Subtitle A Part 1
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 Medicare
Choice product offered by a Medicare Choice organi-
zation—
‘‘(A) payment for such services until the
date of the individual’s discharge shall be made
under this title through the Medicare Choice
product or Non-Medicare Choice option (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
‘‘(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
Medicare Choice 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,
Subtitle A Part 1
‘‘(B) payment for such services during the
stay shall not be made under section 1886(d) or
by any succeeding Medicare Choice organiza-
tion, 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.
‘‘ESTABLISHMENT OF STANDARDS FOR MEDICARE
CHOICE ORGANIZATIONS AND PRODUCTS
‘‘SEC. 1856. (a) INTERIM STANDARDS.—
‘‘(1) IN GENERAL.—The Secretary shall issue
regulations regarding standards for Medicare Choice
organizations and products within 180 days after
the date of the enactment of this section. Such regu-
lations shall be issued on an interim basis, but shall
become effective upon publication and shall be effec-
tive through the end of 1999.
‘‘(2) SOLICITATION OF VIEWS.—In developing
standards under this subsection relating to solvency
of Medicare Choice organizations, the Secretary shall
solicit the views of the American Academy of Actu-
aries.
‘‘(3) EFFECT ON STATE REGULATIONS.—Regu-
lations under this subsection shall not preempt State
Subtitle A Part 1
regulations for Medicare Choice organizations for
products not offered under this part.
‘‘(b) PERMANENT STANDARDS.—
‘‘(1) IN GENERAL.—The Secretary shall develop
permanent standards under this subsection.
‘‘(2) CONSULTATION.—In developing standards
under this subsection, the Secretary shall consult
with the National Association of Insurance Commis-
sioners, associations representing the various types
of Medicare Choice organizations, and medicare
beneficiaries.
‘‘(3) EFFECTIVENESS.—The standards under
this subsection shall take effect for periods begin-
ning on or after January 1, 2000.
‘‘(c) SOLVENCY.—In establishing interim and perma-
nent standards under this section relating to solvency of
organizations, the Secretary shall recognize the multiple
means of demonstrating solvency, including—
‘‘(1) reinsurance purchased through a recog-
nized commerce company or through a capitive com-
pany owned directly or indirectly by 3 or more pro-
vider-sponsored organizations,
‘‘(2) unrestricted surplus,
‘‘(3) guarantees, and
‘‘(4) letters of credit.
Subtitle A Part 1
In such standards, the Secretary may treat as admitted
assets the assets used by a provider-sponsored organiza-
tion in delivering covered services.
‘‘(d) APPLICATION OF NEW STANDARDS TO ENTI-
TIES WITH A CONTRACT.—In the case of a Medicare
Choice 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 current 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).
‘‘(e) RELATION TO STATE LAWS.—The standards es-
tablished under this section shall supersede any State law.
The standard or regulation with respect to Medicare
Choice products which are offered by Medicare Choice or-
ganizations and are issued by organizations to which sec-
tion 1851(b)(1) applies, to the extent such law or regula-
tion is inconsistent with such standards.
‘‘MEDICARE CHOICE CERTIFICATION
‘‘SEC. 1857. (a) IN GENERAL.—
‘‘(1) ESTABLISHMENT.—The Secretary shall es-
tablish a process for the certification of organiza-
tions and products offered by organizations as meet-
ing the applicable standards for Medicare Choice or-
Subtitle A Part 1
ganizations and Medicare Choice products estab-
lished under section 1856.
‘‘(2) 
INVOLVEMENT
OF
SECRETARY
OF
LABOR.—Such process shall be established and oper-
ated in cooperation with the Secretary of Labor with
respect to union sponsors and Taft-Hartley spon-
sors.
‘‘(3) USE OF STATE LICENSING AND PRIVATE
ACCREDITATION PROCESSES.—
‘‘(A) IN
GENERAL.—The process under
this subsection shall, to the maximum extent
practicable, provide that Medicare Choice orga-
nizations and products that are licensed or cer-
tified through a qualified private accreditation
process that the Secretary finds applies stand-
ards that are no less stringent than the require-
ments of this part are deemed to meet the cor-
responding requirements of this part for such
an organization or product.
‘‘(B) PERIODIC ACCREDITATION.—The use
of an accreditation under subparagraph (A)
shall be valid only for such period as the Sec-
retary specifies.
‘‘(4) USER FEES.—The Secretary may impose
user fees on entities seeking certification under this
Subtitle A Part 1
subsection in such amounts as the Secretary deems
sufficient to finance the costs of such certification.
‘‘(b) STATE CERTIFICATION PROCESS.—
‘‘(1) APPROVAL OF STATE PROCESS.—Effective
for periods beginning on or after January 1, 2000,
the Secretary shall approve a Medicare Choice cer-
tification and enforcement program established by a
State for applying the standards established under
section 1856 to Medicare Choice organizations and
Medicare Choice products offered by such organiza-
tions if the Secretary determines that the program
fairly and efficiently provides for the application and
enforcement of such standards in the State with re-
spect to such organizations and products and such
program does not provide for the imposition (for or-
ganizations only offering products under this part)
of any standards in addition to the standards pro-
vided under section 1856. Such program shall pro-
vide for certification of compliance of Medicare
Choice organizations and products with the applica-
ble requirements of this part not less often than
once every 3 years.
‘‘(2) EFFECT OF CERTIFICATION UNDER STATE
PROCESS.—A Medicare Choice organization and
Medicare Choice product offered by such an organi-
Subtitle A Part 1
zation that is certified under such program is con-
sidered to have been certified under this subsection
with respect to the offering of the product to individ-
uals residing in the State.
‘‘(3) USER FEES.—The State may impose user
fees on organizations seeking certification under this
subsection in such amounts as the State deems suffi-
cient to finance the costs of such certification. Noth-
ing in this paragraph shall be construed as restrict-
ing a State’s authority to impose premium taxes,
other taxes, or other levies.
‘‘(4) REVIEW.—The Secretary periodically shall
review State programs approved under paragraph
(1) to determine if they continue to provide for the
fair and efficient certification and enforcement de-
scribed in such paragraph. If the Secretary finds
that a State program no longer so provides, before
making a final determination, the Secretary shall
provide the State an opportunity to adopt such a
plan of correction as would permit the State pro-
gram to meet the requirements of paragraph (1). If
the Secretary makes a final determination that the
State program, after such an opportunity, fails to
meet such requirements, the provisions of paragraph
Subtitle A Part 1
(2) shall no longer apply to Medicare Choice organi-
zations and products in the State.
‘‘(5) PUBLICATION
OF
LIST
OF
APPROVED
STATE
PROGRAMS.—The Secretary shall publish
(and periodically update) a list of those State pro-
grams which are approved for purposes of this sub-
section.
‘‘(c) NOTICE TO ENROLLEES IN CASE OF DECERTI-
FICATION.—If a Medicare Choice organization or product
is decertified under this section, the organization shall no-
tify each enrollee with the organization and product under
this part of such decertification.
‘‘(d) QUALIFIED ASSOCIATIONS.—In the case of Med-
icare Choice products offered by a Medicare Choice orga-
nization that is a qualified association (as defined in sec-
tion 1854(c)(4)(C)) and issued by an organization to
which section 1851(b)(1) applies or by a provider-spon-
sored organization (as defined in section 1854(a)), nothing
in this section shall be construed as limiting the authority
of States to regulate such products.
‘‘CONTRACTS WITH MEDICARE CHOICE ORGANIZATIONS
‘‘SEC. 1858. (a) IN GENERAL.—The Secretary shall
not permit the election under section 1805 of a Medicare
Choice product offered by a Medicare Choice organization
under this part, and no payment shall be made under sec-
tion 1856 to an organization, unless the Secretary has en-
Subtitle A Part 1
tered into a contract under this section with an organiza-
tion with respect to the offering of such product. Such
a contract with an organization may cover more than one
Medicare Choice product. Such contract shall provide that
the organization agrees to comply with the applicable re-
quirements and standards of this part and the terms and
conditions of payment as provided for in this part.
‘‘(b) ENROLLMENT REQUIREMENTS.—
‘‘(A) MINIMUM
ENROLLMENT
REQUIRE-
MENT.—Subject to subparagraphs (B) and (C),
the Secretary may not enter into a contract
under this section with a Medicare Choice orga-
nization (other than a union sponsor or Taft-
Hartley sponsor) unless the organization has at
least 5,000 individuals (or 1,500 individuals in
the case of an organization that is a provider-
sponsored organization) who are receiving
health benefits through the organization, except
that the standards under section 1856 may per-
mit the organization to have a lesser number of
beneficiaries (but not less than 500 in the case
of an organization that is a provider-sponsored
organization) if the organization primarily
serves individuals residing outside of urbanized
areas.
Subtitle A Part 1
‘‘(B) ALLOWING
TRANSITION.—The Sec-
retary may waive the requirement of subpara-
graph (A) during the first 3 contract years with
respect to an organization.
‘‘(C) TREATMENT
OF
AREAS
WITH
LOW
MANAGED CARE PENETRATION.—The Secretary
may waive the requirement of subparagraph (A)
in the case of organizations operating in areas
in which there is a low proportion of medicare
beneficiaries who have made the Medicare
Choice election.
‘‘(2) REQUIREMENT
FOR
ENROLLMENT
OF
NON-MEDICARE BENEFICIARIES.—
‘‘(A) IN GENERAL.—Each Medicare Choice
organization with which the Secretary enters
into a contract under this section shall have, for
the duration of such contract, an enrolled mem-
bership at least one-half of which consists of in-
dividuals who are not entitled to benefits under
this title or under a State plan approved under
title XIX.
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply to—
‘‘(i) an organization that has been
certified by a national organization recog-
Subtitle A Part 1
nized by the Secretary and has been found
to have met performance standards estab-
lished by the Secretary for at least 2 years,
or
‘‘(ii) a provider-sponsored organiza-
tion for which commercial payments to
providers participating in the organization
exceed the payments to the organization
under this part.
‘‘(C) MODIFICATION
AND
WAIVER.—The
Secretary may modify or waive the requirement
imposed by subparagraph (A)—
‘‘(i) to the extent that more than 50
percent of the population of the area
served by the organization consists of indi-
viduals who are entitled to benefits under
this title or under a State plan approved
under title XIX, or
‘‘(ii) in the case of an organization
that is owned and operated by a govern-
mental entity, only with respect to a period
of three years beginning on the date the
organization first enters into a contract
under this section, and only if the organi-
zation has taken and is making reasonable
Subtitle A Part 1
efforts to enroll individuals who are not en-
titled to benefits under this title or under
a State plan approved under title XIX.
‘‘(D) ENFORCEMENT.—If the Secretary
determines that an organization has failed to
comply with the requirements of this para-
graph, the Secretary may provide for the sus-
pension of enrollment of individuals under this
part or of payment to the organization under
this part for individuals newly enrolled with the
organization, after the date the Secretary noti-
fies the organization of such noncompliance.
‘‘(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 or may impose the intermediate sanc-
tions described in an applicable paragraph of sub-
Subtitle A Part 1
section (g) on the Medicare Choice organization if
the Secretary determines that the organization—
‘‘(A) has failed substantially to carry out
the contract;
‘‘(B) is carrying out the contract in a man-
ner inconsistent with the efficient and effective
administration of this part;
‘‘(C) is operating in a manner that is not
in the best interests of the individuals covered
under the contract; or
‘‘(D) 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.
‘‘(4) PREVIOUS TERMINATIONS.—The Secretary
may not enter into a contract with a Medicare
Choice organization if a previous contract with that
organization under this section was terminated at
the request of the organization within the preceding
five-year period, except in circumstances which war-
rant special consideration, as determined by the Sec-
retary.
‘‘(5) NO CONTRACTING AUTHORITY.—The au-
thority vested in the Secretary by this part may be
Subtitle A Part 1
performed without regard to such provisions of law
or regulations relating to the making, performance,
amendment, or modification of contracts of the
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 Medicare
Choice organization that pertain (i) to the abil-
ity of the organization to bear the risk of poten-
tial financial losses, or (ii) to services performed
or determinations of amounts payable under the
contract.
Subtitle A Part 1
‘‘(2) ENROLLEE NOTICE AT TIME OF TERMI-
NATION.—Each contract under this section shall re-
quire the organization to provide (and pay for) writ-
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 Medicare Choice
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—
Subtitle A Part 1
‘‘(I) any sale or exchange, or
leasing of any property between the
organization and a party in interest;
‘‘(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.
Subtitle A Part 1
‘‘(B) PARTY IN INTEREST DEFINED.—For
the purposes of this paragraph, the term ‘party
in interest’ means—
‘‘(i) any director, officer, partner, or
employee responsible for management or
administration of a Medicare Choice orga-
nization, any person who is directly or in-
directly 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 Medicare Choice organization or-
ganized as a nonprofit corporation, an in-
corporator 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
Subtitle A Part 1
‘‘(IV) has a mortgage, deed of
trust, note, or other interest valuing
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
Medicare Choice organization shall make the in-
formation reported pursuant to subparagraph
(A) available to its enrollees upon reasonable
request.
‘‘(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.
‘‘(f) ADDITIONAL CONTRACT TERMS.—The contract
shall contain such other terms and conditions not incon-
sistent with this part (including requiring the organization
to provide the Secretary with such information) as the
Secretary may find necessary and appropriate.
‘‘(g) INTERMEDIATE SANCTIONS.—
Subtitle A Part 1
‘‘(1) IN GENERAL.—If the Secretary determines
that a Medicare Choice 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 premiums on individuals en-
rolled under this part in excess of the premiums
permitted;
‘‘(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—
100
Subtitle A Part 1
‘‘(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(f)(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)
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
101
Subtitle A Part 1
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-
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 Medicare Choice organization for which
102
Subtitle A Part 1
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
initiation of procedures by the Secretary under
subsection (h) during which the deficiency that
is the basis of a determination under subsection
(c)(2) exists; and
‘‘(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.
103
Subtitle A Part 1
‘‘(4) 
PROCEDURES
FOR
IMPOSING
SANC-
TIONS.—The provisions of section 1128A (other
than subsections (a) and (b)) shall apply to a civil
money penalty under paragraph (1) or (2) in the
same manner as they apply to a civil money penalty
or proceeding under section 1128A(a).
‘‘(h) PROCEDURES FOR IMPOSING SANCTIONS.—The
Secretary may terminate a contract with a Medicare
Choice organization under this section or may impose the
intermediate sanctions described in subsection (g) on the
organization in accordance with formal investigation and
compliance procedures established by the Secretary under
which—
‘‘(1) the Secretary provides the organization
with the opportunity to develop and implement a
corrective action plan to correct the deficiencies that
were the basis of the Secretary’s determination
under subsection (c)(2);
‘‘(2) the Secretary shall impose more severe
sanctions on organizations that have a history of de-
ficiencies or that have not taken steps to correct de-
ficiencies the Secretary has brought to their atten-
tion;
104
Subtitle A Part 1
‘‘(3) there are no unreasonable or unnecessary
delays between the finding of a deficiency and the
imposition of sanctions; and
‘‘(4) the Secretary provides the organization
with reasonable notice and opportunity for hearing
(including the right to appeal an initial decision) be-
fore imposing any sanction or terminating the con-
tract.
‘‘DEMONSTRATION PROJECT FOR HIGH DEDUCTIBLE/
MEDISAVE PRODUCTS
‘‘SEC. 1859. (a) IN GENERAL.—The Secretary shall
permit, on a demonstration project basis, the offering of
high deductible/medisave products under this part, subject
to the special rules provided under this section.
‘‘(b) HIGH DEDUCTIBLE/MEDISAVE PRODUCT DE-
FINED.—
‘‘(1) IN GENERAL.—In this part, the term ‘high
deductible/medisave product’ means a Medicare
Choice product that—
‘‘(A) 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 product) equal to the amount of a deduct-
ible (described in paragraph (2));
105
Subtitle A Part 1
‘‘(B) counts as such expenses (for purposes
of such deductible) at least all amounts that
would have been payable under parts A and B
or by the enrollee if the enrollee had elected to
receive benefits through the provisions of such
parts; and
‘‘(C) provides, after such deductible is met
for a year and for all subsequent expenses for
benefits referred to in subparagraph (A) in the
year, for a level of reimbursement that is not
less than—
‘‘(i) 100 percent of such expenses, or
‘‘(ii) 100 percent of the amounts that
would have been paid (without regard to
any deductibles or coinsurance) under
parts A and B with respect to such ex-
penses,
whichever is less. Such term does not include
the Medicare Choice MSA itself or any con-
tribution into such account.
‘‘(2) DEDUCTIBLE.—The amount of deductible
under a high deductible/medisave product—
‘‘(A) for contract year 1997 shall be not
more than $10,000; and
106
Subtitle A Part 1
‘‘(B) for a subsequent contract year shall
be not more than the maximum amount of such
deductible for the previous contract year under
this paragraph increased by the national aver-
age per capita growth rate under section
1855(c)(3) for the year.
If the amount of the deductible under subparagraph
(B) is not a multiple of $50, the amount shall be
rounded to the nearest multiple of $50.
‘‘(c) SPECIAL RULES RELATING TO ENROLLMENT.—
The rule under section 1805 relating to election of Medi-
care Choice products shall apply to election of high deduct-
ible/medisave products offered under the demonstration
project under this section, except as follows:
‘‘(1) SPECIAL
RULE
FOR
CERTAIN
ANNU-
ITANTS.—An individual is not eligible to elect a high
deductible/medisave product under section 1805 if
the individual is entitled to benefits under chapter
89 of title 5, United States Code, as an annuitant
or spouse of an annuitant.
‘‘(2) TRANSITION PERIOD RULE.—During the
transition 
period 
(as 
defined 
in 
section
1805(e)(1)(B)), an individual who has elected a high
deductible/medisave product may not change such
election to a Medicare Choice product that is not a
107
Subtitle A Part 1
high deductible/medisave product unless the individ-
ual has had such election in effect for 12 months.
‘‘(3) NO
90-DAY
DISENROLLMENT
OPTION.—
Paragraph (4)(A) of section 1805(e) shall not apply
to an individual who elects a high deductible/
medisave product.
‘‘(4) TIMING OF ELECTION.—An individual may
elect a high deductible/medisave product only during
an annual, coordinated election period described in
section 1805(e)(3)(B) or during the month of Octo-
ber, 1996.
‘‘(5) EFFECTIVENESS OF ELECTION.—An elec-
tion of coverage for a high deductible/medisave prod-
uct made in a year shall take effect as of the first
day of the following year.
‘‘(d) SPECIAL RULES RELATING TO BENEFITS.—
‘‘(1) IN GENERAL.—Paragraphs (1) and (3) of
section 1852(a) shall not apply to high deductible/
medisave products.
‘‘(2) PREMIUMS.—
‘‘(A) APPLICATION OF ALTERNATIVE PRE-
MIUM.—In applying section 1852(d)(2) in the
case of a high deductible/medisave product, in-
stead of the amount specified in subparagraph
(B) there shall be substituted the monthly ad-
108
Subtitle A Part 1
justed Medicare Choice capitation rate specified
in section 1855(b)(1) for the individual and pe-
riod involved.
‘‘(B) CLASS ADJUSTED PREMIUMS.—Not-
withstanding section 1852(d)(3), a Medicare
Choice organization shall establish premiums
for any high deductible/medisave product it of-
fers in a payment area based on each of the
risk adjustment categories established for pur-
poses of determining the amount of the pay-
ment to Medicare Choice organizations under
section 1855(b)(1) and using the identical de-
mographic and other adjustments among such
categories as are used for such purposes.
‘‘(C) 
REQUIREMENT
FOR
ADDITIONAL
BENEFITS
NOT
APPLICABLE.—Section
1852(e)(1)(A) shall not apply to a high deduct-
ible/medisave product.
‘‘(e) ADDITIONAL DISCLOSURE.—In any disclosure
made pursuant to section 1853(a)(1) for a high deduct-
ible/medisave product, the disclosure shall include a com-
parison of benefits under such a product with benefits
under other Medicare Choice products.
‘‘(f) SPECIAL RULES FOR INDIVIDUALS ELECTING
HIGH DEDUCTIBLE/MEDISAVE PRODUCT.—
109
Subtitle A Part 1
‘‘(1) IN GENERAL.—In the case of an individual
who has elected a high deductible/medisave product,
notwithstanding the provisions of section 1855—
‘‘(A) the amount of the payment to the
Medicare Choice organization offering the high
deductible/medisave product shall not exceed
the premium for the product, and
‘‘(B) subject to paragraph (2), the dif-
ference between the amount of payment that
would otherwise be made and the amount of
payment to such organization shall be made di-
rectly into a Medicare Choice MSA established
(and, if applicable, designated) by the individual
under paragraph (2).
‘‘(2) ESTABLISHMENT
AND
DESIGNATION
OF
MEDICARE CHOICE MEDICAL SAVINGS ACCOUNT AS
REQUIREMENT FOR PAYMENT OF CONTRIBUTION.—
In the case of an individual who has elected coverage
under a high deductible/medisave product, no pay-
ment shall be made under paragraph (1)(B) on be-
half of an individual for a month unless the individ-
ual—
‘‘(A) has established before the beginning
of the month (or by such other deadline as the
Secretary may specify) a Medicare Choice MSA
110
Subtitle A Part 1
(as defined in section 137(b) of the Internal
Revenue Code of 1986), and
‘‘(B) if the individual has established more
than one Medicare Choice MSA, has designated
one of such accounts as the individual’s Medi-
care Choice 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 a high deductible/medisave product
effective beginning with a month in a year, the
amount of the contribution to the Medicare Choice
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 re-
maining months in the year.
‘‘(g) SPECIAL CONTRACT RULES.—
‘‘(1) ENROLLMENT REQUIREMENTS WAIVED.—
Subsection (b) of section 1858 shall not apply with
111
Subtitle A Part 1
respect to a contract that relates only to one or more
high deductible/medisave products.
‘‘(2) EFFECTIVE DATE OF CONTRACTS.—In no
case shall a contract under section 1858 which pro-
vides for coverage under a high deductible/medisave
account be effective before January 1997 with re-
spect to such coverage.’’.
(b) 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 So-
cial Security Act is deemed a reference to part D of such
title (as in effect after such date).
(c) USE
OF INTERIM, FINAL REGULATIONS.—In
order to carry out the amendment made by subsection (a)
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.
(d) ADVANCE DIRECTIVES.—Section 1866(f)(1) (42
U.S.C. 1395cc(f)(1)) is amended—
(1) in paragraph (1)—
(A) 
by 
inserting 
‘‘1853(g),’’ 
after
‘‘1833(s),’’, and
(B) by inserting ‘‘, Medicare Choice orga-
nization,’’ after ‘‘provider of services’’, and
112
Subtitle A Part 1
(2) by adding at the end the following new
paragraph:
‘‘(4) Nothing in this subsection shall be construed to
require the provision of information regarding assisted
suicide, euthanasia, or mercy killing.’’.
(e) 
CONFORMING
AMENDMENT.—Section
1866(a)(1)(O) (42 U.S.C. 1395cc(a)(1)(O)) is amended
by inserting before the semicolon at the end the following:
‘‘and in the case of hospitals to accept as payment in full
for inpatient hospital services that are covered under this
title and are furnished to any individual enrolled under
part C with a Medicare Choice organization which does
not have a contract establishing payment amounts for
services furnished to members of the organization the
amounts that would be made as a payment in full under
this title if the individuals were not so enrolled’’.
SEC. 15003. REPORTS.
(a) ALTERNATIVE PAYMENT APPROACHES.—By not
later than ll, the Secretary of Health and Human Serv-
ices (in this title referred to as the ‘‘Secretary’’) shall sub-
mit to Congress a report on alternative provider payment
approaches under the medicare program, including—
(1) combined hospital and physician payments
per admission,
113
Subtitle A Part 1
(2) partial capitation models for subsets of
medicare benefits, and
(3) risk-sharing arrangements in which the Sec-
retary defines the risk corridor and shares in gains
and losses.
Such report shall include recommendations for implement-
ing and testing such approaches and legislation that may
be required to implement and test such approaches.
(b) COVERAGE OF RETIRED WORKERS.—
(1) IN
GENERAL.—The Secretary shall work
with employers and health benefit plans to develop
standards and payment methodologies to allow re-
tired workers to continue to participate in employer
health plans instead of participating in the medicare
program. Such standards shall also cover workers
covered under the Federal Employees Health Bene-
fits Program under chapter 89 of title 5, United
States Code.
(2) REPORT.—Not later than 18 months after
the date of the enactment of this Act, the Secretary
shall submit to Congress a report on the develop-
ment of such standards and payment methodologies.
The report shall include recommendations relating to
such legislation as may be necessary.
114
Subtitle A Part 1
SEC. 15004. TRANSITIONAL RULES FOR CURRENT MEDI-
CARE HMO PROGRAM.
(a) TRANSITION FROM CURRENT CONTRACTS.—
(1) LIMITATION ON NEW CONTRACTS.—
(A) NO
NEW
RISK-SHARING
CONTRACTS
AFTER
NEW
STANDARDS
ESTABLISHED.—The
Secretary of Health and Human Services (in
this section referred to as the ‘‘Secretary’’)
shall not enter into any risk-sharing contract
under section 1876 of the Social Security Act
with an eligible organization for any contract
year beginning on or after the date standards
for Medicare Choice organizations and products
are first established under section 1856(a) of
such Act with respect to Medicare Choice orga-
nizations that are insurers or health mainte-
nance organizations unless such a contract had
been in effect under section 1876 of such Act
for the organization for the previous contract
year.
(B) NO NEW COST REIMBURSEMENT CON-
TRACTS.—The Secretary shall not enter into
any cost reimbursement contract under section
1876 of the Social Security Act beginning for
any contract year beginning on or after the
date of the enactment of this Act.
115
Subtitle A Part 1
(2) TERMINATION OF CURRENT CONTRACTS.—
(A) RISK-SHARING CONTRACTS.—Notwith-
standing any other provision of law, the Sec-
retary shall not extend or continue any risk-
sharing contract with an eligible organization
under section 1876 of the Social Security Act
(for which a contract was entered into consist-
ent with paragraph (1)(A)) for any contract
year beginning on or after 1 year after the date
standards described in paragraph (1)(A) are es-
tablished.
(B) COST REIMBURSEMENT CONTRACTS.—
The Secretary shall not extend or continue any
reasonable cost reimbursement contract with an
eligible organization under section 1876 of the
Social Security Act for any contract year begin-
ning on or after January 1, 1998.
(b) CONFORMING PAYMENT RATES.—
(1) RISK-SHARING CONTRACTS.—Notwithstand-
ing any other provision of law, the Secretary shall
provide that payment amounts under risk-sharing
contracts under section 1876(a) of the Social Secu-
rity Act for months in a year (beginning with Janu-
ary 1996) shall be computed—
116
Subtitle A Part 1
(A) with respect to individuals entitled to
benefits under both parts A and B of title
XVIII of such Act, by substituting payment
rates under section 1855(a) of such Act for the
payment rates otherwise established under sec-
tion 1876(a) of such Act, and
(B) with respect to individuals only enti-
tled to benefits under part B of such title, by
substituting an appropriate proportion of such
rates (reflecting the relative proportion of pay-
ments under such title attributable to such
part) for the payment rates otherwise estab-
lished under section 1876(a) of such Act.
For purposes of carrying out this paragraph for pay-
ment for months in 1996, the Secretary shall com-
pute, announce, and apply the payment rates under
section 1855(a) of such Act (notwithstanding any
deadlines specified in such section) in as timely a
manner as possible and may (to the extent nec-
essary) provide for retroactive adjustment in pay-
ments made not in accordance with such rates.
(2) COST
CONTRACTS.—Notwithstanding any
other provision of law, the Secretary shall provide
that payment amounts under cost reimbursement
contracts under section 1876(a) of the Social Secu-
117
Subtitle A, Part 2
rity Act shall take into account adjustments in pay-
ment amounts made in parts A and B of title XVIII
of such Act pursuant to the amendments made by
this title.
PART 2—SPECIAL RULES FOR MEDICARE CHOICE
MEDICAL SAVINGS ACCOUNTS
SEC. 15011. MEDICARE CHOICE MSA’S.
(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 137 as section 138 and
by inserting after section 136 the following new section:
‘‘SEC. 137. MEDICARE CHOICE MSA’S.
‘‘(a) EXCLUSION.—Gross income shall not include
any payment to the Medicare Choice MSA of an individual
by the Secretary of Health and Human Services under
section 1859(f)(1)(B) of the Social Security Act.
‘‘(b) MEDICARE CHOICE MSA.—For purposes of this
section—
‘‘(1) MEDICARE CHOICE MSA.—The term ‘Medi-
care Choice MSA’ means a trust created or orga-
nized in the United States exclusively for the pur-
pose of paying the qualified medical expenses of the
account holder, but only if the written governing in-
118
Subtitle A, Part 2
strument creating the trust meets the following re-
quirements:
‘‘(A) Except in the case of a trustee-to-
trustee transfer described in subsection (d)(4),
no contribution will be accepted unless it is
made by the Secretary of Health and Human
Services under section 1859(f)(1)(B) of the So-
cial Security Act.
‘‘(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as de-
fined in section 816), or another person who
demonstrates to the satisfaction of the Sec-
retary that the manner in which such person
will administer the trust will be consistent with
the requirements of this section.
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts.
‘‘(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(E) The interest of an individual in the
balance in his account is nonforfeitable.
119
Subtitle A, Part 2
‘‘(F) Trustee-to-trustee transfers described
in subsection (d)(4) may be made to and from
the trust.
‘‘(2) QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
medical expenses’ means, with respect to an ac-
count holder, amounts paid by such holder—
‘‘(i) for medical care (as defined in
section 213(d)) for the account holder, but
only to the extent such amounts are not
compensated for by insurance or otherwise,
or
‘‘(ii) for long-term care insurance for
the account holder.
‘‘(B) HEALTH
INSURANCE
MAY
NOT
BE
PURCHASED
FROM
ACCOUNT.—Subparagraph
(A)(i) shall not apply to any payment for insur-
ance.
‘‘(3) ACCOUNT
HOLDER.—The term ‘account
holder’ means the individual on whose behalf the
Medicare Choice MSA is maintained.
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar
to the rules of subsections (g) and (h) of section 408
shall apply for purposes of this section.
‘‘(c) TAX TREATMENT OF ACCOUNTS.—
120
Subtitle A, Part 2
‘‘(1) IN GENERAL.—A Medicare Choice MSA is
exempt from taxation under this subtitle unless such
MSA has ceased to be a Medicare Choice MSA by
reason of paragraph (2). Notwithstanding the pre-
ceding sentence, any such MSA is subject to the
taxes imposed by section 511 (relating to imposition
of tax on unrelated business income of charitable,
etc. organizations).
‘‘(2) ACCOUNT ASSETS TREATED AS DISTRIB-
UTED IN THE CASE OF PROHIBITED TRANSACTIONS
OR ACCOUNT PLEDGED AS SECURITY FOR LOAN.—
Rules similar to the rules of paragraphs (2) and (4)
of section 408(e) shall apply to Medicare Choice
MSA’s, and any amount treated as distributed under
such rules shall be treated as not used to pay quali-
fied medical expenses.
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION OF AMOUNTS NOT USED FOR
QUALIFIED MEDICAL EXPENSES.—No amount shall
be included in the gross income of the account hold-
er by reason of a payment or distribution from a
Medicare Choice MSA which is used exclusively to
pay the qualified medical expenses of the account
holder. Any amount paid or distributed from a Medi-
121
Subtitle A, Part 2
care Choice MSA which is not so used shall be in-
cluded in the gross income of such holder.
‘‘(2) PENALTY FOR DISTRIBUTIONS 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 Medicare
Choice MSA which is not used exclusively to
pay the qualified medical expenses of the ac-
count holder shall be increased by 50 percent 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 the Medicare Choice MSA as
of the close of the calendar year pre-
ceding the calendar year in which the
taxable year begins, over
‘‘(II) an amount equal to 60 per-
cent of the deductible under the cata-
strophic health plan covering the ac-
count holder as of January 1 of the
122
Subtitle A, Part 2
calendar year in which the taxable
year begins.
‘‘(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 Medicare Choice MSA’s of the
account holder shall be treated as 1 ac-
count,
‘‘(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
‘‘(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.—Paragraphs (1) and (2) shall not apply to
any payment or distribution from a Medicare Choice
MSA to the Secretary of Health and Human Serv-
123
Subtitle A, Part 2
ices of an erroneous contribution to such MSA and
of the net income attributable to such contribution.
‘‘(4) 
TRUSTEE-TO-TRUSTEE
TRANSFERS.—
Paragraphs (1) and (2) shall not apply to any trust-
ee-to-trustee transfer from a Medicare Choice MSA
of an account holder to another Medicare Choice
MSA of such account holder.
‘‘(5) COORDINATION WITH MEDICAL EXPENSE
DEDUCTION.—For purposes of section 213, any pay-
ment or distribution out of a Medicare Choice MSA
for qualified medical expenses shall not be treated as
an expense paid for medical care.
‘‘(e) TREATMENT OF ACCOUNT AFTER DEATH OF
ACCOUNT HOLDER.—
‘‘(1) TREATMENT IF DESIGNATED BENEFICIARY
IS SPOUSE.—
‘‘(A) IN GENERAL.—In the case of an ac-
count holder’s interest in a Medicare Choice
MSA which is payable to (or for the benefit of)
such holder’s spouse upon the death of such
holder, such Medicare Choice MSA shall be
treated as a Medicare Choice MSA of such
spouse as of the date of such death.
‘‘(B) SPECIAL RULES IF SPOUSE NOT MED-
ICARE ELIGIBLE.—If, as of the date of such
125
Subtitle A, Part 2
‘‘(B) an amount equal to the fair market
value of the assets in such account on such date
shall be includible—
‘‘(i) if such person is not the estate of
such holder, in such person’s gross income
for the taxable year which includes such
date, or
‘‘(ii) if such person is the estate of
such holder, in such holder’s gross income
for last taxable year of such holder.
‘‘(f) REPORTS.—
‘‘(1) IN GENERAL.—The trustee of a Medicare
Choice MSA shall make such reports regarding such
account to the Secretary and to the account holder
with respect to—
‘‘(A) the fair market value of the assets in
such Medicare Choice MSA as of the close of
each calendar year, and
‘‘(B) contributions, distributions, and other
matters,
as the Secretary may require by regulations.
‘‘(2) TIME AND MANNER OF REPORTS.—The re-
ports required by this subsection—
126
Subtitle A, Part 2
‘‘(A) shall be filed at such time and in
such manner as the Secretary prescribes in
such regulations, and
‘‘(B) shall be furnished to the account
holder—
‘‘(i) not later than January 31 of the
calendar year following the calendar year
to which such reports relate, and
‘‘(ii) in such manner as the Secretary
prescribes in such regulations.’’
(b) EXCLUSION OF MEDICARE CHOICE MSA’S FROM
ESTATE TAX.—Part IV of subchapter A of chapter 11 of
such Code is amended by adding at the end the following
new section:
‘‘SEC. 2057. MEDICARE CHOICE MSA’S.
‘‘For purposes of the tax imposed by section 2001,
the value of the taxable estate shall be determined by de-
ducting from the value of the gross estate an amount
equal to the value of any Medicare Choice MSA (as de-
fined in section 137(b)) included in the gross estate.’’
(c) TAX ON PROHIBITED TRANSACTIONS.—
(1) Section 4975 of such Code (relating to tax
on prohibited transactions) is amended by adding at
the end of subsection (c) the following new para-
graph:
127
Subtitle A, Part 2
‘‘(5) SPECIAL
RULE
FOR
MEDICARE
CHOICE
MSA’S.—An individual for whose benefit a Medicare
Choice MSA (within the meaning of section 137(b))
is established shall be exempt from the tax imposed
by this section with respect to any transaction con-
cerning such account (which would otherwise be tax-
able under this section) if, with respect to such
transaction, the account ceases to be a Medicare
Choice MSA by reason of the application of section
137(c)(2) to such account.’’
(2) Paragraph (1) of section 4975(e) of such
Code is amended to read as follows:
‘‘(1) PLAN.—For purposes of this section, the
term ‘plan’ means—
‘‘(A) a trust described in section 401(a)
which forms a part of a plan, or a plan de-
scribed in section 403(a), which trust or plan is
exempt from tax under section 501(a),
‘‘(B) an individual retirement account de-
scribed in section 408(a),
‘‘(C) an individual retirement annuity de-
scribed in section 408(b),
‘‘(D) a medical savings account described
in section 220(d),
128
Subtitle A, Part 2
‘‘(E) a Medicare Choice MSA described in
section 137(b), or
‘‘(F) a trust, plan, account, or annuity
which, at any time, has been determined by the
Secretary to be described in any preceding sub-
paragraph of this paragraph.’’
(d) FAILURE TO PROVIDE REPORTS ON MEDICARE
CHOICE MSA’S.—
(1) Subsection (a) of section 6693 of such Code
(relating to failure to provide reports on individual
retirement accounts or annuities) is amended to read
as follows:
‘‘(a) REPORTS.—
‘‘(1) IN GENERAL.—If a person required to file
a report under a provision referred to in paragraph
(2) fails to file such report at the time and in the
manner required by such provision, such person
shall pay a penalty of $50 for each failure unless it
is shown that such failure is due to reasonable
cause.
‘‘(2) PROVISIONS.—The provisions referred to
in this paragraph are—
‘‘(A) subsections (i) and (l) of section 408
(relating to individual retirement plans),
129
Subtitle A, Part 2
‘‘(B) section 220(h) (relating to medical
savings accounts), and
‘‘(C) section 137(f) (relating to Medicare
Choice MSA’s).’’
(2) The section heading for section 6693 of
such Code is amended to read as follows:
‘‘SEC. 6693. FAILURE TO FILE REPORTS ON INDIVIDUAL RE-
TIREMENT PLANS AND CERTAIN OTHER TAX-
FAVORED ACCOUNTS; PENALTIES RELATING
TO 
DESIGNATED 
NONDEDUCTIBLE 
CON-
TRIBUTIONS.’’
(e) CLERICAL AMENDMENTS.—
(1) 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. 137. Medicare Choice MSA’s.
‘‘Sec. 138. Cross references to other Acts.’’
(2) The table of sections for subchapter B of
chapter 68 of such Code is amended by striking the
item relating to section 6693 and inserting the fol-
lowing new item:
‘‘Sec. 6693. Failure to file reports on individual retirement plans
and certain other tax-favored accounts; penalties re-
lating to designated nondeductible contributions.’’
(3) The table of sections for part IV of sub-
chapter A of chapter 11 of such Code is amended by
adding at the end the following new item:
‘‘Sec. 2057. Medicare Choice MSA’s.’’
130
Subtitle A, Part 3
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 15012. CERTAIN REBATES EXCLUDED FROM GROSS IN-
COME.
(a) IN GENERAL.—Section 105 of the Internal Reve-
nue Code of 1986 (relating to amounts received under ac-
cident and health plans) is amended by adding at the end
the following new subsection:
‘‘(j) CERTAIN REBATES UNDER SOCIAL SECURITY
ACT.—Gross income does not include any rebate received
under section 1852(e)(1)(A) of the Social Security Act
during the taxable year.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to amounts received after the
date of the enactment of this Act.
PART 3—SPECIAL ANTITRUST RULE FOR
PROVIDER SERVICE NETWORKS
SEC. 15021. APPLICATION OF ANTITRUST RULE OF REASON
TO PROVIDER SERVICE NETWORKS.
(a) RULE OF REASON STANDARD.—In any action
under the antitrust laws, or under any State law similar
to the antitrust laws—
(1) the conduct of a provider service network in
negotiating, making, or performing a contract (in-
131
Subtitle A, Part 3
cluding the establishment and modification of a fee
schedule and the development of a panel of physi-
cians), to the extent such contract is for the purpose
of providing health care services to individuals under
the terms of a Medicare Choice PSO product, and
(2) the conduct of any member of such network
for the purpose of providing such health care serv-
ices under such contract to such extent,
shall not be deemed illegal per se. Such conduct shall be
judged on the basis of its reasonableness, taking into ac-
count all relevant factors affecting competition, including
the effects on competition in properly defined markets.
(b) DEFINITIONS.—For purposes of subsection (a):
(1) ANTITRUST
LAWS.—The term ‘‘antitrust
laws’’ has the meaning given it in subsection (a) of
the first section of the Clayton Act (15 U.S.C. 12),
except that such term includes section 5 of the Fed-
eral Trade Commission Act (15 U.S.C. 45) to the
extent that such section 5 applies to unfair methods
of competition.
(2) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means any individual or en-
tity that is engaged in the delivery of health care
services in a State and that is required by State law
or regulation to be licensed or certified by the State
132
Subtitle A, Part 3
to engage in the delivery of such services in the
State.
(3) HEALTH CARE SERVICE.—The term ‘‘health
care service’’ means any service for which payment
may be made under a Medicare Choice PSO product
including services related to the delivery or adminis-
tration of such service.
(4) MEDICARE
CHOICE
PROGRAM.—The term
‘‘Medicare Choice program’’ means the program
under part C of title XVIII of the Social Security
Act.
(5) MEDICARE
CHOICE
PSO
PRODUCT.—The
term ‘‘Medicare Choice PSO product’’ means a Med-
icare Choice product offered by a provider-sponsored
organization under part C of title XVIII of the So-
cial Security Act.
(6) PROVIDER SERVICE NETWORK.—The term
‘‘provider service network’’ means an organization
that—
(A) is organized by, operated by, and com-
posed of members who are health care providers
and for purposes that include providing health
care services,
133
Subtitle A, Part 3
(B) is funded in part by capital contribu-
tions made by the members of such organiza-
tion,
(C) with respect to each contract made by
such organization for the purpose of providing
a type of health care service to individuals
under the terms of a Medicare Choice PSO
product—
(i) requires all members of such orga-
nization who engage in providing such type
of health care service to agree to provide
health care services of such type under
such contract,
(ii) receives the compensation paid for
the health care services of such type pro-
vided under such contract by such mem-
bers, and
(iii) provides for the distribution of
such compensation,
(D) has established, consistent with the re-
quirements of the Medicare Choice program for
provider-sponsored organizations, a program to
review, pursuant to written guidelines, the qual-
ity, efficiency, and appropriateness of treatment
methods and setting of services for all health
134
Subtitle A, Part 3
care providers and all patients participating in
such product, along with internal procedures to
correct identified deficiencies relating to such
methods and such services,
(E) has established, consistent with the re-
quirements of the Medicare Choice program for
provider-sponsored organizations, a program to
monitor and control utilization of health care
services provided under such product, for the
purpose of improving efficient, appropriate care
and eliminating the provision of unnecessary
health care services,
(F) has established a management pro-
gram to coordinate the delivery of health care
services for all health care providers and all pa-
tients participating in such product, for the
purpose of achieving efficiencies and enhancing
the quality of health care services provided, and
(G) has established, consistent with the re-
quirements of the Medicare Choice program for
provider-sponsored organizations, a grievance
and appeal process for such organization de-
signed to review and promptly resolve bene-
ficiary or patient grievances and complaints.
135
Subtitle A, Part 4
Such term may include a provider-sponsored organi-
zation.
(7) PROVIDER-SPONSORED
ORGANIZATION.—
The term ‘‘provider-sponsored organization’’ means
a Medicare Choice organization under the Medicare
Choice program that is a provider-sponsored organi-
zation (as defined in section ll of the Social Se-
curity Act).
(8) STATE.—The term ‘‘State’’ has the mean-
ing given it in section 4G(2) of the Clayton Act (15
U.S.C. 15g(2)).
(c) ISSUANCE OF GUIDELINES.—Not later than 120
days after the date of the enactment of this Act, the Attor-
ney General and the Federal Trade Commission shall
issue jointly guidelines specifying the enforcement policies
and analytical principles that will be applied by the De-
partment of Justice and the Commission with respect to
the operation of subsection (a).
PART 4—COMMISSIONS
SEC. 15031. MEDICARE PAYMENT REVIEW COMMISSION.
(a) IN GENERAL.—Title XVIII, as amended by sec-
tion 8001(a), is amended by inserting after section 1805
the following new section:
136
Subtitle A, Part 4
‘‘MEDICARE PAYMENT REVIEW COMMISSION
‘‘SEC. 1806. (a) ESTABLISHMENT.—There is hereby
established the Medicare Payment Review Commission (in
this section referred to as the ‘Commission’).
‘‘(b) DUTIES.—
‘‘(1) GENERAL
DUTIES
AND
REPORTS.—The
Commission shall review, and make recommenda-
tions to Congress concerning, payment policies under
this title. By not later than June 1 of each year, the
Commission shall submit a report to Congress con-
taining an examination of issues affecting the medi-
care program, including the implications of changes
in health care delivery in the United States and in
the market for health care services on the medicare
program. The Commission may submit to Congress
from time to time such other reports as the Commis-
sion deems appropriate. The Secretary shall respond
to recommendations of the Commission in notices of
rulemaking proceedings under this title.
‘‘(2) SPECIFIC DUTIES RELATING TO MEDICARE
CHOICE
PROGRAM.—Specifically, the Commission
shall review, with respect to the Medicare Choice
program under part C—
‘‘(A) the appropriateness of the methodol-
ogy for making payment to plans under such
137
Subtitle A, Part 4
program, including the making of differential
payments and the distribution of differential
updates among different payment areas,
‘‘(B) the appropriateness of the mecha-
nisms used to adjust payments for risk and the
need to adjust such mechanisms to take into ac-
count health status of beneficiaries,
‘‘(C) the implications of risk selection both
among Medicare Choice organizations and be-
tween the Medicare Choice option and the non-
Medicare Choice option,
‘‘(D) in relation to payment under part C,
the development and implementation of mecha-
nisms to assure the quality of care for those en-
rolled with Medicare Choice organizations,
‘‘(F) the impact of the Medicare Choice
program on access to care for medicare bene-
ficiaries, and
‘‘(G) other major issues in implementation
and further development of the Medicare Choice
program.
‘‘(3) SPECIFIC DUTIES RELATING TO THE FEE-
FOR-SERVICE SYSTEM.—Specifically, the Commission
shall review payment policies under parts A and B,
including—
138
Subtitle A, Part 4
‘‘(A) the factors affecting expenditures for
services in different sectors, including the proc-
ess for updating hospital, physician, and other
fees,
‘‘(B) payment methodologies; and
‘‘(C) the impact of payment policies on ac-
cess and quality of care for medicare bene-
ficiaries.
‘‘(4) SPECIFIC
DUTIES
RELATING
TO
INTER-
ACTION OF PAYMENT POLICIES WITH HEALTH CARE
DELIVERY
GENERALLY.—Specifically the Commis-
sion shall review the effect of payment policies under
this title on the delivery of health care services
under this title and assess the implications of
changes in the health services market on the medi-
care program.
‘‘(c) MEMBERSHIP.—
‘‘(1) NUMBER AND APPOINTMENT.—The Com-
mission shall be composed of 15 members appointed
by the Comptroller General.
‘‘(2) QUALIFICATIONS.—The membership of the
Commission shall include individuals with national
recognition for their expertise in health finance and
economics, actuarial science, health facility manage-
ment, health plans and integrated delivery systems,
139
Subtitle A, Part 4
reimbursement of health facilities, physicians, and
other providers of services, and other related fields,
who provide a mix of different professionals, broad
geographic representation, and a balance between
urban and rural representatives, including physicians
and other health professionals, employers, third
party payors, individuals skilled in the conduct and
interpretation of biomedical, health services, and
health economics research and expertise in outcomes
and effectiveness research and technology assess-
ment. Such membership shall also include represent-
atives of consumers and the elderly.
‘‘(3) CONSIDERATIONS
IN
INITIAL
APPOINT-
MENT.—To the extent possible, in first appointing
members to the Commission the Comptroller Gen-
eral shall consider appointing individuals who (as of
the date of the enactment of this section) were serv-
ing on the Prospective Payment Assessment Com-
mission or the Physician Payment Review Commis-
sion.
‘‘(4) 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-
140
Subtitle A, Part 4
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.
‘‘(5) 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
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
141
Subtitle A, Part 4
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.
‘‘(6) 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.
‘‘(7) 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
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);
142
Subtitle A, Part 4
‘‘(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
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 collect and as-
sess information to—
143
Subtitle A, Part 4
‘‘(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 data of the Com-
mission, immediately upon request.
‘‘(4) PERIODIC AUDIT.—The Commission shall
be subject to periodic audit by the General Account-
ing Office.
‘‘(f) AUTHORIZATION OF APPROPRIATIONS.—
‘‘(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-
144
Subtitle A, Part 4
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)’’.
(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
145
Subtitle A, Part 4
(a)(1)(D) and subsection (i) and inserting
‘‘Medicare Payment Review Commission’’.
(2) PPRC.—
(A) IN GENERAL.—Title XVIII is amended
by striking section 1845 (42 U.S.C. 1395w–1).
(B) CONFORMING AMENDMENTS.—
(i) Section 1834(b)(2) (42 U.S.C.
1395m(b)(2)) is amended by striking
‘‘Physician Payment Review Commission’’
and inserting ‘‘Medicare Payment Review
Commission’’.
(ii) 
Section 
1842(b) 
(42 
U.S.C.
1395u(b)) is amended by striking ‘‘Physi-
cian Payment Review Commission’’ each
place it appears in paragraphs (2)(C),
(9)(D), and (14)(C)(i) and inserting ‘‘Med-
icare Payment Review Commission’’.
(iii) Section 1848 (42 U.S.C. 1395w–
4) is amended by striking ‘‘Physician Pay-
ment Review Commission’’ and inserting
‘‘Medicare Payment Review Commission’’
each 
place 
it 
appears 
in 
paragraph
(2)(A)(ii), (2)(B)(iii), and (5) of subsection
(c), 
subsection 
(d)(2)(F), 
paragraphs
(1)(B), (3), and (4)(A)of subsection (f),
146
Subtitle A, Part 4
and paragraphs (6)(C) and (7)(C) of sub-
section (g).
(c) EFFECTIVE DATE; TRANSITION.—
(1) IN
GENERAL.—The Comptroller General
shall first provide for appointment of members to
the Medicare Payment Review Commission (in this
subsection referred to as ‘‘MPRC’’) by not later
than March 31, 1996.
(2) TRANSITION.—Effective on a date (not later
than 30 days after the date a majority of members
of the MPRC have first been appointed, the Pro-
spective Payment Assessment Commission (in this
subsection referred to as ‘‘ProPAC’’) and the Physi-
cian Payment Review Commission (in this subsection
referred to as ‘‘PPRC’’), and amendments made by
subsection (b), are terminated. The Comptroller
General, to the maximum extent feasible, shall pro-
vide for the transfer to the MPRC of assets and
staff of ProPAC and PPRC, without any loss of
benefits or seniority by virtue of such transfers.
Fund balances available to the ProPAC or PPRC
for any period shall be available to the MPRC for
such period for like purposes.
(3) CONTINUING
RESPONSIBILITY
FOR
RE-
PORTS.—The MPRC shall be responsible for the
147
Subtitle A, Part 4
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 MPRC)
by the ProPAC and PPRC, and, for this purpose,
any reference in law to either such Commission is
deemed, after the appointment of the MPRC, to
refer to the MPRC.
SEC. 15032. COMMISSION ON THE EFFECT OF THE BABY
BOOM GENERATION ON THE MEDICARE PRO-
GRAM.
(a) ESTABLISHMENT.—There is established a com-
mission to be known as the Commission on the Effect of
the Baby Boom Generation on the Medicare Program (in
this section referred to as the ‘‘Commission’’).
(b) DUTIES.—
(1) IN GENERAL.—The Commission shall—
(A) examine the financial impact on the
medicare program of the significant increase in
the number of medicare eligible individuals
which will occur beginning approximately dur-
ing 2010 and lasting for approximately 25
years, and
(B) make specific recommendations to the
Congress respecting a comprehensive approach
to preserve the medicare program for the period
148
Subtitle A, Part 4
during which such individuals are eligible for
medicare.
(2) 
CONSIDERATIONS
IN
MAKING
REC-
OMMENDATIONS.—In making its recommendations,
the Commission shall consider the following:
(A) The amount and sources of Federal
funds to finance the medicare program, includ-
ing the potential use of innovative financing
methods.
(B) The most efficient and effective man-
ner of administering the program, including the
appropriateness of continuing the application of
the failsafe budget mechanism under section
1895 of the Social Security Act for fiscal years
after fiscal year 2002 and the appropriate long-
term growth rates for contributions electing
coverage under Medicare Choice under part C
of title XVIII of such Act.
(C) Methods used by other nations to re-
spond to comparable demographic patterns in
eligibility for health care benefits for elderly
and disabled individuals.
(D) Modifying age-based eligibility to cor-
respond to changes in age-based eligibility
under the OASDI program.
149
Subtitle A, Part 4
(E) Trends in employment-related health
care for retirees, including the use of medical
savings accounts and similar financing devices.
(c) MEMBERSHIP.—
(1) APPOINTMENT.—The Commission shall be
composed of 15 members appointed as follows:
(A) The President shall appoint 3 mem-
bers.
(B) The Majority Leader of the Senate
shall appoint, after consultation with the minor-
ity leader of the Senate, 6 members, of whom
not more than 4 may be of the same political
party.
(C) The Speaker of the House of Rep-
resentatives shall appoint, after consultation
with the minority leader of the House of Rep-
resentatives, 6 members, of whom not more
than 4 may be of the same political party.
(2) CHAIRMAN
AND
VICE
CHAIRMAN.—The
Commission shall elect a Chairman and Vice Chair-
man from among its members.
(3) VACANCIES.—Any vacancy in the member-
ship of the Commission shall be filled in the manner
in which the original appointment was made and
150
Subtitle A, Part 4
shall not affect the power of the remaining members
to execute the duties of the Commission.
(4) QUORUM.—A quorum shall consist of 8
members of the Commission, except that 4 members
may conduct a hearing under subsection (e).
(5) MEETINGS.—The Commission shall meet at
the call of its Chairman or a majority of its mem-
bers.
(6) COMPENSATION AND REIMBURSEMENT OF
EXPENSES.—Members of the Commission are not
entitled to receive compensation for service on the
Commission. Members may be reimbursed for travel,
subsistence, and other necessary expenses incurred
in carrying out the duties of the Commission.
(d) STAFF AND CONSULTANTS.—
(1) STAFF.—The Commission may appoint and
determine the compensation of such staff as may be
necessary to carry out the duties of the Commission.
Such appointments and compensation may be made
without regard to the provisions of title 5, United
States Code, that govern appointments in the com-
petitive services, and the provisions of chapter 51
and subchapter III of chapter 53 of such title that
relate to classifications and the General Schedule
pay rates.
152
Subtitle A, Part 4
fice of the Director of such additional staff as
may be necessary for the Director to comply
with requests by the Commission under sub-
paragraph (A).
(4) DETAIL OF FEDERAL EMPLOYEES.—Upon
the request of the Commission, the head of any Fed-
eral agency is authorized to detail, without reim-
bursement, any of the personnel of such agency to
the Commission to assist the Commission in carry-
ing out its duties. Any such detail shall not interrupt
or otherwise affect the civil service status or privi-
leges of the Federal employee.
(5) TECHNICAL
ASSISTANCE.—Upon the re-
quest of the Commission, the head of a Federal
agency shall provide such technical assistance to the
Commission as the Commission determines to be
necessary to carry out its duties.
(6) USE OF MAILS.—The Commission may use
the United States mails in the same manner and
under the same conditions as Federal agencies and
shall, for purposes of the frank, be considered a
commission of Congress as described in section 3215
of title 39, United States Code.
(7) OBTAINING
INFORMATION.—The Commis-
sion may secure directly from any Federal agency
153
Subtitle A, Part 4
information necessary to enable it to carry out its
duties, if the information may be disclosed under
section 552 of title 5, United States Code. Upon re-
quest of the Chairman of the Commission, the head
of such agency shall furnish such information to the
Commission.
(8) ADMINISTRATIVE
SUPPORT
SERVICES.—
Upon the request of the Commission, the Adminis-
trator of General Services shall provide to the Com-
mission on a reimbursable basis such administrative
support services as the Commission may request.
(9) ACCEPTANCE OF DONATIONS.—The Com-
mission may accept, use, and dispose of gifts or do-
nations of services or property.
(10) PRINTING.—For purposes of costs relating
to printing and binding, including the cost of per-
sonnel detailed from the Government Printing Of-
fice, the Commission shall be deemed to be a com-
mittee of the Congress.
(f) REPORT.—Not later than May 1, 1997, the Com-
mission shall submit to Congress a report containing its
findings and recommendations regarding how to protect
and preserve the medicare program in a financially solvent
manner until 2030 (or, if later, throughout the period of
projected solvency of the Federal Old-Age and Survivors
154
Subtitle A, Part 5
Insurance Trust Fund). The report shall include detailed
recommendations for appropriate legislative initiatives re-
specting how to accomplish this objective.
(g) TERMINATION.—The Commission shall terminate
60 days after the date of submission of the report required
in subsection (f).
(h) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated $1,500,000 to carry out
this section. Amounts appropriated to carry out this sec-
tion shall remain available until expended.
PART 5—PREEMPTION OF STATE ANTI-MANAGED
CARE LAWS
SEC. 15041. PREEMPTION OF STATE LAW RESTRICTIONS ON
MANAGED CARE ARRANGEMENTS.
(a) LIMITATION
ON RESTRICTIONS
ON NETWORK
PLANS.—Effective as of January 1, 1997—
(1) a State may not prohibit or limit a carrier
or group health plan providing health coverage from
including incentives for enrollees to use the services
of participating providers;
(2) a State may not prohibit or limit such a
carrier or plan from limiting coverage of services to
those provided by a participating provider, except as
provided in section 1013;
155
Subtitle A, Part 5
(3) a State may not prohibit or limit the nego-
tiation of rates and forms of payments for providers
by such a carrier or plan with respect to health cov-
erage;
(4) a State may not prohibit or limit such a
carrier or plan from limiting the number of partici-
pating providers;
(5) a State may not prohibit or limit such a
carrier or plan from requiring that services be pro-
vided (or authorized) by a practitioner selected by
the enrollee from a list of available participating pro-
viders or, except for services of a physician who spe-
cializes in obstetrics and gynecology, from requiring
enrollees to obtain referral in order to have coverage
for treatment by a specialist or health institution;
and
(6) a State may not prohibit or limit the cor-
porate practice of medicine.
(b) DEFINITIONS.—In this section:
(1) MANAGED
CARE
COVERAGE.—The term
‘‘managed care coverage’’ means health coverage to
the extent the coverage is provided through a man-
aged care arrangement (as defined in paragraph (3))
that meets the applicable requirements of such sec-
tion.
156
Subtitle A, Part 5
(2) 
PARTICIPATING
PROVIDER.—The 
term
‘‘participating provider’’ means an entity or individ-
ual which provides, sells, or leases health care serv-
ices as part of a provider network (as defined in
paragraph (4)).
(3) MANAGED CARE ARRANGEMENT.—The term
‘‘managed care arrangement’’ means, with respect to
a group health plan or under health insurance cov-
erage, an arrangement under such plan or coverage
under which providers agree to provide items and
services covered under the arrangement to individ-
uals covered under the plan or who have such cov-
erage.
(4) PROVIDER NETWORK.—The term ‘‘provider
network’’ means, with respect to a group health plan
or health insurance coverage, providers who have en-
tered into an agreement described in paragraph (3).
SEC. 15042. PREEMPTION OF STATE LAWS RESTRICTING
UTILIZATION REVIEW PROGRAMS.
(a) IN GENERAL.—Effective January 1, 1997, no
State law or regulation shall prohibit or regulate activities
under a utilization review program (as defined in sub-
section (b)).
(b) UTILIZATION REVIEW PROGRAM DEFINED.—In
this section, the term ‘‘utilization review program’’ means
157
Subtitle B, Part 1
a system of reviewing the medical necessity and appro-
priateness of patient services (which may include inpatient
and outpatient services) using specified guidelines. Such
a system may include preadmission certification, the appli-
cation of practice guidelines, continued stay review, dis-
charge planning, preauthorization of ambulatory proce-
dures, and retrospective review.
(c) EXEMPTION OF LAWS PREVENTING DENIAL OF
LIFESAVING MEDICAL TREATMENT PENDING TRANSFER
TO ANOTHER HEALTH CARE PROVIDER.—Nothing in this
subtitle shall be construed to invalidate any State law that
has the effect of preventing involuntary denial of life-pre-
serving medical treatment when such denial would cause
the involuntary death of the patient pending transfer of
the patient to a health care provider willing to provide
such treatment.
Subtitle B—Provisions Relating to
Regulatory Relief
PART 1—PROVISIONS RELATING TO PHYSICIAN
FINANCIAL RELATIONSHIPS
SEC. 15101. REPEAL OF PROHIBITIONS BASED ON COM-
PENSATION ARRANGEMENTS.
(a) IN GENERAL.—Section 1877(a)(2) (42 U.S.C.
1395nn(a)(2)) is amended by striking ‘‘is—’’ and all that
follows through ‘‘equity,’’ and inserting the following: ‘‘is
158
Subtitle B, Part 1
(except as provided in subsection (c)) an ownership or in-
vestment interest in the entity through equity,’’.
(b) CONFORMING AMENDMENTS.—Section 1877 (42
U.S.C. 1395nn) is amended as follows:
(1) In subsection (b)—
(A) in the heading, by striking ‘‘TO BOTH
OWNERSHIP
AND
COMPENSATION
ARRANGE-
MENT PROVISIONS’’ and inserting ‘‘WHERE FI-
NANCIAL RELATIONSHIP EXISTS’’; and
(B) by redesignating paragraph (4) as
paragraph (7).
(2) In subsection (c)—
(A) by amending the heading to read as
follows: ‘‘EXCEPTION FOR OWNERSHIP OR IN-
VESTMENT INTEREST
IN PUBLICLY TRADED
SECURITIES AND MUTUAL FUNDS’’; and
(B) in the matter preceding paragraph (1),
by striking ‘‘subsection (a)(2)(A)’’ and inserting
‘‘subsection (a)(2)’’.
(3) In subsection (d)—
(A) by striking the matter preceding para-
graph (1);
(B) in paragraph (3), by striking ‘‘para-
graph (1)’’ and inserting ‘‘paragraph (4)’’; and
159
Subtitle B, Part 1
(C) by redesignating paragraphs (1), (2),
and (3) as paragraphs (4), (5), and (6), and by
transferring and inserting such paragraphs
after paragraph (3) of subsection (b).
(4) By striking subsection (e).
(5) In subsection (f)(2), as amended by section
152(a) of the Social Security Act Amendments of
1994—
(A) in the matter preceding paragraph (1),
by striking ‘‘ownership, investment, and com-
pensation’’ and inserting ‘‘ownership and in-
vestment’’;
(B) in paragraph (2), by striking ‘‘sub-
section (a)(2)(A)’’ and all that follows through
‘‘subsection (a)(2)(B)),’’ and inserting ‘‘sub-
section (a)(2),’’; and
(C) in paragraph (2), by striking ‘‘or who
have such a compensation relationship with the
entity’’.
(6) In subsection (h)—
(A) by striking paragraphs (1), (2), and
(3);
(B) in paragraph (4)(A), by striking
clauses (iv) and (vi);
160
Subtitle B, Part 1
(C) in paragraph (4)(B), by striking
‘‘RULES.—’’ and all that follows through ‘‘(ii)
FACULTY’’ and inserting ‘‘RULES
FOR
FAC-
ULTY; and
(D) by adding at the end of paragraph (4)
the following new subparagraph:
‘‘(C) MEMBER OF A GROUP.—A physician
is a ‘member’ of a group if the physician is an
owner or a bona fide employee, or both, of the
group.’’.
SEC. 15102. REVISION OF DESIGNATED HEALTH SERVICES
SUBJECT TO PROHIBITION.
(a) IN GENERAL.—Section 1877(h)(6) (42 U.S.C.
1395nn(h)(6)) is amended by striking subparagraphs (B)
through (K) and inserting the following:
‘‘(B) Items and services furnished by a
community pharmacy (as defined in paragraph
(1)).
‘‘(C) Magnetic resonance imaging and
computerized tomography services.
‘‘(D) Outpatient physical therapy serv-
ices.’’.
(b) COMMUNITY
PHARMACY
DEFINED.—Section
1877(h) (42 U.S.C. 1395nn(h)), as amended by section
161
Subtitle B, Part 1
15101(b)(6), is amended by inserting before paragraph
(4) the following new paragraph:
‘‘(1) COMMUNITY PHARMACY.—The term ‘com-
munity pharmacy’ means any entity licensed or cer-
tified to dispense prescription drugs by the State in
which the entity is located (including an entity which
dispenses such drugs by mail order).’’.
(c) CONFORMING AMENDMENTS.—
(1) 
Section 
1877(b)(2) 
(42 
U.S.C.
1395nn(b)(2)) is amended in the matter preceding
subparagraph (A) by striking ‘‘services’’ and all that
follows through ‘‘supplies)—’’ and inserting ‘‘serv-
ices—’’.
(2) 
Section 
1877(h)(5)(C) 
(42 
U.S.C.
1395nn(h)(5)(C)) is amended—
(A) by striking ‘‘, a request by a radiolo-
gist for diagnostic radiology services, and a re-
quest by a radiation oncologist for radiation
therapy,’’ and inserting ‘‘and a request by a ra-
diologist for magnetic resonance imaging or for
computerized tomography’’, and
(B) by striking ‘‘radiologist, or radiation
oncologist’’ and inserting ‘‘or radiologist’’.
162
Subtitle B, Part 1
SEC. 15103. DELAY IN IMPLEMENTATION UNTIL PROMUL-
GATION OF REGULATIONS.
(a) IN GENERAL.—Section 13562(b) of OBRA–1993
(42 U.S.C. 1395nn note) is amended—
(1) in paragraph (1), by striking ‘‘paragraph
(2)’’ and inserting ‘‘paragraphs (2) and (3)’’; and
(2) by adding at the end the following new
paragraph:
‘‘(3) PROMULGATION OF REGULATIONS.—Not-
withstanding paragraphs (1) and (2), the amend-
ments made by this section shall not apply to any
referrals made before the effective date of final regu-
lations promulgated by the Secretary of Health and
Human Services to carry out such amendments.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall take effect as if included in the enact-
ment of OBRA–1993.
SEC. 15104. EXCEPTIONS TO PROHIBITION.
(a) REVISIONS TO EXCEPTION FOR IN-OFFICE AN-
CILLARY SERVICES.—
(1) REPEAL
OF
SITE-OF-SERVICE
REQUIRE-
MENT.—Section 1877 (42 U.S.C. 1395nn) is amend-
ed—
(A) by amending subparagraph (A) of sub-
section (b)(2) to read as follows:
163
Subtitle B, Part 1
‘‘(A) that are furnished personally by the
referring physician, personally by a physician
who is a member of the same group practice as
the referring physician, or personally by individ-
uals who are under the general supervision of
the physician or of another physician in the
group practice, and’’, and
(B) by adding at the end of subsection (h)
the following new paragraph:
‘‘(7) GENERAL SUPERVISION.—An individual is
considered to be under the ‘general supervision’ of a
physician if the physician (or group practice of
which the physician is a member) is legally respon-
sible for the services performed by the individual and
for ensuring that the individual meets licensure and
certification requirements, if any, applicable under
other provisions of law, regardless of whether or not
the physician is physically present when the individ-
ual furnishes an item or service.’’.
(2) CLARIFICATION OF TREATMENT OF PHYSI-
CIAN
OWNERS
OF
GROUP
PRACTICE.—Section
1877(b)(2)(B) (42 U.S.C. 1395nn(b)(2)(B)) is
amended by striking ‘‘physician or such group prac-
tice’’ and inserting ‘‘physician, such group practice,
or the physician owners of such group practice’’.
164
Subtitle B, Part 1
(3) 
CONFORMING
AMENDMENT.—Section
1877(b)(2) (42 U.S.C. 1395nn(b)(2)) is amended by
amending the heading to read as follows: ‘‘ANCIL-
LARY
SERVICES
FURNISHED
PERSONALLY
OR
THROUGH GROUP PRACTICE.—’’.
(b) CLARIFICATION OF EXCEPTION FOR SERVICES
FURNISHED IN A RURAL AREA.—Paragraph (5) of section
1877(b) (42 U.S.C. 1395nn(b)), as transferred by section
15101(b)(3)(C), is amended by striking ‘‘substantially all’’
and inserting ‘‘not less than 75 percent’’.
(c) REVISION OF EXCEPTION FOR CERTAIN MAN-
AGED CARE ARRANGEMENTS.—Section 1877(b)(3) (42
U.S.C. 1395nn(b)(3)) is amended—
(1) in the heading by inserting ‘‘MANAGED
CARE ARRANGEMENTS’’ after ‘‘PREPAID PLANS’’;
(2) in the matter preceding subparagraph (A),
by striking ‘‘organization—’’ and inserting ‘‘organi-
zation, directly or through contractual arrangements
with other entities, to individuals enrolled with the
organization—’’;
(3) in subparagraph (A), by inserting ‘‘or part
C’’ after ‘‘section 1876’’;
(4) by striking ‘‘or’’ at the end of subparagraph
(C);
165
Subtitle B, Part 1
(5) by striking the period at the end of sub-
paragraph (D) and inserting a comma; and
(6) by adding at the end the following new sub-
paragraphs:
‘‘(E) with a contract with a State to pro-
vide services under the State plan under title
XIX (in accordance with section 1903(m)) or a
State MediGrant plan under title XXI; or
‘‘(F) which—
‘‘(i) provides health care items or
services directly or through one or more
subsidiary entities or arranges for the pro-
vision of health care items or services sub-
stantially through the services of health
care providers under contract with the or-
ganization, and
‘‘(ii)(I) assumes financial risk for the
provision of health services through mecha-
nisms (such as capitation, risk pools, with-
holds, and per diem payments) or offers its
network of contract health providers to an
entity (including self-insured employers
and indemnity plans) which assumes finan-
cial risk for the provision of such health
services, or
166
Subtitle B, Part 1
‘‘(II) has in effect a written agree-
ment with the provider of services under
which the provider is at significant finan-
cial risk (whether through a withhold, capi-
tation, incentive pool, per diem payments,
or similar risk sharing arrangement) for
the cost or utilization of services that the
provider is obligated to provide.’’.
(d) NEW EXCEPTION FOR SHARED FACILITY SERV-
ICES.—
(1) IN GENERAL.—Section 1877(b) (42 U.S.C.
1395nn(b)), as amended by section 15101(b)(3)(C),
is amended—
(A) 
by 
redesignating 
paragraphs 
(4)
through (7) as paragraphs (5) through (8); and
(B) by inserting after paragraph (3) the
following new paragraph:
‘‘(4) SHARED FACILITY SERVICES.—In the case
of a designated health service consisting of a shared
facility service of a shared facility—
‘‘(A) that is furnished—
‘‘(i) personally by the referring physi-
cian who is a shared facility physician or
personally by an individual directly em-
167
Subtitle B, Part 1
ployed or under the general supervision of
such a physician,
‘‘(ii) by a shared facility in a building
in which the referring physician furnishes
substantially all of the services of the phy-
sician that are unrelated to the furnishing
of shared facility services, and
‘‘(iii) to a patient of a shared facility
physician; and
‘‘(B) that is billed by the referring physi-
cian or a group practice of which the physician
is a member.’’.
(2) DEFINITIONS.—Section 1877(h) (42 U.S.C.
1395nn(h)), as amended by section 15101(b)(6) and
section 15102(b), is amended by inserting after
paragraph (1) the following new paragraph:
‘‘(2) SHARED
FACILITY
RELATED
DEFINI-
TIONS.—
‘‘(A) SHARED
FACILITY
SERVICE.—The
term ‘shared facility service’ means, with re-
spect to a shared facility, a designated health
service furnished by the facility to patients of
shared facility physicians.
‘‘(B) 
SHARED
FACILITY.—The 
term
‘shared facility’ means an entity that furnishes
168
Subtitle B, Part 1
shared facility services under a shared facility
arrangement.
‘‘(C) SHARED FACILITY PHYSICIAN.—The
term ‘shared facility physician’ means, with re-
spect to a shared facility, a physician (or a
group practice of which the physician is a mem-
ber) who has a financial relationship under a
shared facility arrangement with the facility.
‘‘(D) SHARED FACILITY ARRANGEMENT.—
The term ‘shared facility arrangement’ means,
with respect to the provision of shared facility
services in a building, a financial arrange-
ment—
‘‘(i) which is only between physicians
who are providing services (unrelated to
shared facility services) in the same build-
ing,
‘‘(ii) in which the overhead expenses
of the facility are shared, in accordance
with methods previously determined by the
physicians in the arrangement, among the
physicians in the arrangement, and
‘‘(iii) which, in the case of a corpora-
tion, is wholly owned and controlled by
shared facility physicians.’’.
169
Subtitle B, Part 1
(e) NEW EXCEPTION FOR SERVICES FURNISHED IN
COMMUNITIES WITH NO ALTERNATIVE PROVIDERS.—
Section 1877(b) (42 U.S.C. 1395nn(b)), as amended by
section 15101(b)(3)(C) and subsection (d)(1), is amend-
ed—
(1) by redesignating paragraphs (5) through
(8) as paragraphs (6) through (9); and
(2) by inserting after paragraph (4) the follow-
ing new paragraph:
‘‘(5) NO ALTERNATIVE PROVIDERS IN AREA.—
In the case of a designated health service furnished
in any area with respect to which the Secretary de-
termines that individuals residing in the area do not
have reasonable access to such a designated health
service for which subsection (a)(1) does not apply.’’.
(f) NEW EXCEPTION FOR SERVICES FURNISHED IN
AMBULATORY SURGICAL CENTERS.—Section 1877(b) (42
U.S.C. 
1395nn(b)), 
as 
amended 
by 
section
15101(b)(3)(C), subsection (d)(1), and subsection (e)(1),
is amended—
(1) by redesignating paragraphs (6) through
(9) as paragraphs (7) through (10); and
(2) by inserting after paragraph (5) the follow-
ing new paragraph:
170
Subtitle B, Part 1
‘‘(6) SERVICES
FURNISHED
IN
AMBULATORY
SURGICAL CENTERS.—In the case of a designated
health service furnished in an ambulatory surgical
center described in section 1832(a)(2)(F)(i).’’.
(g) NEW EXCEPTION FOR SERVICES FURNISHED IN
RENAL
DIALYSIS
FACILITIES.—Section 1877(b) (42
U.S.C. 
1395nn(b)), 
as 
amended 
by 
section
15101(b)(3)(C), subsection (d)(1), subsection (e)(1), and
subsection (f), is amended—
(1) by redesignating paragraphs (7) through
(10) as paragraphs (8) through (11); and
(2) by inserting after paragraph (6) the follow-
ing new paragraph:
‘‘(7) SERVICES FURNISHED IN RENAL DIALYSIS
FACILITIES.—In the case of a designated health
service furnished in a renal dialysis facility under
section 1881.’’.
(h) NEW EXCEPTION FOR SERVICES FURNISHED IN
A HOSPICE.—Section 1877(b) (42 U.S.C. 1395nn(b)), as
amended by section 15101(b)(3)(C), subsection (d)(1),
subsection (e)(1), subsection (f), and subsection (g), is
amended—
(1) by redesignating paragraphs (8) through
(11) as paragraphs (9) through (12); and
171
Subtitle B, Part 1
(2) by inserting after paragraph (7) the follow-
ing new paragraph:
‘‘(8) SERVICES FURNISHED BY A HOSPICE PRO-
GRAM.—In the case of a designated health service
furnished by a hospice program under section
1861(dd)(2).’’.
(i) NEW EXCEPTION FOR SERVICES FURNISHED IN
A COMPREHENSIVE OUTPATIENT REHABILITATION FA-
CILITY.—Section 1877(b) (42 U.S.C. 1395nn(b)), as
amended by section 15101(b)(3)(C), subsection (d)(1),
subsection (e)(1), subsection (f), subsection (g), and sub-
section (h), is amended—
(1) by redesignating paragraphs (9) through
(12) as paragraphs (10) through (13); and
(2) by inserting after paragraph (8) the follow-
ing new paragraph:
‘‘(9) SERVICES FURNISHED IN A COMPREHEN-
SIVE
OUTPATIENT
REHABILITATION
FACILITY.—In
the case of a designated health service furnished in
a comprehensive outpatient rehabilitation facility (as
defined in section 1861(cc)(2)).’’.
(i) 
DEFINITION
OF
REFERRAL.—Section
1877(h)(5)(A) (42 U.S.C. 1395nn(h)(5)(A)) is amend-
ed—
172
Subtitle B, Part 2
(1) by striking ‘‘an item or service’’ and insert-
ing ‘‘a designated health service’’, and
(2) by striking ‘‘the item or service’’ and insert-
ing ‘‘the designated health service’’.
SEC. 15105. REPEAL OF REPORTING REQUIREMENTS.
Section 1877 (42 U.S.C. 1395nn) is amended—
(1) by striking subsection (f); and
(2) by striking subsection (g)(5).
SEC. 15106. PREEMPTION OF STATE LAW.
Section 1877 (42 U.S.C. 1395nn) is amended by add-
ing at the end the following new subsection:
‘‘(i) PREEMPTION OF STATE LAW.—This section pre-
empts State law to the extent State law is inconsistent
with this section.’’.
SEC. 15107. EFFECTIVE DATE.
Except as provided in section 15103(b), the amend-
ments made by this part shall apply to referrals made on
or after August 14, 1995, regardless of whether or not
regulations are promulgated to carry out such amend-
ments.
PART 2—ANTITRUST REFORM
SEC. 15111. PUBLICATION OF ANTITRUST GUIDELINES ON
ACTIVITIES OF HEALTH PLANS.
(a) IN GENERAL.—The Attorney General shall pro-
vide for the development and publication of explicit guide-
173
Subtitle B, Part 2
lines on the application of antitrust laws to the activities
of health plans. The guidelines shall be designed to facili-
tate development and operation of plans, consistent with
the antitrust laws.
(b) REVIEW PROCESS.—The Attorney General shall
establish a review process under which the administrator
or sponsor of a health plan (or organization that proposes
to administer or sponsor a health plan) may submit a re-
quest to the Attorney General to obtain a prompt opinion
(but in no event later than 90 days after the Attorney
General receives the request) from the Department of Jus-
tice on the plan’s conformity with the Federal antitrust
laws.
SEC. 15112. ISSUANCE OF HEALTH CARE CERTIFICATES OF
PUBLIC ADVANTAGE.
(a) ISSUANCE AND EFFECT OF CERTIFICATE.—The
Attorney General, after consultation with the Secretary,
shall issue in accordance with this section a certificate of
public advantage to each eligible health care collaborative
activity that complies with the requirements in effect
under this section on or after the expiration of the 1-year
period that begins on the date of the enactment of this
Act (without regard to whether or not the Attorney Gen-
eral has promulgated regulations to carry out this section
by such date). Such activity, and the parties to such activ-
174
Subtitle B, Part 2
ity, shall not be liable under any of the antitrust laws for
conduct described in such certificate and engaged in by
such activity if such conduct occurs while such certificate
is in effect.
(b) REQUIREMENTS APPLICABLE TO ISSUANCE OF
CERTIFICATES.—
(1) STANDARDS
TO
BE
MET.—The Attorney
General shall issue a certificate to an eligible health
care collaborative activity if the Attorney General
finds that—
(A) the benefits that are likely to result
from carrying out the activity outweigh the re-
duction in competition (if any) that is likely to
result from the activity, and
(B) such reduction in competition is nec-
essary to obtain such benefits.
(2) FACTORS TO BE CONSIDERED.—
(A) WEIGHING OF BENEFITS AGAINST RE-
DUCTION
IN
COMPETITION.—For purposes of
making the finding described in paragraph
(1)(A), the Attorney General shall consider
whether the activity is likely—
(i) to maintain or to increase the
quality of health care by providing new
175
Subtitle B, Part 2
services not currently offered in the rel-
evant market,
(ii) to increase access to health care,
(iii) to achieve cost efficiencies that
will be passed on to health care consumers,
such as economies of scale, reduced trans-
action costs, and reduced administrative
costs, that cannot be achieved by the provi-
sion of available services and facilities in
the relevant market,
(iv) to preserve the operation of
health care facilities located in underserved
geographical areas,
(v) to improve utilization of health
care resources, and
(vi) to reduce inefficient health care
resource duplication.
(B) NECESSITY OF REDUCTION IN COM-
PETITION.—For purposes of making the finding
described in paragraph (1)(B), the Attorney
General shall consider—
(i) the ability of the providers of
health care services that are (or likely to
be) affected by the health care collabo-
rative activity and the entities responsible
176
Subtitle B, Part 2
for making payments to such providers to
negotiate societally optimal payment and
service arrangements,
(ii) the effects of the health care col-
laborative activity on premiums and other
charges imposed by the entities described
in clause (i), and
(iii) the availability of equally effi-
cient, less restrictive alternatives to achieve
the benefits that are intended to be
achieved by carrying out the activity.
(c) ESTABLISHMENT
OF CRITERIA
AND PROCE-
DURES.—Subject to subsections (d) and (e), not later than
1 year after the date of the enactment of this Act, the
Attorney General and the Secretary shall establish jointly
by rule the criteria and procedures applicable to the issu-
ance of certificates under subsection (a). The rules shall
specify the form and content of the application to be sub-
mitted to the Attorney General to request a certificate,
the information required to be submitted in support of
such application, the procedures applicable to denying and
to revoking a certificate, and the procedures applicable to
the administrative appeal (if such appeal is authorized by
rule) of the denial and the revocation of a certificate. Such
information may include the terms of the health care col-
177
Subtitle B, Part 2
laborative activity (in the case of an activity in existence
as of the time of the application) and implementation plan
for the collaborative activity.
(d) ELIGIBLE HEALTH CARE COLLABORATIVE AC-
TIVITY.—To be an eligible health care collaborative activ-
ity for purposes of this section, a health care collaborative
activity shall submit to the Attorney General an applica-
tion that complies with the rules in effect under subsection
(c) and that includes—
(1) an agreement by the parties to the activity
that the activity will not foreclose competition by en-
tering into contracts that prevent health care provid-
ers from providing health care in competition with
the activity,
(2) an agreement that the activity will submit
to the Attorney General annually a report that de-
scribes the operations of the activity and information
regarding the impact of the activity on health care
and on competition in health care, and
(3) an agreement that the parties to the activity
will notify the Attorney General and the Secretary of
the termination of the activity not later than 30
days after such termination occurs.
(e) REVIEW OF APPLICATIONS FOR CERTIFICATES.—
Not later than 90 days after an eligible health care col-
178
Subtitle B, Part 2
laborative activity submits to the Attorney General an ap-
plication that complies with the rules in effect under sub-
section (c) and with subsection (d), the Attorney General
shall issue or deny the issuance of such certificate. If, be-
fore the expiration of such 90-day period, the Attorney
General may extend the time for issuance for good cause.
(f) REVOCATION OF CERTIFICATE.—Whenever the
Attorney General finds that a health care collaborative ac-
tivity with respect to which a certificate is in effect does
not meet the standards specified in subsection (b), the At-
torney General shall revoke such certificate.
(g) WRITTEN REASONS; JUDICIAL REVIEW.—
(1) DENIAL
AND
REVOCATION
OF
CERTIFI-
CATES.—If the Attorney General denies an applica-
tion for a certificate or revokes a certificate, the At-
torney General shall include in the notice of denial
or revocation a statement of the reasons relied upon
for the denial or revocation of such certificate.
(2) JUDICIAL REVIEW.—
(A) AFTER
ADMINISTRATIVE
PROCEED-
ING.—(i) If the Attorney General denies an ap-
plication submitted or revokes a certificate is-
sued under this section after an opportunity for
hearing on the record, then any party to the
health care collaborative activity involved may
179
Subtitle B, Part 2
commence a civil action, not later than 60 days
after receiving notice of the denial or revoca-
tion, in an appropriate district court of the
United States for review of the record of such
denial or revocation.
(ii) As part of the Attorney General’s an-
swer, the Attorney General shall file in such
court a certified copy of the record on which
such denial or revocation is based. The findings
of fact of the Attorney General may be set aside
only if found to be unsupported by substantial
evidence in such record taken as a whole.
(B) DENIAL OR REVOCATION WITHOUT AD-
MINISTRATIVE
PROCEEDING.—If the Attorney
General denies an application submitted or re-
vokes a certificate issued under this section
without an opportunity for hearing on the
record, then any party to the health care col-
laborative activity involved may commence a
civil action, not later than 60 days after receiv-
ing notice of the denial or revocation, in an ap-
propriate district court of the United States for
de novo review of such denial or revocation.
(h) EXEMPTION.—A person shall not be liable under
any of the antitrust laws for conduct necessary—
180
Subtitle B, Part 2
(1) to prepare, agree to prepare, or attempt to
agree to prepare an application to request a certifi-
cate under this section, or
(2) to attempt to enter into any health care col-
laborative activity with respect to which such a cer-
tificate is in effect.
(i) DEFINITIONS.—In this section:
(1) The term ‘‘certificate’’ means a certificate
of public advantage authorized to be issued under
subsection (a).
(2) The term ‘‘health care collaborative activ-
ity’’ means an agreement (whether existing or pro-
posed) between 2 or more providers of health care
services that is entered into solely for the purpose of
sharing in the provision and coordination of health
care services and that involves substantial integra-
tion and financial risk-sharing between the parties,
but does not include the exchanging of information,
the entering into of any agreement, or the engage-
ment in any other conduct that is not reasonably re-
quired to carry out such agreement.
(3) The term ‘‘health care services’’ includes
services related to the delivery or administration of
health care services.
181
Subtitle B, Part 2
(4) The term ‘‘liable’’ means liable for any civil
or criminal violation of the antitrust laws.
(5) The term ‘‘provider of health care services’’
means any individual or entity that is engaged in the
delivery of health care services in a State and that
is required by State law or regulation to be licensed
or certified by the State to engage in the delivery of
such services in the State.
SEC. 15113. STUDY OF IMPACT ON COMPETITION.
The Attorney General, in consultation with the Chair-
man of the Federal Trade Commission, annually shall sub-
mit to the Congress a report as part of the annual budget
oversight proceedings concerning the Antitrust Division of
the Department of Justice. The report shall enable the
Congress to determine how enforcement of antitrust laws
is affecting the formation of efficient, cost-saving joint
ventures and if the certificate of public advantage proce-
dure set forth in section 15112 has resulted in undesirable
reduction in competition in the health care marketplace.
The report shall include an evaluation of the factors set
forth in paragraphs (2)(A) and (2)(B) of section
15112(b).
SEC. 15114. ANTITRUST EXEMPTION.
The antitrust laws shall not apply with respect to—
182
Subtitle B, Part 2
(1) the merger of, or the attempt to merge, 2
or more hospitals,
(2) a contract entered into solely by 2 or more
hospitals to allocate hospital services, or
(3) the attempt by only 2 or more hospitals to
enter into a contract to allocate hospital services,
if each of such hospitals satisfies all of the requirements
of section 15115 at the time such hospitals engage in the
conduct described in paragraph (1), (2), or (3), as the case
may be.
SEC. 15115. REQUIREMENTS.
The requirements referred to in section 15114 are as
follows:
(1) The hospital is located outside of a city, or
in a city that has less than 150,000 inhabitants, as
determined in accordance with the most recent data
available from the Bureau of the Census.
(2) In the most recently concluded calendar
year, the hospital received more than 40 percent of
its gross revenue from payments made under Fed-
eral programs.
(3) There is in effect with respect to the hos-
pital a certificate issued by the Health Care Financ-
ing Administration specifying that such Administra-
tion has determined that Federal expenditures would
183
Subtitle B, Part 3
be reduced, consumer costs would not increase, and
access to health care services would not be reduced,
if the hospital and the other hospitals that requested
such certificate merge, or allocate the hospital serv-
ices specified in such request, as the case may be.
SEC. 15116. DEFINITION.
For purposes of this subtitle, the term ‘antitrust
laws’ has the meaning given such term in subsection (a)
of the first section of the Clayton Act (15 U.S.C. 12), ex-
cept that such term includes section 5 of the Federal
Trade Commission Act (15 U.S.C. 45) to the extent that
such section 5 applies with respect to unfair methods of
competition.
PART 3—MALPRACTICE REFORM
Subpart A—Uniform Standards for Malpractice
Claims
SEC. 15121. APPLICABILITY.
Except as provided in section 15131, this subpart
shall apply to any medical malpractice liability action
brought in a Federal or State court, and to any medical
malpractice claim subject to an alternative dispute resolu-
tion system, that is initiated on or after January 1, 1996.
184
Subtitle B, Part 3
SEC. 15122. REQUIREMENT FOR INITIAL RESOLUTION OF
ACTION THROUGH ALTERNATIVE DISPUTE
RESOLUTION.
(a) IN GENERAL.—
(1) STATE CASES.—A medical malpractice li-
ability action may not be brought in any State court
during a calendar year unless the medical mal-
practice liability claim that is the subject of the ac-
tion has been initially resolved under an alternative
dispute resolution system certified for the year by
the Secretary under section 15132(a), or, in the case
of a State in which such a system is not in effect
for the year, under the alternative Federal system
established under section 15132(b).
(2) FEDERAL DIVERSITY ACTIONS.—A medical
malpractice liability action may not be brought in
any Federal court under section 1332 of title 28,
United States Code, during a calendar year unless
the medical malpractice liability claim that is the
subject of the action has been initially resolved
under the alternative dispute resolution system re-
ferred to in paragraph (1) that applied in the State
whose law applies in such action.
(3) CLAIMS AGAINST UNITED STATES.—
(A) ESTABLISHMENT
OF
PROCESS
FOR
CLAIMS.—The Attorney General shall establish
185
Subtitle B, Part 3
an alternative dispute resolution process for the
resolution of tort claims consisting of medical
malpractice liability claims brought against the
United States under chapter 171 of title 28,
United States Code. Under such process, the
resolution of a claim shall occur after the com-
pletion of the administrative claim process ap-
plicable to the claim under section 2675 of such
title.
(B) REQUIREMENT FOR INITIAL RESOLU-
TION UNDER PROCESS.—A medical malpractice
liability action based on a medical malpractice
liability claim described in subparagraph (A)
may not be brought in any Federal court unless
the claim has been initially resolved under the
alternative dispute resolution process estab-
lished by the Attorney General under such sub-
paragraph.
(b) INITIAL
RESOLUTION
OF
CLAIMS
UNDER
ADR.—For purposes of subsection (a), an action is ‘‘ini-
tially resolved’’ under an alternative dispute resolution
system if—
(1) the ADR reaches a decision on whether the
defendant is liable to the plaintiff for damages; and
186
Subtitle B, Part 3
(2) if the ADR determines that the defendant
is liable, the ADR reaches a decision on the amount
of damages assessed against the defendant.
(c) PROCEDURES FOR FILING ACTIONS.—
(1) NOTICE
OF
INTENT
TO
CONTEST
DECI-
SION.—Not later than 60 days after a decision is is-
sued with respect to a medical malpractice liability
claim under an alternative dispute resolution system,
each party affected by the decision shall submit a
sealed statement to a court of competent jurisdiction
indicating whether or not the party intends to con-
test the decision.
(2) DEADLINE FOR FILING ACTION.—A medical
malpractice liability action may not be brought by a
party unless—
(A) the party has filed the notice of intent
required by paragraph (1); and
(B) the party files the action in a court of
competent jurisdiction not later than 90 days
after the decision resolving the medical mal-
practice liability claim that is the subject of the
action is issued under the applicable alternative
dispute resolution system.
187
Subtitle B, Part 3
(3) COURT
OF
COMPETENT
JURISDICTION.—
For purposes of this subsection, the term ‘‘court of
competent jurisdiction’’ means—
(A) with respect to actions filed in a State
court, the appropriate State trial court; and
(B) with respect to actions filed in a Fed-
eral court, the appropriate United States dis-
trict court.
(d) LEGAL EFFECT OF UNCONTESTED ADR DECI-
SION.—The decision reached under an alternative dispute
resolution system shall, for purposes of enforcement by a
court of competent jurisdiction, have the same status in
the court as the verdict of a medical malpractice liability
action adjudicated in a State or Federal trial court. The
previous sentence shall not apply to a decision that is con-
tested by a party affected by the decision pursuant to sub-
section (c)(1).
SEC. 15123. OPTIONAL APPLICATION OF PRACTICE GUIDE-
LINES.
(a) DEVELOPMENT AND CERTIFICATION OF GUIDE-
LINES.—Each State may develop, for certification by the
Secretary, a set of specialty clinical practice guidelines,
based on recommended guidelines from national specialty
societies, to be updated annually. In the absence of rec-
ommended guidelines from such societies, each State may
188
Subtitle B, Part 3
develop such guidelines based on such criteria as the State
considers appropriate (including based on recommended
guidelines developed by the Agency for Health Care Policy
and Research).
(b) PROVISION OF HEALTH CARE UNDER GUIDE-
LINES.—Notwithstanding any other provision of law, in
any medical malpractice liability action arising from the
conduct of a health care provider or health care profes-
sional, if such conduct was in accordance with a guideline
developed by the State in which the conduct occurred and
certified by the Secretary under subsection (a), the guide-
line—
(1) may be introduced by any party to the ac-
tion (including a health care provider, health care
professional, or patient); and
(2) if introduced, shall establish a rebuttable
presumption that the conduct was in accordance
with the appropriate standard of medical care, which
may only be overcome by the presentation of clear
and convincing evidence on behalf of the party
against whom the presumption operates.
SEC. 15124. TREATMENT OF NONECONOMIC AND PUNITIVE
DAMAGES.
(a) LIMITATION ON NONECONOMIC DAMAGES.—The
total amount of noneconomic damages that may be award-
189
Subtitle B, Part 3
ed to a claimant and the members of the claimant’s family
for losses resulting from the injury which is the subject
of a medical malpractice liability action may not exceed
$250,000, regardless of the number of parties against
whom the action is brought or the number of actions
brought with respect to the injury.
(b) NO AWARD OF PUNITIVE DAMAGES AGAINST
MANUFACTURER OF MEDICAL PRODUCT.—In the case of
a medical malpractice liability action in which the plaintiff
alleges a claim against the manufacturer of a medical
product, no punitive or exemplary damages may be award-
ed against such manufacturer.
(c) JOINT
AND SEVERAL LIABILITY
FOR NON-
ECONOMIC DAMAGES.—The liability of each defendant for
noneconomic damages shall be several only and shall not
be joint, and each defendant shall be liable only for the
amount of noneconomic damages allocated to the defend-
ant in direct proportion to the defendant’s percentage of
responsibility (as determined by the trier of fact).
(d) USE OF PUNITIVE DAMAGE AWARDS FOR OPER-
ATION OF ADR SYSTEMS IN STATES.—
(1) IN GENERAL.—The total amount of any pu-
nitive damages awarded in a medical malpractice li-
ability action shall be paid to the State in which the
action is brought (or, in a case brought in Federal
190
Subtitle B, Part 3
court, in the State in which the health care services
that caused the injury that is the subject of the ac-
tion were provided), and shall be used by the State
solely to implement and operate the State alternative
dispute resolution system certified by the Secretary
under section 15132 (except as provided in para-
graph (2)).
(2) USE
OF
REMAINING
AMOUNTS
FOR
PRO-
VIDER LICENSING AND DISCIPLINARY ACTIVITIES.—
If the amount of punitive damages paid to a State
under paragraph (1) for a year is greater than the
State’s costs of implementing and operating the
State alternative dispute resolution system during
the year, the balance of such punitive damages paid
to the State shall be used solely to carry out activi-
ties to assure the safety and quality of health care
services provided in the State, including (but not
limited to)—
(A) licensing or certifying health care pro-
fessionals and health care providers in the
State; and
(B) carrying out programs to reduce mal-
practice-related costs for providers volunteering
to provide services in medically underserved
areas.
191
Subtitle B, Part 3
(3) MAINTENANCE OF EFFORT.—A State shall
use any amounts paid pursuant to paragraph (1) to
supplement and not to replace amounts spent by the
State for implementing and operating the State al-
ternative dispute resolution system or carrying out
the activities described in paragraph (2).
(e) DRUGS AND DEVICES.—
(1)(A) Punitive damages shall not be awarded
against a manufacturer or product seller of a drug
(as defined in section 201(g)(1) of the Federal
Food, 
Drug, 
and 
Cosmetic 
Act 
(21 
U.S.C.
321(g)(1)) or medical device (as defined in section
201(h) of the Federal Food, Drug, and Cosmetic
Act (21 U.S.C. 321(h)) which caused the claimant’s
harm where—
(i) such drug or device was subject to pre-
market approval by the Food and Drug Admin-
istration with respect to the safety of the for-
mulation or performance of the aspect of such
drug or device which caused the claimant’s
harm or the adequacy of the packaging or label-
ing of such drug or device, and such drug was
approved by the Food and Drug Administra-
tion; or
192
Subtitle B, Part 3
(ii) the drug is generally recognized as safe
and effective pursuant to conditions established
by the Food and Drug Administration and ap-
plicable regulations, including packaging and la-
beling regulations.
(B) Subparagraph (A) shall not apply in any
case in which the defendant, before or after pre-
market approval of a drug or device—
(i) intentionally and wrongfully withheld
from or misrepresented to the Food and Drug
Administration information concerning such
drug or device required to be submitted under
the Federal Food, Drug, and Cosmetic Act (21
U.S.C. 301 et seq.) or section 351 of the Public
Health Service Act (42 U.S.C. 262) that is ma-
terial and relevant to the harm suffered by the
claimant, or
(ii) made an illegal payment to an official
or employee of the Food and Drug Administra-
tion for the purpose of securing or maintaining
approval of such drug or device.
(2) PACKAGING.—In a product liability action
for harm which is alleged to relate to the adequacy
of the packaging (or labeling relating to such pack-
aging) of a drug which is required to have tamper-
193
Subtitle B, Part 3
resistant packaging under regulations of the Sec-
retary of Health and Human Services (including la-
beling regulations related to such packaging), the
manufacturer of the drug shall not be held liable for
punitive damages unless the drug is found by the
court by clear and convincing evidence to be sub-
stantially out of compliance with such regulations.
SEC. 15125. PERIODIC PAYMENTS FOR FUTURE LOSSES.
(a) IN GENERAL.—In any medical malpractice liabil-
ity action in which the damages awarded for future eco-
nomic loss exceeds $100,000, a defendant may not be re-
quired to pay such damages in a single, lump-sum pay-
ment, but may be permitted to make such payments on
a periodic basis. The periods for such payments shall be
determined by the court, based upon projections of when
such expenses are likely to be incurred.
(b) WAIVER.—A court may waive the application of
subsection (a) with respect to a defendant if the court de-
termines that it is not in the best interests of the plaintiff
to receive payments for damages on such a periodic basis.
SEC. 15126. TREATMENT OF ATTORNEY’S FEES AND OTHER
COSTS.
(a) REQUIRING PARTY CONTESTING ADR RULING
TO PAY ATTORNEY’S FEES AND OTHER COSTS.—
194
Subtitle B, Part 3
(1) IN GENERAL.—The court in a medical mal-
practice liability action shall require the party that
(pursuant to section 15122(c)(1)) contested the rul-
ing of the alternative dispute resolution system with
respect to the medical malpractice liability claim
that is the subject of the action to pay to the oppos-
ing party the costs incurred by the opposing party
under the action, including attorney’s fees, fees paid
to expert witnesses, and other litigation expenses
(but not including court costs, filing fees, or other
expenses paid directly by the party to the court, or
any fees or costs associated with the resolution of
the claim under the alternative dispute resolution
system), but only if—
(A) in the case of an action in which the
party that contested the ruling is the claimant,
the amount of damages awarded to the party
under the action is less than the amount of
damages awarded to the party under the ADR
system; and
(B) in the case of an action in which the
party that contested the ruling is the defendant,
the amount of damages assessed against the
party under the action is greater than the
195
Subtitle B, Part 3
amount of damages assessed under the ADR
system.
(2) EXCEPTIONS.—Paragraph (1) shall not
apply if—
(A) the party contesting the ruling made
under the previous alternative dispute resolu-
tion system shows that—
(i) the ruling was procured by corrup-
tion, fraud, or undue means,
(ii) there was partiality or corruption
under the system,
(iii) there was other misconduct under
the system that materially prejudiced the
party’s rights, or
(iv) the ruling was based on an error
of law;
(B) the party contesting the ruling made
under the alternative dispute resolution system
presents new evidence before the trier of fact
that was not available for presentation under
the ADR system;
(C) the medical malpractice liability action
raised a novel issue of law; or
(D) the court finds that the application of
such paragraph to a party would constitute an
196
Subtitle B, Part 3
undue hardship, and issues an order waiving or
modifying the application of such paragraph
that specifies the grounds for the court’s deci-
sion.
(3) LIMIT ON ATTORNEYS’ FEES PAID.—Attor-
neys’ fees that are required to be paid under para-
graph (1) by the contesting party shall not exceed
the amount of the attorneys’ fees incurred by the
contesting party in the action. If the attorneys’ fees
of the contesting party are based on a contingency
fee agreement, the amount of attorneys’ fees for
purposes of the preceding sentence shall not exceed
the reasonable value of those services.
(4) RECORDS.—In order to receive attorneys’
fees under paragraph (1), counsel of record in the
medical malpractice liability action involved shall
maintain accurate, complete records of hours worked
on the action, regardless of the fee arrangement
with the client involved.
(b) CONTINGENCY FEE DEFINED.—As used in this
section, the term ‘‘contingency fee’’ means any fee for pro-
fessional legal services which is, in whole or in part, con-
tingent upon the recovery of any amount of damages,
whether through judgment or settlement.
197
Subtitle B, Part 3
SEC. 15127. UNIFORM STATUTE OF LIMITATIONS.
(a) IN GENERAL.—Except as provided in subsection
(b), no medical malpractice claim may be initiated after
the expiration of the 2-year period that begins on the date
on which the alleged injury that is the subject of such
claim was discovered, but in no event may such a claim
be initiated after the expiration of the 4-year period that
begins on the date on which the alleged injury that is the
subject of such claim occurred.
(b) EXCEPTION FOR MINORS.—In the case of an al-
leged injury suffered by a minor who has not attained 6
years of age, a medical malpractice claim may not be initi-
ated after the expiration of the 2-year period that begins
on the date on which the alleged injury that is the subject
of such claim was discovered or should reasonably have
been discovered, but in no event may such a claim be initi-
ated after the date on which the minor attains 12 years
of age.
SEC. 15128. SPECIAL PROVISION FOR CERTAIN OBSTETRIC
SERVICES.
(a) IN GENERAL.—In the case of a medical mal-
practice claim relating to services provided during labor
or the delivery of a baby, if the health care professional
or health care provider against whom the claim is brought
did not previously treat the claimant for the pregnancy,
the trier of fact may not find that such professional or
198
Subtitle B, Part 3
provider committed malpractice and may not assess dam-
ages against such professional or provider unless the mal-
practice is proven by clear and convincing evidence.
(b) APPLICABILITY
TO
GROUP
PRACTICES
OR
AGREEMENTS AMONG PROVIDERS.—For purposes of sub-
section (a), a health care professional shall be considered
to have previously treated an individual for a pregnancy
if the professional is a member of a group practice whose
members previously treated the individual for the preg-
nancy or is providing services to the individual during
labor or the delivery of a baby pursuant to an agreement
with another professional.
SEC. 15129. JURISDICTION OF FEDERAL COURTS.
Nothing in this subpart shall be construed to estab-
lish any jurisdiction over any medical malpractice liability
action in the district courts of the United States on the
basis of sections 1331 or 1337 of title 28, United States
Code.
SEC. 15130. PREEMPTION.
(a) IN GENERAL.—The provisions of this subpart
shall preempt any State law to the extent such law is in-
consistent with such provisions, except that the provisions
of this subpart shall not preempt any State law that pro-
vides for defenses or places limitations on a person’s liabil-
ity in addition to those contained in this part, places great-
199
Subtitle B, Part 3
er limitations on the amount of attorneys’ fees that can
be collected, or otherwise imposes greater restrictions than
those provided in this part.
(b) EFFECT ON SOVEREIGN IMMUNITY AND CHOICE
OF LAW OR VENUE.—Nothing in this subpart shall be
construed to—
(1) waive or affect any defense of sovereign im-
munity asserted by any State under any provision of
law;
(2) waive or affect any defense of sovereign im-
munity asserted by the United States;
(3) affect the applicability of any provision of
the Foreign Sovereign Immunities Act of 1976;
(4) preempt State choice-of-law rules with re-
spect to claims brought by a foreign nation or a citi-
zen of a foreign nation; or
(5) affect the right of any court to transfer
venue or to apply the law of a foreign nation or to
dismiss a claim of a foreign nation or of a citizen
of a foreign nation on the ground in inconvenient
forum.
200
Subtitle B, Part 3
Subpart B—Requirements for State Alternative
Dispute Resolution Systems (ADR)
SEC. 15131. BASIC REQUIREMENTS.
(a) IN GENERAL.—A State’s alternative dispute reso-
lution system meets the requirements of this section if the
system—
(1) applies to all medical malpractice liability
claims under the jurisdiction of the courts of that
State;
(2) requires that a written opinion resolving the
dispute be issued not later than 6 months after the
date by which each party against whom the claim is
filed has received notice of the claim (other than in
exceptional cases for which a longer period is re-
quired for the issuance of such an opinion), and that
the opinion contain—
(A) findings of fact relating to the dispute,
and
(B) a description of the costs incurred in
resolving the dispute under the system (includ-
ing any fees paid to the individuals hearing and
resolving the claim), together with an appro-
priate assessment of the costs against any of
the parties;
(3) requires individuals who hear and resolve
claims under the system to meet such qualifications
201
Subtitle B, Part 3
as the State may require (in accordance with regula-
tions of the Secretary);
(4) is approved by the State or by local govern-
ments in the State;
(5) with respect to a State system that consists
of multiple dispute resolution procedures—
(A) permits the parties to a dispute to se-
lect the procedure to be used for the resolution
of the dispute under the system, and
(B) if the parties do not agree on the pro-
cedure to be used for the resolution of the dis-
pute, assigns a particular procedure to the
parties;
(6) provides for the transmittal to the State
agency responsible for monitoring or disciplining
health care professionals and health care providers
of any findings made under the system that such a
professional or provider committed malpractice, un-
less, during the 90-day period beginning on the date
the system resolves the claim against the profes-
sional or provider, the professional or provider
brings an action contesting the decision made under
the system; and
(7) provides for the regular transmittal to the
Administrator for Health Care Policy and Research
202
Subtitle B, Part 3
of information on disputes resolved under the sys-
tem, in a manner that assures that the identity of
the parties to a dispute shall not be revealed.
(b) APPLICATION
OF
MALPRACTICE
LIABILITY
STANDARDS TO ALTERNATIVE DISPUTE RESOLUTION.—
The provisions of subpart A (other than section 15122)
shall apply with respect to claims brought under a State
alternative dispute resolution system or the alternative
Federal system in the same manner as such provisions
apply with respect to medical malpractice liability actions
brought in the State.
SEC. 15132. CERTIFICATION OF STATE SYSTEMS; APPLICA-
BILITY OF ALTERNATIVE FEDERAL SYSTEM.
(a) CERTIFICATION.—
(1) IN GENERAL.—Not later than October 1 of
each year (beginning with 1995), the Secretary, in
consultation with the Attorney General, shall deter-
mine whether a State’s alternative dispute resolution
system meets the requirements of this subpart for
the following calendar year.
(2) BASIS FOR CERTIFICATION.—The Secretary
shall certify a State’s alternative dispute resolution
system under this subsection for a calendar year if
the Secretary determines under paragraph (1) that
the system meets the requirements of section 15131,
203
Subtitle B, Part 3
including the requirement described in section 15124
that punitive damages awarded under the system are
paid to the State for the uses described in such
section.
(b) APPLICABILITY
OF
ALTERNATIVE
FEDERAL
SYSTEM.—
(1) ESTABLISHMENT
AND
APPLICABILITY.—
Not later than October 1, 1995, the Secretary, in
consultation with the Attorney General, shall estab-
lish by rule an alternative Federal ADR system for
the resolution of medical malpractice liability claims
during a calendar year in States that do not have
in effect an alternative dispute resolution system
certified under subsection (a) for the year.
(2) REQUIREMENTS FOR SYSTEM.—Under the
alternative Federal ADR system established under
paragraph (1)—
(A) paragraphs (1), (2), (6), and (7) of
section 15131(a) shall apply to claims brought
under the system;
(B) if the system provides for the resolu-
tion of claims through arbitration, the claims
brought under the system shall be heard and
resolved by arbitrators appointed by the Sec-
204
Subtitle B, Part 3
retary in consultation with the Attorney Gen-
eral; and
(C) with respect to a State in which the
system is in effect, the Secretary may (at the
State’s request) modify the system to take into
account the existence of dispute resolution pro-
cedures in the State that affect the resolution
of medical malpractice liability claims.
(3) TREATMENT
OF
STATES
WITH
ALTER-
NATIVE SYSTEM IN EFFECT.—If the alternative Fed-
eral ADR system established under this subsection is
applied with respect to a State for a calendar year,
the State shall make a payment to the United States
(at such time and in such manner as the Secretary
may require) in an amount equal to 110 percent of
the costs incurred by the United States during the
year as a result of the application of the system with
respect to the State.
SEC. 15133. REPORTS ON IMPLEMENTATION AND EFFEC-
TIVENESS OF ALTERNATIVE DISPUTE RESO-
LUTION SYSTEMS.
(a) IN GENERAL.—Not later than 5 years after the
date of the enactment of this Act, the Secretary shall pre-
pare and submit to the Congress a report describing and
evaluating State alternative dispute resolution systems op-
205
Subtitle B, Part 3
erated pursuant to this subpart and the alternative Fed-
eral system established under section 15132(b).
(b) CONTENTS OF REPORT.—The Secretary shall in-
clude in the report prepared and submitted under sub-
section (a)—
(1) information on—
(A) the effect of the alternative dispute
resolution systems on the cost of health care
within each State,
(B) the impact of such systems on the ac-
cess of individuals to health care within the
State, and
(C) the effect of such systems on the qual-
ity of health care provided within the State; and
(2) to the extent that such report does not pro-
vide information on no-fault systems operated by
States as alternative dispute resolution systems pur-
suant to this part, an analysis of the feasibility and
desirability of establishing a system under which
medical malpractice liability claims shall be resolved
on a no-fault basis.
Subpart C—Definitions
SEC. 15141. DEFINITIONS.
As used in this part:
206
Subtitle B, Part 3
(1) ALTERNATIVE DISPUTE RESOLUTION SYS-
TEM.—The term ‘‘alternative dispute resolution sys-
tem’’ means a system that is enacted or adopted by
a State to resolve medical malpractice claims other
than through a medical malpractice liability action.
(2) CLAIMANT.—The term ‘‘claimant’’ means
any person who brings a health care liability action
and, in the case of an individual who is deceased, in-
competent, or a minor, the person on whose behalf
such an action is brought.
(3) CLEAR AND CONVINCING EVIDENCE.—The
term ‘‘clear and convincing evidence’’ is that meas-
ure or degree of proof that will produce in the mind
of the trier of fact a firm belief or conviction as to
the truth of the allegations sought to be established,
except that such measure or degree of proof is more
than that required under preponderance of the evi-
dence, but less than that required for proof beyond
a reasonable doubt.
(4) ECONOMIC DAMAGES.—The term ‘‘economic
damages’’ means damages paid to compensate an in-
dividual for losses for hospital and other medical ex-
penses, lost wages, lost employment, and other pecu-
niary losses.
207
Subtitle B, Part 3
(5) HEALTH CARE PROFESSIONAL.—The term
‘‘health care professional’’ means any individual who
provides health care services in a State and who is
required by State law or regulation to be licensed or
certified by the State to provide such services in the
State.
(6) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means any organization or
institution that is engaged in the delivery of health
care services in a State that is required by State law
or regulation to be licensed or certified by the State
to engage in the delivery of such services in the
State.
(7) INJURY.—The term ‘‘injury’’ means any ill-
ness, disease, or other harm that is the subject of
a medical malpractice claim.
(8) MEDICAL
MALPRACTICE
LIABILITY
AC-
TION.—The term ‘‘medical malpractice liability ac-
tion’’ means any civil action brought pursuant to
State law in which a plaintiff alleges a medical mal-
practice claim against a health care provider or
health care professional, but does not include any
action in which the plaintiff’s sole allegation is an al-
legation of an intentional tort.
208
Subtitle B, Part 3
(9) MEDICAL MALPRACTICE CLAIM.—The term
‘‘medical malpractice claim’’ means any claim relat-
ing to the provision of (or the failure to provide)
health care services or the use of a medical product,
without regard to the theory of liability asserted,
and includes any third-party claim, cross-claim,
counterclaim, or contribution claim in a medical
malpractice liability action.
(10) MEDICAL PRODUCT.—
(A) IN
GENERAL.—The term ‘‘medical
product’’ means, with respect to the allegation
of a claimant, a drug (as defined in section
201(g)(1) of the Federal Food, Drug, and Cos-
metic Act (21 U.S.C. 321(g)(1)) or a medical
device (as defined in section 201(h) of the Fed-
eral Food, Drug, and Cosmetic Act (21 U.S.C.
321(h)) if—
(i) such drug or device was subject to
premarket approval under section 505,
507, or 515 of the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 355, 357, or
360e) or section 351 of the Public Health
Service Act (42 U.S.C. 262) with respect
to the safety of the formulation or per-
formance of the aspect of such drug or de-
209
Subtitle B, Part 3
vice which is the subject of the claimant’s
allegation or the adequacy of the packag-
ing or labeling of such drug or device, and
such drug or device is approved by the
Food and Drug Administration; or
(ii) the drug or device is generally rec-
ognized as safe and effective under regula-
tions issued by the Secretary of Health
and Human Services under section 201(p)
of the Federal Food, Drug, and Cosmetic
Act (21 U.S.C. 321(p)).
(B) EXCEPTION
IN
CASE
OF
MISREPRE-
SENTATION OR FRAUD.—Notwithstanding sub-
paragraph (A), the term ‘‘medical product’’
shall not include any product described in such
subparagraph if the claimant shows that the
product is approved by the Food and Drug Ad-
ministration for marketing as a result of with-
held information, misrepresentation, or an ille-
gal payment by manufacturer of the product.
(11) 
NONECONOMIC
DAMAGES.—The 
term
‘‘noneconomic damages’’ means damages paid to
compensate an individual for losses for physical and
emotional pain, suffering, inconvenience, physical
impairment, mental anguish, disfigurement, loss of
210
Subtitle B, Part 4
enjoyment of life, loss of consortium, and other
nonpecuniary losses, but does not include punitive
damages.
(12) PUNITIVE DAMAGES.—The term ‘‘punitive
damages’’ means compensation, in addition to com-
pensation for actual harm suffered, that is awarded
for the purpose of punishing a person for conduct
deemed to be malicious, wanton, willful, or exces-
sively reckless.
PART 4—PAYMENT AREAS FOR PHYSICIANS’
SERVICES UNDER MEDICARE
SEC. 15151. MODIFICATION OF PAYMENT AREAS USED TO
DETERMINE 
PAYMENTS 
FOR 
PHYSICIANS’
SERVICES UNDER MEDICARE.
(a) IN GENERAL.—Section 1848(j)(2) (42 U.S.C.
1395w@4(j)(2)) is amended to read as follows:
‘‘(2) FEE SCHEDULE AREA.—
‘‘(A) GENERAL RULE.—Except as provided
in subparagraph (B), the term ‘fee schedule
area’ means, with respect to physicians’ services
furnished in a State, the State.
‘‘(B) EXCEPTION FOR STATES WITH HIGH-
EST VARIATION AMONG AREAS.—In the case of
the 15 States with the greatest variation in cost
associated with physicians’ services among var-
211
Subtitle B, Part 4
ious geographic areas of the State (as deter-
mined by the Secretary in accordance with such
standards as the Secretary considers appro-
priate), the fee schedule area applicable with re-
spect to physicians’ services furnished in the
State shall be a locality used under section
1842(b) for purposes of computing payment
amounts for physicians’ services, except that
the Secretary shall revise the localities used
under such section so that there are no more
than 5 such localities in any State.’’.
(b) 
BUDGET-NEUTRALITY
REQUIREMENT.—The
Secretary of Health and Human Services shall carry out
the amendment made by subsection (a) in a manner which
ensures that the aggregate amount of payment made for
physicians’ services under part B of the medicare program
in any year does not exceed the aggregate amount of pay-
ment which would have been made for such services under
part B during the year if the amendment were not in ef-
fect.
(c) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to physicians’ services furnished
on or after January 1, 1997.
212
Subtitle C, Part 1
Subtitle C—Medicare Payments to
Health Care Providers
PART 1—PROVISIONS AFFECTING ALL
PROVIDERS
SEC. 15201. ONE-YEAR FREEZE IN PAYMENTS TO PROVID-
ERS.
(a) FREEZE IN UPDATES.—
(1) IN GENERAL.—Notwithstanding any other
provision of law, except as otherwise provided in
paragraph (2), for purposes of determining the
amount to be paid for an item or service under title
XVIII of the Social Security Act, the percentage in-
crease in any economic index by which a payment
amount under title XVIII of the Social Security Act
is required to be increased during fiscal year 1996
shall be deemed to be zero.
(2) EXCEPTIONS.—Paragraph (1) shall not
apply—
(A) to payments for the operating costs of
inpatient hospital services of a subsection (d)
hospital (as defined in section 1886(d)(1)(B) of
the Social Security Act); or
(B) to the determination of hospital-spe-
cific FTE resident amounts under section
1886(h) of such Act.
213
Subtitle C, Part 1
(b) ECONOMIC INDEX.— The term ‘‘economic index’’
includes—
(1) the hospital market basket index (described
in section 1886(b)(3)(B)(iii) of the Social Security
Act),
(2) the medicare economic index (referred to in
the fourth sentence of section 1842(b)(3) of such
Act),
(3) the consumer price index for all urban con-
sumers (U.S. city average), and
(4) any other index used to adjust payment
amounts under title XVIII of such Act.
(c) EXTENSION OF PAYMENT FREEZE FOR SNFS
AND HHAS.—
(1) SKILLED NURSING FACILITIES.—
(A) NO CHANGE IN COST LIMITS.—Section
13503(a)(1) of OBRA–1993 is amended by
striking ‘‘1994 and 1995’’ and inserting ‘‘1994,
1995, and 1996’’.
(B) DELAY IN UPDATES; NO CATCHUP.—
The last sentence of section 1888(a) (42 U.S.C.
1395yy(a)) is amended—
(i) by striking ‘‘1995’’ and inserting
‘‘1996’’, and
214
Subtitle C, Part 1
(ii) by striking ‘‘subsection.’’ and in-
serting ‘‘subsection (except that such up-
dates may not take into account any
changes in the routine service costs of
skilled nursing facilities during cost report-
ing periods which began during fiscal year
1994, 1995, or 1996).’’.
(C) 
PROSPECTIVE
PAYMENTS.—Section
13505(b) of OBRA–1993 is amended by strik-
ing ‘‘fiscal years 1994 and 1995’’ and inserting
‘‘fiscal years 1994, 1995, and 1996’’.
(2) HOME HEALTH AGENCIES.—
(A) NO CHANGE IN COST LIMITS.—Section
13564(a)(1) of OBRA–1993 is amended by
striking ‘‘1996’’ and inserting ‘‘1997’’.
(B) DELAY IN UPDATES; NO CATCHUP.—
Section 
1861(v)(1)(L)(iii) 
(42 
U.S.C.
1395x(v)(1)(L)(iii)) is amended—
(i) by striking ‘‘1996’’ and inserting
‘‘1997’’, and
(ii) by adding at the end the follow-
ing: ‘‘In establishing limits under this sub-
paragraph, the Secretary may not take
into account any changes in the routine
service costs of the provision of services
215
Subtitle C, Part 2
furnished by home health agencies with re-
spect to cost reporting periods which began
on or after July 1, 1994, and before July
1,1997.’’.
PART 2—PROVISIONS AFFECTING DOCTORS
SEC. 15211. UPDATING FEES FOR PHYSICIANS’ SERVICES.
(a) ESTABLISHMENT
OF
SINGLE, CUMULATIVE
MVPS.— Section 1848(f) (42 U.S.C. 1395w–4(f)) is
amended—
(1) in subparagraphs (A) and (C) of paragraph
(1), by striking ‘‘rates of increase for all physicians’
services and for each category of such services’’ each
place it appears and inserting ‘‘rate of increase for
all physicians’ services (and, in the case of fiscal
years beginning before fiscal year 1996, for each
category of such services)’’; and
(2) in paragraph (2)—
(A) in subparagraph (A)—
(i) by striking ‘‘IN GENERAL.—’’ and
inserting ‘‘FISCAL
YEARS
1991
THROUGH
1995.—’’,
(ii) in the matter preceding clause (i),
by striking ‘‘a fiscal year (beginning with
fiscal year 1991)’’ and inserting ‘‘fiscal
years 1991 through 1995’’, and
216
Subtitle C, Part 2
(iii) in the matter following clause
(iv), by striking ‘‘subparagraph (B)) and
inserting ‘‘subparagraph (C))’’,
(B) by redesignating subparagraphs (B)
and (C) as subparagraphs (C) and (D), and
(C) by inserting after subparagraph (A)
the following:
‘‘(B) FISCAL
YEAR
1996
AND
THERE-
AFTER.—Unless Congress otherwise provides,
the performance standard rate of increase for
all physicians’ services for a fiscal year begin-
ning with fiscal year 1996 shall be equal to the
performance standard rate of increase deter-
mined under this paragraph for the previous
fiscal year, increased by the product of—
‘‘(i) 1 plus the Secretary’s estimate of
the weighted average percentage increase
(divided by 100) in the fees for all physi-
cians’ services under this part for portions
of calendar years included in the fiscal
year involved,
‘‘(ii) 1 plus the Secretary’s estimate of
the percentage increase or decrease (di-
vided by 100) in the average number of in-
dividuals enrolled under this part (other
217
Subtitle C, Part 2
than HMO enrollees) from the previous fis-
cal year to the fiscal year involved,
‘‘(iii) 1 plus the Secretary’s estimate
of the average annual percentage growth
(divided by 100) in volume and intensity of
all physicians’ services under this part for
the 5-fiscal-year-period ending with the
preceding fiscal year, and
‘‘(iv) 1 plus the Secretary’s estimate
of the percentage increase or decrease (di-
vided by 100) in expenditures for all physi-
cians’ services in the fiscal year (compared
with the previous fiscal year) that are esti-
mated to result from changes in law or
regulations affecting the percentage in-
crease described in clause (i) and that is
not taken into account in the percentage
increase described in clause (i), minus 1,
multiplied by 100, and reduced by the per-
formance standard factor (specified in sub-
paragraph (C)).’’.
(b) ANNUAL UPDATE BASED ON CUMULATIVE PER-
FORMANCE.—
(1) IN GENERAL.—Section 1848(d)(3)(B) (42
U.S.C. 1395w–4(d)(3)(B)) is amended—
218
Subtitle C, Part 2
(A) in clause (i)—
(i) by striking ‘‘IN GENERAL.—’’ and
inserting ‘‘For 1992 through 1995’’,
(ii) by striking ‘‘for a year’’ and in-
serting ‘‘for each of the years 1992
through 1995’’, and
(iii) by striking ‘‘, subject to clause
(ii),’’ and inserting ‘‘subject to clause
(iii),’’;
(B) by redesignating clause (ii) as clause
(iii); and
(C) by inserting after clause (i) the follow-
ing:
‘‘(ii) 
YEARS
BEGINNING
AFTER
1996.—
‘‘(I) IN
GENERAL.—The update
for all physicians’’ services for a year
beginning after 1996 provided under
subparagraph (A) shall, subject to
clause (iii), be increased or decreased
by the same percentage by which the
cumulative percentage increase in ac-
tual expenditures for all physicians’
services in the second previous fiscal
year over the third previous fiscal
219
Subtitle C, Part 2
year, was less or greater, respectively,
than the performance standard rate of
increase (established under subsection
(f)) for such services for the second
previous fiscal year.
‘‘(II) CUMULATIVE PERCENTAGE
INCREASE
DEFINED.—In subclause
(I), the ‘cumulative percentage in-
crease in actual expenditures’ for a
year shall be equal to the product of
the adjusted increases for each year
beginning with 1995 up to and includ-
ing the year involved, minus 1 and
multiplied by 100. In the previous
sentence, the ‘adjusted increase’ for a
year is equal to 1 plus the percentage
increase in actual expenditures for the
year (over the preceding year).’’.
(3) ESTABLISHMENT OF CONVERSION FACTOR
FOR 1996.—Section 1848(d)(1) (42 U.S.C. 1395w–
4(d)(1)) is amended—
(A) by redesignating subparagraph (C) as
subparagraph (D); and
(B) by inserting after subparagraph (B)
the following new subparagraph:
220
Subtitle C, Part 2
‘‘(C) SPECIAL
RULE
FOR
1996.—For
1996, the conversion factor under this sub-
section shall be $36.40 for all physicians’ serv-
ices.’’.
(c) ESTABLISHING UPPER LIMIT
ON MVPS RE-
WARDS.—
(1) IN
GENERAL.—Clause (iii) of section
1848(d)(3)(B), 
as 
redesignated 
by 
subsection
(b)(1)(B), is amended by striking ‘‘a decrease’’ and
inserting ‘‘an increase or decrease’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to physicians’ services
furnished on or after January 1, 1996.
SEC. 15212. USE OF REAL GDP TO ADJUST FOR VOLUME
AND INTENSITY.
Section 
1848(f)(2)(B)(iii) 
(42 
U.S.C. 
1395w–
4(f)(2)(B)(iii)), as added by section 15211(a)(2)(C), is
amended to read as follows:
‘‘(iii) 1 plus the average per capita
growth in the real gross domestic product
(divided by 100) for the 5-fiscal-year pe-
riod ending with the previous fiscal year
(increased by 1.5 percentage points for the
category of services consisting of primary
care services), and’’.
221
Subtitle C, Part 3
PART 3—PROVISIONS AFFECTING HOSPITALS
SEC. 15221. REDUCTION IN UPDATE FOR INPATIENT HOS-
PITAL SERVICES.
(a) PPS HOSPITALS.—Section 1886(b)(3)(B)(i) (42
U.S.C. 1395ww(b)(3)(B)(i)) is amended—
(1) by amending subclause (XII) to read as fol-
lows:
‘‘(XII) for each of the fiscal years 1997 through
2002, the market basket percentage increase minus
0.5 percentage point for hospitals in a rural area,
and the market basket percentage increase minus
1.5 percentage points for all other hospitals, and’’;
and
(2) in subclause (XIII), by striking ‘‘1998’’ and
inserting ‘‘2003’’.
(b) PPS-EXEMPT HOSPITALS.—
(1) IN
GENERAL.—Section 1886(b)(3)(B)(ii)
(42 U.S.C. 1395ww(b)(3)(B)(ii)) is amended—
(A) in subclause (V)—
(i) by striking ‘‘through 1997’’ and
inserting ‘‘through 1996’’, and
(ii) by striking ‘‘and’’ at the end;
(B) by redesignating subclause (VI) as
subclause (VII); and
(C) by inserting after subclause (V) the
following new subclause:
222
Subtitle C, Part 3
‘‘(VI) fiscal years 1997 through 2002, is the
market basket percentage increase minus 1.0 per-
centage point, and’’.
(2) 
CONFORMING
AMENDMENT.—Section
1886(b)(3)(B) (42 U.S.C. 1395ww(b)(3)(B)) is
amended by striking clause (v).
SEC. 15222. ELIMINATION OF FORMULA-DRIVEN OVERPAY-
MENTS FOR CERTAIN OUTPATIENT HOSPITAL
SERVICES.
(a) 
AMBULATORY
SURGICAL
CENTER
PROCE-
DURES.—Section 
1833(i)(3)(B)(i)(II) 
(42 
U.S.C.
1395l(i)(3)(B)(i)(II)) is amended—
(1) by striking ‘‘of 80 percent’’; and
(2) by striking the period at the end and insert-
ing the following: ‘‘, less the amount a provider may
charge as described in clause (ii) of section
1866(a)(2)(A).’’.
(b) RADIOLOGY SERVICES AND DIAGNOSTIC PROCE-
DURES.—Section 
1833(n)(1)(B)(i)(II) 
(42 
U.S.C.
1395l(n)(1)(B)(i)(II)) is amended—
(1) by striking ‘‘of 80 percent’’; and
(2) by striking the period at the end and insert-
ing the following: ‘‘, less the amount a provider may
charge as described in clause (ii) of section
1866(a)(2)(A).’’.
223
Subtitle C, Part 3
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to services furnished during por-
tions of cost reporting periods occurring on or after July
1, 1994.
SEC. 15223. ESTABLISHMENT OF PROSPECTIVE PAYMENT
SYSTEM FOR OUTPATIENT SERVICES.
(a) IN GENERAL.—Section 1833(a)(2)(B) (42 U.S.C.
1395l(a)(2)(B)) is amended by striking ‘‘section 1886)—
’’ and all that follows and inserting the following: ‘‘section
1886), an amount equal to a prospectively determined
payment rate established by the Secretary that provides
for payments for such items and services to be based upon
a national rate adjusted to take into account the relative
costs of furnishing such items and services in various geo-
graphic areas, except that for items and services furnished
during cost reporting periods (or portions thereof) in years
beginning with 1996, such amount shall be equal to 95
percent of the amount that would otherwise have been de-
termined;’’.
(b) ESTABLISHMENT
OF PROSPECTIVE PAYMENT
SYSTEM.—Not later than July 1, 1995, the Secretary of
Health and Human Services shall establish the prospective
payment system for hospital outpatient services necessary
to carry out section 1833(a)(2)(B) of the Social Security
Act (as amended by subsection (a)).
224
Subtitle C, Part 3
(c) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to items and services furnished
on or after January 1, 1996.
SEC. 15224. REDUCTION IN MEDICARE PAYMENTS TO HOS-
PITALS FOR INPATIENT CAPITAL-RELATED
COSTS.
(a) PPS HOSPITALS.—Section 1886(g)(1)(A) (42
U.S.C. 1395ww(g)(1)(A)) is amended by striking ‘‘1995’’
and inserting ‘‘1996’’.
(b) REDUCTION IN BASE PAYMENT RATES FOR PPS
HOSPITALS.—Section 
1886(g)(1)(A) 
(42 
U.S.C.
1395ww(g)(1)(A)) is amended by adding at the end the
following new sentence: ‘‘In addition to the reduction de-
scribed in the preceding sentence, for discharges occurring
after September 30, 1995, the Secretary shall reduce by
7.47 percent the unadjusted standard Federal capital pay-
ment rate (as described in 42 CFR 412.308(c), as in effect
on the date of the enactment of the Omnibus Budget Rec-
onciliation Act of 1995) and shall reduce by 8.27 percent
the unadjusted hospital-specific rate (as described in 42
CFR 412.328(e)(1), as in effect on the date of the enact-
ment of the Omnibus Budget Reconciliation Act of
1995).’’.
225
Subtitle C, Part 3
(c) PPS-EXEMPT HOSPITALS.—Section 1861(v)(1)
(42 U.S.C. 1395x(v)(1)) is amended by adding at the end
the following:
‘‘(T) Such regulations shall provide that,
in determining the amount of the payments
that may be made under this title with respect
to the capital-related costs of inpatient hospital
services furnished by a hospital that is not a
subsection (d) hospital (as defined in section
1886(d)(1)(B)) or a subsection (d) Puerto Rico
hospital (as defined in section 1886(d)(9)(A)),
the Secretary shall reduce the amounts of such
payments otherwise established under this title
by 10 percent for payments attributable to por-
tions of cost reporting periods occurring during
fiscal year 1996.’’.
SEC. 15225. MORATORIUM ON PPS EXEMPTION FOR LONG-
TERM CARE HOSPITALS.
(a) IN GENERAL.—Section 1886(d)(1)(B)(iv) (42
U.S.C. 1395ww(d)(1)(B)(iv)) is amended by striking
‘‘Secretary)’’ and inserting ‘‘Secretary on or before Sep-
tember 30, 1995)’’.
(b) RECOMMENDATIONS ON APPROPRIATE STAND-
ARDS
FOR LONG-TERM CARE HOSPITALS.—Not later
than 1 year after the date of the enactment of this Act,
226
Subtitle C, Part 3
the Secretary of Health and Human Services shall submit
to Congress recommendations for modifications to the
standards used by the Secretary to determine whether a
hospital (including a distinct part of another hospital) is
classified as a long-term care hospital for purposes of de-
termining the amount of payment to the hospital under
part A of the medicare program for the operating costs
of inpatient hospital services.
SEC. 15226. ELIMINATION OF CERTAIN ADDITIONAL PAY-
MENTS FOR OUTLIER CASES.
(a) 
INDIRECT
MEDICAL
EDUCATION.—Section
1886(d)(5)(B)(i)(I) (42 U.S.C. 1395ww(d)(5)(B)(i)(I)) is
amended—
(1) by striking ‘‘the sum of’’; and
(2) by striking ‘‘and the amount paid to the
hospital under subparagraph (A)’’.
(b) DISPROPORTIONATE SHARE ADJUSTMENTS.—
Section 
1886(d)(5)(F)(ii)(I) 
(42 
U.S.C.
1395ww(d)(5)(F)(ii)(I)) is amended—
(1) by striking ‘‘the sum of’’; and
(2) by striking ‘‘and the amount paid to the
hospital under subparagraph (A) for that dis-
charge’’.
227
Subtitle C, Part 4
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to discharges occurring on or after
October 1, 1995.
PART 4—PROVISIONS AFFECTING OTHER
PROVIDERS.
SEC. 15231. REVISION OF PAYMENT METHODOLOGY FOR
HOME HEALTH SERVICES.
(a) 
ADDITIONS
TO
COST
LIMITS.—Section
1861(v)(1)(L) (42 U.S.C. 1395x(v)(1)(L)) is amended by
adding at the end the following new clauses:
‘‘(iv) For services furnished by home
health agencies for cost reporting periods
beginning on or after October 1, 1996, the
Secretary shall provide for an interim sys-
tem of limits. Payment shall be the lower
of—
‘‘(I) costs determined under the
preceding provisions of this subpara-
graph, or
‘‘(II) an agency-specific per bene-
ficiary annual limit calculated from
the agency’s 12-month cost reporting
period ending on or after January 1,
1994 and on or before December 31,
1994 based on reasonable costs (in-
228
Subtitle C, Part 4
cluding non-routine medical supplies),
updated by the home health market
basket index. The per beneficiary limi-
tation shall be multiplied by the agen-
cy’s unduplicated census count of
Medicare patients for the year subject
to the limitation. The limitation shall
represent total Medicare reasonable
costs divided by the unduplicated cen-
sus count of Medicare patients.
‘‘(v) For services furnished by home
health agencies for cost reporting periods
beginning on or after October 1, 1996, the
following rules shall apply:
‘‘(I) For new providers and those
providers without a 12-month cost re-
porting period ending in calendar year
1994, the per beneficiary limit shall
be equal to the mean of these limits
(or the Secretary’s best estimates
thereof) applied to home health agen-
cies as determined by the Secretary.
Home health agencies that have al-
tered their corporate structure or
229
Subtitle C, Part 4
name may not be considered new pro-
viders for payment purposes.
‘‘(II) For beneficiaries who use
services furnished by more than one
home health agency, the per bene-
ficiary limitation shall be pro-rated
among agencies.
‘‘(vi) Home health agencies whose cost
or utilization experience is below 125 per-
cent of the mean national or census region
aggregate per beneficiary cost or utilization
experience for 1994, or best estimates
thereof, and whose year-end reasonable
costs are below the agency-specific per ben-
eficiary limit, shall receive payment equal
to 50 percent of the difference between the
agency’s reasonable costs and its limit for
fiscal years 1996, 1997, 1998, and 1999.
Such payments may not exceed 5 percent
of an agency’s aggregate Medicare reason-
able cost in a year.
‘‘(vii) Effective January 1, 1997, or
as soon as feasible, the Secretary shall
modify the agency specific per beneficiary
annual limit described in clause (iv) to pro-
230
Subtitle C, Part 4
vide for regional or national variations in
utilization. For purposes of determining
payment under clause (iv), the limit shall
be calculated through a blend of 75 per-
cent of the agency-specific cost or utiliza-
tion experience in 1994 with 25 percent of
the national or census region cost or utili-
zation experience in 1994, or the Sec-
retary’s best estimates thereof.’’.
(b) USE OF INTERIM FINAL REGULATIONS.—The
Secretary shall implement the payment limits described in
section 1861(v)(1)(L)(iv) of the Social Security Act by
publishing in the Federal Register a notice of interim final
payment limits by August 1, 1996 and allowing for a pe-
riod of public comments thereon. Payments subject to
these limits will be effective for cost reporting periods be-
ginning on or after October 1, 1996, without the necessity
for consideration of comments received, but the Secretary
shall, by Federal Register notice, affirm or modify the lim-
its after considering those comments.
(c) STUDIES.—The Secretary shall expand research
on a prospective payment system for home health agencies
that shall tie prospective payments to an episode of care,
including an intensive effort to develop a reliable case mix
adjuster that explains a significant amount of the
231
Subtitle C, Part 4
variances in costs. The Secretary shall develop such a sys-
tem for implementation in fiscal year 2000.
(d) PAYMENTS
DETERMINED
ON
PROSPECTIVE
BASIS.—Title XVIII is amended by adding at the end the
following new section:
‘‘PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES
‘‘SEC. 1893. (a) Notwithstanding section 1861(v),
the Secretary shall, for cost reporting periods beginning
on or after fiscal year 2000, provide for payments for
home health services in accordance with a prospective pay-
ment system, which pays home health agencies on a per
episode basis, established by the Secretary.
‘‘(b) Such a system shall include the following:
‘‘(1) Per episode rates under the system shall
be 15 percent less than those that would otherwise
occur under fiscal year 2000 Medicare expenditures
for home health services.
‘‘(2) All services covered and paid on a reason-
able cost basis under the Medicare home health ben-
efit as of the date of the enactment of the Medicare
Enhancement Act of 1995, including medical sup-
plies, shall be subject to the per episode amount. In
defining an episode of care, the Secretary shall con-
sider an appropriate length of time for an episode
the use of services and the number of visits provided
within an episode, potential changes in the mix of
232
Subtitle C, Part 4
services provided within an episode and their cost,
and a general system design that will provide for
continued access to quality services. The per episode
amount shall be based on the most current audited
cost report data available to the Secretary.
‘‘(c) The Secretary shall employ an appropriate case
mix adjuster that explains a significant amount of the var-
iation in cost.
‘‘(d) The episode payment amount shall be adjusted
annually by the home health market basket index. The
labor portion of the episode amount shall be adjusted for
geographic differences in labor-related costs based on the
most current hospital wage index.
‘‘(e) The Secretary may designate a payment provi-
sion for outliers, recognizing the need to adjust payments
due to unusual variations in the type or amount of medi-
cally necessary care.
‘‘(f) A home health agency shall be responsible for
coordinating all care for a beneficiary. If a beneficiary
elects to transfer to, or receive services from, another
home health agency within an episode period, the episode
payment shall be pro-rated between home health agen-
cies.’’.
233
Subtitle C, Part 4
SEC. 15232. LIMITATION OF HOME HEALTH COVERAGE
UNDER PART A.
(a) IN GENERAL.—Section 1812(a)(3) (42 U.S.C.
1395d(a)(3)) is amended by striking the semicolon and in-
serting ‘‘for up to 150 days during any spell of illness;’’.
(b) CONFORMING AMENDMENT.—Section 1812(b)
(42 U.S.C. 1395d(b)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(2),
(2) by striking the period at the end of para-
graph (3) and inserting ‘‘; or’’, and
(3) by adding at the end the following new
paragraph:
‘‘(4) home health services furnished to the indi-
vidual during such spell after such services have
been furnished to the individual for 150 days during
such spell.’’.
(3) EXCLUSION OF ADDITIONAL PART B COSTS
FROM DETERMINATION OF PART B MONTHLY PRE-
MIUM.—Section 1839(a) (42 U.S.C. 1395r(a)) is
amended—
(A) in the second sentence of paragraph
(1), by striking ‘‘enrollees.’’ and inserting ‘‘en-
rollees (except as provided in paragraph (5)).’’;
and
234
Subtitle C, Part 4
(B) by adding at the end the following new
paragraph:
‘‘(5) In estimating the benefits and administrative
costs which will be payable from the Federal Supple-
mentary Medical Insurance Trust Fund for a year (begin-
ning with 1996), the Secretary shall exclude an estimate
of any benefits and costs attributable to home health serv-
ices for which payment would have been made under part
A during the year but for paragraph (4) of section
1812(b).’’.
(c) EFFECTIVE DATE.—The amendments made by
this subsection shall apply to spells of illness beginning
on or after October 1, 1995.
SEC. 15233. REDUCTION IN FEE SCHEDULE FOR DURABLE
MEDICAL EQUIPMENT.
(a) IN GENERAL.—
(1) 
FREEZE
IN
UPDATE
FOR
COVERED
ITEMS.—Section 
1834(a)(14) 
(42 
U.S.C.
1395m(a)(14)) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (A);
(B) in subparagraph (B)—
(i) by striking ‘‘a subsequent year’’
and inserting ‘‘1993, 1994, and 1995’’,
and
235
Subtitle C, Part 4
(ii) by striking the period at the end
and inserting ‘‘; and’’; and
(C) by adding at the end the following:
‘‘(C) for each of the years 1996 through
1998, 0 percent; and
‘‘(D) for a subsequent year, the percentage
increase in the consumer price index for all
urban consumers (U.S. urban average) for the
12-month period ending with June of the pre-
vious year.’’.
(2) UPDATE FOR ORTHOTICS AND PROSTHET-
ICS.—Section 
1834(h)(4)(A)(iii) 
(42 
U.S.C.
1395m(h)(4)(A)(iii)) is amended by striking ‘‘1994
and 1995’’ and inserting ‘‘each of the years 1994
through 1998’’.
(b) OXYGEN
AND OXYGEN EQUIPMENT.—Section
1834(a)(9)(C) (42 U.S.C. 1395m(a)(9)(C)) is amended—
(1) by striking ‘‘and’’ at the end of clause (iii);
(2) in clause (iv)—
(A) by striking ‘‘a subsequent year’’ and
inserting ‘‘1993, 1994, and 1995’’, and
(B) by striking the period at the end and
inserting ‘‘; and’’; and
(3) by adding at the end the following new
clause:
236
Subtitle C, Part 4
‘‘(v) in 1996 and each subsequent
year, is 90 percent of the national limited
monthly payment rate computed under
subparagraph (B) for the item for the
year.’’.
SEC. 15234. NURSING HOME BILLING.
(a) PAYMENTS FOR ROUTINE SERVICE COSTS.—
(1) CLARIFICATION
OF
DEFINITION
OF
ROU-
TINE
SERVICE
COSTS.—Section 1888 (42 U.S.C.
1395yy) is amended by adding at the end the follow-
ing new subsection:
‘‘(e) For purposes of this section, the ‘routine service
costs’ of a skilled nursing facility are all costs which are
attributable to nursing services, room and board, adminis-
trative costs, other overhead costs, and all other ancillary
services (including supplies and equipment), excluding
costs attributable to covered non-routine services subject
to payment limits under section 1888A.’’.
(2) CONFORMING AMENDMENT.—Section 1888
(42 U.S.C. 1395yy) is amended in the heading by
inserting ‘‘AND CERTAIN ANCILLARY’’ after ‘‘SERV-
ICE’’.
(b) INCENTIVES
FOR COST-EFFECTIVE MANAGE-
MENT OF COVERED NON-ROUTINE SERVICES.—
237
Subtitle C, Part 4
(1) IN GENERAL.—Title XVIII is amended by
inserting after section 1888 the following new sec-
tion:
‘‘INCENTIVES
FOR
COST-EFFECTIVE
MANAGEMENT
OF
COVERED
NON-ROUTINE
SERVICES
OF
SKILLED
NURSING FACILITIES
‘‘SEC. 1888A. (a) DEFINITIONS.—For purposes of
this section:
‘‘(1) COVERED NON-ROUTINE SERVICES.—The
term ‘covered non-routine services’ means post-hos-
pital extended care services consisting of any of the
following:
‘‘(A) Physical or occupational therapy or
speech-language pathology services, or res-
piratory therapy.
‘‘(B) Prescription drugs.
‘‘(C) Complex medical equipment.
‘‘(D) Intravenous therapy and solutions
(including enteral and parenteral nutrients,
supplies, and equipment).
‘‘(E) Radiation therapy.
‘‘(F) Diagnostic services, including labora-
tory, radiology (including computerized tomog-
raphy services and imaging services), and pul-
monary services.
238
Subtitle C, Part 4
‘‘(2) SNF MARKET BASKET PERCENTAGE IN-
CREASE.—The term ‘SNF market basket percentage
increase’ for a fiscal year means a percentage equal
to the percentage increase in routine service cost
limits for the year under section 1888(a).
‘‘(3) STAY.—The term ‘stay’ means, with re-
spect to an individual who is a resident of a skilled
nursing facility, a period of continuous days during
which the facility provides extended care services for
which payment may be made under this title to the
individual during the individual’s spell of illness.
‘‘(b) NEW PAYMENT METHOD FOR COVERED NON-
ROUTINE SERVICES.—
‘‘(1) IN GENERAL.—Subject to subsection (c), a
skilled nursing facility shall receive interim pay-
ments under this title for covered non-routine serv-
ices furnished to an individual during a cost report-
ing period beginning during a fiscal year (after fiscal
year 1996) in an amount equal to the reasonable
cost of providing such services in accordance with
section 1861(v). The Secretary may adjust such pay-
ments if the Secretary determines (on the basis of
such estimated information as the Secretary consid-
ers appropriate) that payments to the facility under
this paragraph for a cost reporting period would
239
Subtitle C, Part 4
substantially exceed the cost reporting period limit
determined under subsection (c)(1)(B).
‘‘(2) RESPONSIBILITY
OF
SKILLED
NURSING
FACILITY TO MANAGE BILLINGS.—
‘‘(A) CLARIFICATION RELATING TO PART A
BILLING.—In the case of a covered non-routine
service furnished to an individual who (at the
time the service is furnished) is a resident of a
skilled nursing facility who is entitled to cov-
erage under section 1812(a)(2) for such service,
the skilled nursing facility shall submit a claim
for payment under this title for such service
under part A (without regard to whether or not
the item or service was furnished by the facility,
by others under arrangement with them made
by the facility, under any other contracting or
consulting arrangement, or otherwise).
‘‘(B) PART B BILLING.—In the case of a
covered non-routine service furnished to an in-
dividual who (at the time the service is fur-
nished) is a resident of a skilled nursing facility
who is not entitled to coverage under section
1812(a)(2) for such service but is entitled to
coverage under part B for such service, the
skilled nursing facility shall submit a claim for
240
Subtitle C, Part 4
payment under this title for such service under
part B (without regard to whether or not the
item or service was furnished by the facility, by
others under arrangement with them made by
the facility, under any other contracting or con-
sulting arrangement, or otherwise).
‘‘(C) MAINTAINING RECORDS ON SERVICES
FURNISHED TO RESIDENTS.—Each skilled nurs-
ing facility receiving payments for extended
care services under this title shall document on
the facility’s cost report all covered non-routine
services furnished to all residents of the facility
to whom the facility provided extended care
services for which payment was made under
part A during a fiscal year (beginning with fis-
cal year 1996) (without regard to whether or
not the services were furnished by the facility,
by others under arrangement with them made
by the facility, under any other contracting or
consulting arrangement, or otherwise).
‘‘(c) RECONCILIATION OF AMOUNTS.—
‘‘(1) LIMIT BASED ON PER STAY LIMIT AND
NUMBER OF STAYS.—
‘‘(A) IN GENERAL.—If a skilled nursing fa-
cility has received aggregate payments under
241
Subtitle C, Part 4
subsection (b) for covered non-routine services
during a cost reporting period beginning during
a fiscal year in excess of an amount equal to
the cost reporting period limit determined
under subparagraph (B), the Secretary shall re-
duce the payments made to the facility with re-
spect to such services for cost reporting periods
beginning during the following fiscal year in an
amount equal to such excess. The Secretary
shall reduce payments under this subparagraph
at such times and in such manner during a fis-
cal year as the Secretary finds necessary to
meet the requirement of this subparagraph.
‘‘(B) COST REPORTING PERIOD LIMIT.—
The cost reporting period limit determined
under this subparagraph is an amount equal to
the product of—
‘‘(i) the per stay limit applicable to
the facility under subsection (d) for the pe-
riod; and
‘‘(ii) the number of stays beginning
during the period for which payment was
made to the facility for such services.
‘‘(C) PROSPECTIVE
REDUCTION
IN
PAY-
MENTS.—In addition to the process for reduc-
242
Subtitle C, Part 4
ing payments described in subparagraph (A),
the Secretary may reduce payments made to a
facility under this section during a cost report-
ing period if the Secretary determines (on the
basis of such estimated information as the Sec-
retary considers appropriate) that payments to
the facility under this section for the period will
substantially exceed the cost reporting period
limit for the period determined under this para-
graph.
‘‘(2) INCENTIVE PAYMENTS.—
‘‘(A) IN GENERAL.—If a skilled nursing fa-
cility has received aggregate payments under
subsection (b) for covered non-routine services
during a cost reporting period beginning during
a fiscal year in an amount that is less than the
amount determined under paragraph (1)(B),
the Secretary shall pay the skilled nursing facil-
ity in the following fiscal year an incentive pay-
ment equal to 50 percent of the difference be-
tween such amounts, except that the incentive
payment may not exceed 5 percent of the aggre-
gate payments made to the facility under sub-
section (b) for the previous fiscal year (without
regard to subparagraph (B)).
243
Subtitle C, Part 4
‘‘(B) 
INSTALLMENT
INCENTIVE
PAY-
MENTS.—The Secretary may make installment
payments during a fiscal year to a skilled nurs-
ing facility based on the estimated incentive
payment that the facility would be eligible to re-
ceive with respect to such fiscal year.
‘‘(d) DETERMINATION
OF
FACILITY
PER
STAY
LIMIT.—
‘‘(1) LIMIT FOR FISCAL YEAR 1997.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the Secretary shall establish
separate per stay limits for hospital-based and
freestanding skilled nursing facilities for the 12-
month cost reporting period beginning during
fiscal year 1997 that are equal to the sum of—
‘‘(i) 50 percent of the facility-specific
stay amount for the facility (as determined
under subsection (e)) for the last 12-month
cost reporting period ending on or before
September 30, 1994, increased (in a
compounded manner) by the SNF market
basket percentage increase for fiscal years
1995 through 1997; and
‘‘(ii) 50 percent of the average of all
facility-specific stay amounts for all hos-
244
Subtitle C, Part 4
pital-based facilities or all freestanding fa-
cilities (whichever is applicable) during the
cost reporting period described in clause
(i), increased (in a compounded manner)
by the SNF market basket percentage in-
crease for fiscal years 1995 through 1997.
‘‘(B) FACILITIES NOT HAVING 1994 COST
REPORTING PERIOD.—In the case of a skilled
nursing facility for which payments were not
made under this title for covered non-routine
services for the last 12-month cost reporting pe-
riod ending on or before September 30, 1994,
the per stay limit for the 12-month cost report-
ing period beginning during fiscal year 1997
shall be twice the amount determined under
subparagraph (A)(ii).
‘‘(2) LIMIT FOR SUBSEQUENT FISCAL YEARS.—
The per stay limit for a skilled nursing facility for
a 12-month cost reporting period beginning during
a fiscal year after fiscal year 1997 is equal to the
per stay limit established under this subsection for
the 12-month cost reporting period beginning during
the previous fiscal year, increased by the SNF mar-
ket basket percentage increase for such subsequent
fiscal year minus 2 percentage points.
245
Subtitle C, Part 4
‘‘(3) REBASING OF AMOUNTS.—
‘‘(A) IN
GENERAL.—The Secretary shall
provide for an update to the facility-specific
amounts used to determine the per stay limits
under this subsection for cost reporting periods
beginning on or after October 1, 1999, and
every 2 years thereafter.
‘‘(B) TREATMENT
OF
FACILITIES
NOT
HAVING REBASED COST REPORTING PERIODS.—
Paragraph (1)(B) shall apply with respect to a
skilled nursing facility for which payments were
not made under this title for covered non-rou-
tine services for the 12-month cost reporting
period used by the Secretary to update facility-
specific amounts under subparagraph (A) in the
same manner as such paragraph applies with
respect to a facility for which payments were
not made under this title for covered non-rou-
tine services for the last 12-month cost report-
ing period ending on or before September 30,
1994.
‘‘(e) DETERMINATION OF FACILITY-SPECIFIC STAY
AMOUNTS.—The ‘facility-specific stay amount’ for a
skilled nursing facility for a cost reporting period is the
sum of—
246
Subtitle C, Part 4
‘‘(1) the average amount of payments made to
the facility under part A during the period which are
attributable to covered non-routine services fur-
nished during a stay (as determined on a per diem
basis); and
‘‘(2) the Secretary’s best estimate of the aver-
age amount of payments made under part B during
the period for covered non-routine services furnished
to all residents of the facility to whom the facility
provided extended care services for which payment
was made under part A during the period (without
regard to whether or not the services were furnished
by the facility, by others under arrangement with
them made by the facility, under any other contract-
ing or consulting arrangement, or otherwise), as es-
timated by the Secretary.
‘‘(f) INTENSIVE NURSING OR THERAPY NEEDS.—
‘‘(1) IN GENERAL.—In applying subsection (b)
to covered non-routine services furnished during a
stay beginning during a cost reporting period begin-
ning during a fiscal year (beginning with fiscal years
after fiscal year 1997) to a resident of a skilled
nursing facility who requires intensive nursing or
therapy services, the per stay limit for such resident
shall be the per stay limit developed under para-
247
Subtitle C, Part 4
graph (2) instead of the per stay limit determined
under subsection (d)(1)(A).
‘‘(2) PER
STAY
LIMIT
FOR
INTENSIVE
NEED
RESIDENTS.—Not later than June 30, 1997, the
Secretary, after consultation with the Medicare Pay-
ment Review Commission and skilled nursing facility
experts, shall develop and publish a per stay limit
for residents of a skilled nursing facility who require
intensive nursing or therapy services.
‘‘(3) BUDGET
NEUTRALITY.—The Secretary
shall adjust payments under subsection (b) in a
manner that ensures that total payments for covered
non-routine services under this section are not great-
er or less than total payments for such services
would have been but for the application of para-
graph (1).
‘‘(g) SPECIAL TREATMENT
FOR SMALL SKILLED
NURSING FACILITIES.—This section shall not apply with
respect to a skilled nursing facility for which payment is
made for routine service costs during a cost reporting pe-
riod on the basis of prospective payments under section
1888(d).
‘‘(h) EXCEPTIONS AND ADJUSTMENTS TO LIMITS.—
‘‘(1) IN GENERAL.—The Secretary may make
exceptions and adjustments to the cost reporting
248
Subtitle C, Part 4
limits applicable to a skilled nursing facility under
subsection (c)(1)(B) for a cost reporting period, ex-
cept that the total amount of any additional pay-
ments made under this section for covered non-rou-
tine services during the cost reporting period as a
result of such exceptions and adjustments may not
exceed 5 percent of the aggregate payments made to
all skilled nursing facilities for covered non-routine
services during the cost reporting period (determined
without regard to this paragraph).
‘‘(2) BUDGET
NEUTRALITY.—The Secretary
shall adjust payments under subsection (b) in a
manner that ensures that total payments for covered
non-routine services under this section are not great-
er or less than total payments for such services
would have been but for the application of para-
graph (1).
‘‘(i) SPECIAL RULE FOR X-RAY SERVICES.—Before
furnishing a covered non-routine service consisting of an
X-ray service for which payment may be made under part
A or part B to a resident, a skilled nursing facility shall
consider whether furnishing the service through a provider
of portable X-ray service services would be appropriate,
taking into account the cost effectiveness of the service
and the convenience to the resident.’’.
249
Subtitle C, Part 5
(2) 
CONFORMING
AMENDMENT.—Section
1814(b) (42 U.S.C. 1395f(b)) is amended in the
matter preceding paragraph (1) by striking ‘‘1813
and 1886’’ and inserting ‘‘1813, 1886, 1888, and
1888A’’.
SEC. 15235. FREEZE IN PAYMENTS FOR CLINICAL DIAG-
NOSTIC LABORATORY TESTS.
Section 
1833(h)(2)(A)(ii)(IV) 
(42 
U.S.C.
1395l(h)(2)(A)(ii)(IV)) is amended by striking ‘‘1994 and
1995’’ and inserting ‘‘1994 through 1998’’.
PART 5—GRADUATE MEDICAL EDUCATION AND
TEACHING HOSPITALS
SEC. 15241. TEACHING HOSPITAL AND GRADUATE MEDICAL
EDUCATION TRUST FUND.
(a) TEACHING HOSPITAL AND GRADUATE MEDICAL
EDUCATION TRUST FUND.—The Social Security Act (42
U.S.C. 300 et seq.) is amended by adding at the end the
following title:
‘‘TITLE XXI—TEACHING HOSPITAL AND
GRADUATE MEDICAL EDUCATION TRUST FUND
‘‘PART A—ESTABLISHMENT OF FUND
‘‘SEC. 2101. ESTABLISHMENT OF FUND.
‘‘(a) IN GENERAL.—There is established in the
Treasury of the United States a fund to be known as the
Teaching Hospital and Graduate Medical Education Trust
250
Subtitle C, Part 5
Fund (in this title referred to as the ‘Fund’), consisting
of amounts transferred to the Fund under subsection (c),
amounts appropriated to the Fund pursuant to sub-
sections (d) and (e)(3), and such gifts and bequests as
may be deposited in the Fund pursuant to subsection (f).
Amounts in the Fund are available until expended.
‘‘(b) EXPENDITURES FROM FUND.—Amounts in the
Fund are available to the Secretary for making payments
under section 2111.
‘‘(c) TRANSFERS TO FUND.—
‘‘(1) IN GENERAL.—From the Federal Hospital
Insurance Trust Fund and the Federal Supple-
mentary Medical Insurance Trust Fund, the Sec-
retary shall, for fiscal year 1996 and each subse-
quent fiscal year, transfer to the Fund an amount
determined by the Secretary for the fiscal year in-
volved in accordance with paragraph (2).
‘‘(2) DETERMINATION OF AMOUNTS.—For pur-
poses of paragraph (1), the amount determined
under this paragraph for a fiscal year is an estimate
by the Secretary of an amount equal to 75 percent
of the difference between—
‘‘(A) the nationwide total of the amounts
that would have been paid under sections 1855
251
Subtitle C, Part 5
and 1876 during the year but for the operation
of section 1855(b)(2)(B)(ii); and
‘‘(B) the nationwide total of the amounts
paid under such sections during the year.
‘‘(3) ALLOCATION BETWEEN MEDICARE TRUST
FUNDS.—In providing for a transfer under para-
graph (1) for a fiscal year, the Secretary shall pro-
vide for an allocation of the amounts involved be-
tween part A and part B of title XVIII (and the
trust funds established under the respective parts)
as reasonably reflects the proportion of payments for
the indirect costs of medical education and direct
graduate medical education costs of hospitals associ-
ated with the provision of services under each re-
spective part.
‘‘(d) AUTHORIZATION OF APPROPRIATIONS.—There
are authorized to be appropriated to the Fund such sums
as may be necessary for each of the fiscal years 1996
through 2002.
‘‘(e) INVESTMENT.—
‘‘(1) IN
GENERAL.—The Secretary of the
Treasury shall invest such amounts of the Fund as
such Secretary determines are not required to meet
current withdrawals from the Fund. Such invest-
ments may be made only in interest-bearing obliga-
252
Subtitle C, Part 5
tions of the United States. For such purpose, such
obligations may be acquired on original issue at the
issue price, or by purchase of outstanding obliga-
tions at the market price.
‘‘(2) SALE
OF
OBLIGATIONS.—Any obligation
acquired by the Fund may be sold by the Secretary
of the Treasury at the market price.
‘‘(3) AVAILABILITY OF INCOME.—Any interest
derived from obligations acquired by the Fund, and
proceeds from any sale or redemption of such obliga-
tions, are hereby appropriated to the Fund.
‘‘(f) ACCEPTANCE OF GIFTS AND BEQUESTS.—The
Fund may accept on behalf of the United States money
gifts and bequests made unconditionally to the Fund for
the benefit of the Fund or any activity financed through
the Fund.
‘‘PART B—PAYMENTS TO TEACHING HOSPITALS
‘‘SEC. 2111. FORMULA PAYMENTS TO TEACHING HOS-
PITALS.
‘‘(a) IN GENERAL.—In the case of each teaching hos-
pital that in accordance with subsection (b) submits to the
Secretary a payment document for fiscal year 1996 or any
subsequent fiscal year, the Secretary shall make payments
for the year to the teaching hospital for the direct and
indirect costs of operating approved medical residency
253
Subtitle C, Part 5
training programs. Such payments shall be made from the
Fund, and shall be made in accordance with a formula
established by the Secretary.
‘‘(b) PAYMENT DOCUMENT.—For purposes of sub-
section (a), a payment document is a document containing
such information as may be necessary for the Secretary
to make payments under such subsection to a teaching
hospital for a fiscal year. The document is submitted in
accordance with this subsection if the document is submit-
ted not later than the date specified by the Secretary, and
the document is in such form and is made in such manner
as the Secretary may require. The Secretary may require
that information under this subsection be submitted to the
Secretary in periodic reports.’’.
(b) NATIONAL
ADVISORY
COUNCIL
ON
POST-
GRADUATE MEDICAL EDUCATION.—
(1) IN GENERAL.—There is established within
the Department of Health and Human Services an
advisory council to be known as the National Advi-
sory Council on Postgraduate Medical Education (in
this title referred to as the ‘‘Council’’).
(2) DUTIES.—The council shall provide advice
to the Secretary on appropriate policies for making
payments for the support of postgraduate medical
education in order to assure an adequate supply of
254
Subtitle C, Part 5
physicians trained in various specialities, consistent
with the health care needs of the United States.
(3) COMPOSITION.—
(A) IN GENERAL.—The Secretary shall ap-
point to the Council 15 individuals who are not
officers or employees of the United States. Such
individuals shall include not less than 1 individ-
ual from each of the following categories of in-
dividuals or entities:
(i) Organizations representing con-
sumers of health care services.
(ii) Physicians who are faculty mem-
bers of medical schools, or who supervise
approved physician training programs.
(iii) Physicians in private practice who
are not physicians described in clause (ii).
(iv) Practitioners in public health.
(v) Advanced-practice nurses.
(vi) Other health professionals who
are not physicians.
(vii) Medical schools.
(viii) Teaching hospitals.
(ix) The Accreditation Council on
Graduate Medical Education.
255
Subtitle C, Part 5
(x) The American Board of Medical
Specialities.
(xi) The Council on Postdoctoral
Training of the American Osteopathic As-
sociation.
(xii) The Council on Podiatric Medical
Education of the American Podiatric Medi-
cal Association.
(B) 
REQUIREMENTS
REGARDING
REP-
RESENTATIVE
MEMBERSHIP.—To the greatest
extent feasible, the membership of the Council
shall represent the various geographic regions
of the United States, shall reflect the racial,
ethnic, and gender composition of the popu-
lation of the United States, and shall be broadly
representative of medical schools and teaching
hospitals in the United States.
(C) EX OFFICIO MEMBERS; OTHER FED-
ERAL OFFICERS OR EMPLOYEES.—The member-
ship of the Council shall include individuals des-
ignated by the Secretary to serve as members
of the Council from among Federal officers or
employees who are appointed by the President,
or by the Secretary (or by other Federal offi-
cers who are appointed by the President with
256
Subtitle C, Part 5
the advice and consent of the Senate). Individ-
uals designated under the preceding sentence
shall include each of the following officials (or
a designee of the official):
(i) The Secretary of Health and
Human Services.
(ii) The Secretary of Veterans Affairs.
(iii) The Secretary of Defense.
(4) CHAIR.—The Secretary shall, from among
members of the council appointed under paragraph
(3)(A), designate an individual to serve as the chair
of the council.
(5) TERMINATION.—The Council terminates
December 31, 1999.
(c) REMOVE MEDICAL EDUCATION AND DISPROPOR-
TIONATE SHARE HOSPITAL PAYMENTS FROM CALCULA-
TION OF ADJUSTED AVERAGE PER CAPITA COST.—For
provision removing medical education and disproportion-
ate share hospital payments from calculation of payment
amounts for organizations paid on a capitated basis, see
section 1855(b)(2)(B)(ii).
(2) PAYMENTS TO HOSPITALS OF AMOUNTS AT-
TRIBUTABLE
TO
DSH.—Section 1886 (42 U.S.C.
1395ww) is amended by adding at the end the fol-
lowing new subsection: