTION IN FEE SCHEDULE FOR DURABLE
MEDICAL EQUIPMENT.
(a) IN GENERAL.—
(1) 
FREEZE
IN
UPDATE
FOR
COVERED
ITEMS.—Section 
1834(a)(14) 
(42 
U.S.C.
1395m(a)(14)) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (A);
(B) in subparagraph (B)—
(i) by striking ‘‘a subsequent year’’
and inserting ‘‘1993, 1994, and 1995’’,
and
(ii) by striking the period at the end
and inserting ‘‘; and’’; and
(C) by adding at the end the following:
‘‘(C) for each of the years 1996 through
2002, 0 percent; and
‘‘(D) for a subsequent year, the percentage
increase in the consumer price index for all
urban consumers (U.S. urban average) for the
12-month period ending with June of the pre-
vious year.’’.
(2) UPDATE FOR ORTHOTICS AND PROSTHET-
ICS.—Section 
1834(h)(4)(A)(iii) 
(42 
U.S.C.
1395m(h)(4)(A)(iii)) is amended by striking ‘‘1994
486
Title VIII, Subtitle C
and 1995’’ and inserting ‘‘each of the years 1994
through 2002’’.
(b) OXYGEN
AND OXYGEN EQUIPMENT.—Section
1834(a)(9)(C) (42 U.S.C. 1395m(a)(9)(C)) is amended—
(1) by striking ‘‘and’’ at the end of clause (iii);
(2) in clause (iv)—
(A) by striking ‘‘a subsequent year’’ and
inserting ‘‘1993, 1994, and 1995’’, and
(B) by striking the period at the end and
inserting ‘‘; and’’; and
(3) by adding at the end the following new
clause:
‘‘(v) in 1996 and each subsequent
year, is 90 percent of the national limited
monthly payment rate computed under
subparagraph (B) for the item for the
year.’’.
SEC. 8234. NURSING HOME BILLING.
(a) PAYMENTS FOR ROUTINE SERVICE COSTS.—
(1) CLARIFICATION
OF
DEFINITION
OF
ROU-
TINE
SERVICE
COSTS.—Section 1888 (42 U.S.C.
1395yy) is amended by adding at the end the follow-
ing new subsection:
‘‘(e) For purposes of this section, the ‘routine service
costs’ of a skilled nursing facility are all costs which are
487
Title VIII, Subtitle C
attributable to nursing services, room and board, adminis-
trative costs, other overhead costs, and all other ancillary
services (including supplies and equipment), excluding
costs attributable to covered non-routine services subject
to payment limits under section 1888A.’’.
(2) CONFORMING AMENDMENT.—Section 1888
(42 U.S.C. 1395yy) is amended in the heading by
inserting ‘‘AND CERTAIN ANCILLARY’’ after ‘‘SERV-
ICE’’.
(b) INCENTIVES
FOR COST EFFECTIVE MANAGE-
MENT OF COVERED NONROUTINE SERVICES.—
(1) IN GENERAL.—Title XVIII is amended by
inserting after section 1888 the following new sec-
tion:
‘‘INCENTIVES
FOR
COST-EFFECTIVE
MANAGEMENT
OF
COVERED
NON-ROUTINE
SERVICES
OF
SKILLED
NURSING FACILITIES
‘‘SEC. 1888A. (a) DEFINITIONS.—For purposes of
this section:
‘‘(1) COVERED NON-ROUTINE SERVICES.—The
term ‘covered non-routine services’ means post-hos-
pital extended care services consisting of any of the
following:
‘‘(A) Physical or occupational therapy or
speech-language pathology services, or res-
piratory therapy.
488
Title VIII, Subtitle C
‘‘(B) Prescription drugs.
‘‘(C) Complex medical equipment.
‘‘(D) Intravenous therapy and solutions
(including enteral and parenteral nutrients,
supplies, and equipment).
‘‘(E) Radiation therapy.
‘‘(F) Diagnostic services, including labora-
tory, radiology (including computerized tomog-
raphy services and imaging services), and pul-
monary services.
‘‘(2) SNF MARKET BASKET PERCENTAGE IN-
CREASE.—The term ‘SNF market basket percentage
increase’ for a fiscal year means a percentage equal
to the percentage increase in routine service cost
limits for the year under section 1888(a).
‘‘(3) STAY.—The term ‘stay’ means, with re-
spect to an individual who is a resident of a skilled
nursing facility, a period of continuous days during
which the facility provides extended care services for
which payment may be made under this title to the
individual during the individual’s spell of illness.
‘‘(b) NEW PAYMENT METHOD FOR COVERED NON-
ROUTINE SERVICES.—
‘‘(1) IN GENERAL.—Subject to subsection (c), a
skilled nursing facility shall receive interim pay-
489
Title VIII, Subtitle C
ments under this title for covered non-routine serv-
ices furnished to an individual during a cost report-
ing period beginning during a fiscal year (after fiscal
year 1996) in an amount equal to the reasonable
cost of providing such services in accordance with
section 1861(v). The Secretary may adjust such pay-
ments if the Secretary determines (on the basis of
such estimated information as the Secretary consid-
ers appropriate) that payments to the facility under
this paragraph for a cost reporting period would
substantially exceed the cost reporting period limit
determined under subsection (c)(1)(B).
‘‘(2) RESPONSIBILITY
OF
SKILLED
NURSING
FACILITY TO MANAGE BILLINGS.—
‘‘(A) CLARIFICATION RELATING TO PART A
BILLING.—In the case of a covered non-routine
service furnished to an individual who (at the
time the service is furnished) is a resident of a
skilled nursing facility who is entitled to cov-
erage under section 1812(a)(2) for such service,
the skilled nursing facility shall submit a claim
for payment under this title for such service
under part A (without regard to whether or not
the item or service was furnished by the facility,
by others under arrangement with them made
490
Title VIII, Subtitle C
by the facility, under any other contracting or
consulting arrangement, or otherwise).
‘‘(B) PART B BILLING.—In the case of a
covered non-routine service furnished to an in-
dividual who (at the time the service is fur-
nished) is a resident of a skilled nursing facility
who is not entitled to coverage under section
1812(a)(2) for such service but is entitled to
coverage under part B for such service, the
skilled nursing facility shall submit a claim for
payment under this title for such service under
part B (without regard to whether or not the
item or service was furnished by the facility, by
others under arrangement with them made by
the facility, under any other contracting or con-
sulting arrangement, or otherwise).
‘‘(C) MAINTAINING RECORDS ON SERVICES
FURNISHED TO RESIDENTS.—Each skilled nurs-
ing facility receiving payments for extended
care services under this title shall document on
the facility’s cost report all covered non-routine
services furnished to all residents of the facility
to whom the facility provided extended care
services for which payment was made under
part A during a fiscal year (beginning with fis-
491
Title VIII, Subtitle C
cal year 1996) (without regard to whether or
not the services were furnished by the facility,
by others under arrangement with them made
by the facility, under any other contracting or
consulting arrangement, or otherwise).
‘‘(c) RECONCILIATION OF AMOUNTS.—
‘‘(1) LIMIT BASED ON PER STAY LIMIT AND
NUMBER OF STAYS.—
‘‘(A) IN GENERAL.—If a skilled nursing fa-
cility has received aggregate payments under
subsection (b) for covered non-routine services
during a cost reporting period beginning during
a fiscal year in excess of an amount equal to
the cost reporting period limit determined
under subparagraph (B), the Secretary shall re-
duce the payments made to the facility with re-
spect to such services for cost reporting periods
beginning during the following fiscal year in an
amount equal to such excess. The Secretary
shall reduce payments under this subparagraph
at such times and in such manner during a fis-
cal year as the Secretary finds necessary to
meet the requirement of this subparagraph.
‘‘(B) COST REPORTING PERIOD LIMIT.—
The cost reporting period limit determined
492
Title VIII, Subtitle C
under this subparagraph is an amount equal to
the product of—
‘‘(i) the per stay limit applicable to
the facility under subsection (d) for the pe-
riod; and
‘‘(ii) the number of stays beginning
during the period for which payment was
made to the facility for such services.
‘‘(C) PROSPECTIVE
REDUCTION
IN
PAY-
MENTS.—In addition to the process for reduc-
ing payments described in subparagraph (A),
the Secretary may reduce payments made to a
facility under this section during a cost report-
ing period if the Secretary determines (on the
basis of such estimated information as the Sec-
retary considers appropriate) that payments to
the facility under this section for the period will
substantially exceed the cost reporting period
limit for the period determined under this para-
graph.
‘‘(2) INCENTIVE PAYMENTS.—
‘‘(A) IN GENERAL.—If a skilled nursing fa-
cility has received aggregate payments under
subsection (b) for covered non-routine services
during a cost reporting period beginning during
493
Title VIII, Subtitle C
a fiscal year in an amount that is less than the
amount determined under paragraph (1)(B),
the Secretary shall pay the skilled nursing facil-
ity in the following fiscal year an incentive pay-
ment equal to 50 percent of the difference be-
tween such amounts, except that the incentive
payment may not exceed 5 percent of the aggre-
gate payments made to the facility under sub-
section (b) for the previous fiscal year (without
regard to subparagraph (B)).
‘‘(B) 
INSTALLMENT
INCENTIVE
PAY-
MENTS.—The Secretary may make installment
payments during a fiscal year to a skilled nurs-
ing facility based on the estimated incentive
payment that the facility would be eligible to re-
ceive with respect to such fiscal year.
‘‘(d) DETERMINATION
OF
FACILITY
PER
STAY
LIMIT.—
‘‘(1) LIMIT FOR FISCAL YEAR 1997.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the Secretary shall establish
separate per stay limits for hospital-based and
freestanding skilled nursing facilities for the 12-
month cost reporting period beginning during
fiscal year 1997 that are equal to the sum of—
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Title VIII, Subtitle C
‘‘(i) 50 percent of the facility-specific
stay amount for the facility (as determined
under subsection (e)) for the last 12-month
cost reporting period ending on or before
September 30, 1994, increased (in a
compounded manner) by the SNF market
basket percentage increase for fiscal years
1995 through 1997; and
‘‘(ii) 50 percent of the average of all
facility-specific stay amounts for all hos-
pital-based facilities or all freestanding fa-
cilities (whichever is applicable) during the
cost reporting period described in clause
(i), increased (in a compounded manner)
by the SNF market basket percentage in-
crease for fiscal years 1995 through 1997.
‘‘(B) FACILITIES NOT HAVING 1994 COST
REPORTING PERIOD.—In the case of a skilled
nursing facility for which payments were not
made under this title for covered non-routine
services for the last 12-month cost reporting pe-
riod ending on or before September 30, 1994,
the per stay limit for the 12-month cost report-
ing period beginning during fiscal year 1997
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Title VIII, Subtitle C
shall be twice the amount determined under
subparagraph (A)(ii).
‘‘(2) LIMIT FOR SUBSEQUENT FISCAL YEARS.—
The per stay limit for a skilled nursing facility for
a 12-month cost reporting period beginning during
a fiscal year after fiscal year 1997 is equal to the
per stay limit established under this subsection for
the 12-month cost reporting period beginning during
the previous fiscal year, increased by the SNF mar-
ket basket percentage increase for such subsequent
fiscal year minus 2 percentage points.
‘‘(3) REBASING OF AMOUNTS.—
‘‘(A) IN
GENERAL.—The Secretary shall
provide for an update to the facility-specific
amounts used to determine the per stay limits
under this subsection for cost reporting periods
beginning on or after October 1, 1999, and
every 2 years thereafter.
‘‘(B) TREATMENT
OF
FACILITIES
NOT
HAVING REBASED COST REPORTING PERIODS.—
Paragraph (1)(B) shall apply with respect to a
skilled nursing facility for which payments were
not made under this title for covered non-rou-
tine services for the 12-month cost reporting
period used by the Secretary to update facility-
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Title VIII, Subtitle C
specific amounts under subparagraph (A) in the
same manner as such paragraph applies with
respect to a facility for which payments were
not made under this title for covered non-rou-
tine services for the last 12-month cost report-
ing period ending on or before September 30,
1994.
‘‘(e) DETERMINATION OF FACILITY-SPECIFIC STAY
AMOUNTS.—The ‘facility-specific stay amount’ for a
skilled nursing facility for a cost reporting period is the
sum of—
‘‘(1) the average amount of payments made to
the facility under part A during the period which are
attributable to covered non-routine services fur-
nished during a stay (as determined on a per diem
basis); and
‘‘(2) the Secretary’s best estimate of the aver-
age amount of payments made under part B during
the period for covered non-routine services furnished
to all residents of the facility to whom the facility
provided extended care services for which payment
was made under part A during the period (without
regard to whether or not the services were furnished
by the facility, by others under arrangement with
them made by the facility, under any other contract-
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Title VIII, Subtitle C
ing or consulting arrangement, or otherwise), as es-
timated by the Secretary.
‘‘(f) INTENSIVE NURSING OR THERAPY NEEDS.—
‘‘(1) IN GENERAL.—In applying subsection (b)
to covered non-routine services furnished during a
stay beginning during a cost reporting period begin-
ning during a fiscal year (beginning with fiscal years
after fiscal year 1997) to a resident of a skilled
nursing facility who requires intensive nursing or
therapy services, the per stay limit for such resident
shall be the per stay limit developed under para-
graph (2) instead of the per stay limit determined
under subsection (d)(1)(A).
‘‘(2) PER
STAY
LIMIT
FOR
INTENSIVE
NEED
RESIDENTS.—Not later than June 30, 1997, the
Secretary, after consultation with the Medicare Pay-
ment Review Commission and skilled nursing facility
experts, shall develop and publish a per stay limit
for residents of a skilled nursing facility who require
intensive nursing or therapy services.
‘‘(3) BUDGET
NEUTRALITY.—The Secretary
shall adjust payments under subsection (b) in a
manner that ensures that total payments for covered
non-routine services under this section are not great-
er or less than total payments for such services
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Title VIII, Subtitle C
would have been but for the application of para-
graph (1).
‘‘(g) SPECIAL TREATMENT
FOR SMALL SKILLED
NURSING FACILITIES.—This section shall not apply with
respect to a skilled nursing facility for which payment is
made for routine service costs during a cost reporting pe-
riod on the basis of prospective payments under section
1888(d).
‘‘(h) EXCEPTIONS AND ADJUSTMENTS TO LIMITS.—
‘‘(1) IN GENERAL.—The Secretary may make
exceptions and adjustments to the cost reporting
limits applicable to a skilled nursing facility under
subsection (c)(1)(B) for a cost reporting period, ex-
cept that the total amount of any additional pay-
ments made under this section for covered non-rou-
tine services during the cost reporting period as a
result of such exceptions and adjustments may not
exceed 5 percent of the aggregate payments made to
all skilled nursing facilities for covered non-routine
services during the cost reporting period (determined
without regard to this paragraph).
‘‘(2) BUDGET
NEUTRALITY.—The Secretary
shall adjust payments under subsection (b) in a
manner that ensures that total payments for covered
non-routine services under this section are not great-
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Title VIII, Subtitle C
er or less than total payments for such services
would have been but for the application of para-
graph (1).
‘‘(i) SPECIAL RULE FOR X-RAY SERVICES.—Before
furnishing a covered non-routine service consisting of an
X-ray service for which payment may be made under part
A or part B to a resident, a skilled nursing facility shall
consider whether furnishing the service through a provider
of portable X-ray service services would be appropriate,
taking into account the cost effectiveness of the service
and the convenience to the resident.’’.
(2) 
CONFORMING
AMENDMENT.—Section
1814(b) (42 U.S.C. 1395f(b)) is amended in the
matter preceding paragraph (1) by striking ‘‘1813
and 1886’’ and inserting ‘‘1813, 1886, 1888, and
1888A’’.
SEC. 8235. FREEZE IN PAYMENTS FOR CLINICAL DIAG-
NOSTIC LABORATORY TESTS.
Section 
1833(h)(2)(A)(ii)(IV) 
(42 
U.S.C.
1395l(h)(2)(A)(ii)(IV)) is amended by striking ‘‘1994 and
1995’’ and inserting ‘‘1994 through 2002’’.
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Title VIII, Subtitle C
PART 5—GRADUATE MEDICAL EDUCATION AND
TEACHING HOSPITALS
SEC. 8241. TEACHING HOSPITAL AND GRADUATE MEDICAL
EDUCATION TRUST FUND.
(a) TEACHING HOSPITAL AND GRADUATE MEDICAL
EDUCATION TRUST FUND.—The Social Security Act (42
U.S.C. 300 et seq.) is amended by adding at the end the
following title:
‘‘TITLE XXI—TEACHING HOSPITAL AND
GRADUATE MEDICAL EDUCATION TRUST FUND
‘‘PART A—ESTABLISHMENT OF FUND
‘‘SEC. 2101. ESTABLISHMENT OF FUND.
‘‘(a) IN GENERAL.—There is established in the
Treasury of the United States a fund to be known as the
Teaching Hospital and Graduate Medical Education Trust
Fund (in this title referred to as the ‘Fund’), consisting
of amounts transferred to the Fund under subsection (c),
amounts appropriated to the Fund pursuant to sub-
sections (d) and (e)(3), and such gifts and bequests as
may be deposited in the Fund pursuant to subsection (f).
Amounts in the Fund are available until expended.
‘‘(b) EXPENDITURES FROM FUND.—Amounts in the
Fund are available to the Secretary for making payments
under section 2111.
‘‘(c) TRANSFERS TO FUND.—
501
Title VIII, Subtitle C
‘‘(1) IN GENERAL.—From the Federal Hospital
Insurance Trust Fund and the Federal Supple-
mentary Medical Insurance Trust Fund, the Sec-
retary shall, for fiscal year 1996 and each subse-
quent fiscal year, transfer to the Fund an amount
determined by the Secretary for the fiscal year in-
volved in accordance with paragraph (2).
‘‘(2) DETERMINATION OF AMOUNTS.—For pur-
poses of paragraph (1), the amount determined
under this paragraph for a fiscal year is an estimate
by the Secretary of an amount equal to 75 percent
of the difference between—
‘‘(A) the nationwide total of the amounts
that would have been paid under sections 1855
and 1876 during the year but for the operation
of section 1855(b)(2)(B)(ii); and
‘‘(B) the nationwide total of the amounts
paid under such sections during the year.
‘‘(3) ALLOCATION BETWEEN MEDICARE TRUST
FUNDS.—In providing for a transfer under para-
graph (1) for a fiscal year, the Secretary shall pro-
vide for an allocation of the amounts involved be-
tween part A and part B of title XVIII (and the
trust funds established under the respective parts)
as reasonably reflects the proportion of payments for
502
Title VIII, Subtitle C
the indirect costs of medical education and direct
graduate medical education costs of hospitals associ-
ated with the provision of services under each re-
spective part.
‘‘(d) AUTHORIZATION OF APPROPRIATIONS.—There
are authorized to be appropriated to the Fund such sums
as may be necessary for each of the fiscal years 1996
through 2002.
‘‘(e) INVESTMENT.—
‘‘(1) IN
GENERAL.—The Secretary of the
Treasury shall invest such amounts of the Fund as
such Secretary determines are not required to meet
current withdrawals from the Fund. Such invest-
ments may be made only in interest-bearing obliga-
tions of the United States. For such purpose, such
obligations may be acquired on original issue at the
issue price, or by purchase of outstanding obliga-
tions at the market price.
‘‘(2) SALE
OF
OBLIGATIONS.—Any obligation
acquired by the Fund may be sold by the Secretary
of the Treasury at the market price.
‘‘(3) AVAILABILITY OF INCOME.—Any interest
derived from obligations acquired by the Fund, and
proceeds from any sale or redemption of such obliga-
tions, are hereby appropriated to the Fund.
503
Title VIII, Subtitle C
‘‘(f) ACCEPTANCE OF GIFTS AND BEQUESTS.—The
Fund may accept on behalf of the United States money
gifts and bequests made unconditionally to the Fund for
the benefit of the Fund or any activity financed through
the Fund.
‘‘PART B—PAYMENTS TO TEACHING HOSPITALS
‘‘SEC. 2111. FORMULA PAYMENTS TO TEACHING HOS-
PITALS.
‘‘(a) IN GENERAL.—In the case of each teaching hos-
pital that in accordance with subsection (b) submits to the
Secretary a payment document for fiscal year 1996 or any
subsequent fiscal year, the Secretary shall make payments
for the year to the teaching hospital for the direct and
indirect costs of operating approved medical residency
training programs. Such payments shall be made from the
Fund, and shall be made in accordance with a formula
established by the Secretary.
‘‘(b) PAYMENT DOCUMENT.—For purposes of sub-
section (a), a payment document is a document containing
such information as may be necessary for the Secretary
to make payments under such subsection to a teaching
hospital for a fiscal year. The document is submitted in
accordance with this subsection if the document is submit-
ted not later than the date specified by the Secretary, and
the document is in such form and is made in such manner
504
Title VIII, Subtitle C
as the Secretary may require. The Secretary may require
that information under this subsection be submitted to the
Secretary in periodic reports.’’.
(b) NATIONAL
ADVISORY
COUNCIL
ON
POST-
GRADUATE MEDICAL EDUCATION.—
(1) IN GENERAL.—There is established within
the Department of Health and Human Services an
advisory council to be known as the National Advi-
sory Council on Postgraduate Medical Education (in
this title referred to as the ‘‘Council’’).
(2) DUTIES.—The council shall provide advice
to the Secretary on appropriate policies for making
payments for the support of postgraduate medical
education in order to assure an adequate supply of
physicians trained in various specialities, consistent
with the health care needs of the United States.
(3) COMPOSITION.—
(A) IN GENERAL.—The Secretary shall ap-
point to the Council 15 individuals who are not
officers or employees of the United States. Such
individuals shall include not less than 1 individ-
ual from each of the following categories of in-
dividuals or entities:
(i) Organizations representing con-
sumers of health care services.
505
Title VIII, Subtitle C
(ii) Physicians who are faculty mem-
bers of medical schools, or who supervise
approved physician training programs.
(iii) Physicians in private practice who
are not physicians described in clause (ii).
(iv) Practitioners in public health.
(v) Advanced-practice nurses.
(vi) Other health professionals who
are not physicians.
(vii) Medical schools.
(viii) Teaching hospitals.
(ix) The Accreditation Council on
Graduate Medical Education.
(x) The American Board of Medical
Specialities.
(xi) The Council on Postdoctoral
Training of the American Osteopathic As-
sociation.
(xii) The Council on Podiatric Medical
Education of the American Podiatric Medi-
cal Association.
(B) 
REQUIREMENTS
REGARDING
REP-
RESENTATIVE
MEMBERSHIP.—To the greatest
extent feasible, the membership of the Council
shall represent the various geographic regions
506
Title VIII, Subtitle C
of the United States, shall reflect the racial,
ethnic, and gender composition of the popu-
lation of the United States, and shall be broadly
representative of medical schools and teaching
hospitals in the United States.
(C) EX OFFICIO MEMBERS; OTHER FED-
ERAL OFFICERS OR EMPLOYEES.—The member-
ship of the Council shall include individuals des-
ignated by the Secretary to serve as members
of the Council from among Federal officers or
employees who are appointed by the President,
or by the Secretary (or by other Federal offi-
cers who are appointed by the President with
the advice and consent of the Senate). Individ-
uals designated under the preceding sentence
shall include each of the following officials (or
a designee of the official):
(i) The Secretary of Health and
Human Services.
(ii) The Secretary of Veterans Affairs.
(iii) The Secretary of Defense.
(4) CHAIR.—The Secretary shall, from among
members of the council appointed under paragraph
(3)(A), designate an individual to serve as the chair
of the council.
507
Title VIII, Subtitle C
(5) TERMINATION.—The Council terminates
December 31, 1999.
(c) REMOVE MEDICAL EDUCATION AND DISPROPOR-
TIONATE SHARE HOSPITAL PAYMENTS FROM CALCULA-
TION OF ADJUSTED AVERAGE PER CAPITA COST.—For
provision removing medical education and disproportion-
ate share hospital payments from calculation of payment
amounts for organizations paid on a capitated basis, see
section 1855(b)(2)(B)(ii).
(2) PAYMENTS TO HOSPITALS OF AMOUNTS AT-
TRIBUTABLE
TO
DSH.—Section 1886 (42 U.S.C.
1395ww) is amended by adding at the end the fol-
lowing new subsection:
‘‘(j)(1) In addition to amounts paid under subsection
(d)(5)(F), the Secretary is authorized to pay hospitals
which are eligible for such payments for a fiscal year sup-
plemental amounts that do not exceed the limit provided
for in paragraph (2).
‘‘(2) The sum of the aggregate amounts paid pursu-
ant to paragraph (1) for a fiscal year shall not exceed the
Secretary’s estimate of 75 percent of the amount of reduc-
tions in payments under section 1855 that are attributable
to the operation of subsection (b)(2)(B)(ii) of such sec-
tion.’’.
508
Title VIII, Subtitle D
SEC. 8242. REDUCTION IN PAYMENT ADJUSTMENTS FOR IN-
DIRECT MEDICAL EDUCATION.
(a) MODIFICATION REGARDING 6.8 PERCENT.—Sec-
tion 1886(d)(5)(B)(ii) (42 U.S.C. 1395ww(d)(5)(B)(ii)) is
amended—
(1) by striking ‘‘on or after October 1, 1988,’’
and inserting ‘‘on or after October 1, 1999,’’; and
(2) by striking ‘‘1.89’’ and inserting ‘‘1.68’’.
(b) SPECIAL RULE REGARDING FISCAL YEARS 1996
THROUGH 1998; MODIFICATION REGARDING 6 PER-
CENT.—Section 1886(d)(5)(B)(ii), as amended by para-
graph (1), is amended by adding at the end the following:
‘‘In the case of discharges occurring on or after October
1, 1995, and before October 1, 1999, the preceding sen-
tence applies to the same extent and in the same manner
as the sentence applies to discharges occurring on or after
October 1, 1999, except that the term ‘1.68’ is deemed
to be 1.48.’’.
Subtitle D—Provisions Relating to
Medicare Beneficiaries
SEC. 8301. PART B PREMIUM.
(a) FREEZE
IN
PREMIUM
FOR
1996.—Section
1839(e)(1) (42 U.S.C. 1395r(e)(1)) is amended—
(1) in subparagraph (A), by striking ‘‘December
1995’’ and inserting ‘‘December 1996’’; and
509
Title VIII, Subtitle D
(2) in subparagraph (B)(v), by striking ‘‘1995’’
and inserting ‘‘1995 and 1996’’.
(b) ESTABLISHING PREMIUM AT 25 PERCENT OF
PROGRAM
COSTS
THROUGH
2002.—Section
1839(e)(1)(A) (42 U.S.C. 1395r(e)(1)(A)) is amended by
striking ‘‘January 1999’’ and inserting ‘‘January 2003’’.
SEC. 8302. FULL COST OF MEDICARE PART B COVERAGE
PAYABLE BY HIGH-INCOME INDIVIDUALS.
(a) IN GENERAL.—Subchapter A of chapter 1 of the
Internal Revenue Code of 1986 is amended by adding at
the end thereof the following new part:
‘‘PART VIII—SUPPLEMENTAL MEDICARE PART B
PREMIUMS FOR HIGH-INCOME INDIVIDUALS
‘‘Sec. 59B. Supplemental Medicare part B premium.
‘‘SEC. 59B. SUPPLEMENTAL MEDICARE PART B PREMIUM.
‘‘(a) REQUIREMENT TO PAY PREMIUM.—In the case
of an individual to whom this section applies for the tax-
able year, there is hereby imposed (in addition to any
other amount imposed by this subtitle) an amount equal
to the aggregate of the supplemental Medicare part B pre-
miums (if any) for months during such year that such in-
dividual is covered under Medicare part B.
‘‘(b) INDIVIDUALS TO WHOM SECTION APPLIES.—
This section shall apply to any individual for any taxable
year if—
510
Title VIII, Subtitle D
‘‘(1) such individual is covered under Medicare
part B for any month during such year, and
‘‘(2) the modified adjusted gross income of the
taxpayer for such taxable year exceeds the threshold
amount.
‘‘(c) SUPPLEMENTAL
MEDICARE
PART
B PRE-
MIUM.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a), the supplemental Medicare part B premium for
any month is an amount equal to the excess of—
‘‘(A) subject to adjustment under para-
graph (2), 200 percent of the monthly actuarial
rate for enrollees age 65 and over determined
under subsection 1839(a)(1) of the Social Secu-
rity Act for such month, over
‘‘(B) the total monthly premium under sec-
tion 1839 of the Social Security Act (deter-
mined without regard to subsections (b) and (f)
of section 1839 of such Act).
‘‘(2) ADJUSTING
MONTHLY
ACTUARIAL
RATE
BY GEOGRAPHIC AREA.—
‘‘(A) IN
GENERAL.—In determining the
amount described in paragraph (1)(A) for an
individual residing in a premium area, the Sec-
retary shall adjust such amount for a year by
511
Title VIII, Subtitle D
a geographic adjustment factor established by
the Secretary which reflects the relative benefits
and administrative costs payable from the Fed-
eral Supplementary Medical Insurance Trust
Fund for services performed and related admin-
istrative costs incurred in the year with respect
to enrollees residing in such area compared to
the national average of such benefits and costs.
‘‘(B) PREMIUM AREA.—In this paragraph,
a ‘premium area’ means a metropolitan statis-
tical area or the portion of a State outside of
any metropolitan statistical area.
‘‘(d) PHASEIN.—
‘‘(1) IN
GENERAL.—If the modified adjusted
gross income of the taxpayer for any taxable year
exceeds the threshold amount by less than $50,000,
the amount imposed by this section for such taxable
year shall be an amount which bears the same ratio
to the amount which would (but for this subsection)
be imposed by this section for such taxable year as
such excess bears to $50,000. The preceding sen-
tence shall not apply to any individual whose thresh-
old amount is zero.
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Title VIII, Subtitle D
‘‘(2) PHASEIN RANGE FOR JOINT RETURNS.—
In the case of a joint return, paragraph (1) shall be
applied by substituting ‘$75,000’ for ‘$50,000’.
‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.—
For purposes of this section—
‘‘(1) THRESHOLD AMOUNT.—The term ‘thresh-
old amount’ means—
‘‘(A) except as otherwise provided in this
paragraph, $50,000,
‘‘(B) $75,000 in the case of a joint return,
and
‘‘(C) zero in the case of a taxpayer who—
‘‘(i) is married at the close of the tax-
able year but does not file a joint return
for such year, and
‘‘(ii) does not live apart from his
spouse at all times during the taxable year.
‘‘(2) MODIFIED
ADJUSTED
GROSS
INCOME.—
The term ‘modified adjusted gross income’ means
adjusted gross income—
‘‘(A) determined without regard to sections
135, 911, 931, and 933, and
‘‘(B) increased by the amount of interest
received or accrued by the taxpayer during the
taxable year which is exempt from tax.
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Title VIII, Subtitle D
‘‘(3) JOINT RETURNS.—In the case of a joint
return—
‘‘(A) the amount imposed by subsection (a)
shall be the sum of the amounts so imposed de-
termined separately for each spouse, and
‘‘(B) subsections (a) and (d) shall be ap-
plied by taking into account the combined modi-
fied adjusted gross income of the spouses.
‘‘(4) MEDICARE PART B COVERAGE.—An indi-
vidual shall be treated as covered under Medicare
part B for any month if a premium is paid under
part B of title XVIII of the Social Security Act for
the coverage of the individual under such part for
the month.
‘‘(5) MARRIED
INDIVIDUAL.—The determina-
tion of whether an individual is married shall be
made in accordance with section 7703.
‘‘(f) COORDINATION WITH OTHER PROVISIONS.—
‘‘(1) TREATMENT AS MEDICAL EXPENSE.—For
purposes of section 213, the supplemental Medicare
part B premium imposed by this section shall be
treated as an amount paid for insurance covering
medical care (as defined in section 213(d)).
‘‘(2) TREATMENT
UNDER
SUBTITLE
F.—For
purposes of subtitle F (other than section 6654), the
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Title VIII, Subtitle D
supplemental Medicare part B premium imposed by
this section shall be treated as if it were a tax im-
posed by section 1.
‘‘(3) NOT TREATED AS TAX FOR CERTAIN PUR-
POSES.—The supplemental Medicare part B pre-
mium imposed by this section shall not be treated as
a tax imposed by this chapter for purposes of deter-
mining—
‘‘(A) the amount of any credit allowable
under this chapter, or
‘‘(B) the amount of the minimum tax im-
posed by section 55.’’
(b) TRANSFERS TO SUPPLEMENTAL MEDICAL IN-
SURANCE TRUST FUND.—
(1) IN
GENERAL.—There are hereby appro-
priated to the Supplemental Medical Insurance
Trust Fund amounts equivalent to the aggregate in-
crease in liabilities under chapter 1 of the Internal
Revenue Code of 1986 which is attributable to the
application of section 59B of such Code, as added by
this section.
(2) TRANSFERS.—The amounts appropriated
by paragraph (1) to the Supplemental Medical In-
surance Trust Fund shall be transferred from time
to time (but not less frequently than quarterly) from
515
Title VIII, Subtitle D
the general fund of the Treasury on the basis of es-
timates made by the Secretary of the Treasury of
the amounts referred to in paragraph (1). Any quar-
terly payment shall be made on the first day of such
quarter and shall take into account the portion of
the supplemental Medicare part B premium (as de-
fined in such section 59B) which is attributable to
months during such quarter. Proper adjustments
shall be made in the amounts subsequently trans-
ferred to the extent prior estimates were in excess
of or less than the amounts required to be trans-
ferred.
(c) REPORTING REQUIREMENTS.—
(1) Paragraph (1) of section 6050F(a) (relating
to returns relating to social security benefits) is
amended by striking ‘‘and’’ at the end of subpara-
graph (B) and by inserting after subparagraph (C)
the following new subparagraph:
‘‘(D) the number of months during the cal-
endar year for which a premium was paid under
part B of title XVIII of the Social Security Act
for the coverage of such individual under such
part, and’’.
(2) Paragraph (2) of section 6050F(b) is
amended to read as follows:
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Title VIII, Subtitle D
‘‘(2) the information required to be shown on
such return with respect to such individual.’’
(3) Paragraph (1) of section 6050F(c) is
amended by striking ‘‘and’’ at the end of subpara-
graph (A), by striking the period at the end of sub-
paragraph (B) and inserting ‘‘, and’’, and by adding
at the end the following new subparagraph:
‘‘(C) the Secretary of Health and Human
Services in the case of the information specified
in subsection (a)(1)(D).’’
(4) The heading for section 6050F is amended
by inserting ‘‘AND
MEDICARE
PART
B
COV-
ERAGE’’ before the period.
(5) The item relating to section 6050F in the
table of sections for subpart B of part III of sub-
chapter A of chapter 61 is amended by inserting
‘‘and Medicare part B coverage’’ before the period.
(d) CLERICAL AMENDMENT.—The table of parts for
subchapter A of chapter 1 is amended by adding at the
end thereof the following new item:
‘‘Part VIII. Supplemental Medicare part B premiums for high-in-
come individuals.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to months after December 1995
in taxable years ending after December 31, 1995.
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Title VIII, Subtitle D
ing 3 years, or during the preceding year in the case of
a woman described in paragraph (3), and includes a clini-
cal breast examination.
‘‘(3) A woman described in this paragraph is a
woman who—
‘‘(A) is of childbearing age and has not had a
test described in this subsection during each of the
preceding 3 years that did not indicate the presence
of cervical cancer; or
‘‘(B) is at high risk of developing cervical can-
cer (as determined pursuant to factors identified by
the Secretary).’’.
(2) WAIVER OF DEDUCTIBLE.—The first sen-
tence of section 1833(b) (42 U.S.C. 1395l(b)), as
amended by subsection (a)(2), is amended—
(A) by striking ‘‘and (5)’’ and inserting
‘‘(5)’’; and
(B) by striking the period at the end and
inserting the following: ‘‘, and (6) such deduct-
ible shall not apply with respect to screening
pap smear and screening pelvic exam (as de-
scribed in section 1861(nn)).’’.
(3) CONFORMING AMENDMENTS.—(A) Section
1861(s)(14) (42 U.S.C. 1395x(s)(14)) is amended
519
Title VIII, Subtitle D
by inserting ‘‘and screening pelvic exam’’ after
‘‘screening pap smear’’.
(B) 
Section 
1862(a)(1)(F) 
(42 
U.S.C.
1395y(a)(1)(F)) is amended by inserting ‘‘and
screening pelvic exam’’ after ‘‘screening pap smear’’.
(c) COVERAGE OF COLORECTAL SCREENING.—
(1) IN
GENERAL.—Section 1834 (42 U.S.C.
1395m) is amended by inserting after subsection (c)
the following new subsection:
‘‘(d) FREQUENCY
AND
PAYMENT
LIMITS
FOR
SCREENING FECAL-OCCULT BLOOD TESTS, SCREENING
FLEXIBLE
SIGMOIDOSCOPIES, 
AND
SCREENING
COLONOSCOPY.—
‘‘(1) FREQUENCY
LIMITS
FOR
SCREENING
FECAL-OCCULT BLOOD TESTS.—Subject to revision
by the Secretary under paragraph (4), no payment
may be made under this part for a screening fecal-
occult blood test provided to an individual for the
purpose of early detection of colon cancer if the test
is performed—
‘‘(A) in the case of an individual under 65
years of age, more frequently than is provided
in a periodicity schedule established by the Sec-
retary for purposes of this subparagraph; or
520
Title VIII, Subtitle D
‘‘(B) in the case of any other individual,
within the 11 months following the month in
which a previous screening fecal-occult blood
test was performed.
‘‘(2) 
SCREENING
FLEXIBLE
SIGMOID-
OSCOPIES.—
‘‘(A) PAYMENT AMOUNT.—The Secretary
shall establish a payment amount under section
1848 
with 
respect 
to 
screening 
flexible
sigmoidoscopies provided for the purpose of
early detection of colon cancer that is consistent
with payment amounts under such section for
similar or related services, except that such
payment amount shall be established without
regard to subsection (a)(2)(A) of such section.
‘‘(B) FREQUENCY LIMITS.—Subject to re-
vision by the Secretary under paragraph (4), no
payment may be made under this part for a
screening flexible sigmoidoscopy provided to an
individual for the purpose of early detection of
colon cancer if the procedure is performed—
‘‘(i) in the case of an individual under
65 years of age, more frequently than is
provided in a periodicity schedule estab-
521
Title VIII, Subtitle D
lished by the Secretary for purposes of this
subparagraph; or
‘‘(ii) in the case of any other individ-
ual, within the 59 months following the
month in which a previous screening flexi-
ble sigmoidoscopy was performed.
‘‘(3) SCREENING COLONOSCOPY FOR INDIVID-
UALS AT HIGH RISK FOR COLORECTAL CANCER.—
‘‘(A) PAYMENT AMOUNT.—The Secretary
shall establish a payment amount under section
1848 with respect to screening colonoscopy for
individuals at high risk for colorectal cancer (as
determined in accordance with criteria estab-
lished by the Secretary) provided for the pur-
pose of early detection of colon cancer that is
consistent with payment amounts under such
section for similar or related services, except
that such payment amount shall be established
without regard to subsection (a)(2)(A) of such
section.
‘‘(B) FREQUENCY LIMIT.—Subject to revi-
sion by the Secretary under paragraph (4), no
payment may be made under this part for a
screening colonoscopy for individuals at high
risk for colorectal cancer provided to an individ-
522
Title VIII, Subtitle D
ual for the purpose of early detection of colon
cancer if the procedure is performed within the
47 months following the month in which a pre-
vious screening colonoscopy was performed.
‘‘(C) FACTORS
CONSIDERED
IN
ESTAB-
LISHING CRITERIA FOR DETERMINING INDIVID-
UALS AT HIGH RISK.—In establishing criteria
for determining whether an individual is at high
risk for colorectal cancer for purposes of this
paragraph, the Secretary shall take into consid-
eration family history, prior experience of can-
cer, a history of chronic digestive disease condi-
tion, and the presence of any appropriate recog-
nized gene markers for colorectal cancer.
‘‘(4) REVISION OF FREQUENCY.—
‘‘(A) REVIEW.—The Secretary shall review
periodically the appropriate frequency for per-
forming screening fecal-occult blood tests,
screening flexible sigmoidoscopies, and screen-
ing colonoscopy based on age and such other
factors as the Secretary believes to be pertinent.
‘‘(B) REVISION OF FREQUENCY.—The Sec-
retary, taking into consideration the review
made under clause (i), may revise from time to
time the frequency with which such tests and
523
Title VIII, Subtitle D
procedures may be paid for under this sub-
section.’’.
(2) CONFORMING
AMENDMENTS.—(A) Para-
graphs (1)(D) and (2)(D) of section 1833(a) (42
U.S.C. 1395l(a)) are each amended by striking
‘‘subsection (h)(1),’’ and inserting ‘‘subsection (h)(1)
or section 1834(d)(1),’’.
(B) 
Clauses 
(i) 
and 
(ii) 
of 
section
1848(a)(2)(A) (42 U.S.C. 1395w–4(a)(2)(A)) are
each amended by striking ‘‘a service’’ and inserting
‘‘a 
service 
(other 
than 
a 
screening 
flexible
sigmoidoscopy provided to an individual for the pur-
pose of early detection of colon cancer or a screening
colonoscopy provided to an individual at high risk
for colorectal cancer for the purpose of early detec-
tion of colon cancer)’’.
(C) Section 1862(a) (42 U.S.C. 1395y(a)) is
amended—
(i) in paragraph (1)—
(I) in subparagraph (E), by striking
‘‘and’’ at the end;
(II) in subparagraph (F), by striking
the semicolon at the end and inserting ‘‘,
and’’; and
524
Title VIII, Subtitle D
(III) by adding at the end the follow-
ing new subparagraph:
‘‘(G) in the case of screening fecal-occult blood
tests, screening flexible sigmoidoscopies, and screen-
ing colonoscopy provided for the purpose of early de-
tection of colon cancer, which are performed more
frequently than is covered under section 1834(d);’’;
and
(ii) in paragraph (7), by striking ‘‘para-
graph (1)(B) or under paragraph (1)(F)’’ and
inserting ‘‘subparagraphs (B), (F), or (G) of
paragraph (1)’’.
(d) PROSTATE CANCER SCREENING TESTS.—
(1) IN
GENERAL.—Section 1861(s)(2) (42
U.S.C. 1395x(s)(2)) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (N) and subparagraph (O); and
(B) by inserting after subparagraph (O)
the following new subparagraph:
‘‘(P) prostate cancer screening tests (as defined
in subsection (oo)); and’’.
(2) TESTS
DESCRIBED.—Section 1861 (42
U.S.C. 1395x) is amended by adding at the end the
following new subsection:
525
Title VIII, Subtitle D
‘‘Prostate Cancer Screening Tests
‘‘(oo) The term ‘prostate cancer screening test’
means a test that consists of a digital rectal examination
or a prostate-specific antigen blood test (or both) provided
for the purpose of early detection of prostate cancer to
a man over 40 years of age who has not had such a test
during the preceding year.’’.
(3) PAYMENT
FOR
PROSTATE-SPECIFIC
ANTI-
GEN
BLOOD
TEST
UNDER
CLINICAL
DIAGNOSTIC
LABORATORY
TEST
FEE
SCHEDULES.—Section
1833(h)(1)(A) (42 U.S.C. 1395l(h)(1)(A)) is amend-
ed by inserting after ‘‘laboratory tests’’ the follow-
ing: ‘‘(including prostate cancer screening tests
under section 1861(oo) consisting of prostate-spe-
cific antigen blood tests)’’.
(4) 
CONFORMING
AMENDMENT.—Section
1862(a) (42 U.S.C. 1395y(a)), as amended by sub-
section (c)(3)(C), is amended—
(A) in paragraph (1)—
(i) in subparagraph (F), by striking
‘‘and’’ at the end,
(ii) in subparagraph (G), by striking
the semicolon at the end and inserting ‘‘,
and’’, and
526
Title VIII, Subtitle D
(iii) by adding at the end the follow-
ing new subparagraph:
‘‘(H) in the case of prostate cancer screening
test (as defined in section 1861(oo)) provided for the
purpose of early detection of prostate cancer, which
are performed more frequently than is covered under
such section;’’; and
(B) in paragraph (7), by striking ‘‘or (G)’’
and inserting ‘‘(G), or (H)’’.
(e) DIABETES SCREENING BENEFITS.—
(1) DIABETES OUTPATIENT SELF-MANAGEMENT
TRAINING SERVICES.—
(A) IN GENERAL.—Section 1861(s)(2) (42
U.S.C. 1395x(s)(2)), as amended by subsection
(d)(1), is amended—
(i) by striking ‘‘and’’ at the end of
subparagraph (N);
(ii) by striking ‘‘and’’ at the end of
subparagraph (O); and
(iii) by inserting after subparagraph
(O) the following new subparagraph:
‘‘(P) diabetes outpatient self-management train-
ing services (as defined in subsection (pp)); and’’.
(B) 
DEFINITION.—Section 
1861 
(42
U.S.C. 1395x), as amended by subsection
527
Title VIII, Subtitle D
(d)(2), is amended by adding at the end the fol-
lowing new subsection:
‘‘DIABETES OUTPATIENT SELF-MANAGEMENT TRAINING
SERVICES
‘‘(pp)(1) The term ‘diabetes outpatient self-manage-
ment training services’ means educational and training
services furnished to an individual with diabetes by or
under arrangements with a certified provider (as described
in paragraph (2)(A)) in an outpatient setting by an indi-
vidual or entity who meets the quality standards described
in paragraph (2)(B), but only if the physician who is man-
aging the individual’s diabetic condition certifies that such
services are needed under a comprehensive plan of care
related to the individual’s diabetic condition to provide the
individual with necessary skills and knowledge (including
skills related to the self-administration of injectable drugs)
to participate in the management of the individual’s condi-
tion.
‘‘(2) In paragraph (1)—
‘‘(A) a ‘certified provider’ is an individual or
entity that, in addition to providing diabetes out-
patient self-management training services, provides
other items or services for which payment may be
made under this title; and
‘‘(B) an individual or entity meets the quality
standards described in this paragraph if the individ-
528
Title VIII, Subtitle D
ual or entity meets quality standards established by
the Secretary, except that the individual or entity
shall be deemed to have met such standards if the
individual or entity meets applicable standards origi-
nally established by the National Diabetes Advisory
Board and subsequently revised by organizations
who participated in the establishment of standards
by such Board, or is recognized by the American Di-
abetes Association as meeting standards for furnish-
ing the services.’’.
(C) CONSULTATION WITH ORGANIZATIONS
IN
ESTABLISHING
PAYMENT
AMOUNTS
FOR
SERVICES
PROVIDED
BY
PHYSICIANS.—In es-
tablishing payment amounts under section
1848(a) of the Social Security Act for physi-
cians’ services consisting of diabetes outpatient
self-management training services, the Sec-
retary of Health and Human Services shall con-
sult with appropriate organizations, including
the American Diabetes Association, in deter-
mining the relative value for such services
under section 1848(c)(2) of such Act.
(2) BLOOD-TESTING STRIPS FOR INDIVIDUALS
WITH DIABETES.—
529
Title VIII, Subtitle D
(A) INCLUDING STRIPS AS DURABLE MEDI-
CAL EQUIPMENT.—Section 1861(n) (42 U.S.C.
1395x(n)) is amended by striking the semicolon
in the first sentence and inserting the following:
‘‘, and includes blood-testing strips for individ-
uals with diabetes without regard to whether
the individual has Type I or Type II diabetes
(as determined under standards established by
the Secretary in consultation with the American
Diabetes Association);’’.
(2) PAYMENT FOR STRIPS BASED ON METH-
ODOLOGY FOR INEXPENSIVE AND ROUTINELY PUR-
CHASED
EQUIPMENT.—Section 1834(a)(2)(A) (42
U.S.C. 1395m(a)(2)(A)) is amended—
(A) by striking ‘‘or’’ at the end of clause
(ii);
(B) by adding ‘‘or’’ at the end of clause
(iii); and
(C) by inserting after clause (iii) the fol-
lowing new clause:
‘‘(iv) which is a blood-testing strip for
an individual with diabetes,’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 2001.
530
Title VIII, Subtitle E
Subtitle E—Medicare Fraud
Reduction
SEC. 8401. INCREASING BENEFICIARY AWARENESS OF
FRAUD AND ABUSE.
(a) BENEFICIARY OUTREACH EFFORTS.—The Sec-
retary of Health and Human Services (acting through the
Administrator of the Health Care Financing Administra-
tion and the Inspector General of the Department of
Health and Human Services) shall make ongoing efforts
(through public service announcements, publications, and
other appropriate methods) to alert individuals entitled to
benefits under the medicare program of the existence of
fraud and abuse committed against the program and the
costs to the program of such fraud and abuse, and of the
existence of the toll-free telephone line operated by the
Secretary to receive information on fraud and abuse com-
mitted against the program.
(b) CLARIFICATION OF REQUIREMENT TO PROVIDE
EXPLANATION OF MEDICARE BENEFITS.—The Secretary
shall provide an explanation of benefits under the medi-
care program with respect to each item or service for
which payment may be made under the program which
is furnished to an individual, without regard to whether
or not a deductible or coinsurance may be imposed against
the individual with respect to the item or service.
531
Title VIII, Subtitle E
(c) PROVIDER OUTREACH EFFORTS; PUBLICATION
OF FRAUD ALERTS.—
(1) SPECIAL FRAUD ALERTS.—
(A) IN GENERAL.—
(i) REQUEST
FOR
SPECIAL
FRAUD
ALERTS.—Any person may present, at any
time, a request to the Secretary to issue
and publish a special fraud alert.
(ii) 
SPECIAL
FRAUD
ALERT
DE-
FINED.—In this section, a ‘‘special fraud
alert’’ is a notice which informs the public
of practices which the Secretary considers
to be suspect or of particular concern
under the medicare program or a State
health care program (as defined in section
1128(h) of the Social Security Act).
(B) ISSUANCE AND PUBLICATION OF SPE-
CIAL FRAUD ALERTS.—
(i) INVESTIGATION.—Upon receipt of
a request for a special fraud alert under
subparagraph (A), the Secretary shall in-
vestigate the subject matter of the request
to determine whether a special fraud alert
should be issued. If appropriate, the Sec-
retary (in consultation with the Attorney
532
Title VIII, Subtitle E
General) shall issue a special fraud alert in
response to the request. All special fraud
alerts issued pursuant to this subpara-
graph shall be published in the Federal
Register.
(ii) CRITERIA FOR ISSUANCE.—In de-
termining whether to issue a special fraud
alert upon a request under subparagraph
(A), the Secretary may consider—
(I) whether and to what extent
the practices that would be identified
in the special fraud alert may result
in any of the consequences described
in subparagraph (C); and
(II) the extent and frequency of
the conduct that would be identified
in the special fraud alert.
(C) 
CONSEQUENCES
DESCRIBED.—The
consequences described in this subparagraph
are as follows:
(i) An increase or decrease in access
to health care services.
(ii) An increase or decrease in the
quality of health care services.
533
Title VIII, Subtitle E
(iii) An increase or decrease in patient
freedom of choice among health care pro-
viders.
(iv) An increase or decrease in com-
petition among health care providers.
(v) An increase or decrease in the cost
to health care programs of the Federal
Government.
(vi) An increase or decrease in the po-
tential overutilization of health care serv-
ices.
(viii) Any other factors the Secretary
deems appropriate in the interest of pre-
venting fraud and abuse in health care
programs of the Federal Government.
(2) PUBLICATION OF ALL HCFA FRAUD ALERTS
IN FEDERAL REGISTER.—Each notice issued by the
Health Care Financing Administration which in-
forms the public of practices which the Secretary
considers to be suspect or of particular concern
under the medicare program or a State health care
program (as defined in section 1128(h) of the Social
Security Act) shall be published in the Federal Reg-
ister, without regard to whether or not the notice is
534
Title VIII, Subtitle E
issued by a regional office of the Health Care Fi-
nancing Administration.
SEC. 8402. BENEFICIARY INCENTIVES TO REPORT FRAUD
AND ABUSE.
(a) PROGRAM TO COLLECT INFORMATION ON FRAUD
AND ABUSE.—
(1) ESTABLISHMENT OF PROGRAM.—Not later
than 3 months after the date of the enactment of
this Act, the Secretary shall establish a program
under which the Secretary shall encourage individ-
uals to report to the Secretary information on indi-
viduals and entities who are engaging or who have
engaged in acts or omissions which constitute
grounds for the imposition of a sanction under sec-
tion 1128, section 1128A, or section 1128B of the
Social Security Act, or who have otherwise engaged
in fraud and abuse against the medicare program.
(2) PAYMENT OF PORTION OF AMOUNTS COL-
LECTED.—If an individual reports information to
the Secretary under the program established under
paragraph (1) which serves as the basis for the col-
lection by the Secretary or the Attorney General of
any amount of at least $100 (other than any
amount paid as a penalty under section 1128B of
the Social Security Act), the Secretary may pay a
535
Title VIII, Subtitle E
portion of the amount collected to the individual
(under procedures similar to those applicable under
section 7623 of the Internal Revenue Code of 1986
to payments to individuals providing information on
violations of such Code).
(b) PROGRAM TO COLLECT INFORMATION ON PRO-
GRAM EFFICIENCY.—
(1) ESTABLISHMENT OF PROGRAM.—Not later
than 3 months after the date of the enactment of
this Act, the Secretary shall establish a program
under which the Secretary shall encourage individ-
uals to submit to the Secretary suggestions on meth-
ods to improve the efficiency of the medicare pro-
gram.
(2) PAYMENT OF PORTION OF PROGRAM SAV-
INGS.—If an individual submits a suggestion to the
Secretary under the program established under
paragraph (1) which is adopted by the Secretary and
which results in savings to the program, the Sec-
retary may make a payment to the individual of
such amount as the Secretary considers appropriate.
SEC. 8403. ELIMINATION OF HOME HEALTH OVERPAY-
MENTS.
(a) REQUIRING BILLING
AND PAYMENT
TO
BE
BASED ON SITE WHERE SERVICE FURNISHED.—Section
536
Title VIII, Subtitle E
1891 (42 U.S.C. 1395bbb) is amended by adding at the
end the following new subsection:
‘‘(g) A home health agency shall submit claims for
payment for home health services under this title only on
the basis of the geographic location at which the service
is furnished.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to services furnished during cost
reporting periods beginning on or after October 1, 1995.
SEC. 8404. SKILLED NURSING FACILITIES.
(a) CLARIFICATION OF TREATMENT OF HOSPITAL
TRANSFERS.—
(1) IN
GENERAL.—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 making adjustments under clause (i) for
transfer cases, the Secretary shall treat as a transfer any
transfer to a hospital (without regard to whether or not
the hospital is a subsection (d) hospital), a unit thereof,
or a skilled nursing facility.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to discharges occurring
on or after October 1, 1995.
(b) REQUIRING BILLING
AND PAYMENT TO BE
BASED ON SITE WHERE SERVICE FURNISHED.—Section
537
Title VIII, Subtitle E
1819(b) (42 U.S.C. 1395i@3(b)) is amended by adding
at the end the following new paragraph:
‘‘(8) SPECIAL
RULE
FOR
BILLING
AND
PAY-
MENT.—A skilled nursing facility shall submit
claims for payment for services under this title
(whether such services are billed under part A or
part B) only on the basis of the geographic location
at which the service is furnished.’’.
SEC. 8405. DIRECT SPENDING FOR ANTI-FRAUD ACTIVITIES
UNDER MEDICARE.
(a) ESTABLISHMENT OF MEDICARE INTEGRITY PRO-
GRAM.—Title XVIII, as amended by section 8231(d), is
further amended by adding at the end the following new
section:
‘‘MEDICARE INTEGRITY PROGRAM
‘‘SEC. 1894. (a) ESTABLISHMENT OF PROGRAM.—
There is hereby established the Medicare Integrity Pro-
gram (hereafter in this section referred to as the ‘Pro-
gram’) under which the Secretary shall promote the integ-
rity of the medicare program by entering into contracts
in accordance with this section with eligible private entities
to carry out the activities described in subsection (b).
‘‘(b) ACTIVITIES DESCRIBED.—The activities de-
scribed in this subsection are as follows:
‘‘(1) Review of activities of providers of services
or other individuals and entities furnishing items
538
Title VIII, Subtitle E
and services for which payment may be made under
this title (including skilled nursing facilities and
home health agencies), including medical and utiliza-
tion review and fraud review (employing similar
standards, processes, and technologies used by pri-
vate health plans, including equipment and software
technologies which surpass the capability of the
equipment and technologies used in the review of
claims under this title as of the date of the enact-
ment of this section).
‘‘(2) Audit of cost reports.
‘‘(3) Determinations as to whether payment
should not be, or should not have been, made under
this title by reason of section 1862(b), and recovery
of payments that should not have been made.
‘‘(4) Education of providers of services, bene-
ficiaries, and other persons with respect to payment
integrity and benefit quality assurance issues.
‘‘(c) ELIGIBILITY OF ENTITIES.—An entity is eligible
to enter into a contract under the Program to carry out
any of the activities described in subsection (b) if—
‘‘(1) the entity has demonstrated capability to
carry out such activities;
‘‘(2) in carrying out such activities, the entity
agrees to cooperate with the Inspector General of
539
Title VIII, Subtitle E
the Department of Health and Human Services, the
Attorney General of the United States, and other
law enforcement agencies, as appropriate, in the in-
vestigation and deterrence of fraud and abuse in re-
lation to this title and in other cases arising out of
such activities;
‘‘(3) the entity’s financial holdings, interests, or
relationships will not interfere with its ability to per-
form the functions to be required by the contract in
an effective and impartial manner; and
‘‘(4) the entity meets such other requirements
as the Secretary may impose.
‘‘(d) PROCESS FOR ENTERING INTO CONTRACTS.—
The Secretary shall enter into contracts under the Pro-
gram in accordance with such procedures as the Secretary
may by regulation establish, except that such procedures
shall include the following:
‘‘(1) The Secretary shall determine the appro-
priate number of separate contracts which are nec-
essary to carry out the Program and the appropriate
times at which the Secretary shall enter into such
contracts.
‘‘(2) The provisions of section 1153(e)(1) shall
apply to contracts and contracting authority under
this section, except that competitive procedures must
540
Title VIII, Subtitle E
be used when entering into new contracts under this
section, or at any other time considered appropriate
by the Secretary.
‘‘(3) A contract under this section may be re-
newed without regard to any provision of law requir-
ing competition if the contractor has met or ex-
ceeded the performance requirements established in
the current contract.
‘‘(e) LIMITATION ON CONTRACTOR LIABILITY.—The
Secretary shall by regulation provide for the limitation of
a contractor’s liability for actions taken to carry out a con-
tract under the Program, and such regulation shall, to the
extent the Secretary finds appropriate, employ the same
or comparable standards and other substantive and proce-
dural provisions as are contained in section 1157.
‘‘(f) TRANSFER OF AMOUNTS TO MEDICARE ANTI-
FRAUD AND ABUSE TRUST FUND.—For each fiscal year,
the Secretary shall transfer from the Federal Hospital In-
surance Trust Fund and the Federal Supplementary Med-
ical Insurance Trust Fund to the Medicare Anti-Fraud
and Abuse Trust Fund under subsection (g) such amounts
as are necessary to carry out the activities described in
subsection (b). Such transfer shall be in an allocation as
reasonably reflects the proportion of such expenditures as-
sociated with part A and part B.
541
Title VIII, Subtitle E
‘‘(g) MEDICARE ANTI-FRAUD
AND ABUSE TRUST
FUND.—
‘‘(1) ESTABLISHMENT.—
‘‘(A) IN GENERAL.—There is hereby estab-
lished in the Treasury of the United States the
Anti-Fraud and Abuse Trust Fund (hereafter
in this subsection referred to as the ‘Trust
Fund’). The Trust Fund shall consist of such
gifts and bequests as may be made as provided
in subparagraph (B) and such amounts as may
be deposited in the Trust Fund as provided in
subsection (f), paragraph (3), and title XI.
‘‘(B) AUTHORIZATION
TO
ACCEPT
GIFTS
AND BEQUESTS.—The Trust Fund is author-
ized to accept on behalf of the United States
money gifts and bequests made unconditionally
to the Trust Fund, for the benefit of the Trust
Fund or any activity financed through the
Trust Fund.
‘‘(2) INVESTMENT.—
‘‘(A) IN GENERAL.—The Secretary of the
Treasury shall invest such amounts of the Fund
as such Secretary determines are not required
to meet current withdrawals from the Fund in
government account serial securities.
542
Title VIII, Subtitle E
‘‘(B) USE OF INCOME.—Any interest de-
rived from investments under subparagraph (A)
shall be credited to the Fund.
‘‘(3) 
AMOUNTS
DEPOSITED
INTO
TRUST
FUND.—In addition to amounts transferred under
subsection (f), there shall be deposited in the Trust
Fund—
‘‘(A) that portion of amounts recovered in
relation to section 1128A arising out of a claim
under title XVIII as remains after application
of subsection (f)(2) (relating to repayment of
the Federal Hospital Insurance Trust Fund or
the Federal Supplementary Medical Insurance
Trust Fund) of that section, as may be applica-
ble,
‘‘(B) fines imposed under section 1128B
arising out of a claim under this title, and
‘‘(C) penalties and damages imposed (other
than funds awarded to a relator or for restitu-
tion) under sections 3729 through 3732 of title
31, United States Code (pertaining to false
claims) in cases involving claims relating to pro-
grams under title XVIII, XIX, or XXI.
‘‘(4) DIRECT
APPROPRIATION
OF
FUNDS
TO
CARRY OUT PROGRAM.—
543
Title VIII, Subtitle E
‘‘(A) IN
GENERAL.—There are appro-
priated from the Trust Fund for each fiscal
year such amounts as are necessary to carry
out the Medicare Integrity Program under this
section, subject to subparagraph (B).
‘‘(B) AMOUNTS SPECIFIED.—The amount
appropriated under subparagraph (A) for a fis-
cal year is as follows:
‘‘(i) For fiscal year 1996, such
amount 
shall 
be 
not 
less 
than
$430,000,000 
and 
not 
more 
than
$440,000,000.
‘‘(ii) For fiscal year 1997, such
amount 
shall 
be 
not 
less 
than
$490,000,000 
and 
not 
more 
than
$500,000,000.
‘‘(iii) For fiscal year 1998, such
amount 
shall 
be 
not 
less 
than
$550,000,000 
and 
not 
more 
than
$560,000,000.
‘‘(iv) For fiscal year 1999, such
amount 
shall 
be 
not 
less 
than
$620,000,000 
and 
not 
more 
than
$630,000,000.
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Title VIII, Subtitle E
‘‘(v) For fiscal year 2000, such
amount 
shall 
be 
not 
less 
than
$670,000,000 
and 
not 
more 
than
$680,000,000.
‘‘(vi) For fiscal year 2001, such
amount 
shall 
be 
not 
less 
than
$690,000,000 
and 
not 
more 
than
$700,000,000.
‘‘(vii) For fiscal year 2002, such
amount 
shall 
be 
not 
less 
than
$710,000,000 
and 
not 
more 
than
$720,000,000.
‘‘(5) ANNUAL
REPORT.—The Secretary shall
submit an annual report to Congress on the amount
of revenue which is generated and disbursed by the
Trust Fund in each fiscal year.’’.
(b) ELIMINATION OF FI AND CARRIER RESPONSIBIL-
ITY FOR CARRYING OUT ACTIVITIES SUBJECT TO PRO-
GRAM.—
(1) 
RESPONSIBILITIES
OF
FISCAL
INTERMEDIARIES
UNDER
PART
A.—Section 1816
(42 U.S.C. 1395h) is amended by adding at the end
the following new subsection:
‘‘(l) No agency or organization may carry out (or re-
ceive payment for carrying out) any activity pursuant to
545
Title VIII, Subtitle E
an agreement under this section to the extent that the ac-
tivity is carried out pursuant to a contract under the Med-
icare Integrity Program under section 1894.’’.
(2) RESPONSIBILITIES
OF
CARRIERS
UNDER
PART B.—Section 1842(c) (42 U.S.C. 1395u(c)) is
amended by adding at the end the following new
paragraph:
‘‘(6) No carrier may carry out (or receive payment
for carrying out) any activity pursuant to a contract under
this subsection to the extent that the activity is carried
out pursuant to a contract under the Medicare Integrity
Program under section 1894.’’.
(c) 
CONFORMING
AMENDMENT.—Section
1128A(f)(3) (42 U.S.C. 1320a–7a(f)(3)) is amended by
striking ‘‘as miscellaneous receipts of the Treasury of the
United States’’ and inserting ‘‘in the Anti-Fraud and
Abuse Trust Fund established under section 1895(g)’’.
(d) DIRECT SPENDING FOR MEDICARE-RELATED AC-
TIVITIES
OF INSPECTOR GENERAL.—Section 1894, as
added by subsection (a), is amended by adding at the end
the following new subsection:
‘‘(h) DIRECT SPENDING FOR MEDICARE-RELATED
ACTIVITIES OF INSPECTOR GENERAL.—
‘‘(1) IN
GENERAL.—There are appropriated
from the Federal Hospital Insurance Trust Fund
547
Title VIII, Subtitle E
‘‘(A) For fiscal year 1996, such amount
shall be $130,000,000.
‘‘(B) For fiscal year 1997, such amount
shall be $181,000,000.
‘‘(C) For fiscal year 1998, such amount
shall be $204,000,000.
‘‘(D) For each subsequent fiscal year, the
amount appropriated for the previous fiscal
year, increased by the percentage increase in
aggregate expenditures under this title for the
fiscal year involved over the previous fiscal year.
‘‘(4) ALLOCATION OF PAYMENTS AMONG TRUST
FUNDS.—The appropriations made under paragraph
(1) shall be in an allocation as reasonably reflects
the proportion of such expenditures associated with
part A and part B.’’.
SEC. 8406. FRAUD REDUCTION DEMONSTRATION PROJECT.
(a) IN GENERAL.—Not later than July 1, 1996, the
Secretary of Health and Human Services (in this section
referred to as the ‘‘Secretary’’) shall establish not less
than three demonstration projects under which organiza-
tions with a contract under section 1816 or section 1842
of the Social Security Act—
(1) identify practitioners and providers whose
patterns of providing care to beneficiaries enrolled
548
Title VIII, Subtitle E
under title XVIII of the Social Security Act are con-
sistently outside the norm for other practitioners or
providers of the same category, class, or type, and
(2) experiment with ways of identifying fraudu-
lent claims submitted to the program established
under such title before they are paid.
(b) DURATION OF PROJECTS.—Each project estab-
lished under subsection (a) shall last for at least 18
months and shall focus on those categories, classes, or
types of providers and practitioners that have been identi-
fied by the Inspector General of the Department of Health
and Human Services as having a high incidence of fraud
and abuse.
(c) REPORT.—Not later than July 1, 1997, the Sec-
retary shall report to the Congress on the demonstration
projects established under subsection (a), and shall include
in the report an assessment of the effectiveness of, and
any recommended legislative changes based on, the
projects.
SEC. 8407. REPORT ON COMPETITIVE PRICING.
Not later than 1 year after the date of the enactment
of this Act, the Secretary of Health and Human Services
(acting through the Administrator of the Health Care Fi-
nancing Administration) shall submit to Congress a report
recommending legislative changes to the medicare pro-
549
Title VIII, Subtitle F
gram to enable the prices paid for items and services
under the medicare program to be established on a more
competitive basis.
Subtitle F—Improving Access to
Health Care
PART 1—ASSISTANCE FOR RURAL PROVIDERS
Subpart A—Rural Hospitals
SEC. 8501. SOLE COMMUNITY HOSPITALS.
(a) UPDATE.—Section 1886(b)(3)(B)(iv) (42 U.S.C.
1395ww(b)(3)(B)(iv)) is amended—
(A) in subclause (III), by striking ‘‘and’’ at
the end; and
(B) by striking subclause (IV) and insert-
ing the following:
‘‘(IV) for each of the fiscal years 1996 through
2000, the market basket percentage increase minus
1 percentage points, and
‘‘(V) for fiscal year 2001 and each subsequent
fiscal year, the applicable percentage increase under
clause (i).’’.
(b) STUDY OF IMPACT OF SOLE COMMUNITY HOS-
PITAL DESIGNATIONS.—
(1) STUDY.—The Medicare Payment Review
Commission shall conduct a study of the impact of
the designation of hospitals as sole community hos-
550
Title VIII, Subtitle F
pitals under the medicare program on the delivery of
health care services to individuals in rural areas, and
shall include in the study an analysis of the charac-
teristics of the hospitals designated as such sole
community hospitals under the program.
(2) REPORT.—Not later than 12 months after
the date a majority of the members of the Commis-
sion are first appointed, the Commission shall sub-
mit to Congress a report on the study conducted
under paragraph (1).
SEC. 8502. CLARIFICATION OF TREATMENT OF EAC AND
RPC HOSPITALS.
Paragraphs (1)(A) and (2)(A) of section 1820(i) (42
U.S.C. 1395i@4(i)) are each amended by striking the
semicolon at the end and inserting the following: ‘‘, or in
a State which the Secretary finds would receive a grant
under such subsection during a fiscal year if funds were
appropriated for grants under such subsection for the fis-
cal year;’’.
SEC. 8503. ESTABLISHMENT OF RURAL EMERGENCY AC-
CESS CARE HOSPITALS.
(a) ESTABLISHMENT.—
(1) IN
GENERAL.—Section 1861 (42 U.S.C.
1395x) is amended by adding at the end the follow-
ing new subsection:
551
Title VIII, Subtitle F
‘‘Rural Emergency Access Care Hospital; Rural
Emergency Access Care Hospital Services
‘‘(oo)(1) The term ‘rural emergency access care hos-
pital’ means, for a fiscal year, a facility with respect to
which the Secretary finds the following:
‘‘(A) The facility is located in a rural area (as
defined in section 1886(d)(2)(D)).
‘‘(B) The facility was a hospital under this title
at any time during the 5-year period that ends on
the date of the enactment of this subsection.
‘‘(C) The facility is in danger of closing due to
low inpatient utilization rates and operating losses,
and the closure of the facility would limit the access
to emergency services of individuals residing in the
facility’s service area.
‘‘(D) The facility has entered into (or plans to
enter into) an agreement with a hospital with a par-
ticipation agreement in effect under section 1866(a),
and under such agreement the hospital shall accept
patients transferred to the hospital from the facility
and receive data from and transmit data to the facil-
ity.
‘‘(E) There is a practitioner who is qualified to
provide advanced cardiac life support services (as de-
552
Title VIII, Subtitle F
termined by the State in which the facility is lo-
cated) on-site at the facility on a 24-hour basis.
‘‘(F) A physician is available on-call to provide
emergency medical services on a 24-hour basis.
‘‘(G) The facility meets such staffing require-
ments as would apply under section 1861(e) to a
hospital located in a rural area, except that—
‘‘(i) the facility need not meet hospital
standards relating to the number of hours dur-
ing a day, or days during a week, in which the
facility must be open, except insofar as the fa-
cility is required to provide emergency care on
a 24-hour basis under subparagraphs (E) and
(F); and
‘‘(ii) the facility may provide any services
otherwise required to be provided by a full-time,
on-site dietitian, pharmacist, laboratory techni-
cian, medical technologist, or radiological tech-
nologist on a part-time, off-site basis.
‘‘(H) The facility meets the requirements appli-
cable to clinics and facilities under subparagraphs
(C) through (J) of paragraph (2) of section
1861(aa) and of clauses (ii) and (iv) of the second
sentence of such paragraph (or, in the case of the
requirements of subparagraph (E), (F), or (J) of
553
Title VIII, Subtitle F
such paragraph, would meet the requirements if any
reference in such subparagraph to a ‘nurse practi-
tioner’ or to ‘nurse practitioners’ were deemed to be
a reference to a ‘nurse practitioner or nurse’ or to
‘nurse practitioners or nurses’); except that in deter-
mining whether a facility meets the requirements of
this subparagraph, subparagraphs (E) and (F) of
that paragraph shall be applied as if any reference
to a ‘physician’ is a reference to a physician as de-
fined in section 1861(r)(1).
‘‘(2) The term ‘rural emergency access care hospital
services’ means the following services provided by a rural
emergency access care hospital and furnished to an indi-
vidual over a continuous period not to exceed 24 hours
(except that such services may be furnished over a longer
period in the case of an individual who is unable to leave
the hospital because of inclement weather):
‘‘(A) An appropriate medical screening exam-
ination (as described in section 1867(a)).
‘‘(B) Necessary stabilizing examination and
treatment services for an emergency medical condi-
tion and labor (as described in section 1867(b)).’’.
(2) REQUIRING
RURAL
EMERGENCY
ACCESS
CARE HOSPITALS TO MEET HOSPITAL ANTI-DUMPING
REQUIREMENTS.—Section 1867(e)(5) (42 U.S.C.