(i) NURSING FACILITY; NURSING FACILITY SERV-
ICES.—Except as may be provided by the Board, the 
terms ‘‘nursing facility’’ and ‘‘nursing facility services’’ 
have the meanings given such terms in sections 1919(a) 
and 1905(f), respectively, of the Social Security Act. 
(j) SERVICES IN INTERMEDIATE CARE FACILITIES 
FOR INDIVIDUALS WITH MENTAL RETARDATION.—Ex-
cept as may be provided by the Board—
(1) the term ‘‘intermediate care facility for indi-
viduals with mental retardation’’ has the meaning 
specified in section 1905(d) of the Social Security 
Act (as in effect before the enactment of this Act); 
and 
(2) the term ‘‘services in intermediate care fa-
cilities for individuals with mental retardation’’
means services described in section 1905(a)(15) of 
such Act (as so in effect) in an intermediate care 
facility for individuals with mental retardation to an 
individual determined to require such services in ac-
cordance with standards specified by the Board and 
comparable to the standards described in section 
1902(a)(31)(A) of such Act (as so in effect). 
(k) OTHER TERMS.—Except as may be provided by 
the Board, the definitions contained in section 1861 of the 
Social Security Act shall apply.
SEC. 203. SPECIAL RULES FOR HOME AND COMMUNITY-
BASED LONG-TERM CARE SERVICES. 
(a) QUALIFYING INDIVIDUALS.—For purposes of sec-
tion 201(a)(5)(C), individuals described in this subsection 
are the following individuals: 
(1) ADULTS.—Individuals 18 years of age or 
older determined (in a manner specified by the 
Board)—
(A) to be unable to perform, without the 
assistance of an individual, at least 2 of the fol-
lowing 5 activities of daily living (or who has a 
similar level of disability due to cognitive im-
pairment)—
(i) bathing; 
(ii) eating; 
(iii) dressing; 
(iv) toileting; and 
(v) transferring in and out of a bed or 
in and out of a chair; 
(B) due to cognitive or mental impair-
ments, to require supervision because the indi-
vidual behaves in a manner that poses health or 
safety hazards to himself or herself or others; 
or
(C) due to cognitive or mental impair-
ments, to require queuing to perform activities 
of daily living. 
(2) CHILDREN.—Individuals under 18 years of 
age determined (in a manner specified by the Board) 
to meet such alternative standard of disability for 
children as the Board develops. Such alternative 
standard shall be comparable to the standard for 
adults and appropriate for children. 
(b) LIMIT ON SERVICES.—
(1) IN GENERAL.—The aggregate expenditures 
by a State health security program with respect to 
home and community-based long-term care services 
in a period (specified by the Board) may not exceed 
65 percent (or such alternative ratio as the Board 
establishes under paragraph (2)) of the average of 
the amount of payment that would have been made 
under the program during the period if all the home-
based long-term care beneficiaries had been resi-
dents of nursing facilities in the same area in which 
the services were provided. 
(2) ALTERNATIVE RATIO.—The Board may es-
tablish for purposes of paragraph (1) an alternative 
ratio (of payments for home and community-based 
long term care services to payments for nursing fa-
cility services) as the Board determines to be more 
consistent with the goal of providing cost-effective 
long-term care in the most appropriate and least re-
strictive setting. 
SEC. 204. EXCLUSIONS AND LIMITATIONS. 
(a) IN GENERAL.—Subject to section 201(e), benefits 
for service are not available under this Act unless the serv-
ices meet the standards specified in section 201(a). 
(b) SPECIAL DELIVERY REQUIREMENTS FOR MEN-
TAL HEALTH AND SUBSTANCE ABUSE TREATMENT SERV-
ICES PROVIDED TO AT-RISK CHILDREN.—
(1) REQUIRING
SERVICES
TO
BE
PROVIDED 
THROUGH ORGANIZED SYSTEMS OF CARE.—A State 
health security program shall ensure that mental 
health services and substance abuse treatment serv-
ices are furnished through an organized system of 
care, as described in paragraph (2), if—
(A) the services are provided to an indi-
vidual less than 22 years of age; 
(B) the individual has a serious emotional 
disturbance or a substance abuse disorder; and 
(C) the individual is, or is at imminent risk 
of being, subject to the authority of, or in need 
of the services of, at least 1 public agency that 
serves the needs of children, including an agen-
cy involved with child welfare, special education, 
juvenile justice, or criminal justice. 
(2) REQUIREMENTS FOR SYSTEM OF CARE.—In 
this subsection, an ‘‘organized system of care’’ is a 
community-based service delivery network, which 
may consist of public and private providers, that 
meets the following requirements: 
(A) The system has established linkages 
with existing mental health services and sub-
stance abuse treatment service delivery pro-
grams in the plan service area (or is in the 
process of developing or operating a system 
with appropriate public agencies in the area to 
coordinate the delivery of such services to indi-
viduals in the area).
(B) The system provides for the participa-
tion and coordination of multiple agencies and 
providers that serve the needs of children in the 
area, including agencies and providers involved 
with child welfare, education, juvenile justice, 
criminal justice, health care, mental health, and 
substance abuse prevention and treatment. 
(C) The system provides for the involve-
ment of the families of children to whom mental 
health services and substance abuse treatment
services are provided in the planning of treat-
ment and the delivery of services. 
(D) The system provides for the develop-
ment and implementation of individualized 
treatment plans by multidisciplinary and multi-
agency teams, which are recognized and fol-
lowed by the applicable agencies and providers 
in the area. 
(E) The system ensures the delivery and 
coordination of the range of mental health serv-
ices and substance abuse treatment services re-
quired by individuals under 22 years of age who 
have a serious emotional disturbance or a sub-
stance abuse disorder. 
(F) The system provides for the manage-
ment of the individualized treatment plans de-
scribed in subparagraph (D) and for a flexible 
response to changes in treatment needs over 
time. 
(c) TREATMENT OF EXPERIMENTAL SERVICES.—In 
applying subsection (a), the Board shall make national 
coverage determinations with respect to those services that 
are experimental in nature. Such determinations shall be 
made consistent with a process that provides for input
from representatives of health care professionals and pa-
tients and public comment. 
(d) APPLICATION
OF PRACTICE GUIDELINES.—In 
the case of services for which the American Health Secu-
rity Quality Council (established under section 501) has 
recognized a national practice guideline, the services are 
considered to meet the standards specified in section 
201(a) if they have been provided in accordance with such 
guideline or in accordance with such guidelines as are pro-
vided by the State health security program consistent with 
title V. For purposes of this subsection, a service shall 
be considered to have been provided in accordance with 
a practice guideline if the health care provider providing 
the service exercised appropriate professional discretion to 
deviate from the guideline in a manner authorized or an-
ticipated by the guideline. 
(e) SPECIFIC LIMITATIONS.—
(1) LIMITATIONS
ON
EYEGLASSES, CONTACT 
LENSES, HEARING
AIDS, AND
DURABLE
MEDICAL 
EQUIPMENT.—Subject to section 201(e), the Board 
may impose such limits relating to the costs and fre-
quency of replacement of eyeglasses, contact lenses, 
hearing aids, and durable medical equipment to 
which individuals enrolled for benefits under this Act 
are entitled to have payment made under a State
health security program as the Board deems appro-
priate. 
(2) OVERLAP WITH PREVENTIVE SERVICES.—
The coverage of services described in section 201(a) 
(other than paragraph (3)) which also are preventive 
services are required to be covered only to the extent 
that they are required to be covered as preventive 
services. 
(3) MISCELLANEOUS EXCLUSIONS FROM COV-
ERED SERVICES.—Covered services under this Act 
do not include the following: 
(A) Surgery and other procedures (such as 
orthodontia) performed solely for cosmetic pur-
poses (as defined in regulations) and hospital or 
other services incident thereto, unless—
(i) required to correct a congenital 
anomaly; 
(ii) required to restore or correct a 
part of the body which has been altered as 
a result of accidental injury, disease, or 
surgery; or 
(iii) otherwise determined to be medi-
cally necessary and appropriate under sec-
tion 201(a).
(B) Personal comfort items or private 
rooms in inpatient facilities, unless determined 
to be medically necessary and appropriate 
under section 201(a). 
(C) The services of a professional practi-
tioner if they are furnished in a hospital or 
other facility which is not a participating pro-
vider. 
(f) NURSING
FACILITY
SERVICES
AND
HOME 
HEALTH SERVICES.—Nursing facility services and home 
health services (other than post-hospital services, as de-
fined by the Board) furnished to an individual who is not 
described in section 203(a) are not covered services unless 
the services are determined to meet the standards speci-
fied in section 201(a) and, with respect to nursing facility 
services, to be provided in the least restrictive and most 
appropriate setting. 
SEC. 205. CERTIFICATION; QUALITY REVIEW; PLANS OF 
CARE. 
(a) CERTIFICATIONS.—State health security pro-
grams may require, as a condition of payment for institu-
tional health care services and other services of the type 
described in such sections 1814(a) and 1835(a) of the So-
cial Security Act, periodic professional certifications of the 
kind described in such sections.
(b) QUALITY REVIEW.—For requirement that each 
State health security program establish a quality review 
program that meets the requirements for such a program 
under title V, see section 404(b)(1)(H). 
(c) PLAN OF CARE REQUIREMENTS.—A State health 
security program may require, consistent with standards 
established by the Board, that payment for services ex-
ceeding specified levels or duration be provided only as 
consistent with a plan of care or treatment formulated by 
one or more providers of the services or other qualified 
professionals. Such a plan may include, consistent with 
subsection (b), case management at specified intervals as 
a further condition of payment for services. 
TITLE III—PROVIDER 
PARTICIPATION 
SEC. 301. PROVIDER PARTICIPATION AND STANDARDS. 
(a) IN GENERAL.—An individual or other entity fur-
nishing any covered service under a State health security 
program under this Act is not a qualified provider unless 
the individual or entity—
(1) is a qualified provider of the services under 
section 302; 
(2) has filed with the State health security pro-
gram a participation agreement described in sub-
section (b); and
(3) meets such other qualifications and condi-
tions as are established by the Board or the State 
health security program under this Act. 
(b) REQUIREMENTS
IN
PARTICIPATION
AGREE-
MENT.—
(1) IN
GENERAL.—A participation agreement 
described in this subsection between a State health 
security program and a provider shall provide at 
least for the following: 
(A) Services to eligible persons will be fur-
nished by the provider without discrimination 
on the ground of race, national origin, income, 
religion, age, sex or sexual orientation, dis-
ability, handicapping condition, or (subject to 
the professional qualifications of the provider) 
illness. Nothing in this subparagraph shall be 
construed as requiring the provision of a type 
or class of services which services are outside 
the scope of the provider’s normal practice. 
(B) No charge will be made for any cov-
ered services other than for payment authorized 
by this Act. 
(C) The provider agrees to furnish such in-
formation as may be reasonably required by the 
Board or a State health security program, in
accordance with uniform reporting standards 
established under section 401(g)(1), for—
(i) quality review by designated enti-
ties; 
(ii) the making of payments under 
this Act (including the examination of 
records as may be necessary for the 
verification of information on which pay-
ments are based); 
(iii) statistical or other studies re-
quired for the implementation of this Act; 
and 
(iv) such other purposes as the Board 
or State may specify. 
(D) The provider agrees not to bill the pro-
gram for any services for which benefits are not 
available because of section 204(d). 
(E) In the case of a provider that is not 
an individual, the provider agrees not to employ 
or use for the provision of health services any 
individual or other provider who or which has 
had a participation agreement under this sub-
section terminated for cause. 
(F) In the case of a provider paid under a 
fee-for-service basis under section 612, the pro-
vider agrees to submit bills and any required 
supporting documentation relating to the provi-
sion of covered services within 30 days (or such 
shorter period as a State health security pro-
gram may require) after the date of providing 
such services. 
(2) TERMINATION OF PARTICIPATION AGREE-
MENTS.—
(A) IN
GENERAL.—Participation agree-
ments may be terminated, with appropriate no-
tice—
(i) by the Board or a State health se-
curity program for failure to meet the re-
quirements of this title; or 
(ii) by a provider. 
(B) TERMINATION
PROCESS.—Providers 
shall be provided notice and a reasonable oppor-
tunity to correct deficiencies before the Board 
or a State health security program terminates 
an agreement unless a more immediate termi-
nation is required for public safety or similar 
reasons.
SEC. 302. QUALIFICATIONS FOR PROVIDERS. 
(a) IN GENERAL.—A health care provider is consid-
ered to be qualified to provide covered services if the pro-
vider is licensed or certified and meets—
(1) all the requirements of State law to provide 
such services; 
(2) applicable requirements of Federal law to 
provide such services; and 
(3) any applicable standards established under 
subsection (b). 
(b) MINIMUM PROVIDER STANDARDS.—
(1) IN GENERAL.—The Board shall establish, 
evaluate, and update national minimum standards to 
assure the quality of services provided under this 
Act and to monitor efforts by State health security 
programs to assure the quality of such services. A 
State health security program may also establish ad-
ditional minimum standards which providers must 
meet. 
(2) NATIONAL MINIMUM STANDARDS.—The na-
tional minimum standards under paragraph (1) shall 
be established for institutional providers of services, 
individual health care practitioners, and comprehen-
sive health service organizations. Except as the 
Board may specify in order to carry out this title, 
a hospital, nursing facility, or other institutional
provider of services shall meet standards for such a 
facility under the medicare program under title 
XVIII of the Social Security Act. Such standards 
also may include, where appropriate, elements relat-
ing to—
(A) adequacy and quality of facilities; 
(B) training and competence of personnel 
(including continuing education requirements); 
(C) comprehensiveness of service; 
(D) continuity of service; 
(E) patient satisfaction (including waiting 
time and access to services); and 
(F) performance standards (including or-
ganization, facilities, structure of services, effi-
ciency of operation, and outcome in palliation, 
improvement of health, stabilization, cure, or 
rehabilitation). 
(3) TRANSITION
IN
APPLICATION.—If the 
Board provides for additional requirements for pro-
viders under this subsection, any such additional re-
quirement shall be implemented in a manner that 
provides for a reasonable period during which a pre-
viously qualified provider is permitted to meet such 
an additional requirement.
(4) EXCHANGE OF INFORMATION.—The Board 
shall provide for an exchange, at least annually, 
among State health security programs of informa-
tion with respect to quality assurance and cost con-
tainment. 
SEC. 303. QUALIFICATIONS FOR COMPREHENSIVE HEALTH 
SERVICE ORGANIZATIONS. 
(a) IN GENERAL.—For purposes of this Act, a com-
prehensive health service organization (in this section re-
ferred to as a ‘‘CHSO’’) is a public or private organization 
which, in return for a capitated payment amount, under-
takes to furnish, arrange for the provision of, or provide 
payment with respect to—
(1) a full range of health services (as identified 
by the Board), including at least hospital services 
and physicians services; and 
(2) out-of-area coverage in the case of urgently 
needed services; 
to an identified population which is living in or near a 
specified service area and which enrolls voluntarily in the 
organization. 
(b) ENROLLMENT.—
(1) IN GENERAL.—All eligible persons living in 
or near the specified service area of a CHSO are eli-
gible to enroll in the organization; except that the
number of enrollees may be limited to avoid over-
taxing the resources of the organization. 
(2) MINIMUM ENROLLMENT PERIOD.—Subject 
to paragraph (3), the minimum period of enrollment 
with a CHSO shall be twelve months, unless the en-
rolled individual becomes ineligible to enroll with the 
organization. 
(3) WITHDRAWAL
FOR
CAUSE.—Each CHSO 
shall permit an enrolled individual to disenroll from 
the organization for cause at any time. 
(c) REQUIREMENTS FOR CHSOS.—
(1) ACCESSIBLE
SERVICES.—Each CHSO, to 
the maximum extent feasible, shall make all services
readily and promptly accessible to enrollees who live 
in the specified service area. 
(2) CONTINUITY OF CARE.—Each CHSO shall 
furnish services in such manner as to provide con-
tinuity of care and (when services are furnished by 
different providers) shall provide ready referral of 
patients to such services and at such times as may 
be medically appropriate. 
(3) BOARD OF DIRECTORS.—In the case of a 
CHSO that is a private organization—
(A) 
CONSUMER
REPRESENTATION.—At 
least one-third of the members of the CHSO’s
board of directors must be consumer members 
with no direct or indirect, personal or family fi-
nancial relationship to the organization. 
(B) PROVIDER
REPRESENTATION.—The 
CHSO’s board of directors must include at 
least one member who represents health care 
providers. 
(4) PATIENT
GRIEVANCE
PROGRAM.—Each 
CHSO must have in effect a patient grievance pro-
gram and must conduct regularly surveys of the sat-
isfaction of members with services provided by or 
through the organization. 
(5) MEDICAL STANDARDS.—Each CHSO must 
provide that a committee or committees of health 
care practitioners associated with the organization 
will promulgate medical standards, oversee the pro-
fessional aspects of the delivery of care, perform the 
functions of a pharmacy and drug therapeutics com-
mittee, and monitor and review the quality of all 
health services (including drugs, education, and pre-
ventive services). 
(6) PREMIUMS.—Premiums or other charges by 
a CHSO for any services not paid for under this Act 
must be reasonable.
(7) UTILIZATION AND BONUS INFORMATION.—
Each CHSO must—
(A) comply with the requirements of sec-
tion 1876(i)(8) of the Social Security Act (re-
lating to prohibiting physician incentive plans 
that provide specific inducements to reduce or 
limit medically necessary services); and 
(B) make available to its membership utili-
zation information and data regarding financial 
performance, including bonus or incentive pay-
ment arrangements to practitioners. 
(8) PROVISION OF SERVICES TO ENROLLEES AT 
INSTITUTIONS
OPERATING
UNDER
GLOBAL
BUDG-
ETS.—The organization shall arrange to reimburse 
for hospital services and other facility-based services 
(as identified by the Board) for services provided to 
members of the organization in accordance with the 
global operating budget of the hospital or facility ap-
proved under section 611. 
(9) BROAD
MARKETING.—Each CHSO must 
provide for the marketing of its services (including 
dissemination of marketing materials) to potential 
enrollees in a manner that is designed to enroll indi-
viduals representative of the different population 
groups and geographic areas included within its
service area and meets such requirements as the 
Board or a State health security program may speci-
fy. 
(10) 
ADDITIONAL
REQUIREMENTS.—Each 
CHSO must meet—
(A) such requirements relating to min-
imum enrollment; 
(B) such requirements relating to financial 
solvency; 
(C) such requirements relating to quality 
and availability of care; and 
(D) such other requirements, 
as the Board or a State health security program 
may specify. 
(d) PROVISION OF EMERGENCY SERVICES TO NON-
ENROLLEES.—A CHSO may furnish emergency services 
to persons who are not enrolled in the organization. Pay-
ment for such services, if they are covered services to eligi-
ble persons, shall be made to the organization unless the 
organization requests that it be made to the individual 
provider who furnished the services. 
SEC. 304. LIMITATION ON CERTAIN PHYSICIAN REFERRALS. 
(a) APPLICATION TO AMERICAN HEALTH SECURITY 
PROGRAM.—Section 1877 of the Social Security Act, as 
amended by subsections (b) and (c), shall apply under this
Act in the same manner as it applies under title XVIII 
of the Social Security Act; except that in applying such 
section under this Act any references in such section to 
the Secretary or title XVIII of the Social Security Act are 
deemed references to the Board and the American Health 
Security Program under this Act, respectively. 
(b) EXPANSION OF PROHIBITION TO CERTAIN ADDI-
TIONAL DESIGNATED SERVICES.—Section 1877(h)(6) of 
the Social Security Act (42 U.S.C. 1395nn(h)(6)) is 
amended by adding at the end the following: 
‘‘(L) Ambulance services. 
‘‘(M) Home infusion therapy services.’’.
(c) CONFORMING AMENDMENTS.—Section 1877 of 
such Act is further amended—
(1) in subsection (a)(1)(A), by striking ‘‘for 
which payment otherwise may be made under this 
title’’ and inserting ‘‘for which a charge is imposed’’; 
(2) in subsection (a)(1)(B), by striking ‘‘under 
this title’’; 
(3) by amending paragraph (1) of subsection 
(g) to read as follows: 
‘‘(1) DENIAL OF PAYMENT.—No payment may 
be made under a State health security program for 
a designated health service for which a claim is pre-
sented in violation of subsection (a)(1)(B). No indi-
vidual, third party payor, or other entity is liable for 
payment for designated health services for which a 
claim is presented in violation of such subsection.’’; 
and 
(4) in subsection (g)(3), by striking ‘‘for which 
payment may not be made under paragraph (1)’’ 
and inserting ‘‘for which such a claim may not be 
presented under subsection (a)(1)’’. 
TITLE IV—ADMINISTRATION 
Subtitle A—General Administrative 
Provisions 
SEC. 
401. 
AMERICAN 
HEALTH 
SECURITY 
STANDARDS 
BOARD. 
(a) ESTABLISHMENT.—There is hereby established 
an American Health Security Standards Board. 
(b) APPOINTMENT AND TERMS OF MEMBERS.—
(1) IN
GENERAL.—The Board shall be com-
posed of—
(A) the Secretary of Health and Human 
Services; and 
(B) 6 other individuals (described in para-
graph (2)) appointed by the President with the 
advice and consent of the Senate. 
The President shall first nominate individuals under 
subparagraph (B) on a timely basis so as to provide
for the operation of the Board by not later than 
January 1, 2004. 
(2) SELECTION
OF
APPOINTED
MEMBERS.—
With respect to the individuals appointed under 
paragraph (1)(B): 
(A) They shall be chosen on the basis of 
backgrounds in health policy, health economics, 
the healing professions, and the administration 
of health care institutions. 
(B) They shall provide a balanced point of 
view with respect to the various health care in-
terests and at least 2 of them shall represent 
the interests of individual consumers. 
(C) Not more than 3 of them shall be from 
the same political party. 
(D) To the greatest extent feasible, they 
shall represent the various geographic regions 
of the United States and shall reflect the racial, 
ethnic, and gender composition of the popu-
lation of the United States. 
(3) TERMS OF APPOINTED MEMBERS.—Individ-
uals appointed under paragraph (1)(B) shall serve 
for a term of 6 years, except that the terms of 5 of 
the individuals initially appointed shall be, as des-
ignated by the President at the time of their ap-
pointment, for 1, 2, 3, 4, and 5 years. During a 
term of membership on the Board, no member shall 
engage in any other business, vocation or employ-
ment. 
(c) VACANCIES.—
(1) IN GENERAL.—The President shall fill any 
vacancy in the membership of the Board in the same 
manner as the original appointment. The vacancy 
shall not affect the power of the remaining members 
to execute the duties of the Board. 
(2) VACANCY
APPOINTMENTS.—Any member 
appointed to fill a vacancy shall serve for the re-
mainder of the term for which the predecessor of the 
member was appointed. 
(3) REAPPOINTMENT.—The President may re-
appoint an appointed member of the Board for a 
second term in the same manner as the original ap-
pointment. A member who has served for 2 consecu-
tive 6-year terms shall not be eligible for reappoint-
ment until 2 years after the member has ceased to 
serve. 
(4) REMOVAL FOR CAUSE.—Upon confirmation, 
members of the Board may not be removed except 
by the President for cause.
(d) CHAIR.—The President shall designate 1 of the 
members of the Board, other than the Secretary, to serve 
at the will of the President as Chair of the Board. 
(e) COMPENSATION.—Members of the Board (other 
than the Secretary) shall be entitled to compensation at 
a level equivalent to level II of the Executive Schedule, 
in accordance with section 5313 of title 5, United States 
Code.
(f) GENERAL DUTIES OF THE BOARD.—
(1) IN
GENERAL.—The Board shall develop 
policies, procedures, guidelines, and requirements to 
carry out this Act, including those related to—
(A) eligibility; 
(B) enrollment; 
(C) benefits; 
(D) provider participation standards and 
qualifications, as defined in title III; 
(E) national and State funding levels; 
(F) methods for determining amounts of 
payments to providers of covered services, con-
sistent with subtitle B of title VI; 
(G) the determination of medical necessity 
and appropriateness with respect to coverage of 
certain services;
(H) assisting State health security pro-
grams with planning for capital expenditures 
and service delivery; 
(I) planning for health professional edu-
cation funding (as specified in title VI); 
(J) allocating funds provided under title 
VII; and 
(K) encouraging States to develop regional 
planning mechanisms (described in section 
404(a)(3)). 
(2) REGULATIONS.—Regulations authorized by 
this Act shall be issued by the Board in accordance 
with the provisions of section 553 of title 5, United 
States Code. 
(g) UNIFORM REPORTING STANDARDS; ANNUAL RE-
PORT; STUDIES.—
(1) UNIFORM REPORTING STANDARDS.—
(A) IN GENERAL.—The Board shall estab-
lish uniform reporting requirements and stand-
ards to ensure an adequate national data base 
regarding health services practitioners, services 
and finances of State health security programs, 
approved plans, providers, and the costs of fa-
cilities and practitioners providing services.
Such standards shall include, to the maximum 
extent feasible, health outcome measures. 
(B) REPORTS.—The Board shall analyze 
regularly information reported to it, and to 
State health security programs pursuant to 
such requirements and standards. 
(2) ANNUAL REPORT.—Beginning January 1, 
of the second year beginning after the date of the 
enactment of this Act, the Board shall annually re-
port to Congress on the following: 
(A) The status of implementation of the 
Act. 
(B) Enrollment under this Act. 
(C) Benefits under this Act. 
(D) Expenditures and financing under this 
Act. 
(E) 
Cost-containment 
measures 
and 
achievements under this Act. 
(F) Quality assurance. 
(G) Health care utilization patterns, in-
cluding any changes attributable to the pro-
gram. 
(H) Long-range plans and goals for the de-
livery of health services.
(I) Differences in the health status of the 
populations of the different States, including in-
come and racial characteristics. 
(J) Necessary changes in the education of 
health personnel. 
(K) Plans for improving service to medi-
cally underserved populations. 
(L) Transition problems as a result of im-
plementation of this Act. 
(M) Opportunities for improvements under 
this Act. 
(3) STATISTICAL ANALYSES AND OTHER STUD-
IES.—The Board may, either directly or by con-
tract—
(A) make statistical and other studies, on 
a nationwide, regional, state, or local basis, of 
any aspect of the operation of this Act, includ-
ing studies of the effect of the Act upon the 
health of the people of the United States and 
the effect of comprehensive health services upon 
the health of persons receiving such services; 
(B) develop and test methods of providing 
through payment for services or otherwise, ad-
ditional incentives for adherence by providers to 
standards of adequacy, access, and quality;
methods of consumer and peer review and peer 
control of the utilization of drugs, of laboratory 
services, and of other services; and methods of 
consumer and peer review of the quality of serv-
ices; 
(C) develop and test, for use by the Board, 
records and information retrieval systems and 
budget systems for health services administra-
tion, and develop and test model systems for 
use by providers of services; 
(D) develop and test, for use by providers 
of services, records and information retrieval 
systems useful in the furnishing of preventive 
or diagnostic services; 
(E) develop, in collaboration with the phar-
maceutical profession, and test, improved ad-
ministrative practices or improved methods for 
the reimbursement of independent pharmacies 
for the cost of furnishing drugs as a covered 
service; and 
(F) make such other studies as it may con-
sider necessary or promising for the evaluation, 
or for the improvement, of the operation of this 
Act.
(4) REPORT
ON
USE
OF
EXISTING
FEDERAL 
HEALTH CARE FACILITIES.—Not later than 1 year 
after the date of the enactment of this Act, the 
Board shall recommend to the Congress one or more 
proposals for the treatment of health care facilities 
of the Federal Government. 
(h) EXECUTIVE DIRECTOR.—
(1) APPOINTMENT.—There is hereby estab-
lished the position of Executive Director of the 
Board. The Director shall be appointed by the 
Board and shall serve as secretary to the Board and 
perform such duties in the administration of this 
title as the Board may assign. 
(2) DELEGATION.—The Board is authorized to 
delegate to the Director or to any other officer or 
employee of the Board or, with the approval of the 
Secretary of Health and Human Services (and sub-
ject to reimbursement of identifiable costs), to any 
other officer or employee of the Department of 
Health and Human Services, any of its functions or 
duties under this Act other than—
(A) the issuance of regulations; or 
(B) the determination of the availability of 
funds and their allocation to implement this 
Act.
(3) COMPENSATION.—The Executive Director 
of the Board shall be entitled to compensation at a 
level equivalent to level III of the Executive Sched-
ule, in accordance with section 5314 of title 5, 
United States Code. 
(i) INSPECTOR GENERAL.—The Inspector General 
Act of 1978 (5 U.S.C. App.) is amended—
(1) in section 11(1), by inserting after ‘‘Cor-
poration;’’ the first place it appears the following:
‘‘the Chair of the American Health Security Stand-
ards Board;’’; 
(2) in section 11(2), by inserting after ‘‘Resolu-
tion Trust Corporation,’’ the following: ‘‘the Amer-
ican Health Security Standards Board,’’; and 
(3) by inserting before section 9 the following: 
‘‘SPECIAL PROVISIONS CONCERNING AMERICAN HEALTH 
SECURITY STANDARDS BOARD 
‘‘SEC. 8J. The Inspector General of the American 
Health Security Standards Board, in addition to the other 
authorities vested by this Act, shall have the same author-
ity, with respect to the Board and the American Health 
Security Program under this Act, as the Inspector General 
for the Department of Health and Human Services has 
with respect to the Secretary of Health and Human Serv-
ices and the medicare and medicaid programs, respec-
tively.’’.
(j) STAFF.—The Board shall employ such staff as the 
Board may deem necessary. 
(k) ACCESS
TO INFORMATION.—The Secretary of 
Health and Human Services shall make available to the 
Board all information available from sources within the 
Department or from other sources, pertaining to the du-
ties of the Board. 
SEC. 402. AMERICAN HEALTH SECURITY ADVISORY COUN-
CIL. 
(a) IN GENERAL.—The Board shall provide for an 
American Health Security Advisory Council (in this sec-
tion referred to as the ‘‘Council’’) to advise the Board on 
its activities. 
(b) MEMBERSHIP.—The Council shall be composed 
of—
(1) the Chair of the Board, who shall serve as 
Chair of the Council; and 
(2) twenty members, not otherwise in the em-
ploy of the United States, appointed by the Board 
without regard to the provisions of title 5, United 
States Code, governing appointments in the competi-
tive service. 
The appointed members shall include, in accordance with 
subsection (e), individuals who are representative of State 
health security programs, public health professionals, pro-
viders of health services, and of individuals (who shall con-
stitute a majority of the Council) who are representative 
of consumers of such services, including a balanced rep-
resentation of employers, unions, consumer organizations, 
and population groups with special health care needs. To 
the greatest extent feasible, the membership of the Council 
shall represent the various geographic regions of the 
United States and shall reflect the racial, ethnic, and gen-
der composition of the population of the United States. 
(c) TERMS OF MEMBERS.—Each appointed member 
shall hold office for a term of 4 years, except that—
(1) any member appointed to fill a vacancy oc-
curring during the term for which the member’s 
predecessor was appointed shall be appointed for the 
remainder of that term; and 
(2) the terms of the members first taking office 
shall expire, as designated by the Board at the time 
of appointment, 5 at the end of the first year, 5 at 
the end of the second year, 5 at the end of the third 
year, and 5 at the end of the fourth year after the 
date of enactment of this Act. 
(d) VACANCIES.—
(1) IN GENERAL.—The Board shall fill any va-
cancy in the membership of the Council in the same 
manner as the original appointment. The vacancy
shall not affect the power of the remaining members 
to execute the duties of the Council. 
(2) VACANCY
APPOINTMENTS.—Any member 
appointed to fill a vacancy shall serve for the re-
mainder of the term for which the predecessor of the 
member was appointed. 
(3) REAPPOINTMENT.—The Board may re-
appoint an appointed member of the Council for a 
second term in the same manner as the original ap-
pointment. 
(e) QUALIFICATIONS.—
(1) PUBLIC
HEALTH
REPRESENTATIVES.—
Members of the Council who are representative of 
State health security programs and public health 
professionals shall be individuals who have extensive 
experience in the financing and delivery of care 
under public health programs. 
(2) PROVIDERS.—Members of the Council who 
are representative of providers of health care shall 
be individuals who are outstanding in fields related 
to medical, hospital, or other health activities, or 
who are representative of organizations or associa-
tions of professional health practitioners. 
(3) CONSUMERS.—Members who are represent-
ative of consumers of such care shall be individuals,
not engaged in and having no financial interest in 
the furnishing of health services, who are familiar 
with the needs of various segments of the population 
for personal health services and are experienced in 
dealing with problems associated with the consump-
tion of such services.
(f) DUTIES.—
(1) IN GENERAL.—It shall be the duty of the 
Council—
(A) to advise the Board on matters of gen-
eral policy in the administration of this Act, in 
the formulation of regulations, and in the per-
formance of the Board’s duties under section 
401; and 
(B) to study the operation of this Act and 
the utilization of health services under it, with 
a view to recommending any changes in the ad-
ministration of the Act or in its provisions 
which may appear desirable. 
(2) REPORT.—The Council shall make an an-
nual report to the Board on the performance of its 
functions, including any recommendations it may 
have with respect thereto, and the Board shall 
promptly transmit the report to the Congress, to-
gether with a report by the Board on any rec-
ommendations of the Council that have not been fol-
lowed. 
(g) STAFF.—The Council, its members, and any com-
mittees of the Council shall be provided with such secre-
tarial, clerical, or other assistance as may be authorized 
by the Board for carrying out their respective functions. 
(h) MEETINGS.—The Council shall meet as fre-
quently as the Board deems necessary, but not less than 
4 times each year. Upon request by 7 or more members 
it shall be the duty of the Chair to call a meeting of the 
Council. 
(i) COMPENSATION.—Members of the Council shall 
be reimbursed by the Board for travel and per diem in 
lieu of subsistence expenses during the performance of du-
ties of the Board in accordance with subchapter I of chap-
ter 57 of title 5, United States Code. 
(j) FACA NOT APPLICABLE.—The provisions of the 
Federal Advisory Committee Act shall not apply to the 
Council. 
SEC. 403. CONSULTATION WITH PRIVATE ENTITIES. 
The Secretary and the Board shall consult with pri-
vate entities, such as professional societies, national asso-
ciations, nationally recognized associations of experts, 
medical schools and academic health centers, consumer 
groups, and labor and business organizations in the for-
mulation of guidelines, regulations, policy initiatives, and 
information gathering to assure the broadest and most in-
formed input in the administration of this Act. Nothing 
in this Act shall prevent the Secretary from adopting 
guidelines developed by such a private entity if, in the Sec-
retary’s and Board’s judgment, such guidelines are gen-
erally accepted as reasonable and prudent and consistent 
with this Act. 
SEC. 404. STATE HEALTH SECURITY PROGRAMS. 
(a) SUBMISSION OF PLANS.—
(1) IN GENERAL.—Each State shall submit to 
the Board a plan for a State health security pro-
gram for providing for health care services to the 
residents of the State in accordance with this Act. 
(2) REGIONAL PROGRAMS.—A State may join 
with 1 or more neighboring States to submit to the 
Board a plan for a regional health security program 
instead of separate State health security programs. 
(3) REGIONAL
PLANNING
MECHANISMS.—The 
Board shall provide incentives for States to develop 
regional planning mechanisms to promote the ration-
al distribution of, adequate access to, and efficient 
use of, tertiary care facilities, equipment, and serv-
ices. 
(b) REVIEW AND APPROVAL OF PLANS.—
(1) IN
GENERAL.—The Board shall review 
plans submitted under subsection (a) and determine 
whether such plans meet the requirements for ap-
proval. The Board shall not approve such a plan un-
less it finds that the plan (or State law) provides, 
consistent with the provisions of this Act, for the fol-
lowing: 
(A) Payment for required health services 
for eligible individuals in the State in accord-
ance with this Act. 
(B) Adequate administration, including the 
designation of a single State agency responsible 
for the administration (or supervision of the ad-
ministration) of the program. 
(C) The establishment of a State health se-
curity budget. 
(D) Establishment of payment methodolo-
gies (consistent with subtitle B of title VII). 
(E) Assurances that individuals have the 
freedom to choose practitioners and other 
health care providers for services covered under 
this Act. 
(F) A procedure for carrying out long-term 
regional management and planning functions
with respect to the delivery and distribution of 
health care services that—
(i) ensures participation of consumers 
of health services and providers of health 
services; and
(ii) gives priority to the most acute 
shortages and maldistributions of health 
personnel and facilities and the most seri-
ous deficiencies in the delivery of covered 
services and to the means for the speedy 
alleviation of these shortcomings. 
(G) The licensure and regulation of all 
health providers and facilities to ensure compli-
ance with Federal and State laws and to pro-
mote quality of care. 
(H) Establishment of a quality review sys-
tem in accordance with section 503. 
(I) Establishment of an independent om-
budsman for consumers to register complaints 
about the organization and administration of 
the State health security program and to help 
resolve complaints and disputes between con-
sumers and providers. 
(J) Publication of an annual report on the 
operation of the State health security program,
which report shall include information on cost, 
progress towards achieving full enrollment, pub-
lic access to health services, quality review, 
health outcomes, health professional training, 
and the needs of medically underserved popu-
lations. 
(K) Provision of a fraud and abuse preven-
tion and control unit that the Inspector General 
determines meets the requirements of section 
412(a). 
(L) Prohibit payment in cases of prohib-
ited physician referrals under section 304. 
(2) CONSEQUENCES OF FAILURE TO COMPLY.—
If the Board finds that a State plan submitted 
under paragraph (1) does not meet the requirements 
for approval under this section or that a State 
health security program or specific portion of such 
program, the plan for which was previously ap-
proved, no longer meets such requirements, the 
Board shall provide notice to the State of such fail-
ure and that unless corrective action is taken within 
a period specified by the Board, the Board shall 
place the State health security program (or specific 
portions of such program) in receivership under the 
jurisdiction of the Board.
(c) STATE HEALTH SECURITY ADVISORY COUN-
CILS.—
(1) IN GENERAL.—For each State, the Gov-
ernor shall provide for appointment of a State 
Health Security Advisory Council to advise and 
make recommendations to the Governor and State 
with respect to the implementation of the State 
health security program in the State. 
(2) MEMBERSHIP.—Each State Health Security 
Advisory Council shall be composed of at least 11 in-
dividuals. The appointed members shall include indi-
viduals who are representative of the State health 
security program, public health professionals, pro-
viders of health services, and of individuals (who 
shall constitute a majority) who are representative of 
consumers of such services, including a balanced 
representation of employers, unions and consumer 
organizations. To the greatest extent feasible, the 
membership of each State Health Security Advisory 
Council shall represent the various geographic re-
gions of the State and shall reflect the racial, ethnic, 
and gender composition of the population of the 
State. 
(3) DUTIES.—
(A) IN GENERAL.—Each State Health Se-
curity Advisory Council shall review, and sub-
mit comments to the Governor concerning the 
implementation of the State health security pro-
gram in the State. 
(B) ASSISTANCE.—Each State Health Se-
curity Advisory Council shall provide assistance 
and technical support to community organiza-
tions and public and private non-profit agencies 
submitting applications for funding under ap-
propriate State and Federal public health pro-
grams, with particular emphasis placed on as-
sisting those applicants with broad consumer 
representation. 
(d) STATE USE OF FISCAL AGENTS.—
(1) IN GENERAL.—Each State health security 
program, using competitive bidding procedures, may 
enter into such contracts with qualified entities, such 
as voluntary associations, as the State determines to 
be appropriate to process claims and to perform 
other related functions of fiscal agents under the 
State health security program. 
(2) RESTRICTION.—Except as the Board may 
provide for good cause shown, in no case may more
than 1 contract described in paragraph (1) be en-
tered into under a State health security program. 
SEC. 
405. 
COMPLEMENTARY 
CONDUCT 
OF 
RELATED 
HEALTH PROGRAMS. 
In performing functions with respect to health per-
sonnel education and training, health research, environ-
mental health, disability insurance, vocational rehabilita-
tion, the regulation of food and drugs, and all other mat-
ters pertaining to health, the Secretary of Health and 
Human Services shall direct all activities of the Depart-
ment of Health and Human Services toward contributions 
to the health of the people complementary to this Act. 
Subtitle B—Control Over Fraud 
and Abuse 
SEC. 411. APPLICATION OF FEDERAL SANCTIONS TO ALL 
FRAUD 
AND 
ABUSE 
UNDER 
AMERICAN 
HEALTH SECURITY PROGRAM. 
The following sections of the Social Security Act shall 
apply to State health security programs in the same man-
ner as they apply to State medical assistance plans under 
title XIX of such Act (except that in applying such provi-
sions any reference to the Secretary is deemed a reference 
to the Board): 
(1) Section 1128 (relating to exclusion of indi-
viduals and entities).
(2) Section 1128A (civil monetary penalties). 
(3) Section 1128B (criminal penalties). 
(4) Section 1124 (relating to disclosure of own-
ership and related information). 
(5) Section 1126 (relating to disclosure of cer-
tain owners). 
SEC. 412. REQUIREMENTS FOR OPERATION OF STATE 
HEALTH CARE FRAUD AND ABUSE CONTROL 
UNITS. 
(a) REQUIREMENT.—In order to meet the require-
ment of section 404(b)(1)(K), each State health security 
program must establish and maintain a health care fraud 
and abuse control unit (in this section referred to as a 
‘‘fraud unit’’) that meets requirements of this section and 
other requirements of the Board. Such a unit may be a 
State medicaid fraud control unit (described in section 
1903(q) of the Social Security Act). 
(b) STRUCTURE OF UNIT.—The fraud unit must—
(1) be a single identifiable entity of the State 
government; 
(2) be separate and distinct from the State 
agency with principal responsibility for the adminis-
tration of the State health security program; and 
(3) meet 1 of the following requirements:
(A) It must be a unit of the office of the 
State Attorney General or of another depart-
ment of State government which possesses 
statewide authority to prosecute individuals for 
criminal violations. 
(B) If it is in a State the constitution of 
which does not provide for the criminal prosecu-
tion of individuals by a statewide authority and 
has formal procedures, approved by the Board, 
that—
(i) assure its referral of suspected 
criminal violations relating to the State 
health insurance plan to the appropriate 
authority or authorities in the States for 
prosecution; and 
(ii) assure its assistance of, and co-
ordination with, such authority or authori-
ties in such prosecutions. 
(C) It must have a formal working rela-
tionship with the office of the State Attorney 
General and have formal procedures (including 
procedures for its referral of suspected criminal 
violations to such office) which are approved by 
the Board and which provide effective coordina-
tion of activities between the fraud unit and
such office with respect to the detection, inves-
tigation, and prosecution of suspected criminal 
violations relating to the State health insurance 
plan. 
(c) FUNCTIONS.—The fraud unit must—
(1) have the function of conducting a statewide 
program for the investigation and prosecution of vio-
lations of all applicable State laws regarding any 
and all aspects of fraud in connection with any as-
pect of the provision of health care services and ac-
tivities of providers of such services under the State 
health security program; 
(2) have procedures for reviewing complaints of 
the abuse and neglect of patients of providers and 
facilities that receive payments under the State 
health security program, and, where appropriate, for 
acting upon such complaints under the criminal laws 
of the State or for referring them to other State 
agencies for action; and 
(3) provide for the collection, or referral for col-
lection to a single State agency, of overpayments 
that are made under the State health security pro-
gram to providers and that are discovered by the 
fraud unit in carrying out its activities. 
(d) RESOURCES.—The fraud unit must—
(1) employ such auditors, attorneys, investiga-
tors, and other necessary personnel; 
(2) be organized in such a manner; and 
(3) provide sufficient resources (as specified by 
the Board), 
as is necessary to promote the effective and efficient con-
duct of the unit’s activities.
(e) COOPERATIVE AGREEMENTS.—The fraud unit 
must have cooperative agreements (as specified by the 
Board) with—
(1) similar fraud units in other States; 
(2) the Inspector General; and 
(3) the Attorney General of the United States. 
(f) REPORTS.—The fraud unit must submit to the 
Inspector General an application and annual reports con-
taining such information as the Inspector General deter-
mines to be necessary to determine whether the unit meets 
the previous requirements of this section. 
TITLE V—QUALITY ASSESSMENT 
SEC. 501. AMERICAN HEALTH SECURITY QUALITY COUNCIL. 
(a) ESTABLISHMENT.—There is hereby established 
an American Health Security Quality Council (in this title 
referred to as the ‘‘Council’’). 
(b) DUTIES OF THE COUNCIL.—The Council shall 
perform the following duties:
(1) PRACTICE GUIDELINES.—The Council shall 
review and evaluate each practice guideline devel-
oped under part B of title IX of the Public Health 
Service Act. The Council shall determine whether 
the guideline should be recognized as a national 
practice guideline to be used under section 204(d) 
for purposes of determining payments under a State 
health security program. 
(2) STANDARDS
OF
QUALITY, PERFORMANCE 
MEASURES, AND MEDICAL REVIEW CRITERIA.—The 
Council shall review and evaluate each standard of 
quality, performance measure, and medical review 
criterion developed under part B of title IX of the 
Public Health Service Act. The Council shall deter-
mine whether the standard, measure, or criterion is 
appropriate for use in assessing or reviewing the 
quality of services provided by State health security 
programs, health care institutions, or health care 
professionals. 
(3) CRITERIA
FOR
ENTITIES
CONDUCTING 
QUALITY REVIEWS.—The Council shall develop min-
imum criteria for competence for entities that can 
qualify to conduct ongoing and continuous external 
quality review for State quality review programs 
under section 503. Such criteria shall require such
an entity to be administratively independent of the 
individual or board that administers the State health 
security program and shall ensure that such entities 
do not provide financial incentives to reviewers to 
favor one pattern of practice over another. The 
Council shall ensure coordination and reporting by 
such entities to assure national consistency in qual-
ity standards. 
(4) REPORTING.—The Council shall report to 
the Board annually on the conduct of activities 
under such title and shall report to the Board annu-
ally specifically on findings from outcomes research 
and development of practice guidelines that may af-
fect the Board’s determination of coverage of serv-
ices under section 401(f)(1)(G). 
(5) OTHER
FUNCTIONS.—The Council shall 
perform the functions of the Council described in 
section 502. 
(c) APPOINTMENT AND TERMS OF MEMBERS.—
(1) IN GENERAL.—The Council shall be com-
posed of 10 members appointed by the President. 
The President shall first appoint individuals on a 
timely basis so as to provide for the operation of the 
Council by not later than January 1, 2004.
(2) SELECTION OF MEMBERS.—Each member 
of the Council shall be a member of a health profes-
sion. Five members of the Council shall be physi-
cians. Individuals shall be appointed to the Council 
on the basis of national reputations for clinical and 
academic excellence. To the greatest extent feasible, 
the membership of the Council shall represent the 
various geographic regions of the United States and 
shall reflect the racial, ethnic, and gender composi-
tion of the population of the United States. 
(3) TERMS
OF
MEMBERS.—Individuals ap-
pointed to the Council shall serve for a term of 5 
years, except that the terms of 4 of the individuals 
initially appointed shall be, as designated by the 
President at the time of their appointment, for 1, 2, 
3, and 4 years. 
(d) VACANCIES.—
(1) IN GENERAL.—The President shall fill any 
vacancy in the membership of the Council in the 
same manner as the original appointment. The va-
cancy shall not affect the power of the remaining 
members to execute the duties of the Council. 
(2) VACANCY
APPOINTMENTS.—Any member 
appointed to fill a vacancy shall serve for the re-
mainder of the term for which the predecessor of the 
member was appointed. 
(3) REAPPOINTMENT.—The President may re-
appoint a member of the Council for a second term 
in the same manner as the original appointment. A 
member who has served for 2 consecutive 5-year 
terms shall not be eligible for reappointment until 2 
years after the member has ceased to serve.
(e) CHAIR.—The President shall designate 1 of the 
members of the Council to serve at the will of the Presi-
dent as Chair of the Council. 
(f) COMPENSATION.—Members of the Council who 
are not employees of the Federal Government shall be en-
titled to compensation at a level equivalent to level II of 
the Executive Schedule, in accordance with section 5313 
of title 5, United States Code. 
SEC. 502. DEVELOPMENT OF CERTAIN METHODOLOGIES, 
GUIDELINES, AND STANDARDS. 
(a) PROFILING OF PATTERNS OF PRACTICE; IDENTI-
FICATION OF OUTLIERS.—The Council shall adopt meth-
odologies for profiling the patterns of practice of health 
care professionals and for identifying outliers (as defined 
in subsection (e)). 
(b) CENTERS OF EXCELLENCE.—The Council shall 
develop guidelines for certain medical procedures des-
ignated by the Board to be performed only at tertiary care 
centers which can meet standards for frequency of proce-
dure performance and intensity of support mechanisms 
that are consistent with the high probability of desired pa-
tient outcome. Reimbursement under this Act for such a 
designated procedure may only be provided if the proce-
dure was performed at a center that meets such stand-
ards. 
(c) REMEDIAL ACTIONS.—The Council shall develop 
standards for education and sanctions with respect to 
outliers so as to assure the quality of health care services 
provided under this Act. The Council shall develop criteria 
for referral of providers to the State licensing board if edu-
cation proves ineffective in correcting provider practice be-
havior. 
(d) DISSEMINATION.—The Council shall disseminate 
to the State—
(1) the methodologies adopted under subsection 
(a); 
(2) the guidelines developed under subsection 
(b); and 
(3) the standards developed under subsection 
(c); 
for use by the States under section 503.
(e) OUTLIER DEFINED.—In this title, the term 
‘‘outlier’’ means a health care provider whose pattern of 
practice, relative to applicable practice guidelines, suggests 
deficiencies in the quality of health care services being pro-
vided. 
SEC. 503. STATE QUALITY REVIEW PROGRAMS. 
(a) REQUIREMENT.—In order to meet the require-
ment of section 404(b)(1)(H), each State health security 
program shall establish 1 or more qualified entities to con-
duct quality reviews of persons providing covered services 
under the program, in accordance with standards estab-
lished under subsection (b)(1) (except as provided in sub-
section (b)(2)) and subsection (d). 
(b) FEDERAL STANDARDS.—
(1) IN GENERAL.—The Council shall establish 
standards with respect to—
(A) the adoption of practice guidelines 
(whether developed by the Federal Government 
or other entities); 
(B) the identification of outliers (con-
sistent with methodologies adopted under sec-
tion 502(a)); 
(C) the development of remedial programs 
and monitoring for outliers; and
(D) the application of sanctions (consistent 
with the standards developed under section 
502(c)). 
(2) STATE DISCRETION.—A State may apply 
under subsection (a) standards other than those es-
tablished under paragraph (1) so long as the State 
demonstrates to the satisfaction of the Council on an 
annual basis that the standards applied have been as 
efficacious in promoting and achieving improved 
quality of care as the application of the standards 
established under paragraph (1). Positive improve-
ments in quality shall be documented by reductions 
in the variations of clinical care process and im-
provement in patient outcomes. 
(c) QUALIFICATIONS.—An entity is not qualified to 
conduct quality reviews under subsection (a) unless the 
entity satisfies the criteria for competence for such entities 
developed by the Council under section 501(b)(3). 
(d) INTERNAL QUALITY REVIEW.—Nothing in this 
section shall preclude an institutional provider from estab-
lishing its own internal quality review and enhancement 
programs.
SEC. 504. ELIMINATION OF UTILIZATION REVIEW PRO-
GRAMS; TRANSITION. 
(a) INTENT.—It is the intention of this title to re-
place by January 1, 2007, random utilization controls with 
a systematic review of patterns of practice that com-
promise the quality of care. 
(b) SUPERSEDING CASE REVIEWS.—
(1) IN
GENERAL.—Subject to the succeeding 
provisions of this subsection, the program of quality 
review provided under the previous sections of this 
title supersede all existing Federal requirements for 
utilization review programs, including requirements 
for random case-by-case reviews and programs re-
quiring pre-certification of medical procedures on a 
case-by-case basis. 
(2) TRANSITION.—Before January 1, 2007, the 
Board and the States may employ existing utiliza-
tion review standards and mechanisms as may be 
necessary to effect the transition to pattern of prac-
tice-based reviews. 
(3) CONSTRUCTION.—Nothing in this sub-
section shall be construed—
(A) as precluding the case-by-case review 
of the provision of care—
(i) in individual incidents where the 
quality of care has significantly deviated 
from acceptable standards of practice; and 
(ii) with respect to a provider who has 
been determined to be an outlier; or 
(B) as precluding the case management of 
catastrophic, mental health, or substance abuse 
cases or long-term care where such manage-
ment is necessary to achieve appropriate, cost-
effective, and beneficial comprehensive medical 
care, as provided for in section 204. 
TITLE 
VI—HEALTH 
SECURITY 
BUDGET; 
PAYMENTS; 
COST 
CONTAINMENT MEASURES 
Subtitle A—Budgeting and 
Payments to States 
SEC. 601. NATIONAL HEALTH SECURITY BUDGET. 
(a) NATIONAL HEALTH SECURITY BUDGET.—
(1) IN GENERAL.—By not later than September 
1 before the beginning of each year (beginning with 
2004), the Board shall establish a national health 
security budget, which—
(A) specifies the total expenditures (includ-
ing expenditures for administrative costs) to be 
made by the Federal Government and the
States for covered health care services under 
this Act; and 
(B) allocates those expenditures among the 
States consistent with section 604. 
Pursuant to subsection (b), such budget for a year 
shall not exceed the budget for the preceding year 
increased by the percentage increase in gross domes-
tic product. 
(2) DIVISION OF BUDGET INTO COMPONENTS.—
The national health security budget shall consist of 
at least 4 components: 
(A) A component for quality assessment 
activities (described in title V). 
(B) A component for health professional 
education expenditures. 
(C) A component for administrative costs. 
(D) A component (in this title referred to 
as the ‘‘operating component’’) for operating 
and other expenditures not described in sub-
paragraphs (A) through (C), consisting of 
amounts not included in the other components. 
A State may provide for the allocation of this 
component between capital expenditures and 
other expenditures.
(3) ALLOCATION AMONG COMPONENTS.—Tak-
ing into account the State health security budgets 
established and submitted under section 603, the 
Board shall allocate the national health security 
budget among the components in a manner that—
(A) assures a fair allocation for quality as-
sessment activities (consistent with the national 
health security spending growth limit); and 
(B) assures that the health professional 
education expenditure component is sufficient 
to provide for the amount of health professional 
education expenditures sufficient to meet the 
need for covered health care services (consistent 
with the national health security spending 
growth limit under subsection (b)(2)). 
(b) BASIS FOR TOTAL EXPENDITURES.—
(1) IN GENERAL.—The total expenditures speci-
fied in such budget shall be the sum of the capita-
tion amounts computed under section 602(a) and 
the amount of Federal administrative expenditures 
needed to carry out this Act. 
(2) NATIONAL
HEALTH
SECURITY
SPENDING 
GROWTH LIMIT.—For purposes of this subtitle, the 
national health security spending growth limit de-
scribed in this paragraph for a year is (A) zero, or,
if greater, (B) the average annual percentage in-
crease in the gross domestic product (in current dol-
lars) during the 3-year period beginning with the 
first quarter of the fourth previous year to the first 
quarter of the previous year minus the percentage 
increase (if any) in the number of eligible individuals 
residing in any State the United States from the 
first quarter of the second previous year to the first 
quarter of the previous year. 
(c) DEFINITIONS.—In this title: 
(1) CAPITAL EXPENDITURES.—The term ‘‘cap-
ital expenditures’’ means expenses for the purchase,
lease, construction, or renovation of capital facilities 
and for equipment and includes return on equity 
capital. 
(2) HEALTH
PROFESSIONAL
EDUCATION
EX-
PENDITURES.—The term ‘‘health professional edu-
cation expenditures’’ means expenditures in hospitals 
and other health care facilities to cover costs associ-
ated with teaching and related research activities. 
SEC. 602. COMPUTATION OF INDIVIDUAL AND STATE CAPI-
TATION AMOUNTS. 
(a) CAPITATION AMOUNTS.—
(1) INDIVIDUAL CAPITATION AMOUNTS.—In es-
tablishing the national health security budget under
section 601(a) and in computing the national aver-
age per capita cost under subsection (b) for each 
year, the Board shall establish a method for com-
puting the capitation amount for each eligible indi-
vidual residing in each State. The capitation amount 
for an eligible individual in a State classified within 
a risk group (established under subsection (d)(2)) is 
the product of—
(A) a national average per capita cost for 
all covered health care services (computed 
under subsection (b)); 
(B) the State adjustment factor (estab-
lished under subsection (c)) for the State; and 
(C) the risk adjustment factor (established 
under subsection (d)) for the risk group. 
(2) STATE CAPITATION AMOUNT.—
(A) IN GENERAL.—For purposes of this 
title, the term ‘‘State capitation amount’’ 
means, for a State for a year, the sum of the 
capitation amounts computed under paragraph 
(1) for all the residents of the State in the year, 
as estimated by the Board before the beginning 
of the year involved. 
(B) USE
OF
STATISTICAL
MODEL.—The 
Board may provide for the computation of
State capitation amounts based on statistical 
models that fairly reflect the elements that com-
prise the State capitation amount described in 
subparagraph (A). 
(C) POPULATION INFORMATION.—The Bu-
reau of the Census shall assist the Board in de-
termining the number, place of residence, and 
risk group classification of eligible individuals. 
(b) COMPUTATION OF NATIONAL AVERAGE PER CAP-
ITA COST.—
(1) FOR 2004.—For 2004, the national average 
per capita cost under this paragraph is equal to—
(A) the average per capita health care ex-
penditures in the United States in 2002 (as es-
timated by the Board); 
(B) increased to 2003 by the Board’s esti-
mate of the actual amount of such per capita 
expenditures during 2003; and 
(C) updated to 2004 by the national health 
security spending growth limit specified in sec-
tion 601(b)(2) for 2004. 
(2) FOR SUCCEEDING YEARS.—For each suc-
ceeding year, the national average per capita cost 
under this subsection is equal to the national aver-
age per capita cost computed under this subsection
100
for the previous year increased by the national 
health security spending growth limit (specified in 
section 601(b)(2)) for the year involved. 
(c) STATE ADJUSTMENT FACTORS.—
(1) IN
GENERAL.—Subject to the succeeding 
paragraphs of this subsection, the Board shall de-
velop for each State a factor to adjust the national 
average per capita costs to reflect differences be-
tween the State and the United States in—
(A) average labor and nonlabor costs that 
are necessary to provide covered health services; 
(B) any social, environmental, or geo-
graphic condition affecting health status or the 
need for health care services, to the extent such 
a condition is not taken into account in the es-
tablishment of risk groups under subsection (d); 
(C) the geographic distribution of the 
State’s population, particularly the proportion 
of the population residing in medically under-
served areas, to the extent such a condition is 
not taken into account in the establishment of 
risk groups under subsection (d); and 
(D) any other factor relating to operating 
costs required to assure equitable distribution 
of funds among the States.
101
(2) MODIFICATION OF HEALTH PROFESSIONAL 
EDUCATION COMPONENT.—With respect to the por-
tion of the national health security budget allocated 
to expenditures for health professional education, the 
Board shall modify the State adjustment factors so 
as to take into account—
(A) differences among States in health 
professional education programs in operation as 
of the date of the enactment of this Act; and
(B) differences among States in their rel-
ative need for expenditures for health profes-
sional education, taking into account the health 
professional education expenditures proposed in 
State health security budgets under section 
603(a). 
(3) BUDGET NEUTRALITY.—The State adjust-
ment factors, as modified under paragraph (2), shall 
be applied under this subsection in a manner that 
results in neither an increase nor a decrease in the 
total amount of the Federal contributions to all 
State health security programs under subsection (b) 
as a result of the application of such factors. 
(4) PHASE-IN.—In applying State adjustment 
factors under this subsection during the 5-year pe-
riod beginning with 2004, the Board shall phase-in,
102
over such period, the use of factors described in 
paragraph (1) in a manner so that the adjustment 
factor for a State is based on a blend of such factors 
and a factor that reflects the relative actual average 
per capita costs of health services of the different 
States as of the time of enactment of this Act. 
(5) PERIODIC
ADJUSTMENT.—In establishing 
the national health security budget before the begin-
ning of each year, the Board shall provide for appro-
priate adjustments in the State adjustment factors 
under this subsection. 
(d) ADJUSTMENTS FOR RISK GROUP CLASSIFICA-
TION.—
(1) IN GENERAL.—The Board shall develop an 
adjustment factor to the national average per capita 
costs computed under subsection (b) for individuals 
classified in each risk group (as designated under 
paragraph (2)) to reflect the difference between the 
average national average per capita costs and the 
national average per capita cost for individuals clas-
sified in the risk group. 
(2) RISK GROUPS.—The Board shall designate 
a series of risk groups, determined by age, health in-
dicators, and other factors that represent distinct 
patterns of health care services utilization and costs.
103
(3) PERIODIC
ADJUSTMENT.—In establishing 
the national health security budget before the begin-
ning of each year, the Board shall provide for appro-
priate adjustments in the risk adjustment factors 
under this subsection. 
SEC. 603. STATE HEALTH SECURITY BUDGETS. 
(a) ESTABLISHMENT AND SUBMISSION OF BUDG-
ETS.—
(1) IN GENERAL.—Each State health security 
program shall establish and submit to the Board for 
each year a proposed and a final State health secu-
rity budget, which specifies the following: 
(A) The total expenditures (including ex-
penditures for administrative costs) to be made 
under the program in the State for covered 
health care services under this Act, consistent 
with subsection (b), broken down as follows: 
(i) By the 4 components (described in 
section 601(a)(2)), consistent with sub-
section (b). 
(ii) Within the operating component—
(I) expenditures for operating 
costs of hospitals and other facility-
based services in the State;
104
(II) expenditures for payment to 
comprehensive health service organiza-
tions; 
(III) expenditures for payment of 
services provided by health care prac-
titioners; and 
(IV) expenditures for other cov-
ered items and services. 
Amounts included in the operating compo-
nent include amounts that may be used by 
providers for capital expenditures. 
(B) The total revenues required to meet 
the State health security expenditures. 
(2) PROPOSED BUDGET DEADLINE.—The pro-
posed budget for a year shall be submitted under 
paragraph (1) not later than June 1 before the year. 
(3) FINAL BUDGET.—The final budget for a 
year shall—
(A) be established and submitted under 
paragraph (1) not later than October 1 before 
the year, and 
(B) take into account the amounts estab-
lished under the national health security budget 
under section 601 for the year.
105
(4) 
ADJUSTMENT
IN
ALLOCATIONS
PER-
MITTED.—
(A) IN
GENERAL.—Subject to subpara-
graphs (B) and (C), in the case of a final budg-
et, a State may change the allocation of 
amounts among components. 
(B) NOTICE.—No such change may be 
made unless the State has provided prior notice 
of the change to the Board.
(C) DENIAL.—Such a change may not be 
made if the Board, within such time period as 
the Board specifies, disapproves such change. 
(b) EXPENDITURE LIMITS.—
(1) IN GENERAL.—The total expenditures speci-
fied in each State health security budget under sub-
section (a)(1) shall take into account Federal con-
tributions made under section 604. 
(2) LIMIT ON CLAIMS PROCESSING AND BILL-
ING
EXPENDITURES.—Each State health security 
budget shall provide that State administrative ex-
penditures, including expenditures for claims proc-
essing and billing, shall not exceed 3 percent of the 
total expenditures under the State health security 
program, unless the Board determines, on a case-by-
case basis, that additional administrative expendi-
106
tures would improve health care quality and cost ef-
fectiveness. 
(3) WORKER ASSISTANCE.—A State health se-
curity program may provide that, for budgets for 
years before 2007, up to 1 percent of the budget 
may be used for purposes of programs providing as-
sistance to workers who are currently performing 
functions in the administration of the health insur-
ance system and who may experience economic dis-
location as a result of the implementation of the pro-
gram. 
(c) APPROVAL PROCESS
FOR CAPITAL EXPENDI-
TURES PERMITTED.—Nothing in this title shall be con-
strued as preventing a State health security program from 
providing for a process for the approval of capital expendi-
tures based on information derived from regional planning 
agencies. 
SEC. 604. FEDERAL PAYMENTS TO STATES. 
(a) IN GENERAL.—Each State with an approved 
State health security program is entitled to receive, from 
amounts in the American Health Security Trust Fund, on 
a monthly basis each year, of an amount equal to one-
twelfth of the product of—
107
(1) the State capitation amount (computed 
under section 602(a)(2)) for the State for the year; 
and 
(2) the Federal contribution percentage (estab-
lished under subsection (b)). 
(b) FEDERAL CONTRIBUTION PERCENTAGE.—The 
Board shall establish a formula for the establishment of 
a Federal contribution percentage for each State. Such 
formula shall take into consideration a State’s per capita 
income and revenue capacity and such other relevant eco-
nomic indicators as the Board determines to be appro-
priate. In addition, during the 5-year period beginning 
with 2004, the Board may provide for a transition adjust-
ment to the formula in order to take into account current 
expenditures by the State (and local governments thereof) 
for health services covered under the State health security 
program. The weighted-average Federal contribution per-
centage for all States shall equal 86 percent and in no 
event shall such percentage be less than 81 percent nor 
more than 91 percent. 
(c) USE OF PAYMENTS.—All payments made under 
this section may only be used to carry out the State health 
security program. 
(d) EFFECT OF SPENDING EXCESS OR SURPLUS.—
108
(1) SPENDING EXCESS.—If a State exceeds it’s 
budget in a given year, the State shall continue to 
fund covered health services from its own revenues. 
(2) SURPLUS.—If a State provides all covered 
health services for less than the budgeted amount 
for a year, it may retain its Federal payment for 
that year for uses consistent with this Act. 
SEC. 605. ACCOUNT FOR HEALTH PROFESSIONAL EDU-
CATION EXPENDITURES. 
(a) SEPARATE ACCOUNT.—Each State health secu-
rity program shall—
(1) include a separate account for health pro-
fessional education expenditures; and 
(2) specify the general manner, consistent with 
subsection (b), in which such expenditures are to be 
distributed among different types of institutions and 
the different areas of the State. 
(b) DISTRIBUTION
RULES.—The distribution of 
funds to hospitals and other health care facilities from the 
account must conform to the following principles: 
(1) The disbursement of funds must be con-
sistent with achievement of the national and pro-
gram goals (specified in section 701(b)) within the 
State health security program and the distribution 
of funds from the account must be conditioned upon
109
the receipt of such reports as the Board may require 
in order to monitor compliance with such goals. 
(2) The distribution of funds from the account 
must take into account the potentially higher costs 
of placing health professional students in clinical 
education programs in health professional shortage 
areas.
Subtitle B—Payments by States to 
Providers 
SEC. 611. PAYMENTS TO HOSPITALS AND OTHER FACILITY-
BASED SERVICES FOR OPERATING EXPENSES 
ON THE BASIS OF APPROVED GLOBAL BUDG-
ETS. 
(a) DIRECT PAYMENT UNDER GLOBAL BUDGET.—
Payment for operating expenses for institutional and facil-
ity-based care, including hospital services and nursing fa-
cility services, under State health security programs shall 
be made directly to each institution or facility by each 
State health security program under an annual prospec-
tive global budget approved under the program. Such a 
budget shall include payment for outpatient care and non-
facility-based care that is furnished by or through the fa-
cility. In the case of a hospital that is wholly owned (or 
controlled) by a comprehensive health service organization 
that is paid under section 614 on the basis of a global
110
budget, the global budget of the organization shall include 
the budget for the hospital. 
(b) ANNUAL NEGOTIATIONS; BUDGET APPROVAL—
(1) IN GENERAL.—The prospective global budg-
et for an institution or facility shall—
(A) be developed through annual negotia-
tions between—
(i) a panel of individuals who are ap-
pointed by the Governor of the State and 
who represent consumers, labor, business, 
and the State government; and 
(ii) the institution or facility; and 
(B) be based on a nationally uniform sys-
tem of cost accounting established under stand-
ards of the Board. 
(2) CONSIDERATIONS.—In developing a budget 
through negotiations, there shall be taken into ac-
count at least the following: 
(A) With respect to inpatient hospital serv-
ices, the number, and classification by diag-
nosis-related group, of discharges. 
(B) An institution’s or facility’s past ex-
penditures.
111
(C) The extent to which debt service for 
capital expenditures has been included in the 
proposed operating budget. 
(D) The extent to which capital expendi-
tures are financed directly or indirectly through 
reductions in direct care to patients, including 
(but not limited to) reductions in registered 
nursing staffing patterns or changes in emer-
gency room or primary care services or avail-
ability. 
(E) Change in the consumer price index 
and other price indices. 
(F) The cost of reasonable compensation 
to health care practitioners. 
(G) The compensation level of the institu-
tion’s or facility’s work force. 
(H) The extent to which the institution or 
facility is providing health care services to meet 
the needs of residents in the area served by the 
institution or facility, including the institution’s 
or facility’s occupancy level. 
(I) The institution’s or facility’s previous 
financial and clinical performance, based on uti-
lization and outcomes data provided under this 
Act.
112
(J) The type of institution or facility, in-
cluding whether the institution or facility is 
part of a clinical education program or serves 
a health professional education, research or 
other training purpose. 
(K) Technological advances or changes. 
(L) Costs of the institution or facility asso-
ciated with meeting Federal and State regula-
tions. 
(M) The costs associated with necessary 
public outreach activities. 
(N) In the case of a for-profit facility, a 
reasonable rate of return on equity capital, 
independent of those operating expenses nec-
essary to fulfill the objectives of this Act. 
(O) Incentives to facilities that maintain 
costs below previous reasonable budgeted levels 
without reducing the care provided. 
(P) With respect to facilities that provide 
mental health services and substance abuse 
treatment services, any additional costs involved 
in the treatment of dually diagnosed individ-
uals. 
The portion of such a budget that relates to expendi-
tures for health professional education shall be con-
113
sistent with the State health security budget for 
such expenditures. 
(3) PROVISION OF REQUIRED INFORMATION; DI-
AGNOSIS-RELATED GROUP.—No budget for an insti-
tution or facility for a year may be approved unless 
the institution or facility has submitted on a timely
basis to the State health security program such in-
formation as the program or the Board shall specify, 
including in the case of hospitals information on dis-
charges classified by diagnosis-related group. 
(c) ADJUSTMENTS IN APPROVED BUDGETS.—
(1) ADJUSTMENTS TO GLOBAL BUDGETS THAT 
CONTRACT WITH COMPREHENSIVE HEALTH SERVICE 
ORGANIZATIONS.—Each State health security pro-
gram shall develop an administrative mechanism for 
reducing operating funds to institutions or facilities 
in proportion to payments made to such institutions 
or facilities for services contracted for by a com-
prehensive health service organization. 
(2) AMENDMENTS.—In accordance with stand-
ards established by the Board, an operating and 
capital budget approved under this section for a year 
may be amended before, during, or after the year if 
there is a substantial change in any of the factors 
relevant to budget approval.
114
(d) DONATIONS PERMISSIBLE.—The States health 
security programs may permit institutions and facilities 
to raise funds from private sources to pay for newly con-
structed facilities, major renovations, and equipment. The 
expenditure of such funds, whether for operating or cap-
ital expenditures, does not obligate the State health secu-
rity program to provide for continued support for such ex-
penditures unless included in an approved global budget. 
SEC. 612. PAYMENTS TO HEALTH CARE PRACTITIONERS 
BASED ON PROSPECTIVE FEE SCHEDULE. 
(a) FEE FOR SERVICE.—
(1) IN
GENERAL.—Every independent health 
care practitioner is entitled to be paid, for the provi-
sion of covered health services under the State 
health security program, a fee for each billable cov-
ered service. 
(2) GLOBAL FEE PAYMENT METHODOLOGIES.—
The Board shall establish models and encourage 
State health security programs to implement alter-
native payment methodologies that incorporate glob-
al fees for related services (such as all outpatient 
procedures for treatment of a condition) or for a 
basic group of services (such as primary care serv-
ices) furnished to an individual over a period of 
time, in order to encourage continuity and efficiency
115
in the provision of services. Such methodologies shall 
be designed to ensure a high quality of care. 
(3) BILLING
DEADLINES; ELECTRONIC
BILL-
ING.—A State health security program may deny 
payment for any service of an independent health 
care practitioner for which it did not receive a bill 
and appropriate supporting documentation (which 
had been previously specified) within 30 days after 
the date the service was provided. Such a program 
may require that bills for services for which payment 
may be made under this section, or for any class of 
such services, be submitted electronically. 
(b) PAYMENT RATES BASED ON NEGOTIATED PRO-
SPECTIVE FEE SCHEDULES.—With respect to any pay-
ment method for a class of services of practitioners, the 
State health security program shall establish, on a pro-
spective basis, a payment schedule. The State health secu-
rity program may establish such a schedule after negotia-
tions with organizations representing the practitioners in-
volved. Such fee schedules shall be designed to provide in-
centives for practitioners to choose primary care medicine, 
including general internal medicine and pediatrics, over 
medical specialization. Nothing in this section shall be con-
strued as preventing a State from adjusting the payment 
schedule amounts on a quarterly or other periodic basis
116
depending on whether expenditures under the schedule will 
exceed the budgeted amount with respect to such expendi-
tures. 
(c) BILLABLE COVERED SERVICE DEFINED.—In this 
section, the term ‘‘billable covered service’’ means a service 
covered under section 201 for which a practitioner is enti-
tled to compensation by payment of a fee determined 
under this section. 
SEC. 613. PAYMENTS TO COMPREHENSIVE HEALTH SERV-
ICE ORGANIZATIONS. 
(a) IN GENERAL.—Payment under a State health se-
curity program to a comprehensive health service organi-
zation to its enrollees shall be determined by the State—
(1) based on a global budget described in sec-
tion 611; or 
(2) based on the basic capitation amount de-
scribed in subsection (b) for each of its enrollees. 
(b) BASIC CAPITATION AMOUNT.—
(1) IN GENERAL.—The basic capitation amount 
described in this subsection for an enrollee shall be 
determined by the State health security program on 
the basis of the average amount of expenditures that 
is estimated would be made under the State health 
security program for covered health care services for
117
an enrollee, based on actuarial characteristics (as de-
fined by the State health security program). 
(2) 
ADJUSTMENT
FOR
SPECIAL
HEALTH 
NEEDS.—The State health security program shall 
adjust such average amounts to take into account 
the special health needs, including a disproportionate
number of medically underserved individuals, of pop-
ulations served by the organization. 
(3) ADJUSTMENT
FOR
SERVICES
NOT
PRO-
VIDED.—The State health security program shall ad-
just such average amounts to take into account the 
cost of covered health care services that are not pro-
vided by the comprehensive health service organiza-
tion under section 303(a). 
SEC. 614. PAYMENTS FOR COMMUNITY-BASED PRIMARY 
HEALTH SERVICES. 
(a) IN GENERAL.—In the case of community-based 
primary health services, subject to subsection (b), pay-
ments under a State health security program shall—
(1) be based on a global budget described in 
section 611; 
(2) be based on the basic primary care capita-
tion amount described in subsection (c) for each in-
dividual enrolled with the provider of such services; 
or
118
(3) be made on a fee-for-service basis under 
section 612. 
(b) PAYMENT ADJUSTMENT.—Payments under sub-
section (a) may include, consistent with the budgets devel-
oped under this title—
(1) an additional amount, as set by the State 
health security program, to cover the costs incurred 
by a provider which serves persons not covered by 
this Act whose health care is essential to overall 
community health and the control of communicable 
disease, and for whom the cost of such care is other-
wise uncompensated; 
(2) an additional amount, as set by the State 
health security program, to cover the reasonable 
costs incurred by a provider that furnishes case 
management 
services 
(as 
defined 
in 
section 
1915(g)(2) of the Social Security Act), transpor-
tation services, and translation services; and 
(3) an additional amount, as set by the State 
health security program, to cover the costs incurred 
by a provider in conducting health professional edu-
cation programs in connection with the provision of 
such services. 
(c) BASIC PRIMARY CARE CAPITATION AMOUNT.—
119
(1) IN GENERAL.—The basic primary care capi-
tation amount described in this subsection for an en-
rollee with a provider of community-based primary 
health services shall be determined by the State 
health security program on the basis of the average 
amount of expenditures that is estimated would be 
made under the State health security program for 
such an enrollee, based on actuarial characteristics 
(as defined by the State health security program). 
(2) 
ADJUSTMENT
FOR
SPECIAL
HEALTH 
NEEDS.—The State health security program shall 
adjust such average amounts to take into account 
the special health needs, including a disproportionate 
number of medically underserved individuals, of pop-
ulations served by the provider. 
(3) ADJUSTMENT
FOR
SERVICES
NOT
PRO-
VIDED.—The State health security program shall ad-
just such average amounts to take into account the 
cost of community-based primary health services 
that are not provided by the provider. 
(d) COMMUNITY-BASED PRIMARY HEALTH SERVICES 
DEFINED.—In this section, the term ‘‘community-based 
primary health services’’ has the meaning given such term 
in section 202(a).
120
SEC. 615. PAYMENTS FOR PRESCRIPTION DRUGS. 
(a) ESTABLISHMENT OF LIST.—
(1) IN GENERAL.—The Board shall establish a 
list of approved prescription drugs and biologicals 
that the Board determines are necessary for the 
maintenance or restoration of health or of employ-
ability or self-management and eligible for coverage 
under this Act. 
(2) EXCLUSIONS.—The Board may exclude re-
imbursement under this Act for ineffective, unsafe, 
or over-priced products where better alternatives are 
determined to be available. 
(b) PRICES.—For each such listed prescription drug 
or biological covered under this Act, for insulin, and for 
medical foods, the Board shall from time to time deter-
mine a product price or prices which shall constitute the 
maximum to be recognized under this Act as the cost of 
a drug to a provider thereof. The Board may conduct ne-
gotiations, on behalf of State health security programs, 
with product manufacturers and distributors in deter-
mining the applicable product price or prices. 
(c) CHARGES
BY INDEPENDENT PHARMACIES.—
Each State health security program shall provide for pay-
ment for a prescription drug or biological or insulin fur-
nished by an independent pharmacy based on the drug’s 
cost to the pharmacy (not in excess of the applicable prod-
121
uct price established under subsection (b)) plus a dis-
pensing fee. In accordance with standards established by 
the Board, each State health security program, after con-
sultation with representatives of the pharmaceutical pro-
fession, shall establish schedules of dispensing fees, de-
signed to afford reasonable compensation to independent 
pharmacies after taking into account variations in their 
cost of operation resulting from regional differences, dif-
ferences in the volume of prescription drugs dispensed, dif-
ferences in services provided, the need to maintain expend-
itures within the budgets established under this title, and 
other relevant factors. 
SEC. 616. PAYMENTS FOR APPROVED DEVICES AND EQUIP-
MENT. 
(a) ESTABLISHMENT OF LIST.—The Board shall es-
tablish a list of approved durable medical equipment and 
therapeutic devices and equipment (including eyeglasses, 
hearing aids, and prosthetic appliances), that the Board 
determines are necessary for the maintenance or restora-
tion of health or of employability or self-management and 
eligible for coverage under this Act. 
(b) CONSIDERATIONS AND CONDITIONS.—In estab-
lishing the list under subsection (a), the Board shall take 
into consideration the efficacy, safety, and cost of each 
item contained on such list, and shall attach to any item
122
such conditions as the Board determines appropriate with 
respect to the circumstances under which, or the frequency 
with which, the item may be prescribed. 
(c) PRICES.—For each such listed item covered under 
this Act, the Board shall from time to time determine a 
product price or prices which shall constitute the max-
imum to be recognized under this Act as the cost of the 
item to a provider thereof. The Board may conduct nego-
tiations, on behalf of State health security programs, with 
equipment and device manufacturers and distributors in 
determining the applicable product price or prices. 
(d) EXCLUSIONS.—The Board may exclude from cov-
erage under this Act ineffective, unsafe, or overpriced 
products where better alternatives are determined to be 
available. 
SEC. 617. PAYMENTS FOR OTHER ITEMS AND SERVICES. 
In the case of payment for other covered health serv-
ices, the amount of payment under a State health security 
program shall be established by the program—
(1) in accordance with payment methodologies 
which are specified by the Board, after consultation 
with the American Health Security Advisory Coun-
cil, or methodologies established by the State under 
section 620; and
123
(2) consistent with the State health security 
budget. 
SEC. 618. PAYMENT INCENTIVES FOR MEDICALLY UNDER-
SERVED AREAS. 
(a) MODEL PAYMENT METHODOLOGIES.—In addi-
tion to the payment amounts otherwise provided in this 
title, the Board shall establish model payment methodolo-
gies and other incentives that promote the provision of 
covered health care services in medically underserved 
areas, particularly in rural and inner-city underserved 
areas. 
(b) CONSTRUCTION.—Nothing in this title shall be 
construed as limiting the authority of State health security 
programs to increase payment amounts or otherwise pro-
vide additional incentives, consistent with the State health 
security budget, to encourage the provision of medically 
necessary and appropriate services in underserved areas. 
SEC. 619. AUTHORITY FOR ALTERNATIVE PAYMENT METH-
ODOLOGIES. 
A State health security program, as part of its plan 
under section 404(a), may use a payment methodology 
other than a methodology required under this subtitle so 
long as—
(1) such payment methodology does not affect 
the entitlement of individuals to coverage, the
124
weighting of fee schedules to encourage an increase 
in the number of primary care providers, the ability 
of individuals to choose among qualified providers, 
the benefits covered under the program, or the com-
pliance of the program with the State health security 
budget under subtitle A; and 
(2) the program submits periodic reports to the 
Board showing the operation and effectiveness of the 
alternative methodology, in order for the Board to 
evaluate the appropriateness of applying the alter-
native methodology to other States. 
Subtitle C—Mandatory Assignment 
and Administrative Provisions 
SEC. 631. MANDATORY ASSIGNMENT. 
(a) NO BALANCE BILLING.—Payments for benefits 
under this Act shall constitute payment in full for such 
benefits and the entity furnishing an item or service for 
which payment is made under this Act shall accept such 
payment as payment in full for the item or service and 
may not accept any payment or impose any charge for 
any such item or service other than accepting payment 
from the State health security program in accordance with 
this Act. 
(b) ENFORCEMENT.—If an entity knowingly and will-
fully bills for an item or service or accepts payment in
125
violation of subsection (a), the Board may apply sanctions 
against the entity in the same manner as sanctions could 
have been imposed under section 1842(j)(2) of the Social 
Security Act for a violation of section 1842(j)(1) of such 
Act. Such sanctions are in addition to any sanctions that
a State may impose under its State health security pro-
gram. 
SEC. 632. PROCEDURES FOR REIMBURSEMENT; APPEALS. 
(a) PROCEDURES FOR REIMBURSEMENT.—In accord-
ance with standards issued by the Board, a State health 
security program shall establish a timely and administra-
tively simple procedure to assure payment within 60 days 
of the date of submission of clean claims by providers 
under this Act. 
(b) APPEALS PROCESS.—Each State health security 
program shall establish an appeals process to handle all 
grievances pertaining to payment to providers under this 
title.
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TITLE VII—PROMOTION OF PRI-
MARY HEALTH CARE; DEVEL-
OPMENT OF HEALTH SERV-
ICE CAPACITY; PROGRAMS TO 
ASSIST THE MEDICALLY UN-
DERSERVED 
Subtitle A—Promotion and Expan-
sion of Primary Care Profes-
sional Training 
SEC. 701. ROLE OF BOARD; ESTABLISHMENT OF PRIMARY 
CARE PROFESSIONAL OUTPUT GOALS. 
(a) IN GENERAL.—The Board is responsible for—
(1) coordinating health professional education 
policies and goals, in consultation with the Secretary 
of Health and Human Services (in this title referred 
to as the ‘‘Secretary’’), to achieve the national goals 
specified in subsection (b); 
(2) overseeing the health professional education 
expenditures of the State health security programs 
from the account established under section 602(c); 
(3) developing and maintaining, in cooperation 
with the Secretary, a system to monitor the number 
and specialties of individuals through their health 
professional education, any postgraduate training, 
and professional practice; and
127
(4) developing, coordinating, and promoting 
other policies that expand the number of primary 
care practitioners. 
(b) NATIONAL GOALS.—The national goals specified 
in this subsection are as follows: 
(1) GRADUATE MEDICAL EDUCATION.—By not 
later than 5 years after the date of the enactment 
of this Act, at least 50 percent of the residents in 
medical residency education programs (as defined in 
subsection (e)(1)) are primary care residents (as de-
fined in subsection (e)(3)). 
(2) 
MIDLEVEL
PRIMARY
CARE
PRACTI-
TIONERS.—To assure an adequate supply of primary 
care practitioners, there shall be a number, specified 
by the Board, of midlevel primary care practitioners 
(as defined in subsection (e)(2)) employed in the 
health care system as of January 1, 2007. 
(c) METHOD FOR ATTAINMENT OF NATIONAL GOAL 
FOR
GRADUATE
MEDICAL
EDUCATION; 
PROGRAM 
GOALS.—
(1) IN GENERAL.—The Board shall establish a 
method of applying the national goal in subsection 
(b)(1) to program goals for each medical residency 
education program or to medical residency education 
consortia.
128
(2) 
CONSIDERATION.—The 
program 
goals 
under paragraph (1) shall be based on the distribu-
tion of medical schools and other teaching facilities 
within each State health security program, and the 
number of positions for graduate medical education. 
(3) MEDICAL RESIDENCY EDUCATION CONSOR-
TIUM.—In this subsection, the term ‘‘medical resi-
dency education consortium’’ means a consortium of 
medical residency education programs in a contig-
uous geographic area (which may be an interstate 
area) if the consortium—
(A) includes at least 1 medical school with 
a teaching hospital and related teaching set-
tings; and 
(B) has an affiliation with qualified com-
munity-based primary health service providers 
described in section 202(a) and with at least 1 
comprehensive health service organization es-
tablished under section 303. 
(4) ENFORCEMENT THROUGH STATE HEALTH 
SECURITY
BUDGETS.—The Board shall develop a 
formula for reducing payments to State health secu-
rity programs (that provide for payments to a med-
ical residency education program) that failed to meet
129
the goal for the program established under this sub-
section. 
(d) METHOD FOR ATTAINMENT OF NATIONAL GOAL 
FOR MIDLEVEL PRIMARY CARE PRACTITIONERS.—To as-
sist in attaining the national goal identified in subsection 
(b)(2), the Board shall—
(1) advise the Public Health Service on alloca-
tions of funding under titles VII and VIII of the 
Public Health Service Act, the National Health 
Service Corps, and other programs in order to in-
crease the supply of midlevel primary care practi-
tioners; and
(2) commission a study of the potential benefits 
and disadvantages of expanding the scope of practice 
authorized under State laws for any class of midlevel 
primary care practitioners. 
(e) DEFINITIONS.—In this title: 
(1) MEDICAL
RESIDENCY
EDUCATION
PRO-
GRAM.—The term ‘‘medical residency education pro-
gram’’ means a program that provides education 
and training to graduates of medical schools in order 
to meet requirements for licensing and certification 
as a physician, and includes the medical school su-
pervising the program and includes the hospital or 
other facility in which the program is operated.
130
(2) 
MIDLEVEL
PRIMARY
CARE
PRACTI-
TIONER.—The term ‘‘midlevel primary care practi-
tioner’’ means a clinical nurse practitioner, certified 
nurse midwife, physician assistance, or other non-
physician practitioner, specified by the Board, as au-
thorized to practice under State law. 
(3) PRIMARY CARE RESIDENT.—The term ‘‘pri-
mary care resident’’ means (in accordance with cri-
teria established by the Board) a resident being 
trained in a distinct program of family practice med-
icine, general practice, general internal medicine, or 
general pediatrics. 
SEC. 702. ESTABLISHMENT OF ADVISORY COMMITTEE ON 
HEALTH PROFESSIONAL EDUCATION. 
(a) IN GENERAL.—The Board shall provide for an 
Advisory Committee on Health Professional Education (in 
this section referred to as the ‘‘Committee’’) to advise the 
Board on its activities under section 701. 
(b) MEMBERSHIP.—The Committee shall be com-
posed of—
(1) the Chair of the Board, who shall serve as 
Chair of the Committee; and 
(2) 12 members, not otherwise in the employ of 
the United States, appointed by the Board without 
regard to the provisions of title 5, United States
131
Code, governing appointments in the competitive 
service. 
The appointed members shall provide a balanced point of 
view with respect to health professional education, primary 
care disciplines, and health care policy and shall include 
individuals who are representative of medical schools, 
other health professional schools, residency programs, pri-
mary care practitioners, teaching hospitals, professional 
associations, public health organizations, State health se-
curity programs, and consumers. 
(c) TERMS OF MEMBERS.—Each appointed member 
shall hold office for a term of 5 years, except that—
(1) any member appointed to fill a vacancy oc-
curring during the term for which the member’s 
predecessor was appointed shall be appointed for the 
remainder of that term; and 
(2) the terms of the members first taking office 
shall expire, as designated by the Board at the time 
of appointment, 2 at the end of the second year, 2 
at the end of the third year, 2 at the end of the 
fourth year, and 3 at the end of the fifth year after 
the date of enactment of this Act. 
(d) VACANCIES.—
(1) IN GENERAL.—The Board shall fill any va-
cancy in the membership of the Committee in the
132
same manner as the original appointment. The va-
cancy shall not affect the power of the remaining 
members to execute the duties of the Committee. 
(2) VACANCY
APPOINTMENTS.—Any member 
appointed to fill a vacancy shall serve for the re-
mainder of the term for which the predecessor of the 
member was appointed. 
(3) REAPPOINTMENT.—The Board may re-
appoint an appointed member of the Committee for 
a second term in the same manner as the original 
appointment. 
(e) DUTIES.—It shall be the duty of the Committee 
to advise the Board concerning graduate medical edu-
cation policies under this title. 
(f) STAFF.—The Committee, its members, and any 
committees of the Committee shall be provided with such 
secretarial, clerical, or other assistance as may be author-
ized by the Board for carrying out their respective func-
tions. 
(g) MEETINGS.—The Committee shall meet as fre-
quently as the Board deems necessary, but not less than 
4 times each year. Upon request by 4 or more members 
it shall be the duty of the Chair to call a meeting of the 
Committee.