839
‘‘(iii) an index that reflects (for that
year and that type of services) the relative
input price of such services in the area
compared to the national average input
price of such services.
In applying clause (iii), the Secretary shall, sub-
ject to subparagraph (C), apply those indices
under this title that are used in applying (or
updating) national payment rates for specific
areas and localities.
‘‘(B) NATIONAL
STANDARDIZED
ANNUAL
MEDICAREPLUS
CAPITATION
RATE.—In sub-
paragraph (A)(i), the ‘national standardized an-
nual MedicarePlus capitation rate’ for a year is
equal to—
‘‘(i) the sum (for all MedicarePlus
payment areas) of the product of—
‘‘(I) 
the 
annual 
area-specific
MedicarePlus capitation rate for that
year for the area under paragraph
(3), and
‘‘(II) the average number of med-
icare beneficiaries residing in that
area in the year, multiplied by the av-
erage of the risk factor weights used
840
to adjust payments under subsection
(a)(1)(A) for such beneficiaries in
such area; divided by
‘‘(ii) the sum of the products de-
scribed in clause (i)(II) for all areas for
that year.
‘‘(C) SPECIAL RULES FOR 1998.—In apply-
ing this paragraph for 1998—
‘‘(i) medicare services shall be divided
into 2 types of services: part A services
and part B services;
‘‘(ii) the proportions described in sub-
paragraph (A)(ii)—
‘‘(I) for part A services shall be
the ratio (expressed as a percentage)
of the national average annual per
capita rate of payment for part A for
1997 to the total national average an-
nual per capita rate of payment for
parts A and B for 1997, and
‘‘(II) for part B services shall be
100 percent minus the ratio described
in subclause (I);
‘‘(iii) for part A services, 70 percent
of payments attributable to such services
841
shall be adjusted by the index used under
section 1886(d)(3)(E) to adjust payment
rates for relative hospital wage levels for
hospitals located in the payment area in-
volved;
‘‘(iv) for part B services—
‘‘(I) 66 percent of payments at-
tributable to such services shall be ad-
justed by the index of the geographic
area factors under section 1848(e)
used to adjust payment rates for phy-
sicians’ services furnished in the pay-
ment area, and
‘‘(II) of the remaining 34 percent
of the amount of such payments, 40
percent shall be adjusted by the index
described in clause (iii); and
‘‘(v) the index values shall be com-
puted based only on the beneficiary popu-
lation who are 65 years of age or older and
who are not determined to have end stage
renal disease.
The Secretary may continue to apply the rules
described in this subparagraph (or similar
rules) for 1999.
842
‘‘(5) PAYMENT
ADJUSTMENT
BUDGET
NEU-
TRALITY
FACTORS.—For purposes of paragraph
(1)(A)—
‘‘(A) BLENDED RATE PAYMENT ADJUST-
MENT FACTOR.—For each year, the Secretary
shall compute a blended rate payment adjust-
ment factor such that, not taking into account
subparagraphs (B) and (C) of paragraph (1)
and the application of the payment adjustment
factor described in subparagraph (B), the ag-
gregate of the payments that would be made
under this part is equal to the aggregate pay-
ments that would have been made under this
part (not taking into account such subpara-
graphs and such other adjustment factor) if the
area-specific percentage under paragraph (1)
for the year had been 100 percent and the na-
tional percentage had been 0 percent.
‘‘(B) FLOOR-AND-MINIMUM-UPDATE
PAY-
MENT ADJUSTMENT FACTOR.—For each year,
the Secretary shall compute a floor-and-mini-
mum-update payment adjustment factor so
that, taking into account the application of the
blended rate payment adjustment factor under
subparagraph (A) and subparagraphs (B) and
843
(C) of paragraph (1) and the application of the
adjustment factor under this subparagraph, the
aggregate of the payments under this part shall
not exceed the aggregate payments that would
have been made under this part if subpara-
graphs (B) and (C) of paragraph (1) did not
apply and if the floor-and-minimum-update pay-
ment adjustment factor under this subpara-
graph was 1.
‘‘(6) NATIONAL
PER
CAPITA
MEDICAREPLUS
GROWTH PERCENTAGE DEFINED.—
‘‘(A) IN GENERAL.—In this part, the ‘na-
tional per capita MedicarePlus growth percent-
age’ for a year is the percentage determined by
the Secretary, by April 30th before the begin-
ning of the year involved, to reflect the Sec-
retary’s estimate of the projected per capita
rate of growth in expenditures under this title
for an individual entitled to benefits under part
A and enrolled under part B, reduced by the
number of percentage points specified in sub-
paragraph (B) for the year. Separate deter-
minations may be made for aged enrollees, dis-
abled enrollees, and enrollees with end-stage
renal disease. Such percentage shall include an
844
adjustment for over or under projection in the
growth percentage for previous years.
‘‘(B) ADJUSTMENT.—The number of per-
centage points specified in this subparagraph
is—
‘‘(i) for 1998, 0.5 percentage points,
‘‘(ii) for 1999, 0.5 percentage points,
‘‘(iii) for 2000, 0.5 percentage points,
‘‘(iv) for 2001, 0.5 percentage points,
‘‘(v) for 2002, 0.5 percentage points,
and
‘‘(vi) for a year after 2002, 0 percent-
age points.
‘‘(d) MEDICAREPLUS PAYMENT AREA DEFINED.—
‘‘(1) IN GENERAL.—In this part, except as pro-
vided in paragraph (3), the term ‘MedicarePlus pay-
ment area’ means a county, or equivalent area speci-
fied by the Secretary.
‘‘(2) RULE FOR ESRD BENEFICIARIES.—In the
case of individuals who are determined to have end
stage renal disease, the MedicarePlus payment area
shall be a State or such other payment area as the
Secretary specifies.
‘‘(3) GEOGRAPHIC ADJUSTMENT.—
845
‘‘(A) IN GENERAL.—Upon written request
of the chief executive officer of a State for a
contract year (beginning after 1998) made at
least 7 months before the beginning of the year,
the Secretary shall make a geographic adjust-
ment to a MedicarePlus payment area in the
State otherwise determined under paragraph
(1)—
‘‘(i) 
to 
a 
single 
statewide
MedicarePlus payment area,
‘‘(ii) to the metropolitan based system
described in subparagraph (C), or
‘‘(iii) to consolidating into a single
MedicarePlus payment area noncontiguous
counties (or equivalent areas described in
paragraph (1)) within a State.
Such adjustment shall be effective for payments
for months beginning with January of the year
following the year in which the request is re-
ceived.
‘‘(B) 
BUDGET
NEUTRALITY
ADJUST-
MENT.—In the case of a State requesting an
adjustment under this paragraph, the Secretary
shall adjust the payment rates otherwise estab-
lished under this section for MedicarePlus pay-
846
ment areas in the State in a manner so that the
aggregate of the payments under this section in
the State shall not exceed the aggregate pay-
ments that would have been made under this
section for MedicarePlus payment areas in the
State in the absence of the adjustment under
this paragraph.
‘‘(C) METROPOLITAN
BASED
SYSTEM.—
The metropolitan based system described in this
subparagraph is one in which—
‘‘(i) all the portions of each metropoli-
tan statistical area in the State or in the
case of a consolidated metropolitan statis-
tical area, all of the portions of each pri-
mary metropolitan statistical area within
the consolidated area within the State, are
treated as a single MedicarePlus payment
area, and
‘‘(ii) all areas in the State that do not
fall within a metropolitan statistical area
are treated as a single MedicarePlus pay-
ment area.
‘‘(D) AREAS.—In subparagraph (C), the
terms ‘metropolitan statistical area’, ‘consoli-
dated metropolitan statistical area’, and ‘pri-
847
mary metropolitan statistical area’ mean any
area designated as such by the Secretary of
Commerce.
‘‘(e) SPECIAL RULES FOR INDIVIDUALS ELECTING
MSA PLANS.—
‘‘(1) IN
GENERAL.—If the amount of the
monthly premium for an MSA plan for a
MedicarePlus payment area for a year is less than
1⁄12 of the annual MedicarePlus capitation rate ap-
plied under this section for the area and year in-
volved, the Secretary shall deposit an amount equal
to 100 percent of such difference in a MedicarePlus
MSA established (and, if applicable, designated) by
the individual under paragraph (2).
‘‘(2) ESTABLISHMENT
AND
DESIGNATION
OF
MEDICAREPLUS MEDICAL SAVINGS ACCOUNT AS RE-
QUIREMENT FOR PAYMENT OF CONTRIBUTION.—In
the case of an individual who has elected coverage
under an MSA plan, no payment shall be made
under paragraph (1) on behalf of an individual for
a month unless the individual—
‘‘(A) has established before the beginning
of the month (or by such other deadline as the
Secretary may specify) a MedicarePlus MSA
848
(as defined in section 138(b)(2) of the Internal
Revenue Code of 1986), and
‘‘(B) if the individual has established more
than one such MedicarePlus MSA, has des-
ignated one of such accounts as the individual’s
MedicarePlus MSA for purposes of this part.
Under rules under this section, such an individual
may change the designation of such account under
subparagraph (B) for purposes of this part.
‘‘(3) LUMP SUM DEPOSIT OF MEDICAL SAVINGS
ACCOUNT CONTRIBUTION.—In the case of an indi-
vidual electing an MSA plan effective beginning with
a month in a year, the amount of the contribution
to the MedicarePlus MSA on behalf of the individual
for that month and all successive months in the year
shall be deposited during that first month. In the
case of a termination of such an election as of a
month before the end of a year, the Secretary shall
provide for a procedure for the recovery of deposits
attributable to the remaining months in the year.
‘‘(f) PAYMENTS FROM TRUST FUND.—The payment
to a MedicarePlus organization under this section for indi-
viduals enrolled under this part with the organization and
payments to a MedicarePlus MSA under subsection (e)(1)
shall be made from the Federal Hospital Insurance Trust
849
Fund and the Federal Supplementary Medical Insurance
Trust Fund in such proportion as the Secretary deter-
mines reflects the relative weight that benefits under part
A and under part B represents of the actuarial value of
the total benefits under this title. Monthly payments oth-
erwise payable under this section for October 2001 shall
be paid on the last business day of September 2001.
‘‘(g) SPECIAL RULE FOR CERTAIN INPATIENT HOS-
PITAL STAYS.—In the case of an individual who is receiv-
ing inpatient hospital services from a subsection (d) hos-
pital (as defined in section 1886(d)(1)(B)) as of the effec-
tive date of the individual’s—
‘‘(1) election under this part of a MedicarePlus
plan offered by a MedicarePlus organization—
‘‘(A) payment for such services until the
date of the individual’s discharge shall be made
under this title through the MedicarePlus plan
or the medicare fee-for-service program option
described in section 1851(a)(1)(A) (as the case
may be) elected before the election with such
organization,
‘‘(B) the elected organization shall not be
financially responsible for payment for such
services until the date after the date of the indi-
vidual’s discharge, and
850
‘‘(C) the organization shall nonetheless be
paid the full amount otherwise payable to the
organization under this part; or
‘‘(2) termination of election with respect to a
MedicarePlus organization under this part—
‘‘(A) the organization shall be financially
responsible for payment for such services after
such date and until the date of the individual’s
discharge,
‘‘(B) payment for such services during the
stay shall not be made under section 1886(d) or
by any succeeding MedicarePlus organization,
and
‘‘(C) the terminated organization shall not
receive any payment with respect to the individ-
ual under this part during the period the indi-
vidual is not enrolled.
‘‘PREMIUMS
‘‘SEC. 1854. (a) SUBMISSION
AND CHARGING
OF
PREMIUMS.—
‘‘(1) IN GENERAL.—Subject to paragraph (3),
each MedicarePlus organization shall file with the
Secretary each year, in a form and manner and at
a time specified by the Secretary—
‘‘(A) the amount of the monthly premium
for coverage for services under section 1852(a)
851
under each MedicarePlus plan it offers under
this part in each MedicarePlus payment area
(as defined in section 1853(d)) in which the
plan is being offered; and
‘‘(B) the enrollment capacity in relation to
the plan in each such area.
‘‘(2) TERMINOLOGY.—In this part—
‘‘(A) the term ‘monthly premium’ means,
with respect to a MedicarePlus plan offered by
a MedicarePlus organization, the monthly pre-
mium filed under paragraph (1), not taking
into account the amount of any payment made
toward the premium under section 1853; and
‘‘(B) the term ‘net monthly premium’
means, with respect to such a plan and an indi-
vidual enrolled with the plan, the premium (as
defined in subparagraph (A)) for the plan re-
duced by the amount of payment made toward
such premium under section 1853.
‘‘(b) MONTHLY PREMIUM CHARGED.—The monthly
amount of the premium charged by a MedicarePlus orga-
nization 
for 
a 
MedicarePlus 
plan 
offered 
in 
a
MedicarePlus payment area to an individual under this
part shall be equal to the net monthly premium plus any
852
monthly premium charged in accordance with subsection
(e)(2) for supplemental benefits.
‘‘(c) UNIFORM PREMIUM.—The monthly premium
and monthly amount charged under subsection (b) of a
MedicarePlus organization under this part may not vary
among individuals who reside in the same MedicarePlus
payment area.
‘‘(d) TERMS AND CONDITIONS OF IMPOSING PRE-
MIUMS.—Each MedicarePlus organization shall permit the
payment of net monthly premiums on a monthly basis and
may terminate election of individuals for a MedicarePlus
plan for failure to make premium payments only in ac-
cordance with section 1851(g)(3)(B)(i). A MedicarePlus
organization is not authorized to provide for cash or other
monetary rebates as an inducement for enrollment or oth-
erwise.
‘‘(e) LIMITATION ON ENROLLEE COST-SHARING.—
‘‘(1) FOR BASIC AND ADDITIONAL BENEFITS.—
Except as provided in paragraph (2), in no event
may—
‘‘(A) the net monthly premium (multiplied
by 12) and the actuarial value of the
deductibles, coinsurance, and copayments appli-
cable on average to individuals enrolled under
this part with a MedicarePlus plan of an orga-
853
nization with respect to required benefits de-
scribed in section 1852(a)(1) and additional
benefits (if any) required under subsection
(f)(1) for a year, exceed
‘‘(B) the actuarial value of the deductibles,
coinsurance, and copayments that would be ap-
plicable on average to individuals entitled to
benefits under part A and enrolled under part
B if they were not members of a MedicarePlus
organization for the year.
‘‘(2) FOR
SUPPLEMENTAL
BENEFITS.—If the
MedicarePlus organization provides to its members
enrolled under this part supplemental benefits de-
scribed in section 1852(a)(3), the sum of the month-
ly premium rate (multiplied by 12) charged for such
supplemental benefits and the actuarial value of its
deductibles, coinsurance, and copayments charged
with respect to such benefits may not exceed the ad-
justed community rate for such benefits (as defined
in subsection (f)(4)).
‘‘(3) EXCEPTION FOR MSA PLANS.—Paragraphs
(1) and (2) do not apply to an MSA plan.
‘‘(4) DETERMINATION ON OTHER BASIS.—If the
Secretary determines that adequate data are not
available to determine the actuarial value under
854
paragraph (1)(A) or (2), the Secretary may deter-
mine such amount with respect to all individuals in
the MedicarePlus payment area, the State, or in the
United States, eligible to enroll in the MedicarePlus
plan involved under this part or on the basis of other
appropriate data.
‘‘(f) REQUIREMENT FOR ADDITIONAL BENEFITS.—
‘‘(1) REQUIREMENT.—
‘‘(A) IN
GENERAL.—Each MedicarePlus
organization (in relation to a MedicarePlus plan
it offers) shall provide that if there is an excess
amount (as defined in subparagraph (B)) for
the plan for a contract year, subject to the suc-
ceeding provisions of this subsection, the orga-
nization shall provide to individuals such addi-
tional benefits (as the organization may specify)
in a value which is at least equal to the ad-
justed excess amount (as defined in subpara-
graph (C)).
‘‘(B) EXCESS AMOUNT.—For purposes of
this paragraph, the ‘excess amount’, for an or-
ganization for a plan, is the amount (if any) by
which—
‘‘(i) the average of the capitation pay-
ments made to the organization under sec-
855
tion 1853 for the plan at the beginning of
contract year, exceeds
‘‘(ii) the actuarial value of the re-
quired 
benefits 
described 
in 
section
1852(a)(1) under the plan for individuals
under this part, as determined based upon
an adjusted community rate described in
paragraph (4) (as reduced for the actuarial
value of the coinsurance and deductibles
under parts A and B).
‘‘(C) ADJUSTED
EXCESS
AMOUNT.—For
purposes of this paragraph, the ‘adjusted excess
amount’, for an organization for a plan, is the
excess amount reduced to reflect any amount
withheld and reserved for the organization for
the year under paragraph (2).
‘‘(D) NO APPLICATION TO MSA PLANS.—
Subparagraph (A) shall not apply to an MSA
plan.
‘‘(E) UNIFORM APPLICATION.—This para-
graph shall be applied uniformly for all enroll-
ees for a plan in a MedicarePlus payment area.
‘‘(F) CONSTRUCTION.—Nothing in this
subsection shall be construed as preventing a
MedicarePlus 
organization 
from 
providing
856
health care benefits that are in addition to the
benefits otherwise required to be provided under
this paragraph and from imposing a premium
for such additional benefits.
‘‘(2) STABILIZATION
FUND.—A MedicarePlus
organization may provide that a part of the value of
an excess amount described in paragraph (1) be
withheld and reserved in the Federal Hospital Insur-
ance Trust Fund and in the Federal Supplementary
Medical Insurance Trust Fund (in such proportions
as the Secretary determines to be appropriate) by
the Secretary for subsequent annual contract peri-
ods, to the extent required to stabilize and prevent
undue fluctuations in the additional benefits offered
in those subsequent periods by the organization in
accordance with such paragraph. Any of such value
of the amount reserved which is not provided as ad-
ditional benefits described in paragraph (1)(A) to in-
dividuals electing the MedicarePlus plan of the orga-
nization in accordance with such paragraph prior to
the end of such periods, shall revert for the use of
such trust funds.
‘‘(3) DETERMINATION BASED ON INSUFFICIENT
DATA.—For purposes of this subsection, if the Sec-
retary finds that there is insufficient enrollment ex-
857
perience (including no enrollment experience in the
case of a provider-sponsored organization) to deter-
mine an average of the capitation payments to be
made under this part at the beginning of a contract
period, the Secretary may determine such an aver-
age based on the enrollment experience of other con-
tracts entered into under this part.
‘‘(4) ADJUSTED COMMUNITY RATE.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, subject to subparagraph (B), the
term ‘adjusted community rate’ for a service or
services 
means, 
at 
the 
election 
of 
a
MedicarePlus organization, either—
‘‘(i) the rate of payment for that serv-
ice or services which the Secretary annu-
ally determines would apply to an individ-
ual electing a MedicarePlus plan under
this part if the rate of payment were deter-
mined under a ‘community rating system’
(as defined in section 1302(8) of the Pub-
lic Health Service Act, other than subpara-
graph (C)), or
‘‘(ii) such portion of the weighted ag-
gregate premium, which the Secretary an-
nually estimates would apply to such an in-
858
dividual, as the Secretary annually esti-
mates is attributable to that service or
services,
but adjusted for differences between the utiliza-
tion characteristics of the individuals electing
coverage under this part and the utilization
characteristics of the other enrollees with the
plan (or, if the Secretary finds that adequate
data are not available to adjust for those dif-
ferences, the differences between the utilization
characteristics of individuals selecting other
MedicarePlus coverage, or MedicarePlus eligible
individuals in the area, in the State, or in the
United States, eligible to elect MedicarePlus
coverage under this part and the utilization
characteristics of the rest of the population in
the area, in the State, or in the United States,
respectively).
‘‘(B) SPECIAL RULE FOR PROVIDER-SPON-
SORED
ORGANIZATIONS.—In the case of a
MedicarePlus organization that is a provider-
sponsored organization, the adjusted community
rate 
under 
subparagraph 
(A) 
for 
a
MedicarePlus plan of the organization may be
computed (in a manner specified by the Sec-
859
retary) using data in the general commercial
marketplace or (during a transition period)
based on the costs incurred by the organization
in providing such a plan.
‘‘(g) PERIODIC AUDITING.—The Secretary shall pro-
vide for the annual auditing of the financial records (in-
cluding data relating to medicare utilization, costs, and
computation of the adjusted community rate) of at least
one-third of the MedicarePlus organizations offering
MedicarePlus plans under this part. The Comptroller Gen-
eral shall monitoring auditing activities conducted under
this subsection.
‘‘(h) PROHIBITION OF STATE IMPOSITION OF PRE-
MIUM TAXES.—No State may impose a premium tax or
similar tax with respect to premiums on MedicarePlus
plans or the offering of such plans.
‘‘ORGANIZATIONAL AND FINANCIAL REQUIREMENTS FOR
MEDICAREPLUS
ORGANIZATIONS; 
PROVIDER-SPON-
SORED ORGANIZATIONS
‘‘SEC. 1855. (a) ORGANIZED AND LICENSED UNDER
STATE LAW.—
‘‘(1) IN GENERAL.—Subject to paragraphs (2)
and (3), a MedicarePlus organization shall be orga-
nized and licensed under State law as a risk-bearing
entity eligible to offer health insurance or health
860
benefits coverage in each State in which it offers a
MedicarePlus plan.
‘‘(2) SPECIAL EXCEPTION FOR PROVIDER-SPON-
SORED ORGANIZATIONS.—
‘‘(A) IN GENERAL.—In the case of a pro-
vider-sponsored organization that seeks to offer
a MedicarePlus plan in a State, the Secretary
shall waive the requirement of paragraph (1)
that the organization be licensed in that State
if—
‘‘(i) the organization files an applica-
tion for such waiver with the Secretary,
and
‘‘(ii) the Secretary determines, based
on the application and other evidence pre-
sented to the Secretary, that any of the
grounds for approval of the application de-
scribed in subparagraph (B), (C), or (D)
has been met.
‘‘(B) FAILURE TO ACT ON LICENSURE AP-
PLICATION ON A TIMELY BASIS.—A ground for
approval of such a waiver application is that the
State has failed to complete action on a licens-
ing application of the organization within 90
days of the date of the State’s receipt of the
861
completed application. No period before the
date of the enactment of this section shall be
included in determining such 90-day period.
‘‘(C) DENIAL OF APPLICATION BASED ON
DISCRIMINATORY
TREATMENT.—A ground for
approval of such a waiver application is that the
State has denied such a licensing application
and—
‘‘(i) the State has imposed docu-
mentation or information requirements not
related to solvency requirements that are
not generally applicable to other entities
engaged in substantially similar business,
or
‘‘(ii) the standards or review process
imposed by the State as a condition of ap-
proval of the license imposes any material
requirements, procedures, or standards
(other than requirements and standards
relating to solvency) to such organizations
that are not generally applicable to other
entities engaged in substantially similar
business.
‘‘(D) DENIAL OF APPLICATION BASED ON
APPLICATION OF SOLVENCY REQUIREMENTS.—
862
A ground for approval of such a waiver applica-
tion is that the State has denied such a licens-
ing application based (in whole or in part) on
the organization’s failure to meet applicable sol-
vency requirements and—
‘‘(i) such requirements are not the
same as the solvency standards established
under section 1856(a); or
‘‘(ii) the State has imposed as a con-
dition of approval of the license any docu-
mentation or information requirements re-
lating to solvency or other material re-
quirements, procedures, or standards relat-
ing to solvency that are different from the
requirements, procedures, and standards
applied by the Secretary under subsection
(d)(2).
For purposes of this subparagraph, the term
‘solvency requirements’ means requirements re-
lating to solvency and other matters covered
under the standards established under section
1856(a).
‘‘(E) TREATMENT
OF
WAIVER.—In the
case of a waiver granted under this paragraph
for a provider-sponsored organization—
863
‘‘(i) the waiver shall be effective for a
36-month period, except it may be renewed
based on a subsequent application filed
during the last 6 months of such period,
and
‘‘(ii) any provisions of State law which
relate to the licensing of the organization
and which prohibit the organization from
providing coverage pursuant to a contract
under this part shall be superseded.
Nothing in this subparagraph shall be con-
strued as limiting the number of times such a
waiver may be renewed.
‘‘(F) PROMPT ACTION ON APPLICATION.—
The Secretary shall grant or deny such a waiver
application within 60 days after the date the
Secretary determines that a substantially com-
plete application has been filed. Nothing in this
section shall be construed as preventing an or-
ganization which has had such a waiver applica-
tion denied from submitting a subsequent waiv-
er application.
‘‘(3) EXCEPTION IF REQUIRED TO OFFER MORE
THAN MEDICAREPLUS PLANS.—Paragraph (1) shall
not apply to a MedicarePlus organization in a State
864
if the State requires the organization, as a condition
of licensure, to offer any product or plan other than
a MedicarePlus plan.
‘‘(4) LICENSURE DOES NOT SUBSTITUTE FOR
OR CONSTITUTE CERTIFICATION.—The fact that an
organization is licensed in accordance with para-
graph (1) does not deem the organization to meet
other requirements imposed under this part.
‘‘(b) PREPAID PAYMENT.—A MedicarePlus organiza-
tion shall be compensated (except for premiums,
deductibles, coinsurance, and copayments) for the provi-
sion of health care services to enrolled members under the
contract under this part by a payment which is paid on
a periodic basis without regard to the date the health care
services are provided and which is fixed without regard
to the frequency, extent, or kind of health care service ac-
tually provided to a member.
‘‘(c) ASSUMPTION OF FULL FINANCIAL RISK.—The
MedicarePlus organization shall assume full financial risk
on a prospective basis for the provision of the health care
services (except, at the election of the organization, hos-
pice care) for which benefits are required to be provided
under section 1852(a)(1), except that the organization—
‘‘(1) may obtain insurance or make other ar-
rangements for the cost of providing to any enrolled
865
member such services the aggregate value of which
exceeds $5,000 in any year,
‘‘(2) may obtain insurance or make other ar-
rangements for the cost of such services provided to
its enrolled members other than through the organi-
zation because medical necessity required their pro-
vision before they could be secured through the orga-
nization,
‘‘(3) may obtain insurance or make other ar-
rangements for not more than 90 percent of the
amount by which its costs for any of its fiscal years
exceed 115 percent of its income for such fiscal year,
and
‘‘(4) may make arrangements with physicians
or other health professionals, health care institu-
tions, or any combination of such individuals or in-
stitutions to assume all or part of the financial risk
on a prospective basis for the provision of basic
health services by the physicians or other health pro-
fessionals or through the institutions.
‘‘(d) CERTIFICATION OF PROVISION AGAINST RISK
OF INSOLVENCY FOR UNLICENSED PSOS.—
‘‘(1) IN GENERAL.—Each MedicarePlus organi-
zation that is a provider-sponsored organization,
that is not licensed by a State under subsection (a),
866
and for which a waiver application has been ap-
proved under subsection (a)(2), shall meet standards
established under section 1856(a) relating to the fi-
nancial solvency and capital adequacy of the organi-
zation.
‘‘(2) CERTIFICATION PROCESS FOR SOLVENCY
STANDARDS FOR PSOS.—The Secretary shall estab-
lish a process for the receipt and approval of appli-
cations of a provider-sponsored organization de-
scribed in paragraph (1) for certification (and peri-
odic recertification) of the organization as meeting
such solvency standards. Under such process, the
Secretary shall act upon such an application not
later than 60 days after the date the application has
been received.
‘‘(e) PROVIDER-SPONSORED
ORGANIZATION
DE-
FINED.—
‘‘(1) IN GENERAL.—In this part, the term ‘pro-
vider-sponsored organization’ means a public or pri-
vate entity—
‘‘(A) that is established or organized by a
health care provider, or group of affiliated
health care providers,
‘‘(B) that provides a substantial proportion
(as defined by the Secretary in accordance with
867
paragraph (2)) of the health care items and
services under the contract under this part di-
rectly through the provider or affiliated group
of providers, and
‘‘(C) with respect to which those affiliated
providers that share, directly or indirectly, sub-
stantial financial risk with respect to the provi-
sion of such items and services have at least a
majority financial interest in the entity.
‘‘(2) SUBSTANTIAL PROPORTION.—In defining
what is a ‘substantial proportion’ for purposes of
paragraph (1)(B), the Secretary—
‘‘(A) shall take into account (i) the need
for such an organization to assume responsibil-
ity for a substantial proportion of services in
order to assure financial stability and (ii) the
practical difficulties in such an organization in-
tegrating a very wide range of service providers;
and
‘‘(B) may vary such proportion based upon
relevant differences among organizations, such
as their location in an urban or rural area.
‘‘(3) AFFILIATION.—For purposes of this sub-
section, a provider is ‘affiliated’ with another pro-
vider if, through contract, ownership, or otherwise—
868
‘‘(A) one provider, directly or indirectly,
controls, is controlled by, or is under common
control with the other,
‘‘(B) both providers are part of a con-
trolled group of corporations under section
1563 of the Internal Revenue Code of 1986, or
‘‘(C) both providers are part of an affili-
ated service group under section 414 of such
Code.
‘‘(4) CONTROL.—For purposes of paragraph
(3), control is presumed to exist if one party, di-
rectly or indirectly, owns, controls, or holds the
power to vote, or proxies for, not less than 51 per-
cent of the voting rights or governance rights of an-
other.
‘‘(5) HEALTH CARE PROVIDER DEFINED.—In
this subsection, the term ‘health care provider’
means—
‘‘(A) any individual who is engaged in the
delivery of health care services in a State and
who 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, and
‘‘(B) any entity that is engaged in the de-
livery of health care services in a State and
869
that, if it is required by State law or regulation
to be licensed or certified by the State to en-
gage in the delivery of such services in the
State, is so licensed.
‘‘(6) REGULATIONS.—The Secretary shall issue
regulations to carry out this subsection.
‘‘ESTABLISHMENT OF STANDARDS
‘‘SEC. 1856. (a) ESTABLISHMENT
OF SOLVENCY
STANDARDS
FOR
PROVIDER-SPONSORED
ORGANIZA-
TIONS.—
‘‘(1) ESTABLISHMENT.—
‘‘(A) IN
GENERAL.—The Secretary shall
establish, on an expedited basis and using a ne-
gotiated rulemaking process under subchapter
III of chapter 5 of title 5, United States Code,
standards described in section 1855(d)(1) (re-
lating to the financial solvency and capital ade-
quacy of the organization) that entities must
meet to qualify as provider-sponsored organiza-
tions under this part.
‘‘(B) FACTORS
TO
CONSIDER
FOR
SOL-
VENCY
STANDARDS.—In establishing solvency
standards under subparagraph (A) for provider-
sponsored organizations, the Secretary shall
consult with interested parties and shall take
into account—
870
‘‘(i) the delivery system assets of such
an organization and ability of such an or-
ganization to provide services directly to
enrollees through affiliated providers, and
‘‘(ii) alternative means of protecting
against insolvency, including reinsurance,
unrestricted surplus, letters of credit, guar-
antees, organizational insurance coverage,
partnerships with other licensed entities,
and valuation attributable to the ability of
such an organization to meet its service
obligations through direct delivery of care.
‘‘(C) ENROLLEE PROTECTION AGAINST IN-
SOLVENCY.—Such standards shall include pro-
visions to prevent enrollees from being held lia-
ble to any person or entity for the MedicarePlus
organization’s debts in the event of the organi-
zation’s insolvency.
‘‘(2) PUBLICATION
OF
NOTICE.—In carrying
out the rulemaking process under this subsection,
the Secretary, after consultation with the National
Association of Insurance Commissioners, the Amer-
ican Academy of Actuaries, organizations represent-
ative of medicare beneficiaries, and other interested
parties, shall publish the notice provided for under
871
section 564(a) of title 5, United States Code, by not
later than 45 days after the date of the enactment
of this section.
‘‘(3) TARGET
DATE
FOR
PUBLICATION
OF
RULE.—As part of the notice under paragraph (2),
and for purposes of this subsection, the ‘target date
for publication’ (referred to in section 564(a)(5) of
such title) shall be April 1, 1998.
‘‘(4) ABBREVIATED
PERIOD
FOR
SUBMISSION
OF COMMENTS.—In applying section 564(c) of such
title under this subsection, ‘15 days’ shall be sub-
stituted for ‘30 days’.
‘‘(5) APPOINTMENT
OF
NEGOTIATED
RULE-
MAKING COMMITTEE AND FACILITATOR.—The Sec-
retary shall provide for—
‘‘(A) the appointment of a negotiated rule-
making committee under section 565(a) of such
title by not later than 30 days after the end of
the comment period provided for under section
564(c) of such title (as shortened under para-
graph (4)), and
‘‘(B) the nomination of a facilitator under
section 566(c) of such title by not later than 10
days after the date of appointment of the com-
mittee.
872
‘‘(6) PRELIMINARY COMMITTEE REPORT.—The
negotiated rulemaking committee appointed under
paragraph (5) shall report to the Secretary, by not
later than January 1, 1998, regarding the commit-
tee’s progress on achieving a consensus with regard
to the rulemaking proceeding and whether such con-
sensus is likely to occur before one month before the
target date for publication of the rule. If the com-
mittee reports that the committee has failed to make
significant progress towards such consensus or is
unlikely to reach such consensus by the target date,
the Secretary may terminate such process and pro-
vide for the publication of a rule under this sub-
section through such other methods as the Secretary
may provide.
‘‘(7) FINAL COMMITTEE REPORT.—If the com-
mittee is not terminated under paragraph (6), the
rulemaking committee shall submit a report contain-
ing a proposed rule by not later than one month be-
fore the target date of publication.
‘‘(8) INTERIM, FINAL EFFECT.—The Secretary
shall publish a rule under this subsection in the Fed-
eral Register by not later than the target date of
publication. Such rule shall be effective and final im-
mediately on an interim basis, but is subject to
873
change and revision after public notice and oppor-
tunity for a period (of not less than 60 days) for
public comment. In connection with such rule, the
Secretary shall specify the process for the timely re-
view and approval of applications of entities to be
certified as provider-sponsored organizations pursu-
ant to such rules and consistent with this subsection.
‘‘(9) PUBLICATION
OF
RULE
AFTER
PUBLIC
COMMENT.—The Secretary shall provide for consid-
eration of such comments and republication of such
rule by not later than 1 year after the target date
of publication.
‘‘(b) ESTABLISHMENT OF OTHER STANDARDS.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish by regulation other standards (not described in
subsection (a)) for MedicarePlus organizations and
plans consistent with, and to carry out, this part.
‘‘(2) USE OF CURRENT STANDARDS.—Consist-
ent with the requirements of this part, standards es-
tablished under this subsection shall be based on
standards established under section 1876 to carry
out analogous provisions of such section.
‘‘(3) USE OF INTERIM STANDARDS.—For the
period in which this part is in effect and standards
are being developed and established under the pre-
874
ceding provisions of this subsection, the Secretary
shall provide by not later than June 1, 1998, for the
application of such interim standards (without re-
gard to any requirements for notice and public com-
ment) as may be appropriate to provide for the expe-
dited implementation of this part. Such interim
standards shall not apply after the date standards
are established under the preceding provisions of
this subsection.
‘‘(4) APPLICATION OF NEW STANDARDS TO EN-
TITIES
WITH
A
CONTRACT.—In the case of a
MedicarePlus organization with a contract in effect
under this part at the time standards applicable to
the organization under this section are changed, the
organization may elect not to have such changes
apply to the organization until the end of the cur-
rent contract year (or, if there is less than 6 months
remaining in the contract year, until 1 year after the
end of the current contract year).
‘‘(5) RELATION TO STATE LAWS.—The stand-
ards established under this subsection shall super-
sede any State law or regulation with respect to
MedicarePlus 
plans 
which 
are 
offered 
by
MedicarePlus organizations under this part to the
875
extent such law or regulation is inconsistent with
such standards.
‘‘CONTRACTS WITH MEDICAREPLUS ORGANIZATIONS
‘‘SEC. 1857. (a) IN GENERAL.—The Secretary shall
not permit the election under section 1851 of a
MedicarePlus plan offered by a MedicarePlus organization
under this part, and no payment shall be made under sec-
tion 1853 to an organization, unless the Secretary has en-
tered into a contract under this section with the organiza-
tion with respect to the offering of such plan. Such a con-
tract with an organization may cover more than one
MedicarePlus plan. Such contract shall provide that the
organization agrees to comply with the applicable require-
ments and standards of this part and the terms and condi-
tions of payment as provided for in this part.
‘‘(b) MINIMUM ENROLLMENT REQUIREMENTS.—
‘‘(1) IN GENERAL.—Subject to paragraphs (2)
and (3), the Secretary may not enter into a contract
under this section with a MedicarePlus organization
unless the organization has at least 5,000 individ-
uals (or 1,500 individuals in the case of an organiza-
tion that is a provider-sponsored organization) who
are receiving health benefits through the organiza-
tion, except that the standards under section 1856
may permit the organization to have a lesser number
of beneficiaries (but not less than 500 in the case
876
of an organization that is a provider-sponsored orga-
nization) if the organization primarily serves individ-
uals residing outside of urbanized areas.
‘‘(2) EXCEPTION FOR MSA PLAN.—Paragraph
(1) shall not apply with respect to a contract that
relates only to an MSA plan.
‘‘(3) ALLOWING
TRANSITION.—The Secretary
may waive the requirement of paragraph (1) during
the first 3 contract years with respect to an organi-
zation.
‘‘(c) CONTRACT PERIOD AND EFFECTIVENESS.—
‘‘(1) PERIOD.—Each contract under this sec-
tion shall be for a term of at least one year, as de-
termined by the Secretary, and may be made auto-
matically renewable from term to term in the ab-
sence of notice by either party of intention to termi-
nate at the end of the current term.
‘‘(2) TERMINATION
AUTHORITY.—In accord-
ance with procedures established under subsection
(h), the Secretary may at any time terminate any
such contract if the Secretary determines that the
organization—
‘‘(A) has failed substantially to carry out
the contract;
877
‘‘(B) is carrying out the contract in a man-
ner inconsistent with the efficient and effective
administration of this part; or
‘‘(C) no longer substantially meets the ap-
plicable conditions of this part.
‘‘(3) EFFECTIVE
DATE
OF
CONTRACTS.—The
effective date of any contract executed pursuant to
this section shall be specified in the contract, except
that in no case shall a contract under this section
which provides for coverage under an MSA plan be
effective before January 1999 with respect to such
coverage.
‘‘(4) PREVIOUS TERMINATIONS.—The Secretary
may not enter into a contract with a MedicarePlus
organization if a previous contract with that organi-
zation under this section was terminated at the re-
quest of the organization within the preceding five-
year period, except in circumstances which warrant
special consideration, as determined by the Sec-
retary.
‘‘(5) CONTRACTING AUTHORITY.—The author-
ity vested in the Secretary by this part may be per-
formed without regard to such provisions of law or
regulations relating to the making, performance,
amendment, or modification of contracts of the
878
United States as the Secretary may determine to be
inconsistent with the furtherance of the purpose of
this title.
‘‘(d) PROTECTIONS AGAINST FRAUD
AND BENE-
FICIARY PROTECTIONS.—
‘‘(1) INSPECTION AND AUDIT.—Each contract
under this section shall provide that the Secretary,
or any person or organization designated by the Sec-
retary—
‘‘(A) shall have the right to inspect or oth-
erwise evaluate (i) the quality, appropriateness,
and timeliness of services performed under the
contract and (ii) the facilities of the organiza-
tion when there is reasonable evidence of some
need for such inspection, and
‘‘(B) shall have the right to audit and in-
spect 
any 
books 
and 
records 
of 
the
MedicarePlus organization that pertain (i) to
the ability of the organization to bear the risk
of potential financial losses, or (ii) to services
performed or determinations of amounts pay-
able under the contract.
‘‘(2) ENROLLEE NOTICE AT TIME OF TERMI-
NATION.—Each contract under this section shall re-
quire the organization to provide (and pay for) writ-
879
ten notice in advance of the contract’s termination,
as well as a description of alternatives for obtaining
benefits under this title, to each individual enrolled
with the organization under this part.
‘‘(3) DISCLOSURE.—
‘‘(A) IN
GENERAL.—Each MedicarePlus
organization shall, in accordance with regula-
tions of the Secretary, report to the Secretary
financial information which shall include the
following:
‘‘(i) Such information as the Sec-
retary may require demonstrating that the
organization has a fiscally sound operation.
‘‘(ii) A copy of the report, if any, filed
with the Health Care Financing Adminis-
tration containing the information required
to be reported under section 1124 by dis-
closing entities.
‘‘(iii) A description of transactions, as
specified by the Secretary, between the or-
ganization and a party in interest. Such
transactions shall include—
‘‘(I) any sale or exchange, or
leasing of any property between the
organization and a party in interest;
880
‘‘(II) any furnishing for consider-
ation of goods, services (including
management services), or facilities be-
tween the organization and a party in
interest, but not including salaries
paid to employees for services pro-
vided in the normal course of their
employment and health services pro-
vided to members by hospitals and
other providers and by staff, medical
group (or groups), individual practice
association (or associations), or any
combination thereof; and
‘‘(III) any lending of money or
other extension of credit between an
organization and a party in interest.
The Secretary may require that information re-
ported respecting an organization which con-
trols, is controlled by, or is under common con-
trol with, another entity be in the form of a
consolidated financial statement for the organi-
zation and such entity.
‘‘(B) PARTY IN INTEREST DEFINED.—For
the purposes of this paragraph, the term ‘party
in interest’ means—
881
‘‘(i) any director, officer, partner, or
employee responsible for management or
administration of a MedicarePlus organiza-
tion, any person who is directly or indi-
rectly the beneficial owner of more than 5
percent of the equity of the organization,
any person who is the beneficial owner of
a mortgage, deed of trust, note, or other
interest secured by, and valuing more than
5 percent of the organization, and, in the
case of a MedicarePlus organization orga-
nized as a nonprofit corporation, an incor-
porator or member of such corporation
under applicable State corporation law;
‘‘(ii) any entity in which a person de-
scribed in clause (i)—
‘‘(I) is an officer or director;
‘‘(II) is a partner (if such entity
is organized as a partnership);
‘‘(III) has directly or indirectly a
beneficial interest of more than 5 per-
cent of the equity; or
‘‘(IV) has a mortgage, deed of
trust, note, or other interest valuing
882
more than 5 percent of the assets of
such entity;
‘‘(iii) any person directly or indirectly
controlling, controlled by, or under com-
mon control with an organization; and
‘‘(iv) any spouse, child, or parent of
an individual described in clause (i).
‘‘(C) ACCESS
TO
INFORMATION.—Each
MedicarePlus organization shall make the infor-
mation reported pursuant to subparagraph (A)
available to its enrollees upon reasonable re-
quest.
‘‘(4) LOAN INFORMATION.—The contract shall
require the organization to notify the Secretary of
loans and other special financial arrangements which
are made between the organization and subcontrac-
tors, affiliates, and related parties.
‘‘(e) ADDITIONAL CONTRACT TERMS.—
‘‘(1) IN GENERAL.—The contract shall contain
such other terms and conditions not inconsistent
with this part (including requiring the organization
to provide the Secretary with such information) as
the Secretary may find necessary and appropriate.
‘‘(2) COST-SHARING IN ENROLLMENT-RELATED
COSTS.—The contract with a MedicarePlus organiza-
883
tion shall require the payment to the Secretary for
the organization’s pro rata share (as determined by
the Secretary) of the estimated costs to be incurred
by the Secretary in carrying out section 1851 (relat-
ing to enrollment and dissemination of information).
Such payments are appropriated to defray the costs
described in the preceding sentence, to remain avail-
able until expended.
‘‘(f) PROMPT PAYMENT BY MEDICAREPLUS ORGANI-
ZATION.—
‘‘(1) REQUIREMENT.—A contract under this
part shall require a MedicarePlus organization to
provide prompt payment (consistent with the provi-
sions of sections 1816(c)(2) and 1842(c)(2)) of
claims submitted for services and supplies furnished
to individuals pursuant to the contract, if the serv-
ices or supplies are not furnished under a contract
between the organization and the provider or sup-
plier.
‘‘(2) SECRETARY’S
OPTION
TO
BYPASS
NON-
COMPLYING
ORGANIZATION.—In the case of a
MedicarePlus eligible organization which the Sec-
retary determines, after notice and opportunity for
a hearing, has failed to make payments of amounts
in compliance with paragraph (1), the Secretary may
884
provide for direct payment of the amounts owed to
providers and suppliers for covered services and sup-
plies furnished to individuals enrolled under this
part under the contract. If the Secretary provides
for the direct payments, the Secretary shall provide
for an appropriate reduction in the amount of pay-
ments otherwise made to the organization under this
part to reflect the amount of the Secretary’s pay-
ments (and the Secretary’s costs in making the pay-
ments).
‘‘(g) INTERMEDIATE SANCTIONS.—
‘‘(1) IN GENERAL.—If the Secretary determines
that a MedicarePlus organization with a contract
under this section—
‘‘(A) fails substantially to provide medi-
cally necessary items and services that are re-
quired (under law or under the contract) to be
provided to an individual covered under the con-
tract, if the failure has adversely affected (or
has substantial likelihood of adversely affecting)
the individual;
‘‘(B) imposes net monthly premiums on in-
dividuals enrolled under this part in excess of
the net monthly premiums permitted;
885
‘‘(C) acts to expel or to refuse to re-enroll
an individual in violation of the provisions of
this part;
‘‘(D) engages in any practice that would
reasonably be expected to have the effect of de-
nying or discouraging enrollment (except as
permitted by this part) by eligible individuals
with the organization whose medical condition
or history indicates a need for substantial fu-
ture medical services;
‘‘(E) misrepresents or falsifies information
that is furnished—
‘‘(i) to the Secretary under this part,
or
‘‘(ii) to an individual or to any other
entity under this part;
‘‘(F) fails to comply with the requirements
of section 1852(j)(3); or
‘‘(G) employs or contracts with any indi-
vidual or entity that is excluded from participa-
tion under this title under section 1128 or
1128A for the provision of health care, utiliza-
tion review, medical social work, or administra-
tive services or employs or contracts with any
entity for the provision (directly or indirectly)
886
through such an excluded individual or entity of
such services;
the Secretary may provide, in addition to any other
remedies authorized by law, for any of the remedies
described in paragraph (2).
‘‘(2) REMEDIES.—The remedies described in
this paragraph are—
‘‘(A) civil money penalties of not more
than $25,000 for each determination under
paragraph (1) or, with respect to a determina-
tion under subparagraph (D) or (E)(i) of such
paragraph, of not more than $100,000 for each
such determination, plus, with respect to a de-
termination under paragraph (1)(B), double the
excess amount charged in violation of such
paragraph (and the excess amount charged
shall be deducted from the penalty and returned
to the individual concerned), and plus, with re-
spect to a determination under paragraph
(1)(D), $15,000 for each individual not enrolled
as a result of the practice involved,
‘‘(B) suspension of enrollment of individ-
uals under this part after the date the Sec-
retary notifies the organization of a determina-
tion under paragraph (1) and until the Sec-
887
retary is satisfied that the basis for such deter-
mination has been corrected and is not likely to
recur, or
‘‘(C) suspension of payment to the organi-
zation under this part for individuals enrolled
after the date the Secretary notifies the organi-
zation of a determination under paragraph (1)
and until the Secretary is satisfied that the
basis for such determination has been corrected
and is not likely to recur.
‘‘(3) OTHER
INTERMEDIATE
SANCTIONS.—In
the case of a MedicarePlus organization for which
the Secretary makes a determination under sub-
section (c)(2) the basis of which is not described in
paragraph (1), the Secretary may apply the follow-
ing intermediate sanctions:
‘‘(A) Civil money penalties of not more
than $25,000 for each determination under
subsection (c)(2) if the deficiency that is the
basis of the determination has directly adversely
affected (or has the substantial likelihood of ad-
versely affecting) an individual covered under
the organization’s contract
‘‘(B) Civil money penalties of not more
than $10,000 for each week beginning after the
888
initiation of procedures by the Secretary under
subsection (g) during which the deficiency that
is the basis of a determination under subsection
(c)(2) exists.
‘‘(C) Suspension of enrollment of individ-
uals under this part after the date the Sec-
retary notifies the organization of a determina-
tion under subsection (c)(2) and until the Sec-
retary is satisfied that the deficiency that is the
basis for the determination has been corrected
and is not likely to recur.
‘‘(h) PROCEDURES FOR TERMINATION.—
‘‘(1) IN GENERAL.—The Secretary may termi-
nate a contract with a MedicarePlus organization
under this section in accordance with formal inves-
tigation and compliance procedures established by
the Secretary under which—
‘‘(A) the Secretary provides the organiza-
tion with the reasonable opportunity to develop
and implement a corrective action plan to cor-
rect the deficiencies that were the basis of the
Secretary’s determination under subsection
(c)(2);
‘‘(B) the Secretary provides the organiza-
tion with reasonable notice and opportunity for
889
hearing (including the right to appeal an initial
decision) before terminating the contract.
‘‘(2) CIVIL MONEY PENALTIES.—The provisions
of section 1128A (other than subsections (a) and
(b)) shall apply to a civil money penalty under sub-
section (f) or under paragraph (2) or (3) of sub-
section (g) in the same manner as they apply to a
civil money penalty or proceeding under section
1128A(a).
‘‘(3) EXCEPTION FOR IMMINENT AND SERIOUS
RISK TO HEALTH.—Paragraph (1) shall not apply if
the Secretary determines that a delay in termi-
nation, resulting from compliance with the proce-
dures specified in such paragraph prior to termi-
nation, would pose an imminent and serious risk to
the health of individuals enrolled under this part
with the organization.
‘‘DEFINITIONS; MISCELLANEOUS PROVISIONS
‘‘SEC. 1859. (a) DEFINITIONS
RELATING
TO
MEDICAREPLUS ORGANIZATIONS.—In this part—
‘‘(1) 
MEDICAREPLUS
ORGANIZATION.—The
term ‘MedicarePlus organization’ means a public or
private entity that is certified under section 1856 as
meeting the requirements and standards of this part
for such an organization.
890
‘‘(2) PROVIDER-SPONSORED
ORGANIZATION.—
The term ‘provider-sponsored organization’ is de-
fined in section 1855(e)(1).
‘‘(b) DEFINITIONS RELATING
TO MEDICAREPLUS
PLANS.—
‘‘(1) 
MEDICAREPLUS
PLAN.—The 
term
‘MedicarePlus plan’ means health benefits coverage
offered under a policy, contract, or plan by a
MedicarePlus organization pursuant to and in ac-
cordance with a contract under section 1857.
‘‘(2) MSA PLAN.—
‘‘(A) IN GENERAL.—The term ‘MSA plan’
means a MedicarePlus plan that—
‘‘(i) provides reimbursement for at
least the items and services described in
section 1852(a)(1) in a year but only after
the enrollee incurs countable expenses (as
specified under the plan) equal to the
amount of an annual deductible (described
in subparagraph (B));
‘‘(ii) counts as such expenses (for pur-
poses of such deductible) at least all
amounts that would have been payable
under parts A and B, and that would have
been payable by the enrollee as deductibles,
891
coinsurance, or copayments, if the enrollee
had elected to receive benefits through the
provisions of such parts; and
‘‘(iii) provides, after such deductible is
met for a year and for all subsequent ex-
penses for items and services referred to in
clause (i) in the year, for a level of reim-
bursement that is not less than—
‘‘(I) 100 percent of such ex-
penses, or
‘‘(II) 100 percent of the amounts
that would have been paid (without
regard to any deductibles or coinsur-
ance) under parts A and B with re-
spect to such expenses,
whichever is less.
‘‘(B) DEDUCTIBLE.—The amount of an-
nual deductible under an MSA plan—
‘‘(i) for contract year 1999 shall be
not more than $6,000; and
‘‘(ii) for a subsequent contract year
shall be not more than the maximum
amount of such deductible for the previous
contract year under this subparagraph in-
creased 
by 
the 
national 
per 
capita
892
MedicarePlus growth percentage under
section 1853(c)(6) for the year.
If the amount of the deductible under clause
(ii) is not a multiple of $50, the amount shall
be rounded to the nearest multiple of $50.
‘‘(c) OTHER REFERENCES TO OTHER TERMS.—
‘‘(1) MEDICAREPLUS ELIGIBLE INDIVIDUAL.—
The term ‘MedicarePlus eligible individual’ is de-
fined in section 1851(a)(3).
‘‘(2) MEDICAREPLUS
PAYMENT
AREA.—The
term ‘MedicarePlus payment area’ is defined in sec-
tion 1853(d).
‘‘(3) NATIONAL
PER
CAPITA
MEDICAREPLUS
GROWTH
PERCENTAGE.—The ‘national per capita
MedicarePlus growth percentage’ is defined in sec-
tion 1853(c)(6).
‘‘(4) MONTHLY PREMIUM; NET MONTHLY PRE-
MIUM.—The terms ‘monthly premium’ and ‘net
monthly premium’ are defined in section 1854(a)(2).
‘‘(d) COORDINATED ACUTE AND LONG-TERM CARE
BENEFITS UNDER A MEDICAREPLUS PLAN.—Nothing in
this part shall be construed as preventing a State from
coordinating benefits under a medicaid plan under title
XIX with those provided under a MedicarePlus plan in
a manner that assures continuity of a full-range of acute
893
care and long-term care services to poor elderly or disabled
individuals eligible for benefits under this title and under
such plan.
‘‘(e) RESTRICTION ON ENROLLMENT FOR CERTAIN
MEDICAREPLUS PLANS.—
‘‘(1) 
IN
GENERAL.—In 
the 
case 
of 
a
MedicarePlus religious fraternal benefit society plan
described in paragraph (2), notwithstanding any
other provision of this part to the contrary and in
accordance with regulations of the Secretary, the so-
ciety offering the plan may restrict the enrollment of
individuals under this part to individuals who are
members of the church, convention, or group de-
scribed in paragraph (3)(B) with which the society
is affiliated.
‘‘(2) MEDICAREPLUS
RELIGIOUS
FRATERNAL
BENEFIT SOCIETY PLAN DESCRIBED.—For purposes
of this subsection, a MedicarePlus religious fraternal
benefit society plan described in this paragraph is a
MedicarePlus 
plan 
described 
in 
section
1851(a)(2)(A) that—
‘‘(A) is offered by a religious fraternal ben-
efit society described in paragraph (3) only to
members of the church, convention, or group
described in paragraph (3)(B); and
894
‘‘(B) permits all such members to enroll
under the plan without regard to health status-
related factors.
Nothing in this subsection shall be construed as
waiving any plan requirements relating to financial
solvency. In developing solvency standards under
section 1856, the Secretary shall take into account
open contract and assessment features characteristic
of fraternal insurance certificates.
‘‘(3) RELIGIOUS FRATERNAL BENEFIT SOCIETY
DEFINED.—For purposes of paragraph (2)(A), a ‘re-
ligious fraternal benefit society’ described in this
section is an organization that—
‘‘(A) is exempt from Federal income tax-
ation under section 501(c)(8) of the Internal
Revenue Code of 1986;
‘‘(B) is affiliated with, carries out the te-
nets of, and shares a religious bond with, a
church or convention or association of churches
or an affiliated group of churches;
‘‘(C) offers, in addition to a MedicarePlus
religious fraternal benefit society plan, health
coverage to individuals not entitled to benefits
under this title who are members of such
church, convention, or group; and
895
‘‘(D) does not impose any limitation on
membership in the society based on any health
status-related factor.
‘‘(4) PAYMENT
ADJUSTMENT.—Under regula-
tions of the Secretary, in the case of individuals en-
rolled under this part under a MedicarePlus reli-
gious fraternal benefit society plan described in
paragraph (2), the Secretary shall provide for such
adjustment to the payment amounts otherwise estab-
lished under section 1854 as may be appropriate to
assure an appropriate payment level, taking into ac-
count the actuarial characteristics and experience of
such individuals.’’.
(b) REPORT ON COVERAGE OF BENEFICIARIES WITH
END-STAGE RENAL DISEASE.—The Secretary of Health
and Human Services shall provide for a study on the fea-
sibility and impact of removing the limitation under sec-
tion 1851(b)(3)(B) of the Social Security Act (as inserted
by subsection (a)) on eligibility of most individuals medi-
cally determined to have end-stage renal disease to enroll
in MedicarePlus plans. By not later than October 1, 1998,
the Secretary shall submit to Congress a report on such
study and shall include in the report such recommenda-
tions regarding removing or restricting the limitation as
may be appropriate.
896
(c) REPORT
ON MEDICAREPLUS TEACHING PRO-
GRAMS AND USE OF DSH AND TEACHING HOSPITALS.—
Based on the information provided to the Secretary of
Health and Human Services under section 1852(k) of the
Social Security Act and such information as the Secretary
may obtain, by not later than October 1, 1999, the Sec-
retary shall submit to Congress a report on graduate med-
ical education programs operated by MedicarePlus organi-
zations and the extent to which MedicarePlus organiza-
tions are providing for payments to hospitals described in
such section.
SEC. 10002. TRANSITIONAL RULES FOR CURRENT MEDI-
CARE HMO PROGRAM.
(a) AUTHORIZING TRANSITIONAL WAIVER OF 50:50
RULE.—Section 1876(f) (42 U.S.C. 1395mm(f)) is
amended—
(1) in paragraph (2), by striking ‘‘The Sec-
retary’’ and inserting ‘‘Subject to paragraph (4), the
Secretary’’, and
(2) by adding at the end the following new
paragraph:
‘‘(4) Effective for contract periods beginning after
December 31, 1996, the Secretary may waive or modify
the requirement imposed by paragraph (1) to the extent
the Secretary finds that it is in the public interest.’’.
897
(b) 
TRANSITION.—Section 
1876 
(42 
U.S.C.
1395mm) is amended by adding at the end the following
new subsection:
‘‘(k)(1) Except as provided in paragraph (3), the Sec-
retary shall not enter into, renew, or continue any risk-
sharing contract under this section with an eligible organi-
zation for any contract year beginning on or after—
‘‘(A) the date standards for MedicarePlus orga-
nizations and plans are first established under sec-
tion 1856 with respect to MedicarePlus organiza-
tions that are insurers or health maintenance orga-
nizations, or
‘‘(B) in the case of such an organization with
such a contract in effect as of the date such stand-
ards were first established, 1 year after such date.
‘‘(2) The Secretary shall not enter into, renew, or
continue any risk-sharing contract under this section with
an eligible organization for any contract year beginning
on or after January 1, 2000.
‘‘(3) An individual who is enrolled in part B only and
is enrolled in an eligible organization with a risk-sharing
contract under this section on December 31, 1998, may
continue enrollment in such organization in accordance
with regulations issued by not later then July 1, 1998.
898
‘‘(4) Notwithstanding subsection (a), the Secretary
shall provide that payment amounts under risk-sharing
contracts under this section for months in a year (begin-
ning with January 1998) shall be computed—
‘‘(A) with respect to individuals entitled to ben-
efits under both parts A and B, by substituting pay-
ment rates under section 1853(a) for the payment
rates 
otherwise 
established 
under 
subsection
1876(a), and
‘‘(B) with respect to individuals only entitled to
benefits under part B, by substituting an appro-
priate proportion of such rates (reflecting the rel-
ative proportion of payments under this title attrib-
utable to such part) for the payment rates otherwise
established under subsection (a).
For purposes of carrying out this paragraph for payments
for months in 1998, the Secretary shall compute, an-
nounce, and apply the payment rates under section
1853(a) (notwithstanding any deadlines specified in such
section) in as timely a manner as possible and may (to
the extent necessary) provide for retroactive adjustment
in payments made under this section not in accordance
with such rates.’’.
(c) ENROLLMENT TRANSITION RULE.—An individual
who is enrolled on December 31, 1998, with an eligible
899
organization under section 1876 of the Social Security Act
(42 U.S.C. 1395mm) shall be considered to be enrolled
with that organization on January 1, 1999, under part
C of title XVIII of such Act if that organization has a
contract under that part for providing services on January
1, 1999 (unless the individual has disenrolled effective on
that date).
(d) ADVANCE DIRECTIVES.—Section 1866(f) (42
U.S.C. 1395cc(f)) is amended—
(1) in paragraph (1)—
(A) 
by 
inserting 
‘‘1855(i),’’ 
after
‘‘1833(s),’’, and
(B) by inserting ‘‘, MedicarePlus organiza-
tion,’’ after ‘‘provider of services’’; and
(2) in paragraph (2)(E), by inserting ‘‘or a
MedicarePlus 
organization’’ 
after 
‘‘section
1833(a)(1)(A)’’.
(e) EXTENSION OF PROVIDER REQUIREMENT.—Sec-
tion 1866(a)(1)(O) (42 U.S.C. 1395cc(a)(1)(O)) is
amended—
(1) by striking ‘‘in the case of hospitals and
skilled nursing facilities,’’;
(2) by striking ‘‘inpatient hospital and extended
care’’;
900
(3) by inserting ‘‘with a MedicarePlus organiza-
tion under part C or’’ after ‘‘any individual en-
rolled’’; and
(4) by striking ‘‘(in the case of hospitals) or
limits (in the case of skilled nursing facilities)’’.
(f) ADDITIONAL CONFORMING CHANGES.—
(1) CONFORMING
REFERENCES
TO
PREVIOUS
PART C.—Any reference in law (in effect before the
date of the enactment of this Act) to part C of title
XVIII of the Social Security Act is deemed a ref-
erence to part D of such title (as in effect after such
date).
(2) SECRETARIAL SUBMISSION OF LEGISLATIVE
PROPOSAL.—Not later than 90 days after the date
of the enactment of this Act, the Secretary of
Health and Human Services shall submit to the ap-
propriate committees of Congress a legislative pro-
posal providing for such technical and conforming
amendments in the law as are required by the provi-
sions of this chapter.
(g) IMMEDIATE EFFECTIVE DATE FOR CERTAIN RE-
QUIREMENTS
FOR
DEMONSTRATIONS.—Section
1857(e)(2) of the Social Security Act (requiring contribu-
tion to certain costs related to the enrollment process com-
parative materials) applies to demonstrations with respect
901
to which enrollment is effected or coordinated under sec-
tion 1851 of such Act.
(h) USE
OF INTERIM, FINAL REGULATIONS.—In
order to carry out the amendments made by this chapter
in a timely manner, the Secretary of Health and Human
Services may promulgate regulations that take effect on
an interim basis, after notice and pending opportunity for
public comment.
(i) TRANSITION RULE FOR PSO ENROLLMENT.—In
applying subsection (g)(1) of section 1876 of the Social
Security Act (42 U.S.C. 1395mm) to a risk-sharing con-
tract entered into with an eligible organization that is a
provider-sponsored organization (as defined in section
1855(e)(1) of such Act, as inserted by section 10001) for
a contract year beginning on or after January 1, 1998,
there shall be substituted for the minimum number of en-
rollees provided under such section the minimum number
of enrollees permitted under section 1857(b)(1) of such
Act (as so inserted).
SEC. 10003. CONFORMING CHANGES IN MEDIGAP PRO-
GRAM.
(a) CONFORMING AMENDMENTS TO MEDICAREPLUS
CHANGES.—
(1) IN GENERAL.—Section 1882(d)(3)(A)(i) (42
U.S.C. 1395ss(d)(3)(A)(i)) is amended—
902
(A) in the matter before subclause (I), by
inserting ‘‘(including an individual electing a
MedicarePlus plan under section 1851)’’ after
‘‘of this title’’; and
(B) in subclause (II)—
(i) by inserting ‘‘in the case of an in-
dividual not electing a MedicarePlus plan’’
after ‘‘(II)’’, and
(ii) by inserting before the comma at
the end the following: ‘‘or in the case of an
individual electing a MedicarePlus plan, a
medicare supplemental policy with knowl-
edge that the policy duplicates health bene-
fits to which the individual is otherwise en-
titled under the MedicarePlus plan or
under another medicare supplemental pol-
icy’’.
(2) 
CONFORMING
AMENDMENTS.—Section
1882(d)(3)(B)(i)(I) 
(42 
U.S.C.
1395ss(d)(3)(B)(i)(I)) is amended by inserting ‘‘(in-
cluding any MedicarePlus plan)’’ after ‘‘health in-
surance policies’’.
(3) MEDICAREPLUS PLANS NOT TREATED AS
MEDICARE
SUPPLEMENTARY
POLICIES.—Section
1882(g)(1) (42 U.S.C. 1395ss(g)(1)) is amended by
903
inserting ‘‘or a MedicarePlus plan or’’ after ‘‘does
not include’’
(b) ADDITIONAL RULES RELATING TO INDIVIDUALS
ENROLLED IN MSA PLANS.—Section 1882 (42 U.S.C.
1395ss) is further amended by adding at the end the fol-
lowing new subsection:
‘‘(u)(1) It is unlawful for a person to sell or issue
a policy described in paragraph (2) to an individual with
knowledge that the individual has in effect under section
1851 an election of an MSA plan.
‘‘(2) A policy described in this subparagraph is a
health insurance policy that provides for coverage of ex-
penses that are otherwise required to be counted toward
meeting the annual deductible amount provided under the
MSA plan.’’.
Subchapter B—Special Rules for
MedicarePlus Medical Savings Accounts
SEC. 10006. MEDICAREPLUS MSA.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
amounts specifically excluded from gross income) is
amended by redesignating section 138 as section 139 and
by inserting after section 137 the following new section:
904
‘‘SEC. 138. MEDICAREPLUS MSA.
‘‘(a) EXCLUSION.—Gross income shall not include
any payment to the MedicarePlus MSA of an individual
by the Secretary of Health and Human Services under
part C of title XVIII of the Social Security Act.
‘‘(b) MEDICAREPLUS MSA.—For purposes of this
section, the term ‘MedicarePlus MSA’ means a medical
savings account (as defined in section 220(d))—
‘‘(1) which is designated as a MedicarePlus
MSA,
‘‘(2) with respect to which no contribution may
be made other than—
‘‘(A) a contribution made by the Secretary
of Health and Human Services pursuant to
part C of title XVIII of the Social Security Act,
or
‘‘(B) a trustee-to-trustee transfer described
in subsection (c)(4),
‘‘(3) the governing instrument of which pro-
vides that trustee-to-trustee transfers described in
subsection (c)(4) may be made to and from such ac-
count, and
‘‘(4) which is established in connection with an
MSA plan described in section 1859(b)(2) of the So-
cial Security Act.
‘‘(c) SPECIAL RULES FOR DISTRIBUTIONS.—
905
‘‘(1) DISTRIBUTIONS FOR QUALIFIED MEDICAL
EXPENSES.—In 
applying 
section 
220 
to 
a
MedicarePlus MSA—
‘‘(A) qualified medical expenses shall not
include amounts paid for medical care for any
individual other than the account holder, and
‘‘(B) section 220(d)(2)(C) shall not apply.
‘‘(2) PENALTY
FOR
DISTRIBUTIONS
FROM
MEDICAREPLUS
MSA
NOT
USED
FOR
QUALIFIED
MEDICAL
EXPENSES
IF
MINIMUM
BALANCE
NOT
MAINTAINED.—
‘‘(A) IN GENERAL.—The tax imposed by
this chapter for any taxable year in which there
is 
a 
payment 
or 
distribution 
from 
a
MedicarePlus MSA which is not used exclu-
sively to pay the qualified medical expenses of
the account holder shall be increased by 50 per-
cent of the excess (if any) of—
‘‘(i) the amount of such payment or
distribution, over
‘‘(ii) the excess (if any) of—
‘‘(I) the fair market value of the
assets in such MSA as of the close of
the calendar year preceding the cal-
906
endar year in which the taxable year
begins, over
‘‘(II) an amount equal to 60 per-
cent of the deductible under the
MedicarePlus MSA plan covering the
account holder as of January 1 of the
calendar year in which the taxable
year begins.
Section 220(f)(2) shall not apply to any pay-
ment or distribution from a MedicarePlus MSA.
‘‘(B) 
EXCEPTIONS.—Subparagraph 
(A)
shall not apply if the payment or distribution is
made on or after the date the account holder—
‘‘(i) becomes disabled within the
meaning of section 72(m)(7), or
‘‘(ii) dies.
‘‘(C) SPECIAL
RULES.—For purposes of
subparagraph (A)—
‘‘(i) all MedicarePlus MSAs of the ac-
count holder shall be treated as 1 account,
‘‘(ii) all payments and distributions
not used exclusively to pay the qualified
medical expenses of the account holder
during any taxable year shall be treated as
1 distribution, and
907
‘‘(iii) any distribution of property
shall be taken into account at its fair mar-
ket value on the date of the distribution.
‘‘(3) WITHDRAWAL OF ERRONEOUS CONTRIBU-
TIONS.—Section 220(f)(2) and paragraph (2) of this
subsection shall not apply to any payment or dis-
tribution from a MedicarePlus MSA to the Secretary
of Health and Human Services of an erroneous con-
tribution to such MSA and of the net income attrib-
utable to such contribution.
‘‘(4) TRUSTEE-TO-TRUSTEE TRANSFERS.—Sec-
tion 220(f)(2) and paragraph (2) of this subsection
shall not apply to any trustee-to-trustee transfer
from a MedicarePlus MSA of an account holder to
another MedicarePlus MSA of such account holder.
‘‘(d) SPECIAL RULES FOR TREATMENT OF ACCOUNT
AFTER DEATH OF ACCOUNT HOLDER.—In applying sec-
tion 220(f)(8)(A) to an account which was a MedicarePlus
MSA of a decedent, the rules of section 220(f) shall apply
in lieu of the rules of subsection (c) of this section with
respect to the spouse as the account holder of such
MedicarePlus MSA.
‘‘(e) REPORTS.—In the case of a MedicarePlus MSA,
the report under section 220(h)—
908
‘‘(1) shall include the fair market value of the
assets in such MedicarePlus MSA as of the close of
each calendar year, and
‘‘(2) shall be furnished to the account holder—
‘‘(A) not later than January 31 of the cal-
endar year following the calendar year to which
such reports relate, and
‘‘(B) in such manner as the Secretary pre-
scribes in such regulations.
‘‘(f) COORDINATION WITH LIMITATION ON NUMBER
OF TAXPAYERS HAVING MEDICAL SAVINGS ACCOUNTS.—
Subsection (i) of section 220 shall not apply to an individ-
ual 
with 
respect 
to 
a 
MedicarePlus 
MSA, 
and
MedicarePlus MSA’s shall not be taken into account in
determining whether the numerical limitations under sec-
tion 220(j) are exceeded.’’
(b) TECHNICAL AMENDMENTS.—
(1) The last sentence of section 4973(d) of such
Code is amended by inserting ‘‘or section 138(c)(3)’’
after ‘‘section 220(f)(3)’’.
(2) Subsection (b) of section 220 of such Code
is amended by adding at the end the following new
paragraph:
‘‘(7) MEDICARE ELIGIBLE INDIVIDUALS.—The
limitation under this subsection for any month with
909
respect to an individual shall be zero for the first
month such individual is entitled to benefits under
title XVIII of the Social Security Act and for each
month thereafter.’’
(3) The table of sections for part III of sub-
chapter B of chapter 1 of such Code is amended by
striking the last item and inserting the following:
‘‘Sec. 138. MedicarePlus MSA.
‘‘Sec. 139. Cross references to other Acts.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1998.
CHAPTER 2—INTEGRATED LONG-TERM
CARE PROGRAMS
Subchapter A—Programs of All-inclusive
Care for the Elderly (PACE)
SEC. 10011. COVERAGE OF PACE UNDER THE MEDICARE
PROGRAM.
Title XVIII (42 U.S.C. 1395 et seq.) is amended by
adding at the end the following new section:
‘‘PAYMENTS TO, AND COVERAGE OF BENEFITS UNDER,
PROGRAMS OF ALL-INCLUSIVE CARE FOR THE EL-
DERLY (PACE)
‘‘SEC. 1894. (a) RECEIPT OF BENEFITS THROUGH
ENROLLMENT
IN PACE PROGRAM; DEFINITIONS
FOR
PACE PROGRAM RELATED TERMS.—
910
‘‘(1) BENEFITS THROUGH ENROLLMENT IN A
PACE PROGRAM.—In accordance with this section, in
the case of an individual who is entitled to benefits
under part A or enrolled under part B and who is
a PACE program eligible individual (as defined in
paragraph (5)) with respect to a PACE program of-
fered by a PACE provider under a PACE program
agreement—
‘‘(A) the individual may enroll in the pro-
gram under this section; and
‘‘(B) so long as the individual is so en-
rolled and in accordance with regulations—
‘‘(i) the individual shall receive bene-
fits under this title solely through such
program, and
‘‘(ii) the PACE provider is entitled to
payment under and in accordance with this
section and such agreement for provision
of such benefits.
‘‘(2) PACE PROGRAM DEFINED.—For purposes
of this section and section 1932, the term ‘PACE
program’ means a program of all-inclusive care for
the elderly that meets the following requirements:
911
‘‘(A) OPERATION.—The entity operating
the program is a PACE provider (as defined in
paragraph (3)).
‘‘(B) COMPREHENSIVE
BENEFITS.—The
program provides comprehensive health care
services to PACE program eligible individuals
in accordance with the PACE program agree-
ment and regulations under this section.
‘‘(C) TRANSITION.—In the case of an indi-
vidual who is enrolled under the program under
this section and whose enrollment ceases for
any reason (including the individual no longer
qualifies as a PACE program eligible individual,
the termination of a PACE program agreement,
or otherwise), the program provides assistance
to the individual in obtaining necessary transi-
tional care through appropriate referrals and
making the individual’s medical records avail-
able to new providers.
‘‘(3) PACE PROVIDER DEFINED.—
‘‘(A) IN GENERAL.—For purposes of this
section, the term ‘PACE provider’ means an en-
tity that—
‘‘(i) subject to subparagraph (B), is
(or is a distinct part of) a public entity or
912
a private, nonprofit entity organized for
charitable 
purposes 
under 
section
501(c)(3) of the Internal Revenue Code of
1986, and
‘‘(ii) has entered into a PACE pro-
gram agreement with respect to its oper-
ation of a PACE program.
‘‘(B) TREATMENT OF PRIVATE, FOR-PROF-
IT PROVIDERS.—Clause (i) of subparagraph (A)
shall not apply—
‘‘(i) to entities subject to a dem-
onstration project waiver under subsection
(h); and
‘‘(ii) after the date the report under
section 10014(b) of the Balanced Budget
Act of 1997 is submitted, unless the Sec-
retary determines that any of the findings
described in subparagraph (A), (B), (C) or
(D) of paragraph (2) of such section are
true.
‘‘(4) PACE PROGRAM AGREEMENT DEFINED.—
For purposes of this section, the term ‘PACE pro-
gram agreement’ means, with respect to a PACE
provider, an agreement, consistent with this section,
section 1932 (if applicable), and regulations promul-
913
gated to carry out such sections, between the PACE
provider and the Secretary, or an agreement between
the PACE provider and a State administering agen-
cy for the operation of a PACE program by the pro-
vider under such sections.
‘‘(5) PACE PROGRAM
ELIGIBLE
INDIVIDUAL
DEFINED.—For purposes of this section, the term
‘PACE program eligible individual’ means, with re-
spect to a PACE program, an individual who—
‘‘(A) is 55 years of age or older;
‘‘(B) subject to subsection (c)(4), is deter-
mined under subsection (c) to require the level
of care required under the State medicaid plan
for coverage of nursing facility services;
‘‘(C) resides in the service area of the
PACE program; and
‘‘(D) meets such other eligibility conditions
as may be imposed under the PACE program
agreement for the program under subsection
(e)(2)(A)(ii).
‘‘(6) PACE PROTOCOL.—For purposes of this
section, the term ‘PACE protocol’ means the Proto-
col for the Program of All-inclusive Care for the El-
derly (PACE), as published by On Lok, Inc., as of
April 14, 1995.
914
‘‘(7) PACE DEMONSTRATION WAIVER PROGRAM
DEFINED.—For purposes of this section, the term
‘PACE demonstration waiver program’ means a
demonstration program under either of the following
sections (as in effect before the date of their repeal):
‘‘(A) Section 603(c) of the Social Security
Amendments of 1983 (Public Law 98–21), as
extended by section 9220 of the Consolidated
Omnibus Budget Reconciliation Act of 1985
(Public Law 99–272).
‘‘(B) Section 9412(b) of the Omnibus
Budget Reconciliation Act of 1986 (Public Law
99–509).
‘‘(8) STATE
ADMINISTERING
AGENCY
DE-
FINED.—For purposes of this section, the term
‘State administering agency’ means, with respect to
the operation of a PACE program in a State, the
agency of that State (which may be the single agen-
cy responsible for administration of the State plan
under title XIX in the State) responsible for admin-
istering PACE program agreements under this sec-
tion and section 1932 in the State.
‘‘(9) TRIAL PERIOD DEFINED.—
‘‘(A) IN GENERAL.—For purposes of this
section, the term ‘trial period’ means, with re-
915
spect to a PACE program operated by a PACE
provider under a PACE program agreement,
the first 3 contract years under such agreement
with respect to such program.
‘‘(B) TREATMENT
OF
ENTITIES
PRE-
VIOUSLY
OPERATING
PACE
DEMONSTRATION
WAIVER
PROGRAMS.—Each contract year (in-
cluding a year occurring before the effective
date of this section) during which an entity has
operated a PACE demonstration waiver pro-
gram shall be counted under subparagraph (A)
as a contract year during which the entity oper-
ated a PACE program as a PACE provider
under a PACE program agreement.
‘‘(10) REGULATIONS.—For purposes of this
section, the term ‘regulations’ refers to interim final
or final regulations promulgated under subsection (f)
to carry out this section and section 1932.
‘‘(b) SCOPE
OF BENEFITS; BENEFICIARY SAFE-
GUARDS.—
‘‘(1) IN GENERAL.—Under a PACE program
agreement, a PACE provider shall—
‘‘(A) provide to PACE program eligible in-
dividuals, regardless of source of payment and
916
directly or under contracts with other entities,
at a minimum—
‘‘(i) all items and services covered
under this title (for individuals enrolled
under this section) and all items and serv-
ices covered under title XIX, but without
any limitation or condition as to amount,
duration, or scope and without application
of deductibles, copayments, coinsurance, or
other cost-sharing that would otherwise
apply under this title or such title, respec-
tively; and
‘‘(ii) all additional items and services
specified in regulations, based upon those
required under the PACE protocol;
‘‘(B) provide such enrollees access to nec-
essary covered items and services 24 hours per
day, every day of the year;
‘‘(C) provide services to such enrollees
through 
a 
comprehensive, 
multidisciplinary
health and social services delivery system which
integrates acute and long-term care services
pursuant to regulations; and
‘‘(D) specify the covered items and services
that will not be provided directly by the entity,
917
and to arrange for delivery of those items and
services through contracts meeting the require-
ments of regulations.
‘‘(2) QUALITY
ASSURANCE; 
PATIENT
SAFE-
GUARDS.—The PACE program agreement shall re-
quire the PACE provider to have in effect at a mini-
mum—
‘‘(A) a written plan of quality assurance
and improvement, and procedures implementing
such plan, in accordance with regulations, and
‘‘(B) written safeguards of the rights of
enrolled participants (including a patient bill of
rights and procedures for grievances and ap-
peals) in accordance with regulations and with
other requirements of this title and Federal and
State law designed for the protection of pa-
tients.
‘‘(c) ELIGIBILITY DETERMINATIONS.—
‘‘(1) IN
GENERAL.—The determination of
whether an individual is a PACE program eligible
individual—
‘‘(A) shall be made under and in accord-
ance with the PACE program agreement, and
‘‘(B) who is entitled to medical assistance
under title XIX, shall be made (or who is not
918
so entitled, may be made) by the State admin-
istering agency.
‘‘(2) CONDITION.—An individual is not a PACE
program eligible individual (with respect to payment
under this section) unless the individual’s health sta-
tus has been determined, in accordance with regula-
tions, to be comparable to the health status of indi-
viduals who have participated in the PACE dem-
onstration waiver programs. Such determination
shall be based upon information on health status
and related indicators (such as medical diagnoses
and measures of activities of daily living, instrumen-
tal activities of daily living, and cognitive impair-
ment) that are part of a uniform minimum data set
collected by PACE providers on potential eligible in-
dividuals.
‘‘(3) 
ANNUAL
ELIGIBILITY
RECERTIFI-
CATIONS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), the determination described in sub-
section (a)(5)(B) for an individual shall be re-
evaluated at least once a year.
‘‘(B) EXCEPTION.—The requirement of
annual reevaluation under subparagraph (A)
may be waived during a period in accordance
919
with regulations in those cases where the State
administering agency determines that there is
no reasonable expectation of improvement or
significant change in an individual’s condition
during the period because of the advanced age,
severity of the advanced age, severity of chronic
condition, or degree of impairment of functional
capacity of the individual involved.
‘‘(4) CONTINUATION OF ELIGIBILITY.—An indi-
vidual who is a PACE program eligible individual
may be deemed to continue to be such an individual
notwithstanding a determination that the individual
no longer meets the requirement of subsection
(a)(5)(B) if, in accordance with regulations, in the
absence of continued coverage under a PACE pro-
gram the individual reasonably would be expected to
meet such requirement within the succeeding 6-
month period.
‘‘(5) ENROLLMENT; DISENROLLMENT.—The en-
rollment and disenrollment of PACE program eligi-
ble individuals in a PACE program shall be pursu-
ant to regulations and the PACE program agree-
ment and shall permit enrollees to voluntarily
disenroll without cause at any time.
920
‘‘(d) PAYMENTS
TO
PACE PROVIDERS
ON
A
CAPITATED BASIS.—
‘‘(1) IN GENERAL.—In the case of a PACE pro-
vider with a PACE program agreement under this
section, except as provided in this subsection or by
regulations, the Secretary shall make prospective
monthly payments of a capitation amount for each
PACE program eligible individual enrolled under the
agreement under this section in the same manner
and from the same sources as payments are made
to a MedicarePlus organization under section 1854
(or, for periods beginning before January 1, 1999,
to an eligible organization under a risk-sharing con-
tract under section 1876). Such payments shall be
subject to adjustment in the manner described in
section 1854(a)(2) or section 1876(a)(1)(E), as the
case may be.
‘‘(2) CAPITATION
AMOUNT.—The capitation
amount to be applied under this subsection for a
provider for a contract year shall be an amount
specified in the PACE program agreement for the
year. Such amount shall be based upon payment
rates established for purposes of payment under sec-
tion 1854 (or, for periods before January 1, 1999,
for purposes of risk-sharing contracts under section
921
1876) and shall be adjusted to take into account the
comparative frailty of PACE enrollees and such
other factors as the Secretary determines to be ap-
propriate. Such amount under such an agreement
shall be computed in a manner so that the total pay-
ment level for all PACE program eligible individuals
enrolled under a program is less than the projected
payment under this title for a comparable population
not enrolled under a PACE program.
‘‘(e) PACE PROGRAM AGREEMENT.—
‘‘(1) REQUIREMENT.—
‘‘(A) IN
GENERAL.—The Secretary, in
close cooperation with the State administering
agency, shall establish procedures for entering
into, extending, and terminating PACE pro-
gram agreements for the operation of PACE
programs by entities that meet the require-
ments for a PACE provider under this section,
section 1932, and regulations.
‘‘(B) NUMERICAL LIMITATION.—
‘‘(i) IN
GENERAL.—The Secretary
shall not permit the number of PACE pro-
viders with which agreements are in effect
under this section or under section 9412(b)
922
of the Omnibus Budget Reconciliation Act
of 1986 to exceed—
‘‘(I) 40 as of the date of the en-
actment of this section, or
‘‘(II) as of each succeeding anni-
versary of such date, the numerical
limitation under this subparagraph for
the preceding year plus 20.
Subclause (II) shall apply without regard
to the actual number of agreements in ef-
fect as of a previous anniversary date.
‘‘(ii) TREATMENT
OF
CERTAIN
PRI-
VATE, FOR-PROFIT PROVIDERS.—The nu-
merical limitation in clause (i) shall not
apply to a PACE provider that—
‘‘(I) is operating under a dem-
onstration project waiver under sub-
section (h), or
‘‘(II) was operating under such a
waiver and subsequently qualifies for
PACE provider status pursuant to
subsection (a)(3)(B)(ii).
‘‘(2) SERVICE AREA AND ELIGIBILITY.—
‘‘(A) IN
GENERAL.—A PACE program
agreement for a PACE program—
923
‘‘(i) shall designate the service area of
the program;
‘‘(ii) may provide additional require-
ments for individuals to qualify as PACE
program eligible individuals with respect to
the program;
‘‘(iii) shall be effective for a contract
year, but may be extended for additional
contract years in the absence of a notice by
a party to terminate and is subject to ter-
mination by the Secretary and the State
administering agency at any time for cause
(as provided under the agreement);
‘‘(iv) shall require a PACE provider to
meet all applicable State and local laws
and requirements; and
‘‘(v) shall have such additional terms
and conditions as the parties may agree to
consistent with this section and regula-
tions.
‘‘(B) SERVICE
AREA
OVERLAP.—In des-
ignating a service area under a PACE program
agreement under subparagraph (A)(i), the Sec-
retary (in consultation with the State admin-
istering agency) may exclude from designation
924
an area that is already covered under another
PACE program agreement, in order to avoid
unnecessary duplication of services and avoid
impairing the financial and service viability of
an existing program.
‘‘(3) DATA COLLECTION.—
‘‘(A) IN GENERAL.—Under a PACE pro-
gram agreement, the PACE provider shall—
‘‘(i) collect data,
‘‘(ii) maintain, and afford the Sec-
retary and the State administering agency
access to, the records relating to the pro-
gram, including pertinent financial, medi-
cal, and personnel records, and
‘‘(iii) make to the Secretary and the
State administering agency reports that
the Secretary finds (in consultation with
State administering agencies) necessary to
monitor the operation, cost, and effective-
ness of the PACE program under this title
and title XIX.
‘‘(B) REQUIREMENTS DURING TRIAL PE-
RIOD.—During the first three years of oper-
ation of a PACE program (either under this
section or under a PACE demonstration waiver
925
program), the PACE provider shall provide
such additional data as the Secretary specifies
in regulations in order to perform the oversight
required under paragraph (4)(A).
‘‘(4) OVERSIGHT.—
‘‘(A) ANNUAL, CLOSE OVERSIGHT DURING
TRIAL PERIOD.—During the trial period (as de-
fined in subsection (a)(9)) with respect to a
PACE program operated by a PACE provider,
the Secretary (in cooperation with the State ad-
ministering agency) shall conduct a comprehen-
sive annual review of the operation of the
PACE program by the provider in order to as-
sure compliance with the requirements of this
section and regulations. Such a review shall in-
clude—
‘‘(i) an on-site visit to the program
site;
‘‘(ii) comprehensive assessment of a
provider’s fiscal soundness;
‘‘(iii) comprehensive assessment of the
provider’s capacity to provide all PACE
services to all enrolled participants;
‘‘(iv) detailed analysis of the entity’s
substantial compliance with all significant
926
requirements of this section and regula-
tions; and
‘‘(v) any other elements the Secretary
or State agency considers necessary or ap-
propriate.
‘‘(B) CONTINUING OVERSIGHT.—After the
trial period, the Secretary (in cooperation with
the State administering agency) shall continue
to conduct such review of the operation of
PACE providers and PACE programs as may
be appropriate, taking into account the per-
formance level of a provider and compliance of
a provider with all significant requirements of
this section and regulations.
‘‘(C) DISCLOSURE.—The results of reviews
under this paragraph shall be reported prompt-
ly to the PACE provider, along with any rec-
ommendations for changes to the provider’s
program, and shall be made available to the
public upon request.
‘‘(5) TERMINATION OF PACE PROVIDER AGREE-
MENTS.—
‘‘(A) IN GENERAL.—Under regulations—
927
‘‘(i) the Secretary or a State admin-
istering agency may terminate a PACE
program agreement for cause, and
‘‘(ii) a PACE provider may terminate
such an agreement after appropriate notice
to the Secretary, the State agency, and en-
rollees.
‘‘(B) CAUSES FOR TERMINATION.—In ac-
cordance with regulations establishing proce-
dures for termination of PACE program agree-
ments, the Secretary or a State administering
agency may terminate a PACE program agree-
ment with a PACE provider for, among other
reasons, the fact that—
‘‘(i) the Secretary or State admin-
istering agency determines that—
‘‘(I) there are significant defi-
ciencies in the quality of care provided
to enrolled participants; or
‘‘(II) the provider has failed to
comply substantially with conditions
for a program or provider under this
section or section 1932; and
‘‘(ii) the entity has failed to develop
and successfully initiate, within 30 days of
928
the date of the receipt of written notice of
such a determination, and continue imple-
mentation of a plan to correct the defi-
ciencies.
‘‘(C) TERMINATION AND TRANSITION PRO-
CEDURES.—An entity whose PACE provider
agreement is terminated under this paragraph
shall implement the transition procedures re-
quired under subsection (a)(2)(C).
‘‘(6) SECRETARY’S OVERSIGHT; ENFORCEMENT
AUTHORITY.—
‘‘(A) IN GENERAL.—Under regulations, if
the Secretary determines (after consultation
with the State administering agency) that a
PACE provider is failing substantially to com-
ply with the requirements of this section and
regulations, the Secretary (and the State ad-
ministering agency) may take any or all of the
following actions:
‘‘(i) Condition the continuation of the
PACE program agreement upon timely
execution of a corrective action plan.
‘‘(ii) Withhold some or all further
payments under the PACE program agree-
ment under this section or section 1932
929
with respect to PACE program services
furnished by such provider until the defi-
ciencies have been corrected.
‘‘(iii) Terminate such agreement.
‘‘(B) APPLICATION
OF
INTERMEDIATE
SANCTIONS.—Under regulations, the Secretary
may provide for the application against a
PACE provider of remedies described in section
1857(f)(2) (or, for periods before January 1,
1999, section 1876(i)(6)(B)) or 1903(m)(5)(B)
in the case of violations by the provider of the
type 
described 
in 
section 
1857(f)(1) 
(or
1876(i)(6)(A) 
for 
such 
periods) 
or
1903(m)(5)(A), respectively (in relation to
agreements, enrollees, and requirements under
this section or section 1932, respectively).
‘‘(7) PROCEDURES FOR TERMINATION OR IMPO-
SITION OF SANCTIONS.—Under regulations, the pro-
visions of section 1857(g) (or for periods before Jan-
uary 1, 1999, section 1876(i)(9)) shall apply to ter-
mination and sanctions respecting a PACE program
agreement and PACE provider under this subsection
in the same manner as they apply to a termination
and sanctions with respect to a contract and a
930
MedicarePlus organization under part C (or for such
periods an eligible organization under section 1876).
‘‘(8) TIMELY CONSIDERATION OF APPLICATIONS
FOR PACE PROGRAM PROVIDER STATUS.—In consid-
ering an application for PACE provider program
status, the application shall be deemed approved un-
less the Secretary, within 90 days after the date of
the submission of the application to the Secretary,
either denies such request in writing or informs the
applicant in writing with respect to any additional
information that is needed in order to make a final
determination with respect to the application. After
the date the Secretary receives such additional infor-
mation, the application shall be deemed approved
unless the Secretary, within 90 days of such date,
denies such request.
‘‘(f) REGULATIONS.—
‘‘(1) IN GENERAL.—The Secretary shall issue
interim final or final regulations to carry out this
section and section 1932.
‘‘(2) USE OF PACE PROTOCOL.—
‘‘(A) IN GENERAL.—In issuing such regu-
lations, the Secretary shall, to the extent con-
sistent with the provisions of this section, incor-
porate the requirements applied to PACE dem-
931
onstration waiver programs under the PACE
protocol.
‘‘(B) FLEXIBILITY.—The Secretary (in
close consultation with State administering
agencies) may modify or waive such provisions
of the PACE protocol in order to provide for
reasonable flexibility in adapting the PACE
service delivery model to the needs of particular
organizations (such as those in rural areas or
those that may determine it appropriate to use
non-staff physicians accordingly to State licens-
ing law requirements) under this section and
section 1932 where such flexibility is not incon-
sistent with and would not impair the essential
elements, objectives, and requirements of the
this section, including—
‘‘(i) the focus on frail elderly qualify-
ing individuals who require the level of
care provided in a nursing facility;
‘‘(ii) the delivery of comprehensive, in-
tegrated acute and long-term care services;
‘‘(iii) the interdisciplinary team ap-
proach to care management and service de-
livery;
932
‘‘(iv) capitated, integrated financing
that allows the provider to pool payments
received from public and private programs
and individuals; and
‘‘(v) the assumption by the provider
over time of full financial risk.
‘‘(3) APPLICATION
OF
CERTAIN
ADDITIONAL
BENEFICIARY AND PROGRAM PROTECTIONS.—
‘‘(A) IN GENERAL.—In issuing such regu-
lations and subject to subparagraph (B), the
Secretary may apply with respect to PACE pro-
grams, providers, and agreements such require-
ments of part C (or, for periods before January
1, 1999, section 1876) and section 1903(m) re-
lating to protection of beneficiaries and pro-
gram integrity as would apply to MedicarePlus
organizations under part C (or for such periods
eligible organizations under risk-sharing con-
tracts under section 1876) and to health main-
tenance organizations under prepaid capitation
agreements under section 1903(m).
‘‘(B) CONSIDERATIONS.—In issuing such
regulations, the Secretary shall—
‘‘(i) take into account the differences
between populations served and benefits
933
provided under this section and under part
C (or, for periods before January 1, 1999,
section 1876) and section 1903(m);
‘‘(ii) not include any requirement that
conflicts with carrying out PACE pro-
grams under this section; and
‘‘(iii) not include any requirement re-
stricting the proportion of enrollees who
are eligible for benefits under this title or
title XIX.
‘‘(g) WAIVERS OF REQUIREMENTS.—With respect to
carrying out a PACE program under this section, the fol-
lowing requirements of this title (and regulations relating
to such requirements) are waived and shall not apply:
‘‘(1) Section 1812, insofar as it limits coverage
of institutional services.
‘‘(2) Sections 1813, 1814, 1833, and 1886, in-
sofar as such sections relate to rules for payment for
benefits.
‘‘(3) Sections 1814(a)(2)(B), 1814(a)(2)(C),
and 1835(a)(2)(A), insofar as they limit coverage of
extended care services or home health services.
‘‘(4) Section 1861(i), insofar as it imposes a 3-
day prior hospitalization requirement for coverage of
extended care services.
934
‘‘(5) Sections 1862(a)(1) and 1862(a)(9), inso-
far as they may prevent payment for PACE program
services to individuals enrolled under PACE pro-
grams.
‘‘(h) DEMONSTRATION PROJECT FOR FOR-PROFIT
ENTITIES.—
‘‘(1) IN
GENERAL.—In order to demonstrate
the operation of a PACE program by a private, for-
profit entity, the Secretary (in close consultation
with State administering agencies) shall grant waiv-
ers from the requirement under subsection (a)(3)
that a PACE provider may not be a for-profit, pri-
vate entity.
‘‘(2) SIMILAR TERMS AND CONDITIONS.—
‘‘(A) IN
GENERAL.—Except as provided
under subparagraph (B), and paragraph (1),
the terms and conditions for operation of a
PACE program by a provider under this sub-
section shall be the same as those for PACE
providers that are nonprofit, private organiza-
tions.
‘‘(B) NUMERICAL LIMITATION.—The num-
ber of programs for which waivers are granted
under this subsection shall not exceed 10. Pro-
grams with waivers granted under this sub-
935
section shall not be counted against the numeri-
cal limitation specified in subsection (e)(1)(B).
‘‘(i) CONSTRUCTION.—Nothing in this section or sec-
tion 1932 shall be construed as preventing a PACE pro-
vider from entering into contracts with other governmental
or nongovernmental payers for the care of PACE program
eligible individuals who are not eligible for benefits under
part A, or enrolled under part B, or eligible for medical
assistance under title XIX.’’.
SEC. 10012. ESTABLISHMENT OF PACE PROGRAM AS MEDIC-
AID STATE OPTION.
(a) IN GENERAL.—Title XIX is amended—
(1) in section 1905(a) (42 U.S.C. 1396d(a))—
(A) by striking ‘‘and’’ at the end of para-
graph (24);
(B) by redesignating paragraph (25) as
paragraph (26); and
(C) by inserting after paragraph (24) the
following new paragraph:
‘‘(25) services furnished under a PACE pro-
gram under section 1932 to PACE program eligible
individuals enrolled under the program under such
section; and’’;
936
(2) by redesignating section 1932, as redesig-
nated by section 114(a) of Public Law 104–193, as
section 1933, and
(3) by inserting after section 1931 the following
new section:
‘‘SEC. 1932. PROGRAM OF ALL-INCLUSIVE CARE FOR THE
ELDERLY (PACE).
‘‘(a) OPTION.—
‘‘(1) IN GENERAL.—A State may elect to pro-
vide medical assistance under this section with re-
spect to PACE program services to PACE program
eligible individuals who are eligible for medical as-
sistance under the State plan and who are enrolled
in a PACE program under a PACE program agree-
ment. Such individuals need not be eligible for bene-
fits under part A, or enrolled under part B, of title
XVIII to be eligible to enroll under this section.
‘‘(2) BENEFITS
THROUGH
ENROLLMENT
IN
PACE PROGRAM.—In the case of an individual en-
rolled with a PACE program pursuant to such an
election—
‘‘(A) the individual shall receive benefits
under the plan solely through such program,
and
937
‘‘(B) the PACE provider shall receive pay-
ment in accordance with the PACE program
agreement for provision of such benefits.
‘‘(3) APPLICATION OF DEFINITIONS.—The defi-
nitions of terms under section 1894(a) shall apply
under this section in the same manner as they apply
under section 1894.
‘‘(b) APPLICATION OF MEDICARE TERMS AND CON-
DITIONS.—Except as provided in this section, the terms
and conditions for the operation and participation of
PACE program eligible individuals in PACE programs of-
fered by PACE providers under PACE program agree-
ments under section 1894 shall apply for purposes of this
section.
‘‘(c) ADJUSTMENT IN PAYMENT AMOUNTS.—In the
case of individuals enrolled in a PACE program under this
section, the amount of payment under this section shall
not be the amount calculated under section 1894(d), but
shall be an amount, specified under the PACE agreement,
which is less than the amount that would otherwise have
been made under the State plan if the individuals were
not so enrolled. The payment under this section shall be
in addition to any payment made under section 1894 for
individuals who are enrolled in a PACE program under
such section.
938
‘‘(d) WAIVERS OF REQUIREMENTS.—With respect to
carrying out a PACE program under this section, the fol-
lowing requirements of this title (and regulations relating
to such requirements) shall not apply:
‘‘(1) Section 1902(a)(1), relating to any re-
quirement that PACE programs or PACE program
services be provided in all areas of a State.
‘‘(2) Section 1902(a)(10), insofar as such sec-
tion relates to comparability of services among dif-
ferent population groups.
‘‘(3) Sections 1902(a)(23) and 1915(b)(4), re-
lating to freedom of choice of providers under a
PACE program.
‘‘(4) Section 1903(m)(2)(A), insofar as it re-
stricts a PACE provider from receiving prepaid capi-
tation payments.
‘‘(e) POST-ELIGIBILITY TREATMENT OF INCOME.—
A State may provide for post-eligibility treatment of in-
come for individuals enrolled in PACE programs under
this section in the same manner as a State treats post-
eligibility income for individuals receiving services under
a waiver under section 1915(c).’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 1902(j) (42 U.S.C. 1396a(j)) is
amended by striking ‘‘(25)’’ and inserting ‘‘(26)’’.
939
(2) Section 1924(a)(5) (42 U.S.C. 1396r–
5(a)(5)) is amended—
(A) in the heading, by striking ‘‘FROM OR-
GANIZATIONS
RECEIVING
CERTAIN
WAIVERS’’
and inserting ‘‘UNDER PACE PROGRAMS’’, and
(B) by striking ‘‘from any organization’’
and all that follows and inserting ‘‘under a
PACE demonstration waiver program (as de-
fined in subsection (a)(7) of section 1894) or
under a PACE program under section 1932.’’.
(3) 
Section 
1903(f)(4)(C) 
(42 
U.S.C.
1396b(f)(4)(C)) is amended by inserting ‘‘or who is
a PACE program eligible individual enrolled in a
PACE program under section 1932,’’ after ‘‘section
1902(a)(10)(A),’’.
SEC. 10013. EFFECTIVE DATE; TRANSITION.
(a) TIMELY ISSUANCE OF REGULATIONS; EFFECTIVE
DATE.—The Secretary of Health and Human Services
shall promulgate regulations to carry out this subchapter
in a timely manner. Such regulations shall be designed
so that entities may establish and operate PACE pro-
grams under sections 1894 and 1932 for periods begin-
ning not later than 1 year after the date of the enactment
of this Act.
940
(b) EXPANSION AND TRANSITION FOR PACE DEM-
ONSTRATION PROJECT WAIVERS.—
(1) EXPANSION IN CURRENT NUMBER AND EX-
TENSION
OF
DEMONSTRATION
PROJECTS.—Section
9412(b) of the Omnibus Budget Reconciliation Act
of 1986, as amended by section 4118(g) of the Om-
nibus Budget Reconciliation Act of 1987, is amend-
ed—
(A) in paragraph (1), by inserting before
the period at the end the following: ‘‘, except
that the Secretary shall grant waivers of such
requirements to up to the applicable numerical
limitation specified in section 1894(e)(1)(B) of
the Social Security Act’’; and
(B) in paragraph (2)—
(i) in subparagraph (A), by striking ‘‘,
including permitting the organization to
assume progressively (over the initial 3-
year period of the waiver) the full financial
risk’’; and
(ii) in subparagraph (C), by adding at
the end the following: ‘‘In granting further
extensions, an organization shall not be re-
quired to provide for reporting of informa-
941
tion which is only required because of the
demonstration nature of the project.’’.
(2) ELIMINATION
OF
REPLICATION
REQUIRE-
MENT.—Subparagraph (B) of paragraph (2) of such
section shall not apply to waivers granted under
such section after the date of the enactment of this
Act.
(3) TIMELY
CONSIDERATION
OF
APPLICA-
TIONS.—In considering an application for waivers
under such section before the effective date of re-
peals under subsection (c), subject to the numerical
limitation under the amendment made by paragraph
(1), the application shall be deemed approved unless
the Secretary of Health and Human Services, within
90 days after the date of its submission to the Sec-
retary, either denies such request in writing or in-
forms the applicant in writing with respect to any
additional information which is needed in order to
make a final determination with respect to the appli-
cation. After the date the Secretary receives such
additional information, the application shall be
deemed approved unless the Secretary, within 90
days of such date, denies such request.
942
(c) PRIORITY AND SPECIAL CONSIDERATION IN AP-
PLICATION.—During the 3-year period beginning on the
date of the enactment of this Act:
(1) PROVIDER
STATUS.—The Secretary of
Health and Human Services shall give priority, in
processing applications of entities to qualify as
PACE programs under section 1894 or 1932 of the
Social Security Act—
(A) first, to entities that are operating a
PACE demonstration waiver program (as de-
fined in section 1894(a)(7) of such Act), and
(B) then entities that have applied to oper-
ate such a program as of May 1, 1997.
(2) NEW WAIVERS.—The Secretary shall give
priority, in the awarding of additional waivers under
section 9412(b) of the Omnibus Budget Reconcili-
ation Act of 1986—
(A) to any entities that have applied for
such waivers under such section as of May 1,
1997; and
(B) to any entity that, as of May 1, 1997,
has formally contracted with a State to provide
services for which payment is made on a
capitated basis with an understanding that the
entity was seeking to become a PACE provider.
943
(3) SPECIAL CONSIDERATION.—The Secretary
shall give special consideration, in the processing of
applications described in paragraph (1) and the
awarding of waivers described in paragraph (2), to
an entity which as of May 1, 1997 through formal
activities (such as entering into contracts for fea-
sibility studies) has indicated a specific intent to be-
come a PACE provider.
(d) REPEAL OF CURRENT PACE DEMONSTRATION
PROJECT WAIVER AUTHORITY.—
(1) IN GENERAL.—Subject to paragraph (2),
the following provisions of law are repealed:
(A) Section 603(c) of the Social Security
Amendments of 1983 (Public Law 98–21).
(B) Section 9220 of the Consolidated Om-
nibus Budget Reconciliation Act of 1985 (Pub-
lic Law 99–272).
(C) Section 9412(b) of the Omnibus Budg-
et Reconciliation Act of 1986 (Public Law 99–
509).
(2) DELAY IN APPLICATION.—
(A) IN
GENERAL.—Subject to subpara-
graph (B), the repeals made by paragraph (1)
shall not apply to waivers granted before the
944
initial effective date of regulations described in
subsection (a).
(B) APPLICATION
TO
APPROVED
WAIV-
ERS.—Such repeals shall apply to waivers
granted before such date only after allowing
such organizations a transition period (of up to
24 months) in order to permit sufficient time
for an orderly transition from demonstration
project authority to general authority provided
under the amendments made by this sub-
chapter.
SEC. 10014. STUDY AND REPORTS.
(a) STUDY.—
(1) IN GENERAL.—The Secretary of Health and
Human Services (in close consultation with State
administering agencies, as defined in section
1894(a)(8) of the Social Security Act) shall conduct
a study of the quality and cost of providing PACE
program services under the medicare and medicaid
programs under the amendments made by this sub-
chapter.
(2) STUDY OF PRIVATE, FOR-PROFIT PROVID-
ERS.—Such study shall specifically compare the
costs, quality, and access to services by entities that
are private, for-profit entities operating under dem-
945
onstration projects waivers granted under section
1894(h) of the Social Security Act with the costs,
quality, and access to services of other PACE pro-
viders.
(b) REPORT.—
(1) IN GENERAL.—Not later than 4 years after
the date of the enactment of this Act, the Secretary
shall provide for a report to Congress on the impact
of such amendments on quality and cost of services.
The Secretary shall include in such report such rec-
ommendations for changes in the operation of such
amendments as the Secretary deems appropriate.
(2) TREATMENT OF PRIVATE, FOR-PROFIT PRO-
VIDERS.—The report shall include specific findings
on whether any of the following findings is true:
(A) The number of covered lives enrolled
with entities operating under demonstration
project waivers under section 1894(h) of the
Social Security Act is fewer than 800 (or such
lesser number as the Secretary may find statis-
tically sufficient to make determinations re-
specting findings described in the succeeding
subparagraphs).
946
(B) The population enrolled with such en-
tities is less frail than the population enrolled
with other PACE providers.
(C) Access to or quality of care for individ-
uals enrolled with such entities is lower than
such access or quality for individuals enrolled
with other PACE providers.
(D) The application of such section has re-
sulted in an increase in expenditures under the
medicare or medicaid programs above the ex-
penditures that would have been made if such
section did not apply.
(c) INFORMATION
INCLUDED
IN
ANNUAL
REC-
OMMENDATIONS.—The Medicare Payment Advisory Com-
mission shall include in its annual report under section
1805(b)(1)(B) of the Social Security Act recommenda-
tions on the methodology and level of payments made to
PACE providers under section 1894(d) of such Act and
on the treatment of private, for-profit entities as PACE
providers.
947
Subchapter B—Social Health Maintenance
Organizations
SEC. 10015. SOCIAL HEALTH MAINTENANCE ORGANIZA-
TIONS (SHMOS).
(a) EXTENSION OF DEMONSTRATION PROJECT AU-
THORITIES.—Section 4018(b) of the Omnibus Budget
Reconciliation Act of 1987 is amended—
(1) in paragraph (1), by striking ‘‘1997’’ and
inserting ‘‘2000’’, and
(2) in paragraph (4), by striking ‘‘1998’’ and
inserting ‘‘2001’’.
(b) EXPANSION OF CAP.—Section 13567(c) of the
Omnibus Budget Reconciliation Act of 1993 is amended
by striking ‘‘12,000’’ and inserting ‘‘36,000’’.
(b) REPORT ON INTEGRATION AND TRANSITION.—
(1) IN GENERAL.—The Secretary of Health and
Human Services shall submit to Congress, by not
later than January 1, 1999, a plan for the integra-
tion of health plans offered by social health mainte-
nance organizations (including SHMO I and SHMO
II sites developed under section 2355 of the Deficit
Reduction Act of 1984 and under the amendment
made by section 4207(b)(3)(B)(i) of OBRA–1990,
respectively) and similar plans as an option under
948
the MedicarePlus program under part C of title
XVIII of the Social Security Act.
(2) PROVISION
FOR
TRANSITION.—Such plan
shall include a transition for social health mainte-
nance organizations operating under demonstration
project authority under such section.
(3) PAYMENT POLICY.—The report shall also
include recommendations on appropriate payment
levels for plans offered by such organizations, includ-
ing an analysis of the application of risk adjustment
factors appropriate to the population served by such
organizations.
Subchapter C—Other Programs
SEC. 10018. ORDERLY TRANSITION OF MUNICIPAL HEALTH
SERVICE DEMONSTRATION PROJECTS.
Section 9215 of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended by section 6135
of OBRA–1989 and section 13557 of OBRA–1993, is fur-
ther amended—
(1) by inserting ‘‘(a)’’ before ‘‘The Secretary’’,
and
(2) by adding at the end the following: ‘‘Subject
to subsection (c), the Secretary may further extend
such demonstration projects through December 31,
949
2000, but only with respect to individuals are en-
rolled with such projects before January 1, 1998.
‘‘(b) The Secretary shall work with each such dem-
onstration project to develop a plan, to be submitted to
the Committee on Ways and Means of the House of Rep-
resentatives and the Committee on Finance of the Senate
by March 31, 1998, for the orderly transition of dem-
onstration projects and the project enrollees to a non-dem-
onstration project health care delivery system, such as
through integration with private or public health plan, in-
cluding a medicaid managed care or MedicarePlus plan.
‘‘(c) A demonstration project under subsection (a)
which does not develop and submit a transition plan under
subsection (b) by March 31, 1998, or, if later, 6 months
after the date of the enactment of this Act, shall be discon-
tinued as of December 31, 1998. The Secretary shall pro-
vide appropriate technical assistance to assist in the tran-
sition so that disruption of medical services to project en-
rollees may be minimized.’’.
SEC. 10019. EXTENSION OF CERTAIN MEDICARE COMMU-
NITY NURSING ORGANIZATION DEMONSTRA-
TION PROJECTS.
Notwithstanding any other provision of law, dem-
onstration projects conducted under section 4079 of the
Omnibus Budget Reconciliation Act of 1987 may be con-
950
ducted for an additional period of 2 years, and the dead-
line for any report required relating to the results of such
projects shall be not later than 6 months before the end
of such additional period.
CHAPTER 3—MEDICARE PAYMENT
ADVISORY COMMISSION
SEC. 10021. MEDICARE PAYMENT ADVISORY COMMISSION.
(a) IN GENERAL.—Title XVIII is amended by insert-
ing after section 1804 the following new section:
‘‘MEDICARE PAYMENT ADVISORY COMMISSION
‘‘SEC. 1805. (a) ESTABLISHMENT.—There is hereby
established the Medicare Payment Advisory Commission
(in this section referred to as the ‘Commission’).
‘‘(b) DUTIES.—
‘‘(1) REVIEW OF PAYMENT POLICIES AND AN-
NUAL REPORTS.—The Commission shall—
‘‘(A) review payment policies under this
title, including the topics described in para-
graph (2);
‘‘(B) make recommendations to Congress
concerning such payment policies;
‘‘(C) by not later than March 1 of each
year (beginning with 1998), submit a report to
Congress containing the results of such reviews
and its recommendations concerning such poli-
cies; and
951
‘‘(D) by not later than June 1 of each year
(beginning with 1998), submit a report to Con-
gress containing an examination of issues af-
fecting the medicare program, including the im-
plications of changes in health care delivery in
the United States and in the market for health
care services on the medicare program.
‘‘(2) SPECIFIC TOPICS TO BE REVIEWED.—
‘‘(A) MEDICAREPLUS
PROGRAM.—Specifi-
cally, the Commission shall review, with respect
to the MedicarePlus program under part C, the
following:
‘‘(i) The methodology for making pay-
ment to plans under such program, includ-
ing the making of differential payments
and the distribution of differential updates
among different payment areas.
‘‘(ii) The mechanisms used to adjust
payments for risk and the need to adjust
such mechanisms to take into account
health status of beneficiaries.
‘‘(iii) The implications of risk selec-
tion both among MedicarePlus organiza-
tions and between the MedicarePlus option
and the medicare fee-for-service option.
952
‘‘(iv) The development and implemen-
tation of mechanisms to assure the quality
of 
care 
for 
those 
enrolled 
with
MedicarePlus organizations.
‘‘(v) The impact of the MedicarePlus
program on access to care for medicare
beneficiaries.
‘‘(vi) Other major issues in implemen-
tation and further development of the
MedicarePlus program.
‘‘(B) FEE-FOR-SERVICE SYSTEM.—Specifi-
cally, the Commission shall review payment
policies under parts A and B, including—
‘‘(i) the factors affecting expenditures
for services in different sectors, including
the process for updating hospital, skilled
nursing facility, physician, and other fees,
‘‘(ii) payment methodologies, and
‘‘(iii) their relationship to access and
quality of care for medicare beneficiaries.
‘‘(C) INTERACTION
OF
MEDICARE
PAY-
MENT POLICIES WITH HEALTH CARE DELIVERY
GENERALLY.—Specifically, 
the 
Commission
shall review the effect of payment policies under
this title on the delivery of health care services
953
other than under this title and assess the impli-
cations of changes in health care delivery in the
United States and in the general market for
health care services on the medicare program.
‘‘(3) COMMENTS ON CERTAIN SECRETARIAL RE-
PORTS.—If the Secretary submits to Congress (or a
committee of Congress) a report that is required by
law and that relates to payment policies under this
title, the Secretary shall transmit a copy of the re-
port to the Commission. The Commission shall re-
view the report and, not later than 6 months after
the date of submittal of the Secretary’s report to
Congress, shall submit to the appropriate commit-
tees of Congress written comments on such report.
Such comments may include such recommendations
as the Commission deems appropriate.
‘‘(4) AGENDA AND ADDITIONAL REVIEWS.—The
Commission shall consult periodically with the chair-
men and ranking minority members of the appro-
priate committees of Congress regarding the Com-
mission’s agenda and progress towards achieving the
agenda. The Commission may conduct additional re-
views, and submit additional reports to the appro-
priate committees of Congress, from time to time on
such topics relating to the program under this title
954
as may be requested by such chairmen and members
and as the Commission deems appropriate.
‘‘(5) AVAILABILITY
OF
REPORTS.—The Com-
mission shall transmit to the Secretary a copy of
each report submitted under this subsection and
shall make such reports available to the public.
‘‘(6) APPROPRIATE
COMMITTEES.—For pur-
poses of this section, the term ‘appropriate commit-
tees of Congress’ means the Committees on Ways
and Means and Commerce of the House of Rep-
resentatives and the Committee on Finance of the
Senate.
‘‘(c) MEMBERSHIP.—
‘‘(1) NUMBER AND APPOINTMENT.—The Com-
mission shall be composed of 19 members appointed
by the Comptroller General.
‘‘(2) QUALIFICATIONS.—
‘‘(A) IN
GENERAL.—The membership of
the Commission shall include individuals with
national recognition for their expertise in health
finance and economics, actuarial science, health
facility management, health plans and inte-
grated delivery systems, reimbursement of
health facilities, allopathic and osteopathic phy-
sicians, and other providers of health services,
955
and other related fields, who provide a mix of
different professionals, broad geographic rep-
resentation, and a balance between urban and
rural representatives.
‘‘(B) INCLUSION.—The membership of the
Commission shall include (but not be limited to)
physicians and other health professionals, em-
ployers, third party payers, individuals skilled
in the conduct and interpretation of biomedical,
health services, and health economics research
and expertise in outcomes and effectiveness re-
search and technology assessment. Such mem-
bership shall also include representatives of con-
sumers and the elderly.
‘‘(C) MAJORITY NONPROVIDERS.—Individ-
uals who are directly involved in the provision,
or management of the delivery, of items and
services covered under this title shall not con-
stitute a majority of the membership of the
Commission.
‘‘(D) ETHICAL DISCLOSURE.—The Comp-
troller General shall establish a system for pub-
lic disclosure by members of the Commission of
financial and other potential conflicts of interest
relating to such members.
956
‘‘(3) TERMS.—
‘‘(A) IN GENERAL.—The terms of mem-
bers of the Commission shall be for 3 years ex-
cept that the Comptroller General shall des-
ignate staggered terms for the members first
appointed.
‘‘(B) VACANCIES.—Any member appointed
to fill a vacancy occurring before the expiration
of the term for which the member’s predecessor
was appointed shall be appointed only for the
remainder of that term. A member may serve
after the expiration of that member’s term until
a successor has taken office. A vacancy in the
Commission shall be filled in the manner in
which the original appointment was made.
‘‘(4) COMPENSATION.—While serving on the
business of the Commission (including traveltime), a
member of the Commission shall be entitled to com-
pensation at the per diem equivalent of the rate pro-
vided for level IV of the Executive Schedule under
section 5315 of title 5, United States Code; and
while so serving away from home and member’s reg-
ular place of business, a member may be allowed
travel expenses, as authorized by the Chairman of
the Commission. Physicians serving as personnel of
957
the Commission may be provided a physician com-
parability allowance by the Commission in the same
manner as Government physicians may be provided
such an allowance by an agency under section 5948
of title 5, United States Code, and for such purpose
subsection (i) of such section shall apply to the Com-
mission in the same manner as it applies to the Ten-
nessee Valley Authority. For purposes of pay (other
than pay of members of the Commission) and em-
ployment benefits, rights, and privileges, all person-
nel of the Commission shall be treated as if they
were employees of the United States Senate.
‘‘(5) CHAIRMAN; VICE CHAIRMAN.—The Comp-
troller General shall designate a member of the
Commission, at the time of appointment of the mem-
ber, as Chairman and a member as Vice Chairman
for that term of appointment.
‘‘(6) MEETINGS.—The Commission shall meet
at the call of the Chairman.
‘‘(d) DIRECTOR AND STAFF; EXPERTS AND CON-
SULTANTS.—Subject to such review as the Comptroller
General deems necessary to assure the efficient adminis-
tration of the Commission, the Commission may—
‘‘(1) employ and fix the compensation of an Ex-
ecutive Director (subject to the approval of the
958
Comptroller General) and such other personnel as
may be necessary to carry out its duties (without re-
gard to the provisions of title 5, United States Code,
governing appointments in the competitive service);
‘‘(2) seek such assistance and support as may
be required in the performance of its duties from ap-
propriate Federal departments and agencies;
‘‘(3) enter into contracts or make other ar-
rangements, as may be necessary for the conduct of
the work of the Commission (without regard to sec-
tion 3709 of the Revised Statutes (41 U.S.C. 5));
‘‘(4) make advance, progress, and other pay-
ments which relate to the work of the Commission;
‘‘(5) provide transportation and subsistence for
persons serving without compensation; and
‘‘(6) prescribe such rules and regulations as it
deems necessary with respect to the internal organi-
zation and operation of the Commission.
‘‘(e) POWERS.—
‘‘(1) OBTAINING
OFFICIAL
DATA.—The Com-
mission may secure directly from any department or
agency of the United States information necessary
to enable it to carry out this section. Upon request
of the Chairman, the head of that department or
959
agency shall furnish that information to the Com-
mission on an agreed upon schedule.
‘‘(2) DATA COLLECTION.—In order to carry out
its functions, the Commission shall—
‘‘(A) utilize existing information, both pub-
lished and unpublished, where possible, collected
and assessed either by its own staff or under
other arrangements made in accordance with
this section,
‘‘(B) carry out, or award grants or con-
tracts for, original research and experimen-
tation, where existing information is inad-
equate, and
‘‘(C) adopt procedures allowing any inter-
ested party to submit information for the Com-
mission’s use in making reports and rec-
ommendations.
‘‘(3) ACCESS OF GAO TO INFORMATION.—The
Comptroller General shall have unrestricted access
to all deliberations, records, and nonproprietary data
of the Commission, immediately upon request.
‘‘(4) PERIODIC AUDIT.—The Commission shall
be subject to periodic audit by the Comptroller Gen-
eral.
‘‘(f) AUTHORIZATION OF APPROPRIATIONS.—
960
‘‘(1) REQUEST
FOR
APPROPRIATIONS.—The
Commission shall submit requests for appropriations
in the same manner as the Comptroller General sub-
mits requests for appropriations, but amounts ap-
propriated for the Commission shall be separate
from amounts appropriated for the Comptroller Gen-
eral.
‘‘(2) AUTHORIZATION.—There are authorized to
be appropriated such sums as may be necessary to
carry out the provisions of this section. 60 percent
of such appropriation shall be payable from the Fed-
eral Hospital Insurance Trust Fund, and 40 percent
of such appropriation shall be payable from the Fed-
eral 
Supplementary 
Medical 
Insurance 
Trust
Fund.’’.
(b) ABOLITION OF PROPAC AND PPRC.—
(1) PROPAC.—
(A) IN
GENERAL.—Section 1886(e) (42
U.S.C. 1395ww(e)) is amended—
(i) by striking paragraphs (2) and (6);
and
(ii) in paragraph (3), by striking ‘‘(A)
The Commission’’ and all that follows
through ‘‘(B)’’.
961
(B) CONFORMING
AMENDMENT.—Section
1862 (42 U.S.C. 1395y) is amended by striking
‘‘Prospective Payment Assessment Commis-
sion’’ each place it appears in subsection
(a)(1)(D) and subsection (i) and inserting
‘‘Medicare Payment Advisory Commission’’.
(2) PPRC.—
(A) IN GENERAL.—Title XVIII is amended
by striking section 1845 (42 U.S.C. 1395w–1).
(B) 
ELIMINATION
OF
CERTAIN
RE-
PORTS.—Section 1848 (42 U.S.C. 1395w–4) is
amended—
(i) by striking subparagraph (F) of
subsection (d)(2),
(ii) by striking subparagraph (B) of
subsection (f)(1), and
(iii) in subsection (f)(3), by striking
‘‘Physician Payment Review Commission,’’.
(C) CONFORMING AMENDMENTS.—Section
1848 (42 U.S.C. 1395w–4) is amended by
striking ‘‘Physician Payment Review Commis-
sion’’ and inserting ‘‘Medicare Payment Advi-
sory Commission’’ each place it appears in sub-
sections (c)(2)(B)(iii), (g)(6)(C), and (g)(7)(C).
(c) EFFECTIVE DATE; TRANSITION.—
962
(1) IN
GENERAL.—The Comptroller General
shall first provide for appointment of members to
the Medicare Payment Advisory Commission (in this
subsection referred to as ‘‘MedPAC’’) by not later
than September 30, 1997.
(2) TRANSITION.—As quickly as possible after
the date a majority of members of MedPAC are first
appointed, the Comptroller General, in consultation
with the Prospective Payment Assessment Commis-
sion (in this subsection referred to as ‘‘ProPAC’’)
and the Physician Payment Review Commission (in
this subsection referred to as ‘‘PPRC’’), shall pro-
vide for the termination of the ProPAC and the
PPRC. As of the date of termination of the respec-
tive Commissions, the amendments made by para-
graphs (1) and (2), respectively, of subsection (b)
become effective. The Comptroller General, to the
extent feasible, shall provide for the transfer to the
MedPAC of assets and staff of the ProPAC and the
PPRC, without any loss of benefits or seniority by
virtue of such transfers. Fund balances available to
the ProPAC or the PPRC for any period shall be
available to the MedPAC for such period for like
purposes.
963
(3) CONTINUING
RESPONSIBILITY
FOR
RE-
PORTS.—The MedPAC shall be responsible for the
preparation and submission of reports required by
law to be submitted (and which have not been sub-
mitted by the date of establishment of the MedPAC)
by the ProPAC and the PPRC, and, for this pur-
pose, any reference in law to either such Commission
is deemed, after the appointment of the MedPAC, to
refer to the MedPAC.
CHAPTER 4—MEDIGAP PROTECTIONS
SEC. 10031. MEDIGAP PROTECTIONS.
(a) GUARANTEEING ISSUE WITHOUT PREEXISTING
CONDITIONS
FOR CONTINUOUSLY COVERED INDIVID-
UALS.—Section 1882(s) (42 U.S.C. 1395ss(s)) is amend-
ed—
(1) in paragraph (3), by striking ‘‘paragraphs
(1) and (2)’’ and inserting ‘‘this subsection’’,
(2) by redesignating paragraph (3) as para-
graph (4), and
(3) by inserting after paragraph (2) the follow-
ing new paragraph:
‘‘(3)(A) The issuer of a medicare supplemental pol-
icy—
‘‘(i) may not deny or condition the issuance or
effectiveness of a medicare supplemental policy de-
964
scribed in subparagraph (C) that is offered and is
available for issuance to new enrollees by such is-
suer;
‘‘(ii) may not discriminate in the pricing of
such policy, because of health status, claims experi-
ence, receipt of health care, or medical condition;
and
‘‘(iii) may not impose an exclusion of benefits
based on a pre-existing condition under such policy,
in the case of an individual described in subparagraph (B)
who seeks to enroll under the policy not later than 63 days
after the date of the termination of enrollment described
in such subparagraph and who submits evidence of the
date of termination or disenrollment along with the appli-
cation for such medicare supplemental policy.
‘‘(B) An individual described in this subparagraph is
an individual described in any of the following clauses:
‘‘(i) The individual is enrolled under an em-
ployee welfare benefit plan that provides health ben-
efits that supplement the benefits under this title
and the plan terminates or ceases to provide all such
supplemental health benefits to the individual.
‘‘(ii) 
The 
individual 
is 
enrolled 
with 
a
MedicarePlus organization under a MedicarePlus
plan under part C, and there are circumstances per-
965
mitting discontinuance of the individual’s election of
the plan under section 1851(c)(4).
‘‘(iii) The individual is enrolled with an eligible
organization under a contract under section 1876, a
similar organization operating under demonstration
project authority, with an organization under an
agreement under section 1833(a)(1)(A), or with an
organization under a policy described in subsection
(t), and such enrollment ceases under the same cir-
cumstances that would permit discontinuance of an
individual’s election of coverage under section
1851(c)(4) and, in the case of a policy described in
subsection (t), there is no provision under applicable
State law for the continuation of coverage under
such policy.
‘‘(iv) The individual is enrolled under a medi-
care supplemental policy under this section and such
enrollment ceases because—
‘‘(I) of the bankruptcy or insolvency of the
issuer or because of other involuntary termi-
nation of coverage or enrollment under such
policy and there is no provision under applica-
ble State law for the continuation of such cov-
erage;
966
‘‘(II) the issuer of the policy substantially
violated a material provision of the policy; or
‘‘(III) the issuer (or an agent or other en-
tity acting on the issuer’s behalf) materially
misrepresented the policy’s provisions in mar-
keting the policy to the individual.
‘‘(v) The individual—
‘‘(I) was enrolled under a medicare supple-
mental policy under this section,
‘‘(II) subsequently terminates such enroll-
ment and enrolls, for the first time, with any
MedicarePlus 
organization 
under 
a
MedicarePlus plan under part C, any eligible
organization under a contract under section
1876, any similar organization operating under
demonstration project authority, any organiza-
tion 
under 
an 
agreement 
under 
section
1833(a)(1)(A), or any policy described in sub-
section (t), and
‘‘(III) the subsequent enrollment under
subclause (II) is terminated by the enrollee dur-
ing the first 6 months (or 3 months for termi-
nations occurring on or after January 1, 2003)
of such enrollment.
967
‘‘(C)(i) Subject to clauses (ii) and (iii), a medicare
supplemental policy described in this subparagraph has a
benefit package classified as ‘A’, ‘B’, ‘C’, or ‘F’ under the
standards established under subsection (p)(2).
‘‘(ii) Only for purposes of an individual described in
subparagraph (B)(v), a medicare supplemental policy de-
scribed in this subparagraph also includes (if available
from the same issuer) the same medicare supplemental
policy referred to in such subparagraph in which the indi-
vidual was most recently previously enrolled.
‘‘(iii) For purposes of applying this paragraph in the
case of a State that provides for offering of benefit pack-
ages other than under the classification referred to in
clause (i), the references to benefit packages in such clause
are deemed references to comparable benefit packages of-
fered in such State.
‘‘(D) At the time of an event described in subpara-
graph (B) because of which an individual ceases enroll-
ment or loses coverage or benefits under a contract or
agreement, policy, or plan, the organization that offers the
contract or agreement, the insurer offering the policy, or
the administrator of the plan, respectively, shall notify the
individual of the rights of the individual, and obligations
of issuers of medicare supplemental policies, under sub-
paragraph (A).’’.
968
(b) LIMITATION ON IMPOSITION OF PREEXISTING
CONDITION EXCLUSION DURING INITIAL OPEN ENROLL-
MENT
PERIOD.—Section 
1882(s)(2) 
(42 
U.S.C.
1395ss(s)(2)) is amended—
(1) in subparagraph (B), by striking ‘‘subpara-
graph (C)’’ and inserting ‘‘subparagraphs (C) and
(D)’’, and
(2) by adding at the end the following new sub-
paragraph:
‘‘(D) In the case of a policy issued during the 6-
month period described in subparagraph (A) to an individ-
ual who is 65 years of age or older as of the date of issu-
ance and who as of the date of the application for enroll-
ment has a continuous period of creditable coverage (as
defined in 2701(c) of the Public Health Service Act) of—
‘‘(i) at least 6 months, the policy may not ex-
clude benefits based on a pre-existing condition; or
‘‘(ii) of less than 6 months, if the policy ex-
cludes benefits based on a preexisting condition, the
policy shall reduce the period of any preexisting con-
dition exclusion by the aggregate of the periods of
creditable coverage (if any, as so defined) applicable
to the individual as of the enrollment date.
969
The Secretary shall specify the manner of the reduction
under clause (ii), based upon the rules used by the Sec-
retary in carrying out section 2701(a)(3) of such Act.’’.
(c) EFFECTIVE DATES.—
(1) GUARANTEED
ISSUE.—The amendment
made by subsection (a) shall take effect on July 1,
1998.
(2) LIMIT ON PREEXISTING CONDITION EXCLU-
SIONS.—The amendment made by subsection (b)
shall apply to policies issued on or after July 1,
1998.
(d) TRANSITION PROVISIONS.—
(1) IN GENERAL.—If the Secretary of Health
and Human Services identifies a State as requiring
a change to its statutes or regulations to conform its
regulatory program to the changes made by this sec-
tion, the State regulatory program shall not be con-
sidered to be out of compliance with the require-
ments of section 1882 of the Social Security Act due
solely to failure to make such change until the date
specified in paragraph (4).
(2) NAIC STANDARDS.—If, within 9 months
after the date of the enactment of this Act, the Na-
tional Association of Insurance Commissioners (in
this subsection referred to as the ‘‘NAIC’’) modifies
970
its NAIC Model Regulation relating to section 1882
of the Social Security Act (referred to in such sec-
tion as the 1991 NAIC Model Regulation, as modi-
fied pursuant to section 171(m)(2) of the Social Se-
curity Act Amendments of 1994 (Public Law 103–
432) 
and 
as 
modified 
pursuant 
to 
section
1882(d)(3)(A)(vi)(IV) of the Social Security Act, as
added by section 271(a) of the Health Insurance
Portability and Accountability Act of 1996 (Public
Law 104–191) to conform to the amendments made
by this section, such revised regulation incorporating
the modifications shall be considered to be the appli-
cable NAIC model regulation (including the revised
NAIC model regulation and the 1991 NAIC Model
Regulation) for the purposes of such section.
(3) SECRETARY
STANDARDS.—If the NAIC
does not make the modifications described in para-
graph (2) within the period specified in such para-
graph, the Secretary of Health and Human Services
shall make the modifications described in such para-
graph and such revised regulation incorporating the
modifications shall be considered to be the appro-
priate Regulation for the purposes of such section.
(4) DATE SPECIFIED.—
971
(A) IN
GENERAL.—Subject to subpara-
graph (B), the date specified in this paragraph
for a State is the earlier of—
(i) the date the State changes its stat-
utes or regulations to conform its regu-
latory program to the changes made by
this section, or
(ii) 1 year after the date the NAIC or
the Secretary first makes the modifications
under paragraph (2) or (3), respectively.
(B) ADDITIONAL LEGISLATIVE ACTION RE-
QUIRED.—In the case of a State which the Sec-
retary identifies as—
(i) requiring State legislation (other
than legislation appropriating funds) to
conform its regulatory program to the
changes made in this section, but
(ii) having a legislature which is not
scheduled to meet in 1999 in a legislative
session in which such legislation may be
considered,
the date specified in this paragraph is the first
day of the first calendar quarter beginning after
the close of the first legislative session of the
State legislature that begins on or after July 1,
972
1999. For purposes of the previous sentence, in
the case of a State that has a 2-year legislative
session, each year of such session shall be
deemed to be a separate regular session of the
State legislature.
SEC. 10032. MEDICARE PREPAID COMPETITIVE PRICING
DEMONSTRATION PROJECT.
(a) ESTABLISHMENT OF PROJECT.—The Secretary
of Health and Human Services shall provide, beginning
not later than 1 year after the date of the enactment of
this Act, for implementation of a project (in this section
referred to as the ‘‘project’’) to demonstrate the applica-
tion of, and the consequences of applying, a market-ori-
ented pricing system for the provision of a full range of
medicare benefits in a geographic area.
(b) RESEARCH DESIGN ADVISORY COMMITTEE.—
(1) IN
GENERAL.—Before implementing the
project under this section, the Secretary shall ap-
point a national advisory committee, including inde-
pendent actuaries and individuals with expertise in
competitive health plan pricing, to make rec-
ommendations to the Secretary concerning the ap-
propriate research design for implementing the
project.
973
(2) INITIAL RECOMMENDATIONS.—The commit-
tee initially shall submit recommendations respecting
the method for area selection, benefit design among
plans offered, structuring choice among health plans
offered, methods for setting the price to be paid to
plans, collection of plan information (including infor-
mation concerning quality and access to care), infor-
mation dissemination, and methods of evaluating the
results of the project.
(3) ADVICE DURING IMPLEMENTATION.—Upon
implementation of the project, the committee shall
continue to advise the Secretary on the application
of the design in different areas and changes in the
project based on experience with its operations.
(c) AREA SELECTION.—
(1) IN GENERAL.—Taking into account the rec-
ommendations of the advisory committee submitted
under subsection (b), the Secretary shall designate
areas in which the project will operate.
(2) APPOINTMENT OF AREA ADVISORY COMMIT-
TEE.—Upon the designation of an area for inclusion
in the project, the Secretary shall appoint an area
advisory committee, composed of representatives of
health plans, providers, and medicare beneficiaries in
the area, to advise the Secretary concerning how the
974
project will actually be implemented in the area.
Such advice may include advice concerning the mar-
keting and pricing of plans in the area and other sa-
lient factors relating.
(d) MONITORING AND REPORT.—
(1) MONITORING IMPACT.—Taking into consid-
eration the recommendations of the general advisory
committee (appointed under subsection (b)), the Sec-
retary shall closely monitor the impact of projects in
areas on the price and quality of, and access to,
medicare covered services, choice of health plan,
changes in enrollment, and other relevant factors.
(2) REPORT.—The Secretary shall periodically
report to Congress on the progress under the project
under this section.
(e) WAIVER AUTHORITY.—The Secretary of Health
and Human Services may waive such requirements of sec-
tion 1876 (and such requirements of part C of title XVIII,
as amended by chapter 1), of the Social Security Act as
may be necessary for the purposes of carrying out the
project.
975
CHAPTER 5—TAX TREATMENT OF HOS-
PITALS PARTICIPATING IN PROVIDER-
SPONSORED ORGANIZATIONS
SEC. 10041. TAX TREATMENT OF HOSPITALS WHICH PAR-
TICIPATE IN PROVIDER-SPONSORED ORGANI-
ZATIONS.
(a) IN GENERAL.—Section 501 of the Internal Reve-
nue Code of 1986 (relating to exemption from tax on cor-
porations, certain trusts, etc.) is amended by redesignat-
ing subsection (o) as subsection (p) and by inserting after
subsection (n) the following new subsection:
‘‘(o) TREATMENT OF HOSPITALS PARTICIPATING IN
PROVIDER-SPONSORED ORGANIZATIONS.—An organiza-
tion shall not fail to be treated as organized and operated
exclusively for a charitable purpose for purposes of sub-
section (c)(3) solely because a hospital which is owned and
operated by such organization participates in a provider-
sponsored organization (as defined in section 1853(e) of
the Social Security Act), whether or not the provider-spon-
sored organization is exempt from tax. For purposes of
subsection (c)(3), any person with a material financial in-
terest in such a provider-sponsored organization shall be
treated as a private shareholder or individual with respect
to the hospital.’’
976
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on the date of the enact-
ment of this Act.
Subtitle B—Prevention Initiatives
SEC. 10101. SCREENING MAMMOGRAPHY.
(a) PROVIDING ANNUAL SCREENING MAMMOGRAPHY
FOR WOMEN OVER AGE 39.—Section 1834(c)(2)(A) (42
U.S.C. 1395m(c)(2)(A)) is amended—
(1) in clause (iii), to read as follows:
‘‘(iii) In the case of a woman over 39
years of age, payment may not be made
under this part for screening mammog-
raphy performed within 11 months follow-
ing the month in which a previous screen-
ing mammography was performed.’’; and
(2) by striking clauses (iv) and (v).
(b) WAIVER OF DEDUCTIBLE.—The first sentence of
section 1833(b) (42 U.S.C. 1395l(b)) is amended—
(1) by striking ‘‘and’’ before ‘‘(4)’’, and
(2) by inserting before the period at the end the
following: ‘‘, and (5) such deductible shall not apply
with respect to screening mammography (as de-
scribed in section 1861(jj))’’.
(c) 
CONFORMING
AMENDMENT.—Section
1834(c)(1)(C) of such Act (42 U.S.C. 1395m(c)(1)(C)) is
977
amended by striking ‘‘, subject to the deductible estab-
lished under section 1833(b),’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
SEC. 10102. SCREENING PAP SMEAR AND PELVIC EXAMS.
(a) COVERAGE OF PELVIC EXAM; INCREASING FRE-
QUENCY
OF
COVERAGE
OF
PAP
SMEAR.—Section
1861(nn) (42 U.S.C. 1395x(nn)) is amended—
(1) in the heading, by striking ‘‘Smear’’ and in-
serting ‘‘Smear; Screening Pelvic Exam’’;
(2) by inserting ‘‘or vaginal’’ after ‘‘cervical’’
each place it appears;
(3) by striking ‘‘(nn)’’ and inserting ‘‘(nn)(1)’’;
(4) by striking ‘‘3 years’’ and all that follows
and inserting ‘‘3 years, or during the preceding year
in the case of a woman described in paragraph (3).’’;
and
(5) by adding at the end the following new
paragraphs:
‘‘(2) The term ‘screening pelvic exam’ means an pel-
vic examination provided to a woman if the woman in-
volved has not had such an examination during the preced-
ing 3 years, or during the preceding year in the case of
978
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 or vaginal cancer; or
‘‘(B) is at high risk of developing cervical or
vaginal cancer (as determined pursuant to factors
identified by the Secretary).’’.
(b) WAIVER OF DEDUCTIBLE.—The first sentence of
section 1833(b) (42 U.S.C. 1395l(b)), as amended by sec-
tion 10101(b), is amended—
(1) by striking ‘‘and’’ before ‘‘(5)’’, and
(2) by inserting before the period at the end the
following: ‘‘, and (6) such deductible shall not apply
with respect to screening pap smear and screening
pelvic exam (as described in section 1861(nn))’’.
(c) 
CONFORMING
AMENDMENTS.—Sections
1861(s)(14) and 1862(a)(1)(F) (42 U.S.C. 1395x(s)(14),
1395y(a)(1)(F)) are each amended by inserting ‘‘and
screening pelvic exam’’ after ‘‘screening pap smear’’.
(d) PAYMENT UNDER PHYSICIAN FEE SCHEDULE.—
Section 1848(j)(3)(42 U.S.C. 1395w–4(j)(3)) is amended
979
by striking ‘‘and (4)’’ and inserting ‘‘(4) and (14) (with
respect to services described in section 1861(nn)(2))’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
SEC. 10103. PROSTATE CANCER SCREENING TESTS.
(a) COVERAGE.—Section 1861 (42 U.S.C. 1395x) is
amended—
(1) in subsection (s)(2)—
(A) by striking ‘‘and’’ at the end of sub-
paragraphs (N) and (O), and
(B) by inserting after subparagraph (O)
the following new subparagraph:
‘‘(P) prostate cancer screening tests (as defined
in subsection (oo)); and’’; and
(2) by adding at the end the following new sub-
section:
‘‘Prostate Cancer Screening Tests
‘‘(oo)(1) The term ‘prostate cancer screening test’
means a test that consists of any (or all) of the procedures
described in paragraph (2) provided for the purpose of
early detection of prostate cancer to a man over 50 years
of age who has not had such a test during the preceding
year.
980
‘‘(2) The procedures described in this paragraph are
as follows:
‘‘(A) A digital rectal examination.
‘‘(B) A prostate-specific antigen blood test.
‘‘(C) For years beginning after 2001, such
other procedures as the Secretary finds appropriate
for the purpose of early detection of prostate cancer,
taking into account changes in technology and
standards of medical practice, availability, effective-
ness, costs, and such other factors as the Secretary
considers appropriate.’’.
(b) PAYMENT
FOR PROSTATE-SPECIFIC ANTIGEN
BLOOD TEST UNDER CLINICAL DIAGNOSTIC LABORA-
TORY TEST FEE SCHEDULES.—Section 1833(h)(1)(A)
(42 U.S.C. 1395l(h)(1)(A)) is amended by inserting after
‘‘laboratory tests’’ the following: ‘‘(including prostate can-
cer screening tests under section 1861(oo) consisting of
prostate-specific antigen blood tests)’’.
(c) CONFORMING AMENDMENT.—Section 1862(a)
(42 U.S.C. 1395y(a)) is amended—
(1) in paragraph (1)—
(A) in subparagraph (E), by striking
‘‘and’’ at the end,
(B) in subparagraph (F), by striking the
semicolon at the end and inserting ‘‘, and’’, and
981
(C) by adding at the end the following new
subparagraph:
‘‘(G) in the case of prostate cancer screening
tests (as defined in section 1861(oo)), which are per-
formed more frequently than is covered under such
section;’’; and
(2) in paragraph (7), by striking ‘‘paragraph
(1)(B) or under paragraph (1)(F)’’ and inserting
‘‘subparagraphs (B), (F), or (G) of paragraph (1)’’.
(d) PAYMENT UNDER PHYSICIAN FEE SCHEDULE.—
Section 1848(j)(3)(42 U.S.C. 1395w–4(j)(3)), as amended
by section 10102, is amended by inserting ‘‘, (2)(P) (with
respect to services described in subparagraphs (A) and (C)
of section 1861(oo)’’ after ‘‘(2)(G)’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
SEC. 10104. COVERAGE OF COLORECTAL SCREENING.
(a) COVERAGE.—
(1) IN
GENERAL.—Section 1861 (42 U.S.C.
1395x), as amended by section 10103(a), is amend-
ed—
(A) in subsection (s)(2)—
(i) by striking ‘‘and’’ at the end of
subparagraph (P);
982
(ii) by adding ‘‘and’’ at the end of
subparagraph (Q); and
(iii) by adding at the end the follow-
ing new subparagraph:
‘‘(R) colorectal cancer screening tests (as de-
fined in subsection (pp)); and’’; and
(B) by adding at the end the following new
subsection:
‘‘Colorectal Cancer Screening Tests
‘‘(pp)(1) The term ‘colorectal cancer screening test’
means any of the following procedures furnished to an in-
dividual for the purpose of early detection of colorectal
cancer:
‘‘(A) Screening fecal-occult blood test.
‘‘(B) Screening flexible sigmoidoscopy.
‘‘(C) In the case of an individual at high risk
for colorectal cancer, screening colonoscopy.
‘‘(D) Screening barium enema, if found by the
Secretary to be an appropriate alternative to screen-
ing flexible sigmoidoscopy under subparagraph (B)
or screening colonoscopy under subparagraph (C).
‘‘(E) For years beginning after 2002, such
other procedures as the Secretary finds appropriate
for the purpose of early detection of colorectal can-
cer, taking into account changes in technology and
983
standards of medical practice, availability, effective-
ness, costs, and such other factors as the Secretary
considers appropriate.
‘‘(2) In paragraph (1)(C), an ‘individual at high risk
for colorectal cancer’ is an individual who, because of fam-
ily history, prior experience of cancer or precursor neo-
plastic polyps, a history of chronic digestive disease condi-
tion (including inflammatory bowel disease, Crohn’s Dis-
ease, or ulcerative colitis), the presence of any appropriate
recognized gene markers for colorectal cancer, or other
predisposing factors, faces a high risk for colorectal can-
cer.’’.
(2) DEADLINE FOR DECISION ON COVERAGE OF
SCREENING
BARIUM
ENEMA.—Not later than 2
years after the date of the enactment of this section,
the Secretary of Health and Human Services shall
issue and publish a determination on the treatment
of screening barium enema as a colorectal cancer
screening test under section 1861(pp) (as added by
subparagraph (B)) as an alternative procedure to a
screening 
flexible 
sigmoidoscopy 
or 
screening
colonoscopy.
(b) FREQUENCY AND PAYMENT LIMITS.—
984
(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
COLORECTAL CANCER SCREENING TESTS.—
‘‘(1) 
SCREENING
FECAL-OCCULT
BLOOD
TESTS.—
‘‘(A) PAYMENT LIMIT.—In establishing fee
schedules under section 1833(h) with respect to
colorectal cancer screening tests consisting of
screening fecal-occult blood tests, except as pro-
vided by the Secretary under paragraph (4)(A),
the payment amount established for tests per-
formed—
‘‘(i) in 1998 shall not exceed $5; and
‘‘(ii) in a subsequent year, shall not
exceed the limit on the payment amount
established under this subsection for such
tests for the preceding year, adjusted by
the applicable adjustment under section
1833(h) for tests performed in such year.
‘‘(B) FREQUENCY LIMIT.—Subject to revi-
sion by the Secretary under paragraph (4)(B),
no payment may be made under this part for
985
colorectal cancer screening test consisting of a
screening fecal-occult blood test—
‘‘(i) if the individual is under 50 years
of age; or
‘‘(ii) if the test is performed within
the 11 months after a previous screening
fecal-occult blood test.
‘‘(2) 
SCREENING
FLEXIBLE
SIGMOIDOSCOPIES.—
‘‘(A) FEE
SCHEDULE.—The Secretary
shall establish a payment amount under section
1848 with respect to colorectal cancer screening
tests 
consisting 
of 
screening 
flexible
sigmoidoscopies that is consistent with payment
amounts under such section for similar or relat-
ed services, except that such payment amount
shall be established without regard to sub-
section (a)(2)(A) of such section.
‘‘(B) PAYMENT
LIMIT.—In the case of
screening flexible sigmoidoscopy services—
‘‘(i) the payment amount may not ex-
ceed such amount as the Secretary speci-
fies, based upon the rates recognized under
this 
part 
for 
diagnostic 
flexible
sigmoidoscopy services; and
986
‘‘(ii) that, in accordance with regula-
tions, may be performed in an ambulatory
surgical center and for which the Secretary
permits ambulatory surgical center pay-
ments under this part and that are per-
formed in an ambulatory surgical center or
hospital outpatient department, the pay-
ment amount under this part may not ex-
ceed the lesser of (I) the payment rate that
would apply to such services if they were
performed in a hospital outpatient depart-
ment, or (II) the payment rate that would
apply to such services if they were per-
formed in an ambulatory surgical center.
‘‘(C) SPECIAL RULE FOR DETECTED LE-
SIONS.—If during the course of such screening
flexible sigmoidoscopy, a lesion or growth is de-
tected which results in a biopsy or removal of
the lesion or growth, payment under this part
shall not be made for the screening flexible
sigmoidoscopy but shall be made for the proce-
dure classified as a flexible sigmoidoscopy with
such biopsy or removal.
‘‘(D) FREQUENCY LIMIT.—Subject to revi-
sion by the Secretary under paragraph (4)(B),
987
no payment may be made under this part for
a colorectal cancer screening test consisting of
a screening flexible sigmoidoscopy—
‘‘(i) if the individual is under 50 years
of age; or
‘‘(ii) if the procedure is performed
within the 47 months after a previous
screening flexible sigmoidoscopy.
‘‘(3) SCREENING COLONOSCOPY FOR INDIVID-
UALS AT HIGH RISK FOR COLORECTAL CANCER.—
‘‘(A) FEE
SCHEDULE.—The Secretary
shall establish a payment amount under section
1848 with respect to colorectal cancer screening
test consisting of a screening colonoscopy for
individuals at high risk for colorectal cancer (as
defined in section 1861(pp)(2)) that is consist-
ent 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) PAYMENT
LIMIT.—In the case of
screening colonoscopy services—
‘‘(i) the payment amount may not ex-
ceed such amount as the Secretary speci-
fies, based upon the rates recognized under
988
this part for diagnostic colonoscopy serv-
ices; and
‘‘(ii) that are performed in an ambula-
tory surgical center or hospital outpatient
department, the payment amount under
this part may not exceed the lesser of (I)
the payment rate that would apply to such
services if they were performed in a hos-
pital outpatient department, or (II) the
payment rate that would apply to such
services if they were performed in an am-
bulatory surgical center.
‘‘(C) SPECIAL RULE FOR DETECTED LE-
SIONS.—If during the course of such screening
colonoscopy, a lesion or growth is detected
which results in a biopsy or removal of the le-
sion or growth, payment under this part shall
not be made for the screening colonoscopy but
shall be made for the procedure classified as a
colonoscopy with such biopsy or removal.
‘‘(D) FREQUENCY LIMIT.—Subject to revi-
sion by the Secretary under paragraph (4)(B),
no payment may be made under this part for
a colorectal cancer screening test consisting of
a screening colonoscopy for individuals at high
989
risk for colorectal cancer if the procedure is
performed within the 23 months after a pre-
vious screening colonoscopy.
‘‘(4) REDUCTIONS IN PAYMENT LIMIT AND RE-
VISION OF FREQUENCY.—
‘‘(A) REDUCTIONS IN PAYMENT LIMIT FOR
SCREENING
FECAL-OCCULT
BLOOD
TESTS.—
The Secretary shall review from time to time
the appropriateness of the amount of the pay-
ment limit established for screening fecal-occult
blood tests under paragraph (1)(A). The Sec-
retary may, with respect to tests performed in
a year after 2000, reduce the amount of such
limit as it applies nationally or in any area to
the amount that the Secretary estimates is re-
quired to assure that such tests of an appro-
priate quality are readily and conveniently
available during the year.
‘‘(B) REVISION OF FREQUENCY.—
‘‘(i) REVIEW.—The Secretary shall re-
view periodically the appropriate frequency
for performing colorectal cancer screening
tests based on age and such other factors
as the Secretary believes to be pertinent.
990
‘‘(ii) REVISION OF FREQUENCY.—The
Secretary, taking into consideration the re-
view made under clause (i), may revise
from time to time the frequency with
which such tests may be paid for under
this subsection, but no such revision shall
apply to tests performed before January 1,
2001.
‘‘(5) LIMITING CHARGES OF NONPARTICIPATING
PHYSICIANS.—
‘‘(A) IN
GENERAL.—In the case of a
colorectal cancer screening test consisting of a
screening flexible sigmoidoscopy or a screening
colonoscopy provided to an individual at high
risk for colorectal cancer for which payment
may be made under this part, if a nonpartici-
pating physician provides the procedure to an
individual enrolled under this part, the physi-
cian may not charge the individual more than
the limiting charge (as defined in section
1848(g)(2)).
‘‘(B) ENFORCEMENT.—If a physician or
supplier knowing and willfully imposes a charge
in violation of subparagraph (A), the Secretary
may apply sanctions against such physician or
991
supplier 
in 
accordance 
with 
section
1842(j)(2).’’.
(2) SPECIAL
RULE
FOR
SCREENING
BARIUM
ENEMA.—If the Secretary of Health and Human
Services issues a determination under subsection
(a)(2) that screening barium enema should be cov-
ered as a colorectal cancer screening test under sec-
tion 1861(pp) (as added by subsection (a)(1)(B)),
the Secretary shall establish frequency limits (in-
cluding revisions of frequency limits) for such proce-
dure consistent with the frequency limits for other
colorectal cancer screening tests under section
1834(d) (as added by subsection (b)(1)), and shall
establish payment limits (including limits on charges
of nonparticipating physicians) for such procedure
consistent with the payment limits under part B of
title XVIII for diagnostic barium enema procedures.
(c) CONFORMING AMENDMENTS.—(1) Paragraphs
(1)(D) and (2)(D) of section 1833(a) (42 U.S.C. 1395l(a))
are each amended by inserting ‘‘or section 1834(d)(1)’’
after ‘‘subsection (h)(1)’’.
(2) 
Section 
1833(h)(1)(A) 
(42 
U.S.C.
1395l(h)(1)(A)) is amended by striking ‘‘The Secretary’’
and inserting ‘‘Subject to paragraphs (1) and (4)(A) of
section 1834(d), the Secretary’’.
992
(3) Clauses (i) and (ii) of section 1848(a)(2)(A) (42
U.S.C. 1395w–4(a)(2)(A)) are each amended by inserting
after ‘‘a service’’ the following: ‘‘(other than a colorectal
cancer screening test consisting of a screening colonoscopy
provided to an individual at high risk for colorectal cancer
or a screening flexible sigmoidoscopy)’’.
(4) Section 1862(a) (42 U.S.C. 1395y(a)), as amend-
ed by section 10103(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
(iii) by adding at the end the following new
subparagraph:
‘‘(H) in the case of colorectal cancer screening
tests, which are performed more frequently than is
covered under section 1834(d);’’; and
(B) in paragraph (7), by striking ‘‘or (G)’’ and
inserting ‘‘(G), or (H)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
993
SEC. 10105. DIABETES SCREENING TESTS.
(a) COVERAGE
OF DIABETES OUTPATIENT SELF-
MANAGEMENT TRAINING SERVICES.—
(1) IN
GENERAL.—Section 1861 (42 U.S.C.
1395x), as amended by sections 10103(a) and
10104(a), is amended—
(A) in subsection (s)(2)—
(i) by striking ‘‘and’’ at the end of
subparagraph (Q);
(ii) by adding ‘‘and’’ at the end of
subparagraph (R); and
(iii) by adding at the end the follow-
ing new subparagraph:
‘‘(S) diabetes outpatient self-management train-
ing services (as defined in subsection (qq)); and’’;
and
(B) by adding at the end the following new
subsection:
‘‘Diabetes Outpatient Self-Management Training Services
‘‘(qq)(1) The term ‘diabetes outpatient self-manage-
ment training services’ means educational and training
services furnished to an individual with diabetes by a cer-
tified provider (as described in paragraph (2)(A)) in an
outpatient setting by an individual or entity who meets
the quality standards described in paragraph (2)(B), but
only if the physician who is managing the individual’s dia-
994
betic condition certifies that such services are needed
under a comprehensive plan of care related to the individ-
ual’s diabetic condition to provide the individual with nec-
essary skills and knowledge (including skills related to the
self-administration of injectable drugs) to participate in
the management of the individual’s condition.
‘‘(2) In paragraph (1)—
‘‘(A) a ‘certified provider’ is a physician, or
other individual or entity designated by the Sec-
retary, 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) a physician, or such other individual or
entity, meets the quality standards described in this
paragraph if the physician, or individual or entity,
meets quality standards established by the Sec-
retary, except that the physician or other individual
or entity shall be deemed to have met such stand-
ards if the physician or other individual or entity
meets applicable standards originally established by
the National Diabetes Advisory Board and subse-
quently revised by organizations who participated in
the establishment of standards by such Board, or is
recognized by an organization that represents indi-
995
viduals (including individuals under this title) with
diabetes as meeting standards for furnishing the
services.’’.
(2) PAYMENT UNDER PHYSICIAN FEE SCHED-
ULE.—Section 1848(j)(3)(42 U.S.C. 1395w–4(j)(3))
as amended in sections 10102 and 10103, is amend-
ed by inserting ‘‘(2)(S),’’ before ‘‘(3),’’.
(3) CONSULTATION
WITH
ORGANIZATIONS
IN
ESTABLISHING
PAYMENT
AMOUNTS
FOR
SERVICES
PROVIDED BY PHYSICIANS.—In establishing payment
amounts under section 1848 of the Social Security
Act for physicians’ services consisting of diabetes
outpatient self-management training services, the
Secretary of Health and Human Services shall con-
sult with appropriate organizations, including such
organizations representing individuals or medicare
beneficiaries with diabetes, in determining the rel-
ative 
value 
for 
such 
services 
under 
section
1848(c)(2) of such Act.
(b) BLOOD-TESTING STRIPS FOR INDIVIDUALS WITH
DIABETES.—
(1) INCLUDING STRIPS AND MONITORS AS DU-
RABLE MEDICAL EQUIPMENT.—The first sentence of
section 1861(n) (42 U.S.C. 1395x(n)) is amended by
inserting before the semicolon the following: ‘‘, and
996
includes blood-testing strips and blood glucose mon-
itors for individuals with diabetes without regard to
whether the individual has Type I or Type II diabe-
tes or to the individual’s use of insulin (as deter-
mined under standards established by the Secretary
in consultation with the appropriate organizations)’’.
(2) 10 PERCENT REDUCTION IN PAYMENTS FOR
TESTING
STRIPS.—Section 1834(a)(2)(B)(iv) (42
U.S.C. 1395m(a)(2)(B)(iv)) is amended by adding
before the period the following: ‘‘(reduced by 10 per-
cent, in the case of a blood glucose testing strip fur-
nished after 1997 for an individual with diabetes)’’.
(c) ESTABLISHMENT OF OUTCOME MEASURES FOR
BENEFICIARIES WITH DIABETES.—
(1) IN GENERAL.—The Secretary of Health and
Human Services, in consultation with appropriate
organizations, shall establish outcome measures, in-
cluding glysolated hemoglobin (past 90-day average
blood sugar levels), for purposes of evaluating the
improvement of the health status of medicare bene-
ficiaries with diabetes mellitus.
(2) RECOMMENDATIONS
FOR
MODIFICATIONS
TO SCREENING BENEFITS.—Taking into account in-
formation on the health status of medicare bene-
ficiaries with diabetes mellitus as measured under
997
the outcome measures established under subpara-
graph (A), the Secretary shall from time to time
submit recommendations to Congress regarding
modifications to the coverage of services for such
beneficiaries under the medicare program.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
SEC. 10106. STANDARDIZATION OF MEDICARE COVERAGE
OF BONE MASS MEASUREMENTS.
(a) IN GENERAL.—Section 1861 (42 U.S.C. 1395x),
as amended by sections 10103(a), 10104(a), 10105(a), is
amended—
(1) in subsection (s)—
(A) in paragraph (12)(C), by striking
‘‘and’’ at the end,
(B) by striking the period at the end of
paragraph (14) and inserting ‘‘; and’’,
(C) by redesignating paragraphs (15) and
(16) as paragraphs (16) and (17), respectively,
and
(D) by inserting after paragraph (14) the
following new paragraph:
‘‘(15) bone mass measurement (as defined in
subsection (rr)).’’; and
998
(2) by inserting after subsection (qq) the follow-
ing new subsection:
‘‘Bone Mass Measurement
‘‘(rr)(1) The term ‘bone mass measurement’ means
a radiologic or radioisotopic procedure or other procedure
approved by the Food and Drug Administration performed
on a qualified individual (as defined in paragraph (2)) for
the purpose of identifying bone mass or detecting bone
loss or determining bone quality, and includes a physi-
cian’s interpretation of the results of the procedure.
‘‘(2) For purposes of this subsection, the term ‘quali-
fied individual’ means an individual who is (in accordance
with regulations prescribed by the Secretary)—
‘‘(A) an estrogen-deficient woman at clinical
risk for osteoporosis;
‘‘(B) an individual with vertebral abnormalities;
‘‘(C) 
an 
individual 
receiving 
long-term
glucocorticoid steroid therapy;
‘‘(D) 
an 
individual 
with 
primary
hyperparathyroidism; or
‘‘(E) an individual being monitored to assess
the response to or efficacy of an approved
osteoporosis drug therapy.
‘‘(3) The Secretary shall establish such standards re-
garding the frequency with which a qualified individual
999
shall be eligible to be provided benefits for bone mass
measurement under this title.’’.
(b) PAYMENT UNDER PHYSICIAN FEE SCHEDULE.—
Section 1848(j)(3) (42 U.S.C. 1395w–4(j)(3)), as amend-
ed by sections 10102, 10103, and 10105, is amended—
(1) by striking ‘‘(4) and (14)’’ and inserting
‘‘(4), (14)’’ and
(2) 
by 
inserting 
‘‘ 
and 
(15)’’ 
after
‘‘1861(nn)(2))’’.
(c) CONFORMING AMENDMENTS.—Sections 1864(a),
1902(a)(9)(C), and 1915(a)(1)(B)(ii)(I) (42 U.S.C.
1395aa(a), 1396a(a)(9)(C), and 1396n(a)(1)(B)(ii)(I))
are amended by striking ‘‘paragraphs (15) and (16)’’ each
place it appears and inserting ‘‘paragraphs (16) and
(17)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to bone mass measurements per-
formed on or after July 1, 1998.
SEC. 10107. VACCINES OUTREACH EXPANSION.
(a) EXTENSION OF INFLUENZA AND PNEUMOCOCCAL
VACCINATION CAMPAIGN.—In order to increase utilization
of pneumococcal and influenza vaccines in medicare bene-
ficiaries, the Influenza and Pneumococcal Vaccination
Campaign carried out by the Health Care Financing Ad-
ministration in conjunction with the Centers for Disease
1000
Control and Prevention and the National Coalition for
Adult Immunization, is extended until the end of fiscal
year 2002.
(b) AUTHORIZATION OF APPROPRIATION.—There are
hereby authorized to be appropriated for each of fiscal
years 1998 through 2002, $8,000,000 for the Campaign
described in subsection (a). Of the amount so authorized
to be appropriated in each fiscal year, 60 percent of the
amount so appropriated shall be payable from the Federal
Hospital Insurance Trust Fund, and 40 percent shall be
payable from the Federal Supplementary Medical Insur-
ance Trust Fund.
SEC. 10108. STUDY ON PREVENTIVE BENEFITS.
(a) STUDY.—The Secretary of Health and Human
Services shall request the National Academy of Sciences,
in conjunction with the United States Preventive Services
Task Force, to analyze the expansion or modification of
preventive benefits provided to medicare beneficiaries
under title XVIII of the Social Security Act. The analysis
shall consider both the short term and long term benefits,
and costs to the medicare program, of such expansion or
modification,
(b) REPORT.—
(1) INITIAL REPORT.—Not later than 2 years
after the date of the enactment of this Act, the Sec-
1001
retary shall submit a report on the findings of the
analysis conducted under subsection (a) to the Com-
mittee on Ways and Means and the Committee on
Commerce of the House of Representatives and the
Committee on Finance of the Senate.
(2) CONTENTS.—Such report shall include spe-
cific findings with respect to coverage of the follow-
ing preventive benefits:
(A) Nutrition therapy, including parenteral
and enteral nutrition.
(B) Medically necessary dental care.
(C) Routine patient care costs for bene-
ficiaries enrolled in approved clinical trial pro-
grams.
(D) Elimination of time limitation for cov-
erage of immunosuppressive drugs for trans-
plant patients.
(3) FUNDING.—From funds appropriated to the
Department of Health and Human Services for fis-
cal years 1998 and 1999, the Secretary shall provide
for such funding as may be necessary for the con-
duct of the analysis by the National Academy of
Sciences under this section.
1002
Subtitle C—Rural Initiatives
SEC. 10201. RURAL PRIMARY CARE HOSPITAL PROGRAM.
(a) RURAL PRIMARY CARE HOSPITAL PROGRAM.—
Section 1820 (42 U.S.C. 1395i–4) is amended to read as
follows:
‘‘MEDICARE RURAL PRIMARY CARE HOSPITAL PROGRAM
‘‘SEC. 1820. (a) STATE DESIGNATION OF FACILI-
TIES.—
‘‘(1) IN GENERAL.—A State may designate one
or more facilities as a rural primary care hospital in
accordance with paragraph (2).
‘‘(2) CRITERIA
FOR
DESIGNATION
AS
RURAL
PRIMARY CARE HOSPITAL.—A State may designate a
facility as a rural primary care hospital if the facil-
ity—
‘‘(A) is a nonprofit or public hospital, and
is located in a county (or equivalent unit of
local government) in a rural area (as defined in
section 1886(d)(2)(D)) that—
‘‘(i) is located a distance that cor-
responds to a travel time of greater than
30 minutes (using the guidelines specified
under part IB1(b) of Appendix A to part
5 of title 42, Code of Federal Regulations,
as in effect on October 1, 1996), from a
1003
hospital, or another facility described in
this subsection, or
‘‘(ii) is certified by the State as being
a necessary provider of health care services
to residents in the area because of local ge-
ography or service patterns;
‘‘(B) makes available 24-hour emergency
care services;
‘‘(C) provides at any time not more than
15 acute care inpatient beds (meeting such
standards as the Secretary may establish) for
providing inpatient care for a period not to ex-
ceed 96 hours (unless a longer period is re-
quired because transfer to a hospital is pre-
cluded because of inclement weather or other
emergency conditions), except that a peer re-
view organization or equivalent entity may, on
request, waive the 96-hour restriction on a case-
by-case basis;
‘‘(D) meets such staffing requirements 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
during a day, or days during a week, in
1004
which the facility must be open and fully
staffed, except insofar as the facility is re-
quired to make available emergency care
services as determined under subparagraph
(B) and must have nursing services avail-
able on a 24-hour basis, but need not oth-
erwise staff the facility except when an in-
patient is present,
‘‘(ii) the facility may provide any serv-
ices otherwise required to be provided by a
full-time, on-site dietitian, pharmacist, lab-
oratory technician, medical technologist,
and radiological technologist on a part-
time, off-site basis under arrangements as
defined in section 1861(w)(1), and
‘‘(iii) the inpatient care described in
subparagraph (C) may be provided by a
physician’s assistant, nurse practitioner, or
clinical nurse specialist subject to the over-
sight of a physician who need not be
present in the facility;
‘‘(E) meets the requirements of subpara-
graph (I) of paragraph (2) of section 1861(aa);
and
1005
‘‘(F) has executed and in effect an agree-
ment described in subsection (b)(1).
‘‘(b) AGREEMENTS.—
‘‘(1) IN GENERAL.—Each rural primary care
hospital shall have an agreement with respect to
each item described in paragraph (2) with at least
1 hospital (as defined in section 1861(e)).
‘‘(2) ITEMS DESCRIBED.—The items described
in this paragraph are the following:
‘‘(A) Patient referral and transfer.
‘‘(B) The development and use of commu-
nications systems including (where feasible)—
‘‘(i) telemetry systems, and
‘‘(ii) systems for electronic sharing of
patient data.
‘‘(C) The provision of emergency and non-
emergency transportation between the facility
and the hospital.
‘‘(3) CREDENTIALING
AND
QUALITY
ASSUR-
ANCE.—Each rural primary care hospital shall have
an agreement with respect to credentialing and qual-
ity assurance with at least 1—
‘‘(A) hospital,
‘‘(B) peer review organization or equivalent
entity, or
1006
‘‘(C) other appropriate and qualified entity
identified by the State.
‘‘(c) CERTIFICATION BY THE SECRETARY.—The Sec-
retary shall certify a facility as a rural primary care hos-
pital if the facility—
‘‘(1) is designated as a rural primary care hos-
pital by the State in which it is located; and
‘‘(2) meets such other criteria as the Secretary
may require.
‘‘(d) PERMITTING MAINTENANCE OF SWING BEDS.—
Nothing in this section shall be construed to prohibit a
State from designating or the Secretary from certifying
a facility as a rural primary care hospital solely because,
at the time the facility applies to the State for designation
as a rural primary care hospital, there is in effect an
agreement between the facility and the Secretary under
section 1883 under which the facility’s inpatient hospital
facilities are used for the provision of extended care serv-
ices, so long as the total number of beds that may be used
at any time for the furnishing of either such services or
acute care inpatient services does not exceed 25 beds and
the number of beds used at any time for acute care inpa-
tient services does not exceed 15 beds. For purposes of
the previous sentence, any bed of a unit of the facility that
is licensed as a distinct-part skilled nursing facility at the
1007
time the facility applies to the State for designation as
a rural primary care hospital shall not be counted.
‘‘(e) WAIVER
OF CONFLICTING PART A PROVI-
SIONS.—The Secretary is authorized to waive such provi-
sions of this part and part C as are necessary to conduct
the program established under this section.’’.
(b) PAYMENT ON A REASONABLE COST BASIS.—
(1) MEDICARE PART A.—Section 1814(l) (42
U.S.C. 1395f(l)) is amended to read as follows:
‘‘(l) PAYMENT
FOR INPATIENT RURAL PRIMARY
CARE HOSPITAL SERVICES.—The amount of payment
under this part for inpatient rural primary care hospital
services is the reasonable costs of the rural primary care
hospital in providing such services.’’.
(2) MEDICARE PART B.—Section 1834(g) (42
U.S.C. 1395m(g)) is amended to read as follows:
‘‘(g) PAYMENT FOR OUTPATIENT RURAL PRIMARY
CARE HOSPITAL SERVICES.—The amount of payment
under this part for outpatient rural primary care hospital
services is the reasonable costs of the rural primary care
hospital in providing such services.’’.
(c) LENGTHENING
MAXIMUM
PERIOD
OF
PER-
MITTED
INPATIENT
STAY.—Section 1814(a)(8) (42
U.S.C. 1395f(a)(8)) is amended by striking ‘‘72 hours’’
and inserting ‘‘96 hours’’.
1008
(d) PAYMENT CONTINUED TO DESIGNATED ESSEN-
TIAL ACCESS COMMUNITY HOSPITALS AND DESIGNATED
RURAL PRIMARY CARE HOSPITALS.—
(1) ESSENTIAL
ACCESS
COMMUNITY
HOS-
PITALS.—Section 
1886(d)(5)(D) 
(42 
U.S.C.
1395ww(d)(5)(D)) is amended—
(A) in clause (iii)(III), by inserting ‘‘as in
effect on September 30, 1997’’ before the pe-
riod at the end; and
(B) in clause (v), by inserting ‘‘as in effect
on September 30, 1997’’ after ‘‘1820(i)(1)’’ and
after ‘‘1820(g)’’.
(2) RURAL PRIMARY CARE HOSPITALS.—Section
1861(mm)(1) (42 U.S.C. 1395x(mm)(1)) is amend-
ed by striking ‘‘1820(i)(2).’’ and inserting ‘‘1820(c),
and includes a facility designated by the Secretary
under section 1820(i)(2) as in effect on September
30, 1997.’’.
(3) MEDICAL ASSISTANCE FACILITY.—Any fa-
cility that, as of March 1, 1997, operated as a lim-
ited service rural hospital under a demonstration de-
scribed in section 4008(i)(1) of the Omnibus Budget
Reconciliation Act of 1990 (42 U.S.C. 1395b–1
note) shall be treated as a rural primary care hos-
pital for the purposes of title XVIII of the Social Se-
1009
curity Act so long as it continues to meet the re-
quirements of the demonstration protocol relating to
staffing, services, quality assurance, and related fac-
tors.
(e) CONFORMING AMENDMENT.—Section 1883(a)(1)
(42 U.S.C. 1395tt(a)(1)) is amended by inserting ‘‘or
rural primary care hospital’’ after ‘‘Any hospital’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to services furnished in cost report-
ing periods beginning on or after October 1, 1997.
SEC. 10202. PROHIBITING DENIAL OF REQUEST BY RURAL
REFERRAL 
CENTERS 
FOR 
RECLASSIFICA-
TION 
ON 
BASIS 
OF 
COMPARABILITY 
OF
WAGES.
(a) IN
GENERAL.—Section 1886(d)(10)(D) (42
U.S.C. 1395ww(d)(10)(D)) is amended—
(1) by redesignating clause (iii) as clause (iv);
and
(2) by inserting after clause (ii) the following
new clause:
‘‘(iii) Under the guidelines published by the Secretary
under clause (i), in the case of a hospital which has ever
been classified by the Secretary as a rural referral center
under paragraph (5)(C), the Board may not reject the ap-
plication of the hospital under this paragraph on the basis
1010
of any comparison between the average hourly wage of the
hospital and the average hourly wage of hospitals in the
area in which it is located.’’.
(b) CONTINUING TREATMENT OF PREVIOUSLY DES-
IGNATED CENTERS.—
(1) IN GENERAL.—Any hospital classified as a
rural referral center by the Secretary of Health and
Human Services under section 1886(d)(5)(C) of the
Social Security Act for fiscal year 1991 shall be clas-
sified as such a rural referral center for fiscal year
1998 and each subsequent fiscal year.
(2) BUDGET NEUTRALITY.—The provisions of
section 1886(d)(8)(D) of the Social Security Act
shall apply to reclassifications made pursuant to
paragraph (1) in the same manner as such provi-
sions apply to a reclassification under section
1886(d)(10) of such Act.
SEC. 10203. HOSPITAL GEOGRAPHIC RECLASSIFICATION
PERMITTED FOR PURPOSES OF DISPROPOR-
TIONATE SHARE PAYMENT ADJUSTMENTS.
(a) IN GENERAL.—Section 1886(d)(10)(C)(i) (42
U.S.C. 1395ww(d)(10)(C)(i)) is amended—
(1) by striking ‘‘or’’ at the end of subclause (I);
(2) by striking the period at the end of sub-
clause (II) and inserting ‘‘, or’’; and
1011
(3) by inserting after subclause (II) the follow-
ing:
‘‘(III) eligibility for and amount of additional
payment amounts under paragraph (5)(F).’’.
(b) APPLICABLE GUIDELINES.—Such Board shall
apply the guidelines established for reclassification under
subclause (I) of section 1886(d)(10)(C)(i) of such Act to
reclassification under subclause (III) of such section until
the Secretary of Health and Human Services promulgates
separate guidelines for reclassification under such sub-
clause (III).
SEC. 10204. MEDICARE-DEPENDENT, SMALL RURAL HOS-
PITAL PAYMENT EXTENSION.
(a) SPECIAL TREATMENT EXTENDED.—
(1) 
PAYMENT
METHODOLOGY.—Section
1886(d)(5)(G) (42 U.S.C. 1395ww(d)(5)(G)) is
amended—
(A) in clause (i), by striking ‘‘October 1,
1994,’’ and inserting ‘‘October 1, 1994, or be-
ginning on or after October 1, 1997, and before
October 1, 2001,’’; and
(B) in clause (ii)(II), by striking ‘‘October
1, 1994,’’ and inserting ‘‘October 1, 1994, or
beginning on or after October 1, 1997, and be-
fore October 1, 2001,’’.
1012
(2) EXTENSION OF TARGET AMOUNT.—Section
1886(b)(3)(D) (42 U.S.C. 1395ww(b)(3)(D)) is
amended—
(A) in the matter preceding clause (i), by
striking ‘‘September 30, 1994,’’ and inserting
‘‘September 30, 1994, and for cost reporting
periods beginning on or after October 1, 1997,
and before October 1, 2001,’’;
(B) in clause (ii), by striking ‘‘and’’ at the
end;
(C) in clause (iii), by striking the period at
the end and inserting ‘‘, and’’; and
(D) by adding after clause (iii) the follow-
ing new clause:
‘‘(iv) with respect to discharges occurring dur-
ing fiscal year 1998 through fiscal year 2000, the
target amount for the preceding year increased by
the applicable percentage increase under subpara-
graph (B)(iv).’’.
(3) PERMITTING HOSPITALS TO DECLINE RE-
CLASSIFICATION.—Section 13501(e)(2) of OBRA–93
(42 U.S.C. 1395ww note) is amended by striking
‘‘or fiscal year 1994’’ and inserting ‘‘, fiscal year
1994, fiscal year 1998, fiscal year 1999, or fiscal
year 2000’’.
1013
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply with respect to discharges occur-
ring on or after October 1, 1997.
SEC. 10205. GEOGRAPHIC RECLASSIFICATION FOR CERTAIN
DISPROPORTIONATELY LARGE HOSPITALS.
(a) NEW GUIDELINES
FOR RECLASSIFICATION.—
Notwithstanding the guidelines published under subpara-
graph (D)(i)(I) of section 1886(d)(10) of the Social Secu-
rity Act (42 U.S.C. 1395ww(d)(10)), the Secretary of
Health and Human Services shall publish and use alter-
native guidelines under which a hospital described in sub-
section (b) qualifies for geographic reclassification under
such section for a fiscal year beginning with fiscal year
1998.
(b) HOSPITALS COVERED.—A hospital described in
this subsection is a hospital that demonstrates that—
(1) the average hourly wage paid by the hos-
pital is not less than 108 percent of the average
hourly wage paid by all other hospitals located in the
Metropolitan Statistical Area (or the New England
County Metropolitan Area) in which the hospital is
located; and
(2) not less than 40 percent of the adjusted
uninflated wages paid by all hospitals located in such Area
is attributable to wages paid by the hospital.
1014
SEC. 10206. FLOOR ON AREA WAGE INDEX.
(a) 
IN
GENERAL.—For 
purposes 
of 
section
1886(d)(3)(E) of the Social Security Act for discharges
occurring on or after October 1, 1997, the area wage index
applicable under such section to any hospital which is not
located in a rural area (as defined in section
1886(d)(2)(D) of such Act) may not be less than the area
wage indices applicable under such section to hospitals lo-
cated in rural areas in the State in which the hospital is
located.
(b) IMPLEMENTATION.—The Secretary of Health and
Human Services shall adjust the area wage indices re-
ferred to in subsection (a) for hospitals not described in
such subsection in a manner which assures that the aggre-
gate payments made under section 1886(d) of the Social
Security Act in a fiscal year for the operating costs of in-
patient hospital services are not greater or less than those
which would have been made in the year if this section
did not apply.
SEC. 
10207. 
INFORMATICS, 
TELEMEDICINE, 
AND 
EDU-
CATION DEMONSTRATION PROJECT.
(a) PURPOSE AND AUTHORIZATION.—
(1) IN
GENERAL.—Not later than 9 months
after the date of enactment of this section, the Sec-
retary of Health and Human Services shall provide
1015
for a demonstration project described in paragraph
(2).
(2) DESCRIPTION OF PROJECT.—
(A) IN
GENERAL.—The demonstration
project described in this paragraph is a single
demonstration project to use eligible health care
provider telemedicine networks to apply high-
capacity computing and advanced networks to
improve primary care (and prevent health care
complications) to medicare beneficiaries with di-
abetes mellitus who are residents of medically
underserved rural areas or residents of medi-
cally underserved inner-city areas.
(B) 
MEDICALLY
UNDERSERVED
DE-
FINED.—As used in this paragraph, the term
‘‘medically underserved’’ has the meaning given
such term in section 330(b)(3) of the Public
Health Service Act (42 U.S.C. 254b(b)(3)).
(3) WAIVER.—The Secretary shall waive such
provisions of title XVIII of the Social Security Act
as may be necessary to provide for payment for serv-
ices under the project in accordance with subsection
(d).
(4) DURATION OF PROJECT.—The project shall
be conducted over a 4-year period.
1016
(b) OBJECTIVES OF PROJECT.—The objectives of the
project include the following:
(1) Improving patient access to and compliance
with appropriate care guidelines for individuals with
diabetes mellitus through direct telecommunications
link with information networks in order to improve
patient quality-of-life and reduce overall health care
costs.
(2) Developing a curriculum to train, and pro-
viding standards for credentialing and licensure of,
health professionals (particularly primary care
health 
professionals) 
in 
the 
use 
of 
medical
informatics and telecommunications.
(3) Demonstrating the application of advanced
technologies, such as video-conferencing from a pa-
tient’s home, remote monitoring of a patient’s medi-
cal condition, interventional informatics, and apply-
ing individualized, automated care guidelines, to as-
sist primary care providers in assisting patients with
diabetes in a home setting.
(4) Application of medical informatics to resi-
dents with limited English language skills.
(5) Developing standards in the application of
telemedicine and medical informatics.
1017
(6) Developing a model for the cost-effective de-
livery of primary and related care both in a managed
care environment and in a fee-for-service environ-
ment.
(c) ELIGIBLE HEALTH CARE PROVIDER TELEMEDI-
CINE NETWORK DEFINED.—For purposes of this section,
the term ‘‘eligible health care provider telemedicine net-
work’’ means a consortium that includes at least one ter-
tiary care hospital (but no more than 2 such hospitals),
at least one medical school, no more than 4 facilities in
rural or urban areas, and at least one regional tele-
communications provider and that meets the following re-
quirements:
(1) The consortium is located in an area with
one of the highest concentrations of medical schools
and tertiary care facilities in the United States and
has appropriate arrangements (within or outside the
consortium) with such schools and facilities, univer-
sities, and telecommunications providers, in order to
conduct the project.
(2) The consortium submits to the Secretary an
application at such time, in such manner, and con-
taining such information as the Secretary may re-
quire, including a description of the use to which the
consortium would apply any amounts received under
1018
the project and the source and amount of non-Fed-
eral funds used in the project.
(3) The consortium guarantees that it will be
responsible for payment for all costs of the project
that are not paid under this section and that the
maximum amount of payment that may be made to
the consortium under this section shall not exceed
the amount specified in subsection (d)(3).
(d) COVERAGE AS MEDICARE PART B SERVICES.—
(1) IN
GENERAL.—Subject to the succeeding
provisions of this subsection, services related to the
treatment or management of (including prevention
of complications from) diabetes for medicare bene-
ficiaries furnished under the project shall be consid-
ered to be services covered under part B of title
XVIII of the Social Security Act.
(2) PAYMENTS.—
(A) IN GENERAL.—Subject to paragraph
(3), payment for such services shall be made at
a rate of 50 percent of the costs that are rea-
sonable and related to the provision of such
services. In computing such costs, the Secretary
shall include costs described in subparagraph
(B), but may not include costs described in sub-
paragraph (C).
1019
(B) COSTS THAT MAY BE INCLUDED.—The
costs described in this subparagraph are the
permissible costs (as recognized by the Sec-
retary) for the following:
(i) The acquisition of telemedicine
equipment for use in patients’ homes (but
only in the case of patients located in
medically underserved areas).
(ii) 
Curriculum 
development 
and
training of health professionals in medical
informatics and telemedicine.
(iii) Payment of telecommunications
costs (including salaries and maintenance
of equipment), including costs of tele-
communications between patients’ homes
and the eligible network and between the
network and other entities under the ar-
rangements described in subsection (c)(1).
(iv) Payments to practitioners and
providers under the medicare programs.
(C) COSTS NOT INCLUDED.—The costs de-
scribed in this subparagraph are costs for any
of the following:
(i) The purchase or installation of
transmission equipment (other than such
1020
equipment used by health professionals to
deliver medical informatics services under
the project).
(ii) The establishment or operation of
a telecommunications common carrier net-
work.
(iii) Construction (except for minor
renovations related to the installation of
reimbursable equipment) or the acquisition
or building of real property.
(3) LIMITATION.—The total amount of the pay-
ments that may be made under this section shall not
exceed $30,000,000.
(4) 
LIMITATION
ON
COST-SHARING.—The
project may not impose cost sharing on a medicare
beneficiary for the receipt of services under the
project in excess of 20 percent of the recognized
costs of the project attributable to such services.
(e) REPORTS.—The Secretary shall submit to the
Committees on Ways and Means and Commerce of the
House of Representatives and the Committee on Finance
of the Senate interim reports on the project and a final
report on the project within 6 months after the conclusion
of the project. The final report shall include an evaluation
of the impact of the use of telemedicine and medical
1021
informatics on improving access of medicare beneficiaries
to health care services, on reducing the costs of such serv-
ices, and on improving the quality of life of such bene-
ficiaries.
(f) DEFINITIONS.—For purposes of this section:
(1) INTERVENTIONAL INFORMATICS.—The term
‘‘interventional informatics’’ means using informa-
tion technology and virtual reality technology to in-
tervene in patient care.
(2) MEDICAL INFORMATICS.—The term ‘‘medi-
cal informatics’’ means the storage, retrieval, and
use of biomedical and related information for prob-
lem solving and decision-making through computing
and communications technologies.
(3) PROJECT.—The term ‘‘project’’ means the
demonstration project under this section.
Subtitle D—Anti-Fraud and Abuse
Provisions
SEC. 10301. PERMANENT EXCLUSION FOR THOSE CON-
VICTED 
OF 
HEALTH 
CARE 
RELATED
CRIMES.
Section 1128(c)(3) (42 U.S.C. 1320a–7(c)(3)) is
amended—
1022
(1) in subparagraph (A), by inserting ‘‘or in the
case described in subparagraph (G)’’ after ‘‘sub-
section (b)(12)’’;
(2) in subparagraphs (B) and (D), by striking
‘‘In the case’’ and inserting ‘‘Subject to subpara-
graph (G), in the case’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(G) In the case of an exclusion of an individual
under subsection (a) based on a conviction occurring on
or after the date of the enactment of this subparagraph,
if the individual has (before, on, or after such date and
before the date of the conviction for which the exclusion
is imposed) been convicted—
‘‘(i) on one previous occasion of one or more of-
fenses for which an exclusion may be effected under
such subsection, the period of the exclusion shall be
not less than 10 years, or
‘‘(ii) on 2 or more previous occasions of one or
more offenses for which an exclusion may be effected
under such subsection, the period of the exclusion
shall be permanent.’’.
1023
SEC. 10302. AUTHORITY TO REFUSE TO ENTER INTO MEDI-
CARE AGREEMENTS WITH INDIVIDUALS OR
ENTITIES CONVICTED OF FELONIES.
(a) MEDICARE PART A.—Section 1866(b)(2) (42
U.S.C. 1395cc(b)(2)) is amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(B);
(2) by striking the period at the end of sub-
paragraph (C) and inserting ‘‘, or’’; and
(3) by adding after subparagraph (C) the fol-
lowing new subparagraph:
‘‘(D) has ascertained that the provider has
been convicted of a felony under Federal or
State law for an offense which the Secretary de-
termines is inconsistent with the best interests
of program beneficiaries.’’.
(b) MEDICARE PART B.—Section 1842 (42 U.S.C.
1395u) is amended by adding after subsection (r) the fol-
lowing new subsection:
‘‘(s) The Secretary may refuse to enter into an agree-
ment with a physician or supplier under subsection (h)
or may terminate or refuse to renew such agreement, in
the event that such physician or supplier has been con-
victed of a felony under Federal or State law for an of-
fense which the Secretary determines is inconsistent with
the best interests of program beneficiaries.’’.
1024
(c) MEDICAID.—For provisions amending title XIX
of the Social Security Act to provide similar treatment
under the medicaid program, see section ll.
(d) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act and apply to the entry and renewal of contracts
on or after such date.
SEC. 10303. INCLUSION OF TOLL-FREE NUMBER TO REPORT
MEDICARE WASTE, FRAUD, AND ABUSE IN EX-
PLANATION OF BENEFITS FORMS.
(a) IN GENERAL.—Section 1842(h)(7) (42 U.S.C.
1395u(h)(7)) is amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (C),
(2) by striking the period at the end of sub-
paragraph (D) and inserting ‘‘; and’’, and
(3) by adding at the end the following new sub-
paragraph:
‘‘(E) a toll-free telephone number maintained
by the Inspector General in the Department of
Health and Human Services for the receipt of com-
plaints and information about waste, fraud, and
abuse in the provision or billing of services under
this title.’’.
1025
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to explanations of benefits pro-
vided on or after such date (not later than January 1,
1999) as the Secretary of Health and Human Services
shall provide.
SEC. 10304. LIABILITY OF MEDICARE CARRIERS AND FIS-
CAL INTERMEDIARIES FOR CLAIMS SUBMIT-
TED BY EXCLUDED PROVIDERS.
(a) REIMBURSEMENT
TO
THE
SECRETARY
FOR
AMOUNTS PAID TO EXCLUDED PROVIDERS.—
(1) 
REQUIREMENTS
FOR
FISCAL
INTERMEDIARIES.—
(A) IN
GENERAL.—Section 1816 (42
U.S.C. 1395h) is amended by adding at the end
the following new subsection:
‘‘(m) An agreement with an agency or organization
under this section shall require that such agency or orga-
nization reimburse the Secretary for any amounts paid by
the agency or organization for a service under this title
which is furnished, directed, or prescribed by an individual
or entity during any period for which the individual or
entity is excluded pursuant to section 1128, 1128A, or
1156, from participation in the program under this title,
if the amounts are paid after the Secretary notifies the
agency or organization of the exclusion.’’.
1026
(B) 
CONFORMING
AMENDMENT.—Sub-
section (i) of such section is amended by adding
at the end the following new paragraph:
‘‘(4) Nothing in this subsection shall be construed to
prohibit reimbursement by an agency or organization
under subsection (m).’’.
(2) REQUIREMENTS
FOR
CARRIERS.—Section
1842(b)(3) (42 U.S.C. 1395u(b)(3)) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (I); and
(B) by inserting after subparagraph (I) the
following new subparagraph:
‘‘(J) will reimburse the Secretary for any
amounts paid by the carrier for an item or service
under this part which is furnished, directed, or pre-
scribed by an individual or entity during any period
for which the individual or entity is excluded pursu-
ant to section 1128, 1128A, or 1156, from partici-
pation in the program under this title, if the
amounts are paid after the Secretary notifies the
carrier of the exclusion, and’’.
(3) REFERENCE TO MEDICAID PROVISION.—For
provision imposing similar restrictions on States
under the medicaid program under title XIX of the
Social Security Act, see section ll.
1027
(b) CONFORMING REPEAL OF MANDATORY PAYMENT
RULE.—Paragraph (2) of section 1862(e) (42 U.S.C.
1395y(e)) is amended to read as follows:
‘‘(2) No individual or entity may bill (or collect any
amount from) any individual for any item or service for
which payment is denied under paragraph (1). No person
is liable for payment of any amounts billed for such an
item or service in violation of the previous sentence.’’.
(c) EFFECTIVE DATES.—The amendments made by
this section shall apply to contracts and agreements en-
tered into, renewed, or extended after the date of the en-
actment of this Act, but only with respect to claims sub-
mitted on or after the later of January 1, 1998, or the
date such entry, renewal, or extension becomes effective.
SEC. 10305. EXCLUSION OF ENTITY CONTROLLED BY FAM-
ILY MEMBER OF A SANCTIONED INDIVIDUAL.
(a) IN GENERAL.—Section 1128 (42 U.S.C. 1320a–
7) is amended—
(1) in subsection (b)(8)(A)—
(A) by striking ‘‘or’’ at the end of clause
(i), and
(B) by striking the dash at the end of
clause (ii) and inserting ‘‘; or’’, and
(C) by inserting after clause (ii) the follow-
ing: